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Company Updates Guidance for Fiscal Years 2003 and 2004

REDWOOD CITY, Calif., Oct. 7 /PRNewswire-FirstCall/ --

The 3DO Company (Nasdaq: THDO) announced today that founder and chief

executive officer Trip Hawkins has made a $3 million loan that will meet the

short-term capital needs of the Company, which expects to return to

profitability in the quarter ending March 31, 2003. In addition, the Company

has obtained a conditional waiver from its revolving credit facility lender

regarding existing defaults through October 2002. The Company also announced

today updated financial guidance for the Fiscal Years ending March 31, 2003

and March 31, 2004. The Company outperformed consensus analyst guidance in

the First Quarter of Fiscal 2003, but will fall short in the Second and Third

Quarters, with combined quarterly revenue of approximately $11-$12 million

versus consensus analyst estimates of $19 million. The Fourth Quarter will be

close to consensus analyst estimates, with revenue growing to $22-$25 million.

Finally, the Company hopes to beat analyst estimates in FY2004 with revenues

exceeding $100 million and net income of $5-$10 million, buoyed by a strong

lineup of new game releases into a video game software market made stronger by

hardware sales during the 2002 and 2003 holiday seasons.

"The big picture remains the same," said Hawkins. "Calendar 2002 is all

about cash management and product development for calendar 2003. We have now

made it 75% of the way through this transition calendar year towards a strong

recovery that begins next quarter. The new loan enables the Company to meet

its short-term cash needs. And now that Nasdaq has given us a clean bill of

health, I believe that our long-term access to capital is greatly improved.

Meanwhile, indications are for a very strong hardware market this holiday

season that will significantly improve software opportunities in calendar 2003

and beyond."

Financial Status

During September, the Company completed a 1-for-8 reverse split of its

common stock and was reviewed by the Nasdaq Listing Qualifications Panel. The

Panel informed the Company that, " ... the Company satisfied the minimum bid

price requirement by evidencing a closing bid price of at least $1.00 per

share for the 10-day trading period ended September 6, 2002. The Panel was

further of the opinion that the Company evidenced an ability to sustain

compliance with the $1.00 bid price requirement over the long term,

particularly given the margin of compliance as well as the general upward

trend of the stock price since the implementation of the reverse stock split.

The Panel also expressed confidence in the Company's ability to sustain

compliance with all other requirements for continued listing on the NASDAQ

National Market over the long term. Accordingly, the Panel determined to

continue the listing of the Company's securities on the NASDAQ National

Market. The hearing file has been closed."

"Given that our stock first fell below $1.00 back in February of 2002, it

took 7 months to resolve the matter," said Hawkins. "Given the timeframes

that these things take, I believe that we would be well into 2003 before the

need could arise for us to assess how to respond to any future potential

problem with Nasdaq's minimum bid price requirement. And, within that

timeframe, we expect to demonstrate that we are delivering on our recovery,

which would mean that we can truly put this episode behind us."

In June 2002, the Company committed to its revolving credit facility

lender that it would raise an additional $4.6 million in capital by October 1,

2002. However, the Company's spending and cash flow since that time have been

better than projected. As a result of the $3 million loan, the Company has no

present need to borrow against the credit line and the credit line loan

balance is zero. Subject to the conditional waiver, the Company may not

borrow more than $2 million against its revolving credit line until the

parties renegotiate the covenants and other provisions of the credit line for

the remainder of the first year of the agreement.

Company Progress Report

In early 2002, the Company determined that the challenging market climate

of 2000-2001 would continue in 2002 and that it was strategically essential

for the Company to lengthen its product development schedules in order to

deliver competitive product quality, efficiently leverage its technology and

development resources, and to properly prepare the market for its upcoming

games. This required the Company to shift focus towards new releases in

calendar 2003 that could be delivered using this strategy. As a result, the

Company is undergoing a slow revenue period from April through December 2002

during which it has no major new products being released. In the March 2002

quarter, the Company did have two major product releases that met the criteria

above, and as a result achieved revenues in excess of $15 million. The

subsequent quarters in calendar 2002 are smaller revenue quarters because

there are no major new releases.

Beginning in the March 2003 quarter, the Company has prepared a pipeline

that is expected to regularly deliver four to six major products per quarter.

In addition, consumer spending on game software is expected to increase

significantly in 2003 as a result of a significant increase in the next-

generation console game system hardware base during the 2002 holiday selling

season. The Company believes a key upcoming event will be the release of High

Heat(TM) Major League Baseball(R) 2004, which will be available on many game

formats in the March 2003 quarter. The game is already the universally top-

rated baseball game for the PlayStation(R)2 computer entertainment system and

the PC, but will be available on more formats for the first time, in a

significantly larger market following holiday hardware sales. "As a result of

having a larger and regular supply of major new game releases, and selling

them into a larger marketplace, the Company expects significant revenue growth

in calendar 2003 and Fiscal Year 2004 compared to the prior years," Hawkins

said.

In addition, the Company has made significant reductions in overhead

spending and has increased its development focus and efficiency. As a result,

despite lower revenues, the Company's losses in Fiscal 2003 are expected to be

considerably smaller than the prior year. With increased revenues beginning

in the March 2003 quarter the Company expects a return to profitability for

that quarter.

In August 2002 the Company completed a major research project during which

its entire product line plans through Fiscal Year 2004 were reviewed by the

game console hardware licensors, the leading retailers, the game magazines,

and by consumer market segments in focus group research. The Company

eliminated from its plans any projects that did not have strong support from

all of these market constituencies. The research findings included strong

support for the Company's established brands (High Heat Major League Baseball,

the Army Men(R) series, and Heroes(R) of Might and Magic(R)), as well as

excitement for the three new brands from the Company, led by the Four Horsemen

of the Apocalypse(TM). Proven brands make up the majority of the Company's

revenue plans.

"We've adapted to a more demanding business climate," said Hawkins. "We

have weeded our garden and have become very focused on what we can do

successfully and at lower levels of risk. With poor market conditions, a

software glut, and a limited hardware base of next-generation systems, the

last few years have been a struggle. But we believe we can become a highly

leveraged producer of original game brands. We have learned how to develop

brands and use state-of-the-art technology with much more leverage. Plus, the

hardware customer base will hit the takeoff point this Christmas which will

give us additional leverage from increased demands for gaming software."

Hawkins continued, "To use a film-making analogy, we're not the Warner

Brothers of the game industry, nor do we expect to be. But we can aspire to

be the Pixar or the Lucas among game publishers, using development mastery to

leverage technology into our own brand upside. We believe we can have lower

overhead and succeed with lower breakeven levels than the larger publishers.

And with our new planning methodology and longer schedules, I believe we have

as good a shot at making the big, breakout hits as anyone."

Updated Guidance

Fiscal Year 2003

For the Fiscal Year ending March 2003, the First Quarter was better than

consensus analyst estimates. The Second and Third Quarters will be worse than

consensus analyst estimates. The Fourth Quarter will be significantly better

than the prior quarters and will be similar to consensus analyst estimates.

For the full year, the Company expects to achieve revenues of $42 to $45

million, somewhat below consensus analyst estimates of $52.8 million. The

primary reason for the shortfall is the lack of major new releases in the

first three quarters. Roughly half of revenue in Fiscal Year 2003 is

estimated to occur in the Fourth Quarter since that is the first recovery

quarter during which the Company will begin to deliver major new games based

on its updated strategy. The full year net income is expected to be a loss

between $6 and $9 million, which compares favorably with a $48 million loss in

the prior year. The consensus analyst estimate for the year is a loss of

approximately $6 million. However, the Company expects to exit Fiscal Year

2003 with a profit in the Fourth Quarter of $1 to $2 million.

Second (September) Quarter, Fiscal Year 2003

Revenues are expected to be in the range of $6.8 to $7.4 million,

approximately $2 million below current analyst estimates. A leading factor

for the reduction is the delay of the start of the second season of

broadcasting for the Cubix(TM): Robots for Everyone television show, which has

delayed its debut from September 2002 to February 2003. The Company has

completed new Cubix games but elected to postpone their release until the show

is back on the air. Net income in the quarter is expected to be a loss of $7

to $8 million, versus the consensus analyst estimates of $4 million. The

primary reasons for the reduction were writeoffs of $4.5 million of

capitalized software development for the aforementioned Cubix games and a

discontinued development project that failed to pass muster in the market

research project noted previously. From an EPS standpoint, the Company

expects a loss of $0.92 to $1.04, taking the reverse stock split into account.

Pre-split, the expected loss would be 11 to 13 cents compared to the consensus

analyst estimates of a loss of 6 cents.

Third (December) Quarter, Fiscal Year 2003

Revenues are expected to be in the range of $4 to $5 million, more than $4

million below consensus analyst estimates. The reason for the shortfall is

that in order to ensure proper quality, the Company chose to delay the release

of the one major product that had been scheduled for release in the quarter.

Instead, Army Men Air Combat(TM): The Elite Missions will be released for the

Nintendo GameCube(TM) system in the March 2003 quarter. Net income for the

quarter is expected to be a loss of $6 to $7 million versus consensus analyst

estimates of approximately $2 million. From an EPS standpoint, the Company

expects a loss of $0.80 to $0.90, taking the reverse stock split into account.

Pre-split, the expected loss would be 10 to 11 cents compared to the consensus

analyst estimates of a loss of 3 cents.

Fourth (March) Quarter, Fiscal Year 2003

Revenues are expected to be in the $22 to $26 million range, consistent

with consensus analyst estimates of $25 million. The Company hopes to release

nine new products including five major games such as High Heat Major League

Baseball 2004, for various platforms, Army Men Air Combat: The Elite Missions

for the Nintendo GameCube(TM) system, and Army Men: Sarge's War(TM) for the

Nintendo GameCube(TM) system. Revenues are expected to be greater than the

first three fiscal quarters combined, as the Company takes advantage of having

several major game releases shipping into a larger hardware customer base.

Net income is expected to be $1 to $2 million versus consensus analyst

estimates of $4 million.

Fiscal Year 2004 Guidance

The Company expects in Fiscal 2004 to continue the favorable trend set by

the Fourth Quarter of Fiscal 2003. Revenues are expected to exceed $100

million, with the goal of releasing an average of four to six major new game

SKUs per quarter and more than 20 for the full year. Net income for Fiscal

2004 is expected to be $5 to $10 million versus consensus analyst estimates of

$6 million. Hawkins concluded, "With new game releases spread evenly

throughout the year, the Company expects the quarterly revenue pattern to

follow traditional seasonality as well as growth in the hardware customer base

as the year progresses. The majority of revenue is expected to come from

proven brands such as Army Men: Platoon Commander(TM), Heroes of Might and

Magic V, High Heat Major League Baseball 2005, and Army Men: Air Combat 3.

Market research and development progress is also very promising on the

Company's three new brands, the Four Horsemen of the Apocalypse, Street Racing

Syndicate(TM), and Jacked(TM)."

About The 3DO Company

The 3DO Company, headquartered in Redwood City, Calif., develops,

publishes and distributes interactive entertainment software for personal

computers, the Internet and advanced entertainment systems such as the

PlayStation(R)2 computer entertainment system, and the Nintendo GameCube(TM)

and Game Boy(R) Advance systems. 3DO has also been licensed to develop and

publish interactive entertainment products compatible with the Xbox(TM) video

game system from Microsoft Corp. More information about The 3DO Company and

3DO products may be found on the Internet at http://www.3do.com.

The statements contained in this release that are not historical facts are

"forward-looking statements" that are subject to risks and uncertainties.

Factors that could cause the Company's results to differ materially include,

without limitation, the timely development and release of the Company's

products and recognition of revenues, the popularity of the Company's brands,

the discontinuance of development projects, unanticipated expenses, unexpected

conversion of preferred stock or exercise of warrants and options, the

consequences of competitive factors in the marketplace, and potential default

of the financial or other covenants contained in the Loan and Security

Agreement that the Company signed with its credit facility lender (the "Loan

Agreement"). In the event of a default under the Loan Agreement, if such

default is not timely cured or waived, the credit facility lender could pursue

its contractual remedies against the Company. These could include: (1)

decreasing advance rates, (2) restricting advances, (3) penalty rates of

interest, (4) restricting the seasonal line limits necessary to achieve the

Company's plan, (5) penalty fees associated with the line of credit, (6)

acceleration of the Company's financial obligations to the credit facility

lender, and/or (7) the foreclosure on any assets securing the Company's

indebtedness to the credit facility lender. In accordance with the Loan

Agreement, the Company is obliged to meet certain specified levels for current

ratio, debt to equity ratio, net sales, net income, and net worth, and not to

exceed specified spending levels. The Company is also required under the Loan

Agreement to raise additional equity during fiscal 2003. We cannot provide

assurances that we will be able to remain in compliance in the future with the

financial covenants and other contractual obligations set forth in the Loan

Agreement, nor can we provide assurances that we will be able to successfully

renegotiate the financial covenants or other contractual obligations contained

in the Loan Agreement. The Company may not have sufficient capital for other

reasons, including, but not limited to, the possibility that the Company could

have variances from plan that adversely affect its cash needs. The Company

has no binding agreement with any third party to enter into any financing

arrangement with the Company, and the Company cannot provide assurance that

any required financing will be completed or completed on time, nor that the

Company will be able to obtain additional financing on terms that the Company

would find acceptable. Any potential financing may require shareholder

approval, and the Company cannot provide assurance that it will be able to

obtain shareholder approval for any proposed financing. Further information

on potential factors which could affect such forward-looking statements and

the Company's financial results are described in the Company's filings with

the Securities and Exchange Commission, including the Company's Annual Report

on Form 10-K for the fiscal year ended March 31, 2002, and the Company's

Quarterly Reports on Form 10-Q for the fiscal quarters ended December 31, 2001

and June 30, 2002. The Company disclaims any obligation to update any

forward-looking statement to reflect events or circumstances occurring after

the date hereof.