SOURCE: Majesco Entertainment

Majesco Entertainment

January 29, 2015 16:30 ET

Majesco Entertainment Company Reports Fourth Quarter and Full Year Fiscal 2014 Financial Results

EDISON, NJ--(Marketwired - Jan 29, 2015) - Majesco Entertainment Company (NASDAQ: COOL), an innovative provider of video games for the mass market, today reported financial results for the fourth quarter and full year fiscal 2014 ended October 31, 2014.

Fourth Quarter Results

For the fourth quarter ended October 31, 2014, Majesco's net revenues were $6.3 million compared to $10.1 million in the same period a year ago. During the fourth quarter of fiscal 2014, the Company reported an operating loss of $3.5 million, compared to an operating loss of $4.5 million in the fourth quarter of fiscal 2013. Net loss for the fourth quarter was $5.4 million compared to net loss of $4.6 million in the fourth quarter of fiscal 2013. Included in the net loss for the fourth quarter of fiscal 2014 is $1.9 million of impairment and operating losses related to the Company's investment in GMS Entertainment. The Company's net loss per share for the quarter ended October 31, 2014 was $(0.83), compared to net loss per share of $(0.72) in the same period last year.

On a non-GAAP basis, the net loss for the fourth quarter ended October 31, 2014 was $5.0 million compared to non-GAAP net loss of $4.2 million in the fourth quarter of last year. The non-GAAP net loss per share for the quarter ended October 31, 2014 was $(0.77) compared to net loss per share of $(0.66) in the same period last year. Please refer to the Reconciliation of GAAP to non-GAAP Financial Measures table included later in this release for additional information and details on non-GAAP items.

As noted in the Company's Report on Form 10-K filed with the Securities and Exchange Commission on January 29, 2015, the Company's financial statements for the fiscal year ended October 31, 2014 contain a going concern modification in the report of its independent accountings, EisnerAmper LLP. Further information regarding the going concern modification can be found in such filing.

Twelve Month Fiscal 2014 Results

For the twelve months ended October 31, 2014, the Company's net revenues were $34.4 million compared to $47.3 million in the prior twelve month period. The Company reported an operating loss of $13.3 million compared to operating loss of $12.2 million in the same period of 2013. For the twelve months ended October 31, 2014, net loss was $16.2 million compared to net loss of $12.6 million for the twelve months ended October 31, 2013. Included in the net loss for the twelve months ended October 31, 2014 is $3.8 million of impairment and operating losses related to the Company's investment in GMS Entertainment and a $1.3 million gain on the extinguishment of liabilities. The Company's net loss per share for the twelve months ended October 31, 2014 was $(2.52), compared to net loss per share of $(2.13) for the twelve months ended October 31, 2013.

Non-GAAP operating loss for the twelve month period ended October 31, 2014 was $11.9 million compared to non-GAAP operating loss of $10.0 million for the comparable period ended October 31, 2013. For the same period, non-GAAP net loss was $16.0 million in 2014 compared to non-GAAP net loss of $10.5 million in 2013. The Company's non-GAAP net loss per share for the twelve months ended October 31, 2014 was $(2.50) compared to net loss per share of $(1.76) in the corresponding period of 2013. Please refer to the Reconciliation of GAAP to non-GAAP Financial Measures table included later in this release for additional information and details on non-GAAP items.

Non-GAAP Measures

To facilitate a comparison between the three and twelve months ended October 31, 2014 and 2013, the Company has presented both GAAP and non-GAAP financial results. GAAP financial measures, including operating income, net income, and basic and diluted earnings per share, have been adjusted to report certain non-GAAP financial measures. These non-GAAP financial measures exclude the following items from the Company's consolidated statements of operations:

  • Expenses related to non-cash compensation
  • Expenses related to workforce reduction
  • Income related to the extinguishment of liabilities
  • Change in fair value of warrants

These non-GAAP measures are provided to enhance investors' overall understanding of the Company's current financial performance and the Company's prospects for the future. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.

For more information on these non-GAAP financial measures, please see the tables in this release captioned "Reconciliation of GAAP to Non-GAAP Financial Measures."

About Majesco Entertainment Company

Majesco Entertainment Company is an innovative developer, marketer, publisher and distributor of interactive entertainment for consumers around the world. Building on more than 25 years of operating history, the company develops and publishes a wide range of video games on console, handheld and mobile platforms, as well as digital networks through its Midnight City label. Majesco is headquartered in Plainfield, NJ and the company's shares are traded on the Nasdaq Stock Market under the symbol: COOL. More info can be found online at majescoent.com or on Twitter at twitter.com/majesco.

Safe Harbor

Some statements set forth in this release contain forward-looking statements that are subject to change. Examples of forward-looking statements include statements relating to industry prospects, our future economic performance including anticipated revenues and expenditures, results of operations or financial position, and other financial items, our business plans and objectives, including our intended product releases, and may include certain assumptions that underlie forward-looking statements. Statements including words such as "anticipate," "believe," "estimate" or "expect" and statements in the future tense are forward-looking statements. These statements are subject to business and economic risk and reflect management's current expectations, and involve subjects that are inherently uncertain and difficult to predict. The risks and uncertainties which could cause our results to differ materially from our expectations and plans are included in our risk factors described in our filings with the SEC, including our Annual Report on Form 10-K for the year ended October 31, 2014. The Company does not undertake, and specifically disclaims any obligation, to release publicly the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

   
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY  
UNAUDITED SUPPLEMENTARY PRODUCT DATA  
NET SALES BY PLATFORM FOR THREE AND TWELVE MONTHS  
(Unaudited, in thousands)  
   
  Three months Ended
October 31,
    Twelve months Ended
October 31,
 
  2014   %     2013   %     2014   %     2013   %  
  (thousands)         (thousands)         (thousands)         (thousands)      
Nintendo Wii and WiiU $ 944   15 %   $ 3,101   31 %   $ 11,417   33 %   $ 21,874   46 %
Microsoft Xbox 360 and Xbox One   1,291   21 %     1,331   13 %     11,125   32 %     10,408   22 %
Sony Playstation 3 and 4   1,690   27 %     281   3 %     3,655   11 %     845   2 %
Nintendo DS and 3DS   1,341   21 %     4,577   45 %     5,043   15 %     11,930   25 %
Accessories and other   1,017   16 %     787   8 %     3,128   9 %     2,210   5 %
TOTAL $ 6,283   100 %   $ 10,077   100 %   $ 34,368   100 %   $ 47,267   100 %
                                               
                                               
   
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(in thousands, except share and per share amounts)  
   
    October 31,
2014
    October 31,
2013
 
                 
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 7,196     $ 13,385  
  Due from factor, net     -       2,134  
  Accounts and other receivables     1,597       1,169  
  Inventory     1,292       4,859  
  Advance payments for inventory     57       1,064  
  Capitalized software development costs and license fees     674       7,825  
  Advances to GMS Entertainment Limited     250       -  
  Prepaid expenses and other current assets     192       2,827  
    Total current assets     11,258       33,263  
Property and equipment, net     198       817  
Investment in GMS Entertainment Limited     -       3,500  
Other assets     -       69  
    Total assets   $ 11,456     $ 37,649  
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
  Accounts payable and accrued expenses   $ 4,427     $ 8,994  
  Due to distribution partner     1,286       -  
  Customer credits     171       -  
  Inventory financing     -       1,764  
  Advances from customers and deferred revenue     21       6,838  
    Total current liabilities     5,905       17,596  
Commitments and contingencies                
Stockholders' equity:                
  Common stock -- $.001 par value; 250,000,000 shares authorized; 6,620,660 and 6,613,710 shares issued and outstanding at October 31, 2014 and October 31, 2013, respectively     7       7  
  Additional paid-in capital     125,271       124,187  
  Accumulated deficit     (119,727 )     (103,530 )
  Accumulated other comprehensive loss     -       (611 )
    Net stockholders' equity     5,551       20,053  
    Total liabilities and stockholders' equity   $ 11,456     $ 37,649  
                 
                 
   
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(in thousands, except share and per share amounts)  
   
    Three Months ended
October 31
    Year Ended
October 31
 
    (unaudited)        
    2014     2013     2014     2013  
Net revenues   $ 6,283     $ 10,077     $ 34,368     $ 47,267  
Cost of sales                                
  Product costs     1,993       4,694       12,381       18,625  
  Software development costs and license fees     3,176       4,637       16,282       16,474  
    Total cost of sales     5,169       9,331       28,663       35,099  
Gross profit     1,114       746       5,705       12,168  
Operating costs and expenses                                
  Product research and development     220       652       2,263       5,542  
  Selling and marketing     1,130       1,643       7,264       7,854  
  General and administrative     2,469       2,328       8,366       9,176  
  Workforce reduction     323       -       323       776  
  Loss on impairment of capitalized software development costs and license fees - cancelled games     77       500       77       675  
  Depreciation and amortization     441       85       745       381  
    Total operating costs and expenses     4,660       5,208       19,038       24,404  
Operating loss     (3,546 )     (4,462 )     (13,333 )     (12,236 )
Other expenses (income)                                
  Interest and financing costs     77       118       361       409  
  Loss from equity method investment     1,873       -       3,780       -  
  Gain on extinguishment of liabilities     (128 )     -       (1,287 )     -  
  Change in fair value of warrant liability     -       -       -       (17 )
Loss before income taxes     (5,368 )     (4,580 )     (16,187 )     (12,628 )
  Income taxes     5       6       10       14  
Net loss   $ (5,373 )   $ (4,586 )   $ (16,197 )   $ (12,642 )
Net loss per share:                                
  Basic   $ (0.83 )   $ (0.72 )   $ (2.52 )   $ (2.13 )
  Diluted   $ (0.83 )   $ (0.72 )   $ (2.52 )   $ (2.13 )
Weighted average shares outstanding:                                
  Basic     6,490,077       6,360,787       6,420,775       5,943,049  
  Diluted     6,490,077       6,360,787       6,420,775       5,943,049  
                                 
                                 
   
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(in thousands)  
   
    Year Ended
October 31,
 
    2014     2013  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss   $ (16,197 )   $ (12,642 )
  Adjustments to reconcile net loss to net cash used in operating activities:                
  Depreciation and amortization     745       381  
  Loss from equity method investment     3,780       -  
  Non-cash compensation expense     1,117       1,416  
  Provision for price protection     4,648       2,993  
  Amortization of capitalized software development costs and license fees     10,695       6,460  
  Impairment losses     1,259       675  
  Provision for excess inventory     737       675  
  Foreign currency exchange loss recognized     616       -  
  Change in fair value of warrant liability     -       (17 )
  Gain on extinguishment of liabilities     (1,287 )     -  
  Changes in operating assets and liabilities, net of acquisition:                
    Due from factor     (2,343 )     7,374  
    Accounts and other receivables     (428 )     2,767  
    Inventory     2,830       2,228  
    Capitalized software development costs and license fees     (4,582 )     (10,971 )
    Advance payments for inventory     1,007       (807 )
    Prepaid expenses and other assets     2,704       (1,086 )
    Accounts payable and accrued expenses     (1,993 )     (6,417 )
    Advances from customers and deferred revenue     (6,817 )     2,384  
      Net cash used in operating activities     (3,509 )     (4,587 )
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchases of property and equipment     (347 )     (274 )
Investment in and advances to GMS Entertainment Limited     (530 )     (3,500 )
    Net cash used in investing activities     (877 )     (3,774 )
CASH FLOWS FROM FINANCING ACTIVITIES                
Sale of common stock     -       2,000  
Income tax withholding from exercise of options and warrants     (33 )     (19 )
Repayments of borrowings for inventory financing     (1,765 )     1,764  
    Net cash used in provided by financing activities     (1,798 )     3,745  
Effect of exchange rates on cash and cash equivalents     (5 )     (37 )
Net decrease in cash and cash equivalents     (6,189 )     (4,653 )
Cash and cash equivalents -- beginning of year     13,385       18,038  
Cash and cash equivalents -- end of year   $ 7,196     $ 13,385  
SUPPLEMENTAL CASH FLOW INFORMATION                
Cash paid during the year for interest and financing costs   $ 327     $ 455  
Cash paid during the year for income taxes   $ 6     $ -  
                 
                 
   
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY  
RECONCILATION OF GAAP TO NON-GAAP FINANCIAL MEASURES  
(Unaudited, in thousands, except share amounts)  
   
    Three months ended     Year ended  
    October 31,     October 31,  
    2014     2013     2014     2013  
GAAP operating loss   $ (3,546 )   $ (4,462 )   $ (13,333 )   $ (12,236 )
Non-cash compensation (1)     189       399       1,117       1,416  
Severance (3)     323       -       323       776  
Non-GAAP operating loss   $ (3,034 )   $ (4,063 )   $ (11,893 )   $ (10,044 )
                                 
GAAP net loss   $ (5,373 )   $ (4,586 )   $ (16,197 )   $ (12,642 )
Non-cash compensation (1)     189       399       1,117       1,416  
Gain on extinguishment of liabilities (2)     (128 )     -       (1,287 )     -  
Severance (3)     323       -       323       776  
Change in fair value of warrants (4)     -       -       -       (17 )
Non-GAAP net loss   $ (4,989 )   $ (4,187 )   $ (16,044 )   $ (10,467 )
                                 
GAAP net loss per diluted share   $ (0.83 )   $ (0.72 )   $ (2.52 )   $ (2.13 )
Non-cash compensation (1)     0.03       0.06       0.17       0.24  
Gain on extinguishment of liabilities (2)     (0.02 )     -       (0.20 )     -  
Severance (3)     0.05       -       0.05       0.13  
Change in fair value of warrants (4)     -       -       -       -  
Non-GAAP net loss per diluted share   $ (0.77 )   $ (0.66 )   $ (2.50 )   $ (1.76 )
                                 
Shares used in GAAP and Non-GAAP per diluted share amounts     6,490,077       6,360,787       6,420,775       5,943,049  
                                 
                                 

(1) Represents expenses recorded for stock compensation expense. The Company does not consider stock-based compensation charges when evaluating business performance and management does not consider stock-based compensation expense in evaluating its short and long-term operating plans.
(2) Represents accounts payable balances and claims for which applicable statutes of limitations expired.
(3) Represents severance costs related to workforce reductions. During January 2013, Company management initiated a plan of restructuring to better align its workforce to its revised operating plans. As part of the plan, the Company reduced its personnel count by approximately 40 employees. In October 2014, the Company incurred additional severance costs in connection with the termination of development, marketing and other operating personnel.
(4) Represents the change in the fair value of warrants classified as a liability. The fair value of the warrants is calculated at each balance sheet date with a corresponding charge or credit to earnings for the amount of the change in fair value.