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Majesco Cutting Staff, Publishing and Cancels Titles

by Rainier on Jan. 19, 2006 @ 12:23 a.m. PST

2005 has not been a very good year for Majesco, after it earlier sold off Ghost Rider and The Darkness, its year-end results revealed all is not well. Across the board revenue, sales and income are all turning a loss, compared to profits last year. As a result Majesco announced it cut 20% of its workforce and is abandoning major publishing in favor of value and handheld video games. In its subsequent conference call it was also revealed that high profile titles such as Terminal Reality's Demonik and Taxi Driver, based on Martin Scorsese's cult film, have been cancelled.

The Company reported net revenue of $4.6 million for the 2005 fourth fiscal quarter compared to $45.3 million reported for the same period in 2004 and $59.7 million for the 2005 fiscal year as compared to $121.0 million in fiscal 2004. The operating loss was $34.4 million for the 2005 quarter versus an operating income of $5.6 million for the same period one year ago. For the year, the Company reported an operating loss of $70.2 million versus an operating income of $12.1 million in fiscal 2004. Net loss for the 2005 quarter was $34.2 million, or $1.54 loss per share based on 22,242,118 million shares outstanding, compared to net income of $16.2 million, or $0.74 per share based on 18,321,150 million shares outstanding, for the same period last year. Net loss for the year was $70.9 million, or $3.48 per share based on 20,686,863 million shares outstanding, compared to a net loss of $11.2 million, or $1.84 per share based on 8,385,657 million shares outstanding last year.

Due to general weakness in the sector experienced both in its fourth quarter and the subsequent holiday selling season, especially in its premium titles, coupled with the rising costs of developing and marketing Next Generation games, the Company revised its product strategy, and decided to sell-off its rights to development or to cancel many of its premium console titles still in development. In addition, the Company evaluated its game line-up for 2006 and beyond to determine the capitalized costs that were not fully recoverable. Accordingly, included in the operating loss are provisions for impairment of capitalized software costs and prepaid license fees of $20.2 million for the 2005 fourth quarter and $26.3 million for the year, relating to the sale, cancellation, or anticipated non-recoverable costs of such games. Also included in the operating loss for the quarter are provisions for slow moving inventory and additional price protection and other allowances of $5.0 million.

Jesse Sutton, President of Majesco Entertainment commented, "This has been a difficult year for Majesco. We entered the premium console market with high expectation for success, but as a result of a variety of factors we were not able to meet our expectations. Recently, we evaluated our product portfolio and have sold or cancelled most of our premium console titles that were scheduled for release in 2006 and beyond. The increased operating loss we reported today is largely a result of the non-cash charges that we recognized in the fourth quarter relating to these events."

Due to challenging market conditions, rising development and marketing costs for current and Next Generation console titles, and the disappointing results for the titles the Company published in the last year, Majesco is repositioning itself and shifting its product strategy away from the premium console game market. Going forward, Majesco will focus primarily on publishing value and handheld video games.

Said Jesse Sutton, "Publishing value priced software and games for handheld systems has historically been one of our strengths. We believe that this strategy is more prudent for Majesco at this time and offers us the most opportunity for success as it requires a relatively low investment in development and marketing."

To appropriately align its resources with its revised strategy and financial expectations the Company completed a recent restructuring, principally a 20% reduction in headcount. The full effect of the cost reductions is expected to be realized in the second quarter ending April 30, 2006. In addition, the Company's sale of two titles, subsequent to the close of fiscal 2005, raised $8.0 million and together with the cancellation of titles, reduced its 2006 required cash outlay by roughly $30.0 million.

While management is not providing specific guidance at this time, it believes that net revenues can approximate the level of net revenues reported for fiscal 2005 with a significant reduction in its operating loss.

Sutton concluded, "We have been in business for almost twenty years and have endured many cycles in this business. With a leaner organization, significantly reduced expenses and a new strategy of focusing on lower- investment, value and handheld products, we believe we have a plan that will enable us to enable us to operate our core business and give us greater flexibility to be opportunistic with regard to new products and technologies."

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