MAJESCO HOLDINGS INC. AND SUBSIDARIESSUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(unaudited)

1.    Basis of Presentation and Principal Business Activity

On December 5, 2003, Majesco Holdings Inc. (formerly ConnectivCorp) ("MHI") consummated a merger with Majesco Sales Inc. ("MSI") (the "Merger"). As a result of the Merger, MSI became a wholly-owned subsidiary and the sole operating business of MHI (See Note 2). All financial information presented reflects the results of MSI as if MSI had acquired MHI on December 5, 2003.PRINCIPAL BUSINESS ACTIVITY AND BASIS OF PRESENTATION

Majesco Holdings Inc. and subsidiaries ("Majesco" or "Company") is a developer, publisheran innovative provider of diversified products and marketercontent for digital entertainment platforms. The Company's three main product lines include games, which includes titles such as Advent Rising, Psychonauts and Jaws; video, which highlights the Company's platform-independent compression technology; and gadgets, which includes innovative digital entertainment products like TV Arcade and Wireless Messenger for Game Boy Advance. The Company's diverse products provide it with multiple opportunities to capitalize on the large and growing installed base of interactivedigital entertainment software. Majesco has released titles for all major video game platforms and handhelds, including Sony's PlayStation and PlayStation^TM 2, Nintendo's N64, Super Nintendo Entertainment System (SNES), Game Boy^TM , Game Boy^TM Color, Game Boy^TM Advance and GameCube^TM , Microsoft's Xbox^TM , Sega's Dreamcast, Genesis and Game Gear, and the personal computer ("PC"). Additionally, Majesco is a manufacturer of aan increasing number of accessories licensed by Nintendo.digital entertainment enthusiasts. The Company's target audiences range from game enthusiastsCompany sells its products directly and childrenthrough resellers primarily to mass-market consumers and "value-priced" buyers. Majesco's customers include Wal-Mart,U.S. retail chains, including Best Buy, Electronics Boutique, GameStop, Kmart, Target, Toys "R" Us Best Buy, Electronics Boutique, Gamestop and other nationalWal-Mart.

On December 5, 2003, the Company (formerly ConnectivCorp) consummated a merger (the "Merger") with Majesco Sales Inc. ("MSI"). Pursuant to the Merger, MSI became a wholly-owned subsidiary of the Company. The operations of the Company are conducted principally through MSI.

As a result of the Merger, the former stockholders of MSI were the controlling stockholders of the Company. Additionally, prior to the Merger, ConnectivCorp had no substantial assets. Accordingly, the transaction was treated for accounting purposes as a reverse acquisition of a public shell, and regional retailers, discount store chainsthe transaction has been accounted for as a recapitalization of MSI, rather than a business combination. Therefore, the historical financial statements of MSI are the historical financial statements of the Company and specialty retailers. Internationally, Majesco's products are published through licensing agreementshistorical stockholders' equity of MSI has been restated to reflect the recapitalization. Pro forma information has not been presented since the transaction is not a business combination.

Costs incurred by MSI, principally professional fees in connection with other publishers.the Merger, amounting to $342,000, were charged to operations during the three month period ended January 31, 2004.

All amounts of common stock have been retroactively restated throughout these consolidated financial statements to give effect to the one-for-seven reverse stock split which was effectuated on December 31, 2004.

The accompanying interim consolidated financial statements of the Company are unaudited, but in the opinion of management, reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results for the interim period. Accordingly, they do not include all information and notes required by generally accepted accounting principles for complete financial statements. The results of operations for interim periods are not necessarily indicative of results to be expected for the entire fiscal year or any other period. These interim consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and notes for the year ended October 31, 20032004 filed on Form 8-K/A10-K on February 18, 2004.January 31, 2005.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation.The Merger

On December 5, 2003, MHI consummated a merger with MSI whereby CTTV Merger Corp., a wholly-owned subsidiary, merged with and into MSI and MHI exchanged 15,325,000 shares of common stock and 925,000 shares of Series A preferred stock for allaccompanying consolidated financial statements include the accounts of the issuedCompany and outstanding common stock of MSI. The 925,000 shares of Series A preferred stock that were issuedits wholly owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in the Merger were convertible into 65,675,000 shares of common stock at any time after MHI amended its certificate of incorporation to increase the authorized common stock to allow for such conversion. Pursuant to the merger agreement, MSI became a wholly-owned subsidiary of MHI. For accounting purposes, this merger has been accounted for as a reverse merger with MSI as the accounting acquirer. Costs incurred by the Company, principally professional fees in connection with the Merger, amounting to approximately $342,000, were charged to operations during the quarter ended January 31, 2004.

MHI amended its Certificate of Incorporation on April 13, 2004 to increase its authorized common stock to 250,000,000 shares. In connection with the private placement of securities in February 2004, the holders of the Series A preferred stock surrendered to the Company for cancellation 352,112 shares of Series A preferred stock that were convertible into 24,999,952 shares of common stock. Also, on April 23, 2004, the holders converted their remaining 572,888 shares of Series A preferred stock into 40,675,048 shares of common stock.

3.    Summary of Significant Accounting Policiesconsolidation.

Revenue RecognitionRecognition..    The Company recognizes revenue upon shipment of its product whenas title and risk of loss are transferred.transferred at such time. 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. Revenue,Revenues, including sales to resellers and distributors, isare recognized when these conditions are met.

For those agreements whichthat provide customers with the right to multiple copies in exchange for guaranteed minimum royalty amounts, (such as under the Company's international distribution agreements), revenue is recognized at delivery of the product master or the

MAJESCO HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

first copy.copy since the Company has no continuing obligations, including requirements for duplication. Royalties on sales that exceed the guaranteed minimum are recognized as earned.

The Company generally sells its products on a no-return basis, although in certain instances the Company may provide price protection or other allowances on certain unsold products. Price protection, when granted and applicable, allows customers a partial credit against amounts they oweowed to the Company with respect tofor merchandise unsold by them. Revenue is recognized net of estimates of these allowances.

The Company estimates potential future product price protection and other allowances related to current period product revenue. The Company analyzes historical experience, current sell through of retailer inventory of the Company's products, current trends in the videogamevideo game market, the overall economy, changes in customer demand and acceptance of the Company's products and other related factors when evaluating the adequacy of price protection and other allowances.

Sales incentives or other consideration given by the Company to customers that are considered adjustments of the selling price of its products, such as rebates and product placement fees, are reflected as reductions of revenue. Sales incentives and other consideration that represent costs incurred by the Company for assets or services received, such as the appearance of the Company's products in a customer's national circular advertisement,ad, are reflected as selling and marketing expenses.

Shipping and handling, which consist principally of packaging and transportation charges incurred to move finished goods to customers, amounted to $1.1 million and $372,000 and are included in selling expenses for the three months ended January 31, 2005 and 2004, respectively.

Software Development Costs and Intellectual Property Licenses.Prepaid License Fees.    Software development costs include milestone payments made to independent software developers under development arrangements.developers. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable against future revenues. For products where proven game engine technology exists, this may occur early in the development cycle. Technological feasibility is evaluated on a product-by-product basis. Amounts related to software development that are not capitalized are charged immediately to development costs. Intellectual propertyPrepaid license fee costs represent license fees paid to intellectual property rights holders for use of their trademarks or copyrights in the development of the Company's products. Minimum guaranteed royalty payments for intellectual property licenses are initially recorded as an asset (prepaid license fees), and a current liability (accrued royalties payable), at the contractual amount upon execution of the contract when no significant performance remains with the licensor. Capitalized software development costs classified as non-current relate to titles for which the Company estimates the release date to be more than one year from the balance sheet date.

Commencing upon the related product's release, capitalized software development costs and property licenses costsprepaid license fees are amortized to cost of sales based upon the higher of (i) the contractual rate based on actual net product sales or (ii) the ratio of current revenue to total projected revenue.revenue or on the straight line method. The amortization period is usually no longer than one year from the initial release of the product. The recoverability of capitalized software development costs and intellectual property licensesprepaid license fees is evaluated based on the expected performance of the specific products for which the costs relate. The following criteria are used to evaluate expected product performance: historical performance of comparable products using comparable technology; orders for the product prior to its release; and estimated performance of a sequel product based on the performance of the product on which the sequel is based.

Advertising Expenses.    The Company generally expenses advertising costs as incurred except for production costs associated with media campaigns which are deferred and charged to expense at the first run of the ad. Advertising costs charged to operations were $1.7 million and $1.0 million for the three months ended January 31, 2005 and 2004, respectively.

Income taxes.     The provision for income taxes for the three months ended January 31, 2005 is based on the Company's estimated annualized effective tax rates for the year. The estimated

MAJESCO HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

annualized effective tax rate for fiscal 2005 is 40%. No tax provision was recorded in the comparable 2004 period due to the utilization of tax loss carryforwards.

Stock Based Compensation.    On March 25, 2004, the Board of Directors granted 3,948,000 options to purchase common stock to officers and employees at an exercise price of $1.90 per share. On April 30, 2004 and June 3, 2004, the Board granted 100,000 options to each of the 2 newly elected member of the Board of Directors at exercise prices of $3.63 and $3.00, respectively. In addition on May 13, 2004, 50,000 options were granted to a consultant at an exercise price of $4.00 per share. The options vest over a three year period and have a ten year term.

The Company accounts for the above mentioned stock-based employee compensation arrangements in accordance withfollows the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and SFAS No. 148, "Accounting for Stock-Based Compensation, Transition and Disclosure" ("SFAS 148"). The provisions of SFAS 123 allow companies either to expense the estimated fair value of stock options or to continue to follow the intrinsic value method set forth in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees,"Employees" ("APB 25") and complies withdisclose the disclosurepro forma effects on net income (loss) had the fair value of the options been expensed. The Company has elected to apply APB 25 in accounting for its stock option incentive plans. The provisions of SFAS

No. 123, "Accounting 148 require that disclosures of the pro forma effect of using the fair value method of accounting for Stock-Based Compensation" as amendedstock-based employee compensation be displayed prominently and in a tabular format. See the table below for the disclosures required by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition123 and Disclosure, an amendment of FASB Statement No. 123". UnderSFAS 148.

In accordance with APB Opinion No. 25 and related interpretations, compensation expense for employeesstock options is recognized in income based on the excess, if any, of the quoted market price of the stock at the grant date of the award or other measurement date over the amount an employee must pay to acquire the stock. Generally, the exercise price for stock options granted to the Company's employees equals or exceeds the fair market value of the Company's common stock at the date of grant, thereby resulting in no recognition of compensation expense. For awards that generate compensation expense as defined under APB 25, the Company calculates the amount of compensation expense and recognizes the expense over the vesting period of the award.

Had compensation cost for the Company's stock option plan adopted in March 2004 been determined based on the fair value method set forth in SFAS 123, the Company's net loss and per share amounts for the three months ended January 31, 2005 would approximate the pro forma amounts indicated below:

				(in thousands, except per share amounts)
Net income – as reported				$	700
Less: Intrinsic value of stock based compensation included in net loss as reported, net of related tax effect					279
Add: Stock based employee compensation determined under fair value based method net of income tax effect					(534	)
Net income – pro forma				$	445
Net loss attributable to common stockholders per share:
Basic and diluted-as reported				$	(.02	)
Basic and diluted-pro forma				$	(.04	)

The fair value of each option grant is estimated on the date of grant betweenusing the fair value ofBlack-Scholes option-pricing model with the Company's stock over the exercise price.

If the Company had recognized compensation expense, in accordance with SFAS No. 123 and 148, based upon the fair value at the grant date for options granted to employees, officers and directors during the nine-month period ended July 31, 2004, the pro forma effect on net income (loss) and net income (loss) loss per share would have been as follows:

				Three months Ended July 31, 2004				Nine Months Ended July 31, 2004
				(in thousands of dollars, except per share amounts)
Net income (loss) attributable to common stock, as reported				$	20,055				($28,983	)
Stock-based employee compensation expense determined under fair value-based method – net of income tax effect					137				185
Pro forma net income (loss)				$	19,918			$	(29,168	)
Earnings (loss) per share -
Basic - as reported				$	.25			$	(.57	)
Diluted - - as reported				$	.16			$	(.57	)
Basic - proforma				$	.25			$	(.57	)
Diluted - - proforma				$	.15			$	(.57	)

The assumptions used for the stock option grants include:following assumptions:

Risk free interest rate (annual)				Various rates ranging from 2.71% to 3.83% at date of grant
Expected volatility				30% and 50%
Expected life				5 Yearsyears
Assumed dividends				noneNone

Cash and cash equivalents.    Cash equivalents consist of highly liquid investments with insignificant rate risk and with maturities of three months or less at the date of purchase.

MAJESCO HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

At various times, the Company had deposits in excess of the Federal Deposit Insurance Corporation limit. The Company has not experienced any losses on these accounts.

Inventory.    Inventory, which principally consists of finished goods, is stated at the lower of cost as determined by the first-in, first-out method, or market. The Company estimates the net realizable value of slow-moving inventory on a title-by-title basis and charges the excess of cost over net realizable value to cost of sales.

Property and equipment.    Property and equipment is stated at cost. Depreciation and amortization is being provided for by the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is provided for over the shorter of the term of the lease or the life of the asset.

Estimates.    The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities or the disclosure of gain or loss contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Among the more significant estimates included in these financial statements are the estimated customer allowances, the valuation of inventory and the recoverability of advance payments for software development costs and intellectual property licenses. Actual results could differ from those estimates.

Foreign Currency Translation.    The functional currency of the Company's foreign subsidiary is its local currency. All assets and liabilities of the Company's foreign subsidiary are translated into U.S. dollars at the exchange rate in effect at the end of the year, and revenue and operating expenses are translated at weighted average exchange rates during the year. The resulting translation adjustments are included in other comprehensive loss in the statement of stockholders' equity (deficiency).

Earnings (loss) per share.    Basic earningsFor the three months ended January 31, 2005, net loss per common share is computed by dividing net income (loss)loss applicable to common stockholders by the weighted-average number of shares of common sharesstock outstanding infor the applicable period. Diluted earningsloss per share for the quarter ended July 31, 2004 reflects the dilutive effect of the preferred stock, stock options and warrants that may be converted into common shares. Diluted earnings per share has not been presented for the other periods presentedthree months ended January 31, 2005 because the impact of the conversion or exercise, as applicable, of the 7% preferred stock (26,580,000)warrants (1,035,736); stock options (4,050,000)(1,689,748); warrants (26,580,000) and placement agent warrants (5,360,000)(622,858) and lock-up warrants (526,377), would be antidilutive. For purposesthe three months ended January 31, 2004 basic earnings per share is computed by dividing net income applicable to common stockholders by the weighted-average number of dilutedshares of common stock outstanding for the period. Diluted earnings per share for the three months ended July 31,same period is computed by dividing net income applicable to common stock-holders by the weighted-average number of common stock and common stock equivalents (Series A Preferred Stock – 9,382,142 equivelent shares) outstanding for the period.

Recent accounting pronouncements.    In December 2004, the $470,000 preferredFASB issued SFAS No. 123 (revised 2004), "Share Based Payment" ("SFAS 123(R)"). SFAS 123(R) requires all share-based payments to employees, including grants of employee stock dividend has been added backoptions, to net income attributable to common stock.

4.    Settlement Obligation

In August 2003, the U.S. District Court of Massachusetts, in Infogrames Interactive, Inc. v. Majesco Sales Inc., entered judgment against MSIbe recognized in the approximate amount of $6.7 million pursuant to a breach of contract action. In December 2003,financial statements based on their fair values. SFAS 123(R) is effective for the Company settledbeginning in the case by agreeing to pay Atari Interactive, Inc. (formerly Infogrames Interactive, Inc.) ("Atari") $6.7 million as follows: (a) $1 million no later thanthird quarter of this fiscal year. The new standard allows for two weeks after signingtransition alternatives, either the modified-prospective method or the modified-retrospective method. The Company has not completed its evaluation of SFAS 123(R) and therefore has not selected a transition method or determined the settlement agreement (the "Effective Date"), which amount was borrowed and paid (See Note 5 – Related Party Transactions); (b) $2.5 million uponimpact that adopting SFAS 123(R) will have on its results of operations.

The Company does not believe that any other recently issued but not yet effective accounting standards will have a material effect on the first to occurCompany's financial position or results of (1)operations.

3.    SECONDARY OFFERING AND RELATED WARRANT EXERCISE

On January 31, 2005, the Company receivingcompleted a total$75 million secondary offering, resulting in approximately $41.9 million in net proceeds to the Company through the sale of $15 million or more in third party financing (subject to various terms and conditions) (the "Financing Date") or (2) June 30, 2004; (c) $1 million on the earlier3,682,176 shares of one year from the Financing Date or June 30, 2005, with interest at 5% per annum; and (d) $2.2 million on a date which is 42 months from the Effective Date, such payment

accruing interest atMAJESCO HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

common stock. In addition, certain existing stockholders sold an aggregate of 2,317,824 shares in the rateoffering for which the Company did not receive the proceeds. However, the Company received approximately $11.3 million of 5% per annumnet proceeds from the earlierexercise of 1,768,559 warrants by the selling stockholders at an exercise price of $7 per share, which were previously issued in the Company's February 2004 private placement. The Company currently intends to use the proceeds of these transactions to fund the growth of its business and for general corporate purposes, including working capital. Proceeds may also be used to acquire products, technologies, content or businesses that are complementary to the Company's business. The Company has no current plans, agreements or commitments for acquisitions of any businesses, rights to products or technologies. Simultaneous to the completion of the Financing Date or June 30, 2004.secondary offering, the Company's common stock began trading on the NASDAQ National Market System.

In December 2004, the Company offered certain holders who were eligible, in accordance with rules promulgated by the Securites and Exchange Commission, the right to exercise warrants to purchase 1,171,418 shares of common stock at a reduced exercise price of $5.95 per share. The warrants were initially issued in the February 2004 private placement and exercisable at $7.00 per share. The Company received proceeds from the exercise of $6.5 million. As a result of the Preferred Stock Offering (See Note 7 – Preferred Stock Offering)this transaction, the Company paid $2.5recorded a non-cash charge to "Additional Paid in Capital" of $1.1 million to Atari on March 9, 2004 andrecognize the exercise of warrants at a reduced exercise price. This charge is also reflected in addition paid $500,000net loss attributable to common stockholders in accordance with the termscalculation of earnings (loss) per share.

Upon completion of the settlement.

As more fully describedsecondary offering, any warrants issued in "Part II – Item 1 – Legal Proceedings" all further obligationsour February 2004 private placement that have not been previously exercised are eligible to Atari were satisfiedbe called by the paymentCompany at a price of $1,500,000$0.007 subject to any contractual restrictions. To avoid their warrants being called, holders may exercise the warrants, which would at this time result in May 2004 resulting in a gain on the settlement renegotiation of $1.2 million recorded in the three month period ended July 31, 2004.

5.    Related Party Transactions

In November 2003, in connection with the settlement with Atari, MSI borrowed $1 million from the father-in-law of MSI's then Chief Executive Officer and President. The loan was convertible into 2,000,000 shares of MHI's common stock at the time there was a sufficient number of authorized shares of common stock to allow for the conversion of the loan. The loan was converted into common stock in April 2004.

The Company utilized approximately $2.5 million from thenet proceeds of the preferred stock offering (see Note 7) to repay portions of loans previously made to the Company by twoof approximately $6.7 million.

4.    DUE FROM FACTOR

Due from factor consists of the Company's executive officers. In orderfollowing (in thousands):

				January 31, 2005				October 31, 2004
Outstanding accounts receivable sold to factor, net of allowances of $3,323 and $4,860, respectively				$	18,392			$	31,794
Less: advances from factor					9,331				22,303
				$	9,061			$	9,491

The following table sets forth the adjustments to satisfy the remaining balanceprice protection and other customer sales incentive allowances included as a reduction of the loans previously provided byamounts due from factor:

				Three Months Ended January 31, (in thousands)
				2005				2004
Balance — beginning of period				$	(4,860	)		$	(2,173	)
Add: provision					(1,364	)			(1,297	)
Less: amounts charged against allowance					2,911				1,508
Balance — end of period				$	(3,323	)		$	(1,962	)

MAJESCO HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

5.    ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consists of the two executive officers, the Company agreed to issue to them, in the aggregate, 100 units.following (in thousands):

				January 31, 2005				October 31, 2004
Accounts payable-trade				$	10,946			$	9,373
Royalties					5,704				5,777
Income taxes					810				1,271
Sales commissions					1,547				1,255
Salaries and other compensation					586				1,154
Litigation settlements					1,708				778
Other accruals					1,366				377
				$	22,667			$	19,985

6.    CONTINGENCIES AND COMMITMENTS

Commitments and Contingencies

The Company may utilize forward contracts in order to reduce financial market risks. These instruments are used to hedge foreign currency exposures of underlying assets, liabilities, or certain forecasted foreign currency denominated transactions. The Company does not use forward exchange contracts for speculative or trading purposes. The Company's accounting policies for these instruments are based on whether they meet the criteria for designation as hedging transactions. These contracts do not meet the criteria for hedge accounting and are recorded at fair value with unrealized gains (losses) included in net income (loss). The fair value of foreign currency contracts is estimated based on the spot rate of the hedged currency as of the end of the period. As of JulyJanuary 31, 2004,2005, the fair value of the contractcontractual amount outstanding was approximately $2.9$2.8 million, which required the Company to record an unrealized loss of $95,000$69,000 during the nine-month period ended July 31, 2004 (which included a loss of $13,000 for the three months then ended).ended January 31, 2005 which is included in accounts payable and accrued expenses. The risk of counter party nonperformance associated with this contract was not considered to be material. Notwithstanding the Company's efforts to manage foreign exchange risk, there can be no assurance that the Company's hedging activities will adequately protect against the risks associated with foreign currency fluctuations.

At JulyJanuary 31, 20042005, the Company was committed under agreements with certain developers for future milestone and license fee payments aggregating $27.9$30.8 million and $5.5 million,$593,000, respectively, which are principally payable ratably over the next two years.through October 31, 2006. Milestone payments represent scheduled installments due to the Company's developers based upon the developers providing the Company certain deliverables, as predetermined in the Company's contracts. In addition, the Company may have to pay royalties for products sold. These payments will be used to reduce future royalties due to the developers from sales of the Company's videogames.products.

At JulyJanuary 31, 2004,2005, the Company had open letters of credit aggregating $5.9$7.2 million under the Company's purchase order assignment arrangements for inventory to be delivered during the subsequent quarter.

InThe Company has entered into "at will" employment agreements with several key executives. These employment agreements include provisions for, among other things, annual compensation, bonus arrangements and stock option grants. These agreements also contain provisions related to severance terms and change of control provisions.

Contingencies

On September 20, 2002, Rage Games Limited ("Rage") filed a complaint against MSI in the United States District Court for the District of New Jersey alleging the Company breached its two agreements with Rage and alleged claims based on an unjust enrichment theory, amongclaims of breach of contract and other claims. Rage has, however, demanded full payment of "all amounts dueclaims and owing" under the agreements aggregatingsought $6 million and royalties based on retail sales. MSI has asserted substantial defenses that the products were not fit for use and has asserted counterclaims for damages, including unjust enrichment in connection with the second agreement. In July 2004, the Company was granted a partial summary judgment, as to advances of $77,000 paid for three titles that never received platform approval. Thedamages. On December 28,

Court deniedMAJESCO HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

2004, the plaintiff's motion for partial summary judgment as well as the Company's motion for partial summary judgment as to its remaining claims. A trial date has not been set.

In December 2003,parties entered into a settlement agreement, and, in February 2005, the Company was notified bypaid $650,000 in accordance with the interactive game publisher that distributes the Company's videogames in Europe that it was terminating the licenseagreement for a full and distribution agreement as a resultcomplete settlement of the Company's failure to obtain such party's consent to the assignment of such agreement in connection with the Merger. The Company is in discussion with the publisher who has indicated an interest in entering into a new contract under revised terms, however, there can be no assurance that the Company will be successful in negotiating a new contract on acceptable terms, or at all.litigation, including all claims and counterclaims.

On December 17, 2003, the Company received a letter from the NASD's Market Regulation Department stating that the NASD was conducting a review of unusual trading activity in the Company's common stock between the time of the signing of the letter of intent with respect to the Merger and the date that the Company announced that a letter of intent was signed. There also appeared to have been unusual trading activity around the time of the signing of the definitive agreement for the Merger and prior to the announcement of such signing.

By letter dated April 22, 2004, the NASD indicated that it had concluded its review and thanked the Company for its cooperation in the review. The letter indicated that the NASD referred the matter to the Securities and Exchange Commission ("SEC") for action, if any, the SEC deems appropriate. The letter concluded that "This referral should not be construed as indicating that any violations of the federal securities laws or the NASD Conduct Rules have occurred, or as a reflection upon the merits of the security involved or upon any person who effected transactions in such security." If the Company is sanctioned or otherwise held liable for this trading any such sanctions could have a material adverse effect on the Company's reputation, listing, financial condition, results of operations and liquidity. In addition, it is possible that such matters may give rise to civil or criminal actions.

On September 1, 2004, Entertainment Finance International, LLC (EFI)("EFI") commenced a breach of contract action relating to an outstanding warrant held by EFI. EFI issued by ConnectivCorp prior to the Merger. EFI allegesalleged that pursuant to the terms of the warrant, the Company iswas obligated to pay $1,750,000 for the repurchase of the shares underlying the warrant. In July 2004, the Company issued 21,018 shares of Majesco stock pursuant to the exercise of the warrant. Pursuant to a settlement agreement dated January 10, 2005, the Company paid $250,000 to EFI, and, in February 2005, paid an additional $985,000 from the proceeds raised in the secondary offering. The settlement is reflected as an adjustment to "Additional paid in capital", since the alleged obligation existed prior to the Merger. The unpaid amount as of January 31, 2005 is included in accounts payable and accrued expenses in the accompanying consolidated balance sheet.

The Company believes that this alleged repurchase obligation is not a valid claimparty to other routine claims and intends to vigorously defendsuits brought by the Company and against this action.

the Company in the ordinary course of business, including disputes arising over contractual claims and collection matters. In the opinion of management, upon the advice ofafter consultation with legal counsel, the Company has made adequate provision foroutcome of such routine claims will not have a material adverse effect on the potential liability, if any, arising from the above mentioned matters.Company's business, financial condition, and results of operations or liquidity. However, the costs and other effects of pending or future litigation, governmental investigations, legal and administrative cases and proceedings (whether civil or criminal), settlements, judgments and investigations, claims and changes in those matters (including those matters described above), and developments or assertions by or against the Company relating to intellectual property rights and intellectual property licenses, could have a material adverse effect on the Company's business, financial condition, and operating results.results of operations or liquidity.

7.    Preferred Stock OfferingRELATED PARTIES

On February 26,The Company receives printing and packaging services from a business of which the brother of Morris Sutton, the Company's Chairman Emeritus, is a principal. During the three months ended January 31, 2005 and 2004, the Company completed a private placement of securities in which the Company raised approximately $25.8was charged $1.2 million in gross proceeds from a group of institutional and accredited investors. The private placement resulted in net proceeds of approximately $21.3 million after deducting the placement agent fees and other expenses related to the private placement. In addition, the placement agent received warrants to purchase up to 268 units, exercisable for five years from the date of issuance.

Pursuant to the terms of the private placement, the Company issued 2,583 units, each unit consisting of (i) one share of 7% convertible preferred stock, convertible into 10,000 shares of common stock and (ii) a three year warrant to purchase 10,000 shares of common stock at an exercise price of $1.00 per share.

Each share of 7% preferred stock entitles the holder to receive a 7% cumulative dividend payable solely in shares of common stock, on an annual basis. In addition, the holders of the 7% preferred

stock are entitled to share in any dividends paid on the common stock on an "as converted" basis. The holders of the 7% preferred stock are entitled to a liquidation preference equal to the amount invested per share, plus any accrued and unpaid dividends. The 7% preferred stock has voting rights on an "as-converted" basis and votes together with the common stock as one class, except as otherwise required by law. In addition, so long as 51% of the currently outstanding 7% preferred stock remains outstanding, the Company will not issue any capital stock, or securities convertible into capital stock, that is senior to the 7% preferred stock. The Company recorded a deemed dividend of $759,000 in the nine months ended July 31, 2004, relating to the beneficial conversion feature attributable to the 7% preferred stock, after taking into account the value of the warrants issued. The deemed dividend increases the loss applicable to common stockholders in the calculation of basic and diluted net loss per common share.

Each share of 7% preferred stock will automatically convert into common stock at a conversion price of $1.00 per share at such time as the closing price of the common stock is equal to or greater than $2.50 per share for a 60 consecutive calendar day period, provided that during such 60 consecutive calendar day period, the average daily trading volume for each day is equal to or greater than 75,000 shares, and that the registration statement as to the resale of the common stock underlying the 7% preferred stock and the warrants is in effect. The Company may call the warrants issued in the private placement for $.001 per share of common stock underlying the warrants upon achievement of similar conditions as identified in the preceding sentence.

Pursuant to the terms of the 7% preferred stock, the Company agreed to allow the holders of the 7% preferred stock to nominate two members, who shall be "independent" to the Board of Directors so long as 51% of the currently outstanding 7% preferred stock remains outstanding.

The Company used $3.3 million of the net proceeds to pay certain creditors, including $2.5 million for a previously negotiated settlement amount to Atari Interactive, Inc. and approximately $2.5 million to repay portions of loans previously made to the Company by two of the Company's executive officers. In order to satisfy the remaining balance of the loans previously provided by the two executive officers, the Company agreed to issue to them, in the aggregate, 100 units. The Company used the remaining balance of the proceeds for working capital purposes. In connection with the private placement, the holders of the Series A preferred stock surrendered an aggregate of 352,112 shares of their Series A convertible preferred stock, which were convertible into 24,999,952 shares of common stock.

Effective February 17, 2004, in order to assist the Company in its financing efforts, all of the former holders of the Series A Preferred Stock agreed to place an aggregate of 1 million shares (250,000 each) of common stock received in the merger into escrow for five years to satisfy certain claims that may arise in the future against Majesco or ConnectivCorp in connection with the issuance of securities by ConnectivCorp from October 1, 2003 through December 31, 2003, and any trading in the securities of ConnectivCorp from October 1, 2003 through December 31, 2003.

All of the former holders of the Company's Series A convertible preferred stock have agreed not to sell or otherwise dispose of any of the Company's securities held by such persons, subject to certain exceptions and without the consent of the placement agent, for a period of one year commencing upon the effectiveness of the registration statement mentioned below.

The securities sold in the private placement or issuable upon exercise or conversion of securities sold in the private placement have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States in the absence of an effective registration statement or exemption from registration requirements. The Company agreed to file a registration statement with the SEC, to register for resale the common stock underlying the 7% preferred stock, the warrants, and the securities underlying the placement agent's warrants, which was filed on May 25, 2004. In addition, in the event the registration statement is not declared effective by the SEC by August 24, 2004, the Company shall be obligated to pay liquidated damages to each investor, equal to 3.0% of such investor's initial investment for each 30 day period the registration statement is not declared effective.

In accordance with Emerging Issues Task Force Issue 00-19 ("EITF 00-19"), "Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled in, a Company's Own Stock", the

Company has initially accounted for the fair value of the warrants as a liability due to the possibility of the Company having to make a net cash settlement in the form of penalties until the above mentioned registration statement is declared effective. As of the closing date of the private placement the fair value of the warrants was approximately $21 million calculated utilizing the Black-Scholes option pricing model. In addition, changes in the market value of the Company's common stock from the closing date through the effective date of the registration statement will result in non-cash charges or credits to operations to reflect the change in fair value of the warrants during this period. The Company recorded a charge to operations of approximately $30.4 million during the nine-month period ended July 31, 2004 to reflect the change in market value of the warrants, which was net of an $18.9 million benefit resulting from the reduction in the valuation of the warrants between April 30, 2004 and July 31, 2004. At the effective date, the fair value of the warrants will be reclassified to equity.

The assumptions used valuing the warrants include:

				February 26, 2004				July 31, 2004
Risk free interest rate (annual)				2.15%				3.05%
Expected volatility				30%				30%
Expected life				3 years				3 years
Assumed dividends				none				none

8.    Income Taxes

The provision for income taxes for the three and nine-month periods ended July 31, 2004 is based on the Company's estimated annualized tax rate after giving effect to the utilization of available net operating loss carryforwards which arose prior to the Merger and are subject to annual limitations based on change of control and ownership changes, and temporary differences related to certain expenses which were recorded for financial statement purposes in the prior year and not then deductible for tax purposes.

Prior to November 1, 2003, the Company elected to be treated as an S Corporation under the provisions of the Internal Revenue Code and as a result, income taxes were the responsibility of the individual shareholders. Effective November 1, 2003, the Company revoked its S Corporation election, and accordingly, the Company reclassified approximately $16.0 million of undistributed losses from "accumulated deficit" to "additional paid in capital".

9.    Stock-Based Compensation Arrangements

On February 13, 2004, the stockholders approved a stock option plan that provides for the granting of options to purchase the Company's common stock. The plan covers employees, directors and consultants and provides for among other things, the issuance of non-qualified options and incentive stock options. As of July 31, 2004, the Company has reserved 10 million shares of common stock for issuance under the plan. Subsequent to July 31, 2004, the holders of a majority of the outstanding stock entitled to vote approved, by written consent, among other things, an increase in the amount of shares that may be awarded under the plan to 15,000,000.

The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and SFAS No. 148 and Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty's performance is complete or the date on which it is probable that performance will occur. Included in the stock option grant on March 25, 2004 (See Note 3—Significant Accounting Policies) were 50,000 options for services rendered for which the Company expensed as a non cash charge to operations approximately $26,000,$524,000, respectively, which is included in selling and marketing expenseproduct costs in the nine-month period ended Julyaccompanying consolidated statement of operations. Such charges are, to the Company's knowledge, on terms no less favorable to what the Company could receive from providers of similar services. At January 31, 2004.2005, there was $599,000 due under these arrangements, which is included in accounts payable and accrued expenses in the accompanying consolidated balance sheet.

10.    Subsequent Events

On August 24, 2004 the Company entered into an employment agreement and appointed Carl Yankowski as its Chief Executive Officer ("CEO") and Chairman of the Board of Directors. The employment agreement entitles the CEO to an annual base salary of $375,000 plus discretionary annual bonuses determined by the compensation committee of the Board. In addition, a total of 6,950,000 options were granted to the CEO which options have various exercise prices and vesting schedules, and expire ten (10) years from the grant date. The agreement also contains provisions related to severance terms and change of control provisions.

Subsequent to July 31, 2004, the Company received written consents from the holders of a majority of the outstanding stock entitled to vote for the Company to amend its certificate of incorporation to effectuate, at the discretion of the Board, a reverse stock split of up to one for five. As of September 14, 2004, the Company has not determined if and when it will effectuate a reverse stock split.

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of OperationsOperations.

This reportOverview

We are an innovative provider of diversified offerings for digital entertainment platforms. Our offerings include games, which includes statements that may constitute forward-looking statements made pursuanttitles such as Advent Rising, Psychonaut, and Jaws; video, which highlights the Company's platform-independent compression technology; and gadgets, which includes innovative digital entertainment products like TV Arcade and Wireless Messenger for Game Boy Advance. Our diverse products provide us with multiple opportunities to capitalize on the Safe Harbor provisionslarge and growing installed base of the Private Securities Litigation Reform Act of 1995. The Company would like to caution readers regarding certain forward-looking statements in this documentdigital entertainment platforms and in all of its communications to stockholders and others, press releases, securities filings, and all other documents and communications. Statements that are based on management's projections, estimates and assumptions are forward-looking statements. The words "believe", "expect", "anticipate", "intend", "will", "should", "may" and similar expressions generally identify forward-looking statements. While we believe in the veracity of all statements made herein, forward-looking statements are necessarily based upon aan increasing number of estimatesdigital entertainment enthusiasts. We sell our products directly and assumptions that, while considered reasonable by us, are inherently subjectthrough resellers primarily to significant business, economicU.S. retail chains, including Best Buy, Electronics Boutique, GameStop, Kmart, Target, Toys "R" Us and competitive uncertainties and contingencies and known and unknown risks. Many of the uncertainties and contingencies can affect events and the Company's actual results and could cause its actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Our future operating results are subject to risks and uncertainties and are dependent on many factors including, without limitation, the risks identified in this report. For a discussion of further risks associated with our business, please see the "Risk Factors" in "Liquidity and Capital Resources" included in our Quarterly Report on Form 10-Q, for the period ended January 31, 2004. Except as otherwise required by the applicable securities laws, the Company disclaims any intention or obligation publicly to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

OVERVIEWWal-Mart.

On December 5, 2003, the Company consummated a merger with Majesco Sales Inc., or MSI, whereby CTTV Merger Corp., our wholly-owned subsidiary, mergeda privately held company with and into MSI.an 18-year operating history, completed a reverse merger with ConnectivCorp, then a publicly traded company with no active operations. As a result of the Merger, MSImerger, Majesco Sales Inc. became the Company'sa wholly-owned subsidiary of the public company and its sole operating business. On April 13,All financial information presented reflects the results of Majesco Sales Inc. as if Majesco Sales Inc. had acquired ConnectivCorp on December 5, 2003. Subsequently, we changed the public company's name from ConnectivCorp to Majesco Holdings Inc.

The primary components of our consolidated statement of operations include the following:

Net Revenues.    Our revenues are derived from three general types of offerings:

	•	Games.    Our video games consist of "premium" titles and "value" titles. Premium-priced video games typically involve higher development and marketing costs. We work with leading development studios to develop our own proprietary titles and we also license rights to well-known properties from third parties. Value titles are typically sold at retail prices below $20 and typically involve lower development and marketing costs than our premium titles;

	•	Videos.    Our GBA Video titles utilize our proprietary compression technology that enables users to view up to 45 minutes of color video content with stereo audio on their GBA, using a standard GBA cartridge and with no additional hardware required. We enter into licensing agreements with entertainment industry leaders for GBA Video content; and

	•	Gadgets.    We develop, manufacture and market a variety of digital media peripherals and applications, or gadgets. Our peripheral products and applications for the GBA include headphones, "wireless link" and "wireless messenger." Our stand-alone TV Arcade "plug-and-play" video game systems consist of a firmware-enabled joystick that connects directly to a user's television and plays pre-installed video games without the need for a dedicated console.

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. For instance, during fiscal 2004 we changedlaunched additional premium-priced titles, our nameGBA video titles and our gadgets. We expect value products to decrease as a percentage of our revenues as we generate significantly more revenues from "ConnectivCorp"these additional product areas. The continued diversification of our revenue sources and our revenue growth are dependent upon our ability to "Majesco Holdings Inc." to better reflect our current operating business.

We are a developer, publisher and marketer of interactive entertainment software and related accessories.

Our video game software coversprovide a wide variety of genres such as action/adventure, simulation, first person actionappealing products at different price points aimed at different demographics. Our revenues are recognized net of reserves for price protection and strategy. Our products are targeted to a wide demographic, from children to active teensother allowances. See "Critical Accounting Policies" below.

Cost of Sales.    Cost of sales consists of product costs and the older, mass-market consumer. We have released titles for all major videogame platformsamortization of software development costs and handhelds, including Sony's PlayStation and PlayStation^® 2, Nintendo's N64, SNES, GameBoy™, GameBoy™ Color, GameBoy™ Advance and GameCube™, Microsoft's Xbox™, Sega's Dreamcast, Genesis and Game Gear, and the personal computer or PC. Additionally, we are a manufacturer of a number of accessories licensed by Nintendo.

Onelicense fees. A significant component of our strengthscost of sales is our long standing relationships with U.S. retail chains.product costs. These are comprised primarily of manufacturing and packaging costs of the disc or cartridge media, royalties to the platform manufacturer and manufacturing and packaging costs of digital media peripherals and

applications. Commencing upon the related product's release, capitalized software development and intellectual property license costs are amortized to cost of sales.

Gross Profit.    Our products are sold by major U.S. retail chains such as Wal-Mart, Target, Toys "R" Us, Best Buy, Electronics Boutique, and Gamestop. We also have strong relationships with game rental outlets such as Blockbuster and Hollywood Video.

We maintain an international presence through our subsidiary in the UK. We believe that many of our competitors generate significant portions of their revenues from sales abroad and part of our growth strategy is to tap into the expanding international markets. Currently, however, our products sold abroad are done so through licensing arrangements with other publishers.

Our profitabilitygross profit is directly affected by the mix of revenues from our publishing and distribution operations. Profitproducts. Gross profit margins arehave the potential to be substantially higher from publishing but there isour premium-priced titles given the higher sales prices. If a higher degree of risk. Development/acquisition costs and marketing expenses are the primary cost drivers and directly impact the profitability of any given title. If thefrontline title is a highly successful "hit", once these and manufacturing and licensing costs are recouped, economies of scale occursoccur as the incremental sales of a premium-priced game produce greater profitability. Distribution isOur value titles are generally characterized as having lower gross profit margin potential than premium-priced titles as a result of their lower risk.sales price. Gross profit margins from our GBA products generally are the lowest of our products given the high manufacturing and licensing costs associated with these products, particularly GBA video titles. Although we have only recently launched our gadgets, our experience to date has been that gross margins for these products are higher than achieved for our value video games and GBA video titles. We believe our overall gross profit and gross profit margins will increase as we increase our sales of premium-priced video games and gadgets.

Product Research and Development Expenses.    Product research and development expenses relate principally to our cost of supervision of the third-party developers of our new video games and the technologies related to GBA video and gadgets, testing new products and conducting quality evaluations during the development cycle. Costs incurred are employee related, may include equipment and are not allocated to cost of sales. With the expansion of our product offerings, our expenditures for product research and development are expected to increase.

Selling and Marketing Expenses.    Selling and marketing expenses consist of marketing and promotion expenses, the cost of shipping products to customers and related employee costs. The largest component of this expense relates to marketing and promotion expenses, which includes certain customer marketing allowances. Marketing and promotion expenses associated with frontline titles are significantly higher than with respect to our other offerings. As we increase the number of our premium-priced titles and seek to increase awareness of our video content and gadgets, our marketing and promotion expenses will rise accordingly.

General and Administrative Expenses.    General and administrative expenses primarily represent employee related costs, including corporate executive and support staff, general office expenses, professional fees and various other overhead charges. We expect that our personnel costs, the largest component of our general and admistrative expenses, will increase as our business continues to grow. Professional fees, including legal and accounting expenses, typically represent the second largest component of our general and administrative expenses. These fees are partially attributable to our required activities as a publicly traded company, such as SEC filings. We expect to incur increased costs for personnel and consultants in connection with our required compliance as a public company with new regulations regarding corporate governance and accounting.

Interest and Financing Costs.    Interest and financing costs are directly attributable to our factoring and our purchase-order financing arrangements. We expect that as a result of our recently completed secondary offering, we will be able to lessen both our need to take advances from the factor as well as to use the finance company for letters of credit, and therefore we expect our interest and financing costs to decrease, at least on a temporary basis.

Warrant Accounting and Other Non-Cash Compensation.    During December 2004, a portion of the warrants issued in connection with our February 2004 private placement were exercised at a reduced exercise price. Accordingly, we recorded a non-cash charge of $1.1 million to recognize the exercise of these warrants at a reduced price during the three months ended January 31, 2005. This charge reduced net income attributable to common stockholders in the calculation of earnings per share.

We granted options to purchase 992,856 shares of common stock to Carl Yankowski in connection with his employment as our Chief Executive Officer in August 2004. A portion of the option grant, 297,857 shares, was at an exercise price of $7.00 per share, a 64% discount to the market price of our common stock on the date of grant (the balance of the options were granted at or above the then

Consistent with our business strategy,market price). As a result of this issuance, we incurred non-cash compensation expense of $465,000 for the three months ended January 31, 2005 and will continue to develop and bring to market proprietary, multi-platform videogames and related products, as well as leverage our franchise titles, an example of which is BloodRayne. Launched in October 2002, the title has generated major consumer interest worldwide. In addition, we have sold the movie rights associated with the BloodRayne title to Brightlight Pictures (Alone in the Dark, Houseadditionally charge operations $465,000 for each of the Dead), entered into a strategy guide deal with Prima Publishing, and licensed a comic book series. We are also in discussions to develop an animated series featuring the BloodRayne character, as well as collectible action figures and character and logo-bearing merchandise based on the character. BloodRayne 2, a videogame sequel, is currently in development and expectedsucceeding six quarters.

Provision for Income Taxes.    Effective November 1, 2003, we revoked our election to be released in October 2004. Another new proprietary videogame, scheduled for release in the first half of 2005, is Advent Rising,treated as an epic science-fiction action game with dialogue written by Hugo and Nebula award winning novelist, Orson Scott Card. The title has already been selected as one of the Top Games of 2004 by Official Xbox™ Magazine and garnered over 30 pages of print editorial (exposing it to well over three million videogame enthusiasts) and numerous online plaudits.

Value priced products continue to remain a significant source of our revenue. Historically, products priced below the manufacturer's suggested retail price or MSRP of $20 made up the "value market" and Majesco has been a leading publisher and distributor operating in this category. Targeted at the casual gaming audience or impulse buyers, Majesco aims to acquire, license, or develop mass-appeal titles that will perform well at lower prices. We believe that products with MSRP's of $14.99 and even $9.99 GameBoy Advance videogames will be attractive to customers. Furthermore, Majesco was the first publisher of $9.99 MSRP PlayStation 2 titles, and has two new $19.99 titles slated for Xbox in fall 2004.

Technological innovation, competition for retail shelf space and recruitment of creative talent are considerations in the way we run our business. To this end we have developed a proprietary compression technology that enables gamers to view color video with stereo audio on a standard Nintendo GameBoy Advance device. Nintendo has granted the Company a license to use our technology for the GameBoy Advance in the North American and European markets, which have an installed base, as of December 31, 2003, of 20 million and 10 million GameBoy Advance owners, respectively. The proprietary technology enables consumers to view up to 45 minutes of video on a GameBoy Advance device using a standard GameBoy Advance cartridge. We expect to have the capability to release cartridges that can contain up to 90 minutes of video, including feature length content, by the middle of 2005. No other hardware peripheral is required and all the user will need to do is insert a regular GameBoy Advance cartridge into the GameBoy™ Advance in order to turn it into a personal video player. Licensing agreements have been signed with Nickelodeon (SpongeBob SquarePants, Fairly OddParents, amongst others), 4Kids Entertainment (Yu-Gi-Oh!, Sonic X, others), Cartoon Network (Code Name: Kids Next Door, PowerPuff Girls, others), DIC Entertainment (Strawberry Shortcake)S Corporation and we are negotiating for other content.therefore subject to federal income taxes. We have implemented a large-scale public relations effortestimate that has resultedour effective tax rate will be approximately 40% in positive editorial coverage in such mass-market publications as Newsweek, TV Guide and the NY Times. In addition, Nintendo has developed a large market campaign to support this new use for the GameBoy Advance that will include TV, print, online and in-store tactics. The product was launched at retail in May 2004. Additionally, we are the North American manufacturer and distributor of the officially licensed GameBoy Advance SP Neckband Style Headphones that was launched in conjunction with our line-up of GameBoy Advance Video products. From a strategic perspective, the launch of this new product line is anticipated to somewhat reduce the impact of the seasonality of our sales cycle, as the spring/summer months have traditionally been our slower months with respect to sales volume.fiscal year 2005.

CRITICAL ACCOUNTING POLICIESCritical Accounting Policies

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. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on

historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from these estimates under different assumptions or conditions.

We have identified the policies below as critical ofto our business operations and the understanding of our financial results. The impact and any associated risks related to these policies on our business operations is discussed throughout Management's Discussionmanagement's discussion and Analysisanalysis of Financial Conditionfinancial condition and Resultsresults of Operationsoperations where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies see Note 1 to consolidated financial statements.

Reserves for price protectionPrice Protection and other allowances.Other Allowances.    We principally derive revenue from salesthe sale of packaged interactivevideo game software games designed for play on videogame platforms (suchconsoles such as the PlayStation 2, Xbox and Nintendo GameCube)GameCube, and hand-held game devices, (principally Nintendo GameBoy Advance).principally the GBA. We generally sell our products on a no-return basis, although in certain instances, we may provide price protection or other allowances on certain unsold products in accordance with industry practices. Price protection, when granted and applicable, allows customers a partial credit against amounts they owe to us with respect to merchandise unsold by them. Revenue is recognized net of estimates of these allowances. Sales incentives and other consideration that represent costs incurred by us for assets or services received, such as the appearance of our products in a customer's national circular advertisement, are reflected as selling and marketing expenses. We estimate potential future product price protection and other discounts related to current period product revenue. Generally our price protection for premium-priced titles is higher than that needed for our value titles. Our reserves for price protection and other allowances fluctuate over periods as a result of a number of factors including analysis of historical experience, current sell through of retailer inventory of our products, current trends in the videogamevideo game market, the overall economy, changes in customer demand and acceptance of our products and other related factors. However, actual allowances granted could materially exceed our estimates as unsold products in the distribution channels are exposed to rapid changes in consumer preferences, market conditions or technological obsolescence due to new platforms, product updates or competing products. For example, the risk of requests for allowances may increase as the PlayStation 2, Xbox and Nintendo GameCube consoles pass the midpoint of their lifecycle and an increasing number of and aggregate amount of competitive products heighten pricing and competitive pressures. While management believes it can make reliable estimates regarding these matters, these estimates are inherently subjective. Accordingly, if our estimates changed,change, this will result in a change in our reserves, would change, which would impact the net revenues and/or selling and marketing expenses we report. For the nine-month periodsthree months ended JulyJanuary 31, 20042005 and 2003,2004, we provided allowances for future price protection and other allowances of $2.2$1.4 million and $4.5$1.3 million,, respectively. The fluctuations in the provisions reflected our estimates of future price protection based on the factors discussed above. The decrease in the provision in the current period reflects the current period mix of revenues principally derived from value priced products and the introduction of the GameBoy Advance Video, all of which required significantly less reserves for price protection than the prior year period's mix of revenues. We do not have significant exposure to credit risk as the factor generally buys our receivables without recourse. However,recourse; however, during the nine-month periodthree months ended JulyJanuary 31, 2004, we recognized bad debt expenserecorded a charge for an accounts receivable write-off of $577,000 as a result of the January 2004 bankruptcy filing of Kay-Bee Toys' filing for bankruptcy protection in January 2004. BecauseToys, because sales to this customer couldwere not be factored, we bore the responsibility for collection of the receivable.factored.

Software development costs and intellectual property licensesprepaid license fees.    Software development costs include milestone payments made to independent software developers under development arrangements.

Software development costs are capitalized once technological feasibility of a product is established and it is determined that such costs are determined toshould be recoverable against future revenues. The amortization period is usually no longer than one year from the initial release of the product. For products where proven game engine technology exists, this may occur early in the development cycle. Technological feasibility is evaluated on a product-by-product basis. Amounts related to software development that are not capitalized are charged immediately to product research and development costs. Intellectual propertyPrepaid license costsfees represent license fees paid to intellectual property rights holders for use of their trademarks or copyrights in the

development of our products. Minimum guaranteed royalty payments for intellectual property licenses are initially recorded as an asset (prepaid license fees), and a current liability, (accrued royalties)royalties payable) at the contractual amount upon execution of the contract when no significant performance remains with the licensor. Capitalized software development costs classified as non-current relate to titles for which we estimate the release date to be more than one year from the balance sheet date.

Commencing upon the related product's release, capitalized software development and property licenses costsprepaid license fees are amortized to cost of sales based upon the higher of (i) the contractual rate based on actual net product sales or (ii) the ratio of current revenue to total projected revenue.revenue or (ii) the straight-line method. The amortization period is usually no longer than one year from the initial release of the product. The recoverability of capitalized software development costs and intellectual property licensesprepaid license fees is evaluated based on the expected performance of the specific products for which the costs relate. The following criteria are used to evaluate expected product performance: historical performance of comparable products using comparable technology; orders for the product prior to its release; and estimated performance of a sequel product based on the performance of the product on which the sequel is based.

Recent Accounting Pronouncementsfor Stock-Based Compensation.    In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share Based Payment" ("SFAS 123(R)"). SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. SFAS 123(R) is effective for us beginning in the third quarter of this fiscal year. The new standard allows for two transition alternatives, either the modified-prospective method or the modified-retrospective method. We dohave not believecompleted our evaluation of SFAS 123(R) and therefore have not selected a transition method or determined the impact that any recently issued, but not yet effective accounting standardsadopting SFAS 123(R) will have a material effect on the our consolidated financial position, results of operations or cash flows.operations.

Results of operationsOperations

Three months ended JulyJanuary 31, 2005 versus three months ended January 31, 2004 versus

Net Revenues.    Net revenues for the three months ended JulyJanuary 31, 2003

Net revenues for the three-month period ended July 31, 20042005 increased to $33.9$30.7 million up from $3.9 million in the same period in 2003. Sales were driven primarily by the successful launch of 14 titles of GameBoy Advance Video, which uses our own proprietary compression technology. Sales of GameBoy Advance Video accounted for 79% of all units sold in the 2004 quarter. Continued strong sales of GameBoy Advance videogames, which accounted for an additional 15% of total units sold in the quarter, also contributed favorably. In the comparable 2003 period revenues were derived principally from value priced product sales. GameBoy Advance videogames represented approximately 60% of total units sold while console based games ("frontline products") accounted for the other 40%.

Gross profit increased to $7.1 million for the three-month period ended July 31, 2004 from $1.5$24.6 million in the comparable 2003 period duequarter last year. The net increase is principly attributable to sales of GBA video and gadget products, products which were not launched until the third and fourth quarters, respectively, of last year, partially offset by a decline in game sales. There were no new premium-price games launched in the three months ended January 31, 2005 compared to three in the prior year period. In the three months ended January 31, 2005 the sales mix attributable to games, video and gadgets was 45%, 20% and 35%, respectively, compared to the increase in net revenues. As a percentagesame period last year when games represented 100% of net revenues,revenues.

Gross Profit.    Gross profit for the three months ended January 31, 2005 increased to $11.0 million from $7.5 million in the first quarter last year and the gross profit declinedmargin increased to 20.8%35.7% from 30.4% in the 2004 quarter from 38.4% in the comparable 2003 quarter.prior year period. This reduction in marginimprovement is primarily reflects the higher content acquisition costs associated with certain titles included in the initial release of GameBoy Advance Video titles. Gross margin in the comparable 2003 period also benefited from the higher mix of frontline products, which are sold at higher wholesale prices. Although there can be no assurance, the gross margin in the fourth quarter is expectedattributable to improve as the product mix changes to include other GameBoy Advance Video titles with lower acquisition costs as well as increased sales of new frontlinegadgets, which operate at significantly higher margins than games and accessory products.video.

Product Research and Development Expenses.    For the three months ended January 31, 2005, product research and development costs increased approximately $63,000 to $696,000 in the 2004 quarter$814,000 from $633,000$574,000 in the comparable 2003 quarter,2004 period. The increase is mostly attributable to employee related costs which include the hiring of additional quality control personnel necessary to support the increased number of projects in the development cycle.

Selling and Marketing Expenses.    In the three months ended January 31, 2005, selling and marketing expenses increased 88.6% to $5.3 million from $2.8 million in the same three month period

in 2004, an increase of 10%. This$2.5 million. Approximately $1.7 million of the increase is mainlythe result of promotions, including higher in-store programs incurred over the holiday season in support of our products and television campaigns to promote BloodRayne2 and GBA video. Variable costs, principally freight and warehousing, increased approximately $731,000 in the current year period due to the increased employee costs for quality assurance related tounit volume in the launch of GameBoy Advance Videocurrent period as well as the evaluation ofadditional costs incurred in the increased numberdelivery of games, videos and other products currently in development.gadgets imported from Japan and China.

SellingGeneral and marketingAdministrative Expenses.    For the three month period ended January 31, 2005, general and administrative expenses increased $1.2 million in the current quarterapproximately $468,000, or 27.8%, to $2.9$2.2 million from $1.7 million in the comparable quarter last year, an increase2004 period. As expected, we had increased costs as a result of approximately 71%.becoming a NASDAQ-listed company, and in building our infrastructure to support current and future growth. The increase in general and administrative expenses was attributable to increased staffing costs of $568,000, and $577,000 of increased expenses related to being a publicly-held company. These increases were offset by the absence of a bad debt expense is due mostly to higher variable costs (shipping and sales commissions)of approximately $577,000 related to the higher sales volume. As a result, selling and marketing expenses as a percentage of net revenues increased to 8.7%Kay-Bee Toys bankruptcy incurred in the three-monththree month period ended JulyJanuary 31, 2004 from 4.3%2004.

Non-Cash Compensation Charge.    In the three months ended January 31, 2005 we recorded a non-cash compensation charge of $465,000 related to a below market stock option grant to our Chief Executive Officer in connection with his employment agreement. There was no comparable charge in the same period last year.

Depreciation and Amortization Expenses.    For the three months ended January 31, 2005, depreciation and amortization expense was $287,000 compared to $90,000 in the comparable 20032004 period. Depreciation and amortization expense increased due to additional equipment acquired and as a result the amortization of a non-compete agreement and tooling costs.

General and administrative expenses increased 52%Operating Income.    For the three month period ended January 31, 2005, operating income decreased approximately $300,000 to $1.4$2.0 million from $2.3 million in 2004. The decrease in operating income was due to the three-month period ended July 31, 2004 from $943,000planned increases in our infrastructure to support current and future growth as well as increased costs related to becoming a NASDAQ-listed company. Although there can be no assurance, we anticipate that these higher levels of expenditures will be offset by the higher gross margin in the comparable 2003 period.latter part of the year, during the seasonal peak sales periods.

Interest and Financing Costs.    For the three months ended January 31, 2005, interest and financing costs increased approximately $100,000 to $734,000 from $635,000 in 2004. This increase is due primarily to

increases in expenses, which are being incurred as a result of becoming a public company. Such costs relate to increased professional fees and other costs associated with public filings.

A gain of $1.2 million was recorded in the three months ended July 31, 2004 related to the renegotiation of the settlement of the Atari litigation (See Note 4 – Settlement Obligation). There was no comparable item in the 2003 period.

Operating income of $3.1 million for the three months ended July 31, 2004 improved from an operating loss of $1.9 million in the comparable three-month period in 2003. As a percentage of net revenues, operating income represented a 9% of net revenues in the current period. The increase in operating income is due to favorable market acceptance to the GameBoy Advance products, the introduction of GameBoy Advance Video and the gain on the renegotiation of the litigation settlement.

Interest expense and financing costs increased to $625,000 in the 2004 period, up from $346,000 in the comparable 2003 period due primarily to higher levels of purchase order financing associated with the higher sales volume and increased factor costs related to the higher level of sales factored.

During the three-month period ended July 31, 2004 an unrealized loss of $13,000 relating to a foreign exchange contract was recorded. There was no corresponding transaction in the comparable 2003 period.

In accordance with EITF 00-19, in the three-month period ended July 31, 2004, we recorded income of approximately $18.9 million related to the warrants issued in the private placement. This represents the change in the fair value of the warrants from April 30, 2004 to July 31, 2004 and was calculated using the Black-Scholes option pricing model. At such time as the registration of the underlying common stock becomes effective, the fair value of the warrant liability will be reclassified to equity (see Note 7 to consolidated financial statements).

A provision for income taxes of $759,000 was recorded in the three months ended July 31, 2004. There was no provision in the comparable 2003 period as we elected to be treated as an S Corporation under the Internal Revenue Code and as a result, income taxes were the responsibility of the individual shareholders. Effective November 1, 2003, we revoked our S Corporation election.

For the three-month period ended July 31, 2004, we generated a net profit of $20.5 million, principally as a result of the $18.9 million non-cash benefit related to the warrants issued in connection with the private placement, as compared to a net loss of approximately $2.2 million in the prior year.

Net income applicable to common stock for the three months ended July 31, 2004 of $20 million includes net income after taxes of $20.5 million net of a $469,500 preferred stock dividend requirement which is payable in common stock.

Nine months ended July 31, 2004 versus nine months ended July 31, 2003

Net revenues for the nine months ended July 31, 2004 increased to $75.6 million up from net revenues of $31.1 million in the same period in 2003. This increase is due to the higher unit volumes of GameBoy Advance titles, which accounted for 56% of total units sold, compared to 47% in the nine-month period in 2003 and the successful launch of GameBoy Advance Video, which utilizes our new proprietary compression technology and represented 34% of total units sold in the nine-month period ended July 31, 2004. Of the remaining 10% of net revenues, 7.5% was generated by frontline titles and 2.5% was related to sales of our specially designed headphones for the GameBoy Advance SP handheld device.

Gross profit increased to $20.0 million in the nine months ended July 31, 2004 from $11.5 million in the comparable nine-month 2003 period, an increase of 74%. Gross profit as a percentage of net revenues decreased to 26.5% in the nine-month 2004 period from 36.9% in the comparable 2003 period. The decrease in gross profit as a percentage of net revenues is largely due to the higher mix of value priced GameBoy Advance videogames and lower profit margins relating to sales of GameBoy Advance Video. Although there can be no assurances, we expect that gross margins will subsequently

improve with the release of both other GameBoy Advance Video titles having lower content acquisition costs, and new frontline console games, which are sold at considerably higher price points.

Product research and development costs for the nine-month period ended July 31, 2004 were $1.9 million, an increase of 5% compared to $1.8 million in the nine-month period in 2003. The increase over the prior nine-month period is due to higher employee costs related to quality assurance in association with the launch of GameBoy Advance Video and evaluation of the increased number of videogames and other products currently in development.

Selling and marketing expenses consist mainly of fulfillment and shipping expenses, advertising and other promotional expenses and related employee costs. For the nine-month period ended July 31, 2004, selling and marketing expenses increased to $7.9 million from $7.7 million in the comparable 2003 period. The 3.6% increase is due to increased freight and fulfillment on the higher sales volumes, related to the GameBoy Advance products. Freight and fulfillment expense for the nine months ended July 31, 2004 was $1.1 million compared to $640,000 for the comparable 2003 period. This was partially offset by approximately $800,000 in lower promotion expense related to the decrease in the promotion of frontline products in the current period. Much of the direct advertising for our new product line (GameBoy Video) was directly paid for by Nintendo, the manufacturer of the handheld game device. We expect continued direct marketing support by Nintendo in connection with holiday sales in the fourth calendar quarter. Selling and marketing expenses as a percentage of net revenues decreased to 10.6% in the nine-month period ended July 31, 2004 compared to 24.8% in the same 2003 period.

General and administrative expenses primarily represent employee related costs, including corporate executive and support staff, general office expenses, professional fees and various other overhead charges. These expenses for the nine-month period ended July 31, 2004 were $3.8 million compared to $2.8 million in the comparable 2003 period. The 34 % increase is attributable primarily to additional employee related costs, professional fees, insurance and other costs incurred as a result of being a public company.

A gain of $1.2 million was recorded in the nine months ended July 31, 2004 as a result of the renegotiation of the settlement of the Atari litigation (See Note 4 to consolidated financial statements). No corresponding income or expense was recorded in the prior year period.

Bad debt expense of approximately $577,000 was recorded in the nine months ended July 31, 2004 related to the Kay-Bee Toys bankruptcy. No similar expense was recorded in the prior year period.

Depreciation and amortization expense for the nine-month period ended July 31, 2004 increased to $311,000 from $267,000 in the same 2003 period due primarily to office equipment purchases.

Operating income of $6.5 million for the nine months ended July 31, 2004 improved $7.7 million from an operating loss of $1.2 million in the comparable nine-month period in 2003. As a percentage of net revenues, operating income improved to 9%, virtually offsetting the erosion at the gross profit level. The increase in operating income is due to increased sales volumes as a result of the increased sales of the GameBoy Advance products and GameBoy Advance Video, which incorporates our new proprietary compression technology.

Interest expense and financing costs increased approximately 35% to $1.9 million in the nine-month period ended July 31, 2004 from $1.4 million in the same 2003 period as a result of increased volumesare subject to purchase order financing, as well as an increase in factor costsincremental factoring costs.

Other Non-Operating Expenses.    In the three months ended January 31, 2005, we recorded a charge of $69,000 related to the higher level of sales factored.

An unrealized loss of approximately $95,000 relating to a foreign exchange contract (see Note 6 to consolidated financial statements)contract. For the three months ended January 31, 2004, a comparable charge of $315,000 was recorded.

Income Taxes.    A provision for federal and state income taxes has been provided for at a combined effective rate of 40%. As a result of the benefit of certain losses carried forward from the period during which the company was treated as an S corporation, no tax provision was recorded in the nine-monthcomparable 2004 period.

Net Income.    For the three month period ended JulyJanuary 31, 2004. There was no corresponding gain or loss in the same period last year.

Merger costs of approximately $342,000 were incurred by Majesco in the first quarter of 2004 and consist primarily of professional fees and are non-recurring.

In accordance with EITF 00-19, we recorded a non-cash charge of approximately $30.4 million related to the warrants issued in the private placement in the nine-month period ended July 31, 2004.

This non-cash charge to earnings represents the change in the fair value of the warrants from the time of issuance of the warrants to July 31, 2004 and was calculated using the Black-Scholes option pricing model. At such time as the registration of the underlying common stock becomes effective, the fair value of the warrant liability will be reclassified to equity (see Note 7 to consolidated financial statements).

A provision for income taxes of $1.2 million was recorded in the nine months ended July 31, 2004. There was no provision in the comparable 2003 period as we elected to be treated as an S Corporation under the Internal Revenue Code and as a result, income taxes were the responsibility of the individual shareholders. Effective November 1, 2003, we revoked our S-Corporation election.

For the nine-month period ended July 31, 2004,2005, we generated net income of $700,000 compared to a net income of $1.1 million in 2004. The net loss attributable to common stockholders of $27.4 million, principally as a result$400,000 for the 2005 period reflects net income of $700,000 less the $30.4$1.1 million charge related to the warrants in the private placement, as comparedan incentive granted to a net loss of approximately $2.6 million in the prior year.

The net loss applicable to common stockcertain holders for the nine months ended July 31, 2004,exercise of $29.0 million includes the net loss after taxes of $27.4 million, a $759,000 non-cash charge related to a deemed dividend to the holders of the 7% convertible preferred stock and a preferred stock dividend requirement of $809,000 which is payable in common stock. The deemed dividend represents the beneficial conversion feature of the 7% preferred stock, after taking into account the value of the warrants issued.warrants.

Liquidity and Capital Resources

OnHistorically, we have met our capital needs through our factoring and purchase order financing arrangements, loans from related persons and advances from customers. In addition, as a result of a series of transactions during our fiscal year 2004 and during the quarter ended January 31, 2005, primarily our February 26, 2004 weprivate placment and our recently completed a private placement of units consisting of preferred stock and warrantssecondary public offering, in which we raised approximately $25.8 million in gross proceeds from a groupsold equity securities, including issuances upon the exercise of institutional and accredited investors. The private placement resulted inwarrants, we received

aggregate net proceeds of approximately $21.4$81 million after deductingover the fees and other expenses relatedlast twelve months. We have used a portion of these proceeds to the financing. In connection with the private placement, the holders of the Series A preferred stock surrendered an aggregate of 352,112 shares of their Series A preferred stock, which were convertible into approximately 25,000,000 shares of common stock. With respectreduce indebtedness, to the warrants to purchase common stock issuedsatisfy certain settlements in connection with litigation, and to fund the private placement as a result of (i) the closing pricegrowth of our common stock being greater than $2.50 per share and (ii) the average daily trading volume was greater than 75,000 shares for a 60 consecutive calendar day period which ended on May 31, 2004, the warrants are eligible to be called by us for redemption which redemption will not take effect until such time as a registration statement for resale of the shares of common stock underlying the warrants has been declared effective. If the warrants are called, and if they are exercised for cash, we would receive gross proceeds of approximately $26.8 million. While we are considering calling the warrants, there can be no assurance that we will do so or that if we do call the warrants, that the warrant holders would exercise their right to purchase the common stock.

We used $3.3 million of the net proceeds to pay certain creditors, including $2.5 million for a previously negotiated settlement amount to Atari Interactive, Inc. and approximately $2.5 million to repay portions of loans previously made to us by two of our executive officers. In order to satisfy the remaining balance of the loans previously provided by the two executive officers, we agreed to issue to them, in the aggregate, 100 units. We used the remaining balance of the proceeds for working capital purposes.

In accordance with Emerging Issues Task Force Issue 00-19 ("EITF 00-19"), Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled in, a Company's Own Stock", we have initially accounted for the fair value of the warrants as a liability due to the probability of the Company having to make a net cash settlement in the form of penalties until the above mentioned registration statement is declared effective. As of the closing date of the private placement the fair value of the warrants was approximately $21 million calculated utilizing the Black-Scholes option pricing model. In addition, changes in the market value of our common stock from the closing date through the effective date of the registration statement will result in non-cash charges or credits to operations to reflect the change in fair value of the warrants during this period. Accordingly, we recorded a charge to operations of $30.4 million during the period subsequent to the private

placement ended July 31, 2004 to reflect the change in market value of the warrants, which was net of an $18.8 million benefit resulting from the reduction in the valuation of the warrants between April 30 and July 31, 2004. At the effective date, the fair value of the warrants will be reclassified to equity and, accordingly, the net effect of the application of the EITF would not be expected to have a material impact on our financial position and our business.

On September 1, 2004, Entertainment Finance International, LLC (EFI) commenced a breach of contract action against us relating to an outstanding warrant held by EFI, issued by ConnectivCorp prior to the Merger. EFI alleges that pursuant to the terms of the warrant, we are obligated to pay $1,750,000 for the repurchase of the shares underlying the warrant. We believe that this alleged repurchase obligation is not a valid claim and intend to vigorously defend against this action.

In the opinion of management, upon the advice of counsel, we have made adequate provision for potential liability, if any, arising from litigation and other claims. However, the costs and other effects of pending or future litigation, governmental investigations, legal and administrative cases and proceedings (whether civil or criminal), settlements, judgments and investigations, claims and changes in those matters, and developments or assertions by or against us relating to intellectual property rights and intellectual property licenses, could have a material adverse effect on the our business, financial condition and operating results.

Cash Flows

Cash was $336,000 at July 31, 2004 compared to $314,000 at July 3, 2003. The proceeds from the private placement in February 2004 were used to finance the conversion of the working capital deficiency of $10.9 million at October 30, 2003 into positive working capital of $8.5 million at July 31, 2004.

For the nine months ended July 31, 2004 approximately $16.3 million of cash was used by operations. The usage of cash was attributable to the increase in due from factor of $7.4 million reflecting higher receivables from customers net of advances from the factor, decrease in advances from customers for prepayments of $9.7 million due to fulfillment of related orders, increased development and software costs of $7.4 million for games in progress as well as royalty advances to content providers for GameBoy Advance Video net of amounts expensed during the period, increased prepaid expenses of $300,000 related to the Electronic Entertainment Expo ("E3") trade show for which the total expense of approximately $1general corporate purposes, including working capital.

While our cash and cash equivalents balance was $54.5 million is being amortized over the remainder of our fiscal year, a decrease in accounts payable and accrued expenses of $1.1 million and the $5.5 million payment related to settlement obligations. Increases in cash were attributable to an increase in royalties payable of $5.6 million, due primarily to GameBoy Advance Video sales, increase in taxes payable of approximately $1.0 million and a decrease in inventory of $6.2 million resulting from deliveries for the 2003 holiday season.

Cash used in investing activities during the nine months ended Julyat January 31, 2004 was principally related to purchases of computer equipment of $224,000.

Cash generated from financing activities for the nine months ended July 31, 2004 was $16.5 million, which included the aforementioned $21.4 million in net proceeds from the private placement and a loan from a related party of $1.0 million. The proceeds from the financings were used for working capital, the repayment of borrowings from the finance company ($3.1 million) and $2.8 million was used to repay loans from shareholders and an officer.

We2005, we expect continued volatility in the use and availability of cash due to the seasonality of theour business, receivable payment cyclestiming of receivables collections and quarterly working capital needs necessary to finance our publishing business and growth objectives.

At July 31, 2004 we do not currently have any material commitments with respect to leases and capital expenditures.

At July 31, 2004 we are committed under agreements with certain developers for future milestone and license fee payments aggregating $27.9 million and $5.5 million, respectively, which are principally

payable ratably over the next two years. Milestone payments represent scheduled installments due to our developers based upon the developers providing to us certain deliverables, as predetermined in our contracts. These payments will be used to reduce future royalties due to the developers from sales of our videogames.

At July 31, 2004 we had open letters of credit aggregating $5.9 million under our purchase order assignment arrangement for inventory to be delivered during the subsequent quarter.

Although there can be no assurance, management believes that there arewill be sufficient capital resources from our operations including our factoring and purchase order financing arrangements and as a result of the proceeds received in our private placement,order to financemeet our operational requirements for the next twelve months, including the funding of development, production, marketing, and the sale of new products, the purchases of equipment, and the acquisitionacquisiiton of intellectual property rights for future products. In addition, although there can be no assurance, we are inproducts for the process of renegotiating our factor and purchase order financing arrangements to increase our borrowing availability. Although there can be no assurances, in order to meet our short and longer-term needs, we also may be able to obtain additional funds through the exercise of the warrants sold in the private placement as discussed above. next twelve months.

If we incur operating losses, if our seasonal borrowing needs exceed our current borrowing availability, or if unforeseen events occur that would require us to locate additional funding, we may needbe required to raise additional capital or incur debt to fund our operations. As we expand our product offerings, including, for example, new frontline videogames, licensed video content and accessories our need to fund our development efforts, licensing fees, marketing costs, as well as our operations, will require that we change our current form of financing from asset based to more traditional forms of commercial borrowings, and. or raise additional capital. We would expect to seek such capital through sales ofissue additional equity or undertake debt securitiesfinancing and/or loans from banks, butfinancial institutions. However, there can be no assurance that suchthese funds will be available to us on acceptable terms, if at all. Failure to obtain such financing or obtaining it on terms not favorable to us could have a material adverse effect on future operating prospects and continued growth. Management believes it can operate under a curtailed operating plan if suitable financing is not available.

Factoring and Purchase Order Financing.    We do not have any bank debt. To satisfy our liquidity needs, we factor our receivables. We also utilize purchase order financing through the factor and through a finance company to provide funding for the manufacture of our products. In connection with these arrangements, the finance company and the factor have a security interest in substantially all of our assets. In addition, certain of our officers provide personal guarantees in connection with these arrangements.

Under the terms of our factoring agreement, we assign our accounts receivable to the factor. The factor, in its sole discretion, determines whether or not it will accept a receivable based on its assessment of its credit risk. Once a receivable is accepted by the factor, the factor assumes substantially all of the credit risk associated with the receivable. The factor is required to remit payments to us for the assigned accounts receivable in accordance with the terms of the assigned invoice, regardless of whether the factor receives payment on the receivable, so long as the customer does not have a valid dispute related to the invoice. The amount remitted to us by the factor equals the invoiced amount adjusted for allowances and discounts we have provided to the customer. The factor charges 0.5% of invoiced amounts for these credit and collection services.

In addition, we may request that the factor provide us with cash advances based on our accounts receivable and inventory. The factor may either accept or reject our request for advances in its discretion. Amounts to be paid to us by the factor for any assigned receivable are offset by any amounts previously advanced by the factor. As our needs require, we may request that the factor advance 80% of the eligible receivables and advance 50% of inventory, up to a maximum of $1 million. Total advances under the factor arrangement, including letters of credit for purchase order financing is limited to $30 million in the aggregate. The interest rate for advances taken is prime plus 1%.

We utilize purchase order financing arrangements in order to enable us to provide letters of credit necessary for the manufacture of our products. Manufacturers require us to present a letter of credit in order to manufacture the products required under a purchase order. Currently, we utilize letters of credit from a finance company which charges 3.3% of the purchase order amount for each transaction for 60 days. Our factor also provides purchase order financing at a cost of 0.5% of the purchase order amount for each transaction for 30 days. Additional charges are incurred under both arrangements if letters of credit remain outstanding in excess of the original time period.

Advances From Customers.    On a case by case basis, distributors and other customers have agreed to provide us with cash advances on their orders. These advances are then applied against future sales to these customers. In exchange for these advances, we offer these customers beneficial pricing or other considerations.

Commitments and Contingencies.    At January 31, 2005, we are committed under agreements with certain developers and content providers for milestone and license fee payments aggregating $31.4 million payable through October 31, 2006.

We do not currently have any material commitments with respect to any capital expenditures.

At January 31, 2005, we had open letters of credit aggregating $7.2 million under our purchase order assignment arrangement for inventory to be delivered during the subsequent quarter.

As of January 31, 2005 we had entered into "at will" employment agreements with several key executives. These employment agreements include provisions for, among other things, annual compensation, bonus arrangements and stock option grants. These agreements also contain provisions related to severance terms and change of control provisions.

As of January 31, 2005 we were committed under operating leases for office space and equipment for approximately $1.9 million through July 2009.

As of January 31, 2005, we had an outstanding foreign currency forward exchange contract to exchange 2.4 million euros into $2.8 million which expires March 31, 2005 and, accordingly, recorded as a liability (in accounts payable and accrued expenses) an unrealized loss of $360,000.

We are party to other routine claims and suits brought by us and against us in the ordinary course of business, including disputes arising over contractual claims and collection matters. In the opinion of management, after consultation with legal counsel, the outcome of such routine claims will not have a material adverse effect on our business, financial condition, and results of operations or liquidity. In addition, the costs and other effects of pending or future litigation, governmental investigations, legal and administrative cases and proceedings (whether civil or criminal), settlements, judgments and investigations, claims and changes in those matters (including those matters described above), and developments or assertions by or against the Company relating to intellectual property rights and intellectual property licenses, could have a material adverse effect on the Company's business, financial condition, and results of operations or liquidity.

Cash Flows

Cash and cash equivalents were $54.5 million at January 31, 2005 compared to $4.2 million at October 31, 2004.

Operating Cash Flows.    For the three months ended January 31, 2005, we used cash of $3.0 million in operating activities. The principal operating use of cash was expenditures of $9.0 million for capitalized software development costs and prepaid license fees related to new games, videos and gadgets in development for sale in 2005 and later periods and $1.3 million of other prepayments. Operating sources of cash included a decrease in inventory build-up from year end of $4.3 milion, an increase in accounts payable and accrued expenses of $1.4 million and net income of $700,000 generated during the period, adjusted for non-cash charges of $750,000 related to depreciation, amortization and officer compensation.

Investing Cash Flows.    Cash used in investing activities for the three months ended January 31, 2005 consists primarily of purchases of upgraded computer equipment and leasehold improvements necessary to accommodate our infrastructure growth.

Financing Cash Flows.    Net cash generated from financing activities for the three month
period ended January 31, 2005 was $53.5 million and consisted of (i) net proceeds of $6.5 million
from the exercise of warrants at a discount; (ii) net proceeds from the exercise of stockholder and placement agent warrants, issued in the February 2004 private placement of $11.3 million and (iii) net proceeds of $41.9 million from the sale of stock in a secondary public offering, partially offset by
(iv) repayments of $6.2 million of inventory financing.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

We are exposed to various market risks, including the changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from changes in market rates and prices.

Foreign exchange contracts used to hedge foreign currency exposure are subject to market risk. We do not enter into derivatives or other financial instruments for trading or speculative purposes. As of JulyJanuary 31, 2004, the Company has2005, we had an outstanding foreign currency forward exchange contract to exchange 2.4 million euros into $2.8 million which expires March 31, 2005 and, accordingly, recorded as a liability (in accounts payable and accrued expenses) the unrealized loss of $.1 million.$360,000.

Item 4.    Controls and ProceduresProcedures.

Evaluation of Disclosure Controls and Procedures.    As of JulyJanuary 31, 2004,2005, with the participation of our management, the Chief Executive Officer and Chief Financial Officer of the Company evaluated our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(e)13a-15(c) and 15d-15(e)15d-1.5(e)). In designing and evaluating our disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of JulyJanuary 31, 2004,2005, our disclosure controls and procedures were (1) designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to our Chief Executive Officer and Chief Financial Officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to behe disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.forms and that management is timely alerted to material information relating to the company during the period when our periodic reports are being prepared .

As a closely-held company with no public reporting obligations prior to our merger with ConnectivCorp in December 2003, we had previously committed limited personnel and resources to the development of our internal financial controls and systems. In connection withaddition, as of October 31, 2005, we will become subject to the rules, we are continuingheightened internal control and procedure requirements of Section 404 of the processSarbanes-Oxley Act. Therefore, management has intensified its review and documentation of reviewing and documenting our disclosure controls and procedures,

including our internal controls and procedures for financial reporting, and may from timeis focused on a number of areas that we would like to time make changes aimed at enhancing their effectivenessimprove, including the segregation of duties in key functions; the creation of formal accounting controls, policies and procedures; the hiring of additional management and staff experienced in financial reporting; and finalizing documentation of our accounting and disclosure internal controls and procedures. Further, management continues to look for methods to ensure that our systems evolve with our business.business and to improve our overall system of control. In order to aid management in these efforts, we have recently retained consultants to assist in the assessment of our internal accounting and disclosure controls and to make recommendations for timely corrective actions.

Changes in Internal Controls.    No change in the Company'sour internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) occurred during the fiscal quarter ended JulyJanuary 31, 20042005 that has materially affected, or is reasonably likely to materially affect, the Company'sour internal control over financial reporting.

PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings

As previously disclosed in our public filings,On December 28, 2004, we entered into a settlement agreement with Atari Interactive, Inc. in settlement of that certain judgment entered by the US District Court of Massachusetts against Majesco Sales Inc., our wholly-owned subsidiary and sole operating company, in the approximate amount of $6.7 million, pursuant to a breach of contract action. On May 11, 2004, in exchange for a one-time payment of $1.5 million by the Company to Atari, paid on May 21, 2004, Atari agreed to a complete release of the Company from (i) any further obligations ($2.7 million and accrued interest); (ii) all restrictions contained in the settlement agreement; and (iii) all obligations of any nature whatsoever with regard to the judgment. Prior to such date, we had paid $4.0 million to Atari pursuant to the terms of the settlement agreement.

With respectrelating to our previously disclosedreported litigation with Rage Games Limited,Limited. Pursuant to the agreement, on JulyFebruary 15, 20042005, we paid $650,000 for a full and complete settlement of all litigation between the Company was granted a partial summary judgment with respect to advances of $77,000 paid by the Company. The court denied the plaintiff's motion for partial summary judgment as well as the Company's motion for partial summary judgment as to its remaining claims. A trial date has not been set.parties.

On September 1, 2004,January 10, 2005, we entered into a settlement agreement relating to our previously reported litigation with Entertainment Finance International, LLC (EFI) commencedpursuant to which, on January 12, 2005, we paid to EFI $250,000, and thereafter, on February 3, 2005, as a breachresult of contract actionthe closing of our secondary public offering, an additional $985,000, resulting in a full and complete settlement of all litigation between the parties.

We are party to other routine claims and suits brought by us and against us in the Supreme Courtordinary course of New York,business, including disputes arising over contractual claims and collection matters. In the opinion

of management, after consultation with legal counsel, the outcome of such routine claims will not have a material adverse effect on our business, financial condition, and results of operations or liquidity. In addition, the costs and other effects of pending or future litigation, governmental investigations, legal and administrative cases and proceedings (whether civil or criminal), settlements, judgments and investigations, claims and changes in those matters (including those matters described above), and developments or assertions by or against us relating to an outstanding warrant held by EFI, issued by ConnectivCorp prior to the Merger. EFI alleges that pursuant to the termsintellectual property rights and intellectual property licenses, could have a material adverse effect on our business, financial condition, and results of the warrant, we are obligated to pay $1,750,000 for the repurchase of the shares underlying the warrant. We believe that this alleged repurchase obligation is not a valid claim and intend to vigorously defend against this action.operations or liquidity.

Item 2.    Changes inUnregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities

None.

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Submission of Matters to a Vote of Security Holders

None.

Item 5.    Other Information

None.

Item 6.    Exhibits and Reports on Form 8-K.

(a)    Exhibits

3.1	10.1			Second AmendedEmployment Agreement, dated February 2, 2005, by and Restated Bylaws ofbetween Majesco Holdings Inc., Majesco Sales Inc. and Lester E. Greenman.
	31.1
31.1				Rule 13a-15(e) Certification of Chief Executive Officer.Carl Yankowski pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2
31.2				Rule 13a-15(e) Certification of Chief Financial Officer.Jan E. Chason pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1
32.1				Certification of Carl Yankowski pursuant to Section 1350 Certificate906 of Chief Executive Officer.the Sarbanes-Oxley Act of 2002.
	32.2
32.2				Certification of Jan E. Chason pursuant to Section 1350 Certificate906 of Chief Financial Officer.the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

On July 21, 2004, the Company furnished a Current Report on Form 8-K under Items 5 and 7.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MAJESCO HOLDINGS INC.

/s/ Jan E. Chason Jan E. Chason Chief Financial Officer Date: September 14, 2004March 17, 2005