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Red Lemon put into liquidation Client's debt leaves sour taste at games developer

RED Lemon is going into voluntary liquidation following the refusal of a major client - believed to be publisher BAM! Entertainment - to pay a six-figure debt owed to the Glasgow-based computer games developer.

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The company will place a petition today with the Court of Session in Edinburgh for the order. Tenon Scotland is expected to be appointed liquidator to the company. The decision comes just six months after a major restructuring by Red Lemon, which stripped £ 250,000 out of its running costs. This involved taking out an entire layer of management staff, as well as relocating to more modest office accommodation. The liquidation has put 20 people out of a job, and will leave Andy Campbell, the co-founder and managing director, contemplating his future. Campbell and two friends set the business up six years ago with a £ 27,000 loan, and succeeded in building up annual revenues to more than £ 1m. However, Red Lemon has struggled over the past couple of years as spending cutbacks by games publishers have squeezed smaller developers who rely on advance royalty fees to finance major projects. The situation was exacerbated during the development lull that accompanied last year's launch of a clutch of new game consoles, prompting Red Lemon to cut back on its operating costs. Campbell had expected the restructuring to put the company on a sound footing. However, the final straw came when Red Lemon proved unable to collect on a six-figure debt owed by one major customer. That customer is believed to be BAM! Entertainment, the US games publisher headquartered in San Jose, California. Last month, BAM! reported a higher-than-expected loss of $6.2m (£ 4.2m) for the third quarter of its financial year, citing a delay in new product releases and slow games sales. Shares in the company, which went public in November of last year, have been among the worst performers this year among all publicly-traded games companies on Nasdaq. Red Lemon is thought to be owed payments from development work on Dexter's Laboratory, a PlayStation game developed for BAM! and based on one of the Cartoon Network's most popular animated characters. BAM! unveiled the game - one among its expanded line of Cartoon Network titles - at the Electronic Entertainment Expo (E3) industry conference in California last month. Red Lemon is said to have instructed solicitors to act on its behalf in claiming the money it is owed. They will continue to pursue the debt despite the liquidation, with any proceeds to be dealt with by the liquidators. Institutional backers include venture capitalists Scottish Equity Partners and 3i, while Bank of Scotland acted as Red Lemon's bankers and landlords. Much of the work undertaken by Red Lemon was in the field of licences from television and cinema entertainment. Other titles include Braveheart, which was tied to the movie of the same name starring Mel Gibson, Aironauts, and Roswell Conspiracies, which is based on a popular children's television cartoon.

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