Majesco Entertainment Company Announces Fourth Quarter and Year-End Fiscal 2006 Financial Results

Transcription

1 January 29, 2007 Majesco Entertainment Company Announces Fourth Quarter and Year-End Fiscal 2006 Financial Results - Increases Fiscal 2006 Net Revenue to $66.7 Million from $59.7 Million in Fiscal Significantly Reduces 2006 Loss - EDISON, N.J., Jan. 29 /PRNewswire-FirstCall/ -- Majesco Entertainment Company (Nasdaq: COOL), an innovative provider of digital entertainment products and content, today announced financial results for its fourth quarter and year ended October 31, Jesse Sutton, Majesco's President and Interim Chief Executive Officer, commented, "In 2006, we made significant improvements to our financial results compared to We have also taken great strides to transition our business away from big budget console games to a more balanced product portfolio comprised mainly of quality, easy-to-play, affordable games for the mass market. With notable successes including Cooking Mama for the Nintendo DS and JAWS(TM) Unleashed for the PlayStation 2 and Xbox, we are optimistic that our refined strategy is working." Comparison of Three Months Ended October 31, 2006 to October 31, 2005 * Increased net revenue to $21.5 million for the 2006 fourth fiscal quarter, compared to $4.6 million reported for the same period in * Reduced operating loss to $1.9 million for the 2006 quarter, which included stock-based compensation expense of $1.2 million required under generally accepted accounting principles (GAAP). This compared to an operating loss of $34.4 million for the same period one year ago, which included impairment charges of $20.1 million. Non-GAAP operating loss for the 2006 quarter was $0.7 million, compared to non-gaap operating loss of $34.3 million for the same period one year ago. The company defines non-gaap operating loss and non-gaap net loss as operating loss and net loss adjusted for stock-based compensation expense. Non-GAAP net loss per share equals non-gaap net loss divided by the basic share count as of that period end. A table reconciling GAAP and non-gaap figures follows in this press release. The company believes the non-gaap measures that exclude equity-based compensation enhance the comparability of results against prior periods. 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.

2 * Reported net loss for the 2006 quarter was $2.9 million, or $0.13 per share, compared to a net loss of $34.2 million, or $1.54 loss per share, for the same period last year. Non-GAAP net loss for the 2006 quarter was $1.7 million, or $0.07 per share, compared to a non-gaap net loss of $34.2 million, or $1.54 loss per share, for the same period in Comparison of Year Ended October 31, 2006 to October 31, 2005 * Increased annual revenue 12 percent to $66.7 million, compared to $59.7 million. * Reduced operating loss to $3.0 million, which included one-time settlement gains of $4.8 million, capitalized costs write-off of $2.4 million and stock-based compensation expense of $2.2 million. This compared to fiscal 2005 operating loss of $70.2 million, which included capitalized cost write-offs of $26.3 million. This dramatic improvement was a direct result of the company's strategy change which substantially reduced development costs, significantly decreased marketing costs, and lowered fixed costs. The 2006 non-gaap operating loss was $0.7 million, compared to $68.8 million for * Reported net loss of $5.4 million, or $0.24 per share, which included the $2.0 million charge related to stock-based compensation expense and $0.2 million related to the issuance of warrants. This compared to a net loss attributable to common stockholders of $72.0 million, or $3.48 per share, which included a $1.4 million stock-based compensation expense in Non-GAAP net loss for 2006 was $3.1 million, or $0.14 per share, compared to a non-gaap net loss attributable to common stockholders of $70.6 million, or $3.41 loss per share, for * Generated $0.2 million in cash flow from operations compared to an operating cash use of $55.0 million in 2005, reflecting the aforementioned strategy change substantially reducing development and marketing expenditures and having shorter development cycles that resulted in a quicker turn of cash includes a $9.1 million benefit from the sale of titles in development to another publisher. John Gross, Chief Financial Officer, said, "Our refined strategy drove our improved 2006 results. We have transitioned away from the big budget games and dramatically decreased our development costs and operating expenses, thereby significantly reducing our use and loss of cash. The substantial improvements in the health of our balance sheet and the turnaround of our cash flow are encouraging signs. Going into 2007, we are better positioned financially and will continue to focus on controlling costs while we continue to execute our new strategy." At October 31, 2006, the company had cash and cash equivalents of $3.8 million and a "Due from Factor" of $1.2 million, compared to cash and cash equivalents of $2.4 million and a "Due to Factor" of $7.0 million on October 31, "Due from Factor" is defined as total receivables less allowances and cash advances from our factor. Over the course of the year, management significantly improved the balance sheet: * Reducing current liabilities by $12.7 million, or almost 50 percent, to $13.3 million, which included a $7.5 million reduction in accounts payable and accrued expenses; * Decreasing capitalized software development costs by $15.8 million from $17.3 million in 2005 to $1.5 million in 2006; and

3 * Reducing inventories by almost 70 percent to $2.4 million. Recent Business Highlights * Reached almost 600,000 units worldwide in retail shipments of JAWS(TM) Unleashed since its release on May 23, * Signed digital distribution agreements with Macrovision's Trymedia Network, and Steam, the leading online platform for PC games, for several of our catalog titles including: Psychonauts, BloodRayne 1 & 2 and Advent Rising. * Received several industry honors for Cooking Mama, including "Most Innovative DS Design of E3 2006" from leading video game website IGN; and GameDaily's "Nod Award," which called Cooking Mama "a fun DS game that uses the stylus to near perfection." * Received two industry awards for Age of Empires: Age of Kings for the Nintendo DS including the Canadian Award for the Electronic and Animated Arts in the category of Best Design and the British Academy of Film and Television Arts (BAFTA) Game Award for Best Strategy Game. * Published 13 titles for the Nintendo DS, two titles for the Nintendo Game Boy Advance, two titles for the Sony PlayStation 2, two titles for the Microsoft Xbox and one PC title. "In 2007, the core of our line-up will include a variety of titles for the handheld markets, with an emphasis on products for the increasingly popular Nintendo DS system. We currently have games in development for the DS based on popular licenses that we believe will appeal to the mass market audience. Specific titles include: New York Times Crosswords, Nancy Drew(TM), and Cake Mania(TM). We also believe Nintendo's new Wii console, with its appealing price point and unique play mechanics, will increasingly resonate with the mainstream gamer. The Wii's mass appeal, combined with its relatively affordable development costs, fits in our strategy. As such, we now have three games, including the previously announced Cooking Mama: Cook Off and Bust-A-Move Bash, in development for this system." Sutton continued, "Although we're predominantly focused on traditional game systems now, going forward our ultimate vision is to create quality, affordable, mass market games that can be leveraged across leading digital entertainment outlets." 2007 Outlook "We are cautiously optimistic about 2007 and will continue to execute our new strategy of publishing affordable, mass market games with relatively short development cycles and low development costs," added Sutton. "2007 will be the first year that our revenue will be derived from a majority of products developed in line with this strategy. Based solely on our current release schedule, we expect fiscal 2007 revenue to decline approximately 10 percent to 15 percent as compared to fiscal 2006 revenue, with the fourth quarter being the strongest. That said, we expect to achieve higher gross margins and a lower breakeven model. We also believe we have the potential to benefit from a fairly quick return on investment by bringing products to market more quickly than in the past. With nearly nine months remaining in the year, the acquisition of additional titles through our product

4 development process could add to our 2007 release schedule and impact the second half of the year. In addition, we believe there are synergies with our current products and other digital entertainment mediums such as cell phones and portable media players, and we intend to leverage our experience to enter into those product categories." The company is only providing its annual outlook, largely because of the movement of title release dates that is typical in the industry and the potential significance of the shift of one title between quarters. Non-GAAP Measures To supplement Majesco's consolidated financial statements presented in accordance with GAAP, Majesco provides non-gaap net income (loss) and non-gaap net income (loss) per share data. The presentation of these non-gaap financial measures should be considered in addition to our GAAP results and is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Majesco makes reference to measures of operating income, certain expenses (including general and administrative), net loss and net loss per share for the fourth quarter and full year of fiscal 2006 and 2005, which exclude equity-based compensation related to employee stock options, to allow for a better comparison of results in the current period to those in prior periods that did not include FAS 123(R ) equity-based compensation. Majesco's reference to these measures should be considered in addition to results that are presented as consistent with GAAP. 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 and provide further information for comparative purposes due to the adoption of the new accounting standard FAS 123(R ). Specifically, the company believes the non-gaap measures provide useful information to both management and investors by excluding certain expenses that may not be indicative of its core operating results and business outlook. The company believes the non-gaap measures that exclude equity-based compensation enhance the comparability of results against prior periods. 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. Conference Call At 4:30 PM EST today, management will host an earnings conference call. To access the call in the U.S., please dial For international callers, please dial 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 In addition, a replay of the call will be available via telephone for two business days, beginning two hours after the call. To listen to the telephone replay in the U.S., please dial and for international callers, dial Enter access code

5 About Majesco Entertainment Company Headquartered in Edison, NJ, Majesco Entertainment Company (NASDAQ: COOL) is an innovative provider of digital entertainment products and content, with a focus on publishing video games for leading portable systems and the Wii(TM) console. Current product line highlights include Cooking Mama for the Nintendo DS(TM), Bust-A-Move Bash! for the Wii(TM) console and JAWS(TM) Unleashed, as well as digital entertainment products like Strawberry Shortcake(TM) Dance Dance Revolution(R). More information about Majesco can be found online at Safe Harbor Certain statements contained herein are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified by reference to a future period(s) or by the use of forward- looking terminology, such as "may," "will," "intend," "should," "expect," "anticipate," "estimate" or "continue" or the negatives thereof or other comparable terminology. The Company's actual results could differ materially from those anticipated in such forward-looking statements due to a variety of factors. These factors include but are not limited to, the demand for our products; our ability to complete and release our products in a timely fashion; competitive factors in the businesses in which we compete; continued consumer acceptance of our products and the gaming platforms on which our products operate; fulfillment of orders preliminarily made by customers; adverse changes in the securities markets and the availability of and costs associated with sources of liquidity. 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 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except share amounts) Three Months Ended Twelve Months Ended October 31, October 31, Net revenues $21,497 $4,577 $66,683 $59,716 Cost of sales Product costs 11,708 8,026 32,259 38,384 Software development costs and license fees 5,543 1,130 14,599 22,717 17,251 9,156 46,858 61,101 Gross profit (loss) 4,246 (4,579) 19,825 (1,385) Operating expenses Product research and development ,607 3,415 Selling and marketing 2,426 6,566 10,910 24,160 General and administrative 3,230 2,015 11,251 10,937

6 Depreciation and amortization Write-off of accounts receivable (Gain) loss on settlements (246) - (4,753) 1,437 Loss on impairment of software development costs - 20,164 2,375 26,281 Severance ,360 6,147 29,771 22,820 68,805 Operating loss (1,901) (34,350) (2,995) (70,190) Other costs and expenses Interest and financing costs, net ,371 1,869 Loss on foreign exchange contract Loss before income taxes (2,894) (34,717) (5,366) (72,107) (Benefit) provision for income taxes - (471) - (1,207) Net loss (2,894) (34,246) (5,366) (70,900) Fair value charge for warrants exercised at a discount ,100 Net loss attributable to common stockholders $(2,894) $(34,246) $(5,366) $(72,000) Net income (loss) attributable to common stockholders per share: Basic and diluted $(0.13) $(1.54) $(0.24) $(3.48) Weighted average shares outstanding Basic and diluted 22,430,614 22,242,118 22,616,419 20,686,863 MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEET For the year ended October 31st, (in thousands, except share amounts) ASSETS Current assets Cash and cash equivalents $3,794 $2,407 Due from factor 1,189 - Accounts and other receivables 3, Income taxes receivable Inventory - principally finished goods 2,438 8,058 Capitalized software development costs and prepaid license fees 1,489 17,278 Prepaid expenses 2, Total current assets 14,239 29,699 Property and equipment - net Other assets

7 Total assets $15,011 $30,703 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $10,911 $18,494 Due to factor - 6,964 Inventory financing payable 1,390 - Advances from customers Total current liabilities 13,262 25,942 Stockholders' equity: Common stock - $.001 par value; 250,000,000 shares authorized; 23,427,462 and 22,242,476 issued and outstanding at October 31, 2006 and October 31, 2005, respectively Additional paid in capital 94,529 92,158 Accumulated deficit (92,754) (87,388) Accumulated other comprehensive income (loss) (49) (31) Total stockholders' equity 1,749 4,761 Total liabilities and stockholders' equity $15,011 $30,703 Majesco Entertainment Company and Subsidiary Reconciliation of GAAP Net Loss to Non-GAAP Net Loss (In thousands, except per share data) Three Months Ended October 31, 2006 GAAP Adjustment Non-GAAP (b) Net revenues $21,497 $- $21,497 Cost of sales Product costs 11,708-11,708 Software development costs and license fees 5,543-5,543 17,251-17,251 Gross profit (loss) 4,246-4,246 Operating costs and expenses Product research and development Selling and marketing 2,426-2,426 General and administrative 3,230 (1,227)(a) 2,003 Depreciation and amortization Write-off of accounts receivable - - (Gain) loss on settlements (246) (246) Loss on impairment of software development costs - - Severance - - 6,147 (1,227) 4,920 Operating (loss) income (1,901) 1,227 (674) Other expenses Interest and financing costs, net Realized/unrealized loss on foreign exchange contract - - (Loss) before income taxes (2,894) 1,227 (1,667) (Benefit) provision for income taxes Net (loss) (2,894) 1,227 (1,667)

8 Fair value charge for warrants exercised at discount stockholders $(2,894) $1,227 $(1,667) stockholders per share: Basic and diluted $(0.13) $- $(0.07) Weighted average shares outstanding Basic and diluted 22,430,614-22,430,614 Three Months Ended October 31, 2005 GAAP Adjustment Non-GAAP (b) Net revenues $4,577 $- $4,577 Cost of sales Product costs 8,026-8,026 Software development costs and license fees 1,130-1,130 9,156-9,156 Gross profit (loss) (4,579) - (4,579) Operating costs and expenses Product research and development Selling and marketing 6,566-6,566 General and administrative 2,015 (35)(a) 1,980 Depreciation and amortization Write-off of accounts receivable - - (Gain) loss on settlements - - Loss on impairment of software development costs 20,164 20,164 Severance ,771 (35) 29,736 Operating (loss) income (34,350) 35 (34,315) Other expenses Interest and financing costs, net Realized/unrealized loss on foreign exchange contract - - (Loss) before income taxes (34,717) 35 (34,682) (Benefit) provision for income taxes (471) - (471) Net (loss) (34,246) 35 (34,211) Fair value charge for warrants exercised at discount stockholders $(34,246) $35 $(34,211) stockholders per share: Basic and diluted $(1.54) $- $(1.54) Weighted average shares outstanding Basic and diluted 22,242,118-22,242,118

9 (a) Equity-based compensation expense (b) The Company defines non-gaap operating loss and non-gaap net loss as operating loss and net loss adjusted for stock-based compensation expense. Non-GAAP net loss per share equals non-gaap net loss divided by the basic share count as of that period end. The Company believes the non-gaap measures that exclude equity-based compensation enhance the comparability of results against prior periods. 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. Majesco Entertainment Company and Subsidiary Reconciliation of GAAP Net Loss to Non-GAAP Net Loss (In thousands, except per share data) Twelve Months Ended October 31, 2006 GAAP Adjustment Non-GAAP (b) Net revenues $66,683 $- $66,683 Cost of sales Product costs 32,259-32,259 Software development costs and license fees 14,599-14,599 46,858-46,858 Gross profit (loss) 19,825-19,825 Operating costs and expenses Product research and development 2,607-2,607 Selling and marketing 10,910-10,910 General and administrative 11,251 (2,246)(a) 9,005 Depreciation and amortization Write-off of accounts receivable - - (Gain) loss on settlements (4,753) (4,753) Loss on impairment of software development costs 2,375 2,375 Severance ,820 (2,246) 20,574 Operating (loss) income (2,995) 2,246 (749) Other expenses Interest and financing costs, net 2,371 2,371 Realized/unrealized loss on foreign exchange contract - - (Loss) before income taxes (5,366) 2,246 (3,120) (Benefit) provision for income taxes Net (loss) (5,366) 2,246 (3,120) Fair value charge for warrants exercised at discount stockholders $(5,366) $2,246 $(3,120)

10 stockholders per share: Basic and diluted $(0.24) $- $(0.14) Weighted average shares outstanding Basic and diluted 22,616,419-22,616,419 Twelve Months Ended October 31, 2005 GAAP Adjustment Non-GAAP (b) Net revenues $59,716 $- $59,716 Cost of sales Product costs 38,384-38,384 Software development costs and license fees 22,717-22,717 61,101-61,101 Gross profit (loss) (1,385) - (1,385) Operating costs and expenses Product research and development 3,415-3,415 Selling and marketing 24,160-24,160 General and administrative 10,937 (1,376)(a) 9,561 Depreciation and amortization Write-off of accounts receivable (Gain) loss on settlements 1,437 1,437 Loss on impairment of software development costs 26,281 26,281 Severance 1,360 1,360 68,805 (1,376) 67,429 Operating (loss) income (70,190) 1,376 (68,814) Other expenses Interest and financing costs, net 1,869 1,869 Realized/unrealized loss on foreign exchange contract (Loss) before income taxes (72,107) 1,376 (70,731) (Benefit) provision for income taxes (1,207) - (1,207) Net (loss) (70,900) 1,376 (69,524) Fair value charge for warrants exercised at discount 1,100-1,100 stockholders $(72,000) $1,376 $(70,624) stockholders per share: Basic and diluted $(3.48) $- $(3.41) Weighted average shares outstanding Basic and diluted 20,686,863-20,686,863 (a) Equity-based compensation expense (b) The Company defines non-gaap operating loss and non-gaap net loss as operating loss and net loss adjusted for stock-based compensation

11 expense. Non-GAAP net loss per share equals non-gaap net loss divided by the basic share count as of that period end. The Company believes the non-gaap measures that exclude equity-based compensation enhance the comparability of results against prior periods. 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. SOURCE Majesco Entertainment Company