3DO returns to profitability
And they haven't ceased UK operations, they've just moved.
The 3DO Company today announced that it will return to profitability in the quarter ending June 30, 2002, and expects to beat street estimates for net revenue, net income, and earnings per share. In addition, the company expects to announce final details of a planned credit facility of up to $15 million within a few days. The company also announced that the 120-day period during which preferred stockholders could convert to common stock on favorable terms ended on June 14, 2002.
Separately, the company disclosed that because its common stock price has remained below $1.00 per share, it is not currently in compliance with Nasdaq's minimum bid price requirement (Nasdaq Marketplace Rule 4450(a)(5)). The Company received a Nasdaq staff determination indicating non-compliance on June 21, 2002. As a result, its securities are subject to delisting from the Nasdaq National Market. The Company, however, intends to request a hearing regarding the Nasdaq staff determination and will present its plan of action, which may include a reverse stock split, to maintain compliance with the Nasdaq National Market continued listing standards. The request for a hearing will suspend the delisting action until the Nasdaq Listing Qualifications Panel reaches a final decision on the Company's appeal, but there can be no assurance that the Panel will decide in the Company's favor.
All planned new product releases will make the June 2002 quarter, including the European releases of the Sven Goran Eriksson soccer games that were successfully timed around England's strong performance in the FIFA World Cup. Back catalog licensing revenue have both been strong during the June quarter. Heroes of Might and Magic IV reached # 1 on the PC charts in France, # 2 in England, and # 2 in the USA during the quarter. Other games including Might and Magic IX, Army Men RTS, and High Heat Major League Baseball also had good sell-through during the quarter.
A rising star for 3DO, High Heat Major League Baseball has tripled its sales from last year to-date and has doubled its market share on the PlayStation 2 computer entertainment system from one year ago. The major gaming press unanimously picked High Heat to be the best PC and PlayStation 2 baseball game of 2002, including The Official PlayStation Magazine, Electronic Gaming Monthly, PSE2, PlayStation Magazine, GamePro, Silicon, Gamers.com, Operation Sports, Baseball Sim Central, Game Industry News, Reuters, USA Today Online and the San Francisco Chronicle.
"We've right-sized the business and improved our operations," said Trip Hawkins, CEO. "And we have successful games in the channel that have enabled us to be on a consistent reorder basis with our major accounts. As a result we have been able to operate the entire first half of the calendar year without needing new capital infusions, or even the use of a credit line. This Company-wide spending discipline, combined with market growth and the new credit line that we expect to be able to describe in detail shortly, gives us confidence that we will continue to make good financial progress and achieve high growth in revenues and profits next year."
The company's preferred stock financing in December, 2001, allowed investors to convert to common at a discount to market for a 120 day period ending June 14, 2002. This feature may have contributed to selling pressure on the stock, including the nearly twenty-fold increase in the cumulative short position on 3DO stock since the financing was closed. With the ending of the favorable conversion period, the conversion price for preferred stock into common stock is now fixed at approximately 78 cents per share, a significant premium to market. As a result, the company believes that holders of preferred stock no longer have any incentive to short 3DO common stock. Conversion at the 78 cent price is permitted at any time until the end of the 3-year conversion period in December, 2004. During the favorable conversion period, through June 14, 2002, approximately 31% of preferred stock was converted to common stock, resulting in the issuance of approximately 7.6 million new shares of common stock. While holders of preferred stock are not obligated to convert their shares, approximately 14.2 million shares of additional common stock would be issued if all shares of preferred stock were converted. Prior to the December financing, the company had approximately 53 million shares of common stock outstanding.
"Naturally, we believe that it is not a coincidence that 3DO shares traded under $1.00 per share beginning in February when the registration statement regarding the December 2001 financing became effective," said Hawkins. "Now that it is over, we hope to see buying interest returning to the stock, particularly as we improve our operating performance. We also hope that between our business improvements and a higher stock price, potentially enabled by a reverse stock split, we will attract new interest from small cap investors and remain fully in compliance with the continued listing requirements of the Nasdaq National Market. We've turned an important corner. False rumors and speculation about our prospects have been hurting us but this news should clear the air. We believe our position and prospects now are better than at any time in the last two years."
One such example of false speculation is a recent story claiming that the company had ceased operations in England, which is not true. The company did change its address to Upper Aughton Road, Southport, Merseyside, UK PR9 9UZ.
Separately, the company disclosed that because its common stock price has remained below $1.00 per share, it is not currently in compliance with Nasdaq's minimum bid price requirement (Nasdaq Marketplace Rule 4450(a)(5)). The Company received a Nasdaq staff determination indicating non-compliance on June 21, 2002. As a result, its securities are subject to delisting from the Nasdaq National Market. The Company, however, intends to request a hearing regarding the Nasdaq staff determination and will present its plan of action, which may include a reverse stock split, to maintain compliance with the Nasdaq National Market continued listing standards. The request for a hearing will suspend the delisting action until the Nasdaq Listing Qualifications Panel reaches a final decision on the Company's appeal, but there can be no assurance that the Panel will decide in the Company's favor.
All planned new product releases will make the June 2002 quarter, including the European releases of the Sven Goran Eriksson soccer games that were successfully timed around England's strong performance in the FIFA World Cup. Back catalog licensing revenue have both been strong during the June quarter. Heroes of Might and Magic IV reached # 1 on the PC charts in France, # 2 in England, and # 2 in the USA during the quarter. Other games including Might and Magic IX, Army Men RTS, and High Heat Major League Baseball also had good sell-through during the quarter.
A rising star for 3DO, High Heat Major League Baseball has tripled its sales from last year to-date and has doubled its market share on the PlayStation 2 computer entertainment system from one year ago. The major gaming press unanimously picked High Heat to be the best PC and PlayStation 2 baseball game of 2002, including The Official PlayStation Magazine, Electronic Gaming Monthly, PSE2, PlayStation Magazine, GamePro, Silicon, Gamers.com, Operation Sports, Baseball Sim Central, Game Industry News, Reuters, USA Today Online and the San Francisco Chronicle.
"We've right-sized the business and improved our operations," said Trip Hawkins, CEO. "And we have successful games in the channel that have enabled us to be on a consistent reorder basis with our major accounts. As a result we have been able to operate the entire first half of the calendar year without needing new capital infusions, or even the use of a credit line. This Company-wide spending discipline, combined with market growth and the new credit line that we expect to be able to describe in detail shortly, gives us confidence that we will continue to make good financial progress and achieve high growth in revenues and profits next year."
The company's preferred stock financing in December, 2001, allowed investors to convert to common at a discount to market for a 120 day period ending June 14, 2002. This feature may have contributed to selling pressure on the stock, including the nearly twenty-fold increase in the cumulative short position on 3DO stock since the financing was closed. With the ending of the favorable conversion period, the conversion price for preferred stock into common stock is now fixed at approximately 78 cents per share, a significant premium to market. As a result, the company believes that holders of preferred stock no longer have any incentive to short 3DO common stock. Conversion at the 78 cent price is permitted at any time until the end of the 3-year conversion period in December, 2004. During the favorable conversion period, through June 14, 2002, approximately 31% of preferred stock was converted to common stock, resulting in the issuance of approximately 7.6 million new shares of common stock. While holders of preferred stock are not obligated to convert their shares, approximately 14.2 million shares of additional common stock would be issued if all shares of preferred stock were converted. Prior to the December financing, the company had approximately 53 million shares of common stock outstanding.
"Naturally, we believe that it is not a coincidence that 3DO shares traded under $1.00 per share beginning in February when the registration statement regarding the December 2001 financing became effective," said Hawkins. "Now that it is over, we hope to see buying interest returning to the stock, particularly as we improve our operating performance. We also hope that between our business improvements and a higher stock price, potentially enabled by a reverse stock split, we will attract new interest from small cap investors and remain fully in compliance with the continued listing requirements of the Nasdaq National Market. We've turned an important corner. False rumors and speculation about our prospects have been hurting us but this news should clear the air. We believe our position and prospects now are better than at any time in the last two years."
One such example of false speculation is a recent story claiming that the company had ceased operations in England, which is not true. The company did change its address to Upper Aughton Road, Southport, Merseyside, UK PR9 9UZ.
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