10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2005Commission File No. 000-51128

Majesco Entertainment Company

(Exact name of registrant as specified in its charter)

DELAWARE				606-1529524
(State or Other Jurisdiction of Incorporation or Organization)				(I.R.S. Employer Identification No.)

160 Raritan Center Parkway, Edison, NJ 08837
(Address of principal executive offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (732) 225-8910

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes            No    

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes            No    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes            No    

As of September 13, 2005 there were 22,242,477 shares of the Registrant's common stock outstanding.

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
JULY 31, 2005 QUARTERLY REPORT ON FORM 10-Q
INDEX

Page

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements:

Condensed Consolidated Balance Sheet as of July 31, 2005 (unaudited) and October 31, 2004

1

Condensed Consolidated Statement of Operations for the three and nine months ended July 31, 2005 and 2004 (unaudited)

2

Condensed Consolidated Statement of Cash Flows for the nine months ended July 31, 2005 and 2004 (unaudited)

3

Condensed Consolidated Statement of Stockholders' Equity for the nine months ended July 31, 2005 (unaudited)

4

Notes to Condensed Consolidated Financial Statements (unaudited)

5

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

21

Item 4.

Controls and Procedures

21

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

22

Item 4.

Submission of Matters to a Vote of Security Holders

22

Item 5.

Other Information

23

Item 6.

Exhibits

23

SIGNATURES

CERTIFICATIONS

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(dollars in thousands)

				July 31, 2005				October 31, 2004
				(unaudited)
ASSETS
Current assets:
Cash and cash equivalents				$	10,279			$	4,170
Due from factor and other receivables					158				9,491
Inventory — principally finished goods					12,764				12,755
Capitalized software development costs and prepaid license fees — current portion					24,974				10,574
Prepaid expenses					3,790				831
Total current assets					51,965				37,821
Property and equipment — net					883				798
Capitalized software development costs and prepaid license fees, net of current portion					6,363				4,952
Other assets					162				381
Total assets				$	59,373			$	43,952
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses				$	19,464			$	19,985
Inventory financing payable					214				6,750
Advances from customers					582				2,171
Total current liabilities					20,260				28,906
Dividend payable in common stock					—				1,261
Commitments and contingencies
Stockholders' equity:
Common stock — $.001 par value; 250,000,000 shares authorized; 22,231,537 and 15,403,704 issued and outstanding at July 31, 2005 and October 31, 2004, respectively					22				15
Additional paid in capital					92,142				29,194
Accumulated deficit					(53,142	)			(15,388	)
Accumulated other comprehensive income (loss)					91				(36	)
Total stockholders' equity					39,113				13,785
Total liabilities and stockholders' equity				$	59,373			$	43,952

See accompanying notes

1

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands, except share amounts)

				Three Months Ended July 31								Nine Months Ended July 31
				2005				2004				2005				2004
				(unaudited)
Net revenues				$	4,565			$	33,971			$	55,139			$	75,639
Cost of sales
Product costs					5,002				19,330				30,358				44,542
Software development costs and license fees					15,748				7,562				21,587				11,086
					20,750				26,892				51,945				55,628
Gross (loss) profit					(16,185	)			7,079				3,194				20,011
Operating expenses
Research and development					721				696				2,517				1,959
Selling and marketing					8,479				2,955				17,594				7,992
General and administrative					3,389				1,436				7,581				3,824
Non-cash compensation					433				—				1,341				—
Loss (gain) on settlements					1,439				(1,200	)			1,439				(1,200	)
Loss on impairment of capitalized software development costs					6,115				—				6,115				—
Severance					1,360				—				1,360				—
Write-off of accounts receivable					322				—				322				577
Depreciation and amortization					188				124				765				311
					22,446				4,011				39,034				13,463
Operating (loss) income					(38,631	)			3,068				(35,840	)			6,548
Other costs and expenses
Interest expense and financing costs, net					241				625				1,502				1,927
Loss on foreign exchange contract									13				48				95
Merger costs					—				—				—				342
Change in fair value of warrants					—				(18,854	)			—				30,351
(Loss) income before income taxes					(38,872	)			21,284				(37,390	)			(26,167	)
(Benefit) provision for income taxes					(1,329	)			759				(736	)			1,248
Net (loss) Income					(37,543	)			20,525				(36,654	)			(27,415	)
Fair value charge for warrants exercised at a discount					—				—				1,100				—
Deemed dividend to preferred stockholders					—				—				—				759
Preferred stock dividend					—				470				—				809
Net (loss) income attributable to common stockholders				$	(37,543	)		$	20,055			$	(37,754	)		$	(28,983	)
Net (loss) income attributable to common stockholders per share
Basic				$	(1.69	)		$	1.74			$	(1.87	)		$	(3.98	)
Diluted				$	(1.69	)		$	1.06			$	(1.87	)		$	(3.98	)
Weighted average shares outstanding
Basic					22,231,075				11,551,376				20,162,747				7,274,212
Diluted					22,231,075				18,842,607				20,162,747				7,274,212

2

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)

				Nine Months Ended July 31
				2005				2004
				(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss				$	(36,654	)		$	(27,415	)
Adjustments to reconcile Net loss to net cash (used in) operating activities
Change in fair value of warrants					—				30,351
(Loss) gain on settlements					1,439				(1,200	)
Depreciation and amortization					765				311
Write-off of accounts receivable					322				577
Non-cash compensation expense					1,341				26
Impairment of capitalized software development costs					6,115				—
Amortization of capitalized software development costs and prepaid licenses fees					13,992				1,443
Changes in operating assets and liabilities
Decrease (increase) in due from factor					8,333				(6,903	)
(Increase) decrease in inventory					(9	)			6,244
(Increase) in capitalized software development costs and prepaid license fees					(36,200	)			(8,870	)
(Increase) in prepaid expenses					(2,959	)			(317	)
Decrease (increase) in other assets					126				(210	)
(Decrease) increase in accounts payable and accrued expenses					(3,643	)			4,915
(Decrease) in advances from customers					(589	)			(9,693	)
Payment of settlement obligations					—				(5,510	)
Net cash (used in) operating activities					(47,621	)			(16,251	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment					(349	)			(224	)
Net cash (used in) investing activities					(349	)			(224	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from secondary offering					41,898				—
Net proceeds from exercise of warrants at discount					6,482				—
Net proceeds from exercise of warrants					12,108				—
Repayment of inventory financing					(6,536	)			(3,066	)
Proceeds from private placement, net of expenses									21,377
Convertible loan from related party									1,000
Repayments of loans from stockholders — net									(2,562	)
Repayment of officer's advances — net									(200	)
Principal payments on capital lease obligations					—				(24	)
Net cash provided by financing activities					53,952				16,525
Effect of exchange rates on cash and cash equivalents					127				(28	)
Net increase in cash					6,109				22
Cash and cash equivalents — beginning of period					4,170				314
Cash and cash equivalents — end of period				$	10,279			$	336
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES
Fair value charge for warrants exercised at discount				$	1,100			$	—
Issuance of common stock in connection of 7% Preferred Stock dividend				$	(1,261	)		$	—
Fair value of warrants issued in connection with sale of units				$	—			$	20,730
Issuance of 100 units of the 7% preferred stock and warrants in connection with settlement of loans from stockholders				$	—			$	1,000
Issuance of 285,714 shares of common stock as repayment of loan from related party				$	—			$	1,000
Deemed dividend arising from beneficial conversion feature of the preferred stock				$	—			$	759

3

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)

				Common Stock — $.001 per share								Additional Paid in Capital				Accumulated Deficit				Accumulated Other Comprehensive Income (Loss)				Total Stockholders' Equity
				Shares				Amount
Balance — October 31, 2004					15,403,704			$	15			$	29,194			$	(15,388	)		$	(36	)		$	13,785
Issuance of common stock in connection with:
Secondary offering (net of underwriting discounts, commissions and expenses of $4,129)					3,682,176				4				41,894				—				—				41,898
Exercise of warrants at $5.95 (net of expenses of $488)					1,171,418				1				7,581				(1,100	)			—				6,482
Exercise of warrants at $7.00 (net of expenses of $1,121)					1,889,985				2				12,106				—				—				12,108
Conversion of 7% Preferred Stock					78,283				—				1,261				—				—				1,261
Non-cash director compensation					5,307				—				45				—				—				45
Settlement obligation related to predecessor company					664				—				(1,235	)			—				—				(1,235	)
Non-cash compensation charge					—				—				1,296				—				—				1,296
Net loss					—				—				—				(36,654	)			—				(36,654	)
Foreign currency translation adjustment					—				—				—				—				127				127
Total comprehensive loss																									(36,527	)
Balance — July 31, 2005					22,231,537			$	22			$	92,142			$	(53,142	)		$	91			$	39,113

4

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.    PRINCIPAL BUSINESS ACTIVITY AND BASIS OF PRESENTATION

Majesco Entertainment Company and subsidiary ("Majesco" or "Company") is an innovative provider of diversified products and content for digital entertainment platforms. The Company's offerings include video games, both premium priced and value priced, as well as other digital entertainment products. The Company's diverse products provide it with multiple opportunities to capitalize on the large and growing installed base of digital entertainment platforms and an increasing number of digital entertainment enthusiasts. The Company sells its products directly and through resellers primarily to U.S. retail chains, including Best Buy, Electronics Boutique, GameStop, Kmart, Target, Toys "R" Us and Wal-Mart.

On December 5, 2003, the Company consummated a merger (the "Merger") with Majesco Sales Inc. ("MSI"). Pursuant to the Merger, MSI became a wholly-owned subsidiary. As a result of the Merger, the former stockholders of MSI were the controlling stockholders of the Company. Additionally, prior to the Merger, the Company had no substantial assets. Accordingly, the transaction was treated for accounting purposes as a reverse acquisition of a public shell, and the 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 historical 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 the Merger, amounting to $342,000, were charged to operations during the nine month period ended July 31, 2004.

On April 4, 2005, MSI was merged into the Company and in connection with this merger, the Company changed its name from Majesco Holdings Inc. to Majesco Entertainment Company.

The Company's net revenues for the three months ended July 31, 2005 is $4.6 million, compared to $34.0 million for the same period in 2004. The decrease is reflective of weak sales of the Company's products compared to the strong sales around the introduction of its Game Boy Advance Video product in the prior year quarter. In addition, net sales for the 2005 quarter were also impacted by increased provisions for price protection, changes in market conditions, and soft demand for the Company's products. Net revenues for 2005 were not in line with management's expectations primarily because of the weaker than expected sales of the Company's premium game releases. The Company was unable to recoup development and marketing costs related to those games. In addition, the Company provided provisions for impairment of capitalized software costs, severance costs and a loss on a proposed settlement. As a result, the Company sustained an operating loss of $38.6 for the 2005 quarter, versus operating income of $3.1 million for the same period last year.

Recently, the factor, the Company's principal source of financing imposed a limitation on cash advances of $7.5 million with a maximum of $2.0 million for letters of credit. Previously, advances under our factoring arrangement, including letters of credit were limited to $30 to $35 million in the aggregate. The Company is negotiating with the factor to increase the availability, however, there can be no assurance that we will be successful in our negotiations. Management is also in the process of evaluating alternatives to the current factoring arrangement, including issuance of additional equity or debt financing and/or loans from financial institutions. Although, management believes that alternative financing may be available, there can be no assurance that funds will be available on acceptable terms, if at all. In the event that the Company is unable to negotiate an alternative, or negotiate terms that are acceptable to us, we may be forced to significantly and materially modify our business plan, including making substantial reductions in our expenditures. Management believes that it would be able to modify its business plan accordingly, including the reductions in its expenditures. Management also believes it can operate under a curtailed operating plan if suitable financing is not available.

As of July 31, 2005, assuming continued availability of funding at increased levels by the current factor or alternative sources, management believes that there will be sufficient capital resources from

5

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

operations and financing arrangements in order to meet the Company's requirements for development, production, marketing, purchases of equipment, and the acquisiton of intellectual property rights for future products for the next twelve months.

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, 2004 filed on Form 10-K on January 31, 2005.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation.    The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. Significant intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition.    The Company recognizes revenue upon shipment of its product as title and risk of loss are 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. Revenues, including sales to resellers and distributors, are recognized when these conditions are met.

For those agreements that provide customers with the right to multiple copies in exchange for guaranteed minimum royalty amounts, revenue is recognized at delivery of the product master or the first 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 owed to the Company for 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 video 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 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 $1.6 million and $1.4 million and are included in selling expenses for the nine months ended July 31, 2005 and 2004, respectively.

Software development costs and prepaid 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

6

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

and it is determined that such costs should 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 product research and development costs. Prepaid license fees represent license fees to holders for the use of their intellectual property rights 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 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 prepaid license fees are amortized to cost of sales based upon the higher of (i) the ratio of current revenue to total projected 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 prepaid 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. Significant management judgements and estimates are utilized in the assessment of when technological feasability is established, as well as in the ongoing assessment of the recoverability of capitalized costs. If revised forecasted or actual product sales are less than and/or revised forecasted or actual costs are greater than the original forecasted amount utilized in the initial recoverability analysis, the net realizable value may be lower than originally estimated in any given quarter, which could result in an impairment charge.

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 $6.2 million and $1.8 million for the nine months ended July 31, 2005 and 2004, respectively. Marketing expenditures for the Company's new products are allocated to interim periods using a percentage which reflects the ratio of the net revenue for the period to forcasted net revenue for the fiscal year.

Income taxes.    For the three and nine months ended July 31, 2005, the Company recorded a benefit for net operating loss carrybacks, net of a full valuation allowance against net deferred tax assets recorded in prior periods. Based upon the Company's current operating results, management has concluded that it is more likely than not that such assets will not be realized. Management will reassess its position with regard to the valuation allowances on a quarterly basis. For the three and nine months ended July 31, 2004, the provision for income taxes is based on the Company's estimated annualized effective tax rate.

Stock Based Compensation.    The Company follows 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 Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and disclose the pro 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 148 require that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed prominently and in a tabular format. See the table below for the disclosures required by SFAS 123 and SFAS 148.

7

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

In accordance with APB 25 and related interpretations, compensation expense for stock 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 been determined based on the fair value method set forth in SFAS 123, the Company's net loss (income) and per share amounts for the three and nine months ended July 31, 2005 and July 31, 2004 would approximate the pro forma amounts indicated below:

				(in thousands, except per share amounts)
				Three Months Ended July 31, 2005				Three Months Ended July 31, 2004				Nine Months Ended July 31, 2005				Nine Months Ended July 31, 2004
Net (loss) income — as reported					($37,543	)		$	20,525				($36,654	)			($27,415	)
Add: intrinsic value of stock based compensation included in net loss as reported, net of related tax effect					124				—				682				—
Less: stock based employee compensation determined under fair value based method, net of income tax effect					419				137				1,463				185
Net (loss) income — pro forma					($37,838	)		$	20,388				$($37,435	)			($27,600	)
Net (loss) income attributable to common stockholders per share:
As reported:
Basic					($1.69	)		$	1.74				($1.87	)			($3.98	)
Diluted					($1.69	)		$	1.06				($1.87	)			($3.98	)
Pro forma:
Basic					($1.70	)		$	1.72				($1.91	)			($4.01	)
Diluted					($1.70	)		$	1.06				($1.91	)			($4.01	)

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

Risk free annual interest rate				Various rates ranging from 2.71% to 3.85% at date of grant
Expected volatility				30%, 50% and 90%
Expected life				5 years
Assumed dividends				None

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.

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.

8

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

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.

Earnings (loss) income per share.    Loss per common share is computed by dividing net loss applicable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted loss per common share for the periods has not been presented because the impact of the conversion or exercise, as applicable, of the warrants (2,070,687) and stock options (950,907) would be antidilutive. For the three months ended July 31, 2004, basic earnings per common share is computed by dividing the net income applicable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. For this period, diluted earnings per share is computed by dividing net income applicable to common stockholders by the weighted-average number of common stock and common stock equivalents and the $470,000 preferred stock dividend were added back to net income attributable to common stock.

Recent accounting pronouncements.    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 the Company beginning November 1, 2005. The new standard allows for two transition 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 impact 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 Company's financial position or results of operations.

3.    EQUITY TRANSACTIONS

On January 31, 2005, the Company completed a $75 million secondary offering, resulting in approximately $41.9 million in net proceeds to the Company through the sale of 3,682,176 shares of common stock. In addition, certain existing stockholders sold an aggregate of 2,317,824 shares in the offering for which the Company did not receive the proceeds. However, the Company received

9

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

approximately $11.3 million of net proceeds from the exercise 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., In April 2005, the Company's common stock began trading on the NASDAQ National Market System under the ticker symbol "COOL".

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 this transaction, the Company recorded a non-cash charge to "Additional Paid in Capital" of $1.1 million to recognize the exercise of warrants at a reduced exercise price. This charge is also reflected in net loss attributable to common stockholders in the calculation of earnings (loss) per share.

During the nine months ended July 31, 2005 the Company received $790,000 from the exercise of 121,426 warrants which were issued in the private placement. Any warrants that have not been previously exercised are eligible to be called by the Company at a price of $0.007 subject to any contractual restrictions.

In May and August 2005, the Company amended its compensation policy for its non-employee directors. Previously, in addition to an annual retainer, the Company compensated non-employee directors for attendance at meetings. Under the revised structure, directors will not recieve any fees for attendance at Board or committee meetings, instead they will receive depending on committee role an annual retainer ranging from $40,000 to $60,000 and annual equity grants valued between $40,000 to $60,000. The equity grants consist of restricted common stock (2/3) and common stock options(1/3).

In August 2005, the Company issued 698,700 stock options to employees and officers at $3.20 which was market value at the date of grant.

4.    DUE FROM FACTOR

Due from factor consists of the following (in thousands):

				July 31, 2005				October 31, 2004
Outstanding accounts receivable sold to factor, net of allowances of $10,798 and $4,860, respectively				$	5,538			$	31,794
Less: advances from factor					5,380				22,303
				$	158			$	9,491

The following table sets forth the adjustments to the price protection and other allowances included as a reduction of the amounts due from factor:

				Nine Months Ended July 31, (in thousands)
				2005				2004
Balance — beginning of period				$	(4,860	)		$	(2,173	)
Add: provision for price protection and other allowances					(12,711	)			(2,174	)
Less: amounts charged against allowance					6,773				3,206
Balance — end of period				$	(10,798	)		$	(1,141	)

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MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

5.    ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consists of the following (in thousands):

				July 31, 2005				October 31, 2004
Accounts payable-trade				$	8,960			$	9,373
Royalties — including accrued minimum guarantees					7,148				5,777
Income taxes					—				1,271
Sales commissions					500				1,255
Severance					955
Salaries and other compensation					715				1,154
Litigation					—				778
Other accruals					1,186				377
				$	19,464			$	19,985

6.    COMMITMENTS AND CONTINGENCIES

Commitments

We are committed under agreements with certain developers and content providers for milestone payments of $8.3 million payable through October 31, 2005 and $11 million payable through October 31, 2006.

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

As of July 31, 2005, we had open letters of credit aggregating $378,000 for inventory purchases to be delivered during the subsequent quarter.

As of July 31, 2005 we were committed under operating leases for office space and equipment for approximately $1.5 million through July 2009.

Contingencies

During July and August 2005, four securities class action lawsuits have been filed in the United States District Court for the District of New Jersey against the Company and certain of its officers, and former officers. The complaints assert claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegations that the Company made false and misleading statements regarding Majesco's financial condition and future prospects. The lawsuits purport to be class actions filed on behalf of purchasers of Majesco common stock during the period from December 8, 2004 through July 12, 2005. The actions seek damages in an unspecified amount. As each of these lawsuits are in their initial stages, the Company has been advised by its legal counsel that there is insufficient information available to determine the outcome of these matters and a loss, if any, cannot be reasonbly estimated. The Company intends to vigorously defend the actions.

On September 1, 2004, Entertainment Finance International, LLC ("EFI") commenced a breach of contract action relating to an outstanding warrant held by EFI. EFI alleged that pursuant to the terms of the warrant, the Company was 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 was reflected as an adjustment to "Additional paid in capital", since the alleged obligation existed prior to the Merger.

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

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MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

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.

The Company is party to other routine claims and suits brought by the Company and against the Company 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 the 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 the 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.

7.    RELATED PARTIES

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 and nine months ended July 31, 2005 the Company was charged $383,000 and $2.1 million, respectively compared to $1.4 million and $2.8 million, respectively, for the three and nine months ended July 31, 2004. These charges are included in product costs in the accompanying 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.

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

Overview

We are an innovative provider of diversified products and content for digital entertainment platforms. Our offerings include video games, both premium priced and value priced, as well as other digital entertainment products. Our diverse products provide us with multiple opportunities to capitalize on the large and growing installed base of digital entertainment platforms and an increasing number of digital entertainment enthusiasts. We sell our products directly and through resellers primarily to U.S. retail chains, including Best Buy, Electronics Boutique, GameStop, Kmart, Target, Toys "R" Us and Wal-Mart.

Our net revenues for the three months ended July 31, 2005 is $4.6 million, compared to $34.0 million for the same period in 2004. The decrease is reflective of weak sales of our products compared to the strong sales around the introduction of our Game Boy Advance Video product in the prior year quarter. In addition, net sales for the 2005 quarter were also impacted by increased provisions for price protection, changes in market conditions, and soft demand for our products. Net revenues for 2005 were not in line with management's expectations primarily because of the weaker than expected sales of our premium game releases. We were unable to recoup development and marketing costs related for those games. In addition, we provided provisions for for impairment of capitalized software costs, severance costs and a loss on a proposed settlement. As a result, we sustained an operating loss of $38.6 for the 2005 quarter, versus operating income of $3.1 million for the same period last year.

Recently, the factor, the principal source of financing imposed a limitation on cash advances of $7.5 million with a maximum of $2.0 million for letters of credit. Previously, advances under our factoring arrangement, including letters of credit were limited to $30 to $35 million in the aggregate. We are negotiating with the factor to increase the availability, however, there can be no assurance that we will be successful in our negotiations. Management is also in the process of evaluating alternatives to the current factoring arrangement, including issuance of additional equity or debt financing and/or loans from financial institutions. Although, management believes that alternative financing may be available, there can be no assurance that funds will be available on acceptable terms, if at all. In the event that we are unable to negotiate an alternative, or negotiate terms that are acceptable to us, we may be forced to significantly and materially modify our business plan, including making substantial reductions in our expenditures. Management believes that it would be able to modify its business plan accordingly, including the reductions in its expenditures. Management also believes it can operate under a curtailed operating plan if suitable financing is not available.

As of July 31, 2005, assuming continued availability of funding at increased levels by the current factor or alternative sources, management believes that there will be sufficient capital resources from operations and financing arrangements in order to meet our requirements for development, production, marketing, purchases of equipment, and the acquisiton of intellectual property rights for future products for the next twelve months.

All financial information presented reflects the consolidated results of Majesco Entertainment Company and subsidiary, as if we had acquired ConnectivCorp on December 5, 2003.

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

Net Revenues.    Our revenues are principally derived from the following 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; and

•	Other Digital Entertainment Products.    Our digital entertainment line includes Game Boy Advance (GBA) Video and TV Arcade products. Our GBA video titles utilize compression technology that enables users to view color video content with stereo audio on their GBA,

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using a standard GBA cartridge, with no additional hardware required. We license rights to entertainment properties from entertainment industry leaders for GBA Video content. Our TV Arcade "plug-and-play" is a stand alone video game system that consists 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, including additional premium-priced titles, our GBA video titles and TV Arcade products. The continued diversification of our revenue sources and our revenue growth are dependent upon our ability to provide a wide variety of appealing products at different price points aimed at different demographics. Our revenues are recognized net of reserves for price protection and other allowances. See "Critical Accounting Policies" below.

Cost of Sales.    Cost of sales consists of product costs and amortization of software development costs and license fees. Product cost 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 gross profit is directly affected by the mix of revenues from our products. Gross profit margins have the potential to be substantially higher from publishing our premium-priced titles given the higher sales prices. A premium title costs substantially more to develop compared to a value priced title. If a premium title is a highly successful "hit" and manufacturing and licensing costs are recouped, economies of scale occur as the incremental sales of a premium-priced game produce greater profitability. If a premium title does not perform as expected it will have a significant impact on our gross margin. Our value titles are generally characterized as having lower gross profit margin potential than premium-priced titles as a result of their lower 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.

Product Research and Development Expenses.    Product research and development expenses relate principally to our cost of supervision of the third-party developers of our products, 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 costs, which include certain customer marketing allowances. Marketing and promotion expenses associated with premium titles are significantly higher than those associated with our other offerings. Marketing expenditures for the Company's new products are allocated to interim periods using a percentage which reflects the ratio of the net revenue for the period to forcasted net revenue for the fiscal year.

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 and Sarbanes-Oxley compliance. 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 purchase-order financing arrangements.

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Warrant Accounting and Other Non-Cash Compensation.    In accordance with Emerging Issues Task Force Issue EITF 00-19, "Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled in, a Company's Own Stock," we initially accounted for the fair value of $21 million for the warrants issued in connection with our February 2004 private placement as a liability since we would have incurred substantial penalties if we had not complied on a timely basis with the warrant holders' registration rights. We subsequently recorded changes in the fair value of warrants as non-cash charges or gains on a quarterly basis through October 29, 2004, the effective date of the resale registration statement. The fair value of the warrants was calculated using the Black-Scholes option-pricing model. As a result of changes in the market value our common stock from the closing date through July 31, 2004, we recorded a non-cash charge of $30.4 million to reflect the associated change in fair value of the warrants during the period.

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 nine months ended July 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 market price). As a result of this issuance, we incurred non-cash compensation expense of $1.3 million through the date of his termination of employment in July 2005 when all of his options expired unexercised.

Critical 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 to 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 discussion and analysis of financial condition and results of operations where such policies affect our reported and expected financial results.

Reserves for Price Protection and Other Allowances.    We derive revenue from the sale of packaged video game software designed for play on consoles such as PlayStation 2, Xbox and GameCube, and hand-held game devices, including the GBA, DS and PSP. 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 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 digital entertainment market,

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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 consoles pass the midpoint of their lifecycle and an increasing number 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 change, this will result in a change in our reserves, which would impact the net revenues and/or selling and marketing expenses we report. For the nine months ended July 31, 2005 and 2004, we provided allowances for future price protection and other allowances of $12.7 million and $2.2 million, respectively. The fluctuations in the provisions reflected our estimates of future price protection based on the factors discussed above. We do not have significant exposure to credit risk as the factor generally buys our receivables without recourse; however, during the nine months ended July 31, 2005 and July 31, 2004, we recorded charge for accounts receivable write-off of $322,000 and $577,000 respectively as a result of customer bankruptcies.

Software development costs and prepaid license fees.    Software development costs include development fees, most often in the form of milestone payments made to independent software developers for development services. . Software development costs are capitalized once technological feasibility of a product is established and it is determined that such costs should be recoverable against future revenues. 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. Prepaid license fees represent license fees to holders for the use of their intellectual property rights 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 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 a related product's release, capitalized software development costs and prepaid license fees are amortized to cost of sales based upon the higher of (i) the ratio of current revenue to total projected 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 prepaid 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. Significant management judgements and estimates are utilized in the assessment of when technological feasability is established, as well as in the ongoing assessment of the recoverability of capitalized costs. If revised forecasted or actual product sales are less than and/or revised forecasted or actual costs are greater than the original forecasted amount utilized in the initial recoverability analysis, the net realizable value may be lower than originally estimated in any given quarter, which could result in an impairment charge. As of July 31, 2005, we charged operations $6.1 million to write-off all capitalized costs related to the development of video games that we had determined would not be commercially viable and for which development was stopped. We also charged $9.2 million to cost of sales to recognize impairments in the carrying value for games released during the nine months ended July 31, 2005 for which orders received were significantly below expectations.

Accounting for 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 November 2005.

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The new standard allows for two transition alternatives, either the modified-prospective method or the modified-retrospective method. We have not completed our evaluation of SFAS 123(R) and therefore have not selected a transition method or determined the impact that adopting SFAS 123(R) will have on our results of operations.

Results of operations

Three and nine months ended July 31, 2005 versus three and nine months ended July 31, 2004

Net revenues.    Net revenues for the three months ended July 31, 2005 decreased to $4.6 million from $34.0 million in the comparable quarter last year. Net revenues for the nine months ended July 31, 2005 decreased to $55.1 million from $75.6 million in the comparable period last year. The decrease is reflective of weak sales of our products as compared to the strong sales around the introduction of GBA Video product in the prior year quarter. The decrease is also impacted by increased provisions for price protection, changes in market conditions and soft demand for our products.

Gross (loss) profit.    Gross loss for the three months ended July 31, 2005 was $16.2 million compared to a gross profit of $7.0 million in the third quarter last year. Gross profit for the nine months ended July 31, 2005 decreased to $3.1 million from $20.0 million in the comparable period last year.The reduction in gross profit is primarily attributable to the weaker than expected sales which resulted in our inability to recoup development and marketing costs related to our premium game releases. We also provided increased provisions for allowances for price protection during the third quarter 2005 to reflect the change in product mix, change in market conditions and decreased demand for our products.

Product Research and Development Expenses.    For the three months ended July 31, 2005 product research and development costs increased to $721,000 from $696,000 in the comparable 2004 period. For the nine months ended July 31, 2005 product research and development costs increased to $2.5 million from $2.0 in the comparable 2004 period. The increases are principally attributable to employee related costs which include the hiring of additional quality control personnel, necessary to support the increased number of projects currently in the development cycle.

Selling and Marketing Expenses.    In the three months ended July 31, 2005 total selling and marketing expenses increased to $8.5 million from $3.0 million in the same three month period in 2004, an increase of $5.5 million. In the nine months ended July 31, 2005 total selling and marketing expenses increased to $17.6 million from $8.0 million in the same nine month period in 2004, an increase of $9.6 million. The increases were principally the result of media campaigns and promotions to support the launch of our premium game products.

General and Administrative Expenses.    For the three month period ended July 31, 2005 general and administrative expenses increased $2.0 million, to $3.4 million from $1.4 million in the comparable 2004 period. For the nine month period ended July 31, 2005 general and administrative expenses increased approximately $3.8 million to $7.6 million from $3.8 million in the comparable 2004 period. The increase was driven by increased costs to related to becoming a NASDAQ — listed company, including compliance costs for Sarbanes Oxley and to build our infrastructure for future growth.

Other Operating Expenses.    In the three and nine months ended July 31, 2005 we recorded non-cash compensation charges of $433,000 and $1.4 million, respectively, primarily related to a below market stock option grant to our former Chairman and CEO. The options were forfeited in connection with his severence arrangements and there will be no additional compensation charges. In the three and nine months ended July 31, 2005 we recorded a provision for a loss of $1.4 million in connection with a proposed settlement with one of our distributors and in the comparable prior year periods we recorded a gain of $1.2 million on the renegotiation of litigation settlement. We do not have significant exposure to credit risk as our factor generally buys our receivables without recourse; however, during the three and nine months ended July 31, 2005 and 2004, we recorded charges of accounts recievable write-offs of $322,000 and $577,000, respectively, related to customer bankruptcies. In addition, during the three and nine months ended July 31, 2005 we recorded $1.4 million of

17

expense related to severence agreements. During the three and nine month periods ended July 31, 2005, we charged operations $1.1 million to write-off all capitalized costs related to the development of video games that we had determined would not be commercially viable and for which development was stopped.

Depreciation and Amortization Expenses.    For the three months ended July 31, 2005 depreciation and amortization expense was $188,000 compared to $124,000 in the comparable 2004 period. For the nine months ended July 31, 2005 depreciation and amortization expenses were $765,000 compared to $311,000 in the comparable 2004 period. Depreciation and amortization expense increased due to additional office and computer equipment acquired and as a result of the amortization of a non-compete agreement and tooling costs.

Operating (loss)income.    For the three month period ended July 31, 2005 we generated an operating loss of $38.6 million, a change of $41.7 million from operating income of $3.1 million in the 2004 period. For the nine month period ended July 31, 2005 our operating loss was $35.8 million, a $42.3 million change from $6.5 million in 2004 operating income. The decreases in operating income were due to lower sales, increased allowances for price protection and higher marketing costs related to our premium game releases which were not recovered as a result of weaker than expected sales of those games. The weak sales also resulted in lower than anticipated recoupment of development costs which negatively impacted gross profit and operating income.

Interest and Financing Costs, net.    For the three months ended July 31, 2005 interest and financing costs decreased approximately $384,000 to $241,000 from $625,000 in 2004. For the nine months ended July 31, 2005 and July 31, 2004, interest and financing costs decreased to $1.5 million from $1.9 million in 2004. The decreases are due to the decrease in advances from the factor in the current periods as a result of the the availability of capital raised in the secondary offering and the interest income from the temporarily invested funds.

Other Non-Operating Expenses.    During the three months ended July 31, 2004 we recorded income of approximately $18.9 million related to the fair market value of the warrants issued in the February 2004 private placement. In the nine months ended July 31, 2004 we recorded expense of $30.3 million related to the value of the warrants. There were no comparable amounts recorded in the 2005 periods.

Income Taxes.    Federal and state income taxes were provided for at a combined effective rate of 40% in the 2004 periods. As a result of our loss in the current periods, we have recorded a tax benefit of $1.3 million and $736,000 for the three and nine months ended July 31, 2005, respectively net of a full valuation allowance against net deferred tax assets recorded in prior periods.

Net (loss) Income.    For the three and nine month periods ended July 31, 2005 we generated a net loss of ($37.5) million and ($36.7) million, respectfully, compared to net income of $20.5 million and a net loss of ($27.4) in the comprable 2004 periods. For the three months ended July 31, 2004 net income attributable to common shareholders included a non-cash benefit of $18.9 million related to the fair market valuation of the warrants issued in connection with the February 2004 private placement, net of a $469,500 preferred stock dividend requirement, payable in common stock. For the nine months ended July 31, 2005, the net loss attributable to common shareholders included a $1.1 million charge related to warrants exercised at a reduced exercise price. For the nine months ended July 31, 2004 the net loss attributable to common shareholders included charges of $30.4 million related to the fair market valuation of the warrants, $759,000 related to a deemed dividend to preferred stockholders and $809,000 related to a preferred stock dividend.

Liquidity and Capital Resources

Historically, 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 related to our February 2004 private placment and our January 2005 secondary public offering, we received net proceeds of approximately $81 million. These proceeds were used to reduce indebtedness, to satisfy certain settlements in connection with litigation, as well as for general corporate purposes, including working capital.

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Our cash and cash equivalents balance was $10.3 million as of July 31, 2005. Cash used in operations during the first nine months of 2005 was $47.6 million as compared to $16.3 million during the same period in the prior year. The $31.3 million increase in the use of cash in operations in 2005 was due primarily to expenditures for capitalized software development costs and prepaid license fees related to new premium products, media campaigns and promotions to support the launch of our premium game products, and to build our infrastructure. We expect continued volatility in the use and availability of cash due to the seasonality of our business, timing of receivables collections and working capital needs necessary to finance our business and growth objectives.

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.

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 less factor charges of 0.5% of invoiced amounts for these credit and collection services.

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

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 at 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. The interest rate for advances taken is prime plus 1%.

Recently, the factor imposed a limitation on cash advances of $7.5 million with a maximum of $2.0 million for letters of credit. Previously, advances under our factor arrangement, including letters of credit were limited to $30 to $35 million in the aggregate. We are negotiating with the factor to increase the availability, however, there can be no assurance that we will be successful in our negotiations. Management is also in the process of evaluating alternatives to the current factoring arrangement, including issuance of additional equity or debt financing and/or loans from financial institutions. Although, management believes that alternative financing may be available, there can be no assurance that funds will be available on acceptable terms, if at all. In the event that we are unable to negotiate an alternative, or negotiate terms that are acceptable to us, we may be forced to significantly and materially modify our business plan, including making substantial reductions in our expenditures. Management believes that it would be able to modify its business plan accordingly, including the reductions in its expenditures. Management also believes it can operate under a curtailed operating plan if suitable financing is not available.

As of July 31, 2005, assuming continued availability of funding at previous levels by the current factor or alternative sources, management believes that there will be sufficient capital resources from operations and financing arrangements in order to meet our requirements for development, production, marketing, purchases of equipment, and the acquisiton of intellectual property rights for future products for the next twelve months.

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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.    We are committed under agreements with certain developers and content providers for milestone and license fee payments aggregating $11.4 million payable through October 31, 2005 and $20.5 million payable through October 31, 2006.

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

As of July 31, 2005 we had open letters of credit aggregating $378,000 for inventory purchases to be delivered during the subsequent quarter.

As of July 31, 2005 we were committed under operating leases for office space and equipment for approximately $1.5 million through July 2009.

During July and August 2005 four securities class action lawsuits were filed in the United States District Court for the District of New Jersey against the Company and certain of its officers and former officers. The complaints assert claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegations that defendants made false and misleading statements regarding Majesco's financial condition and future prospects. The lawsuits purport to be class actions filed on behalf of purchasers of Majesco common stock during the period from December 8, 2004 through July 12, 2005. The actions seek damages in an unspecified amount. As each of these lawsuits are in their initial stages, the Company has been advised by its legal counsel that there is insufficiient information available to determine the putcome of these mattes and a loss, if any, cannot be reasonbly estimated. However, the Company intends to vigorously defend the actions.

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 $10.3 million as of July 31, 2005 compared to $4.2 million at October 31, 2004. Working capital as of July 31, 2005 was $31.7 million compared to $8.9 million at October 31, 2004.

Operating Cash Flows.    For the nine months ended July 31, 2005, we used cash of $47.6 million in operating activities. The principal uses of cash were to fund the net loss of $36.7 million, increases in capitalized software development cost and prepaid license fees of $36.2 million which was offset by noncash provisions and amortization charges of $24.0 million and other net changes in working capital of $1.3 million.

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

Financing Cash Flows.    Net cash generated from financing activities for the nine month period ended July 31, 2005 was $53.9 million and consisted of (i) net proceeds of $41.9 million from the sale of stock in our secondary public offering; (ii) net proceeds from the exercise of stockholder and placement agent warrants, issued in the February 2004 private placement of $12.1 million; and (iii) net proceeds of $6.5 million from the exercise of warrants at reduced exercise price, partially offset by (iv) repayment of $6.6 million of inventory financing.

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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.

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

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 addition, as of October 31, 2005, we will become subject to the heightened internal control and procedure requirements of Section 404 of the Sarbanes-Oxley Act. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Our management, with the participation of our President and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act as of July 31, 2005. In connection with this intensified review and documentation of our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and management recognized that improvements are necessary in the following areas:

•	Maintaining sufficient personnel with an appropriate level of accounting knowledge, experience and training in the application of generally accepted accounting principles (GAAP) commensurate with our financial reporting requirements.

•	Maintaining adequate segregation of duties in key functions.

•	Maintaining adequate controls over spreadsheets used in our financial reporting process.

•	Adequately documenting certain transactions and manual journal entries.

•	Adhering to a comprehensive closing calendar.

We have taken measures to improve the effectiveness of our internal controls and we believe these efforts are addressing the matters described above. These efforts include segregation of duties in key functions, creating formal accounting controls, policies and procedures, hiring additional management and staff experienced in financial reporting, and finalizing documentation of our accounting and disclosure internal controls and procedures. We also performed additional analysis and other post-closing procedures to ensure our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. Subject to the limitations above, management believes that the consolidated financial statements, and other financial information in this report, fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

Changes in Internal Controls.    No change in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) occurred during the fiscal quarter

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ended July 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings

Since July 15, 2005, four securities class action lawsuits have been filed in the United States District Court for the District of New Jersey against the Company and certain of its officers and former officers. The complaints assert claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegations that defendants made false and misleading statements regarding Majesco's financial condition and future prospects. The lawsuits purport to be class actions filed on behalf of purchasers of Majesco common stock during the period from December 8, 2004 through July 12, 2005. The actions seek damages in an unspecified amount. We intend to vigorously defend the action.

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.

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

At our Annual Meeting of Stockholders, held on June 8, 2005, our stockholders elected the following individuals to the Board of Directors:

				For				Withheld
Carl Yankowski					18,475,982				236,264
Jesse Sutton					18,473,743				238,503
Joseph Sutton					18,474,456				237,790
Morris Sutton					18,367,156				345,090
Laurence Aronson					18,668,290				43,646
F. Peter Cuneo					18,693,506				18,740
James Halpin					18,667,074				45,172
Louis Lipschitz					18,667,074				45,172
Marc Weisman					18,585,706				126,540

In addition, the following matters were voted on and approved by the stockholders:

To amend and restate our 2004 Employee, Director and Consultant Stock Plan (renamed 2004 Employee, Director and Consultant Incentive Plan) to: (a) increase by 4 million the number of shares of common stock reserved for issuance under the Plan; (b) add a share counting formula to the Plan pursuant to which each share issued under awards other than options or stock appreciation rights counts against the number of total shares available under the Plan as 1.3 shares, and each share issued as options or stock appreciation rights counts against the total shares available under the Plan as one share; (c) increase the share limitation on the number of awards that may be granted to any participant in any fiscal year to 1,000,000; (d) add provisions for the grant of cash awards and other types of equity based awards; and (e) delete a provision allowing for the repricing of awards.

For				Against				Abstain				Broker Non-vote
11,159,771					1,911,366				483,025				5,158,084

To restate our Amended and Restated Certificate of Incorporation to better reflect our operating busineess.

For				Against				Abstain				Broker Non-vote
11,890,127					1,264,537				399,498				5,158,084

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To ratify the appointment of Goldstein Golub Kessler LLP as our independent public accountants for fiscal 2005.

For				Against				Abstain				Broker Non-vote
18,118,284					231,591				362,371				—

Item 5.    Other Information

We have recently received verbal indication from Rosenthal & Rosenthal, Inc., our factor, that it is imposing a limitation on our cash advances of $7.5 million with a maximum of $2.0 million for letters of credit. Previously, advances under our factoring arrangement, including letters of credit, were limited to $30 to $35 million in the aggregate. We have not received a defintive amendment to the factoring arrangement or any other defintive documentation reflecting these limitations. This limitation is also discussed in the Notes to the financial statements, as well as the section titled Liquidity and Capital Resources under Item 2 of Part I of this quarterly report.

The foregoing is qualified in its entirety by reference to the Factoring Agreement, dated April 24, 1989, between Majesco Entertainment Company and Rosenthal & Rosenthal, Inc., as amended, which is included as exhibit 10.1 to our Current Report on Form 8-K filed on October 22, 2004, and is incorporated by reference herein.

Item 6.    Exhibits

10.1				Employment Agreement dated July 7, 2005, by and between Majesco Entertainment Company and John Gross.
10.2				Severance Agreement dated, July 8, 2005, by and between Majesco Entertainment and Carl Yankowski.
10.3				Separation Agreement dated, August 2, 2005, by and between Majesco Entertainment and Lester Greeman.
10.4				Revised Director Compensation Policy.
31.1				Certification of Jesse Sutton pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2				Certification of John Gross pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1				Certification of Jesse Sutton pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2				Certification of John Gross pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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 ENTERTAINMENT COMPANY

/s/ Jesse Sutton                        
     Jesse Sutton
     President

Date:

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EX-10.1

JOHN GROSS EMPLOYMENT AGREEMENT

This Agreement is entered into as of June 27, 2005 by and between Majesco Entertainment Company (the "Company"), a Delaware corporation, on the one hand and John Gross ("Executive"), on the other hand.

1.    Duties and Scope of Employment.

(a)    Positions and Duties.    During Executive's Employment (as defined below), Executive will serve as the Company's Executive Vice President, Chief Financial Officer ("EVP"). Executive will report directly to the Company's Chief Executive Officer (the "CEO"). Executive will render such business and professional services in the performance of his duties, consistent with Executive's position as the EVP, as will reasonably be assigned to him by the CEO and/or the Company's President. The period of Executive's employment with the Company under this Agreement will commence on June 21, 2005 (the "Effective Date") and is referred to herein as "Employment".

(b)    Obligations.

(I) During Executive's Employment and except as provided in Section 1(b)(II) below, Executive agrees that he will (i) devote his full business efforts and time to the Company, (ii) devote all of his business time and attention, his best efforts, and apply his skill and ability to promote the interest of the Company; (iii) carry out his duties in a professional and competent manner and faithfully serve the Company and (iv) generally promote the interest of the Company.

(II) The Company may from time to time establish written rules, regulations and policies and Executive shall faithfully observe these in the performance of his duties; provided that any such rules, regulations and policies shall not serve to amend any provisions of this Agreement. For the duration of his Employment, Executive agrees not to actively engage in any other incremental new employment, occupation, or consulting activity for any direct or indirect remuneration without the prior written approval of the CEO (which approval will not be unreasonably withheld); provided, however, that Executive may, without the approval of the CEO, serve in any capacity with any civic, educational, or charitable organization provided such services do not interfere with Executive's obligations to the Company.

2.    At-Will Employment.    Executive and the Company agree that Executive's Employment constitutes "at-will" employment. Executive and the Company acknowledge that this employment relationship may be terminated at any time, upon written notice to the other party, with or without Cause (as defined herein) or with or without Good Reason (as defined herein), at the option either of the Company or Executive. However, as described in this Agreement, Executive may be entitled to severance benefits depending upon the circumstances of Executive's termination of Employment as set forth in Section 6. Upon the termination of Executive's Employment for any reason, subject to the terms of this Agreement, Executive will be entitled to payment of any accrued but unpaid salary, accrued but unused vacation, expense reimbursements, and other benefits due to Executive through his termination date under any Company-provided or paid plans, policies, and arrangements in accordance with and subject to the terms of such plans, policies and arrangements. Executive agrees to resign from all positions that he holds with the Company (or any Company affiliates), immediately following the termination of his Employment for any reason.

Nothwithstanding the foregoing, in the event Executive voluntarily terminates his Employment without Good Reason, he must provide one (1) month prior written notice of termination to the Company. If Executive terminates his Employment pursuant to the preceeding sentence, the Company shall have the right at any time during the one (1)-month notice period to reduce his offices, duties and responsibilities, or to relieve him of such offices, duties and responsibilities and to place him on a paid leave-of-absence status, provided that during such notice period he shall remain a full-time employee of the Company and shall continue to receive his salary and all other compensation and other benefits as provided in this Agreement.

3.    Compensation.

(a)    Base Salary.    As of the Effective Date, the Company will pay Executive an annual salary of $250,000 as compensation for his services (the "Base Salary"). The Base Salary will be paid periodically in accordance with the Company's normal payroll practices (but no less frequently than once per month) and be subject to the usual, required withholding. Executive's salary will be subject to review and any increases will be made based upon the Company's standard practices.

(b)    Annual Bonus.    For the Company's 2005 fiscal year, the Executive shall be eligible for a target performance bonus of 50% of his base salary earned from the Effective Date through October 31, 2005 (the "2005 Bonus"). The actual amount of the 2005 Bonus paid shall be determined by the Company in its sole discretion but shall be at least $62,500. Commencing with the annual period November 1, 2005 through October 31, 2006 (the "Annual Period" and where the Annual Period shall represent the Company's fiscal year) and for each Annual Period (or portion thereof, it being understood that with respect to any partial Annual Period hereunder the Annual Bonus shall be pro-rated based on the number of days in such Annual Period that Executive was an employee of the Company) thereafter during his Employment, Executive will be eligible to receive a discretionary bonus (the "Annual Bonus"). The target Annual Bonus for each Annual Period shall be 50% of Executive's Base Salary (with such Base Salary determined as of the end of the applicable performance period) unless such target bonus percentage is subsequently increased by the Company. Based on the evaluation by the Company in its sole and absolute discretion that the Executive achieved some or all of the goals established by the Company in its sole and absolute discretion (the "Established Goals") for such Annual Period, the Company shall determine in its sole and absolute discretion the amount of the Annual Bonus that will be paid to Executive, provided, however, Executive will be given the opportunity to provide to the CEO his own evaluation of the achievement of such Established Goals. Executive may also provide his own input with respect to what objectives should constitute the Established Goals but the actual determination of the Established Goals shall be decided by the Company in its sole and absolute discretion, Notwithstanding the foregoing, for fiscal year 2006, Executive shall receive a minimum Annual Bonus of at least $62,500. The 2005 Bonus and any subsequent year's Annual Bonus shall be paid to Executive within ninety (90) days after the end of the Annual Period and is subject to Executive being a Company employee and on working status with the Company through the last day of the applicable Annual Period.

(c)    Equity Compensation.

(I) Within fifteen days after the Effective Date, Executive will be granted a non-qualified stock option pursuant to the Company's Amended and Restated 2004 Employee, Director and Consultant Incentive Plan (the "Stock Plan") to purchase 100,000 shares of Company's common stock (the "Time Vested Option"). The Time Vested Option will be granted pursuant to an effective registration statement, under the Securities Act of 1933, that is filed with the Securities and Exchange Commission. The Time Vested Option (i) will have a per-share exercise price equal to the fair market value of a Company common share as determined by the closing trading price of Company common shares on the grant date and (ii) will vest and become exercisable as to 1/36^th of such share grant amount each month commencing as of the Effective Date, subject to Executive's continuous "Service" with the Company. For purposes of this Agreement, "Service" shall mean providing service to the Company (or any Company affiliate) as either a director, employee and/or consultant.

(II) In the event that Executive's Employment is terminated for Cause by the Company the unexercised portion of the Time Vested Option at the time of such termination shall be immediately forfeited and cancelled without consideration.

(III) Except as otherwise provided in this Agreement, the Time Vested Option will be subject to the Company's standard terms and conditions for executive stock option awards and will be issued pursuant to and consistent with the terms of the Stock Plan which includes a provision that options may be exercised in accordance with a cashless exercise program established with a securities brokerage firm. All stock options granted to Executive will have a ten-year maximum term and any vested portions of such options will remain exercisable after

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Executive's Employment terminates as follows, subject to the ten-year term: (i) if Executive's Employment terminates by the Executive with Good Reason or is terminated by the Company without Cause the options will remain exercisable for twelve (12) months, (ii) if Executive's Employment terminates voluntarily by the Executive without Good Reason such options, will remain exercisable for three (3) months, (iii) if Executive's Employment is terminated for Cause by the Company such options, will be forfeited as soon as the Executive is notified that he has been terminated for Cause as set forth in the Stock Plan, and (iv) if Executive's Employment terminates by reason of death or Disability (as defined in the Stock Plan) such vested options will remain exercisable for twelve (12) months.

(d)    Vacation.    During his Employment, Executive shall be eligible for vacation, personal and sick time all in accordance with applicable Company policies.

(e)    Long-Term Incentive Compensation.    During his Employment, Executive shall be eligible for grants under the Company's Long-Term Incentive Compensation Program. Any such grants will vest if established performance objectives for sales, profit, among other things, are met. It is expected that such grants will (i) be in the form of restricted shares and/or stock options, (ii) have an aggregate grant value approximately worth 80% of annual Base Salary and (iii) be first implemented in the Company's fiscal year 2006.

4.    Employee Benefits.    During his Employment, Executive (and his dependents as applicable) will be eligible to participate in accordance with the terms of all Company employee benefit plans (including without limitation health, medical and dental insurance coverage), policies, and arrangements that are applicable to other senior executives of Company, as such plans, policies, and arrangements may exist from time to time and subject to the terms and conditions of such plans, policies and arrangements. The Company agrees to pay the cost of the premiums for $25,000 term life insurance on the life of the Executive during his Employment. The Executive shall have the right to designate the beneficiary of such policy or policies. Should the Executive not be insurable during his Employment, the Company's duty to furnish such insurance shall be suspended until such time as Executive becomes insurable during the Employment period.

5.    Expenses.    During Executive's Employment, the following provisions in this Section 5 shall be applicable:

(a)    Business Expenses.    Company will reimburse Executive for reasonable travel, entertainment, and other business expenses incurred by Executive in the furtherance of the performance of Executive's duties hereunder, in accordance with the Company's expense reimbursement policy as in effect from time to time. The Company will pay an allowance of up to $36,000 each fiscal year (pro-rated for fiscal year 2005) to Executive for costs which are associated with Executive's travel and where such costs are validated by receipts and appropriate documentation.

(b)    Transportation.    Company will pay a monthly allowance of $750 to Executive for costs associated with the Executive's use of his automobile and for related transportation expenses.

6.    Severance.

(a)    Termination Without Cause or Resignation for Good Reason.    If Executive's Employment is terminated by the Company without Cause or by Executive for Good Reason, then, subject to Section 7, Executive (or Executive's heirs or estate in the event of Executive's death after Executive has become entitled to the following payments and benefits) will receive from the Company:

(i) subject to Section 6(a)(vi), continued payment of Executive's then Base Salary for a period of 12 months (the "Continuance Period") payable in accordance with the Company's regular payroll practices;

(ii) a cash lump sum payment, paid at the time the Annual Bonus is generally paid, (but in no event later than 90 days after the end of the Company's fiscal year), equal to the then Target Bonus percentage multiplied by Executive's then Base Salary;

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(iii) for any such termination occurring within 90 days after an Annual Period, but prior to the payment of any Annual Bonus for such Annual Period, an Annual Bonus with respect to such preceding Annual Period (payable within 90 days following the end of such Annual Period), provided that Executive would have otherwise received an Annual Bonus if he had remained employed as of the date of the payment of such Annual Bonus for such Annual Period;

(iv) reimbursement for any applicable premiums Executive pays to continue coverage for Executive and Executive's eligible dependents under the Company's Group Health benefit plans under COBRA for a period of eighteen months, or, if earlier, until Executive is eligible for similar benefits from another employer (all provided Executive validly elects to continue coverage under applicable law);

(v) Executive will be paid any accrued but unpaid salary, accrued but unused vacation, expense reimbursements and other benefits due to Executive through his termination date under any Company-provided or paid plans, policies, and arrangements in accordance with and subject to the terms of such plans, policies and arrangements; and

(vi) if a termination of employment described in this Section 6(a) occurs within 12 months after a Change in Control, then (x) Executive's stock options (or other unvested compensatory equity) shall all be immediately and fully vested and exercisable and (y) the payment specified in Section 6(a)(i) will instead be paid in a single cash lump sum payment to Executive within 10 days after the effective date of the separation agreement and release of claims referenced in Section 7(a).

(b)    Voluntary Termination without Good Reason.    If Executive's Employment terminates voluntarily by Executive without Good Reason, then, subject to the terms of this Agreement (including Section 3 (c)): (i) all further vesting of Executive's outstanding equity awards will terminate immediately; (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately; (iii) Executive will be paid any accrued but unpaid salary, accrued but unused vacation, expense reimbursements and other benefits due to Executive through his termination date under any Company-provided or paid plans, policies, and arrangements in accordance with and subject to the terms of such plans, policies and arrangements; and (iv) Executive will not be eligible for severance benefits under this Agreement or otherwise.

(c)    Termination for Cause.    If Executive's Employment is terminated for Cause by the Company, then, subject to the terms of this Agreement (including Section 3 (c)) (1) all of Executive's vested and unvested outstanding stock options will be forfeited and cancelled without consideration as soon as Executive is notified that he has been terminated for Cause, (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately, (iii) Executive will be paid any accrued but unpaid salary, accrued but unused vacation, expense reimbursements and other benefits due to Executive through his termination date under any Company-provided or paid plans, policies, and arrangements in accordance with and subject to the terms of such plans, policies and arrangements, and (iv) Executive will not be eligible for severance benefits under this Agreement or otherwise.

(d)    Termination due to Death or Disability.    If Executive's Employment terminates by reason of death or Disability (as defined in the Stock Plan), then (1) Executive will be paid any accrued but unpaid salary, accrued but unused vacation, expense reimbursements and other benefits due to Executive through his termination date under any Company-provided or paid plans, policies, and arrangements and will be entitled to receive benefits only in accordance with the Company's then applicable plans, policies, and arrangements, and (ii) subject to Section 3(c), Executive's outstanding equity awards will be governed in accordance with the terms and conditions of this Agreement and the applicable award agreement(s).

(e)    Sole Right to Severance.    This Agreement is intended to represent Executive's sole entitlement to severance payments and benefits in connection with the termination of his

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Employment. To the extent Executive receives severance or similar payments and/or benefits under any other Company plan, program, agreement, policy, practice, or the like (including without limitation any change in control arrangements), severance payments and benefits due to Executive under this Agreement will be correspondingly reduced (and vice-versa).

(f)    Change in Control of Company.    The Company is evaluating the prospective implementation of Change in Control arrangements for certain selected key executives. If, and to the extent that, the Company's Board of Directors (or committee of such Board of Directors) adopts any such Change in Control arrangements, Executive will be a participant in those arrangements.

(g)    Section 280G Excise Tax.    If any payment or benefit Executive would receive (whether or not Executive's employment is or has been terminated), but determined without regard to any additional payment required under this Section 6(g), (collectively, the "Payment") would (x) constitute a "parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and (y) be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties payable with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Executive will be entitled to receive from the Company an additional payment (the "Gross-Up Payment," and any iterative payments pursuant to this paragraph also shall be "Gross-Up Payments") in an amount that shall fund the payment by Executive of any Excise Tax on the Payment, as well as all income and employment taxes on the Gross-Up Payment, any Excise Tax imposed on the Gross-Up Payment and any interest or penalties imposed with respect to income and employment taxes imposed on the Gross-Up Payment. For this purpose, all income taxes will be assumed to apply to Executive at the highest marginal rate. Any Gross-Up Payment shall be paid to Executive, or for his benefit, within 15 days following receipt by the Company of the report of the accounting firm described below.

The accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Change in Control shall perform the foregoing calculations. If the accounting firm so engaged by the Company is also serving as accountant or auditor for the individual, entity or group which will control the Company upon the occurrence of a Change in Control, the Company shall appoint a nationally recognized accounting firm other than the accounting firm engaged by the Company for general audit purposes to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder.

The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and Executive within thirty calendar days after the date on which such accounting firm has been engaged to make such determinations or such other time as requested by the Company or Executive. If the accounting firm determines that no Excise Tax is payable with respect to a Payment, it shall furnish the Company and Executive with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding, and conclusive upon the Company and Executive.

Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment of a Gross-Up Payment. Such notice shall be given as soon as practicable after Executive knows of such claim and shall apprise the Company of the nature of the claim and the date on which the claim is requested to be paid. Executive agrees not to pay the claim until the expiration of the thirty-day period following the date on which Executive notifies the Company, or such shorter period ending on the date the taxes with respect to such claim are due (the "Notice Period"). If the Company notifies the Executive in writing prior to the expiration of the Notice Period that it desires to contest the claim, Executive shall: (i) give the Company any information reasonably requested by the Company relating to the claim; (ii) take action in connection with the claim as the Company may reasonably request, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company and

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reasonably acceptable to Executive; (iii) cooperate with the Company in good faith in contesting the claim; and (iv) permit the Company to participate in any proceedings relating to the claim. Executive shall permit the Company to control all proceedings related to the claim and, at its option, permit the Company to pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim. If requested by the Company, Executive agrees either to pay the tax claimed and sue for a refund or contest the claim in any permissible manner and to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts as the Company shall determine; provided, however, that, if the Company directs Executive to pay such claim and pursue a refund, the Company shall advance the amount of such payment to Executive on an after-tax and interest-free basis (the "Advance"). The Company's control of the contest related to the claim shall be limited to the issues related to the Gross-Up Payment and Executive shall be entitled to settle or contest, as the case may be, any other issues raised by the Internal Revenue Service or other taxing authority. If the Company does not notify Executive in writing prior to the end of the Notice Period of its desire to contest the claim, the Company shall pay to Executive an additional Gross-Up Payment in respect of the excess parachute payments that are the subject of the claim, and Executive agrees to pay the amount of the Excise Tax that is the subject of the claim to the applicable taxing authority in accordance with applicable law.

If, after receipt by Executive of an Advance, Executive becomes entitled to a refund with respect to the claim to which such Advance relates, Executive shall pay the Company the amount of the refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after receipt by Executive of an Advance, a determination is made that Executive shall not be entitled to any refund with respect to the claim and the Company does not promptly notify Executive of its intent to contest the denial of refund, then the amount of the Advance shall not be required to be repaid by Executive and the amount thereof shall offset the amount of the additional Gross-Up Payment then owing to Executive.

7.    Conditions to Receipt of Severance; No Duty to Mitigate.

(a)    Separation Agreement and Release of Claims.    The receipt of any severance pursuant to Section 6 will be subject to Executive signing and not revoking a separation agreement and release of claims in a form acceptable to the Company, which includes a general release in favor of the Company and its affiliates together with their respective officers, directors, stockholders, employees, agents and successors and assigns from any and all claims Executive may have against them including but not limited to, arising from Executive's Employment and/or termination of Employment. The aforementioned general release shall not include a waiver of claims against the stockholders, employees or agents of the Company that do not arise out of or relate to Executive's Employment. In the event Executive breaches the provisions of Section 8 of this Agreement, in addition to any other remedies of law or in equity, the Company may cease making any payments or benefits to which Executive otherwise may be entitled to under Section 6. No severance will be paid or provided until the separation agreement and release agreement becomes effective.

(b)    No Duty to Mitigate.    Executive will not be required to mitigate the amount of any payment contemplated by this Agreement, nor will any earnings that Executive may receive from any other source reduce any such payment.

8.    Confidential and Proprietary Information; Non-Competition; Non-Solicitation.

(a)    Confidentiality.    Except in the performance of Executive's duties hereunder, at no time during Executive's Employment or any time thereafter, shall Executive, individually or jointly with others, for his benefit of the benefit of any third party, publish, disclose, use or authorize anyone else to publish, disclose or use, any secret or confidential and proprietary information relating to any aspect of the business or operations of the Company, including, without limitation, any trade secrets, customer lists and programs, manuals and forms, customer files, financial data, employee-related information, marketing or business plans, suppliers, trade or industrial practices of the Company, and any Company information concerning purchasing, finances, accounting, engineering, methods, processes, compositions, technology, formulas, electronic information processing procedures (including

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computer software), research and development programs, potential client lists, marketing, affiliations, sales and inventions. Executive acknowledges and agrees that such information is a valuable asset of the Company and is the Company's sole and exclusive property. Upon the termination of Executive's employment, regardless of the reason for or circumstances giving rise to such termination or at any other time at the request of the Company, Executive shall immediately return to the Company all of the property of the Company, including all such confidential and proprietary information, in his possession or control and Executive agrees not to retain any copies, duplicates, reproductions or excerpts in whatsoever form of any Company property.

(b)    Non-Competition/Non-Solicitation.

(i) In the course of Executive's employment with the Company, he will acquire and have access to confidential or proprietary information concerning the Company. Furthermore, his position as EVP of the Company places him in a position of confidence and trust with the clients and employees of the Company. Executive also acknowledges that the clients serviced by the Company are located throughout the world and accordingly, it is reasonable that the restrictive covenants set forth below are not limited by specific geographic area but by the location of the Company's clients. He further acknowledges that the rendering of services to the Company's clients necessarily requires the disclosure of confidential information and trade secrets of the Company and its subsidiaries (such as without limitation, marketing plans, budgets, designs, client preferences and policies, and identity of appropriate personnel of clients with sufficient authority to influence a shift in suppliers.) Executive and the Company agree that in the course of Executive's Employment, he will develop a personal acquaintanceship and relationship with the Company's clients, and knowledge of those clients' affairs and requirements which may constitute the Company's primary or only contact with such clients. Executive acknowledges that the Company's relationships with its established clientele may therefore be placed in his hands in confidence and trust. Executive consequently agrees that it is reasonable and necessary for the protection of the goodwill and business of the Company that he makes the covenants contained herein; and accordingly, Executive agrees that while he is in the Company's employ and for a one year period (and in the case of Section 8(b)(i)(b), a two-year period) after the termination of his employment for any reason whatsoever, he shall not directly or indirectly except on behalf of the Company:

a) attempt in any manner to solicit from any client (as hereinafter defined) business of the type performed by the Company or to persuade any client of the Company to cease to do business or to reduce the amount of business which any such client has customarily done or, to the best of Executive's knowledge, that is likely to do with the Company (as of the date of termination of employment), whether or not the relationship between the Company and such client was originally established in whole or in part through his efforts; or

b) employ (including to retain, engage or conduct business with) or attempt to employ or assist anyone else to employ any person who is then or at any time during the preceding year was in the Company's employ; or

c) render any services of the type rendered by the Company to its clients to or for any client of the Company; provided, however, that this Section 8(b)(i)(c) shall not prevent Executive from becoming employed by a client; or

d) perform services that compete with the business or businesses conducted by the Company or any of its affiliates (or which business the Company can at the time of Executive's termination of employment establish it will likely conduct within one (1) year following the date of his termination; provided that Executive participated in the planning or development of any such new business).

As used in this Section 8(b), the term "Company" shall include subsidiaries of the Company and the term "client" shall mean (I) anyone who is a client of the Company at the time of the termination of Executive's employment with the Company or, if Executive's employment shall not have terminated, at the time of the alleged prohibited conduct; (2) anyone who was a client at any time

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during the two year period immediately preceding the termination of Executive's employment with the Company or, if Executive's employment shall not have terminated, during the two year period immediately preceding the date of the alleged prohibited conduct; and (3) any prospective clients to whom the Company had made a presentation (or similar offering of services) within the one year period immediately preceding the termination of Executive's employment with the Company or if Executive's employment shall not have terminated, within the one year period immediately preceding the date of the alleged prohibited conduct.

(c)    Injunctive Relief.    Executive acknowledges that a breach or threatened breach of any of the terms set forth in this Section 8 shall result in an irreparable and continuing harm to the Company for which there shall be no adequate remedy of law. The Company shall, without posting a bond, be entitled to obtain injunctive and other equitable relief, in addition to any other remedies available to the Company.

(d)    Survival of Terms; Representations.    Executive's and Company's obligations under this Section 8 hereof shall remain in full force and effect notwithstanding the termination of Executive's employment. Executive acknowledges that he is sophisticated in business, and that the restrictions and remedies set forth in this Section 8 do not create an undue hardship on him and will not prevent him from earning a livelihood. Executive and the Company agree that the restrictions and remedies contained in this Section 8 are reasonable and necessary to protect the Company's legitimate business interests regardless of the reason for or circumstances giving rise to termination of Executive's employment and that Executive and the Company intend that such restrictions and remedies shall be enforceable to the fullest extent permissible by law. If it shall be found by a court of competent jurisdiction that any such restriction or remedy is unenforceable but would be enforceable if some part thereof were deleted or modified, then such restriction or remedy shall apply with such modification as shall be necessary to make it enforceable to the fullest extent permissible under law.

9.    Intellectual Property.    Executive expressly understands and agrees that any and all improvements, inventions, discoveries, processes, know-how or other intellectual property (including without limitation patents, licenses, copyrights, trade names, trademarks, assumed names and service marks and applications therefor, marketing and advertising campaigns, logos and slogans, designs and software programs) developed, conceived or created by him in the course of his employment with the Company, either individually or in collaboration with others, and whether or not during normal working hours or on the premises of the Company (collectively, "Developments") shall be, as between Executive and the Company, the sole and absolute property of the Company, and he will, whenever requested to do so (either during Executive's Employment or thereafter), execute and assign any and all applications, assignments and/or other instruments and do all things which the Company may deem necessary or appropriate in order to apply for, obtain, maintain, enforce and defend patents, copyrights, trade names or trademarks of the United States or of foreign countries for said Developments, or in order to assign and convey or otherwise make available to the Company the sole and exclusive right, title, and interest in and to said Developments (provided that where Executive is providing assistance to the Company pursuant to this Section 9 after Executive's employment has terminated, the Company shall reimburse Executive for any pre-approved reasonable out of pocket expenses). Executive agrees to make full and prompt disclosure to the Company of all Developments conceived or created by him during his employment with the Company.

10.    Definitions.

(a)    Benefit Plans.    For purposes of this Agreement, "Benefit Plans" means plans, policies, or arrangements that Company sponsors (or participates in) and that immediately prior to Executive's termination of employment provide Executive and Executive's eligible dependents with medical, dental, or vision benefits. Benefit Plans do not include any other type of benefit (including, but not by way of limitation, financial counseling, disability, life insurance, or retirement benefits).

(b)    Cause.    For purposes of this Agreement, "Cause" means (i) Executive's act of dishonesty or fraud in connection with the performance of his responsibilities to the Company with the intention that such act result in Executive's substantial personal enrichment, (ii) Executive's conviction of, or pleas of nolo contendere to, a felony, (iii) Executive's willful failure to follow lawful, reasonable

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instructions of the CEO or President, (iv) Executive's willful misconduct provided such misconduct is injurious to the Company, or (v) Executive's violation or breach of any fiduciary or contractual duty to the Company which results in material damage to the Company or its business; provided that if any of the foregoing events is capable of being cured, the Company will provide written notice to Executive describing the specific nature of such event and Executive will thereafter have 20 days to cure such event. During any cure period, Executive will continue to receive all of the compensation and benefits provided under this Agreement; provided, however, that Executive may not exercise any of his outstanding stock options (or any other unexercised Company equity awards) unless and until he cures the events or items in question to the Company's satisfaction. The date of termination of employment for Cause shall be (x) the 21st day after notice was provided to the Executive if the event(s) in question is/are not cured to the Company's satisfaction or (y) the date that notice was provided to the Executive if the event(s) is/are not capable of being cured including without limitation an occurrence of subsection 10(b)(ii). For purposes of this Section 10(b), no lawful act or failure to act will be considered "willful" unless the act or failure to act was committed/omitted by Executive without a reasonable, good faith belief that it was in the best interests of the Company and/or was inconsistent with prior direction of the CEO or President or Company policy.

(c)    Change in Control.    For purposes of this Agreement, a "Change in Control" means the occurrence of any of the following events:

(i) Ownership. Any "Person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the "Beneficial Owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company's then outstanding voting securities (excluding for this purpose the Company or its Affiliates or any employee benefit plan of the Company) pursuant to a transaction or a series of related transactions which the Company's Board of Directors (the "Board") does not approve; or

(ii) Merger/Sale of Assets. A merger or consolidation of the Company whether or not approved by the Board, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent of such corporation) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity or parent of such corporation outstanding immediately after such merger or consolidation, or the stockholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or

(iii) Change in Board Composition. A change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the Effective Date, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company).

(d)    Good Reason.    For purposes of this Agreement, "Good Reason" means the occurrence of any of the following without Executive's express prior written consent: (i) a material reduction in Executive's position or duties, (ii) a reduction of Executive's Base Salary or target Annual Bonus percentage other than a reduction that also is applied to substantially all of the Company's other senior executives, (iii) a material reduction in the aggregate level of benefits made available to Executive other than a reduction that also is applied to substantially all of the Company's other senior executives, (iv) relocation of Executive's primary place of business for the performance of his duties to the Company to a location that its more than 30 miles from its location as of the Effective Date, unless it is closer to Executive's residence as of the Effective Date or (v) any material breach or material violation of a material provision of this Agreement by the Company (or any successor to the Company); provided that the Executive must provide written notice to the Company of not more than

9

thirty (30) days after the occurrence of the event(s) constituting Good Reason and providing further that if any of the foregoing events is capable of being cured, the Executive will provide notice to Company describing the specific nature of such event and Company will thereafter have 20 days to cure such event.

11.    Indemnification and Insurance.    Executive will be covered under the Company's insurance policies and, subject to applicable law, will be provided indemnification to the maximum extent permitted by the Company's bylaws and Certificate of Incorporation, with such insurance coverage and indemnification to be in accordance with the Company's standard practices for senior executive officers but on terms no less favorable than provided to any other Company senior executive officer.

12.    Confidential Information.    Executive agrees to execute the Company's standard form of employee confidential information agreement (the "Confidential Information Agreement") upon commencement of employment. During his Employment, Executive further agrees to execute any updated versions of the Confidential Information Agreement (any such updated version also referred to as the "Confidential Information Agreement") as may be required of substantially all of the Company's executive officers.

13.    Assignment.    This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors, and legal representatives of Executive upon Executive's death and (b) any successor of the Company. Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes. Any successor will expressly assume in writing all of the Company's obligations under this Agreement. For this purpose, "successor" means any person, firm, corporation, or other business entity which at any time, whether by purchase, merger, or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance, or other disposition of Executive's right to compensation or other benefits will be null and void.

14.    Notices.    All notices, requests, demands, and other communications called for hereunder will be in writing and will be deemed given (a) on the date of delivery if delivered personally, (b) one day after being sent by a well established commercial overnight service, or (c) four days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing:

If to the Company:

Majesco Entertainment Company
P.O. Box 6570
Edison, NJ 08818

Attn:	Chief Executive Officer Majesco Entertainment Company

If to Executive:

John Gross

at the last residential address known by the Company as provided by Executive in writing.

15.    Severability; Obligations.    If any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable, or void, this Agreement will continue in full force and effect without said provision.

16.    Arbitration.

(a) If any dispute arises between the Company and Executive that the parties cannot resolve themselves, including any dispute over the application, validity, construction, or interpretation of this Agreement, arbitration in accordance with the then-applicable National Rules for the Resolution of

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Employment disputes of the American Arbitration Association shall provide the exclusive remedy for resolving any such dispute, regardless of its nature; provided, however, the Company may enforce Executive's obligations under Sections 8 and 12 hereof by an action for injunctive relief and damages in a court of competent jurisdiction.

(b) This Section 16 shall apply to claims arising under state and federal statutes, local ordinances, and the common law. The arbitrator shall apply the same substantive law that a court with jurisdiction over the parties and their dispute would apply under the terms of this Agreement. The arbitrator's remedial authority shall equal the remedial power that a court with jurisdiction over the parties and their dispute would have. If the then-applicable rules of the American Arbitration Association conflict with the procedures of this Section 16, the latter shall apply.

(c) If the parties cannot agree upon an arbitrator, the parties shall select a single arbitrator from a list of seven arbitrators provided by the American Arbitration Association ("AAA"). The names of the seven listed arbitrators shall be derived from the AAA employment law roster. If the parties cannot agree on selecting an arbitrator from that list, then the parties shall alternately strike names from the list, with the first party to strike being determined by lot. After each party has used three strikes, the remaining name on the list shall be the arbitrator.

(d) Each party may be represented by counsel or by another representative of the party's choice and each party shall pay the costs and fees of its counsel or other representative and its own filing and administrative fees provided, however, that Executive will only be responsible to pay those costs and fees which he would have had to pay for had the disputed matter been initiated in court.

(e) The arbitrator shall render an award and opinion in the form typical of those rendered in labor arbitrations, and that award shall be final and binding and non-appealable except as specifically provided by law. To the extent that any part of this Section 16 is found to be legally unenforceable for any reason, that part shall be modified or deleted in such a manner as to render this Section 16 (or the remainder of this Section 16) legally enforceable and as to ensure that except as provided in clause (b) of this Section 16, all conflicts between the Company and Executive shall be resolved by neutral, binding arbitration. The remainder of this Section 16 shall not be affected by any such modification or deletion but shall be construed as severable and independent. If a court finds that the arbitration procedures of this Section 16 are not absolutely binding, then the parties intend any arbitration decision to be fully admissible in evidence, given great weight by any finder of fact, and treated as determinative to the maximum extent permitted by law.

(f) Unless the parties agree otherwise, any arbitration shall take place in the American Arbitration Association's offices in Somerset, New Jersey.

(g) Executive has read and understands this Section 16, which discusses arbitration. Executive understands that by signing this Agreement, Executive agrees to submit any claims arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach or termination thereof, or Executive's employment or the termination thereof, to binding arbitration, and that this arbitration provision constitutes a waiver of Executive's right to a jury trial and relates to the resolution of all disputes relating to all aspects of the employer/employee relationship, including but not limited to the following:

(i) Any and all claims for wrongful discharge of employment, breach of contract, both express and implied; breach of the covenant of good faith and fair dealing, both express and implied; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; and defamation;

(ii) Any and all claims for violation of any federal, state or municipal statute, including, without limitation, Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Equal Pay Act, the Employee Retirement Income Security Act, as amended, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, the Fair Labor Standards Act, the New Jersey Family Leave Act, the New Jersey Conscientious Employee Protection Act and the New Jersey Law Against Discrimination; and

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(iii)   Any and all claims arising out of any other federal, state or local laws or regulations relating to employment or employment discrimination.

(h) Executive (i) understands that other options such as federal and state administrative remedies and judicial remedies exist and (ii) knows that by signing this Agreement those remedies are forever precluded and that regardless of the nature of Executive's complaint, he knows that it can only be resolved by arbitration.

(i) To the extent Executive asserts a claim that would otherwise require filing the claim with a governmental agency, Executive may, but need not, file such claim with the applicable agency (including, without limitation, the Equal Employment Opportunity Commission), and if Executive fails to do so, the Company shall not assert a defense of failure to exhaust administrative remedies.

17.    No Conflict.    Executive represents and warrants that he is not subject to any agreement, instrument, order, judgment or decree of any kind, or any other restrictive agreement of any character, which would prevent him from entering into this Agreement or which would be breached by him upon the performance of his duties pursuant to this Agreement.

18.    Integration.    Except as otherwise provided herein, this Agreement and the Confidential Information Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral. No waiver, alteration, or modification of any of the provisions of this Agreement will be binding unless in a writing that specifically references this Section and is signed by duly authorized representatives of all of the parties hereto.

19.    Waiver of Breach.    The waiver of a breach of any term or provision of this Agreement, which must be in writing signed by all of the parties, will not operate as or be construed to be a waiver of any other previous or subsequent breach of this Agreement.

20.    Survival.    The Confidential Information Agreement, the Company's and Executive's responsibilities under Sections 3, 6, 7, 8, 9, 11, 12, 16 and Section 18 will survive the termination of this Agreement.

21.    Headings.    All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.

22.    Taxes and Withholding.    All payments made pursuant to this Agreement will be subject to withholding of applicable taxes. Executive shall be solely responsible for satisfying his tax liabilities incurred in connection with this Agreement including, without limitation, any payments and all other obligations, whether for taxes, interest, penalties or in any other respect whatsoever that are required as a result of Internal Revenue Code Sections 280G, 409A and/or 4999. If applicable, the Executive and the Company may jointly agree to modify certain payments under this Agreement in order to conform to the requirements of Internal Revenue Code Section 409A.

23.    Governing Law.    This Agreement will be governed by the laws of the State of New Jersey (with the exception of its conflict of laws provisions).

24.    Jurisdiction.    The State of New Jersey shall have exclusive jurisdiction to entertain any legal or equitable action with respect to Sections 8 or 12 of this Agreement except that the Company may institute any such suit against Executive in any jurisdiction in which he may be at the time. In the event suit is instituted in New Jersey, it is agreed that service of summons or other appropriate legal process may be effected upon any party by delivery it has to the last known address.

25.    Acknowledgment.    Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.

26.    Counterparts.    This Agreement may be executed in counterparts, and each counterpart will have the same force and effect as an original and will constitute an effective, binding agreement on the part of each of the undersigned.

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27.    No Strict Construction:    The language used in this Agreement will be deemed to be the language chosen by the Company and Executive to express the parties' mutual intent, and no rule of law or contract interpretation that provides that in the case of ambiguity or uncertainty a provision should be construed against the draftsperson will be applied against any party.

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by a duly authorized officer, as of the day and year written below.

COMPANY:

Majesco Entertainment Company

By: /s/ Jesse Sutton        
Title: President
Date: June 27, 2005

EXECUTIVE:	/s/ John Gross         John Gross

Date: 6/10/05

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EX-10.2

SEVERANCE AGREEMENT

This Agreement is between Carl Yankowski ("Employee") and Majesco Entertainment Company (formerly named Majesco Holdings, Inc.), a Delaware corporation, (the "Company"), hereinafter collectively known as "parties."

WHEREAS, Employee was employed by Company as Chairman and Chief Executive Officer and served as a Director of the Company, pursuant to the Employment Agreement dated as of August 24, 2004 (the "Employment Agreement");

WHEREAS, Employee has resigned, by mutual agreement of the parties, as an officer, employee and director of the Company and all its subsidiaries and affiliates, effective July 8, 2005;

WHEREAS, the parties desire to settle fully and finally, in the manner set forth herein, all matters, contractual or otherwise, between them which have arisen, or which may arise, prior to, or at the time of, the execution of this Agreement, including, but in no way limited to, any and all claims and other matters arising out of the relationship between Employee and the Company pursuant to the Employment Agreement, and the termination of such relationship and agreement;

In consideration of these recitals and the promises and agreements set forth in this Agreement, the parties agree as follows:

1.    General Release:    Employee, individually and on behalf of his heirs, assigns, successors, executors, and administrators (collectively, "Employee Releasees") IRREVOCABLY AND UNCONDITIONALLY RELEASES, ACQUITS AND FOREVER DISCHARGES the Company and its current and former affiliated, including or related corporations, firms, associations, partnerships, and entities, their successors and assigns, shareholders who are directors, officers or employees of the Company, directors, officers, employees, agents, attorneys, representatives, and insurers of said corporations, firms, associations, partnerships, and entities, and their guardians, successors, assigns, heirs, executors, and administrators (hereinafter "Company Releasees") from any and all claims, liabilities, obligations, agreements, damages, causes of action, costs, losses, damages, and attorneys' fees and expenses whatsoever, whether known or unknown or whether or not arising out of or connected with Employee's employment by Company or the Employment Agreement, or any stock options or other agreements with regard to equity in the Company, whether vested or unvested, and including, but not limited to, the right to benefits under the Employment Agreement, any dispute, claim, charge, or cause of action arising under the Age Discrimination in Employment Act, 29 U.S.C. § 621, et seq., Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e, et seq., Employment and Housing Act, Cal. Gov't Code § 12940, the Americans with Disabilities Act of 1990, 42 U.S.C. 12101, et seq., the Employee Retirement Income Security Act of 1974, as amended 29 U.S.C. § 1001, et seq., and any other municipal, local, state, or federal law, common or statutory, which may have arisen, or which may arise, prior to, or at the time of, the Employee's execution of this Agreement. Notwithstanding the preceding sentence, this release does not apply to the Employee's rights under this Agreement or to COBRA continuation benefits for the remainder of his COBRA continuation period to the extent he pays or has paid the applicable premium therefor. Employee further promises never to contact or seek any damages, remedies, or other relief (any right to which he hereby waives) by filing or prosecuting a charge or pursuing any other action with any governmental entity or administrative agency with respect to any claim purportedly released by this Agreement or any other matter arising out of the relationship between the parties.

The Company Releasees IRREVOCABLY AND UNCONDITIONALLY RELEASE, ACQUIT AND FOREVER DISCHARGE the Employee Releasees from any and all claims, liabilities, obligations, agreements, damages, causes of action, costs, losses, damages and attorneys' fees and expenses whatsoever, whether known or unknown or whether or not arising out of or connected with Employee's employment by Company or the Employment Agreement, including, but not limited to, any municipal, local, state, or federal law, common or statutory, which may have arisen, or which may arise, prior to, or at the time of, the Company's execution of this Agreement. Notwithstanding the preceding sentence, this release does not apply to the Company^'s rights under this Agreement. The Company Releasees further promise never to contact or seek any damages, remedies, or other relief

1

(any right to which they hereby waive) by filing or prosecuting a charge or pursuing any other action with any governmental entity or administrative agency with respect to any claim purportedly released by this Agreement or any other matter arising out of the relationship between the parties.

Employee and the Company understand and agree that this is a full and final settlement applying not only to all claims that are presently known, anticipated or disclosed to Employee or the Company, but also to all claims presently unknown, unanticipated, and undisclosed to Employee or the Company. Employee and the Company hereby waive any and all rights or benefits which either party may now have, or may in the future have, against the other party, under any state or federal statute or common law principle of similar effect.

2.    Covenant Not to Sue:    Employee and the Company (and all of its subsidiaries, affiliates, directors and officers) COVENANT NOT TO SUE, OR OTHERWISE PARTICIPATE IN ANY ACTION OR CLASS ACTION against, any of the Company Releasees or the Employee Releasees, based on any of the claims released in paragraph 1 of this Agreement.

3.    Waiver of Reemployment:    Employee waives and releases forever any right or rights he might have to seek or obtain employment, reemployment, or reinstatement with the Company.

4.    Non-disparagement:    Employee expressly acknowledges, agrees, and covenants that he will not make any public or private statements, comments, or communication in any form, oral, written, or electronic, which in any way could constitute libel, slander, or disparagement of the Company, its employees, officers, and/or directors, or which may be considered to be derogatory or detrimental to the good name or business reputation of the Company; provided, however, that the terms of this paragraph shall not apply to communications between Employee and his spouse, clergy, or attorneys, which are subject to a claim of privilege existing under common law, statute, or rule of procedure, nor shall it apply to truthful statements made by him in response to a subpoena or during the course of any investigation by any law enforcement authority. Company (and the Company's subsidiaries and affiliates) expressly acknowledges, agrees, and covenants that it will not make (and the Company will instruct its current and future officers and/or current and future directors to not make) any public or private statements, comments, or communication in any form, oral, written, or electronic, which in any way could constitute libel, slander, or disparagement of Employee, or which may be considered to be derogatory or detrimental to the good name or business reputation of Employee; provided, however, that the terms of this paragraph shall not apply to truthful statements made by the Company or any of its officers or directors in response to a subpoena or during the course of any investigation by any law enforcement authority or as required by any applicable federal or state securities laws or as required by any applicable regulatory body or agency.

5.    Settlement Terms:    Upon the execution of this Agreement by Employee, the Company shall deposit $223,312 ($375,000, minus applicable tax or other withholding), ("Payment1") in an escrow account managed by a mutually agreed-upon third party. Upon the expiration of seven days after Employee's execution of this Agreement, and conditioned that this Agreement has not been revoked by Employee prior thereto (any such revocation must be by written notice actually delivered to the Company prior to such time and such revocation would invalidate this entire Agreement and all of its provisions (the "Cancellation of Agreement")), Payment1 shall be fully released from the escrow account to Employee on the eighth day after Employee's execution of this Agreement. As of the day after his execution of the Agreement, the escrow trustee shall notify Employee that Payment1 is in such escrow account. In addition, the Company will pay the Employee on the date of Employee's execution of this Agreement an amount equal to the sum of: Employee's accrued base salary, accrued and unused vacation, accrued and unpaid expense reimbursement, and any other unpaid payments (other then any bonus) or benefits due to Employee under the Employment Agreement, in all cases as accrued through July 8, 2005, minus applicable tax or withholding, ("Payment2"), which aggregate amount is $30,251 before applicable withholding and $18,175.09 after such withholding. If Payment1 and Payment2 are not tendered to Employee within three business days after the due dates specified herein then it will be a material breach of this Agreement by Company and Employee may elect to treat such breach as a Cancellation of Agreement or he may elect to pursue other legal remedies. The Company will also continue its current practice of paying the monthly premiums for Employee's (and

2

his dependents) Blue Cross medical insurance for the 12 months ending June 30, 2006. Employee will be permitted to retain his Company personal computer equipment which is of de minimis value, provided however that the Employee shall deliver to the Company such computer's hard disk (drive) within five days of the date of execution of this Agreement and the Company shall deliver to Employee an identical replacement hard disk (drive) within five days of its receipt. The Company shall also deliver, at Company expense, all of Employee's personal effects to Employee's residence in Massachusetts within seven days of the Employee's execution of this Agreement. None of the payments or benefits due Employee under this Agreement will be subject to mitigation or offset. Neither the Employee nor the Company believe that any payments under this Agreement are subject to the excise taxes imposed by Internal Revenue Code Section 409A and the parties will take tax positions consistent with this view.

6.    Acknowledgement:    Employee hereby acknowledges and agrees that he has resigned as an officer and director of the Company and all of its affiliates and subsidiaries effective as of July 8, 2005 and that all stock options and other rights, if any, to purchase equity in the Company have been terminated. The Company hereby agrees (i) to continue to include Employee as a named insured under the Company's existing Directors & Officers insurance policy ("D&O Policy") through the end of the current policy period (which ends in December 2005); (ii) to continue to comply with its existing obligations to indemnify Employee for his entire period of service as an officer and/or director of the Company; (iii) to specify in any applicable Company Form 8-K filing with the Securities and Exchange Commission, any other applicable public filing, press release and/or other public disclosure or communication by the Company that Employee's resignation of employment was by mutual agreement of the parties; and (iv) that the Company will adhere to its internal policy of limiting any Company response to inquiries from (and Company communications to) third parties about the circumstances of Employee's employment and resignation to statements that Employee served as Chairman and Chief Executive Officer from August 24, 2004 through July 8, 2005 until his resignation by mutual agreement and that it is Company policy to only provide this information. The Company further represents and warrants that no change in control of the Company has occurred or is currently being discussed or contemplated by the Board of Directors of the Company, or has been initiated by any member of the Board of Directors,

7.    Severability:    If any provision of this Agreement is held to be illegal, invalid, or unenforceable, such provision shall be fully severable and/or construed in remaining part to the full extent allowed by law, with the remaining provisions of this Agreement continuing in full force and effect.

8.    Entire Agreement:    This Agreement constitutes the entire agreement between the parties, and supersedes all prior and contemporaneous negotiations and agreements, oral or written. This Agreement cannot be changed or terminated except pursuant to a written agreement executed by the parties.

9.    Governing Law:    This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, except where preempted by federal law.

10.    Statement of Understanding:    By executing this Agreement, Employee acknowledges that (a) he has had at least 21 days to consider the terms of this Agreement and has considered its terms for that period of time or has knowingly and voluntarily waived his right to do so; (b) he has been advised by Company to consult with an attorney regarding the terms of this Agreement; (c) he has consulted with, or has had sufficient opportunity to consult with, an attorney of his own choosing regarding the terms of this Agreement; (d) he has read this Agreement and fully understand its terms and their import; (e) except as provided by this Agreement, he now has no other contractual right or claim to the benefits described herein; and (f) the consideration provided for herein is good and valuable. The parties also understand that each is entering into this Agreement voluntarily, of their own free will, and without any coercion, undue influence, threat, or intimidation of any kind or type whatsoever.

3

EXECUTED as of this 11th day of July 2005.

/s/ Carl Yankowski                                    
Carl Yankowski

MAJESCO ENTERTAINMENT COMPANY

	By:	/s/ Jesse Sutton                                         Jesse Sutton

4

EX-10.3

August 8, 2005

Lester Greenman
210 Riverside Drive #11A
New York, NY 10025

Dear Lester:

The purpose of this letter agreement (the "Agreement") is to set forth the terms of your separation from Majesco Entertainment Company (the "Company"). Payment of the Separation Pay described below is contingent on your agreement to and compliance with the terms of this Agreement. Neither this offer to you nor the Company's entering into this Agreement shall constitute an admission by the Company or you and this letter shall be construed as an offer of compromise.

1.    Separation of Employment.    Your employment with the Company will terminate as of July 19, 2005 (the "Separation Date"). You acknowledge that from and after the Separation Date, you shall have no authority to, and shall not, represent yourself as an employee of the Company.

2.    Separation Pay.

As provided for in the agreement between you and the Company dated February 2, 2005, and in exchange for the mutual promises set forth in this Agreement, and if you do not revoke this Agreement as you are entitled to do as set forth below, the Company shall pay you, after the Separation Date, severance of one year's pay of $200,000.00 less all applicable federal, state, local and other employment-related deductions ("Separation Pay"). This payment will be made to you in bi weekly installments on Majesco's regular pay days thru the date of July 15, 2006.

By law, and regardless of whether you sign this Agreement, you will have the right to continue your medical insurance pursuant to the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). You will receive your COBRA notice under separate cover. Further, pursuant to the provisions of your employment agreement, dated February 2, 2005 (the "Employment Agreement"), the Company shall pay for any applicable premiums you are required to pay to continue coverage for you and your dependents under the Company's group health benefit plans under COBRA for a period of eighteen months, or, if earlier, until you are eligible for similar benefits from another employer. In addition, the Company will (i) promptly reimburse you on demand for any reasonable business-related expenses incurred by you prior to or on the Separation Date, (ii) within 10 days of the Effective Date pay you the additional amount of $5,385.80 in payment of accrued but unused vacation pay, less all applicable federal, state, local and other employment-related deductions and (iii) within 10 days of the Effective Date pay you all other accrued and unpaid base salary since the date you were last paid an installment thereof through the Separation Date.

You acknowledge and agree that the Separation Pay is not otherwise due or owing to you under any Company policy or practice. You also agree that the Separation Pay to be provided to you is not intended to and does not constitute a severance plan and does not confer a benefit on anyone other than the parties. You further acknowledge that, except for the specific financial consideration set forth in this Agreement, you are not now and shall not in the future be entitled to any compensation from the Company including, without limitation, other wages, commissions, bonuses, vacation pay, holiday pay, paid time off or any other form of compensation or benefit.

3.    Equity.    As outlined in the Company's 2004 Employee, Director and Consultant Stock Plan you will have twelve months from the Separation Date to exercise any options to purchase the Company's stock that you have been awarded, [23,809] of which are vested on the Separation Date and provided that the vesting of any unvested options shall cease as of the Separation Date; and provided further that after such twelve month period any unexercised options shall terminate. At such time as the Company shall establish a cashless exercise program with a securities brokerage firm, you shall be entitled to exercise such options on a cashless basis in accordance with such program. Other than as imposed by the securities laws, you shall be free from any sale restrictions on the underlying shares of Company stock.

4.    Confidentiality.     You expressly acknowledge and agree to the following:

(i)   that you promptly will return to the Company all Company documents (and any copies thereof) and property, and that you shall abide by the provisions of any confidentiality agreements previously signed by you, the terms of which shall survive the signing of this Agreement. Further, you agree that you will abide by any and all common law and/or statutory obligations relating to protection and non-disclosure of the Company's trade secrets and/or confidential and proprietary documents and information;

(ii)   that all information relating in any way to the negotiation of this Agreement, including the terms and amount of financial consideration provided for in this Agreement, shall be held confidential by you and shall not be publicized or disclosed to any person (other than an immediate family member, legal counsel or financial advisor, provided that any such individual to whom disclosure is made agrees to be bound by these confidentiality obligations), business entity or government agency (except as mandated by state or federal law), except that nothing in this paragraph shall prohibit you from participating in an investigation with a state or federal agency if requested by the agency to do so, from testifying under oath pursuant to judicial process, or from disclosing information that has previously been publicly disclosed by the Company or otherwise becomes publicly known other than through a breach by you of this Agreement;

(iii)   that you will not make any statements that are professionally or personally disparaging about, or adverse to, the interests of the Company (including its officers, directors, employees and consultants) including, but not limited to, any statements that disparage any person, product, service, finances, financial condition, capability or any other aspect of the business of the Company, and that you will not engage in any conduct which could reasonably be expected to harm professionally or personally the reputation of the Company (including its officers, directors, employees and consultants); provided that the following shall not be deemed to be in violation of this Section: (x) testimony under oath if required by judicial process; and (y) statements made to current employees or counsel of the Company and its affiliates in the context of bona fide discussions where your personal knowledge is sought; and

(iv)   that a breach of this Section shall constitute a material breach of this Agreement and, shall entitle the Company to recover damages which, without limitation, may be offset against amounts payable under this Agreement.

5.    Your Release of Claims.    You hereby agree and acknowledge that by signing this Agreement and accepting the Separation Pay, and for other good and valuable consideration, you are waiving

2

your right to assert any and all forms of legal claims against the Company¹ of any kind whatsoever, whether known or unknown, arising from the beginning of time through the date you execute this Agreement (the "Execution Date"). Except as set forth below, your waiver and release herein is intended to bar any form of legal claim, charge, complaint or any other form of action (jointly referred to as "Claims") against the Company seeking any form of relief including, without limitation, equitable relief (whether declaratory, injunctive or otherwise), the recovery of any damages, or any other form of monetary recovery whatsoever (including, without limitation, back pay, front pay, compensatory damages, emotional distress damages, punitive damages, attorneys fees and any other costs) against the Company, for any alleged action, inaction or circumstance existing or arising through the Execution Date.

Without limiting the foregoing general waiver and release, you specifically waive and release the Company from any Claim arising from or related to your prior employment relationship with the Company or the termination thereof, including, without limitation:

**

Claims under any state or federal discrimination, fair employment practices or other employment related statute, regulation or executive order (as they may have been amended through the Execution Date) prohibiting discrimination or harassment based upon any protected status including, without limitation, race, national origin, age, gender, marital status, disability, veteran status or sexual orientation. Without limitation, specifically included in this paragraph are any Claims arising under the Federal Age Discrimination in Employment Act, the Civil Rights Acts of 1866 and 1871, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Equal Pay Act, the Americans With Disabilities Act and any similar Connecticut or other state statute.

**

Claims under any other state or federal employment related statute, regulation or executive order (as they may have been amended through the Execution Date) relating to wages, hours or any other terms and conditions of employment. Without limitation, specifically included in this paragraph are any Claims arising under the Fair Labor Standards Act, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act of 1974, the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and any similar state statute.

**

Claims under any state or federal common law theory including, without limitation, wrongful discharge, breach of express or implied contract, promissory estoppel, unjust enrichment, breach of a covenant of good faith and fair dealing, violation of public policy, defamation, interference with contractual relations, intentional or negligent infliction of emotional distress, invasion of privacy, misrepresentation, deceit, fraud or negligence.

**	Any other Claim arising under state or federal law.

Notwithstanding the foregoing, this section does not release the Company from any obligation expressly set forth in this Agreement. You acknowledge and agree that, but for providing this waiver and release, you would not be receiving the economic benefits being provided to you under the terms of this Agreement.

The Company hereby releases you from your obligations under the Employment Agreement.

It is the Company's desire and intent to make certain that you fully understand the provisions and effects of this Agreement. To that end, you have been encouraged and given the opportunity to consult with legal counsel for the purpose of reviewing the terms of this Agreement. Also, because you are over the age of 40, and consistent with the provisions of the Age Discrimination in Employment Act ("ADEA"), which prohibits discrimination on the basis of age, the Company is providing you with twenty-one (21) days in which to consider and accept the terms of this Agreement

1	For purposes of this Agreement, the Company includes the Company and any of its divisions, affiliates (which means all persons and entities directly or indirectly controlling, controlled by or under common control with the Company), subsidiaries and all other related entities, and its and their directors, officers, employees, trustees, agents, successors and assigns.

3

by signing below and returning it to Adam Sultan at the Company. In addition, you may rescind your assent to this Agreement if, within seven (7) days after you sign this Agreement, you deliver by hand or send by mail (certified, return receipt and postmarked within such 7 day period) a notice of rescission to Adam Sultan at the Company. The eighth day following your signing of this Agreement is the Effective Date.

Also, consistent with the provisions of the Federal Discrimination Laws, nothing in this release shall be deemed to prohibit you from challenging the validity of this release under the federal age or other discrimination laws (the "Federal Discrimination Laws") or from filing a charge or complaint of employment-related discrimination with the Equal Employment Opportunity Commission ("EEOC"), or from participating in any investigation or proceeding conducted by the EEOC. Further, nothing in this release or Agreement shall be deemed to limit the Company's right to seek immediate dismissal of such charge or complaint on the basis that your signing of this Agreement constitutes a full release of any individual rights under the Federal Discrimination Laws, or to seek restitution to the extent permitted by law of the economic benefits provided to you under this Agreement in the event that you successfully challenge the validity of this release and prevail in any claim under the Federal Discrimination Laws.

6.    Non Disparagement.    The Company, by its directors and senior management, will not make any statements that are professionally or personally disparaging about, or adverse to you including, but not limited to, any statements that disparage you or your capabilities or any other aspect of your relationship with the Company which could reasonably be expected to harm professionally or personally your reputation.

7.    Entire Agreement/Modification/Waiver/Choice of Law/Enforceability.    You acknowledge and agree that, except as set forth herein, this Agreement supersedes any and all prior or contemporaneous oral and/or written agreements between you and the Company, and sets forth the entire agreement between you and the Company. No variations or modifications hereof shall be deemed valid unless reduced to writing and signed by the parties hereto. This Agreement shall be deemed to have been made in the State of New Jersey and shall be construed in accordance with the laws of New Jersey without giving effect to conflict of law principles. Both parties hereby waive and renounce in advance any right to a trial by jury in connection with such legal action. The provisions of this Agreement are severable, and if for any reason any part hereof shall be found to be unenforceable, the remaining provisions shall be enforced in full.

By executing this Agreement, you are acknowledging that you have been afforded sufficient time to understand the terms and effects of this Agreement, that your agreements and obligations hereunder are made voluntarily, knowingly and without duress, and that neither the Company nor its agents or representatives have made any representations inconsistent with the provisions of this Agreement. The parties agree that the last act necessary to render this Agreement effective is for the Company to sign the Agreement, and that the Agreement may be signed on one or more copies, each of which when signed will be deemed to be an original, and all of which together will constitute one and the same Agreement.

If the foregoing correctly sets forth our understanding, please sign, date and return the enclosed copy of this Agreement to Adam Sultan at the Company.

Sincerely,
Majesco Entertainment Company

By:   /s/ Jesse Sutton
Its:   President

Dated:         August 12, 2005        

Confirmed, Agreed and Acknowledged:

        /s/ Lester Greenman            

Dated:         August 11, 2005        

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EX-10.4

DIRECTOR COMPENSATION ARRANGEMENTS

Majesco Entertainment Company's director compensation arrangements are as
follows:

The Chair of the Audit Committee will receive an annual retainer of $50,000 (in
lieu of other amounts paid to non-employee directors).

Each other non-employee director will receive an annual retainer of $40,000.

In addition to the annual cash retainer, non-employee directors shall receive
annual equity grants valued at the following amounts:

    Independent Chairman/Lead Director: $140,000 (commencing August 1, 2006)
    Audit Committee Chair: $60,000
    Compensation Committee Chair: $60,000
    Nominating and Governance Committee Chair: $50,000
    Other non-employees directors: $40,000

The equity grants shall be made pursuant to the 2004 Employee, Director and
Consultant Stock Plan (the "Plan") and shall be a mix of 2/3 restricted stock
and 1/3 options to purchase common stock. The restricted stock shall be awarded
quarterly with the number of shares determined by dividing the applicable dollar
amount by the fair market value (as determined under the Plan) of the Company's
common stock as of the quarterly grant date. The stock options will be awarded
annually with the number of shares determined by using the black scholes
formula. The stock options shall have an exercise price equal to fair market
value as determined under the Plan. The shares of restricted stock shall vest
and become exercisable six months following the grant date. The stock options
shall vest and become exercisable over two years, with half vesting on each of
the first and second anniversaries of the grant date.

Notwithstanding the foregoing, for 2005, the Independent Chairman and Lead
Director shall receive an annual equity grant valued at $200,000, comprised
solely of stock options, and in lieu of any other equity award due the
Independent Chairman and Lead Director under the policy for 2005.

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Jesse Sutton, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ending July 31, 2005, of Majesco Entertainment Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function);

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:

By: /s/   Jesse Sutton
       Name: Jesse Sutton
       Title: President
       (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, John Gross, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ending July 31, 2005, of Majesco Entertainment Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function);

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:

By: /s/   John Gross
       Name: John Gross
       Title: Chief Financial Officer
       (Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF THE PRESIDENT OF MAJESCO ENTERTAINMENT COMPANY PURSUANT
TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO 906 OF
THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Majesco Entertainment Company (the "Company") on Form 10-Q for the period ending July 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jesse Sutton, President of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

By:    /s/ Jesse Sutton                            
         Name: Jesse Sutton
         Title: President
         (Principal Executive Officer)

Date:   September 14, 2005

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF THE CFO OF MAJESCO ENTERTAINMENT COMPANY PURSUANT
TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Majesco Entertainment Company (the "Company") on Form 10-Q for the period ending July 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John Gross, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

By:    /s/   John Gross
         Name: John Gross
         Title: Chief Financial Officer

Date:    September 14, 2005