BAM ENTERTAINMENT SIGNIFICANTLY DOWNGRADES REVENUE FORECAST

Bam also said it still expected to report loss for 3rd quarter, although it didn’t predict how much loss would be. It also said it reduced expectation for fiscal year ending June 2002 but gave no additional forecast on results. In Jan., Bam said it expected to report $20-$22 million revenue in 4th quarter ending June 30, representing continued year-over-year growth of more than 150% and to achieve profitability in 4th quarter. It’s scheduled to file complete quarterly financials in early May and said it would provide updated fiscal prediction then. Analysts surveyed by Thomson Financial/First Call predicted Bam would post loss of 1? per share for quarter.

Bam CEO Ray Musci said Mon.: “Delays in scheduled product releases and poor execution of worldwide sales and distribution strategies in support of our new releases led to the shortfall in our revenue expectations for the quarter. Additionally, rapid category maturation and shortened life cycles for handheld videogames in recent weeks has prompted us to offer additional concessions to our retail customers. We are very disappointed with our performance in the company’s 3rd fiscal quarter, and are taking measures to improve operational efficiencies, especially maintenance and expansion of our sales and distribution efforts, and look forward to significantly better results in the near future.” Company also said it “attributes the downward revision principally to delays in anticipated product releases and less- than-expected sell-in of new titles launched during the quarter in the U.S. and Europe.”

Bam also said it had retained investment banking company Jefferies & Co. to assist its board in “reviewing a range of potential strategic alternatives, including potential mergers and acquisitions” and said it was “in preliminary discussions with several parties,” although it didn’t mention specific names. Company said it would “have no further obligations to publicly comment on this subject unless there is a proposed transaction that is recommended by the board [and] there can be no assurance that there will be any such transaction or, that if one is recommended, it will be completed.”

In declining to give rating for Bam Mon., Southwest Securities (SWS) Vp-Equity Analyst Arvind Bhatia said in research note: “We consider the shortfall to be a result of company- specific problems and not an industrywide issue.” He said that since it completed IPO in Nov., Bam “missed [reaching financial expectations for] both its December and March quarters… Based on our discussions with retailers, we believe the smaller publishers in the space [such as Bam] are continuing to have a hard time obtaining shelf space. At the same time, the larger, well-run competitors such as Activision, Electronic Arts, Midway Games, THQ and Take-Two Interactive are increasing shelf space and market share.” SWS reiterated “strong buy” ratings for those 5 large competitors as it rated another competitor -- 3DO -- “market outperform.”

Company said Mon. it was forming office of chmn. composed of Robert Holmes and several independent directors: “The CEO will report directly to this newly formed entity.”

Bam said it lost $3.03 million (-41? per share) in 2nd quarter ended Dec. 31, reversing $590,000 profit (9?) year earlier, but revenue increased 76% to $18.91 million from $10.72 million. Musci said at that time company “experienced delays in product shipments scheduled for December from our distributor in continental Europe [but company had] already taken measures to improve operational efficiencies.” Those measures, he said, included hiring industry veteran Bernard Stolar as pres.-COO. Stolar had helped launch PlayStation and Dreamcast game consoles at Sony Computer Entertainment America and Sega of America, respectively. Bam said in Jan. it planned to ship 14 SKUs in first half of 2002, including its first titles for GameCube and Xbox.