In its heyday just two years ago, THQ Inc. was a force in the video game industry, known for its pro wrestling titles in which players slapped, smashed and body-slammed opponents around the ring. Now, the company has found itself on the ropes.

In the past 10 months, the Agoura Hills-based company has rung up a $334 million loss and burned through about half its cash. Its stock price has tumbled from around $20 to just above $2. With consumers expected to cut spending on video games due to the downturn, there’s increasing speculation that THQ could become a bargain-seeker’s takeover target. And at least one analyst thinks there’s a chance it could go bankrupt.

“You have mediocre product and you’re running out of cash,” said Michael Hickey, an analyst with Janco Partners Inc. in Denver, who put the odds of THQ going bankrupt at 50-50. “Not the situation they want to be in right now.”

THQ executives are scrambling. Chief Executive Brian Farrell last month launched an aggressive turnaround plan, slashing costs for next year by $220 million and laying off almost 600 employees.

Farrell dismissed talk of takeovers and bankruptcy as gossip.

“I know that makes for good print and sells newspapers, but those aren’t the kind of things we focus on right now,” Farrell told the Business Journal. “When the stock price is depressed, the naysayers can have their day in the sunshine. But we have a plan that we’re very confident will give us cash and return the company to profitability.”

Farrell said THQ has also begun searching for a line of credit as a fallback measure. The company currently does not have one, but it recently borrowed about $26 million against auction rate securities – a form of long-term debt –to bolster its balance sheet.

THQ’s troubles stem from what was its strength: Video games based on licensed properties. Its portfolio of licenses gave the company products with instant name recognition, such as Walt Disney Co.’s “Cars” and Viacom Inc.’s “SpongeBob SquarePants.” But THQ had to pay fees to the licensors and give them a share of the revenue.

Nevertheless, games from its licenses helped shoot THQ to more than $1 billion in revenue and record-breaking profits in 2007.

But the strong sales of its licensed products masked the fact that the company’s original games – which provide fatter margins if successful – never caught fire. Meanwhile, Nintendo Co.’s Wii became popular among young consumers who were playing casual games based on familiar characters such as plumber Mario. That took business away from THQ franchises.

The company’s misfortunes contrast with the other local video game publisher, Santa Monica-based Activision Blizzard Inc. While Activision publishes its share of licensed games such as “Spider-Man” and “James Bond,” revenue from those titles mostly supplement original franchises such as hit series “Guitar Hero.”

Losing license?