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Majesco Entertainment Reports Third Quarter Fiscal 2012 Financial Results

EDISON, NJ--(Marketwire - Sep 10, 2012) - Majesco Entertainment Company (NASDAQ: COOL), an innovative provider of video games for the mass market, today reported financial results for the fiscal third quarter ended July 31, 2012.

For the third quarter ended July 31, 2012, Majesco's net revenues were $9.1 million compared to $19.5 million in the same period a year ago. The Company reported an operating loss of $3.6 million, compared to operating income of $0.9 million in the third quarter of 2011.

Net loss for the third quarter was $3.1 million versus net income of $1.9 million in 2011. On a non-GAAP basis, net loss for the third quarter was $3.2 million compared to non-GAAP net income of $1.1 million in the third quarter of fiscal 2011. 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.

The Company's basic and diluted net loss per share for the third quarter ended July 31, 2012 was $0.08, compared to basic and diluted net income per share of $0.05 in the same period last year. Non-GAAP diluted net loss per share for the quarter ended July 31, 2012 was $0.09 compared to diluted net income per share of $0.03 in the third quarter of 2011. 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.

For the nine months ended July 31, 2012, the Company's net revenues were $105.7 million versus $100.2 million in the year ago period. The Company reported operating income of $6.7 million compared to operating income of $14.3 million in the same 2011 period. Non-GAAP operating income for the nine month period was $8.0 million compared to $15.4 million for the comparable 2011 period. In the nine months ended July 31, 2012 net income was $7.3 million compared to net income of $10.7 million for the nine months ended July 31, 2011. For the same period, Non-GAAP net income was $7.1 million this year compared to $13.9 million in 2011.

The Company's basic and diluted net income per share for the nine months ended July 31, 2012 was $0.18, compared to basic and diluted net income per share of $0.28 and $0.27, respectively, for the corresponding period in 2011. The Company's Non-GAAP basic and diluted net income per share for the nine months ended July 31, 2012 was $0.17 compared to $0.35 in the corresponding 2011 period.

Jesse Sutton, Chief Executive Officer of Majesco, said, "As expected, our third quarter results reflect historical seasonal patterns and continued challenging retail conditions for interactive entertainment. During the quarter, the Zumba Fitness franchise continued to be a top selling title across the Wii™ and Kinect™ platforms ahead of the upcoming Zumba Fitness Core release. With eight million units now sold, Zumba Fitness has solidified its place as the second bestselling fitness franchise of all time.

"Our release slate for the 2012 holiday season is one of our most diverse ever," added Sutton. "In addition to a strong brand lineup including Zumba® Fitness, Cooking Mama, and Hello Kitty we have several innovative new product launches targeted at the growing markets for motion-based, social and mobile games. Tomorrow is the official launch of NBA Baller Beats at retail, and we are pleased with the pre-launch buzz with over 650,000 Twitter followers and over 4 million views on YouTube. Last week we launched our first internally developed social game, Mini Putt Park, on Zynga.com. We will follow this up with at least two smartphone-based freemium games for the mobile games market by the end of the year. We have never been more excited about the growth opportunities provided by these new platforms."

Highlights

  • As of July 31, 2012, the Company had $27.3 million in cash and cash equivalents, compared with $19.7 million on July 31, 2011.

  • In June, Majesco announced two new mobile games, Sci-Fi Heroes and Legends of Loot, for release in the fall.

  • On June 13th, Majesco announced a strategic partnership with FremantleMedia Enterprises, the commercial and brand extension arm of FremantleMedia, to develop and produce interactive games based on the Emmy nominated American Idol television series. Under the terms of the partnership, Majesco received the exclusive rights to publish games in North America.

Announced Product Line-up
Fourth Quarter Fiscal 2012 Ending October 31, 2012
To date, the Company has announced the following titles that were, or are expected to be, released during its fiscal fourth quarter 2012:

  • Zumba® Fitness Core, the latest release in the best-selling fitness game franchise, launches this October on Wii™ and Kinect™ for Xbox 360®. Zumba® Fitness Core is the first and only game designed to sculpt and tone your abs through an exhilarating total body workout. Dance your way to flat, sexy abs with 40 new songs and routines, 33 international dance styles and a range of new fitness features that reward you and keep you motivated. Lose yourself in the music as celebrity Zumba® instructors guide you through choreography set to contagious new Zumba® fitness originals and a broader mix of smash hits from hot artists including Enrique Iglesias, Sean Paul, Don Omar, Karmin, and many more.

  • NBA Baller Beats, the first ever motion-based sports video game that requires you to actively play using a real basketball launches September 11th exclusively on Kinect for Xbox 360. In this high energy interactive beats-driven experience players are challenged to perfect 20 different ball-handling skills and increase their stamina for the court while bouncing the ball to the beat of 30 licensed tracks spanning decades and genres including hits from Kanye West, LMFAO, Run DMC, Queen, Common, Janelle Monae, and more. The game comes packaged with an officially licensed NBA Game Day replica ball from Spalding and will be available for the suggested retail price of $59.99.

  • Mini Putt Park, Majesco's first internally developed social game, launches exclusively on Zynga.com and Facebook® platform. Players of all ages can design their very own miniature golf course in this ultimate mini putt social experience. As the world's first-ever virtual mini putt construction kit, Mini Putt Park lets players build a replica of their real-life home course, a fantastical otherworldly course or something in between. Players can either visit Putter Island and conquer course after course, each complete with a crazy boss to defeat, or take the fun to their friends list by sharing their own custom courses with others.

  • Harley Pasternak's Hollywood Workout, the interactive game that brings you the fitness program used by many of today's Hollywood celebrities, launches on Kinect for Xbox 360 and Wii™. Renowned fitness and nutrition expert, best-selling author, and acclaimed celebrity trainer Harley Pasternak will introduce you to his breakthrough 5-Factor program that is an easy yet effective approach to reach your personal fitness goals. The game provides players with direct access to Harley Pasternak, the trainer behind many of Hollywood's hottest bodies including Lady Gaga, Megan Fox, Katy Perry, Hilary Duff, Jennifer Hudson, Robert Pattinson and Kanye West. The secret is Harley's 5-Factor Fitness program that requires focused training sessions just 25 minutes a day, five days a week. Choose your goals, follow Harley's advice and 5-Factor program and you too can achieve the Hollywood body you've always dreamed of!

  • Double Dragon Neon will be released as a full-scale digital game on Xbox LIVE® Arcade for the Xbox 360® video game and entertainment system from Microsoft. Majesco Entertainment has once again partnered with WayForward, the award-winning team known for bringing franchise favorites including BloodRayne: Betrayal back to audiences in exciting new ways, and is thrilled for the fan-favorite developer to put its signature spin on this classic franchise. Double Dragon: Neon isn't just a sequel -- it's a face-melting 80's tour de force! Featuring bodacious characters, gnarly combat, and a retro aesthetic, it's pure over-the-top baditude... to the max!

  • Mama's Combo Pack Volume 1 & 2 on Nintendo DS™ and Mama's 2-Pack on Wii™ was launched on August 14th for the terrific value of $29.99 each. Cooking Mama, the iconic kitchen cutie who has sold more than 13 million copies worldwide, is serving up double the fun with three separate combo packs that bundle together some of the hit franchise's best-selling games. Mama's Combo Pack Volume 1 for Nintendo DS™ combines the original best-selling classic Cooking Mama with Camping Mama: Outdoor Adventures. Mama's Combo Pack Volume 2 for Nintendo DS™ includes Cooking Mama 2: Dinner with Friends and Crafting Mama. Mama's 2-Pack for Wii™ brings the culinary action to your console in Cooking Mama Cook Off and Cooking Mama World Kitchen. The Wii Remote™ transforms into your universal cooking tool as you chop, grate, slice, stir and roll in motion-based cooking activities.

  • Hello Kitty Picnic with Sanrio Friends is where Hello Kitty will make her Nintendo 3DS™ debut in North America this holiday season. Filled with loads of fun activities and cute collectibles, Hello Kitty Picnic invites players to join Hello Kitty and her Sanrio friends as they prepare for a picnic adventure. Play 10 mini-games including Hidden Object, Spot the Difference, and Picnic Blanket Checkers to collect goodies for the party. Explore and decorate whimsical 3D environments including Hello Kitty's bedroom, kitchen, and more. Interact directly with Hello Kitty using the 3DS touch screen and listen as the game guides you along. Invite your friends to join the fun as you play with your favorite Sanrio characters including My Melody®, Keroppi®, Chococat®, Badtz-Maru®, Little Twin Stars®, and many more!

  • Sci-Fi Heroes was announced for release late in the fall. With its exciting and innovative gameplay and incredible co-op fun, Sci-Fi Heroes is the perfect title to show what Majesco's new mobile and social offerings strive for. The free-to-play interstellar adventure gives players of all ages the chance to lead a team of combat specialists to victory over a galactic evil empire, as well as the opportunity to join forces with their friends to collaboratively complete quests, defeat formidable nemeses, and find rare items. Space explorers can battle to save their universe across more than 40 levels on four different planets, each containing unique enemies, landscapes and bosses.

  • Legends of Loot, due to hit this fall, is our latest free mobile app. This role-playing dungeon-crawler game delivers challenges through a series of engaging quests, twisting mazes and mind-bending puzzles; Legends of Loot takes players on a thrilling journey to save the realm and become a mighty adventurer.

Fiscal 2012 Outlook
For the twelve months of fiscal 2012 ending October 31, 2012 the Company expects operating results to be in the lower end of the range of its previously issued guidance of net revenues of $130 to $140 million, and non-GAAP earnings per share of $0.20 to $0.30. This outlook is based on an estimated fully diluted share count of approximately 40.0 million shares, and assumes non-cash compensation of approximately $0.04 to $0.05 per share for fiscal 2012. The Company has not provided a reconciliation of forward-looking GAAP and Non-GAAP financial measures due to the potential effects that changes in its stock price may have on the fair value of outstanding warrants.

Conference Call
At 4:30 p.m. EDT today, management will host an earnings conference call the third quarter results. To access the call in the U.S., please dial 1-800-860-2442. Please dial in approximately 10 minutes prior to the start of the conference call. The conference call will also be broadcast live over the Internet and available for replay for 90 days from the "Investor Info" section of the Company's website at http://ir.majescoentertainment.com. In addition, a replay of the call will be available via telephone for seven days beginning approximately two hours after the call. To listen to the telephone replay in the U.S., please dial 1-877-344-7529 and for international callers, dial 1-412-317-0088. Enter access code #10018032.

Generally Accepted Accounting Principles (GAAP) and Non-GAAP Metrics
To facilitate a comparison between the three and nine months ended July 31, 2012 and 2011, 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

  • 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 a provider of video games for the mass market. Building on more than 20 years of operating history, the company is focused on developing and publishing a wide range of casual and family oriented video games on all leading console and handheld platforms as well as online, social networks and mobile devices. Product highlights include Zumba® Fitness, Cooking Mama™, and Alvin and the Chipmunks. The company's shares are traded on the Nasdaq Stock Market under the symbol: COOL. Majesco is headquartered in Edison, NJ with offices in San Francisco, CA, Brockhampton, UK, and a social games development studio in Foxboro, MA. More info can be found online at http://www.majescoent.com/ or on Twitter at www.twitter.com/majesco.

Safe Harbor

Some statements set forth in this release, including the estimates under the headings "Fiscal 2012 Outlook" contain forward-looking statements that are subject to change. Statements including words such as "anticipate," "believe," "estimate" or "expect" and statements in the future tense are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual events or actual future results to differ materially from the expectations set forth in the forward-looking statements. Some of the factors which could cause our results to differ materially from our expectations include the following: consumer demand for our products, the consumer demand for videogame consoles and related hardware; our ability to predict consumer preferences among competing hardware platforms; consumer spending trends; the seasonal and cyclical nature of the interactive game segment; timely development and release of our products; competition in the interactive entertainment industry; developments in the law regarding protection of our products; our ability to secure licenses to valuable entertainment properties on favorable terms; our ability to manage expenses; our ability to attract and retain key personnel; adoption of new accounting regulations and standards; adverse changes in the securities markets; our ability to comply with continued listing requirements of the Nasdaq stock exchange; the availability of and costs associated with sources of liquidity; and other factors described in our filings with the SEC. 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 NINE MONTHS

(Unaudited, in thousands)

Three months Ended
July 31,

Nine months Ended
July 31,

2012

%

2011

%

2012

%

2011

%

(thousands)

(thousands)

(thousands)

(thousands)

Nintendo Wii

$

5,539

61%

$

14,036

72%

$

65,147

62%

$

59,794

60%

Microsoft Xbox 360

2,153

24%

2,306

12%

26,491

25%

20,334

20%

Nintendo DS

948

10%

2,249

11%

10,142

10%

14,610

15%

Nintendo 3DS

-

-%

-

-%

1,452

1%

-

-%

Sony PlayStation 3

119

1%

637

3%

809

1%

4,438

4%

Accessories and other

386

4%

317

2%

1,684

1%

978

1%

TOTAL

$

9,145

100%

$

19,545

100%

$

105,725

100%

$

100,154

100%

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

July 31,
2012

October 31,
2011

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

27,292

$

13,689

Due from factor, net

-

937

Accounts and other receivables, net

3,347

3,143

Inventory, net

6,052

11,605

Advance payments for inventory

1,465

5,975

Capitalized software development costs and license fees, net

7,667

12,564

Prepaid expenses and other current assets

599

3,071

Total current assets

46,422

50,984

Property and equipment, net

1,029

1,184

Other assets

159

209

Total assets

$

47,610

$

52,377

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued expenses

$

14,591

$

20,313

Inventory financing payable

-

1,238

Advances from customers and deferred revenue

227

5,642

Due to factor

650

-

Warrant liability

363

-

Total current liabilities

15,831

27,193

Warrant liability

-

1,949

Commitments and contingencies

Stockholders' equity:

Common stock -- $.001 par value; 250,000,000 shares authorized; 41,364,549 and 41,307,349 shares issued and outstanding at July 31, 2012 and October 31, 2011, respectively

41

41

Additional paid-in capital

120,496

119,222

Accumulated deficit

(88,159

)

(95,501

)

Accumulated other comprehensive loss

(599

)

(527

)

Net stockholders' equity

31,779

23,235

Total liabilities and stockholders' equity

$

47,610

$

52,377

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except share amounts)

Three Months Ended
July 31

Nine months Ended
July 31

2012

2011

2012

2011

Net revenues

$

9,145

$

19,545

$

105,725

$

100,154

Cost of sales

Product costs

2,632

8,577

35,563

42,681

Software development costs and license fees

2,997

3,015

31,461

16,237

5,629

11,592

67,024

58,918

Gross profit

3,516

7,953

38,701

41,236

Operating costs and expenses

Product research and development

1,912

1,947

5,890

5,150

Selling and marketing

2,684

2,313

16,356

11,952

General and administrative

2,392

2,484

8,088

8,089

Loss on impairment of software development costs and license fees - cancelled games

-

150

1,219

1,512

Depreciation and amortization

141

121

448

223

7,129

7,015

32,001

26,926

Operating income (loss)

(3,613

)

938

6,700

14,310

Other expenses (income)

Interest and financing costs, net

102

123

765

1,077

Change in fair value of warrant liability

(594

)

(1,258

)

(1,586

)

2,085

Income (loss) before income taxes

(3,121

)

2,073

7,521

11,148

Income taxes

(34

)

184

179

421

Net income (loss)

$

(3,087

)

$

1,889

$

7,342

$

10,727

Net income (loss) per share:

Basic

$

(0.08

)

$

0.05

$

0.18

$

0.28

Diluted

$

(0.08

)

$

0.05

$

0.18

$

0.27

Weighted average shares outstanding:

Basic

39,893,133

38,803,090

39,883,365

38,165,521

Diluted

39,893,133

41,318,806

41,016,631

39,827,022

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

Nine months Ended
July 31,

2012

2011

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

7,342

$

10,727

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

448

223

Change in fair value of warrant liability

(1,586

)

2,085

Non-cash compensation expense

1,301

1,064

Provision for price protection

3,211

2,380

Amortization of capitalized software development costs and license fees

11,103

3,467

Loss on impairment of software development costs and license fees

1,219

1,512

Provision for excess inventory

27

1,612

Changes in operating assets and liabilities, net of acquisition:

Due from/to factor

(2,500

)

(2,786

)

Accounts and other receivables, net

631

(1,987

)

Inventory, net

5,526

2,199

Capitalized software development costs and license fees

(7,378

)

(9,420

)

Advance payments for inventory

4,467

4,888

Prepaid expenses and other assets

2,472

261

Accounts payable and accrued expenses

(5,769

)

753

Advances from customers and deferred revenue

(5,367

)

(376

)

Net cash provided by operating activities

15,147

16,602

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment

(244

)

(396

)

Purchase of assets of Quick Hit, Inc., net of acquired cash

-

(800

)

Net cash used in investing activities

(244

)

(1,196

)

CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of inventory financing

(1,237

)

(5,557

)

Proceeds from exercise of warrants

-

1,824

Restricted shares withheld for employee taxes

(27

)

-

Net cash used in financing activities

(1,264

)

(3,733

)

Effect of exchange rates on cash and cash equivalents

(36

)

(3

)

Net increase in cash and cash equivalents

13,603

11,670

Cash and cash equivalents -- beginning of period

13,689

8,004

Cash and cash equivalents -- end of period

$

27,292

$

19,674

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Landlord-provided leasehold improvements

$

-

$

163

Warrant liability reclassified to additional paid-in capital upon exercise

$

-

$

1,042

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid during the year for interest and financing costs

$

715

$

1,078

Cash paid during the year for income taxes

$

565

$

-

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY

RECONCILATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Unaudited, in thousands, except share amounts)

Three months ended

Nine months ended

July 31,

July 31,

2012

2011

2012

2011

GAAP operating income (loss)

$

(3,613

)

$

938

$

6,700

$

14,310

Non-cash compensation (1)

438

437

1,301

1,064

Non-GAAP operating income (loss)

$

(3,175

)

$

1,375

$

8,001

$

15,374

GAAP net income (loss)

$

(3,087

)

$

1,889

$

7,342

$

10,727

Non-cash compensation (1)

438

437

1,301

1,064

Change in fair value of warrants (2)

(594

)

(1,258

)

(1,586

)

2,085

Non-GAAP net income (loss)

$

(3,243

)

$

1,068

$

7,057

$

13,876

GAAP net income (loss) per diluted share

$

(0.08

)

$

0.05

$

0.18

$

0.27

Non-cash compensation (1)

0.01

0.01

0.03

0.03

Change in fair value of warrants (2)

(0.02

)

(0.03

)

(0.04

)

0.05

Non-GAAP net income (loss) per diluted share

$

(0.09

)

$

0.03

$

0.17

$

0.35

Shares used in GAAP and Non-GAAP per diluted share amounts

38,893,133

41,318,806

41,016,631

39,827,022

(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 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.