ACCLAIM NARROWS 2ND-QUARTER LOSS
Acclaim Entertainment said in an SEC filing late last week that its 2nd-quarter revenue dropped to $41.3 million from $54.1 million a year ago but it narrowed its loss to $4 million (-4? per diluted share) from $28.2 million (-31?). Details weren’t disclosed.
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Acclaim said its 10-Q filing would be late. It said it had “received notice” Wed. from Nasdaq that “the structure of [Acclaim’s] October 2003 private offering of its 10% convertible subordinated promissory notes was not in compliance with NASD Marketplace Rule 4350(i)(1)(d).” The rule involves shareholder- approval requirements for stock issues. Acclaim said it was “in the process of trying to resolve this matter with Nasdaq.” It also said it had “not completed its analysis with respect to certain matters which may have an effect on its financial statements which is not determinable at this time.” Therefore, Acclaim said, it was “unable to file on a timely basis its quarterly report on Form 10-Q for the 3-month period ended September 28.”
Wedbush Morgan Securities analyst Michael Pachter said in a research report Fri. he was “not certain whether the failure to comply with NASD rules negates the securities offering, or if the failure can be remedied.” In either case, he said, “we continue to view [Acclaim] stock as a speculative investment.” Pachter said he still maintained his “hold” rating for Acclaim: “The company has delivered several quarters of poor performance, and we are uncertain about its cash position in light of noncompliance with NASD rules. 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, and we note that the company’s breakeven unit rate for games is likely to be approximately 75,000 units per SKU compared to the industry average of 125,000. In the event that the noncompliance issue can be resolved, we believe that the company’s recent private placement of equity provides it with a cushion against a liquidity crunch.”
There has been speculation the last few months that Acclaim could be a buyout target. Acclaim has struggled in part because of weak sales of games including its controversial BMX XXX that many retailers refused to carry because of nudity. It also has been bombarded with lawsuits the last year although it said late last month that it had settled a suit filed against it by biker Dave Mirra over BMX XXX (CED Oct 29 p7).
In late afternoon trading Fri., Acclaim shares were down 2? (2.78%) at 70?.