##### 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 January 31, 2010
 Commission File No. 000-51128
 Majesco Entertainment Company
  DELAWARE
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    06-1529524
(I.R.S. Employer
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
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ




---



##### 



MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
January 31, 2010 QUARTERLY REPORT ON FORM 10-Q
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of January 31, 2010 (unaudited) and October 31, 2009
    
    
    3Condensed Consolidated Statements of Operations for the three months ended January 31, 2010 and 2009 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended January 31, 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. Controls and Procedures
    
    
    20PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3. Defaults Upon Senior Securities
    
    
    22Item 4. Other Information (Removed and Reserved)
    
    
    22Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    22SIGNATURES
    
    
    23CERTIFICATIONSEX-31.1EX-31.2EX-32
  2




---



##### 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)
 January 31,
    
    
    October 31,2010
    
    
    2009(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,703
    
    
    $
    11,839Due from factor
    
    
    6,810
    
    
    
    1,172Accounts and other receivables, net
    
    
    1,632
    
    
    
    1,145Inventory, net
    
    
    3,583
    
    
    
    6,190Advance payments for inventory
    
    
    654
    
    
    
    3,126Capitalized software development costs and license fees
    
    
    2,543
    
    
    
    3,678Prepaid expenses
    
    
    539
    
    
    
    847Total current assets
    
    
    28,464
    
    
    
    27,997Property and equipment, net
    
    
    378
    
    
    
    447Other assets
    
    
    83
    
    
    
    83Total assets
    
    $
    28,925
    
    
    $
    28,527LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    12,089
    
    
    $
    9,356Customer billings due to distribution partner
    
    
    7
    
    
    
    230Inventory financing payables
    
    
    
    
    
    
    6,053Advances from customers
    
    
    393
    
    
    
    543Total current liabilities
    
    
    12,489
    
    
    
    16,182Warrant liability
    
    
    424
    
    
    
    626Commitments and contingencies Stockholders equity:Common stock  $.001 par value; 250,000,000 share
authorized; 38,589,044 and 38,553,740 issued and
outstanding at January 31, 2010 and October 31, 2009,
respectively
    
    
    38
    
    
    
    38Additional paid-in capital
    
    
    114,006
    
    
    
    113,484Accumulated deficit
    
    
    (97,554
    )
    
    
    (101,361
    )Accumulated other comprehensive loss
    
    
    (478
    )
    
    
    (442
    )Net stockholders equity
    
    
    16,012
    
    
    
    11,719Total liabilities and stockholders equity
    
    $
    28,925
    
    
    $
    28,527
  3




---



##### Table of Contents



MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share amounts)
 Three Months EndedJanuary 31,2010
    
    
    2009Net revenues
    
    $
    29,206
    
    
    $
    32,820Cost of salesProduct costs
    
    
    11,728
    
    
    
    11,831Software development costs and license fees
    
    
    7,867
    
    
    
    8,960Loss on impairment of software development costs
and license fees  future releases
    
    
    905
    
    
    
    17020,500
    
    
    
    20,961Gross profit
    
    
    8,706
    
    
    
    11,859Operating costs and expensesProduct research and development
    
    
    934
    
    
    
    1,293Selling and marketing
    
    
    3,056
    
    
    
    4,124General and administrative
    
    
    2,124
    
    
    
    2,505Depreciation and amortization
    
    
    53
    
    
    
    69Settlement of litigation and related charges, net
    
    
    
    
    
    
    1406,167
    
    
    
    8,131Operating income
    
    
    2,539
    
    
    
    3,728Other expenses (income)Interest and financing costs, net
    
    
    497
    
    
    
    458Change in fair value of warrant liability
    
    
    (202
    )
    
    
    135Income before income taxes
    
    
    2,244
    
    
    
    3,135Income taxes
    
    
    (1,563
    )
    
    
    (1,027
    )Net income
    
    $
    3,807
    
    
    $
    4,162Net income per share:Basic
    
    $
    0.10
    
    
    $
    0.15Diluted
    
    $
    0.10
    
    
    $
    0.15Weighted-average shares outstanding:Basic
    
    
    36,808,062
    
    
    
    27,944,958Diluted
    
    
    36,829,239
    
    
    
    27,944,958
  4




---



##### Table of Contents



MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 Three Months EndedJanuary 31,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    3,807
    
    
    $
    4,162Adjustments to reconcile net income to net cash used in operating
activities:Change in fair value of warrant liability
    
    
    (202
    )
    
    
    135Depreciation and amortization
    
    
    53
    
    
    
    69Write off of fixed assets
    
    
    19
    
    
    
    Provision for price protection
    
    
    1,169
    
    
    
    600Amortization of capitalized software development costs and prepaid
license fees
    
    
    2,186
    
    
    
    2,997Non-cash compensation expense
    
    
    522
    
    
    
    411Share-based litigation settlement
    
    
    
    
    
    
    140Loss on impairment of software development costs and license fees
    
    
    905
    
    
    
    170Changes in operating assets and liabilitiesDue from factor  net
    
    
    (6,671
    )
    
    
    (6,477
    )Accounts and other receivables
    
    
    (645
    )
    
    
    2,173Inventory
    
    
    2,599
    
    
    
    3,463Capitalized software development costs and prepaid license fees
    
    
    (1,957
    )
    
    
    (2,836
    )Prepaid expenses and advance payments for inventory
    
    
    2,776
    
    
    
    (240
    )Accounts payable and accrued expenses
    
    
    2,741
    
    
    
    2,550Customer billings due to distribution partner
    
    
    (223
    )
    
    
    (534
    )Advances from customers
    
    
    (151
    )
    
    
    (161
    )Net cash provided by operating activities
    
    
    6,928
    
    
    
    6,622CASH FLOWS FROM INVESTING ACTIVITIESPurchases of property and equipment
    
    
    (4
    )
    
    
    (56
    )Net cash used in investing activities
    
    
    (4
    )
    
    
    (56
    )CASH FLOWS FROM FINANCING ACTIVITIESInventory financing
    
    
    (6,053
    )
    
    
    (1,540
    )Net cash used in financing activities
    
    
    (6,053
    )
    
    
    (1,540
    )Effect of exchange rates on cash and cash equivalents
    
    
    (7
    )
    
    
    (41
    )Net increase in cash and cash equivalents
    
    
    864
    
    
    
    4,985Cash and cash equivalents  beginning of period
    
    
    11,839
    
    
    
    5,505Cash and cash equivalents  end of period
    
    $
    12,703
    
    
    $
    10,490SUPPLEMENTAL CASH FLOW INFORMATIONCash paid during the period for interest
    
    $
    497
    
    
    $
    459Cash received during the period for income taxes
    
    $
    1,656
    
    
    $
    1,115
  5




---



##### Table of Contents



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 January 31,2010
    
    
    %
    
    
    2009
    
    
    %United States
    
    $
    27,959
    
    
    
    95.7
    %
    
    $
    31,746
    
    
    
    96.7
    %Europe
    
    
    1,247
    
    
    
    4.3
    %
    
    
    1,074
    
    
    
    3.3
    %Total
    
    $
    29,206
    
    
    
    100.0
    %
    
    $
    32,820
    
    
    
    100.0
    %
  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Revenue Recognition.
 6




---



##### Table of Contents



Inventory.
 Capitalized Software Development Costs and License Fees.
  Estimates.
 Income Per Share.
 Three Months EndedJanuary 31,2010
    
    
    2009Basic weighted average shares outstanding
    
    
    36,808,062
    
    
    
    27,944,958Common stock purchase warrants
    
    
    
    
    
    
    Common stock options
    
    
    21,177
    
    
    
    Non-vested portion of restricted stock grants
    
    
    
    
    
    
    Diluted weighted average shares outstanding
    
    
    36,829,239
    
    
    
    27,944,958
  January 31,
    
    
    January 31,2010
    
    
    2009Shares issuable under common stock warrants
    
    
    2,201,469
    
    
    
    2,311,469Shares issuable under stock options
    
    
    1,462,752
    
    
    
    1,352,610Non-vested portion of restricted stock grants
    
    
    1,748,022
    
    
    
    2,163,9515,412,243
    
    
    
    5,828,030
 7




---



##### Table of Contents



Recently issued accounting pronouncements
     Reclassifications.
 Commitments and Contingencies.
 3. FAIR VALUE
  
 
 
 8




---



##### Table of Contents



Quoted pricesin active markets
    
    
    Significant other
    
    
    Significant unobservablefor identical assets
    
    
    observable inputs
    
    
    inputsJanuary 31, 2010
    
    
    (level 1)
    
    
    (level 2)
    
    
    (level 3)Assets:Money market funds
    
    $
    11,539
    
    
    $
    11,539
    
    
    $
    
    
    
    $
    Bank- deposit
    
    $
    1,164
    
    
    $
    1,164
    
    
    $
    
    
    
    $
    Total financial assets
    
    $
    12,703
    
    
    $
    12,703
    
    
    $
    
    
    
    $
    Liabilities:Warrant liability
    
    $
    424
    
    
    $
    
    
    
    $
    
    
    
    $
    424Total financial liabilities
    
    $
    424
    
    
    $
    
    
    
    $
    
    
    
    $
    424
 , Distinguishing Liabilities
from Equity.
   Three Months
    
    
    YearEnded
    
    
    EndedJanuary 31,
    
    
    October 31,Description
    
    2010
    
    
    2009Beginning balance
    
    $
    626
    
    
    $
    211Purchases, issuances, and settlements
    
    
    
    
    
    
    Total loss (gain) included in net loss
    
    
    (202
    )
    
    
    415Ending balance
    
    $
    424
    
    
    $
    626
  4. INCOME TAXES
  9




---



##### Table of Contents



5. DUE FROM FACTOR
  January 31,
    
    
    October 31,2010
    
    
    2009Outstanding accounts receivable sold to factor
    
    $
    18,703
    
    
    $
    19,307Less: allowances
    
    
    (4,939
    )
    
    
    (4,380
    )Less: advances from factor
    
    
    (6,954
    )
    
    
    (13,755
    )$
    6,810
    
    
    $
    1,172
  Three Months EndedJanuary 31,2010
    
    
    2009Balance  beginning of period
    
    $
    (4,380
    )
    
    $
    (3,359
    )Add: provision
    
    
    (1,001
    )
    
    
    (600
    )Less: amounts charged against allowance
    
    
    442
    
    
    
    252Balance  end of period
    
    $
    (4,939
    )
    
    $
    (3,707
    )
  6. ACCOUNTS AND OTHER RECEIVABLES
  January 31,
    
    
    October 31,2010
    
    
    2009Accounts receivable
    
    $
    1,890
    
    
    $
    1,388Allowances
    
    
    (417
    )
    
    
    (295
    )Other
    
    
    159
    
    
    
    52$
    1,632
    
    
    $
    1,145
 7. PREPAID EXPENSES
  January 31,
    
    
    October 31,2010
    
    
    2009Prepaid media advertising
    
    $
    420
    
    
    $
    627Other
    
    
    119
    
    
    
    220$
    539
    
    
    $
    847
 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  January 31,
    
    
    October 31,2010
    
    
    2009Accounts payable  trade
    
    $
    3,155
    
    
    $
    3,990Accrued expenses:Royalties  including accrued minimum guarantees
    
    
    7,322
    
    
    
    3,680Salaries and other compensation
    
    
    705
    
    
    
    648Sales commissions
    
    
    265
    
    
    
    197Other accruals
    
    
    642
    
    
    
    841$
    12,089
    
    
    $
    9,356
 10




---



##### Table of Contents



9. COMPREHENSIVE INCOME
  Three Months EndedJanuary 31,2010
    
    
    2009Net income
    
    $
    3,807
    
    
    $
    4,162Other comprehensive loss  Foreign currency translation adjustments
    
    
    (36
    )
    
    
    (158
    )Total comprehensive income
    
    $
    3,771
    
    
    $
    4,004
 10. CONTINGENCIES AND COMMITMENTS
 Commitments
   11. WORKFORCE REDUCTION
  Three Months EndedJanuary 31, 2010Product research and development
    
    $
    90Selling and Marketing
    
    
    243General and Administrative
    
    
    70Total
    
    $
    403
  12. RELATED PARTIES
 11




---



##### Table of Contents



Three Months EndedJanuary 31,2010
    
    
    2009Consulting
    
    $
    37
    
    
    $
    70Commissions
    
    
    45
    
    
    
    87Business expenses
    
    
    
    
    
    
    2Total
    
    $
    82
    
    
    $
    159
  
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Overview
     12




---



##### Table of Contents



Net Revenues
 Cost of Sales.
 Gross Profit.
 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.
 13




---



##### Table of Contents



Interest and Financing Costs.
 Income Taxes
 Seasonality and Variations in Interim Quarterly Results
  Critical Accounting Estimates
     Revenue Recognition.
 Reserves
for Price Protection and Other Allowances.
 14




---



##### Table of Contents



Capitalized Software Development Costs and License Fees.
     15




---



##### Table of Contents



Inventory.
 Accounting for Stock-Based Compensation.
 Commitments and Contingencies.
 Revenue by platform
 The following Table sets forth our net revenues by platform:
 Three Months Ended January 31,2010
    
    
    %
    
    
    2009
    
    
    %Nintendo Wii
    
    $
    7,973
    
    
    
    27.3
    %
    
    $
    21,012
    
    
    
    64.0
    %Nintendo DS
    
    
    20,255
    
    
    
    69.4
    %
    
    
    11,242
    
    
    
    34.3
    %Other
    
    
    978
    
    
    
    3.3
    %
    
    
    566
    
    
    
    1.7
    %TOTAL
    
    $
    29,206
    
    
    
    100.0
    %
    
    $
    32,820
    
    
    
    100.0
    %
 Results of operations
 Three months ended January 31, 2010 versus three months ended January 31, 2009
 Net Revenues. Jillian Michaels Fitness Ultimatum Cooking Mama:
World Kitchen Jillian Michaels: Resolution, Cooking Mama 3: Shop and Chop of Alvin and the Chipmunks the Sqeakquel
 Gross Profit.
 16




---



##### 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.
 Change in Fair Value of Warrants. ,
Distinguishing Liabilities from Equity
  Income Taxes.
 17




---



##### Table of Contents



Net Income.
 Liquidity and Capital Resources
      Factoring and Purchase Order Financing.
  18




---



##### Table of Contents



Advances from Customers.
 Contingencies and Commitments.
     Off-Balance Sheet Arrangements
  Cash Flows
  Operating Cash Flows.
  19




---



##### Table of Contents



Investing Cash Flows.
 Financing Cash Flows.
 
 Item 3.
    
    Controls and Procedures
      20




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  We may not be able to maintain our listing on the Nasdaq Capital Market.
      
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 (d) Maximum Number(c) Total Number of
    
    
    (or ApproximateShares (or Units)
    
    
    Dollar Value) ofPurchased as Part
    
    
    Shares (or Units)(a) Total Number of
    
    
    (b) Average Price
    
    
    of Publicly
    
    
    that May Yet BeShares (or Units)
    
    
    paid per Share (or
    
    
    Announced Plans or
    
    
    Purchased Under thePeriod
    
    Purchased
    
    
    Unit)
    
    
    Programs
    
    
    Plans or ProgramsJanuary 7, 2010
    
    
    18,623
    (1)
    
    $
    1.19
    
    
    
    
    
    
    
    
 
 (1)
    
    One time withholding of shares by the Company to cover statutory minimum tax withholding on
an employees vesting of restricted stock. 21




---



##### Table of Contents



Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Removed and Reserved
 
 Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
 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.
 22




---



##### Table of Contents



SIGNATURE
  MAJESCO ENTERTAINMENT COMPANY
 /s/ Jesse SuttonJesse Sutton
Chief Executive Officer
  23