Lisa J. Rodriguez TRUJILLO RODRIGUEZ & RICHARDS, LLC 8 Kings Highway West Haddonfield, NJ 08033 Tel : (856) 795-9002 Fax : (856) 795-9887 -and- Robert N. Kaplan Donald R. Hall Jeffrey P. Campisi KAPLAN FOX & KILSHEIMER LL P 805 Third Avenue, 22nd Floor New York, NY 10022 Tel : (212) 687-1980 Fax: (212) 687-771 4 Attorneysfor Lead PlaintiffDiker Management, LLC, Diker Micro and Small Cap Fund LP, Diker M&S Cap Master LTD, Diker Micro- Value Fund LP and Diker Micro Value QP Fund LP (" Diker ") [Additional counsel listed on signature page] UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSE Y CASE NO. 2 :05-cv-03557-FSH-PS In Re Majesco Securities Litigation AMENDED CONSOLIDATED CLASS ACTION COMPLAIN T JURY TRIAL DEMANDED TABLE OF CONTENTS 1 . NATURE OF THE CLAIMS . .. .. .. .. .. .. .. .......... .. ............ .. .. .. .. .. .. .. .. .. .. .. .. .. 1 II. JURISDICTION AND VENUE . .. .......................... .......................... .... .. .. .. .. .. .... ........... 5 III. CLAIMS AGAINST DEFENDANTS UNDER §§ 11, 12, AND 15 OF THE SECURITIES ACT ....... .. ...................... .. .. .. .. .. .. .. ............................ ............ .. .... 5 A. Securities Act Plaintiffs ............... .. .. .. .. .. .. .. .. .. .. .. .... ................ .... .. .. .. 5 B. Securities Act Defendants .......... .. .. .... .... ...... .. 6 C. Majesco's Registration Statement . .. .. .. .. .. .. .. .9-1 7 IV . SECURITIES ACT COUNTS . .. .17-20 V. CLAIMS AGAINST DEFENDANTS UNDER § 10(b) AND RUL E 10(b)-5 AND UNDER § 20(a) OF THE EXCHANGE ACT . 20 A. The Exchange Act Parties . .. .. .. 2 1 B . Majesco's Business Strategy. .. .. .. .. .. .. .. .... .. .. 24 VI. DEFENDANTS FALSE AND MISLEADING STATEMENTS AND FRAUDULENT CONDUCT DURING THE CLASS PERIOD . .. .. .. .. .. .. .. .. .. .. .. 25 A. Majesco's Financial Results for the Quarter and Year-Ended October 31, 2004 . ........ 28 B. Majesco's Registration Statement .... ...... .. .. .. .. .. .. .... .. .. .. .. .. ............. .. .. .. .. .. .. .............. 34 C. Majesco's Annual Report for the Year-Ended October 31, 2004 .. .... ... .. .. .. .. .. ......... .. .. 37 D. Majesco's Financial Results for the First Quarter-Ended January 31, 2005 ..... .. .. .. .. .. 38 E. Advent Rising is Shipped to Majesco Customers . .. .. .. .. .. .. .. .. .. .. 44 F . Majesco's Financial Results for the Second Quarter-Ended April 30, 2005 . .. 45 G. Majesco Changes Management and Revises Its Financial Guidance . 5 1 VII. THE CLASS PERIOD ENDS . 53 VIII. DEFENDANTS' VIOLATIONS OF GAAP . 54 IX. LOSS CAUSATION/ECONOMIC LOSS . 59 X. FRAUD-ON-THE-MARKET DOCTRINE . 60 XI. ADDITIONAL SCIENTER ALLEGATIONS . .. 6 1 i XII. NO SAFE HARBOR . .. .. .. .. .. .. .. .. .. .. .. .. .. 62 XIII . EXCHANGE ACT COUNTS . .62-64 XIV. CLASS ACTION ALLEGATIONS . 66 XV. PRAYER FOR RELIEF . 67 ii Lead Plaintiff Diker Management , LLC, Diker Micro and Small Cap Fund LP, Diker M&S Cap Master LTD, Diker Micro-Value Fund LP and Diker Micro Value QP Fund LP ("Diker"), by their undersigned counsel , individually and on behalf of all other persons and entities similarly situated, make the following allegations, which are based upon the investigation conducted by Plaintiffs ' counsel, which included, among other things , a review of the public announcements made by defendants , Securities and Exchange Commission ("SEC") filings , press releases, analyst reports and media reports regarding Majesco Entertainment Company ("Majesco" or the "Company"), the pleadings in Bennett v. Majesco Entertainment Company, et al. (Case No. 4392-05)(N.J. Sup . Ct. Monmouth Co)("Bennett v . Majesco") and Majesco Entertainment Company v. Jack ofAll Games, Inc. (Case 2 :05-cv- 0198 1 -DRD-SDW)(D . N .J.)("Majesco v . Jack ofAll Games"), and interviews with confidential informants . 1. NATURE OF THE CLAIMS This is a securities class action brought under § § 11, 12 and 15 of the Securities Act of 1933 (the " Securities Act"), 15 U.S .C . §§77k, 771 and 77o, and §§10(b) and 20(a) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U .S.C. §§78j(b), and 78t(a), and the rules and regulations promulgated thereunder by the SEC, including Rule I Ob-5, 17 C.F.R. §240.1 Ob-5 . A. Overview of Securities Act Claim s 2 . Lead Plaintiffs Diker and Plaintiff Denver Employees Retirement Plan ("DERP") bring Securities Act claims on behalf of persons who purchased Majesco common stock under an Amended Registration Statement filed with the SEC on Form S-1/A on January 20, 2005 and a Prospectus filed with the SEC on January 26, 2005 (the "Prospectus" ) (collectively the "Registration Statement") which became effective on January 26, 2005 (the "Offering"). 3 . Six million shares of Majesco common stock were sold in the Offering at $12.50 per share. 4. The Offering raised approximately $42 million in net proceeds to the Company . 5 . The Securities Act claims allege that the Registration Statement filed with the SEC in connection with the Offering contained material untrue statements and omitted material facts required to be stated in order to make the statements not misleading . 6 . The untrue statements and omissions in the Registration Statement included, inter alia, the following concerning Majesco's financial results for the fiscal year-ended October 31, 2004 : 1) an overstatement of net revenues by approximately $4 .4 million or approximately 4%, as a result of improper revenue recognition; 2) an understatement of costs of sales by $5 .5 million or approximately 6%, as a result of improper capitalization of development costs ; 3) an overstatement of gross profit by approximately $10 million or approximately 40% ; and 4) an overstatement of operating income by approximately $10 million or 469%. 7. In addition, the Registration Statement misrepresented : 1) that Majesco's financia l statements complied with accounting principles generally accepted in the United States ("GAAP") and that the audit of Majesco 's financial statements for the year-ended October 31, 2004 was conducting in accordance with auditing standards generally accepted in the United States ("GAAS") ; and 2) failed to disclose material technical problems with the development of Advent Rising, including the following : i) slowness in load time; ii) rough or unplayable "cut scenes"; iii) animation "freezing"; iv) clipping problems; and v) distortions in the audio such that dialogue was inaudible or was drowned out by the musical score . 8. On September 14, 2005, DERP filed a suit alleging claims under §§11, 12, and 15 of the Securities Act. On September 14, 2005, Majesco shares closed at $1 .22 per share. 9. The Securities Act claims are contained in Section III of this complaint . The Securities Act claims expressly do not make any allegations of fraud or scienter and do not incorporate any of the allegations contained in Section IV, including the allegations of scienter and fraud. 2 B. Overview of Exchange Act Claims 10. Lead Plaintiff Diker brings the Exchange Act claims on behalf of purchasers o f Majesco common stock during the period December 8, 2004 through September 12, 2005 . 11 . These claims allege that defendants made materially false and misleadin g statements in Majesco's SEC filings during the Class Period, including without limitation, th e Registration Statement, reports on Forms 10-K and 10-Q, and press releases and conference calls , that caused Majesco's common stock to trade at artificially inflated prices . 12 . Defendants made materially false and misleading statements in Majesco's financia l reports for the year-ended October 31, 2004 and the quarters-ended January 31, 2005 and April 30, 2005. Also, Defendants: 1) misrepresented that Majesco's financial statement complied with GAAP; and 2) failed to disclose material technical problems with the development of Advent Rising, including the following : i) slowness in load time ; ii) rough or unplayable "cut scenes"; iii) animation "freezing"; iv) clipping problems; and v) distortions in the audio such that dialogue was inaudible or was drowned out by the musical score . 13 . On May 31, 2005, Majesco shipped a new video game -- Advent Rising to retail outlets nationwide. As the material, technical problems with Advent Rising began to be revealed, shares of Majesco declined from $8 .77 per share on May 31, 2005 to $7.25 per share on June 28, 2005, a decline of approximately 17% . 14. On June 29, 2005, JMP Securities downgraded Majesco stock to "market perform " from "market outperform" based on checks that showed that Advent Rising had received a great deal of negative comments . 15 . On June 29, 2005, shares of Majesco declined $1 .10 per share or approximatel y 15%, from $7.25 per share to close at $6.15 per share, on heavier than usual trading volume . 3 16 . On July 12, 2005, Majesco disclosed that it was revising its 2005 Outlook . During the Class Period, Defendants represented for fiscal year 2005 (ended October 31, 2005) that they expected net revenues of $175 to $185 million and operating income of $16 to $18 million . Majesco's revised outlook announced on July 12, 2005 represented expected net revenues for fiscal 2005 between $120 million and $125 million and an operating loss of $16 million to $1 9 million - a decline of expected net revenue of between $50 million and $65 million and a declin e of operating income of $32 to $37 million . 17. Majesco further disclosed on July 12, 2005, inter alia, that the expected operatin g loss included provisions of approximately $12 million, including : provisions for impairments