UPDATE: Dark times ahead for THQ as stock drops 40%

Things could go from bad to worse for THQ, according to Wedbush Morgan analyst Michael Pachter.

Last night the publisher delayed three key releases and scrapped its financial forecasts.

Should its financial position continue to deteriorate, we expect THQ to raise financing through an equity sale that could lead to dilution of existing shareholders,” Pachter told investors.

We expect creditors to be asked to renegotiate terms at a discount; if they are unwilling, bankruptcy is possible.

Although THQ has been able to lower its cost structure through layoffs and a streamlined release slate in order to temporarily improve profitability, it is unlikely to return to profitability unless its revenues once again begin to grow.”

Indeed, while THQ may have tried to avoid the worst in its refusal to answer questions in its investor call, the company does at least concede that the situation is dire.

There can be no assurance that the evaluation of strategic and financing alternatives will result in a transaction or financing, or that, if completed, said transaction and/or financing will be on attractive terms,” it said in a statement.

THQ does not intend to disclose developments with respect to the progress of its evaluation of strategic and financing alternatives until such time as the board of directors approves or completes a transaction or otherwise deems further disclosure appropriate.”

UPDATE: THQ’s stock has tumbled 40 per cent in this morning’s early trading.