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 of capitalized costs . . . as well as increased allowances for price protection which will be recorded as a reduction of revenues . .

18. Also on July 12, 2005, Majesco's CEO Carl Yankowski resigned and its CFO Jan

Chason was replaced.

19. On July 13, 2005, shares of Majesco' s common stock declined $3 .33 per share, or

48%, from $6.89 per share to $3.56 per share, on heavier than usual trading volume . Majesco stock continued to decline over the next several weeks and closed at $2 .44 per share on

September 12, 2005.

20. On September 12, 2005, Majesco disclosed its third quarter 2005 financial results

(ended July 31, 2005). Majesco reported third quarter net revenues of $4.6 million, compared to

$34 .0 million for the same period in 2004, and an operating loss of $38.6 for this quarter, versus operating income of $3 .1 million for the same period in 2004 . Also, Majesco again revised it s outlook for fiscal 2005, which anticipated net revenues of $60 .0 to $65 .0 million - an additional decline in expected net revenue of approximately $60 million and an operating loss of approximately $40.0 to $45.0 million.

4 21 . On September 13, 2005, shares of Majesco declined $1 .21 per share, or approximately 50%, from $2 .44 per share to close at $1 .23 per share, on heavier than usua l volume.

22 . As of December 13, 2005, Majesco's stock price has not recovered materially. On that date, Majesco stock closed at $1 .35 per share.

II. JURISDICTION AND VENU E

23. This Court has jurisdiction over the subject ma tter of this action pursuant to

§22(a) of the Securities Act (15 U.S.C. §77v(a)) and §27 ofthe Exchange Act (15 U.S.C .

§78aa) and 28 U .S.C . §§1331, 1337 and 1367 .

24. Venue is proper in this District pursuant to §22(a) of the Securities Act (1 5

U.S.C . §77v) and §27 of the Exchange Act (15 U.S.C. §78aa) and 28 U .S .C. §1391 (b) and (c).

Substantial acts in furtherance of the wrongs alleged and/or their effects have occurred withi n this District and Majesco maintains its principal office in Edison, New Jersey .

25 . In connection with the facts and omissions alleged in this Amended Complaint , defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications, and the facilitie s of the national securities markets .

III. CLAIMS AGAINST DEFENDANTS UNDER §§ 11, 12, AND 15 OF THE SECURITIES ACT

26. These claims are brought in connection with the Offering. Defendants are

Majesco, each person who signed the Registration Statement, each person who was a director of Majesco at the time of the filing of the Registration Statement, or with his consent, is named in the Registration Statement as being a director, Majesco's outside auditor and th e underwriters of the Offering .

5 A. Securities Act Plaintiffs

27. Lead Plaintiff Diker purchased shares of Majesco common stock issued in the

Offering under the Registration Statement and was damaged thereby. Diker Management, LLC was established in 2002, is located in New York, New York and is a registered Investment

Advisor under the U.S. Investment Advisors Act of 1940. Diker Management , LLC is the investment advisor for 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.

28. DERP purchased Majesco common stock issued in the Offering under th e

Registration Statement and was damaged thereby.

29. DERP is a defined benefit retirement plan established in 1963 for the purpose o f providing benefits for its members and beneficiaries upon retirement, disability, or death . The

City and County of Denver, Colorado and the Denver Health and Hospital Authority, as well as their employees, contribute a percentage of the employees' wages to the trust fund .

Contributions, plus income from investments, fund the benefits for members and beneficiaries.

As of January 1, 2005, there were 18,377 total participants or members in the Plan . This number was comprised of 8,634 active members, 3,543 terminated vested members, 52 2 members in the Deferred Retirement Option Plan and 5,678 retired members . As of June 30,

2005 the Plan had over $1 .7 billion in assets.

B. Securities Act Defendants

30. Majesco is a Delaware Corporation with its principal executive office in Edison,

New Jersey. It held itself out to the public as a provider of diversified products, includin g games, videos and gadgets, for digital entertainment platforms . As of September 13, 200 5 there were 22,242,477 shares of Majesco common stock outstanding . Majesco was formerly known as Majesco Holdings Inc . On April 8, 2005, Majesco Holdings Inc . changed its name to Majesco Entertainment Company and also changed its ticker symbol from "MJES" t o

6 "COOL."

31 . Defendant Carl Yankowski ("Yankowski") was Chief Executive Officer an d

Chairman of the Board of Majesco until his resignation on July 12, 2005 . Yankowski signed the Registration Statement.

32. Defendant Jan E . Chason ("Chason") was Majesco's Chief Financial Officer until July 12, 2005, when he was replaced . Chason signed the Registration Statement .

33 . Defendant Jesse Sutton ("Jesse Sutton") was President and a director o f

Majesco at the time of the Offering. Defendant Chason signed the Registration Statement on behalf of Jesse Sutton pursuant to a power of attorney duly executed and filed with the SEC .

34. Defendant Joseph Sutton ("Joseph Sutton") was Majesco's Executive Vice

President of Research and Development and a director of Maj esco at the time of the Offering .

Defendant Chason signed the Registration Statement on behalf of Defendant Joseph Sutton pursuant to a power of attorney duly executed and filed with the SEC.

35. Defendant Morris Sutton ("Morris Sutton") was a director and Chairma n

Emeritus of Majesco at the time of the Offering . Defendant Chason signed the Registration

Statement on behalf of Defendant Morris Sutton pursuant to a power of attorney duly execute d and filed with the SEC.

36. Defendant Laurence Aronson ("Aronson") was a director of Majesco at the tim e of the Offering . Defendant Chason signed the Registration Statement on behalf of Defendan t

Aronson pursuant to a power of attorney duly executed and filed with the SEC .

37. Defendant F . Peter Cuneo ("Cuneo") was a director of Majesco at the time o f the Offering. Defendant Chason signed the Registration Statement on behalf of Defendan t

Cuneo pursuant to a power of attorney duly executed and filed with the SEC .

38 . Defendant James Halpin ("Halpin") was a director of Majesco at the time of the

7 Offering. Defendant Chason signed the Registration Statement on behalf of Defendant Halpin pursuant to a power of attorney duly executed and filed with the SEC .

39. Defendant Louis Lipschitz ("Lipschitz") was a director of Majesco at the tim e of the Offering. Defendant Chason signed the Registration Statement on behalf of Defendant

Lipschitz pursuant to a power of attorney duly executed and filed with the SEC .

40. Defendant Marc Weisman ("Weisman") was a director of Majesco at the tim e of the Offering. Defendant Chason signed the Registration Statement on behalf of Defendan t

Weisman pursuant to a power of attorney duly executed and filed with the SEC .

41 . Defendants named in ¶¶ 30-40, together, are referred to herein as the "Individua l

Securities Act Defendants".

42 . Defendant RBC Capital Markets Corporation ("RBC Capital") was an underwrite r for the Offering and sold Majesco common stock by means of the Prospectus .

43. Defendant JMP Securities LLC ("JMP Securities") was an underwriter for the

Offering and sold Majesco common stock by means of the Prospectus .

44. Defendant Harris Nesbitt Corp . ("Harris Nesbitt") was an underwriter for the

Offering and sold Majesco common stock by means of the Prospectus.

45. Defendant Wedbush Morgan Securities Inc . ("Wedbush") was an underwriter for the Offering and sold Majesco common stock by means of the Prospectus .

46. Defendants named in ¶¶ 42-45, together, are referred to herein as the "Underwrite r

Defendants".

47. Defendant Goldstein Golub Kessler LLP ("Goldstein Golub Kessler") is a n accounting firm located at 1185 Avenue of the Americas , New York, New York. Goldstein

Golub Kessler audited the consolidated financial statements of Majesco as of October 31, 200 4 and the related consolidated statements of operations, shareholders' equity and cash flows for the fiscal year-ended October 31, 2004, which were included in the Registration Statement . In its report dated November 30, 2004, Goldstein Golub Kessler stated that it conducted its audit in accordance with the standards of the Public Company Accounting Oversight Board (United

States) and that the consolidated financial statements present fairly, in all material respects, the financial position of Majesco as of October 31, 2004 and the results of its operations and its cash flows for the fiscal year-ended October 31, 2004, in conformity with GAAP . On January 10,

2005, Goldstein Golub Kessler issued a letter consenting to the use in the Registration Statement of its report dated November 30, 2004 and to the reference to it under the caption "Experts" in the

Prospectus.

48 . Defendants named in ¶¶30-40, 42-45 and 47 together, are referred to herein as the

"Securities Act Defendants" .

C. Majesco's Registration Statement

49. The Registration Statement contained Majesco's financial results for the fiscal year-ended October 31, 2004 . The financial statements contained untrue statements of materia l fact because, as illustrated in the following chart and as explained below, the financial statements, in violation of GAAP: 1) overstated net revenues by $4 .4 million or approximately 4% ; 2) understated cost of sales by $5 .5 million or approximately 6%; 3) overstated gross profit by approximately $10 million or approximately 40% ; and 4) overstated operating income by approximately $ 10 million or 469% .

9 As Reported Adjustments Actual FYE 10/31/0 4

Net Revenues $ 120,984 $ (4,400) $ 116,584

Cost of Sales (86,242) 5,584 ' (91,826)

Gross Profit 34,742 (9,984) 24,75 8

Operating Costs (22,630) = (22,630)

Operating Income (loss) 12 112 9 984 2 128

Overstatement 469%

i. The Financial Statements in the Registration Statement Overstated Net Revenues by at Least $4.4 Million for the Fiscal Year-Ended October 31, 2004 in Violation of GAAP .

50. For the year ended October 31, 2004, Majesco provided allowances for futur e price protection and other allowances of $6 .7 million and finished the fiscal year with a year-en d balance of price protection of approximately $4 .9 million. This ending price protection reserve at

October 31, 2004 was understated by at least $2 million in violation of GAAP.

51 . During the year-ended October 31, 2004, Majesco's reported sales more than doubled from the year-ended October 31, 2003 . However, it lowered its provision for price protection and sales allowances from 11% of revenue for the year-ended October 31, 2003, to

5 .5% for the year ended October 31, 2004 . The industry average was approximately 13% for this same time period .

52. If Majesco had maintained its provision for sales allowances at the same rate as was done in the fiscal year-ended October 31, 2003, Majesco should have recorded at least $2 .0 million in additional expense for the year-ended October 31, 2004. Therefore, pursuant to GAAP,

1 Majesco understated its cost of sales by $7 million. However, $1 .5 million has been credited to Majesco for the cost of sales which were incurred in connection with the improper recognition of $2.4 million in revenue .

10 Majesco should have recorded a year-end reserve of at least $6 .9 million for the year-ended

October 31, 2004 .

53 . The Registration Statement reported net revenues of approximately $121 millio n for the fiscal year-ended October 31, 2004 and contained the following statements, inter alia, concerning Majesco's revenue recognition :

Revenue Recognition. The Company recognizes revenue upon shipment of its product when title and risk of loss are transferred . In order to recognize revenue, the Company must not have any continuing obligations and it must also be probable that the Company will collect the accounts receivable. Revenues, including sales to resellers and distributors , are recognized when these conditions are met.

54 . These statements were untrue statements of material fact because Majesc o improperly recognized revenue of $2.4 million for the fiscal year ended October 31, 2004 in violation of GAAP . Jack of All Games ("JOAG") placed a $2.4 million product order with

Majesco in September 2004 . However, Majesco failed to deliver the goods during the October

31, 2004 fiscal year or promised return rights, price protection, and adve rtising credits to JOA G amounting to millions of dollars in exchange for its product orders . Majesco therefore should not have recognized this revenue during the year-ended October 31, 2004 .

ii. The Financial Statements in the Registration Statement Improperly Capitalized Costs by at Least $5 Million for the Fiscal Year-Ended October 31 , 2004 in Violation of GAAP.

55 . The Registration Statement reported costs of sales of $86 .2 million and contained the following statements, inter alia, concerning Majesco's software development costs :

Software development costs . . . Software development costs are capitalized once technological feasibility of a product is established and it is determined that such costs should be recoverable against future revenues . . . .

11 56. This statement was an untrue statement of a material fact because Majesco faile d to disclose that it improperly capitalized software development costs of at least $5 million for th e fiscal year-ended October 31, 2004 in violation of GAAP . These capitalized costs should have been expensed .

57. Purportedly as a result of following this accounting policy, Majesco reported on its

October 31, 2004 balance sheet an asset of $15,526,000 related to capitalized software development costs. Of the $15.526 million of capitalized software development costs, $4 .952 million related to games for which the estimated release date was more than 12 months from

October 31, 2004 . The development costs of these games were improperly capitalized and shoul d have been expensed .

58. For the year-ended October 31, 2003, Majesco did not capitalize softwar e development costs for products with a release date more than 12 months in the future. Majesco reported capitalized development costs in its fiscal year-ended October 31, 2003 of $3.7 million, an increase of $2 .3 million from the fiscal year-ended October 31, 2002 . During the fiscal year- ended October 31, 2004, Majesco increased its capitalized software development costs by $11 .7 million to $15 .5 million, or more than 5 times the increase of capitalized development costs fro m the fiscal year-ended October 31, 2002 to the fiscal year-ended October 31, 2003 . Accordingly, essentially all of Majesco's reported operating income in fiscal year-ended October 31, 2004 o f

$12.1 million resulted from Majesco capitalizing software development costs .

59. However, the Registration Statement failed to disclose that Majesco did not have a reasonable basis for capitalizing at least $5 million of these software development costs for the following reasons :

(i) The games had not achieved technological feasibility as the estimated release date was more than 12 months from October 31, 2004;

12 (ii) Majesco lacked an adequate internal accounting and control system and procedures to ascertain technological feasibility for games which were to be released in more than 12 months in the future as well as the ability to reasonably forecast product revenues and marketing costs ;

(iii) Majesco was not likely to reasonably forecast a gross profit on games in development as it had a limited history of developing frontline games ;

(iv) Majesco was committed in the next 12 months to $23 million of additional development costs on these same games which made the probability of realizing a profit large enough to recover the total cost of developing these games highly speculative at best ; and

(v) These factors precluded Majesco from capitalizing these costs pursuant to GAAP. Indeed, in its quarterly report filed with the SEC for the period-ended July 31, 2005, Majesco acknowledged just that by writing off $6 .115 million of previously capitalized software development costs as impaired because the games were not "commercially feasible ."

60. Defendants utilized the capitalization of development costs during fiscal year- ended October 31, 2004 to artificially inflate Majesco's operating results . Wedbush Morgan

Securities asserted in its July 13, 2005 research report on Majesco, that "[t]he company i s essentially a startup video game publisher, attempting to migrate from a well-established distribution business to a diversified distribution and publishing company ." Accordingly, as a startup company it lacked the basis for deferring costs attributable to game development .

iii. The Financial Statements in the Registration Statement Understated the Costs of Sales by at Least $2.1 Million for the Fiscal Year-Ended October 31, 2004 in Violation of GAAP.

61 . For the year-ended October 31, 2004, Majesco' s financial statements contained in the Registration Statement reported costs of sales of $86.2 million.

62. The costs of sales were understated by $2,084,000. Majesco understated the cost per unit of Texas Hold `Em video game by $2,084,000 for the year-ended October 31, 2004 .

Majesco purchased and shipped 500,000 units of Texas Hold `Em video game to Wal-Mart, Toys

"R" Us, and JOAG during fiscal year-ended October 31 , 2004 . However, instead of recording th e proper cost per unit of $4 .30, Majesco recorded a per unit cost of $0 .132. In February 200 5

13 (Majesco's second fiscal quarter ended April 30, 2005), Majesco charged to cost of sales the approximately $2.1 million of deferred costs attributable to the units of Texas Hold'Em Majesco shipped during the fiscal year-ended October 31, 2004. GAAP required the Company to report a much higher cost per unit, and therefore, its total costs of sales, in the Registration Statement should have been at least $2 .1 million greater.

iv. The Financial Statements in the Registration Statement Overstated Gross Profit and Operating Income by $10 Million for the Fiscal Year Ended October 31, 2004.

63. The Registration Statement contained the following statements, inter alia, concerning Majesco's Gross Profit:

Gross Profit. For 2004 gross profit increased to $34.7 million from $ 15 .8 million for the prior year . . . .

64. This statement was an untrue statement of a material fact because Majesc o overstated its gross profit by at least $10 million in violation of GAAP for the following reasons :

(i) Majesco understated its price protection reserves for the fiscal year ended October 31, 2004 by at least $2 million;

(ii) Majesco improperly recognized revenue of at least $2 .4 million for the fiscal year-ended October 31, 2004 ;

(iii) Majesco improperly capitalized software development costs by at least $5 million for the fiscal year-ended October 31, 2004, when such costs should have been expensed; and

(iv) Majesco understated cost of sales by at least $2,084,000 for the fiscal year- ended October 31, 2004 .

65 . The Registration Statement contained the following statements, inter alia, concerning Majesco's operating income :

Operating Income . For 2004 operating income was $12.1 million versus an operating loss of $8 .8 million in the prior year . . . .

66. This statement was an untrue statement of a material fact because Majesc o

14 overstated its operating income by at least $10 million or 469% for the reasons stated in ¶64 .

v. The Financial Statements for the Fiscal Year-Ended October 31, 2004 Were Not Prepared in Accordance With GAAP.

67 . The Registration Statement contained the following statements, inter alia, concerning Majesco's financial statements:

Our discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States .

68. This statement was an untrue statement of a material fact for the reasons set fort h above in ¶¶50-52, 54, 59 and 62, and because Majesco's financial statements for the fiscal year- ended October 31, 2004 were not prepared in accordance with GAAP, including Financia l

Standards Board Statement of Concepts No . 1, FASB No. 48 and FAS 86 .

69. The Registration Statement contained the following statement from the Report o f

Majesco's Registered Public Accounting Firm, Goldstein Golub Kessler :

We have audited the accompanying consolidated balance sheets of Majesco Holdings Inc. and subsidiaries as of October 31, 2004 and 2003, and the related consolidated statements of operations, stockholders' equity (deficiency) and cash flows for each of the three years in the period ended October 31, 2004. These financial statements are the responsibility of the Company's management . Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) . . .

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Majesco Holdings Inc. and subsidiaries as of October 31, 2004 . . . and the results of their operations and their cash flows for each of the three years in the period ende d

15 October 31, 2004, in conformity with United States generally accepted accounting principles .

GOLDSTEIN GOLUB KESSLER LLP New York, New York November 30, 2004

70. This statement was an untrue statement of a material fact because Majesco' s financial statements for the fiscal year-ended October 31, 2004 were not prepared in accordanc e with GAAP for the reasons stated above in ¶64 and the audit for the fiscal year-ended October 31 ,

2004 was not conducted in accordance with GAAS.

vi. The Registration Statement's Untrue Statements about Advent Rising.

71 . The Registration Statement contained the following statements concerning th e

Advent Rising video game:

We expect to expand our frontline titles by releasing several new titles in 2005, including, Advent Rising, which is anticipated to be the first in a trilogy of epic science fiction games developed in collaboration with award-winning science fiction author Orson Scott Card . . . By summer 2005, we intend to release . . . Advent Rising . . . We own the intellectual property rights to other frontline properties . . . . including Advent Rising . . . .

72. These statements were untrue statements of a material fact because they omitted to state that at the time of the Offering, Advent Rising contained material defects and had material technical problems, including the following : 1) slowness in load time; 2) rough or unplayable "cut scenes"; 3) animation "freezing"; 4) clipping problems; and 5) distortions in the audio such that dialogue was inaudible or was drowned out by the musical score .

vii. The Registration Statement's Other Untrue Statements.

73 . The Registration Statement contained the following statements concernin g

Majesco's business :

16 Historically, most of our revenues were derived from being a leading distributor of value video game titles. Although sales of value titles will continue to constitute a significant portion of our revenues, we are diversifying our sources of revenue and have introduced or expanded our other offerings . . . We expect value products to decrease as a percentage of our revenues as we generate significantly more revenues from our frontline video games, G[ame] B[oy] A[dvanced] Video titles and digital media peripherals and applications.

74. These statements were untrue statements of material fact because they omitted t o state that at the time of the Offering, Majesco had little experience developing frontline products and that Majesco's attempt to expand its frontline products was experiencing material developmental problems such that development of certain of these products was either cancelled or materially delayed .

COUNT I (Against the Securities Act Defendants for Violations of §11 of the Securities Act )

75 . Plaintiffs repeat and reallege the allegations above, except for ¶¶10-22, as if fully set forth herein. For purposes of this claim, Plaintiffs expressly exclude and disclaim an y allegation that could be construed as alleging or sounding in fraud or intentional or reckles s misconduct.

76. The Registration Statement contained untrue statements of material facts an d omitted material facts required to be stated in order to make the statements contained therei n not misleading .

77 . The Company is the registrant for the Offering . As issuer of the shares ,

Majesco is strictly liable to Plaintiffs and to the members of the Class who purchased in th e

Offering for the materially untrue statements and omissions alleged herein .

78. The Individual Securities Act Defendants signed the Registration Statement o r authorized it to be signed on their behalf and/or were directors of Majesco at the time th e

17 Registration Statement became effective and with their consent were identified as such in the

Registration Statement .

79. The Underwriter Defendants were underwriters for the Offering .

80. Defendant Goldstein Golub Kessler audited the consolidated financial statement s of Majesco as of October 31, 2004 and the related consolidated statements of operations , shareholders' equity and cash flows for the fiscal year-ended October 31, 2004, which were included in the Registration Statement and consented to the use in the Registration Statement of its report dated November 30, 2004 and to the reference to it under the caption "Experts" in suc h

Registration Statement .

81 . Plaintiffs purchased Majesco common stock issued in the Offering.

82. Plaintiffs and other purchasers of Majesco common stock in the Offering were damaged by the Securities Act Defendants as a direct and proximate result of the untrue statements and omissions in the Registration Statement .

83 . This claim was brought within the applicable statute of limitations .

84. By reason of the foregoing, the Securities Act Defendants have violated § 11 o f the Securities Act .

COUNT II (Against Maiesco and the Underwriter Defendants for Violations of 412 of The Securities Act)

85 . Plaintiffs repeat and reallege the allegations contained above, except for ¶¶10-

22, as if fully set forth herein. For purposes of this claim, Plaintiffs expressly exclude and disclaim any allegation that could be construed as alleging or sounding in fraud or intentiona l or reckless misconduct .

86. This claim is brought pursuant to Section 12(a)(2) of the Securities Act, 1 5

U.S.C. § 771(a)(2), on behalf of the purchasers of Majesco common stock in the Offerin g against Majesco and the Underwriter Defendants .

87. Majesco and the Underwriter Defendants offered or sold Majesco commo n

18 stock by means of a prospectus which included untrue statements of material fact or omitted to state material facts necessary in order to make the statements, in light of the circumstances under which they were made, not misleading.

88. By acting as underwriters in the Offering, the Underwriter Defendants participate d in the Offering and sale of the stock to the investing public by means of a Prospectus . By issuing common stock in the Offering, the Company participated in the offering, and sale of the stock to the investing public by means of a Prospectus .

89. By means of the Prospectus, and by using means and instruments of transportation and communication in interstate commerce and of the mails, the Company an d the Underwriter Defendants, offered and sold Majesco common stock to Plaintiffs and othe r members of the Class, who purchased in the Offering .

90. Plaintiffs and members of the Class who purchased Majesco common stock i n the Offering have sustained damages as a result of the untrue statements of material facts an d omissions in the Prospectus, for which they hereby elect to rescind and tender their shares o f

Majesco common stock to Defendants sued herein in return for the consideration paid for

Majesco common stock with interest .

91 . This claim was brought within the applicable statute of limitations .

92. By virtue of the foregoing, Majesco and the Underwriter Defendants hav e violated Section 12(a)(2) of the Securities Act .

COUNT III (Against Certain Individual Securities Act Defendants for Violations of §15 of The Securities Act)

93 . Plaintiffs repeat and reallege the allegations contained above, except for ¶¶10-22 , as if fully set forth herein . For purposes of this claim, plaintiffs expressly exclude and disclai m any allegation that could be construed as alleging or sounding in fraud or intentional or reckles s

19 misconduct.

94. Defendants Yankowski, Chason, Jesse Sutton, Joseph Sutton and Morris Sutton , at the time of the Offering, participated in the operation and management of the Company, and conducted and participated, directly and indirectly, in the conduct of Majesco's busines s affairs .

95 . Because of their positions of control and authority as senior officers and director s of Majesco, Defendants Yankowski, Chason, Jesse Sutton, Joseph Sutton and Morris Sutton wer e able to, and did, control the contents of the Registration Statement that contained materially false financial and other information. Each signed or caused to be signed on their behalf the

Registration Statement. Defendants Yankowski, Chason, Jesse Sutton, Joseph Sutton and Morris

Sutton therefore were controlling persons of Majesco .

96. Maj esco's conduct alleged herein constitutes a violation of § § 11 and 12 of the

Securities Act.

97. Defendants Yankowski, Chason, Jesse Sutton, Joseph Sutton and Morris Sutto n are liable to Plaintiffs and members of the Class, jointly and severally with and to the sam e extent as Majesco for violations of §§ 11 and 12 .

IV. CLAIMS AGAINST DEFENDANTS MAJESCO, YANKOWSKI, CHASON, JESSE SUTTON, JOSEPH SUTTON, AND MORRIS SUTTON UNDER § 10(b) AND RUL E 10(b)-5 AND UNDER § 20(a) OF THE EXCHANGE ACT

98. The remaining counts of this Complaint are brought under § § 10(b) and 20(a) of th e

Exchange Act and Rule I Ob-5 promulgated thereunder on behalf of all persons who purchased

Majesco common stock during the period between December 8, 2004 and September 12, 200 5

(the "Class Period"), inclusive, to recover damages resulting from a fraud perpetrated by defendants during the Class Period .

20 A. The Exchange Act Parties

99. Lead Plaintiff Diker purchased shares of Majesco common stock during th e

Class Period and was injured thereby.

100. Defendant Majesco is a Delaware Corporation with its principal executiv e office in Edison, New Jersey . It held itself out to the public as a provider of diversified products, including games, videos and gadgets, for digital entertainment platforms. As of

September 13, 2005 there were 22,242,477 shares of Majesco common stock outstanding .

101 . At all relevant times, Defendant Carl Yankowski ("Yankowski") was Chie f

Executive Officer and Chairman of the Board of Majesco until his resignation on July 12 ,

2005 . Yankowski signed: 1) Majesco's annual repo rt for the fiscal year-ended October 31 ,

2004 filed with the SEC on Form 10-K on January 31, 2005 ("Fiscal Year 2004 Annua l

Report"); and 2) the Amended Registration Statement filed with the SEC on Form S-1/A o n

January 20, 2005 ("Registration Statement") . As Majesco's principal executive officer,

Yankowski was involved in all aspects of Majesco's business, including hosting of conference calls with analysts and investors, and Majesco's SEC filings stated that it "greatly rel[ies] on the services of Carl Yankowski . . . ."

102. At all relevant times, Defendant Jan E . Chason ("Chason") was Majesco' s

Chief Financial Officer until July 12, 2005, when he was replaced . Defendant Chason signed:

1) Majesco's Fiscal Year 2004 Annual Report ; 2) the Registration Statement; 3) the quarterly report for the quarter-ended January 31, 2005 on Form 10-Q filed with the SEC on March 17 ,

2005 ; 4) and the quarterly report for the quarter-ended April 30, 2005 on Form 10-Q filed with the SEC on June 14, 2005 . Chason described himself on his resume as a "hands-on" senior financial executive and an expert in, among other things, financial management and control ,

21 and financial reporting. He described his role at Majesco on his resume to involve the following: 1) leading Majesco's transition from a family-owned company to a public company ;

2) raising $100 million in public and private offerings for Majesco ; 3) monitoring the

Company's financial performance; 4) developing accounting systems for reporting results ; 5) developing Sarbanes-Oxley systems to meet reporting requirements; and 6) along with

Defendant Jesse Sutton, representing Majesco when working with analysts, investment bankers, and portfolio mangers .

103. Defendant Jesse Sutton ("Jesse Sutton") was a director of Majesco and the

Company's President during the Class Period . Jesse Sutton is Defendant Morris Sutton's son and Defendant Joseph Sutton's brother . Jesse Sutton signed the Fiscal Year 2004 Annual

Report and Defendant Chason signed the Registration Statement on behalf of Jesse Sutton pursuant to a power of attorney duly executed and filed with the SEC . Along with Defendant

Chason, Jesse Sutton represented Majesco when working with analysts, investment bankers, and portfolio mangers .

104. Defendant Joseph Sutton ("Joseph Sutton") was a director of Majesco during the

Class Period and served as the Executive Vice President of Research and Development . Joseph

Sutton is Defendant Morris Sutton's son and Defendant Jesse Sutton's brother. Joseph Sutton signed the Fiscal Year 2004 Annual Report and Defendant Chason signed the Registration

Statement on behalf of Joseph Sutton pursuant to a power of attorney duly executed and filed with the SEC. During the Class Period, Joseph Sutton functioned as the chairperson of weekly Product

Development Meetings .

105. Defendant Morris Sutton ("Morris Sutton") was a director of Majesco during the Class Period and was Chairman Emeritus of Majesco's Board of Directors . Morris Sutton signed the Fiscal Year 2004 Annual Report and Defendant Chason signed the Registratio n

22 Statement on behalf of Morris Sutton pursuant to a power of attorney duly executed and filed with the SEC . Morris Sutton is Majesco's founder and previously held executive positions with Majesco. According to Majesco's SEC filings, Majesco's business "greatly relies on the services of Morris Sutton . . . and his relationships with hardware manufacturers, licensors of

[Majesco's] content and [its] customers."

106. Defendants named in ¶¶100-05 are referred to herein as the "Defendants ."

107. Prior to and during the Class Period, according to Confidential Informant No . 1

("Cl 1"), a former member of Majesco's Research and Development Department until May

20052, Defendants received Product Development Reports ("Product Development Reports") .

The Product Development Reports documented the progress of products being developed by the

Company. Once a product was identified by the Company for development, the product was evaluated and milestones or target dates were established to provide a roadmap to development of the project in a timely fashion and according to a budget. As a regular course of business both before and during the Class Period, Product Development Reports were distributed to the

Defendants each Tuesday.

108. According to CI 1 and Confidential Informant No. 2 ("Cl 2"), a former Majesc o producer and software developer until October 20053, after the Product Development Reports were distributed on Tuesday, a meeting was held on Thursday or Friday of the same week to discuss the contents of the report ("Product Development Meetings") . The Product Development

Meetings were conducted in a conference room at Majesco's Edison, New Jersey office .

Defendant Joseph Sutton organized and functioned as chairperson for these meetings in which the

2 Cl I received Product Development Reports and participated in Product Development Meetings, and received Sell-Through Reports which are described herein.

3 Cl 2 received Product Development Reports and participated in Product Development Meetings.

23 status of each product was discussed. Defendants Yankowski, Chason, Jesse Sutton and Morris

Sutton participated in these meetings .

109. In addition, Defendants received weekly sell-through reports ("Sell-Through

Reports"). According to CI 1 and Confidential Informant No. 3 ("CI 3"), a former Majesco producer until August 20054, Defendants received the weekly Sell-Through reports via-email an d paper copy, distributed through Majesco's inter-office mail delivery, each Friday during the Class

Period and prior thereto. The Sell-Through reports provided Defendants with information concerning the sales for each Majesco product by each of Majesco's customers .

110. These Sell-Through Reports were discussed in weekly sales and marketing meetings ("Sales and Marketing Meetings) . According to Cl 1 and Cl 2, Defendants attended weekly Sales and Marketing Meetings held at Majesco's headquarters in Edison, New Jersey in a conference room each Friday during the Class Period and prior thereto .

B. Majesco' s Business Strategy

111 . Prior to and during the Class Period, Majesco sold its products directly an d through resellers primarily to U .S. retail chains, including Best Buy, Electronics Boutique,

Jack of All Games ("JOAG"), GameStop, Kmart, Target, Toys "R" Us and Wal-Mart .

Majesco sold products for all major digital entertainment hardware platforms, including : 1)

Nintendo's Game Boy Advance ("GBA") ; 2) GameCube; 3) Sony's PlayStation 2 ; and 4)

Microsoft's Xbox ; and 5) the personal computer . Majesco claimed to be developing offerings for next-generation home game consoles, including Sony's PlayStation 3, Microsoft's Xbox and next-generation portable handheld game devices, including Nintendo's DS and Sony's PSP .

4 Cl 3 had access to and reviewed the Sell-Through Reports .

24 112 . Prior to and during the Class Period, Defendants organized the Compan y around "Strategic Business Units" ("SBUs") that focused on three main product lines : 1) video games; 2) video content ; and 3) gadgets. Majesco described its SBUs as follows :

(i) Video game titles. Majesco's video game titles include lower-priced "value" titles and premium-priced "frontline" titles .

(ii) GBA Video content titles. Majesco's video compression technology allows GBA users to view up to 45 minutes of video content on each of its GBA Video cartridges .

(iii) Gadgets. Majesco designs, manufactures and markets digital media peripherals and applications, or gadgets, including: 1) headphones ; 2) GBA wireless link application ; 3) GBA wireless messenger application ; and 4) Stand-alone TV Arcade "plug-and-play" video game systems.

113 . Historically, Majesco derived the majority of its revenue from being a distributor/developer of "value" video games . Value titles are typically sold at retail prices below

$20 and typically involve comparatively lower development and marketing costs than "frontline" titles. Frontline titles are premium priced video games and involve much higher development and marketing costs. Prior to the Class Period, Majesco had released few frontline titles and had little experience in developing frontline video games .

V. DEFENDANTS FALSE AND MISLEADING STATEMENTS AND FRAUDULEN T CONDUCT DURING THE CLASS PERIO D

114. For its fiscal year-ended October 31, 2004, Majesco derived 50% of its sale s revenue from the sale of video games, with 80% of video sales derived from value titles and 20% from frontline titles. For fiscal year 2005 (ended October 31, 2005), Defendants, among other things, sought to expand sales of Majesco frontline titles with higher margin and franchis e potential. Defendants represented that 80% of its revenue from games in fiscal year 2005 woul d be derived from frontline titles, such as Advent Rising, a new premium priced frontline title tha t

Majesco was developing and scheduled for release in fiscal year 2005 .

25 115 . At the beginning of the Class Period, as alleged below, Defendants Yankowski,

Chason, Jesse Sutton, Joseph Sutton and Morris Sutton knew that the production and development ofAdvent Rising was experiencing material technical problems with the following features of the game : 1) slowness in load time; 2) rough or unplayable "cut scenes"; 3) animation "freezing"; 4) clipping problems ; and 5) distortions in the audio such that the dialogue was inaudible or was drowned out by the musical score.

116. Majesco's Product Development Department produced and distributed weekly

Product Development Reports prior to and during the Class Period that contained, among other things, the above-noted material problems with Advent Rising.

117. Defendants knew about the material problems with Advent Rising at the beginning of the Class Period and thereafter because, according to Cl 1, these Defendants received on a regular basis the weekly Product Development Reports .

118. According to Cl 1, at Majesco's weekly Product Development Meetings before and during the Class Period, until it was shipped on May 31, 2005, when the subject of Advent

Rising was raised, Defendant Joseph Sutton, expressed concern that Advent Rising would not be a commercial success . Joseph Sutton stated that Advent Rising was going to be shipped to customers by May 31, 2005 in whatever condition it was at that time. Moreover, at these meetings, Defendants took the position that the game was going to go to market regardless of its poor quality because Majesco had expended significant resources on development of the game .

119. In addition, the Defendants knew that Majesco's customers were experiencin g weak sales across all of the Company's product lines because the Defendants received weekly

Sell-Through Reports which were discussed in the weekly Sales and Marketing Meetings attended by Defendants. The reports showed that inventory of Majesco products were building up at

Majesco's customers .

26 120. Moreover , Defendants knew that Majesco materially overstated its repo rted net income for the year-ended October 31, 2004 by at least $4 .4 million because, as explained below, they attended Weekly Sales and Marketing Meetings and received weekly Sell-Through repo rts and were involved in transactions with customers . Defendants understated Majesco's reserve for price protection and return of products by $2 million . Also, as alleged in Majesco v. Jack of All

Games and more fully described below, in September 2004, JOAG agreed to purchase at least

$2.4 million of ce rtain Majesco products . However, Majesco failed to deliver the goods during the fiscal year ended October 31, 2004 or promised return rights, price protection, and advertising credits to JOAG amounting to millions of dollars in exchange for its product orders .

121 . Defendants Morris Sutton, Jesse Sutton and Joseph Sutton knew of this transaction at the time it occurred because according to Confidential Informant No . 4 ("CI 4"), a former

Executive Vice President of Sales and Marketing until January 2005 , and Confidential Inform ant

No. 5 ("Cl 5"), a former Senior Vice President of Wireless and Online Ente rtainment for Majesco until October 2005 , Morris Sutton, Joseph Sutton, and Jesse Sutton, were principally responsible for maintaining the relationships with customers , including JOAG .

122. In Bennett v. Majesco Entertainment Company, et al. (Case No. 4392-05)(N.J.

Sup. Ct. Monmouth Co)("Bennett v. Majesco"), Donn Bennett ("Bennett"), a former Majesco

Director of Sales Operations , alleged that Defendant Chason knew that Majesco understated costs of sales by $2.1 million in Majesco's financial statements for the year-ended October 31, 2004 .

123 . Bennett told Defendant Chason that Majesco sold 500 , 000 units of its Texas-Hold

`Em video game to Wal-Mart, Toys "R" Us, and JOAG and that Majesco had improperly booked the unit cost per Texas-Hold `Em video games in fiscal year 2004 as $ .132, when in fact, the correct unit cost per game was $4.30 for the 500,000 units of the game sold during the fiscal year- ended October 31, 2004. In February 2005 (Majesco's second fiscal quarter ended April 30 ,

27 2005), Defendants charged to Majesco's costs of the sales the approximately $2 .1 million of deferred costs attributable to the units of Texas Hold'Em shipped during fiscal 2004 .

124 . Defendants had the motive to engage in this conduct in order to complete a public offering of Majesco common stock (the "Offering") . The Offering would allow Majesco to sell 6 million Majesco shares and raise over $42 million .

A. Majesco' s Financial Results for the Quarter and Year-Ended October 31, 2004

i. Defendants Overstated Net Revenues by at least $4 .4 Million for the Fiscal Year-Ended October 31, 2004 in Violation of GAAP.

125. The Class Period begins on December 8, 2004, when Defendants issued a pres s release that reported Majesco's results for its fourth quarter and 2004 fiscal year (ended October

31, 2004) and announced its outlook for fiscal year 2005 (ended October 31, 2005). In the release, Defendant Yankowski stated that "We are pleased with our financial performance for fiscal 2004, proud to report that we exceeded our previously announced net revenue guidance and thrilled that we almost tripled our sales compared to 2003 ."

126. The Company's December 8, 2004 press release stated, inter alia, the following:

For the year-ended October 31, 2004, the Company reported net revenues of $121 million, as compared to $46.6 million in fiscal 2003.

127. This statement was materially false and misleading because, as explained below ,

Majesco overstated net revenues by $4 .4 million for the fiscal year-ended October 31, 2004 by materially understating its price protection reserves by at least $2 million and improperl y recognizing revenue by at least $2 .4 million.

128. For the year ended October 31, 2004, Majesco provided allowances for futur e price protection and other allowances of $6 .7 million and finished the fiscal year with a year-en d balance of price protection of approximately $4 .9 million. This ending price protection reserve at

October 31, 2004 was understated by at least $2 million .

28 129. During the year-ended October 31 , 2004, Majesco ' s sales more than doubled from the year-ended October 31 , 2003 . However, it lowered its provision for price protection and sales allowances from 11% of revenue for the year-ended October 31, 2003 , to 5.5% for the year ended

October 31 , 2004. The industry average was approximately 13% for this same time period .

130. At the same time , as alleged in Majesco Entertainment Company v. Jack ofAll

Games, Inc. (Case 2:05-cv-01981-DRD-SDW)(D. N.J.), Majesco was continuing to promise its customers rights of return and generous price protection programs . Moreover, Defendants received weekly Sell-Through Reports and knew that Majesco' s customers were experiencing a build up of inventory of Majesco products and would seek price protection and/or retu rn product in inventory.

131 . If the Defendants had maintained Majesco' s provision for sales allowances at the same rate as was done in the fiscal year-ended October 31 , 2003, Majesco should have recorded at least $2 .0 million in additional expense for the year-ended October 31, 2004 and Majesco should have recorded a year-end reserve of $6.9 million for the year-ended October 31, 2004 .

132. As alleged in Majesco Entertainment Company v . Jack ofAll Games, JOAG placed a $2.4 million product order with Majesco in September 2004 . However, Majesco failed to deliver the goods during the fiscal year ended October 31 , 2004 or promised return rights, price protection , and advertising credits to JOAG amounting to millions of dollars in exch ange for its product orders. Majesco therefore should not have recognized this revenue during the year-ended

October 31 , 2004. Subsequently , Majesco settled the litigation by giving $3 million in credits to

JOAG.

133 . Defendants knew of this transaction from their pa rticipation at the weekly Sales and Marketing meetings held before and during the Class Period and as stated above, Defendants

29 Morris Sutton, Joseph Sutton and Jesse Sutton were the principal contacts with customers , including JOAG .

134. Defendants were motivated to engage in this conduct because of their desire t o complete the Offering.

ii. Defendants Improperly Capitalized Costs by At Least $5 Million for the Fiscal Year Ended October 31 , 2004 in Violation of GAAP.

135. The December 8, 2004 press release stated that Majesco recorded $ 86.2 million in costs of sales for the year ended October 31, 2004 .

136. This statement was materially false and misleading because, as explained below ,

Majesco understated its costs of sales by at least $5 .5 million in violation of GAAP.

137. Majesco improperly capitalized at least $5 million in software development cost s for the fiscal-year ended October 31, 2004 in order to report favorable financial results prior to the

Offering.

138. Majesco reported on its October 31, 2004 balance sheet an asset of $15,526,00 0 for capitalized software development costs . Of the $15 .526 million of capitalized software development costs, $4 .952 million related to games for which the estimated release date was mor e than 12 months from October 31, 2004 . The cost of these games was improperly capitalized an d should have been expensed .

139. For the year-ended October 31, 2003, Majesco did not capitalize softwar e development costs for products with a release date more than 12 months in the future. Majesco reported capitalized development costs in fiscal year-ended October 31, 2003 of $3 .7 million, an increase of $2.3 million from the fiscal year-ended October 31, 2002 . During fiscal year-ended

October 31, 2004, Majesco increased its capitalized software development costs by $11 .7 million to $15.5 million, or more than 5 times the increase of capitalized development costs from the fiscal year-ended October 31, 2002 to the fiscal year-ended October 31, 2003 . Accordingly,

30 essentially all of Majesco's reported operating income in fiscal year-ended October 31, 2004 o f

$12 .1 million resulted from Majesco improperly capitalizing software development costs.

140 . However, the Defendants failed to disclose that they knew Majesco did not have a reasonable basis for capitalizing at least $5 million of these software development costs for the following reasons which were discussed at the weekly Product Development Meetings :

(i) The games had not achieved technological feasibility as the estimated release date was more than 12 months from October 31, 2004 ;

(ii) Majesco lacked an adequate internal accounting and control system and procedures to ascertain technological feasibility for games which were to be released in more than 12 months as well as the ability to reasonably forecast product revenues and marketing costs ;

(iii)Majesco was not likely to reasonably achieve a gross profit on games in development as it had a limited history of developing frontline games ; and

(v) Defendants knew that during the next 12 months Majesco was committed to $23 million of additional development costs on these same games which made the probability of realizing a profit large enough to recover the total cost of developing these games highly speculative at best . These factors precluded Majesco from capitalizing these costs pursuant to GAAP . Indeed, in its quarterly report filed with the SEC for the period-ended July 31, 2005, Majesco acknowledged the improper capitalization by writing off $6 .115 million of previously capitalized software costs as impaired because the games were not "commercially feasible ."

141 . Defendants utilized the capitalization of development costs during fiscal year- ended October 31, 2004 to artificially inflate Majesco's operating results . Wedbush Morgan

Securities asserted in its July 13, 2005 research report on Majesco that "[t]he company i s essentially a startup video game publisher, attempting to migrate from a well-established distribution business to a diversified distribution and publishing company ." Accordingly, as a startup company it lacked the basis for deferring costs attributable to game development.

iii. Defendants Understated the Costs of Sales by at Least $2.1 Million for the Fiscal Year Ended October 31, 2004 in violation of GAAP.

142. As alleged in Bennett v. Majesco Entertainment Company, Majesco purchased and

31 shipped 500,000 units of Texas Hold `Em to Wal-Mart, Toys "R" Us, and JOAG during fisca l year-ended October 31, 2004 . However, instead of recording the correct cost per unit of $4 .30 ,

Majesco recorded a per unit cost of $ .132, causing an understatement of cost of sales of

$2,084,000 for the year-ended October 31, 2004 . Defendants improperly recorded the per unit cost of Texas Hold `Em units in order to inflate Majesco's October 31, 2004 results to ensure that the Offering would occur at a favorable price . Defendants knew that the per unit cost was improperly recorded because of their attendance at the weekly Sales and Marketing Meetings. In

February 2005 (Majesco's second fiscal quarter ended April 30, 2005), Defendants charged to

Majesco's costs of the sales the approximately $2 .1 million of deferred costs attributable to th e units of Texas Hold'Em shipped during fiscal 2004.

iv. Defendants Overstated Gross Profit and Operating Income b y $10 Million for the Fiscal Year-Ended October 31 , 2004 in violation of GAAP.

143 . The December 8, 2004 press release repo rted that Majesco's operating income was

$12.1 million for its fiscal year ended October 31, 2004 and gross profit was $34.7 million for its fiscal year ended October 31, 2004 .

144. These statements were materially false and misleading because of the followin g reasons as described below:

(i) Majesco understated its price protection reserves for the fiscal year ended October 31, 2004 by at least $2 million;

(ii) Majesco improperly capitalized software development costs by at least $5 million for the fiscal year-ended October 31, 2004;

(iii)Majesco overstated gross profit by at least $2,084,000 for the fiscal year-ended October 31, 2004 ;

(iv)Majesco improperly recognized revenue of at least $2 million for the fiscal year-ended October 31, 2004 .

32 v. Defendant's False and Misleading 2005 Outlook .

145 . The December 8, 2004 press release included the following statements concernin g

Majesco's 2005 financial outlook:

2005 Outlook

For its fiscal year 2005, the Company expects $175 - $185 million in net revenues and operating income of $16 - $18 million. This guidance anticipates increases in net revenue for all business units and anticipated improvement in the profitability from video games, while including consideration for planned increased investment in both product development and marketing . . . .

146. This statement was materially false and misleading for the following reasons :

(i) As alleged in Bennett v. Majesco, in the last quarter of the fiscal year-ended October 31, 2004, Defendants caused Majesco to make shipments to retailers that Defendants knew were in excess of end-user demand and mislead investors about the true state of Majesco's business . Defendants knew that retailers would either return a material quantity of the unsold products or would meet 2005 demand by selling off excess inventory instead of ordering new products;

(ii) Defendants knew that Majesco made shipments to retailers that were in excess of end-user demand because, according to Cl 1 and Cl 3, Defendants received weekly sell-through reports . Through these reports, Defendants knew that inventories of Majesco's products were building up at Majesco's customers and that these customers would return or reduce future orders ;

(iii)As alleged in Bennett v. Majesco, Defendant Chason knew that discontinued games, including Moonlight Fables, were included in 2005 sales projections, but refused to lower Majesco ' s sales projections ; and

(iv)Defendants failed to disclose that Majesco's expected increase in revenue and income hinged on the success of at least one video game - Advent Rising - which contained material defects and material technical problems including the following 1) slowness in load time; 2) rough or unplayable "cut scenes"; 3) animation "freezing"; and 4) clipping problems; and 5) distortions in the audio such that the dialogue was inaudible or was drowned out by the musical score .

33 vi. Defendant's False and Misleading Statements about Advent Rising.

147. The December 8, 2004 press release included the following statements concerning

Advent Rising :

-- Advent Rising, the first title in a planned trilogy of games that has been developed in collaboration with award-winning science fiction author Orson Scott Card: scheduled to launch in the spring of 2005 for the Xbox and PC . . . .

148 . This statement was materially false and misleading because :

(i) Defendants failed to disclose that Advent Rising contained material defects, and had material technical problems such that the game should not have been released, including the following : 1) slowness in load time; 2) rough or unplayable "cut scenes" ; and 3) animation "freezing" ; 4) clipping problems; and 5) distortions in the audio such that dialogue was inaudible or was drowned out by the musical score ; and

(ii) According to Cl 1, Defendants' stated that Advent Rising was going to be shipped to customers by May 31, 2005 in whatever condition it was at that time. At Majesco's weekly Product Development Meetings, when the subject ofAdvent Rising was raised, Defendants, including Defendant Joseph Sutton, expressed concern that Advent Rising would not be a commercial success . However, Defendant Joseph Sutton stated that the game was going to go to market regardless of its poor quality, because the Company spent significant resources on development of the game.

149. Defendants knew about the material problems with Advent Rising because the material problems were discussed in the weekly Product Development Reports that wer e distributed to them and discussed in the Product Development meetings they each attended . They were motivated to conceal the material defects from investors because of their interest i n completing the Offering .

B. Majesco's Registration Statement

150. On January 26, 2005, Majesco announced the pricing of the Offering at $12 .50 per share. Defendant Yankowski stated that "This successful offering gives us the opportunity t o further develop and prove Majesco's growth strategies and management team. These funds wil l

34 help finance working capital, accelerate product development, fuel more marketing, and acquire new content, all of which will facilitate our diverse planned growth and leverage our unique three- pronged digital entertainment business model ."

151 . The Registration Statement was signed by Defendants Yankowski and Chason .

Defendant Chason also signed the Registration Statement on behalf of Defendants Jesse Sutton,

Joseph Sutton and Morris Sutton pursuant to a power of attorney duly executed by each of these defendants . The Registration Statement was filed with the SEC.

152. The Registration Statement stated that for the year ended October 31, 2004 ,

Majesco provided allowances for future price protection and other allowances of $6 .7 million and finished the fiscal year with a year-end balance of price protection of approximately $4 .9 million.

This ending price protection reserve at October 31, 2004 was understated by at least $2 million .

This statement was materially false and misleading for the reasons set forth in ¶¶126-31 .

153. The Registration Statement reported net revenues of approximately $121 millio n for the fiscal year-ended October 31, 2004 and contained the following statements, inter alia, concerning Majesco's revenue recognition:

Revenue Recognition. The Company recognizes revenue upon shipment of its product when title and risk of loss are transferred . In order to recognize revenue, the Company must not have any continuing obligations and it must also be probable that the Company will collect the accounts receivable. Revenues, including sales to resellers and distributors, are recognized when these conditions are met .

154. These statements were materially false and misleading for the reasons stated in

¶¶132 .

155 . The Registration Statement stated that Majesco's costs of sales for the year-ende d

October 31, 2004 was $86.2 million and stated the following statements:

35 Software development costs . . . Software development costs are capitalized once technological feasibility of a product is established and it is determined that such costs should be recoverable against future revenues . . . .

156. This statement was an untrue statement of a material fact for the reasons stated i n

¶¶136-41 since the financial statement improperly capitalized software development costs and understated expenses by $5 million .

157. The Registration Statement stated that Majesco's operating income for the year- ended October 31, 2004 was $12 .1 million and Majesco's gross profit for the year-ended Octobe r

31, 2004 was $34.7 million.

158 . These statements were materially false and misleading for the reasons set forth in ¶

144.

159. The Registration Statement contained the following statements concernin g

Majesco's 2005 financial outlook:

2005 Outlook

For its fiscal year 2005, the Company expects $175 - $185 million in net revenues and operating income of $16 - $18 million. This guidance anticipates increases in net revenue for all business units and anticipated improvement in the profitability from video games, while including consideration for planned increased investment in both product development and marketing . . .

160. These statements were materially false and misleading for the reasons set forth in

T146.

161 . The Registration Statement contained the following statements concerning Advent

Rising:

We expect to expand our frontline titles by releasing several new titles in 2005, including, Advent Rising, which is anticipated to be the first in a trilogy o f

36 epic science fiction games developed in collaboration with award-winning science fiction author Orson Scott Card . . . By summer 2005, we intend to release . . . Advent Rising . . .

162 . These statements were materially false and misleading for the reasons set forth in

¶148.

163 . The Registration Statement contained the following statements concernin g

Majesco's financial statements :

Our discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States .

164. This statement was materially false and misleading because Majesco's financia l statement for the fiscal year-ended October 31, 2004 were not prepared in accordance with GAAP for the reasons stated in ¶144.

C. Majesco's Annual Report for the Year-Ended October 31, 200 4

165 . On January 31, 2005, Majesco filed its annual report for the fiscal year-ende d

October 31, 2004 with the SEC on Form 10-K, which was signed by Defendants Yankowski ,

Chason, Jesse Sutton, Joseph Sutton and Morris Sutton.

166. The 10-K reported net revenues of approximately $121 million for the fiscal year- ended October 31, 2004 .

167. This statement was materially false and misleading for the reasons stated in ¶126-

32.

168. The annual report stated that Majesco's costs of sales for the year-ended Octobe r

31, 2004 was $86 .2 million.

169. This statement was materially false and misleading statement for the reasons se t forth in ¶¶136-41 .

37 170. The annual report stated that Majesco's operating income for the year-ende d

October 31, 2004 was $12 .1 million and the Majesco's gross profit for the year-ended October 31 ,

2004 was $34 .7 million.

171 . This statement was materially false and misleading for the reasons set forth i n

¶144.

172. The annual report stated the following, inter alia, concerning Advent Rising :

We expect to expand our frontline titles by releasing several new titles in 2005, including Advent Rising, which is expected to be the first in a trilogy of epic science fiction games developed in collaboration with award-winning science fiction author Orson Scott Card . . . By summer 2005, we intend to release several other frontline titles, including . . . Advent Rising . . . .

173 . This statement was materially false and misleading for the reasons set forth above in ¶148.

D. Majesco' s Financial Results for the First Quarter-Ended January 31, 200 5

174. On March 9, 2005, Majesco issued a press release reporting its results for its firs t fiscal quarter-ended January 31, 2005 . The press release reported that for the first quarter ended

January 31, 2005, Majesco recorded approximately $19.8 million for costs of sales and stated , inter alia, the following:

The Company reported record first quarter net revenues of $30 .7 million, compared to $24 .6 million reported for the same period in 2004. Gross profit increased to $11 .0 million or 35 .7 percent of net revenues for the first quarter, compared to $7 .5 million, or 30.4 percent of net revenues for the same period in 2004. Operating income was $2 .0 million for the 2005 quarter versus operating income of $2.3 million for the same period one year ago . . . .

175. Defendant Chason stated, in part, that "Our record first quarter net revenues were driven by our Video and high-margin Gadget products which were not introduced until the latte r

38 half of fiscal 2004 . Our gross margin increased to 35 .7 percent, underscoring the strength of our diversified product offering strategy . . . ." Defendant Yankowski stated that "This quarter has been an exciting one for Majesco ; we were listed on the NASDAQ National Market System, and raised $60 million in net proceeds from a successful registered offering and related warrant exercise. We continued to broaden and enhance our product portfolio . . . ."

176 . Majesco's financial results for the quarter-ended January 31, 2005 were materiall y false and misleading because, as illustrated in the following chart and as explained below, in violation of GAAP, Majesco : 1) overstated net revenues by at least $1 million or approximately

3.4%5; 2) understated costs of sales by at least $3 million or approximately 13 .2%; 3) overstated gross profit by at least $4 million or approximately 57.4%; and 4) overstated operating income by at least $4 million, resulting in an operating loss for the quarter.

As Reported Adjustments Actual QTR 1/31/05

Net Revenues $ 30,719 $(1,000) $29,71 9

Cost of Sales (19,754) 3,000 (22,754)

Gross Profit 10,965 (4,000) 6,965

Operating Costs (8,995) (8,995) Operating Income (loss) 1 970 (4,000) $(2,030)

177. Defendants knew that : 1) the Company's products were not selling in stores based on their receipt of the weekly Sell-Through reports ; and 2) from their attendance at the weekly

Sales and Marketing Meetings, Defendants knew that Majesco had an additional 500,000 units o f product on hand in inventory .

5 Majesco overstated net revenue by $2 million. However, $1 million has been credited to Majesco for returns/credits .

39 178. As alleged in Bennett v. Majesco, Defendants inflated Majesco's sales for the firs t quarter ended January 31, 2005, by causing Majesco to ship materially greater quantities of its products to retailers during the quarter than they were selling at retail and that Defendants kne w that Maj esco would have to take material amounts of these products back .

179. The Defendants were motivated to conceal that these products were not selling at retail in order to inflate Majesco's financial results for the quarter ended January 31, 2005 . The

Defendants knew that retailers would either return a material quantity of the unsold product o r would meet demand by selling off excess inventory instead of ordering new products .

180. According to Cl 1, starting at the beginning of January 2005, on a daily basi s

Majesco received telephone calls from Majesco customers seeking to return products to

Majesco's office in Edison, New Jersey . Majesco's products were returned in material quantities .

Majesco assigned three receptionists to provide customers return numbers and catalogue which products each customer would return . These returned products had been shipped at the end o f

Majesco's fiscal year-ended October 31, 2004 for sale during the calendar year-end shoppin g season.

181 . As alleged in Bennett v. Majesco, Defendant Chason knew that Majesco ' s reported net revenue for the quarter ended January 31, 2005 was overstated by at least $1 million because

Majesco improperly understated its price protection reserves at a time defendants knew that material amounts of products were being returned and these reserves should have been increased .

Bennett informed Defendant Chason that the reserves should be increased . However, Defendant

Chason knew that Majesco was in danger of not making its numbers for the quarter ended January

31, 2005 and, as a result, with the knowledge of the other Defendants, understated price protection reserves to inflate Majesco's revenues for the quarter ended-January 31, 2005 i n violation of GAAP .

40 182. Defendants understated Majesco's costs of sales by $3 million because they faile d to recognize impairments in the inventory value for games released, but not shipped, includin g

Psychonauts, during the quarter-ended January 31, 2005 for which orders were weak . Defendants knew from their receipt of the Sell-Through reports and their participation in the Sales and

Marketing meetings described above, that Majesco's products were not selling at retail an d

Majesco's excess inventory was building up . On September 14, 2005, Majesco charged $9 .2 million to cost of sales to recognize impairments in the inventory value for games during the nin e months ended July 31, 2005 for which orders received were significantly below expectations . At least $3 million should have been written down in the quarter ended January 31, 2005 .

183 . Indeed, Majesco successfully deceived investors . After the March 9, 2005 release of Majesco's financial results for the first quarter-ended January 31, 2005, analysts stated tha t

Majesco's financial results met or exceeded their estimates of Majesco's financial results for thi s quarter.

184. Defendants were motivated to engage in this conduct because: 1) Majesco had recently completed the Offering and they wanted investors to believe that Majesco was on track to achieve its fiscal 2005 outlook of $175-185 million in net revenue ; and 2) they wanted to artificially inflate Majesco's stock price in order to comply with the requirements of being a

NASDAQ listed company.

i. Defendant ' s False and Misleading 2005 Outlook .

185 . The March 9, 2005 press release stated the following concerning Majesco' s financial outlook :

2005 Outlook

Management reiterated its expectations for fiscal 2005, expecting revenue of $175 - $185 million and operating income of $16 - $18 million. This guidance anticipates increases in net revenue for al l

41 product lines and improvement in the profitability from video games, while including consideration for planned increased investment in marketing as well as increased infrastructure to suppo rt the Company's anticipated growth and to meet the requirements of being a NASDAQ traded company

186. This statement was materially false and misleading for the reasons stated in ¶14 6 and because, as alleged in Bennett v. Majesco, during the Mid-Range-Plan process in March

2005, Bennett informed Defendants Morris Sutton and Chason that Majesco needed to make pricing and inventory adjustments to accurately report the status of slow moving inventory .

Bennett also informed Chason that Majesco's internal forecast for video sales had been lowered by a material amount, but that this adjustment was not disclosed to investors . The other

Defendants knew of this because it was discussed at the weekly Sales and Marketing Meetings .

ii. Defendants's False and Misleading Statement about Advent Rising.

187. The March 9, 2005 press release also stated the following concerning Advent

Rising:

Recent Highlights . . .

- Majesco contracted with a 70-piece orchestra, led by Emmy Award-winning conductor Mark Watters, to produce the musical score for "Advent Rising ." . .

Key Announced Upcoming Product s

-- Advent Rising, the first title in a planned trilogy of games, has been developed in collaboration with award-winning science fiction author Orson Scott Card. This premium title is scheduled to ship during the third quarter [May 1, 2005 through July 31, 2005] for the Xbox and PC . . . .

188. These statements were materially false and misleading for the reasons stated in

¶148, and in particular, because Defendants knew the production of Advent Rising was

42 experiencing material technical problems including distortion of the audio such that dialogue wa s

inaudible or drowned out by the musical score.

189. On March 9, 2005, defendants Yankowski, Chason and Jesse Sutton conducted a

conference call to discuss Majesco's financial results for the first quarter of fiscal 2005 ende d

January 31, 2005 . The following statements were made during this conference call conce rning

Majesco's financial results for the First Quarter of fiscal year 2005 :

Chason:

Gross profit increased to $11 million for the quarter, compared to $7 .5 million in the comparable quarter last year.

190. This statement was materially false and misleading because Defendants overstated

Majesco's net revenues by $1 million for quarter-ended January 31, 2005 and understated th e

Company's costs of sales by $3 million for that quarter. Therefore, gross profit was overstated by

$4 million.

191 . The following statements were made on the March 9, 2005 conference call concerning Advent Rising:

Jesse Sutton . . .

In our 3rd quarter, we plan to release Advent Rising, the first title in the planned trilogy that is being developed in collaboration with award winning science fiction author Orson Scott Card . It is scheduled to ship on Xbox, and the PC . . . We have been getting great feedback on Advent Rising . . . and we expect those to be top premium based performers for 2005 . . . .

[Questioner:] I wanted to ask . . . which of the high- end games which you think will be the potential home runs of over 5- 600,000 units .

43 CARL YANKOWSKI: . . . We have very high hopes for Advent Rising, we like the fact that it's the beginning of the trilogy - I think you saw a press release that said it has a Grammy Award winning score with it. . . .

192. These statements were materially false and misleading for the reasons set forth in

¶148 .

193 . The following statements were made on the March 9, 2005 conference call concerning Majesco's financial outlook for 2005 :

Yankowski :

For our guidance, we are reiterating our fiscal 2005 targets for the year we expect net revenue of 175-185 million [and] operating income of 16-18 million . . . .

194. Defendants knew that this statement was false and misleading for the reasons set

forth in ¶¶146 and 186 .

195 . On March 17, 2005, the Company filed Majesco's quarterly report on Form 10- Q

with the SEC for the first quarter of fiscal year 2005 ended January 31, 2005 signed by Defendant

Chason which reaffirmed the Company's previously announced financial results which were fals e

and misleading for the reasons stated above .

E. Advent Rising is Shipped to Majesco Customer s

196. On May 31, 2005, Majesco shipped Advent Rising to retail outlets nationwide .

197. After Majesco shipped Advent Rising, shares of Majesco materially declined fro m

$8.77 per share on May 31, 2005 to close at $6.15 per share on June 29, 2005, a decline o f

approximately 30%, as the same material technical problems that Defendants knew of at the

beginning of the Class Period, but failed to disclose to investors, was revealed . For example:

(i) On June 8, 2005, a reviewer commented about Advent Rising in the Toronto National Post that "the game is marred by control issues and many bugs including : freezes and crashes ; severe slowdown in the frame rate

44 when the action gets intense ; clipping problems (i.e., losing half your body in an object); and times where the music gets so loud that it drowns out the dialogue or drops out altogether for a minute or two . . . "

(ii) On June 16, 2005, another reviewer commented about Advent Rising in the Cleveland Plain Dealer that "animations are smooth one moment, but slow down in big firefights and freezes at times . The effectiveness of the story is diminished by cut scenes (some playable) that add no excitement or tension

(iii) On June 16, 2005, a third reviewer commented about Advent Rising in the Wilmington Star-News, noting that the "game's look is marred by some rough cutscenes and character modeling . Big battles with aliens can slow the game's framerate down substantially, and even the cutscenes - which should be flawless - often took a long time to load or stuttered when they were playing. Plus, the game crashed a few times while transitioning between scenes . . . "

198. On June 29, 2005, JMP Securities downgraded Majesco to "market perform" fro m

"market outperform" based on checks that showed Advent Rising sales tapered off and received a great deal of negative comments .

199. 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 .

F. Majesco's Financial Results for the Second Quarter-Ended April 30, 2005

200. On June 7, 2005, Majesco issued a press release reporting its results for it firs t quarter ended April 30, 2005 . The press release reported that for the second quarter-ended Apri l

30, 2005 Majesco recorded approximately $11 .4 million for costs of sales and stated, inter alia, the following:

The Company reported record second quarter net revenues of $19 .9 million, compared to $17 .0 million for the same period in 2004 . Gross profit increased to $8 .4 million, or 42 .4% of net revenues for the second quarter, compared to $5 .4 million, or 31 .9% of net revenues for the same period in 2004 . Operating income was $821,000 for the 2005 quarter, versus $1 .1 million for the same period one year ago. The decrease in operating income is attributable to infrastructure to support the

45 Company's growth, as well as fulfilling obligations as a NASDAQ-listed company .

201 . Defendant Chason stated, in part, that "Our gross margin increased to 42 .4% for the quarter, underscoring the strength of our diversified product offerings. The increased expenses for the quarter were directly related to infrastructure growth to better position the Company for the future. We expect this level of expenditures to continue as we prepare to release key products in the coming quarters, implement new support functions and compliance and testing related

Sarbanes-Oxley ." Defendant Yankowski stated, in part, that "We are entering the important second half of our fiscal year with confidence that we are well positioned to achieve our objectives for full year 2005 . We remain focused on global growth, both organic and otherwise ."

202. Majesco's financial results for the quarter-ended April 30, 2005 were materiall y false and misleading because, as illustrated in the following chart and as explained below, in violation of GAAP, Majesco: 1) overstated net revenues by at least $3 .9 million or 24%; 2) understated costs of sales by at least $3 million or 21%; 3) overstated gross profit by at least $6 . 9 million or 455 %; and 4) overstated operating income by at least $6 .9 million, resulting in an operating loss for the quarter.

46 As Reported Adjustments Actual QTR 4/30/05

Net Revenues $ 19,855 (3,900) $15,95 5

Cost of Sales (11,441) 3,0006 (14,441 )

Gross Profit 8,414 (6,900) 1,514

Operating Costs (7,593) (7,593)

Operating Income (loss) 821 (6,900) $(6,079)

203. Defendants knew that in violation of GAAP Majesco improperly recognize d revenue during the quarter ended April 30, 2005 . As alleged in Bennett v. Majesco, Defendants booked a sales order from Wal-Mart for 300,000 Frogger video games at $14 per unit which

300,000 units were recorded as revenue in the second fiscal quarter . However, the orders from

Wal-Mart specified a unit price of only $9 .31 . Additionally, as alleged in Bennett v. Majesco, not all 300,000 units were scheduled to ship in Q2 2005 . At least, 48,000 units were not shipped until

Q3 2005.

204. Therefore, Defendants materially overstated Majesco 's revenue in the second fiscal quarter by at least approximately $1 .9 million because : 1) they used an improper cost per unit for

252,000 Frogger units, resulting in an overstatement of revenues of $1 .2 million; and 2) they reported revenue for 48,000 Frogger units that were not shipped during the quarter-ended April

30, 2005, resulting in an overstatement of revenues of $672,000.

205. Defendants knew that Majesco's net revenues were overstated for the quarter- ended April 30, 2005 because as discussed above, the Defendants participated in weekly Sales

6 Majesco has been credited $2 million toward cost of sale because as alleged in Bennett v. Majesco, in February 2005, Majesco booked $2 million to cost of sales for the Texas-Hold `Em video game which costs should have been booked in fiscal year 2004 .

47 and Marketing Meetings that indicated that Majesco inflated the unit price per Frogger video game and that Majesco did not ship 48,000 units in the quarter-ended April 30, 2005 .

206. In addition, as alleged in Bennett v. Majesco, Defendant Chason knew that

Majesco's reported net revenue for the quarter ended April 30, 2005, was overstated by at least $ 2 million because Majesco improperly understated its price protection reserves at a time defendants knew that material amounts of products were being returned . Bennett informed Jan Chason that the reserves should be increased . However, Chason knew that Majesco was in danger of no t making its numbers for the quarter ended April 30, 2005 and, as a result, with the knowledge o f the other Defendants, understated price protection reserves to inflate Majesco's revenues for thi s quarter at a time reserves should have been increased .

207. In addition, Defendants understated costs of sales by $5 million? by failing to recognize impairments in the inventory value for games released, but not shipped, includin g

Psychonauts, during the quarter-ended April 30, 2005 for which orders were weak . Defendants knew from their receipt of the Sell-Through reports and their participation in the Sales and

Marketing Meetings described above that Majesco's products were not selling at retail and tha t

Majesco's inventory was building up . On September 14, 2005, Majesco charged $9 .2 million to cost of sales to recognize impairments in the carrying value for games released during the nine months ended July 31, 2005 for which orders received were significantly below expectations . At least $5 million should have been written down in the quarter ended April 30, 2005 .

208. During the Mid-Range-Plan process in March 2005, Bennett informed Defendant s

Morris Sutton and Chason that Majesco needed to make pricing and inventory adjustments to

7 Majesco has been credited $2 million toward cost of sale because as alleged in Bennett v. Majesco, in February 2005, Majesco booked $2 million to costs of sales for the Texas-Hold `Em video game which costs should have been booked in fiscal year 2004 .

48 accurately report the status of slow moving inventory . Bennett also informed Chason that

Majesco's internal forecast for Video sales had been lowered by a material amount, but that thi s adjustment was not disclosed to investors.

209 . Defendants were successful in deceiving investors . After the June 7, 2005 release of Majesco' s financial results for the second quarter-ended April 30, 2005 , analysts stated that

Majesco's financial results met or exceeded their estimates of Majesco's financial results for thi s quarter.

i. Defendants ' s False and Misleading Statements about Advent Rising.

210. The June 7, 2005 press release also stated the following concerning Advent Rising:

Key Product s

-- Advent Rising, the first title in a planned trilogy of games, has been developed in collaboration with award-winning science fiction author Orson Scott Card. This title shipped on May 31st for the Xbox and PC . . .

211 . This statement was materially false and misleading for the reasons stated in ¶148 .

ii. Defendants' False and Misleading Statements Regarding Majesco's 2005 Outlook .

212. The June 7, 2005 press release also stated the following concerning Majesco' s financial outlook :

2005 Outlook

Management reiterated its expectations for fiscal 2005 of net revenues of $175 - $185 million and operating income of approximately $16 to $18 million. This guidance includes consideration for planned increased investment in marketing as well as increased infrastructure to suppo rt the Company's anticipated growth and to meet the requirements of being a NASDAQ-traded company and to comply with Sarbanes-Oxley requirements .

49 213 . This statement was materially false and misleading because of the reasons set forth in ¶¶146, 186, 200.

214 . On June 7, 2005, Defendants Yankowski, Chason and Jesse Sutton conducted a conference call to discuss Majesco ' s financial results for the second quarter of 2005 ended April

30, 2005 . The following statements were made during this conference call conce rning Majesco' s financial results for the Second Quarter of fiscal year 2005 :

Yankowski:

Today we reported net revenue of $20 million with operating income of $821,000 and a net income of a penny per share.

Chason:

The net revenues for the third quarter were $19 .9 million compared to $17 million for the second quarter of 2004. Gross profit increased $8 .4 million for the quarter compared to $5 .4 million in the comparable quarter last year.

215 . These statements were materially false and misleading for the reasons set forth in

IT 203-09 .

216. The following statement was made during this conference call concerning Advent

Rising:

Jesse Sutton:

Last week we shipped Advent Rising for X box and PC. Advent Rising is the first title on the plan trilogy that has been developed in collaboration with awarding winning science fiction author Orson Scott Card. In less than a week on the shelves we had great feedback from retails and got multiple reorders. We view this as a very positive sign as other scores the appeal on the premium titles that we are focused on developing .

50 217 . These statements were materially false and misleading for the reasons set fo rth in

¶148.

218. The following statement was made during this conference call concerning

Majesco's 2005 Outlook:

Yankowski :

As for guidance once again we are strongly reiterating our fiscal 2005 target for the year . We expect net revenue of $175-285 million and operating income $16 to 18 million . . . .

219. These statements were materially false and misleading for the reasons set forth in

¶¶ 146, 186, 208 .

220. On June 14, 2005, the Company filed its quarterly report for the period ende d

April 30, 2005 with the SEC on Form 10-Q signed by Defendant Chason that reaffirmed the

Company's financial results previously announced in the June 7, 2005 press release that wer e false and misleading for the reasons stated above.

G. Majesco Changes Management and Revises Its Financial Guidanc e

221 . On July 12, 2005, Majesco stated that its Chief Executive Officer, defendant

Yankowski, resigned and the Company's Chief Financial Officer, defendant Chason, was replaced. The Company issued a press release titled "Majesco Entertainment Company

Announces Key Management Changes Jim Halpin Elected Chairman ; John Gross Appointed

Chief Financial Officer ." The release stated, in part:

The Company . . . announced that under a mutual agreement with the Company, Chairman and Chief Executive Officer, Carl Yankowski, has submitted his resignation . The Board has commenced an immediate search for a permanent Chief Executive .

51 In addition, the Company announced that John Gross has joined the company as Executive Vice President and Chief Financial Officer. Jan Chason, the former CFO will assume the newly created role of Chief Accounting Officer . . .

Added Jim Halpin, Chairman, "We also announced today that we have lowered our net revenue and operating income expectations for the year as a result of the conditions we are seeing in the marketplace . My objective is to work closely with the management team at Majesco to chart the Company's course for the future and regain investor confidence. "

222. Also on July 12, 2005, the Company issued a press release titled "Majesco

Entertainment Reduces Fiscal 2005 Financial Outlook ." In the press release, Majesco revised it s

2005 Outlook from net revenues of $175 to $185 million and operating income of $16 to $1 8 million, to net revenues for fiscal 2005 of between $120 million and $ 125 million - a decline o f expected net revenue of between $50 million and $65 million and an operating loss of $1 6 million to $19 million instead of operating income of $16 to $18 million .

223 . The reasons Majesco provided for its revised guidance included accountin g improprieties that Defendants Yankowski, Chason, Jesse Sutton, Joseph Sutton and Morris Sutton knew about during the Class Period, as alleged above, but failed to disclose to investors, includin g

1) provisions for impairments of capitalized costs ; 2) increased allowances for price protection which were recorded as a reduction of revenues ; 3) substantially weaker than expected sales across all of the Company's product lines ; 4) inventory levels indicating lower than expected initial orders for many of the Company 's products, and soft reorders for the remainder of the year

224. On July 13, 2005, shares of Majesco's common stock declined from $6 .89 to

$3 .56, or 48%, on heavier than usual trading volume. The stock continued to decline over the next several week to close at $2 .44 on September 12, 2005 .

52 225 . On August 2, 2005, Majesco's Executive Vice President and Chief Legal Officer ,

Lester Greenman, resigned after approximately 6 months of employment with Majesco .

VI. THE CLASS PERIOD END S

226. The Class Period ends on September 12, 2005, when, Majesco issued a press release titled "Majesco Entertainment Company Reports Third Quarter 2005 Financial Results . "

The Company reported the following financial results :

third quarter net revenues of $4 .6 million, compared to $34 .0 million for the same period in 2004 . . . The operating loss was $38.6 for the 2005 quarter, versus operating income of $3 .1 million for the same period last year.

227. On September 12, 2005, Majesco again revised its financial outlook for fiscal 200 5 from net revenues for fiscal 2005 of between $120 million and $125 million and an operating loss of $16 million to $19 million to net revenues of $60 .0 to $65.0 million and an operating loss of approximately $40.0 to $45.0 million - an additional decline in expected net revenue of approximately $60 million, or 50% .

228 . The reasons cited by Majesco for its revised guidance involved accounting issue s that Defendants knew about during the Class Period, as alleged above, but failed to disclose to investors. Indeed, the press release stated :

The decrease is reflective of weak sales of the Company's products compared to the strong sales around the introduction of its Game Boy Advance Video product in the prior year quarter. In addition, net revenues for the 2005 quarter were impacted by increased provisions for price protection, changes in market conditions, and soft demand for the Company's products . . .

The decrease in operating income is attributable to the weaker than expected sales of the Company's premium game releases as well as its other products. As a result the Company was unable to recoup development and marketing costs related to

53 the premium games. The loss also includes provisions for impairment of capitalized software costs, severance costs and a loss on a proposed settlement . . .

229. On September 12, 2005, Defendant Jesse Sutton, Majesco's President, essentiall y admitted that Majesco's business strategy for 2005, including the disastrous attempt to develop the frontline title Advent Rising, was a failure and stated that as "a result of our disappointing results, we are re-evaluating our business model." Defendant Jesse Sutton stated that Majesco's

"value product line will remain a core part of our business and we will selectively publish frontline titles. Additionally, our strategy includes pursuing low-risk opportunities in the mobile and online markets with our existing intellectual properties as well as new products. "

230. On September 13, 2005, shares of Majesco declined approximately 50%, from

$2.44 per share to close at $1 .23 per share, on heavier than usual trading volume .

231 . On September 14, 2005, the Company filed Majesco's quarterly report on For m

10-Q with the SEC for the third quarter of fiscal year 2005 ended July 31, 2005 which reaffirmed the Company's previously announced financial results and stated that Majesco "charged $9 .2 million to cost of sales to recognize impairments in the carrying value for games released during the nine months ended July 31, 2005 for which orders received were significantly below expectations."

232 . On December 13, 2005, Majesco stock closed at $1 .35 per share .

VII. DEFENDANTS' VIOLATIONS OF GAAP

233. Defendants represented in Majesco's Registration Statement, the 10-K, and in its

10-Qs that the Company's financial statements were prepared in accordance with GAAP, which are recognized by the accounting profession and the SEC as the uniform rules, conventions, and procedures necessary to define accepted accounting practices at a particular time . However, the

Company used improper accounting practices in violation of GAAP, SEC reporting requirements ,

54 and its own publicly-stated policies, which practices resulted in the material misstatement of the

Company's financial statements, including its gross profit .

234. As set forth in Financial Accounting Standards Board Statements of Concept s

("FASCON") No. 1, one of the fundamental objectives of financial repo rting is to provide accurate and reliable information concerning an entity's financial performance during the perio d being presented . FASCON No. 1, paragraph 42, states :

Financial reporting should provide information about an enterprise's financial performance during a period . Investors and creditors often use information about the past to help in assessing the prospects of an enterprise. Thus, although investment and credit decisions reflect investors' and creditors' expectations about future enterprise performance, those expectations are commonly based at least partly on evaluation of past enterprise performance.

235 . As set forth in SEC Rule 4-01(a) of SEC Regulation S-X, "[f]inancial statement s filed with the [SEC] which are not prepared in accordance with [GAAP] will be presumed to be misleading or inaccurate ." 17 C.F .R. § 210 .4-01(a)(1) . Management is responsible for preparin g financial statements that conform with GAAP . As noted by the American Institute of Certifie d

Public Accountants ("AICPA") Codification of Statements on Auditing Standards § 110.03 :

The financial statements are management's responsibility . . . . [M]anagement is responsible for adopting sound accounting policies and for establishing and maintaining internal control that will, among other things, record, process, summarize, and report transactions (as well as events and conditions) consistent with management's assertions embodied in the financial statements . The entity's transactions and the related assets, liabilities and equity are within the direct knowledge and control of management . . . . Thus, the fair presentation of financial statement in conformity with Generally Accepted Accounting Principles is an implicit and integral part of management's responsibility .

236. GAAP, as set forth in FASB No. 48, states that :

If an enterprise sells its products but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at time of sale only if all of the following conditions are met:

55 (i) The seller's price to the buyer is substantially fixed or determinable at the date of sale .

(ii) The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product.

(iii) The buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product.

(iv) The buyer acquiring the product for resale has economic substance apart from that provided by the seller .

(v) The seller does not have significant obligations for future performance to directly bring about resale of the product by buyer.

(vi)The amount of future returns can be reasonably estimated .

If sales revenue is recognized because the conditions of paragraph 6 are met, any costs or losses that may be expected in connection with any returns shall be accrued in accordance with FASB Statement No . 5, Accounting for Contingencies . Sales revenue and cost of sales reported in the income statement shall be reduced to reflect estimated returns .

The ability to make a reasonable estimate of the amount of future returns depends on many factors and circumstances that will vary from one case to the next. However, the following factors may impair the ability to make a reasonable estimate :

(i) The susceptibility of the product to significant external factors, such as technological obsolescence or changes in deman d (ii) Relatively long periods in which a particular product may be returned (iii)Absence of historical experience with similar types of sales of similar products, or inability to apply such experience because of changing circumstances, for example, changes in the selling enterprise's marketing policies or relationships with its customers (iv)Absence of a large volume of relatively homogeneous transaction s

The existence of one or more of the above factors, in light of the significance of other factors, may not be sufficient to prevent making a reasonable estimate; likewise, other factors may preclude a reasonable estimate .

56 237. GAAP, specifically FAS No. 86, sets forth the requirements for software development cost capitalization, which includes the requirement that cost cannot be capitalized until "technological feasibility" of the product is established, and all research and development activities for the other components of the product have been completed. Technological feasibility is established when

the enterprise has completed all planning, designing, coding and testing activities that are necessary to establish that the product can be produced to meet its design specifications including functions, features, and technical performance requirements . . . The detail program design has been reviewed for high-risk development issues (for example, novel, unique, unproven functions and features or technological innovations), and any uncertainties related to identified high-risk development issues have been resolved through coding and testing.

The amount of unamortized capitalized software costs shall not exceed the net realizable value o f the software product, which is the estimated future gross revenue from the product reduced by the future costs of completing and disposing of that product .

238. Maj esco's financial statements set forth in the Registration Statement, 10-K an d

I0-Qs violated a number of additional GAAP provisions. For example, GAAP provides that :

(i) financial reporting should provide information about how management of an enterprise has discharged its stewardship responsibility to owners (stockholders) for the use of enterprise resources entrusted to it . To the extent that management offers securities of the enterprise to the public , it voluntarily accepts wider responsibilities for accountability to prospective investors and to the public in general (CON No. 1, ¶ 50);

(ii) financial reporting should provide information about an enterprise's financial performance during a period . Investors and creditors often use information about the past to help in assessing the prospects of an enterprise . Thus, although investment and credit decisions reflect investors' expectations about future enterprise performance, those expectations are commonly based at least partly on evaluation of past enterprise performance (CON No. 1, ¶ 42) ; and

57 (iii)financial reporting should be conservative and ensure that unce rtainties and risks inherent in business situations are adequately considered . The best way to avoid injury to investors is to try to ensure that what is repo rted represents what it purpo rts to represent (CON No . 2, ¶¶ 95, 97) .

Defendants' statements in the Registration Statement, the 10-K and 10-Qs violated these GAAP requirements because, as alleged herein , they failed to properly consider the Company's pas t enterprise performance and known risks concerning accruals and the inventory levels of th e

Company's customers, failed properly to employ the convention of conservatism whe n capitalizing expenses, booking accruals and projecting results, and thereby failed to exercise the responsibilities to prospective investors and the public that GAAP imposes as set forth herein.

239. In addition, by failing to disclose that the Company had engaged in a channel stuffing campaign to achieve its fiscal 2004 goals such that the defendants possessed information that the Company would be facing weaker than expected sales across all product lines throughou t

2005, defendants violated Item 303 of Regulation S-K, Management's Discussion and Analysis of

Financial Condition and Results of Operations ("MD&A"), which requires a description of any known trends or uncertainties that have had or that the registrant reasonably expects will have a materially favorable or unfavorable impact on net sales or revenues or income from continuin g operations. A May 18, 1989, SEC interpretive release regarding the disclosure required by Item

303 of Regulation S-K, states:

A disclosure duty exists where a trend, demand, commitment, event or uncertainty is both presently known to management and reasonably likely to have material effects on the registrant's financial condition or results of operation . Registrants preparing their MD&A disclosure should determine and carefully review what trends, demands, commitments, events or uncertainties are known to management . [For] example, the registrant [must] disclose[] the reasonably likely material effects on operating results of a known trend in the form of an expected further decline in unit sales of mature products .

Defendants failed to make this disclosure in the Registration Statement , the 10-K and 10-Qs .

58 240. In addition to the foregoing improper accounting practices, Majesco also suffere d from a widespread failure of internal accounting controls that rendered its financial reportin g inherently suspect, unreliable, and subject to manipulation, resulting in materially false an d misleading financial statements in the Registration Statement .

VIII. LOSS CAUSATION/ECONOMIC LOS S

241 . During the Class Period, as detailed herein, defendants engaged in a scheme t o deceive the market and a course of conduct that artificially inflated Majesco's stock price an d operated as a fraud or deceit on Class Period purchasers of Majesco common stock b y misrepresenting the Company's operating condition and future business prospects . Defendants achieved this by making positive statements about Majesco's business and projecting stron g earnings for the Company while they knew that the Company was suffering from a variety of adverse factors which were then negatively impacting its financial results, as detailed herein .

When defendants' prior misrepresentations and undisclosed risks were disclosed and/or becam e apparent to the market, the price of Majesco's common stock fell precipitously as the prio r artificial inflation came out of Majesco's stock price. As a result of their purchases of Majesc o stock during the Class Period, Plaintiffs and other members of the Class suffered economic loss, i.e., damages under the federal securities laws .

242 . As a direct result of defendants' admissions and the public revelations regarding the truth about the condition of Majesco's business and the negative adverse factors that had bee n impacting Majesco's business during the Class Period, the price of Majesco's common stock declined.

243. On May 31, 2005, Majesco shipped Advent Rising to retail outlets nationwide and shares of Majesco materially declined from $8.77 per share on May 31, 2005 to close at $7.25 per

59 share on June 28, 2005, a decline of approximately 17%, as material technical problems began t o be revealed.

244. On June 29, 2005, JMP Securities downgraded Majesco stock to "market perform " from "market outperform" based on checks that showed Advent Rising sales tapered off and that the game received a great deal of negative comments.

245 . On June 29, 2005, shares of Majesco declined $1 .10 per share or approximately

15%, from $7.25 per share to close at $6.15 per share, on heavier than usual volume.

246. The price of Majesco's common stock further declined from $6 .89 per share o n

July 12, 2005, to $3 .56 per share on July 13, 2005 . The stock continued to decline over the next several weeks and closed at $2 .44 on September 12, 2005 .

247. On September 13, 2005, the price of Majesco's common stock declined from $2 .44 per share to $1 .23 per share. These drops removed the inflation from Majesco' s stock price, causing real economic loss to investors who purchased the common stock during the Class Period .

248 . The decline in Majesco's common stock price was a direct result of the nature an d extent of defendants' fraud finally being revealed to investors and the market . The timing and magnitude of Majesco's common stock price declines negate any inference that the loss suffere d by Plaintiffs and other Class members was caused by changed market conditions, macroeconomi c or industry factors, or Company-specific facts unrelated to the defendants' fraudulent conduct .

IX. FRAUD-ON-THE-MARKET DOCTRIN E

249 . At all relevant times, the market for Majesco common stock was an efficient market for the following reasons, among others :

(i). the Company's common stock was publicly traded and/or Majesco met the requirements for public listing and/or was listed and actively traded on the NASDAQ National Market, a highly efficient market;

60 (ii). As a regulated issuer, the Company filed periodic public reports with the SEC; and

(iii). The Company regularly had conference calls with investors and issued press releases which were carried by national news wires . Each of these releases was publicly available and entered the public marketplace.

250. As a result, the market for Majesco 's common stock promptly digested curren t information with respect to Majesco from all publicly available sources and reflected such information in the price of the Company's common stock. Under these circumstances, al l purchasers of the Company's publicly traded common stock during the Class Period suffere d similar injury through their purchase of the publicly traded common stock of Majesco at artificially inflated prices and a presumption of reliance applies.

X. ADDITIONAL SCIENTER ALLEGATIONS

251 . Defendants acted with scienter in that they knew that the public documents an d statements issues or disseminated in the name of Majesco were materially false and misleading; knew that such statements or documents would be issued or disseminated to the investing public ; and knowingly and substantially participated or acquiesced in the issuance or dissemination o f such statements or documents as primary violations of the federal securities laws . As set forth below, defendants, by virtue of their receipt of information reflecting the true facts regarding

Majesco, their control over, and/or receipt and/or modification of Majesco's allegedly materiall y misleading misstatements and/or their associations with the Company which made them privy t o confidential proprietary information concerning Majesco, participated in the fraudulent scheme alleged herein.

252. Defendants knew and/or recklessly disregarded the falsity and misleading nature o f the information which they caused to be disseminated to the investing public . The ongoing fraudulent scheme described in this Amended Complaint could not have been perpetrated over a

61 substantial period of time, as has occurred, without the knowledge and complicity of the personnel at the highest level of the Company, including the Defendants .

253 . Defendants had the opportunity to perpetrate the fraudulent scheme and course o f business described herein because they were the most senior officers of Majesco, issue d statements and press releases on behalf of Majesco and had the opportunity to commit the fraud alleged herein. As illustrated by the Defendants' positions with the Company, they had and use d their influence and control to further the scheme alleged herein . The Defendants had broad responsibilities that included communicating with the financial markets and providing the markets with financial results . The Defendants were privy to and directed the making of financial projections and results . By making the misleading statements contained herein, the Defendants knew that they would artificially inflate the value of the Company's common stock. Their actions resulted in damage to Plaintiffs and the Class.

XI. NO SAFE HARBOR

254. To the extent that the statutory safe harbor may apply to any of these fals e statements alleged herein, the Defendants are liable for those false forward-looking statements because at the time each of those statements was made the speaker actually knew the statement was false and the statement was authorized and/or approved by an executive officer of Majesc o who actually knew that those statements were false when made .

COUNT IV (AGAINST DEFENDANTSMAJESCO YANKOWSKI, CHASON, JESSE SUTTON, JOSPEH SUTTON, AND MORRIS SUTTON FOR VIOLATION OF §10(b) OF THE 1934 ACT AND RULE 10b-5 )

255 . Lead Plaintiff repeats and realleges each and every allegation contained in all the foregoing paragraphs as if fully set forth herein .

62 256. This Count is asserted against all defendants and is based upon § 10(b) of the 1934

Act, 15 U.S.C. §78j(b), and Rule lOb-5 promulgated thereunder by the Securities and Exchang e

Commission.

257. During the Class Period, defendants, directly or indirectly, engaged in a commo n plan, scheme, and unlawful course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions, practices, and courses of business which operated as a fraud and deceit upon Lead Plaintiff and the other members of the Class, and made various deceptive an d untrue statements of material facts and omitted to state material facts necessary in order to mak e the statements made, in light of the circumstances under which they were made, not misleading to

Lead Plaintiff and the other members of the Class . The purpose and effect of said scheme, plan , and unlawful course of conduct was to induce Lead Plaintiff and the other members of the Clas s to purchase Majesco common stock during the Class Period at artificially inflated prices .

258. During the Class Period, defendants, pursuant to said scheme, plan, and unlawful course of conduct, knowingly and recklessly issued, caused to be issued, participated in the preparation and issuance of deceptive and materially false and misleading statements to the investing public which were contained in or omitted from various documents and other statements, as particularized above .

259. Defendants each knew and intended to deceive Lead Plaintiff and the other members of the Class, or in the alternative, acted with reckless disregard for the truth when the y failed to disclose or cause the disclosure of the true facts to Lead Plaintiff and the other members of the Class.

260. As a result of the dissemination of the false and misleading statements set fort h above, the market price of Majesco's common stock was artificially inflated during the Clas s

Period. In ignorance of the false and misleading nature of the representations described abov e

63 and the deceptive and manipulative devices and contrivances employed by said defendants, Lead

Plaintiff and the other members of the Class relied to their detriment on the integrity of the marke t price of the stock in purchasing Majesco's common stock . Had Lead Plaintiff and the other members of the Class known of the materially adverse information misrepresented or not disclosed by defendants, they would not have purchased Majesco's common stock at th e artificially inflated prices that they did.

261 . As a result of the inflation of the price of Majesco's common stock during th e

Class Period caused by defendants' material misrepresentations and omissions, Lead Plaintiff an d the other members of the Class have suffered substantial damages as a result of the wrongs alleged.

262. By reason of the foregoing, defendants, directly or indirectly, violated the 193 4

Act and Rule I Ob-5 promulgated thereunder in that they :

(i) employed devices, schemes, and artifices to defraud ;

(ii) made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading ; and/or

(iii) engaged in acts, practices, and a course of business which operated as a fraud and deceit and a scheme to defraud upon Lead Plaintiff and the other members of the Class in connection with their purchases of Majesco's common stock during the Class Period.

COUNT V (AGAINST DEFENDANTS YANKOWSKI, CHASON, JESSE SUTTON, JOSEPH SUTTON AND MORRIS SUTTON FOR LIABILITY PURSUANT TO §20(a) OF THE 1934 ACT)

263 . Lead Plaintiff repeats and realleges each and every allegation contained in all th e foregoing paragraphs as if set forth fully herein.

64 264. Defendants Yankowski, Chason, Jesse Sutton, Joseph Sutton and Morris Sutton , by virtue of their offices and specific acts described above, were, at the time of the wrongs alleged herein, controlling persons of Majesco within the meaning of §20(a) of the Exchange Act .

265 . Defendants Yankowski, Chason, Jesse Sutton, Joseph Sutton and Morris Sutto n had the power and influence and exercised the same to cause Majesco to engage in the illega l conduct and practices complained of herein .

266. As senior executive officers and/or directors of Majesco, Defendant s

Yankowski, Chason, Jesse Sutton, Joseph Sutton and Morris Sutton had a duty to disseminat e accurate and truthful information regarding the Company's financial statements and to correc t any previously issued statements that had become untrue so that the market price of Majesco' s common stock would be based upon truthful and accurate information .

267. Defendants Yankowski, Chason, Jesse Sutton, Joseph Sutton and Morris Sutton , by reason of their executive or directorial positions with Majesco, were controlling persons o f the Company and had the power and influence, and exercised the same, to cause the Company to engage in the conduct complained of herein . Defendants Yankowski, Chason, Jesse Sutton ,

Joseph Sutton and Morris Sutton controlled the contents of the Company's SEC filings , corporate reports and press releases . Each of the Individual Defendants participated in writing or reviewing Majesco's corporate reports, press releases, and SEC filings alleged to be misleading and thus had the ability and opportunity to prevent their issu ance or cause them to be corrected.

268 . Because of their positions and access to material non-public informatio n available to them, these defendants knew that the adverse facts specified herein had not been disclosed to and were being concealed from the public and that the positive representation s which were being made were then materially false and misleading . Thus, each of the thes e

65 Defendants is legally responsible for the falsification of Majesco's public reports, financia l statements, and press releases detailed herein.

269. By reason of the conduct alleged in Count IV of the Complaint, Defendant s

Yankowski, Chason, Jesse Sutton, Joseph Sutton and Morris Sutton are liable for the aforesai d wrongful conduct, and are liable to Lead Plaintiff and to the other members of the Class for th e substantial damages which they suffered in connection with their purchases of Majesco common stock during the Class Period.

XII. CLASS ACTION ALLEGATIONS

270. Lead Plaintiff Diker and DERP bring this action as a class action pursuant t o

Federal Rules of Civil Procedure 23(a) and 23(b)(3) on behalf of a class of all persons who purchased the publicly traded common stock of Majesco during the period from December 8 ,

2004 through September 12, 2005, inclusive (the "Class" )

271 . The members of the Class are so numerous that joinder of all members i s impracticable. While the exact number of Class members is unknown to Plaintiffs at the presen t time and can only be ascertained through appropriate discovery, Plaintiffs believe that there are hundreds of members of the Class located throughout the United States . Throughout the Class

Period, Majesco had over 22 million shares of common stock outstanding .

272. Plaintiffs' claims are typical of the claims of the members of the Class . Plaintiffs and all members of the Class have sustained damages because of defendants' unlawful activitie s alleged herein. Plaintiffs have retained counsel competent and experienced in class and securitie s litigation and intends to pursue this action vigorously . The interests of the Class will be fairly an d adequately protected by Plaintiffs . Plaintiffs have no interests which are contrary to or in conflic t with those of the Class that Plaintiffs seeks to represent.

66 273. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy . Plaintiffs know of no difficulty to be encountered in th e management of this action that would preclude its maintenance as a class action .

274. Common questions of law and fact exist as to all members of the Class an d predominate over any questions solely affecting individual members of the Class . Among the questions of law and fact common to the Class are :

(a) whether the federal securities laws were violated by defendants' acts and omissions as alleged herein;

(b) whether defendants participated directly or indirectly in the course of conduc t complained of herein ;

(c) whether Defendants acted negligently or with the requisite state of mind ; and

(d) whether the members of the Class have sustained damages and the proper measure of such damages .

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs, on behalf of themselves and the members of the Class, pra y for judgment as follows :

(i) declarin g this action to be a proper class action and certifying Lead Plaintif f

Diker and DERP as the representatives of the Class under Rule 23 of the

Federal Rules of Civil Procedure ;

(ii) awarding damages in favor of Plaintiffs and the other members of the Class

against all defendants, jointly and severally, for the damages sustained as a

result of the wrongdoings of defendants, together with interest thereon, or fo r

shares of Majesco common stock tendered, the consideration paid for suc h

common stock with interest ;

67 (iii)awarding Lead Plaintiff and DERP and the Class their costs and expenses

incurred in this action, including reasonable allowance of fees for their

attorneys, accountants, and experts, and reimbursement of plaintiff's expenses ;

and

(iv)granting such other and further relief as the Court may deem just and proper .

JURY DEMAND

Lead Plaintiff Diker and DERP demand a trial by jury .

DATED : December 14, 2005

TRUJILLO RODRIGUEZ & RICHARDS, LLC By: Is Lisa J. Rodriguez

Lisa J. Rodriguez 8 Kings Highway West Haddonfield, NJ 08033 Tel: (856) 795-9002 Fax: (856) 795-9887

Liaison Counselfor 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

KAPLAN FOX & KILSHEIMER LLP Robert N. Kaplan Donald R. Hall Jeffrey P. Campisi 805 Third Avenue, 22nd Floor New York, NY 10022 Tel: (212) 687-1980 Fax: (212) 687-771 4

Lead Counselfor 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

-and-

68 BARRACK, RODOS & BACINE Robert A. Hoffman (RH-7317) Beth R. Targan (BT-5489) 14 Kings Highway West Third Floor Haddonfield, New Jersey 08033 Tel: (856) 354-0707

Leonard Barrack Jeffrey A. Barrack Regina M. Calcaterra BARRACK, RODOS & BACINE 3300 Two Commerce Square 2001 Market Street Philadelphia, PA 19103 Tel : (215) 963-0600

Attorneys for Named Plaintiff Denver Employees Retirement Plan

-and-

CHITWOOD HARLEY HARNES LLP Martin D. Chitwood Lauren S. Antonino Nichole T. Browning 1230 Peachtree Street, NE 2300 Promenade II Atlanta, GA 30309 Tel: (404) 873-3900 Fax: (404) 876-447 6

Additional Counsel for Plaintiffs

69 TRUJILLO RODRIGUEZ & RICHARDS, LLC Lisa J. Rodriguez 8 Kings Highway West Haddonfield, NJ 08022 Phone: (856) 795-9002 Attorney for Lead Plaintiffs

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSE Y

IN RE: MAJESCO SECURITIES LITIGATION Case No . 2 :05-cv-03557-FSF-PS

CERTIFICATE OF SERVIC E

I hereby certify that on December 14, 2005, 1 served the Amended Consolidate d

Class Action Complaint via electronically and overnight mail on counsel listed below:

PATRICK LOUIS ROCCO (via e-filing) JAMES C . SHAH (via e-filing) SHALOV STONE & BONNER LLP SHEPHERD FINKELMAN MILLER & 163 MADISON AVENUE SHAH, LLC P.O. BOX 1277 475 WHITE HORSE PIKE MORRISTOWN, NJ 07962-1277 COLL1NGSWOOD, NJ 08107-190 9

JOSEPH J. DEPALMA (via c-filing) ROBERT A. IIOFFMAN (via c-filing) LITE, DEPALMA, GREENBERG & BETH R. TARGAN RIVAS, LLC BARRACK, RODOS & BACINE TWO GATEWAY CENTER 14 Kings Highway West, 3d Floor 12TH FLOOR Haddonfield, NJ 08033 NEWARK, NJ 07102-5003 856-354-0707

JAMES C. SHAH (via e-filing) LAWRENCE M . ROLNICK (via e-filing) SHEPHERD FINKELMAN MILLER & MARCELA A. KIRBERGER SHAT-I, LLC LOWENSTEIN SANDLER P C 475 WHITE HORSE PIKE 65 Livingston Avenue COLLINGSWOOD, NJ 08107-190 9 Roseland, NJ 07068-179 1

ROBERT A. HOFFMAN (via e-filing) RICHARD T. MAROONEY JR. BARRACK, RODOS & BACINE, ESQS (overnight mail) 3 300 TWO COMMERCE SQUARE KING & SPALDING LLP 2001 MARKET STREET 1185 Avenue of the Americas PHILADELPHIA, PA 19103 New York, New York 10036-400 3

Dated: December 14, 2005 By: Is Lisa J. Rodriguez TRUJILLO RODRIGUEZ. & R.ICHARDS, TL C A PurumvAu A Limes Lkntm Coimm AY`TORNEYS AT LAw

8 Kings Highway West Haddonfield, N] 08033 656-795-900 2 856-795-9867 Fax Lisa J, Rodrigues New I=cy licsponsibic Acmrncy

The Penthouse 226 W, R enhouse Square Philadelphia, PA 19103 December 14, 2005 215-731-900 4 215-731 -9044 Fax

VIA E-FILING

Clerk United States District Court District of New Jersey M.L. King, Jr. Federal Bldg & US Courthouse 50 Walnut Street Newark, New Jersey 07102

Re : In Re: Majesco Securities Litigation Civil Action No.: 05-3557 (FSH )

Dear Sir or Madam :

Enclosed please find for filing in the above referenced matter the Amended Consolidated Class Action Complaint, Summonses for the New Defendants and Certificate of Service, .

Thank you.

Very truly yours,

Lisa J. Rodriguez

cc: The Honorable Magistrate Judge Patty (courtesy copy)