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No Magic at Majesco

The video-game publisher disappoints big time in its third quarter.

Updated from 5:24 p.m. EDT

Investors knew that



earnings report would be bad. Just not this bad.

The video-game publisher and video distributor posted a much-wider-than- expected quarterly loss Monday on weak sales, and it forecast poor results in its current quarter.

Further, the company warned that a cash crunch could hurt future operating prospects.

"The lower-than-expected sales of some of our key products combined with the effects of the upcoming console transition and overall industry softness have made this a very challenging year," Majesco President Jesse Sutton said in a statement.

"As a result of our disappointing results, we are re-evaluating our business model," he said.

Investors reacted by re-evaluating their portfolios. In recent after-hours exchanges, shares of Majesco were off 79 cents, or 32%, to $1.65.

In its third quarter, which ended July 31, Majesco lost a whopping $37.5 million, or $1.69 a share, on just $4.6 million in sales. That was well off the company's results in the same period last year, when it earned $21.1 million, or $1.06 a share, on $34 million in sales.

And it was far below both analysts' expectations and the company's own reduced guidance.

On average, analysts polled by Thomson First Call were expecting the company to lose 65 cents a share on sales of $7.8 million.

Warning that its third-quarter results were going to be worse than previously expected, Majesco predicted in July that it would post an operating loss of $19 million to $22 million (its operating loss turned out to be $38.6 million) on sales ranging from $5 million to $10 million.

And the company predicted that things wouldn't get better anytime soon. The company now expects to post a full-year operating loss this year of $40 million to $45 million on sales ranging from $60 million to $65 million.

Assuming that the company's share count and interest expense remain about the same in the fourth quarter, that would imply a net loss of roughly $2 to $2.14 a share.

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When it updated its guidance in July, Majesco predicted a full-year operating loss of just $16 million to $19 million on sales of $120 million to $125 million. Meanwhile, analysts had predicted a full-year loss of 68 cents a share on sales of $117.8 million.

Part of that reduced guidance has to do with the poor third-quarter results; another is the company's warning that it's delaying the release of its widely expected title,

Jaws Unleashed

, from the fourth quarter until the first quarter of next year, as well as some video titles for


Game Boy Advance.

Although the company did not spell out its fourth-quarter guidance, its full-year outlook implies that the company expects an operating loss of $4.2 million to $9.2 million in the quarter on sales ranging from $4.9 million to $9.9 million.

Again, assuming that share counts and interest expenses remain about the same, that works out to be a loss of roughly 20 cents to 44 cents a share.

Wall Street had predicted that Majesco would lose 6 cents a share in the current quarter on sales of $59.1 million.

Majesco held just $10.3 million in cash at the end of the quarter. Additionally, creditors are starting to limit its credit line, the company said. The cash advance available from one line of credit, which previously was as high as $35 million, is now just $7.5 million, the company said.

"Although management believes it will be successful in either increasing the availability from

this creditor or obtaining alternative financing, there can be no assurance that it will be successful in these efforts, or at terms acceptable to the company," Majesco said in the statement.

"Failure to obtain such financing or obtaining it with unfavorable terms could have an adverse effect on future operating prospects and continued growth," it continued.

Analysts and investors

warned as recently as last month that Majesco was running the risk of going out of business. In the wake of its July warning, the company's CEO resigned, it replaced its CFO and its chief legal officer has since left.

Shares of Majesco closed regular trading unchanged at $2.44.