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Majesco shares enter dangerous territory

Majesco shares enter dangerous territory Exclusive

December 6, 2012 | By Chris Morris

For the second time this year, a video game publisher is in danger of having its stock delisted.

Following THQ's rocky start to the year, Zumba Fitness publisher Majesco's stock is entering the red zone. For the past 25 days, the company's stock has traded below $1. And unless things change by Dec. 12, that's going to trigger a response by Nasdaq.

While anything's possible, the company doesn't seem set for a surge. Shares dipped to 95 cents on Nov. 1 and haven't topped $1 since. (They closed Wednesday at 92 cents per share.)

If you've forgotten what happens once shares stay below a dollar for 30 trading days, let's do a quick refresher.

Assuming the Nasdaq market follows its usual protocols (and there's no reason to believe it won't), it will send a deficiency notice to the company. That's the first step in a possible delisting.

From there, Majesco (which trades under the symbol COOL) will have 180 days – roughly six months – from the point it receives the notice to turn regain compliance. To do so, they'll have to keep shares above the $1 mark for a minimum of 10 consecutive business days.

That's unlikely, especially at this time of the year, so the company will start putting together a plan to fix things. Typically, that's done via a reverse stock split. (This is the path THQ followed, but we'll get to that in a second.)

If, after that period, the stock's still not trading above the $1 mark, there's an opportunity for a hearing that could extend the probationary period. (Nasdaq prefers to avoid delisting companies. It's not good for investors and it's not good for the exchange's reputation.)

Unlike THQ, delisting threats are nothing new for Majesco. The company was threatened with one in 2010. It also faced them in 2007 and 2008.

Each time, it bounced back without having to take any drastic action. This time? It's hard to say. Cooking Mama isn't the hit it once was. The company's Zumba games are doing well, but are the sales enough to convince investors the stock is undervalued? And let's not even get started on the performance of NBA Baller Beats.

Is the company in danger, though? Maybe not quite as much as you'd think, given its low profile among many gamers.

Majesco has nearly 40 million shares outstanding – which gives it plenty of wiggle room if it does decide to proceed with a reverse stock split. No one will be happy about it, but there's certainly enough there to get the company well within compliance again.

The problem is that just regaining compliance doesn't do you a lot of good if you're not in a position to grow after you do so. THQ is sad proof of that. The company enacted a 1-for-10 reverse stock split in July, which brought its shares up to $5.79.

Because the company has failed to produce a hit – and pushed back its notable titles in development – it's been a slow ride downhill from there. It's faced with mounting financial pressures and currently has hired a consultant to "explore strategic options" – likely meaning a private investor who would take the company private (at a much lower price per share than it's trading at now) or an outright sale of the company (again, at a loss for investors).

THQ's down to $1.25 these days – and another non-compliance note certainly seems to be looming in its future if it doesn't have a true breakaway hit soon.

Majesco's not quite in those dire straits, but the lack of player interest in the Wii has hurt the company bad. And the Zumba Fitness games have accounted for 79 percent and 80 percent of its sales in the third quarter of Fiscal 2012 and Fiscal 2011, respectively.

If fans of that franchise burn out or move on, COOL could start to feel the heat – quickly.

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