| Stockholders' Equity | 8. STOCKHOLDERS
EQUITY Preferred stock Under the Companys
Amended and Restated Certificate of Incorporation, the Company is authorized to issue two classes of shares: preferred and common
stock. The preferred stock is issuable in series, and the Companys Board of Directors is authorized to determine the rights,
preferences, and terms of each series. Convertible preferred
stock as of October 31, 2016 consisted of the following:
Shares Authorized
Shares Issued and Outstanding
Net Carrying Value
Aggregate Liquidation Preference
Common Shares Issuable Upon Conversion
Series A 8,830,000 7,138,158 $1,745 $4,854 1,189,693
Series B 54,250 54,201 4,569 - 903,362
Series C 26,000 25,763 2,010 - 429,392
Series D 170,000 156,332 1,829 - 260,553
Other authorized, unissued 919,750 - - - -
Total 10,000,000 7,374,454 $10,153 $4,854 2,783,000 Convertible preferred
stock as of October 31, 2015 consisted of the following:
Shares Authorized
Shares Issued and Outstanding
Net Carrying Value
Aggregate Liquidation Preference
Common Shares Issuable Upon Conversion
Series A 8,830,000 8,776,968 $2,146 $5,968 1,462,828
Series B 54,250 54,201 4,569 - 903,362
Series C 26,000 25,763 2,010 - 429,392
Series D 170,000 168,333 1,969 - 280,555
Other authorized, unissued 919,750 - - - -
Total 10,000,000 9,025,265 $10,694 $5,968 3,076,137 December Units and Series A Preferred Shares On December 17,
2014, pursuant to subscription agreements (the December Subscription Agreements) entered into with certain accredited
investors (the December Investors) the Company completed a private placement of $6.0 million of units (the December
Units) at a purchase price of $0.68 per Unit, with each December Unit consisting of one share of the Companys 0%
Series A Convertible Preferred Stock (each a Series A Preferred Share) and a five-year warrant (each a December
Warrant) to purchase one sixth of a share of the Companys common stock at an initial exercise price of $4.08 per
share (such issuance and sale, the December Private Placement). The December Warrants were subsequently exchanged
for shares of the Companys 0% Series B Convertible Preferred Stock (the Series B Preferred Shares) and shares
of the Companys common stock (see below). The offering was made in reliance upon an exemption from registration under Section
4(a)(2) of the Securities Act of 1933, as amended (the Securities Act). The Series A Preferred
Shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Series A
Preferred Share, plus all accrued and unpaid dividends, if any, on such Series A Preferred Share, as of such date of determination,
divided by the conversion price. The stated value of each Preferred Share is $0.68 and the initial conversion price is $4.08 per
share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar
events. In addition, in the event the Company issues or sells, or is deemed to issue or sell, shares of its common stock at a per
share price that is less than the conversion price then in effect, the conversion price shall be reduced to such lower price, subject
to certain exceptions. Pursuant to the Certificate of Designations, Preferences and Rights of the 0% Series A Convertible Preferred
Stock of Majesco Entertainment Company, the Company is prohibited from incurring debt or liens, or entering into new financing
transactions without the consent of the lead investor (as defined in the December Subscription Agreements) as long as any of the
Series A Preferred Shares are outstanding. The Series A Preferred Shares bear no dividends. The holders of
Series A Preferred Shares shall vote together with the holders of common stock on all matters on an as if converted basis, subject
to certain conversion and ownership limitations, and shall not vote as a separate class. Notwithstanding the foregoing, the conversion
price for purposes of calculating voting power shall in no event be lower than $3.54 per share. At no time may all or a portion
of the Series A Preferred Shares be converted if the number of shares of common stock to be issued pursuant to such conversion
would exceed, when aggregated with all other shares of common stock owned by the holder at such time, the number of shares of common
stock which would result in such Holder beneficially owning (as determined in accordance with Section 13(d) of the 1934 Act and
the rules thereunder) more than 4.99% of all of the common stock outstanding at such time; provided, however, that the holder may
waive the 4.99% limitation at which time he may not own beneficially own more than 9.99% of all the common stock outstanding at
such time. Prior to the exchange
transaction described below, the December Warrants were exercisable at any time at a price of $4.08 per share, subject to adjustment,
and expired five years from the date of issuance. The holders could exercise the December Warrants for shares of common stock on
a cashless basis if there was no effective registration statement or no current prospectus available for resale of the underlying
shares of common stock. The December Warrants were subject to certain adjustments upon certain actions by the Company as outlined
in the December Warrants, including, for twenty-four months following the initial issuance date, the issuance or sale, or deemed
issuance or sale, by the Company of shares of its common stock at a per share price that is less than the exercise price then in
effect. The proceeds of
the offering and certificates representing the Series A Preferred Shares and December Warrants underlying the December Units issued
in the offering were deposited into escrow accounts. Upon the closing of the December Private Placement on December 17, 2014 (such
date, the December Closing Date), $1.0 million of the December Escrow Amount was released to the Company and $1.0
million of December Units to the December Investors, on a pro rata basis. Effective upon the approval of the Companys stockholders
on March 30, 2015, in one or multiple tranches, the remaining $5.0 million became eligible to be released to the Company and $5.0
million of December Units became eligible to be released to the December Investors from their respective escrow accounts, if either,
(i) the lead investor has approved the release, (ii) the approval of the requisite number of December Investors has been obtained,
(iii) the Company has executed definitive binding documents for certain transactions, as described in the December Subscription
Agreements, and such transaction(s) are to close contemporaneously with the release, following approval by the Companys
stockholders or (iv) the following conditions are present: (a) nine months has elapsed from the December Closing Date and release
is approved by each of the directors appointed at closing (being the non-continuing directors); (b) no subsequent release of the
December Escrow Amount has been consummated; and (c) no more than $1.0 million is released (the December Release Conditions).
In the event that on and as of the twelve month anniversary of the December Closing Date none of the December Release Conditions
have been satisfied, $5.0 million would be returned on a pro rata basis to the December Investors, without interest or deduction,
and $5,000 of December Units would be returned to the Company for cancellation. On September 25, 2015, the lead investor approved
the release and the escrow agent released all funds and corresponding December Units remaining in escrow. The Company received
net proceeds of $801,000 for the December Units released from escrow, net of offering costs, and has accounted for each of the
Series A Preferred Shares released from escrow, the December Warrants released from escrow and the Series A Preferred Shares and
December Warrants remaining in escrow as freestanding instruments. The Company has
evaluated the guidance ASC 480-10 Distinguishing Liabilities from Equity and ASC 815-40 Contracts in an Entitys
Own Equity to determine the appropriate classification of the instruments. Prior to the exchange described below, the exercise
price of the released December Warrants could be adjusted downward if the Company issued securities at a price below the initial
exercise price and in certain other circumstances outside the control of the Company and therefore contain contingent settlement
terms not indexed solely to the Companys own shares of common stock. Accordingly, $603,000 of proceeds were recorded as
a derivative liability representing the fair value of the December Warrants released from escrow at issuance and $120,000 of offering
costs allocated to the December Warrants were expensed. As a result of the allocations, described above, the Series A Preferred
Shares released were deemed to have a beneficial conversion feature at issuance amounting to $397,000, which was recorded in stockholders
equity and immediately charged as a dividend in determining net loss attributable to common stockholders. The remaining net
proceeds of $318,000 were allocated to the Series A Preferred Shares net of $79,000 of offering costs. The Series A Preferred Shares
do not represent an unconditional obligation to be settled in a variable number of shares of common stock, are not redeemable and
do not contain fixed or indexed conversion provisions similar to debt instruments. Accordingly, the Series A Preferred Shares are
considered equity hosts and recorded in stockholders equity. Upon stockholder
approval in March 2015 of full conversion provisions of the escrowed December Warrants, the Company recorded a warrant liability
and a discount on the Series A Preferred Shares amounting to $3,162, based on the estimated fair value of the warrants. In addition,
upon shareholder approval of the full conversion provisions of the escrowed Series A Preferred Shares, the carrying value of such
Series A Preferred Shares, net of proceeds remaining in escrow was reclassified from temporary equity to paid-in capital. The Company
recorded a beneficial conversion feature and a discount on the Series A Preferred Shares amounting to $1.8 million, which was immediately
recognized as a deemed dividend in determining net loss attributable to common shareholders. In connection with
the December Private Placement, the Company also entered into separate Registration Rights Agreements with each December Investor,
(as amended on January 30, 2015 and March 31, 2015, the December Registration Rights Agreement). The Company agreed
to use its best efforts to file by March 31, 2015 a registration statement covering the resale of the shares of common stock issuable
upon exercise or conversion of the Series A Preferred Shares and December Warrants and to maintain its effectiveness until all
such securities have been sold or may be sold without restriction under Rule 144 of the Securities Act. In the event the Company
fails to satisfy its obligations under the December Registration Rights Agreements, the Company is required to pay to the December
Investors on a monthly basis an amount equal to 1% of the investors investment, up to a maximum of 12%. On March 31, 2015,
the Company and the required holders of December Units amended the registration rights agreement to extend the filing deadline
for the registration statement to June 30, 2015. April 2015 Exchange and Series B
Preferred Shares On April 30, 2015,
pursuant to warrant exchange agreements, the Company retired the 1,470,590 December Warrants issued in the December Private Placement,
including those subject to the escrow conditions and those released from escrow, in exchange for shares of the Company's common
stock, or shares of 0% Series B Convertible Preferred Stock (the Series B Preferred Shares), in lieu of shares of
common stock equal, on an as-converted basis, to the number of shares of common stock that would have otherwise been received by
the holder, if such issuance would result in the recipient holder exceeding certain thresholds. An aggregate of 1,050,421 shares
of common stock, which amount includes the shares of common stock issuable upon conversion of the Series B Preferred Shares, were
issuable in connection with the exchange agreements. The Company re-measured the fair value of the December Warrants through the
date of their exchange and recorded related losses in its statement of operations. In the year ending October 31, 2015, the Company
recorded a change in fair value of $1.5 million related to the increase in the fair value of the December Warrants during the period
outstanding. Upon exchange, the contingent-conversion features of the December Warrants expired and the carrying value of the warrant
liability of $5.3 million was reclassified to paid-in capital and allocated to the Series B Preferred Shares and the common shares
distributed. Such Series B Shares and shares of common stock exchanged for the December Warrants are not held in escrow and as
such are not subject to the December Release Conditions. The Series B Preferred
Shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Series B
Preferred Shares, plus all accrued and unpaid dividends, if any, on such Series B Preferred Shares, as of such date of determination,
divided by the conversion price. The stated value of each Series B Preferred Share is $140.00 and the initial conversion price
is $8.40 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions
or other similar events. The Company is prohibited from effecting a conversion of the Series B Preferred Shares to the extent that,
as a result of such conversion, such holder would beneficially own more than 4.99% of the number of shares of common stock outstanding
immediately after giving effect to the issuance of shares of common stock upon conversion of the Series B Preferred Shares, which
beneficial ownership limitation may be increased by the holder up to, but not exceeding, 9.99%. Subject to such beneficial
ownership limitations, each holder is entitled to vote on all matters submitted to stockholders of the Company on an as converted
basis, based on a conversion price of $8.40 per share. The Series B Preferred Shares rank junior to the Series A Preferred
Shares and bear no dividends. All of the convertible preferred shares do not represent an unconditional obligation to be settled
in a variable number of shares, are not redeemable and do not contain fixed or indexed conversion provisions similar to debt instruments.
Accordingly, the convertible preferred shares are considered equity hosts and recorded in stockholders equity. May 2015 Units and Series C Preferred
Shares On May 15, 2015
(the May Closing Date), the Company completed a private placement pursuant to separate subscription agreements (the
May Subscription Agreements) with accredited investors (the May Investors) of $5,050 of units (the
May Units), at a purchase price of $7.20 per Unit, resulting in net proceeds to the Company of $5.0 million. Each
May Unit consists of one share of the Companys common stock, provided that, if the issuance of any such shares of common
stock would have resulted in the recipient May Investor owning in excess of 4.99% of the Companys issued and outstanding
common stock, then such May Investor could elect to receive shares of the Companys 0% Series C Convertible Preferred Stock
(the Series C Preferred Shares) in lieu of common stock that are, on an as converted basis, equal to one share of
common stock for every May Unit purchased, and a three-year warrant (the May Warrants) to purchase one share of the
Companys common stock at an exercise price of $8.40 per share (such sale and issuance, the May Private Placement). An
aggregate of 25,763 Series C Preferred Shares, 271,997 shares of common stock and 701,390 May Warrants were issued under the May
Units. The offering was made in reliance upon an exemption from registration under Section 4(a)(2) of the Securities Act of 1933,
as amended (the Securities Act). The Series C Preferred
Shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Series C
Preferred Shares, plus all accrued and unpaid dividends, if any, on such Series C Preferred Shares, as of such date of determination,
divided by the conversion price. The stated value of each Series C Preferred Share is $120.00 per share, and the initial
conversion price is $7.20 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations,
subdivisions or other similar events. In addition, in the event the Company issues or sells, or is deemed to issue or
sell, shares of common stock at a per share price that is less than the conversion price then in effect, the conversion price shall
be reduced to such lower price, subject to certain exceptions and provided that the conversion price may not be reduced to less
than $5.16, unless and until such time as the Company obtains shareholder approval to allow for a lower conversion price. The
Company is prohibited from effecting a conversion of the Series C Preferred Shares to the extent that, as a result of such conversion,
such May Investor would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after
giving effect to the issuance of shares of common stock upon conversion of the Series C Preferred Shares, which beneficial ownership
limitation may be increased by the holder up to, but not exceeding, 9.99%. Subject to the beneficial ownership limitations
discussed previously, each holder is entitled to vote on all matters submitted to stockholders of the Company, and shall have the
number of votes equal to the number of shares of common stock issuable upon conversion of such holders Series C Preferred
Shares, based on a conversion price of $7.20 per share. The Series C Preferred Shares bear no dividends and shall rank
junior to the Companys Series A Preferred Shares but senior to the Companys Series B Preferred Shares. The May Warrants
are exercisable, at any time, following the date the May Warrants are issued, at a price of $8.40 per share, subject to adjustment,
and expire three years from the date of issuance. The holders may, subject to certain limitations, exercise the May Warrants on
a cashless basis. The Company is prohibited from effecting an exercise of any May Warrant to the extent that, as a result of any
such exercise, the holder would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately
after giving effect to the issuance of shares of common stock upon exercise of such May Warrant, which beneficial ownership limitation
may be increased by the holder up to, but not exceeding, 9.99%. In connection with
the sale of the May Units, the Company also entered into separate registration rights agreements (the May Registration Rights
Agreement) with each May Investor. The Company agreed to use its best efforts to file a registration statement to register
the Shares and the common stock issuable upon the conversion of the Series C Preferred Shares, within thirty days following the
May Closing Date, to cause such registration statement to be declared effective within ninety days of the filing day and to maintain
the effectiveness of the registration statement until all of such shares of common stock have been sold or are otherwise able to
be sold pursuant to Rule 144 without restriction. In the event the Company fails to satisfy its obligations under the
Registration Rights Agreement, the Company is obligated to pay to the May Investors on a monthly basis, an amount equal to 1% of
the May Investors investment, up to a maximum of 12%. Effective as of the original filing deadline of the registration statement,
the Company obtained the requisite approval from the May Investors for the waiver of its obligations under the May Registration
Rights Agreement. The proceeds of
the May Private Placement were deposited into an escrow account (the May Escrow Amount) with Signature Bank, as escrow
agent (the May Escrow Agent) pursuant to an escrow agreement (the May Escrow Agreement), entered into
by and between the Company, the lead investor (as defined in the May Subscription Agreements) and the May Escrow Agent, and certificates
representing the May Warrants and a record of the Shares and Series C Preferred Shares, sold in the May Private Placement were
deposited and recorded with the Companys corporate secretary (the May Securities Escrow Agent) to be held
in escrow. On the May Closing Date, twenty percent (20%) of the May Escrow Amount ($1.0 million) was released by the May Escrow
Agent to the Company in exchange for the release of twenty percent (20%) of May Units by the May Securities Escrow Agent to the
May Investors. The remaining eighty percent (80%) of the May Escrow Amount ($4.0 million) was released by the May Escrow
Agent to the Company and the corresponding percentage of May Units were released to the May Investors, under amendments to the
May subscription agreements. On September 25, 2015, the lead investor approved the release and the May Escrow Agent and the May
Securities Escrow Agent released all funds and May Units remaining in escrow. The Company evaluated
the guidance ASC 480-10 Distinguishing Liabilities from Equity Contracts in an Entitys
Own Equity September 2015 Exchange and Series
D Preferred Shares On September 25,
2015, the Company entered into Amendment Agreements (the Amendments) which amended the terms of the December Subscription
Agreements and May Subscription Agreements. Under the Amendments, the lead investors under the subscription agreements agreed to
release all funds remaining held in escrow ($5.0 million under the December 17, 2014 closing and $4.0 million under the May 15,
2015 closing) upon the appointment of certain persons as officers and directors of the Company. In connection with
the Amendments, the Company also entered into Exchange Agreements with the holders of the May Warrants (the September Exchange
Agreements) and authorized the issuance of .4 shares of common stock for each share of our Common Stock into which the May
Warrants was then convertible, in exchange for cancellation of the May Warrants. The Company agreed that holders of
the May Warrants could exchange their May Warrants and receive either: (1) .4 shares of common stock for each share of common stock
into which the May Warrant was exercisable immediately, or (2) at the election of any holder who would, as a result of receipt
of the common stock hold in excess of 4.99% of the Companys issued and outstanding common stock, shares of 0% Series D Convertible
Preferred Stock (the Preferred D Shares) exercisable for common stock on the same basis, but subject to 4.9% beneficial
ownership blocker provisions which at the election of the holder, could be reduced to 2.49%. Under the agreement, the Company exchanged
all of its May Warrants for an aggregate of 168,333 new shares of 0% Series D Convertible Preferred Stock, which upon full conversion
on a fully-diluted basis, convert into 280,555 shares of newly issued common stock. The Preferred D
Shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Preferred
D Share, plus all accrued and unpaid dividends, if any, on such Preferred D Share, as of such date of determination, divided by
the conversion price. The stated value of each Preferred D Share is $1,000.00 per share and the initial conversion price is $600.00
per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other
similar events. The Company is prohibited from effecting a conversion of the Preferred D Shares to the extent that, as a result
of such conversion, such investor would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately
after giving effect to the issuance of shares of common stock upon conversion of the Preferred D Shares. Upon 61 days written notice,
the beneficial ownership limitation may be increased by the holder up to, but not exceeding, 9.99%. Except as otherwise required
by law, holders of Series D Preferred Shares shall not have any voting rights. Pursuant to the Certificate of Designations, Preferences
and Rights of the 0% Series D Convertible Preferred Stock, the Preferred D Shares bear no interest and shall rank senior to the
Companys other classes of capital stock. The Company accounted for the exchange as a redemption of the warrants and recorded
the estimated fair value of Series D Convertible Preferred Stock issued, amounting to $1,969 with a charge to paid-in capital.
As the value of the preferred shares issued was less than the value of the warrants redeemed, no excess value needed to be attributed
and no portion of the redemption was deemed a dividend. April 2016 Registered Common Stock
and Warrant Offering On April 13, 2016,
the Company entered into a Securities Purchase Agreement with certain institutional investors providing for the issuance and sale
by the Company of 250,000 shares of the Companys common stock, par value $0.001 per share at an offering price of $6.00
per share, for net proceeds of $1.4 million after deducting placement agent fees and expenses. In addition, the Company sold
to purchasers of common stock in this offering, warrants to purchase 187,500 shares of its common stock. The common shares and
the warrant shares were offered by the Company pursuant to an effective shelf registration statement on Form S-3, which was
initially filed with the Securities and Exchange Commission on October 22, 2015 and declared effective on December 7, 2015. The
closing of the offering occurred on April 19, 2016. Each warrant is
immediately exercisable for two years, but not thereafter, at an exercise price of $6.90 per share. Subject to limited exceptions,
a holder of warrants will not have the right to exercise any portion of its warrants if the holder, together with its affiliates,
would beneficially own in excess of 4.99% of the number of shares of our common stock outstanding immediately after giving effect
to such exercise. The exercise price and number of warrants are subject to adjustment in the event of any stock
dividends and splits, reverse stock split, stock dividend, recapitalization, reorganization or similar transaction. The
warrants require the issuance of registered shares upon exercise and do not expressly preclude an implied right to cash settlement
by the holder. Preferred Share Conversion Activity During the year
ended October 31, 2016, 1,638,810 shares of Convertible Preferred Stock Series A and 12,001 shares of Convertible Preferred Stock
Series D were converted into 293,137 shares of common stock. Warrants A summary of the
status of the Companys outstanding warrants as of October 31 and changes during the years then ended is presented below:
October 31,
2016
2015
Outstanding at beginning of year - 1,191
Issued in offerings of units 187,500 2,171,979
Settled under exchange agreements - (2,171,979)
Expired - (1,191)
Outstanding at end of year 187,500 - Special Cash Dividend On January 4,
2016, the Company declared a special cash dividend of an aggregate of $10.0 million to holders of record on January 14, 2016 of
its outstanding shares of: (i) common stock (ii) Series A Convertible Preferred Stock; (iii) Series B Convertible Preferred Stock;
(iv) Series C Convertible Preferred Stock and (v) Series D Convertible Preferred Stock. The holders of record of the
Companys outstanding preferred stock participated in the dividend on an as converted basis. Approximately,
$6.0 million of the special cash dividend relates to Preferred Stock shares. |
