Graphix Zone Changing Core Business, Name in Go-for-Broke Overhaul
In a desperate corporate overhaul, Graphix Zone Inc. said Thursday it will abandon its core business of interactive music CD-ROMs, lay off 25 employees, close three offices and change the company name.
The struggling company is best known as a publisher of multimedia CD-ROMs featuring performers such as Bob Dylan and Willie Nelson, but said that it hopes to rebuild itself as a publisher of computer games.
The company signaled it is on the verge of deep financial trouble, saying in a press release that “to continue its growth plans, the company may need to raise capital in the very near future.”
The changes will take a toll on its finances in the current quarter, including a $4-million restructuring charge. As a result, Graphix Zone said, it expects to report a net loss of about $7.5 million on sales of $1.5 million to $2 million.
In its most recent quarter, Graphix Zone posted a loss of $2.9 million on sales of $1.6 million.
The layoffs will affect 35% of the company’s 70 employees. The company said it will divest or eliminate its music product line, Internet retail products and the WILMA group, a business Graphix Zone acquired last year that was to become something of an online record store.
The company’s turn to the computer game business is risky. That industry is highly competitive, cluttered and increasingly dominated by a handful of large companies that can afford soaring development costs and have the marketing muscle to get shelf space.
“Management realizes that the PC-game market is extremely competitive but views it as a proven market, unlike the interactive music and nongame entertainment markets,” Graphix Zone said in its release.
The changes were led by David Hirschhorn, who was named Graphix Zone’s chief executive last month. Norman Block, a director, is leaving the company, and his position of chief operating officer is being eliminated, the release said.
The company, which will change its name to Ignite Inc., said it plans to close three of its five offices, and the bulk of its operations will be based in West Los Angeles.
The stock slumped Thursday to 28.1 cents from 62.5 cents per share in heavy trading on the Nasdaq market. More than 1 million shares changed hands, compared with the average daily volume of about 57,000 in recent weeks.
