Acclaim woes deepen as Q1 results slide

Publisher Acclaim has reported a large loss in its first quarter, and the company has warned that even slight deviation from the company's recovery plans could result in it being unable to meet its financial obligations.

For the three months ended June 29, Acclaim reported revenues of $33.1 million - a decline of some 47 per cent on its revenue in the same quarter last year, which was $62.9 million. Even more worryingly, however, the company had a net loss of $18 million during the period, compared with a net profit of $2.5 million last year.

The company's results were well below analyst expectations, and rather tellingly, it neither held a conference call to discuss the figures (as is customary when releasing financial results), nor did it provide estimates for its future earnings - with the only guideline to future performance being a product release schedule.

What it did tell us, however, is that the company is walking a fine line on the edge of insolvency, and that it is essential that it sticks closely to its current recovery plans if it is to survive. The company's cash position is weak at the moment, with only $2.2 million in the bank at the end of the quarter.

A statement issued along with the financial results reads: "in the event that the Company does not achieve its business operating plan, continue to derive significant expense savings from its implemented expense reductions, obtain additional financing from outside investors or, if GMAC does not consent, based upon its existing collateral, to provide supplemental financing during the second half of fiscal 2004, the Company cannot assure its stockholders that its future operating cash flows will be sufficient to meet its operating requirements, its debt service requirements or to repay its indebtedness at maturity, including without limitation, repayment of the remaining outstanding balance of the supplemental discretionary loan."

In other words, Acclaim is balanced on a knife-edge, and no errors or slip-ups can be tolerated on the road to recovery. Revenue growth and cost saving must both be implemented as planned, and the additional funding which the company requires needs to slide into place - or else the company could find itself following in the footsteps of 3DO, whose assets were broken up at auction last Friday.

There's no doubt that Acclaim has prodigious development talent and quite a few strong licenses at its disposal, and the release schedule for the rest of the year is a testament to that in ways - NBA Jam, XGRA, Gladiator Sword of Vengeance and Alias are all likely to be solid products, although there isn't much chance of any of them being a massive runaway hit. However, on the difficult path to recovery from a legacy of mismanagement and terrible product decisions, there's a question mark over whether that will be enough to rescue Acclaim.