##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended April 30, 2010
 Commission File No. 000-51128
 Majesco Entertainment Company
  DELAWARE
    
    06-1529524(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 160 Raritan Center Parkway, Edison, NJ 08837
 (732) 225-8910
 
  þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
April 30, 2010 QUARTERLY REPORT ON FORM 10-Q
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of April 30, 2010 (unaudited) and October 31, 2009
    
    
    3Condensed Consolidated Statements of Operations for the three and six months ended April
30, 2010 and 2009 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended April 30, 2010
and 2009 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4T. Controls and Procedures
    
    
    22PART II  OTHER INFORMATION
    
    
    24Item 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3. Defaults Upon Senior Securities
    
    
    24Item 4. (Removed and Reserved)
    
    
    24Item 5. Other Information
    
    
    24Item 6. Exhibits
    
    
    25SIGNATURESCERTIFICATIONSEX-10.1EX-10.2EX-10.3EX-10.4EX-10.5EX-10.6EX-31.1EX-31.2EX-32
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share amounts)
 April 30,
    
    
    October 31,2010
    
    
    2009(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,503
    
    
    $
    11,839Due from factor
    
    
    1,154
    
    
    
    1,172Accounts and other receivables, net
    
    
    938
    
    
    
    1,145Inventory, net
    
    
    4,186
    
    
    
    6,190Advance payments for inventory
    
    
    1,190
    
    
    
    3,126Capitalized software development costs and license fees
    
    
    3,554
    
    
    
    3,678Prepaid expenses
    
    
    815
    
    
    
    847Total current assets
    
    
    23,340
    
    
    
    27,997Property and equipment, net
    
    
    434
    
    
    
    447Other assets
    
    
    69
    
    
    
    83Total assets
    
    $
    23,843
    
    
    $
    28,527LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    7,391
    
    
    $
    9,586Inventory financing payables
    
    
    1,209
    
    
    
    6,053Advances from customers
    
    
    94
    
    
    
    543Total current liabilities
    
    
    8,694
    
    
    
    16,182Warrant liability
    
    
    397
    
    
    
    626Commitments and contingenciesStockholders equity:Common stock  $.001 par value; 250,000,000 shares
authorized; 38,646,938 and 38,553,740 shares issued
and outstanding at April 30, 2010 and October 31,
2009, respectively
    
    
    39
    
    
    
    38Additional paid-in capital
    
    
    114,395
    
    
    
    113,484Accumulated deficit
    
    
    (99,161
    )
    
    
    (101,361
    )Accumulated other comprehensive loss
    
    
    (521
    )
    
    
    (442
    )Net stockholders equity
    
    
    14,752
    
    
    
    11,719Total liabilities and stockholders equity
    
    $
    23,843
    
    
    $
    28,527
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MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited, in thousands, except share amounts)
 Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenues
    
    $
    10,906
    
    
    $
    20,548
    
    
    $
    40,112
    
    
    $
    53,368Cost of salesProduct costs
    
    
    5,447
    
    
    
    7,816
    
    
    
    17,175
    
    
    
    19,647Software development costs and license fees
    
    
    2,232
    
    
    
    6,016
    
    
    
    10,099
    
    
    
    14,976Loss on impairment of software development costs
and license fees  future releases
    
    
    116
    
    
    
    
    
    
    
    1,021
    
    
    
    1707,795
    
    
    
    13,832
    
    
    
    28,295
    
    
    
    34,793Gross profit
    
    
    3,111
    
    
    
    6,716
    
    
    
    11,817
    
    
    
    18,575Operating costs and expensesProduct research and development
    
    
    707
    
    
    
    1,301
    
    
    
    1,641
    
    
    
    2,594Selling and marketing
    
    
    1,527
    
    
    
    3,198
    
    
    
    4,584
    
    
    
    7,333General and administrative
    
    
    2,266
    
    
    
    2,099
    
    
    
    4,390
    
    
    
    4,593Depreciation and amortization
    
    
    44
    
    
    
    69
    
    
    
    97
    
    
    
    138Settlement of litigation and related charges, net
    
    
    
    
    
    
    264
    
    
    
    
    
    
    
    404Loss on impairment of software development costs
and license fees  cancelled games
    
    
    160
    
    
    
    380
    
    
    
    160
    
    
    
    3804,704
    
    
    
    7,311
    
    
    
    10,872
    
    
    
    15,442Operating (loss) income
    
    
    (1,593
    )
    
    
    (595
    )
    
    
    945
    
    
    
    3,133Other expenses (income)Interest and financing costs, net
    
    
    125
    
    
    
    221
    
    
    
    621
    
    
    
    679Change in fair value of warrants
    
    
    (27
    )
    
    
    880
    
    
    
    (229
    )
    
    
    1,015(Loss) income before income taxes
    
    
    (1,691
    )
    
    
    (1,696
    )
    
    
    553
    
    
    
    1,439Income taxes
    
    
    (84
    )
    
    
    
    
    
    
    (1,647
    )
    
    
    (1,027
    )Net (loss) income
    
    $
    (1,607
    )
    
    $
    (1,696
    )
    
    $
    2,200
    
    
    $
    2,466Net (loss) income per share:Basic
    
    $
    (0.04
    )
    
    $
    (0.06
    )
    
    $
    0.06
    
    
    $
    0.09Diluted
    
    $
    (0.04
    )
    
    $
    (0.06
    )
    
    $
    0.06
    
    
    $
    0.09Weighted average shares outstanding:Basic
    
    
    36,874,270
    
    
    
    28,494,960
    
    
    
    36,789,337
    
    
    
    28,206,927Diluted
    
    
    36,874,270
    
    
    
    28,494,960
    
    
    
    36,793,821
    
    
    
    28,420,121
  4




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MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited, in thousands)
 Six Months EndedApril 30,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    2,200
    
    
    $
    2,466Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    97
    
    
    
    138Change in fair value of warrants
    
    
    (229
    )
    
    
    1,015Share-based litigation settlement
    
    
    
    
    
    
    404Non-cash compensation expense
    
    
    911
    
    
    
    805Loss on disposal of assets
    
    
    19
    
    
    
    Provision for price protection and customer allowances
    
    
    2,142
    
    
    
    1,145Amortization of software development costs and license fees
    
    
    2,839
    
    
    
    4,680Loss on impairment of software development costs and license fees
    
    
    1,181
    
    
    
    550Changes in operating assets and liabilities:Due from factor
    
    
    (2,314
    )
    
    
    (1,382
    )Accounts and other receivables
    
    
    346
    
    
    
    515Inventory
    
    
    1,990
    
    
    
    2,693Capitalized software development costs and license fees
    
    
    (3,895
    )
    
    
    (7,019
    )Prepaid expenses
    
    
    1,975
    
    
    
    (2,341
    )Accounts payable and accrued expenses
    
    
    (1,943
    )
    
    
    3,014Advances from customers
    
    
    (680
    )
    
    
    (237
    )Net cash provided by operating activities
    
    
    4,639
    
    
    
    6,446CASH FLOWS FROM INVESTING ACTIVITIESPurchases of property and equipment
    
    
    (104
    )
    
    
    (82
    )Net cash used in investing activities
    
    
    (104
    )
    
    
    (82
    )CASH FLOWS FROM FINANCING ACTIVITIESInventory financing
    
    
    (4,844
    )
    
    
    (1,540
    )Net cash used in financing activities
    
    
    (4,844
    )
    
    
    (1,540
    )Effect of exchange rates on cash and cash equivalents
    
    
    (27
    )
    
    
    (67
    )Net (decrease) increase in cash and cash equivalents
    
    
    (336
    )
    
    
    4,757Cash and cash equivalents  beginning of period
    
    
    11,839
    
    
    
    5,505Cash and cash equivalents  end of period
    
    $
    11,503
    
    
    $
    10,262SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIESCash paid for interest
    
    $
    621
    
    
    $
    680Litigation settlement costs paid in stock
    
    $
    
    
    
    $
    1,412
  5




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MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, in thousands, except share amounts)
 1. PRINCIPAL BUSINESS ACTIVITY AND BASIS OF PRESENTATION
     Three Months Ended April 30,
    
    
    Six Months Ended April 30,2010
    
    
    %
    
    
    2009
    
    
    %
    
    
    2010
    
    
    %
    
    
    2009
    
    
    %United States
    
    $
    10,406
    
    
    
    95.4
    %
    
    $
    20,275
    
    
    
    98.7
    %
    
    $
    38,365
    
    
    
    95.6
    %
    
    $
    52,020
    
    
    
    97.5
    %Europe
    
    
    500
    
    
    
    4.6
    %
    
    
    273
    
    
    
    1.3
    %
    
    
    1,747
    
    
    
    4.4
    %
    
    
    1,348
    
    
    
    2.5
    %Total
    
    $
    10,906
    
    
    
    100.0
    %
    
    $
    20,548
    
    
    
    100.0
    %
    
    $
    40,112
    
    
    
    100.0
    %
    
    $
    53,368
    
    
    
    100.0
    %
  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Revenue Recognition.
 6




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Inventory.
 Capitalized Software Development Costs and License Fees.
  Accounting for Collaborative
Arrangements
 Estimates.
 Income (loss) Per Share.
 Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Basic weighted average shares outstanding
    
    
    36,874,270
    
    
    
    28,494,960
    
    
    
    36,789,337
    
    
    
    28,206,927Common stock purchase warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock options
    
    
    
    
    
    
    
    
    
    
    4,484
    
    
    
    Non-vested portion of restricted stock grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    213,194Diluted weighted average shares outstanding
    
    
    36,874,270
    
    
    
    28,494,960
    
    
    
    36,793,821
    
    
    
    28,420,121
 7




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##### Table of Contents



April 30,
    
    
    April 30,2010
    
    
    2009Shares issuable under common stock warrants
    
    
    2,201,469
    
    
    
    2,311,469Shares issuable under stock options
    
    
    1,483,929
    
    
    
    1,352,610Non-vested portion of restricted stock grants
    
    
    1,771,352
    
    
    
    2,187,0695,456,750
    
    
    
    5,851,148
  Recently issued accounting pronouncements
     8




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Reclassifications.
 Commitments and Contingencies.
 3. FAIR VALUE
  
    
    Level 1Quoted prices in active markets for identical assets or liabilities.
    
    Level 2Observable inputs other than quoted prices included in Level 1, such as quoted
prices for markets that are not active or other inputs that are observable or can be
corroborated by observable market data.
    
    Level 3Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities. This includes certain
pricing models, discounted cash flow methodologies and similar techniques that use
significant unobservable inputs.
  Quoted prices
    
    
    
    
    
    
    Significantin active markets
    
    
    Significant other
    
    
    unobservablefor identical assets
    
    
    observable inputs
    
    
    inputsApril 30, 2010
    
    
    (level 1)
    
    
    (level 2)
    
    
    (level 3)Assets:Money market funds
    
    $
    10,039
    
    
    $
    10,039
    
    
    $
    
    
    
    $
    Bank- deposit
    
    $
    1,464
    
    
    $
    1,464
    
    
    $
    
    
    
    $
    Total financial assets
    
    $
    11,503
    
    
    $
    11,503
    
    
    $
    
    
    
    $
    Liabilities:Warrant liability
    
    $
    397
    
    
    $
    
    
    
    $
    
    
    
    $
    397Total financial liabilities
    
    $
    397
    
    
    $
    
    
    
    $
    
    
    
    $
    397
 , Distinguishing Liabilities
from Equity.
   Six Months
    
    
    YearEnded
    
    
    EndedApril 30,
    
    
    October 31,Description
    
    2010
    
    
    2009Beginning balance
    
    $
    626
    
    
    $
    211Purchases, issuances, and settlements
    
    
    
    
    
    
    Total loss (gain) included in net loss
    
    
    (229
    )
    
    
    415Ending balance
    
    $
    397
    
    
    $
    626
 9




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##### Table of Contents



4. INCOME TAXES
   5. DUE FROM FACTOR
  April 30,
    
    
    October 31,2010
    
    
    2009Outstanding accounts receivable sold to factor
    
    $
    5,377
    
    
    $
    19,307Less: allowances
    
    
    (3,402
    )
    
    
    (4,380
    )Less: advances from factor
    
    
    (821
    )
    
    
    (13,755
    )$
    1,154
    
    
    $
    1,172
  Six Months EndedApril 30,2010
    
    
    2009Balance  beginning of period
    
    $
    (4,380
    )
    
    $
    (3,359
    )Add: provision
    
    
    (2,331
    )
    
    
    (1,145
    )Less: amounts charged against allowance
    
    
    3,309
    
    
    
    2,476Balance  end of period
    
    $
    (3,402
    )
    
    $
    (2,028
    )
  6. ACCOUNTS AND OTHER RECEIVABLES
  April 30,
    
    
    October 31,2010
    
    
    2009Accounts receivable
    
    $
    1,003
    
    
    $
    1,388Allowances
    
    
    (89
    )
    
    
    (295
    )Other
    
    
    24
    
    
    
    52$
    938
    
    
    $
    1,145
 10




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7. PREPAID EXPENSES
  April 30,
    
    
    October 31,2010
    
    
    2009Prepaid media advertising
    
    $
    716
    
    
    $
    627Other
    
    
    99
    
    
    
    220$
    815
    
    
    $
    847
 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  April 30,
    
    
    October 31,2010
    
    
    2009Accounts payable  trade
    
    $
    4,565
    
    
    $
    3,990Accrued expenses:Royalties  including accrued minimum
guarantees
    
    
    1,537
    
    
    
    3,680Salaries and other compensation
    
    
    774
    
    
    
    648Sales commissions
    
    
    58
    
    
    
    197Billings due to distribution partner
    
    
    
    
    
    
    230Other accruals
    
    
    457
    
    
    
    841$
    7,391
    
    
    $
    9,586
 9. COMPREHENSIVE INCOME
  Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net (loss) income
    
    $
    (1,607
    )
    
    $
    (1,696
    )
    
    $
    2,200
    
    
    $
    2,466Other comprehensive loss  Foreign currency translation adjustments
    
    
    (43
    )
    
    
    (5
    )
    
    
    (79
    )
    
    
    (163
    )Total comprehensive (loss) income
    
    $
    (1,650
    )
    
    $
    (1,701
    )
    
    $
    2,121
    
    
    $
    2,303
 10. CONTINGENCIES AND COMMITMENTS
 Commitments
   11




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11. WORKFORCE REDUCTION
  Six Months EndedApril 30, 2010Product research and development
    
    $
    90Selling and Marketing
    
    
    243General and Administrative
    
    
    70Total
    
    $
    403
  12. RELATED PARTIES
   Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Consulting
    
    $
    38
    
    
    $
    38
    
    
    $
    75
    
    
    $
    108Business expenses
    
    
    11
    
    
    
    4
    
    
    
    11
    
    
    
    6Total
    
    $
    49
    
    
    $
    42
    
    
    $
    86
    
    
    $
    114
  Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Commissions (accrued prior to January 1, 2010)
    
    $
    86
    
    
    $
    62
    
    
    $
    131
    
    
    $
    149
  
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
  12




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Overview
       Net Revenues
 Cost of Sales.
 Gross Profit.
 13




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##### Table of Contents



Product Research and Development Expenses.
 Selling and Marketing Expenses.
 General and Administrative Expenses.
 Loss on Impairment of Software Development Costs and License Fees Cancelled Games.
 Interest and Financing Costs.
 Income Taxes
 Seasonality and Variations in Interim Quarterly Results
  Critical Accounting Estimates
  14




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Revenue Recognition.
 Reserves for Price Protection and Other Allowances.
  15




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Capitalized Software Development Costs and License Fees.
 Accounting for Collaborative Arrangements
      Inventory.
 Accounting for Stock-Based Compensation.
 16




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##### Table of Contents



Commitments and Contingencies.
 Revenue by platform
 The following Table sets forth our net revenues by platform:
 Three Months Ended April 30,
    
    
    Six Months Ended April 30,2010
    
    
    %
    
    
    2009
    
    
    %
    
    
    2010
    
    
    %
    
    
    2009
    
    
    %Nintendo Wii
    
    $
    2,678
    
    
    
    24.6
    %
    
    $
    10,734
    
    
    
    52.2
    %
    
    $
    10,651
    
    
    
    26.6
    %
    
    $
    31,737
    
    
    
    59.5
    %Nintendo DS
    
    
    8,002
    
    
    
    73.4
    %
    
    
    9,305
    
    
    
    45.3
    %
    
    
    28,257
    
    
    
    70.4
    %
    
    
    20,463
    
    
    
    38.3
    %Other
    
    
    226
    
    
    
    2.0
    %
    
    
    509
    
    
    
    2.5
    %
    
    
    1,204
    
    
    
    3.0
    %
    
    
    1,168
    
    
    
    2.2
    %TOTAL
    
    $
    10,906
    
    
    
    100.0
    %
    
    $
    20,548
    
    
    
    100.0
    %
    
    $
    40,112
    
    
    
    100.0
    %
    
    $
    53,368
    
    
    
    100.0
    %
 Results of operations
 Three months ended April 30, 2010 versus three months ended April 30, 2009
 Net Revenues. Jillian Michaels Fitness Ultimatum Jillian Michaels:
Resolution, Gardening Mama The Daring Game for Girls Pizza Boy
 Gross Profit.
 Product Research and Development Expenses.
 Selling and Marketing Expenses.
 17




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General and Administrative Expenses.
 Settlement of Litigation Charges.
 Operating Loss.
 Interest and Financing Costs, Net.
 Change in Fair Value of Warrants. ,
Distinguishing Liabilities from Equity
  Income Taxes.
 Net Loss.
 Six months ended April 30, 2010 versus six months ended April 30, 2009
 Net Revenues. Jillian Michaels
Fitness Ultimatum Cooking Mama: World Kitchen Jillian
Michaels: Resolution, Cooking Mama World Kitchen Gardening Mama Alvin and
the Chipmunks the Sqeakquel The Daring Game for Girls Pizza Boy
 Gross Profit.
 18




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##### Table of Contents



Product Research and Development Expenses.
 Selling and Marketing Expenses.
 General and Administrative Expenses.
 Settlement of Litigation Charges.
 Operating Income.
 Interest and Financing Costs, Net.
 19




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Change in Fair Value of Warrants. ,
Distinguishing Liabilities from Equity
  Income Taxes.
    Net Income.
 Liquidity and Capital Resources
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Factoring and Purchase Order Financing.
     Advances from Customers.
 Contingencies and Commitments.
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Off-Balance Sheet Arrangements
  Cash Flows
  Operating Cash Flows.
  Investing Cash Flows.
 Financing Cash Flows.
 
 Item 3. Quantitative and Qualitative Disclosure about Market Risk
 Not Applicable.
 
 Item 4T. Controls and Procedures
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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Removed and Reserved
 
 Item 5. Other Information
  
 Item 6. Exhibits
 #10.1
    
    Confidential License Agreement for the Wii Console (Western Hemisphere), effective February
21, 2007, by and between Nintendo of America Inc. and Majesco
Entertainment Company.#10.2
    
    First Amendment to the Confidential License Agreement for the Wii Console (Western
Hemisphere), effective January 4, 2010, by and between Nintendo of America Inc. and Majesco
Entertainment Company.#10.3
    
    Add On Content Addendum to the Confidential License Agreement for the Wii Console,
effective November 2, 2009, by and between Nintendo of America Inc. and Majesco Entertainment
Company.#10.4
    
    Confidential License Agreement for Nintendo DS (Western Hemisphere), effective May 1, 2005,
by and between Nintendo of America Inc. and Majesco Entertainment Company.#10.5
    
    First Amendment to the Confidential License Agreement for Nintendo DS (Western Hemisphere),
effective April 30, 2008, by and between Nintendo of America Inc. and Majesco Entertainment
Company.#10.6
    
    Letter Agreement re: Game Publishing for Nintendo DSI, dated February 25, 2009, by and
between Nintendo of America Inc. and Majesco Entertainment
Company.31.1
    
    Certification of Principal Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Principal Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.32
    
    Certification of Principal Executive Officer and Principal Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURE
  MAJESCO ENTERTAINMENT COMPANY
 /s/ Jesse SuttonJesse SuttonChief Executive Officer  25