Acclaim warns of difficult times ahead as Q2 results show a loss

Publisher Acclaim has posted its results for the second quarter of its current financial year, revealing losses of $4 million on declining revenues of $41.3 million, and has warned that tough times lie ahead for the company.

These results contrast with a loss of $28.2 million on revenues of $54.1 million in the same period last year, and combined with the figures for the first quarter, give first-half results showing a loss of $22.1 million on revenues of $74.4 million.

Although the company's losses are improving somewhat, it should be noted that its revenues are sliding at the same time - and Acclaim's cash position is fairly weak, with only $7 million in cash available to the company.

The severity of the difficulties facing the publisher, which is currently pursuing a policy of producing smaller, cheaper games rather than aiming for AAA blockbusters, is shown by a warning statement issued alongside the results.

In this statement, Acclaim warns that "significant expense reductions" may be necessary in the near future, depending on business conditions going forward. These expense reductions may go as far as to include the cancellation of projects, the closing of some operations or the sale of major assets, the company states.

"In the event that the company does not achieve its business operating planâ¦the company's operations and liquidity would be materially and adversely affected," the statement continues, concluding on the bleak warning that "the company could be forced to cease operations."

Analyst Michael Pachter from Wedbrush Morgan Securities sounds a more optimistic note about the prospects for the company, stating that "we continue to believe that should the company have access to sufficient capital, investors with a high tolerance for risk could be rewarded over the longer term. We are optimistic that Acclaim's strategy of making smaller and less expensive games will pay off."

This mirrors Acclaim's own belief that the real key to the company's success - and perhaps its very survival - is its relationship with lender GMAC. Should that relationship continue to hold, the publisher may well be able to come through its current difficulties - although the real test will arise when it's smaller, less expensive games hit the marketplace and consumer spending makes the final judgement on this strategy.