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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1995
O R
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-12699
ACTIVISION, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2606438
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11601 WILSHIRE BLVD., LOS ANGELES, CA 90025
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 473-9200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.000001 per share
----------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ XE ] No [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K. [ ]
The aggregate market value of the Common Stock of the registrant held by non-
affiliates of the registrant on June 22, 1995 was $70,624,000.
Indicate by a check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [ XE ] No [ ]
The number of shares of the registrant's Common Stock outstanding as of June
22, 1995 was 14,182,128.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement, to be filed with
the Securities and Exchange Commission within 120 days after the end of the
fiscal year covered by this Form 10-K, with respect to the Annual Meeting of
Shareholders to be held on September 15, 1995 are incorporated by reference
into Part III of this Annual Report.
INDEX
Page No.
PART I.
Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security
Holders 13
PART II.
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 14
Item 6. Selected Consolidated Financial Data 16
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
Item 8. Consolidated Financial Statements and
Supplementary Data 24
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 25
PART III.
Item 10. Directors and Executive Officers of the
Registrant 25
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial
Owners and Management 25
Item 13. Certain Relationships and Related
Transactions 25
PART IV.
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 26
SIGNATURES 29
PART I
Item 1. BUSINESS
(a) General
Activision, Inc. (together with its subsidiaries, the "Company") is
a diversified international publisher and developer of interactive
software in a wide variety of formats. Incorporated in California in
1979, the Company was a pioneer in the interactive entertainment software
business and achieved its initial success developing and publishing video
game products for the Atari Corporation ("Atari") systems, one of the
first consumer video game systems introduced in the United States. In
December 1992, the Company reincorporated in Delaware.
The ICT Merger. Effective January 1, 1995, International Consumer
Technologies Corporation, a Delaware corporation ("ICT"), was merged with
and into a wholly owned subsidiary of the Company, with ICT as the
surviving corporation. ICT's sole asset at the time of the merger was
5,429,600 shares of the Company's common stock, par value $.000001 per
share (the "Common Stock"). As a result of the merger, the shares of the
Company's Common Stock previously held by ICT were distributed to the
shareholders of ICT in exchange for their shares of ICT common stock. No
other assets or liabilities were acquired or assumed by the Company as a
result of the merger.
(b) Financial Information About Industry Segments
The Company operates in one industry segment: publishing floppy-
disk, cartridge and CD-based entertainment software. See the
Consolidated Financial Statements and Notes thereto included in Item 8 of
this Annual Report on Form 10-K for certain financial information
required by Item 1.
(c) Narrative Description of Business
The Company is a diversified international publisher and developer
of interactive software in a wide variety of formats. At present, the
Company focuses its development, publishing and marketing efforts
primarily on entertainment software products and certain other products
that combine entertainment and education.
The Company's product line includes software designed to operate on
IBM compatible (including the MS-DOS and Windows operating systems),
Apple Macintosh, and other computer and video game hardware including,
without limitation (a) the Sony Playstation manufactured and sold by Sony
Entertainment Corporation ("Sony"), (b) the Sega Saturn (the "Saturn"),
Sega Genesis ("SGS") and Sega CD systems ("Sega CD") manufactured and
sold by Sega Enterprises, and (c) the Super Nintendo Entertainment System
("Super NES"), Nintendo Entertainment System ("NES") and Game Boy hand
held game system ("Game Boy" and, together with the NES and the Super
NES, the "Nintendo Systems") manufactured and sold by Nintendo Company,
Ltd. The Company also licenses to other companies the right to publish
and distribute the Company's software for computer and video game systems
sold in various markets or on various platforms.
The Company's objective is to be a worldwide leader in the delivery
of interactive multimedia programming designed for a range of platforms
that appeals to a variety of markets and incorporates sophisticated
graphics, sound and video, compelling story lines and game experiences,
ease of use and other features and technologies that provide exceptional
interactive experiences. There can be no assurance that the Company will
be able to reach such an objective, however. The Company seeks to
achieve this objective by:
- maintaining a diverse product line and revenue base by publishing,
distributing and licensing a mix of distinctive, high quality titles for
a variety of platforms in a variety of global markets;
- utilizing proprietary, multi-platform tools and technologies to
create programming;
- maximizing distribution of titles through worldwide access to both
the mass market and specialty channels of distribution;
- developing or acquiring original characters and themes to serve as
a basis for current and future products and that have the potential for
exploitation in ancillary markets such as feature films, television and
print media;
- continuing to take advantage of the Company's large library of
content, including popular video game and computer software titles such
as "Pitfall" and "Shanghai";
- maintaining and developing entertainment industry and creative
relationships to enable the Company to incorporate high quality
multimedia production features into its software products;
- identifying and selectively acquiring under long-term licenses
recognized intellectual property that management deems suitable for
exploitation in current markets and media as well as future markets; and
- controlling costs through expense and inventory control programs,
streamlined development and selectivity in property acquisition.
The Company is reducing its focus on cartridge-based and floppy disk-
based systems in favor of new CD-based multimedia systems. CD-based
products enable the Company to produce programming that features high
quality animation, orchestral style soundtracks, feature film quality
sound effects, full motion video including live actors, and rich three-
dimensional graphics.
MARKET OVERVIEW - THE INTERACTIVE SOFTWARE INDUSTRY
The interactive software business involves the acquisition or
creation of titles or intellectual property rights, the development of
interactive software products based on these titles or rights, and the
publication, marketing, merchandising, distribution and licensing of the
resulting software products and ancillary rights. The business is highly
dependent on consumer tastes and preferences and on the commercial
success of the hardware platforms for which the software is produced.
Historically, the interactive software business has been comprised
of two distinct primary markets, the video game market and the computer
software market, each of which has different characteristics. The
Company competes in both markets. As the installed base of personal
computers increases and as CD-based systems gain popularity, however,
these two markets are becoming less distinct.
Video Games
Over the last six to eight years, the three principal types of
hardware platforms for video game software have been 8-bit consoles, 16-
bit consoles and portable systems. The most successful 8-bit, 16-bit and
portable hardware systems are manufactured and marketed by Nintendo and
Sega. While video game software currently is marketed primarily in
cartridge form for these three types of video game hardware platforms,
the Company believes that during the next several years optical-based
products in the CD form will increasingly replace cartridge-based
products as the primary format used to deliver video game software.
Companies such as the 3DO Company ("3DO"), Sega and Sony have developed
and are currently marketing 32-bit CD-based delivery systems. See "CD-
Based Systems." The Sega Saturn 32-bit CD system was released in the
United States in May 1995, and the Sony Playstation 32-bit CD system is
expected to be released in August 1995.
8-Bit Video Game Systems. Home entertainment systems based on 8-bit
microprocessors were introduced in the early 1980s. In 1985 Nintendo
introduced NES in the United States. It is estimated that at the end of
1994, the installed base of 8-bit video game systems in the United States
was approximately 36 million units and the number of software titles
available for use with such video game systems was approximately 650.
Since 1987, the Company has released 14 software titles in the
United States and Europe designed for the NES. Sales in recent years of
8-bit video game systems and cartridges for such systems have declined
significantly and the Company does not believe that there are significant
growth opportunities in this market. Accordingly, the Company does not
intend to develop any additional 8-bit titles.
16-Bit Video Game Systems. In 1989, Sega introduced the 16-bit SGS
video game console in the United States. The SGS featured a more
powerful microprocessor, more colors and superior graphics, animation and
sound relative to the NES. Nintendo introduced its 16-bit Super NES,
with similar capabilities to SGS, in the United States in September 1991.
It is estimated that at the end of 1994, the installed base of 16-bit
video game systems in the United States was approximately 30 million and
the number of software titles available for use with the SGS and the
Super NES was over 400 and 250, respectively.
The Company believes that opportunities for 16-bit cartridge-based
software are declining, as sales of both 16-bit hardware and software
weaken in North America, and as 32-bit, 64-bit and CD-based systems come
to market. The Company believes that strong sales of 16-bit software in
North America will not continue beyond calendar year 1994 and that market
conditions will deteriorate dramatically in calendar 1995.
The Company has released 11 software titles in the United States,
Europe and Japan designed for the Super NES and three titles in the
United States designed for SGS. The Company currently has under
development one title for the Super NES, no titles for SGS and one title
for the Sega 32X System (which runs on a 32-bit adapter for the SGS).
The Company expects to release all of these products in the fiscal year
ending March 31, 1996.
Portable Game Systems. Nintendo's release in 1989 of the Game Boy,
a battery-operated, hand-held interactive entertainment system
incorporating an 8-bit microprocessor, revolutionized the hand-held game
machine market. Previously, the only hand-held games available were
dedicated to a single game. Sega's color Game Gear hand-held system,
released in 1991, competes directly with the Nintendo Game Boy. It is
estimated that at the end of 1994, the installed base of hand held game
systems was approximately 13 million and the number of software titles
available for use with the Game Boy and the Game Gear were over 320 and
100, respectively. The Company has released five titles in the United
States and in Europe designed for the Game Boy. Due to the declining
market for these platforms, the Company currently has no titles in
development for the Game Boy or Game Gear systems.
Personal Computer Software
Sales of entertainment software are highly dependent on the
availability of relatively inexpensive personal computers and on the
installed base of personal computers in homes, schools and small
businesses. Major computer manufacturers have recently enhanced their
lower-end product offerings, and relatively high performance IBM
compatible and Apple Macintosh personal computers (which in many cases
incorporate CD-based multimedia systems) have become widely available for
less than $1,500. In addition, the Microsoft Corporation continues to
enhance its Windows operating system, which is contained in a substantial
portion of the IBM compatible personal computers currently found in the
marketplace. Its latest version of Windows, Windows 95, is expected to
be available in August 1995, and its introduction is expected to make
personal computers easier to use by the average consumer. As personal
computers have become more powerful, less expensive and easier to use,
their use in both the home and business environments has expanded,
resulting in increased demand for a wide variety of software products.
The introduction of faster microprocessors, advances in
semiconductor technology, the introduction of high density disk drives,
enhanced operating systems, and increases in memory and processing power
have facilitated the development of more cost-effective, graphically
oriented and user-friendly personal computer software. In addition, the
growth of mass-market distribution channels, including the development of
computer superstores and computer software specialty chains, and the
distribution of hardware and software by major retailers, have opened the
personal computer software market to a broader base of consumers.
The market for personal computer software can be divided into four
categories: productivity, education, entertainment and finance. The
Company currently focuses on the development and publishing of
entertainment software products, including simulation, strategy, action,
adventure and role playing games. Because the market for education
products has emerged to a meaningful level and has demonstrated above
average growth rates, the Company also has begun the development and
publishing of products that combine elements of entertainment and
education, with the intention of broadening the Company's market reach
and product lines.
The Company has released 28 titles in the United States and in
Europe for use on personal computers since April 1992, and currently has
under development 38 titles (23 designed for IBM compatible personal
computers and 15 designed for the Apple Macintosh personal computer.)
The Company expects to release approximately 20 of these titles in the
fiscal year ending March 31, 1996.
CD-Based Systems
With the introduction in recent years of computer disk drives that
read optical laser discs, or "CDs," the ability to deliver complex
entertainment software has made significant technological advances. A CD
has over 600 times more memory capacity than an 8-bit standard cartridge,
enabling CD systems to incorporate large amounts of data, full motion
video and high quality sound, for rich, multimedia experiences.
In addition to personal computer disk drives that read CDs, known as
"CD-ROM drives," several CD-based video game systems have been introduced
recently by video game hardware manufacturers. For example, Sega
introduced its Sega CD system in 1992, 3DO released the 3DO Multiplayer
in 1993 and Sega released the Sega Saturn in May 1995. Sony has also
announced that its CD-based game system, the Sony Playstation, will be
introduced in August 1995. As the installed base of CD-ROM drives for
personal computers increases and as the video game industry moves more
toward CD-based delivery systems, the Company believes that the
traditional differentiation between the video game market and the
personal computer market will become less distinct.
The Company has released two products for the Sega CD System and one
product for the 3DO Multiplayer. Currently, the Company has a number of
titles under development for each of the Sega Saturn, Sony Playstation
and 3DO Multiplayer. The Company's titles under development for these
video game systems are scheduled to be released beginning in the third
quarter of the fiscal year ended March 31, 1996.
As prices for CD-based platforms decline, the installed base of such
hardware in homes and schools is expected to grow. The Company believes
that this trend will result in greater demand for consumer software that
takes advantage of the high quality graphics, sound and data capabilities
of the CD-based hardware. Management believes that, because of the
ability to incorporate natural images and sound in the software, these
new devices will enable producers, such as the Company, to market
interactive experiences that are no longer limited to strategy, action or
role playing, and which could appeal to audiences as diverse as those
enjoying printed and filmed entertainment; however, there can be no
assurance that this will be the case.
The CD-based market presents particular challenges for software
developers and publishers such as the Company. Because developers and
publishers have the capacity to deliver higher level entertainment
experiences through CDs, entertainment software will of necessity be
required to incorporate increasingly sophisticated graphics (3-D
graphics, video and animation), data and interactive capabilities,
resulting in higher development costs. Further, successful software
developers in these markets will be required to coordinate talent from a
variety of disciplines in the development process. CD-based delivery
systems also have numerous advantages to software publishers such as the
Company. CDs are less expensive to manufacture than either video game
cartridges or floppy disks and, unlike floppy disks, cannot be readily
copied. These factors present an opportunity for software publishers to
achieve higher profit margins from the sale of CDs than currently are the
norm in the cartridge-based video game or floppy disk-based computer
software markets.
PRODUCTS
Many of the Company's software titles are released in multiple
formats for use on more than one computer or video game system. Each of
the Company's software products consists of a particular program, which
for computer systems is encoded on a diskette or CD, and for video game
systems is embedded in read-only memory ("ROM") contained in a cartridge
or a CD.
The Company's currently available video game products are designed
primarily for the Nintendo Systems, SGS, Sega CD and 3DO Multiplayer.
The Company also has developed and published software products for other
video game systems, such as the Sega Master System and the Atari 2600 and
7800 video game systems.
The Company's computer software products are available on IBM
compatible and Apple Macintosh formats on both floppy disk and CD. A
limited number of titles also are available on Commodore Amiga formats.
The majority of the Company's computer software products which currently
are being developed for IBM compatible computers will be playable on the
Windows 95 operating system.
The Company's current Nintendo Systems and SGS titles are marketed
directly to retailers and generally range in suggested retail price from
$19.95 to $69.95. The Company's personal computer software titles
generally range in suggested retail price from $19.95 to $79.95.
Domestically, the Company's products are available for sale or rental in
thousands of retail outlets, including consumer electronics and computer
specialty stores, department stores, discount chains, video rental and
toy stores.
The continued market acceptance of the Company's products depends,
among other things, upon the Company's ability to attract and retain
software designers and other creative talent involved in the software
development process, to anticipate and adapt to changes in hardware and
software technologies, and to produce software with broad commercial
appeal.
The Company markets its products under the trade name "Activision"
and on certain titles it also includes the "Infocom" label. By branding
its titles with these trade names, the Company seeks to continue to build
on the well established trade names of both Activision and Infocom.
Activision Products
The "Activision" name, the name under which the Company has since
its inception marketed its video game products, is used for
action/adventure games and other video games and CD-ROM based computer
software with broad-based appeal. Primarily targeted at children between
the ages of 6 and 16, "Activision" products are based either on original
characters and stories created or acquired by the Company, such as
"Pitfall: The Mayan Adventure," an action adventure game with cartoon-
style animation for the Super NES, SGS and Sega CD, or recognizable
characters and stories from feature films or other media, such as
"Muppets Treasure Island," "Predator," "Alien," "Die Hard,"
"Ghostbusters" and "Popeye." In addition, the Company is licensing
rights from certain recognized personalities or individuals, such as
William Colby, former director of the Central Intelligence Agency, for an
original spy simulation game.
Infocom Products
Although the Company markets all its products under the "Activision"
name, the "Infocom" label is an Activision product line of graphic
adventure and role-playing products. The "Infocom" name was acquired by
the Company as part of its 1987 acquisition of Infocom Corporation.
Infocom, a pioneering computer software firm, was the recognized leader
in "text adventures," interactive computer novels that were the first
generation of computer games. The Company has re-released many of the
original best-selling "Infocom" text adventures in successful collection
formats. In 1992, the Company began a new series of Infocom graphic
adventures, sequels to the original text adventures, which incorporated
state-of-the-art graphics and animation and high-quality digital audio.
These sequels included "Return to Zork," a state-of-the-art sequel to the
popular "Zork" series, released in September 1993.
The Company currently is developing sequels the Infocom text
adventure "Planetfall" and another title in the "Zork" series which is
expected to be called "Zork: Nemesis."
OPERATING DIVISIONS
The Company conducts its business operations through four primary
functional divisions: Activision Studios, Activision Publishing,
Activision Business Development and Activision International.
Activision Studios: Software Development and Production
Activision Studios, the Company's development and production group,
is responsible for the selection, design, development and production of
the Company's software and video game products. Products are developed
using a film studio model, which consists of a combination of Company
staff and independent developers, artists, animators, writers, musicians,
sound studios and designers who are supervised and managed by the
Company's production executives. This combination of internal and
external talent in the development and production teams allows the
Company to undertake and manage effectively a large number of projects,
limit its fixed operating costs, maintain a constant flow of fresh ideas,
and merge diverse creative and technical talent from the entertainment
and software fields. The Company's management maintains close ties with
members of the Hollywood entertainment community, thus affording the
Company access to many writers, actors, directors, musicians and special
effects and sound effects experts. Management believes that association
with recognized artistic talent contributes to the production and marquee
value of the Company's products.
The Company's creative development and production staff selects and
develops new products, converts existing products to additional hardware
formats, modifies licensed or acquired products, and manages the external
development of products by independent developers. Several software
products are derived from existing products, television programs, motion
pictures or literary properties. When the Company licenses or acquires a
software product from an independent developer, the Company's development
and production staff may rewrite the program to add features, enhance
graphics, refine the characters and story line, and improve the user
interface to ensure that the product meets the Company's quality
standards.
The Company has a library of software and video game titles which
includes over 75 titles released since 1988. The concepts, themes and
characters of many of these products can be re-used in enhanced state-of-
the-art software which contains advanced graphics, CD-quality audio and a
much more complex level of game play. Examples of enhanced productions
that have already become successful releases include "Return to Zork,"
"Pitfall: the Mayan Adventure," "Shanghai II - Dragon's Eye," "Shanghai-
Great Moments" and "Mechwarrior." The Company has developed, based upon
previously successful releases, a number of additional titles for re-
release in collection format, including "Lost Treasures of Infocom,"
"Lost Treasures of Infocom II" and "Zork Anthology," and expects to
continue to exploit its library of titles in this and other ways as
opportunities arise. The most recent example of such an opportunity was
the re-release of its software products originally created for the Atari
2600 game system as a compilation called "Activision's Atari 2600 Action
Pack." This compilation was released on CD-ROM and floppy disk for IBM
compatible hardware platforms. The Company is also in the process of
converting certain video games originally released on the Nintendo and
Sega systems so that they can be played on IBM compatible computers
through the Windows 95 operating system. Such video games include
"Pitfall: The Mayan Adventure" and "Earthworm Jim," a successful video
game for which the Company acquired rights with respect to its use on
Windows 95.
Products obtained from independent developers are obtained under
agreements that provide the Company with an exclusive right to market the
product or with ownership of all intellectual properties created by the
independent developer. In return, the developer receives a royalty based
on revenues received by the Company on sales of the product. The
majority of these royalty rates range from 5% to 15% of adjusted gross
receipts. In certain circumstances, royalty rates may exceed this range
due to the nature and anticipated life of the product, the skill and
experience of the developer, and the type and extent of development
services the developer provides. The typical contract with an
independent developer calls for periodic progress payments based on
specific milestone accomplishments. These payments are usually treated
as advances against the royalties to be earned by the developer from
product revenues.
To acquire the rights to develop entertainment software products
based on titles, themes and characters from other media, especially from
the motion picture industry, the Company is frequently required to pay
substantial non-refundable, advance licensing fees. The Company evaluates
the acquisition of such rights to motion picture titles, themes and
characters on a case-by-case basis.
Activision Publishing: Marketing, Sales and Distribution
The Company's ability to promote and market its software is an
important factor in its success. The Company's Activision Publishing
division is continually creating and implementing advertising and
promotional programs such as point of purchase displays, magazine and
television advertisements, and cooperative advertising programs which are
designed to highlight particular strengths of each software title and
leverage the strength of the Company's brand names and corporate
identity. In addition to conducting its own promotional programs, from
time to time the Company benefits indirectly from the marketing and
promotional efforts undertaken by the owners of the novels, board games,
motion picture films and other sources from whom the Company may license
intellectual property.
The Company's products are available domestically for sale or rental
in thousands of retail outlets ranging from consumer electronics and
computer specialty stores to department stores and discount chains, video
rental stores and toy stores. The Company's top tier customers in these
categories include Babbages, Egghead Discount Software, Software, Etc.,
Sears, WalMart, K-Mart, Target, Blockbuster Video and Toys "R" Us. The
Company makes sales through a number of channels, including wholesale
distributors, such as Baker & Taylor Software, Handelman Company and
Merisel. The Company utilizes internal sales personnel and an external
commission-based sales force to effectuate such sales. For the fiscal
year ended March 31, 1995, sales made to two customers (Walmart and Toys
"R" Us) accounted for approximately 9.1% and 6.9% of consolidated net
revenues of the Company, respectively. The loss of either of such
customers might have a material adverse impact on the Company's business
or results of operations.
The majority of the Company's international sales are made through
its offices in England, Australia and Japan. International sales also
are made through arrangements with independent marketers and distributors
in Europe and the Pacific Rim.
A large portion of the Company's sales historically occur between
September and January of each year, reflecting the industry's
traditionally strong holiday product release and sales trends.
Generally, the Company ships its computer software products, the
manufacture of which can be completed within 10 days, promptly upon
receipt of purchase orders from its customers. Consequently, backlog is
not under normal circumstances considered to be an important factor with
respect to computer software products. Because of the significant lead-
time required in connection with the manufacture of video game
cartridges, the Company occasionally has a backlog of customer video game
purchase orders.
The Company historically has maintained an ongoing inventory
balancing program in order to permit certain domestic purchasers of its
products to return limited amounts of unsold product which remains in
their inventory, based upon levels of sales previously made to such
customers by the Company. In order to minimize product returns, the
Company monitors closely the levels of its inventory in the field, as
well as sell through data and orders. The Company also maintains a
reserve for returns of product based upon its estimate of anticipated
returns and its historical experience.
Revenues tend to vary seasonally due to increased demand for
entertainment products during the Christmas holiday season and are also
affected by the timing of new product introductions. Costs and expenses
tend to vary seasonally due to increases in marketing programs and
inventories in anticipation of seasonal buying patterns.
Activision Business Development: Acquisitions, Licensing and
Merchandising
Through its Activision Business Development division, the Company
currently seeks to license the Company's titles to original equipment
manufacturers ("OEM"), exploit the Company's property rights in ancillary
markets or territories, and acquire additional entertainment software
products which are substantially completed or immediately available for
distribution.
During the fiscal years ended March 31, 1995, 1994 and 1993, the
Activision Business Development division consisted primarily of the
Activision Merchandising/TDC Group division ("Activision Merchandising").
Activision Merchandising was responsible for developing merchandising and
promotional activities with various computer hardware manufacturers. In
connection with its merchandising and promotional activities, Activision
Merchandising provided customized packaging and related merchandising
materials in a number of languages (along with software and accessories)
to various computer hardware companies throughout the world. In
addition, Activision Merchandising designed customized software and
hardware compilations for mass market retailers including warehouse
clubs, discount chains, department stores and electronic specialty
stores.
Activision Merchandising accounted for approximately 2%, 20% and 22%
of the Company's consolidated net revenues in fiscal 1995, 1994 and 1993
respectively. Activision Merchandising's major customers were IBM and
Apple. During the fiscal years ended March 31, 1995, 1994 and 1993, IBM
accounted for 47%, 70% and 12%, respectively, of Activision
Merchandising's net revenues and 1%, 14% and 2%, respectively, of the
Company's net revenues. During the fiscal year ended March 31, 1994,
Apple accounted for 18% of Activision Merchandising's net revenues and 4%
of the Company's net revenues.
As the Company's business opportunities and activities continue to
expand, the Company has decided to refocus the Activision Business
Development division towards the acquisition of additional completed
entertainment software products which can be used to help bolster the
Company's relationship with its wholesale customers, and the exploitation
in ancillary markets of the Company's existing properties. This strategy
is designed to provide a degree of protection to the Company against the
various risks associated with internal software development.
Accordingly, during the fiscal year ended March 31, 1995, the Company
terminated its merchandising services for outside customers in order to
concentrate the efforts of Activision Merchandising on internal
merchandising and marketing activities. Activision Merchandising's
attention is now focused on activities which directly relate to the
expansion and development of the Company's core business, including
merchandising activities relating to products created by Activision
Studios and activities directly relating to the Activision Business
Development division (such as on-line services, hint-lines and internet
services, expansion of OEM bundling opportunities, and affiliated label
and co-publishing activities).
The Company's success in further expanding into licensing,
affiliated label distribution agreements and ancillary business
opportunities will depend on its ability to successfully license or
acquire rights from third parties and on the distribution capabilities of
the Activision Publishing division.
Activision International
The Company conducts its international sales and licensing
activities through its wholly owned subsidiaries in England, Japan and
Australia, where it also maintains offices. For the fiscal year ended
March 31, 1995, international operations accounted for approximately 28%
of the Company's consolidated net revenues, as compared to 23% of the
Company's net revenues for the fiscal year ended March 31, 1994.
During the fiscal year ended March 31, 1995, the Company entered
into an exclusive distribution agreement with Sony Electronic Publishing
Ltd. ("SEP") in the United Kingdom for its European and Australian video
game product line. Sales to SEP for the fiscal year ended March 31, 1995
accounted for 54.4% of international net revenues and 14.9% of
consolidated net revenues of the Company. The Company and SEP terminated
such distribution agreement effective March 1995.
Through its office in Japan, the Company facilitates the licensing,
sale and distribution of the Company's products in the Japanese market
and focuses on the exploitation of properties on multiple delivery
formats for use in Japan. The Company currently intends to increase its
staff in Japan so that video games, floppy disk software and CD-based
products can be developed and published in Japan. To this end, the
Company may seek new development partners in Japan.
Distribution and marketing in Australia, New Zealand, Hong Kong,
Singapore, Taiwan, Korea and other Pacific Rim countries are handled
through the Company's office in Australia.
HARDWARE LICENSES
As a licensed developer for a broad variety of hardware platforms,
the Company seeks to reduce its reliance on the success of any single
delivery device. The Company's video game products currently are
designed for Nintendo, Sega, Atari and 3DO systems. The Company's
computer software products are sold for IBM compatible (both DOS and
Windows operating systems) and Apple Macintosh formats. The Company
holds multi-game licenses with both Nintendo and 3DO, as well as a game-
by-game license with Sega. For the past seven years without
interruption, Activision has been a Nintendo licensee. The Company's
relationships with Sega and 3DO began in 1984 and 1993, respectively.
MANUFACTURING
The Company's products consist of personal computer diskettes or CDs
encoded with a software program, or cartridges containing ROM attached to
a printed circuit board and housed in a molded plastic case, packaged
with instructional materials. All of the Company's products are
manufactured by third party subcontractors. In addition to products
which are manufactured in the United States, products intended for sale
in European markets are manufactured and packaged by subcontractors in
the United Kingdom, France and Italy.
The components used in the manufacturing process are widely
available from multiple sources, except for those used in Nintendo and
Sega cartridge products. While the Company typically does not encounter
significant supply problems, the availability of semiconductor or
magnetic media components used in producing cartridges or disks may be
limited during times of peak demand. Since ordering is required to be
made based upon manufacturing lead times, higher than usual demands on
the manufacturing capacity of the Company' subcontractors as well as the
subcontractors' commitments to other customers, could adversely impact
the Company's operations. Inventory levels required to meet market
delivery requirements are seasonal and depend on component and
manufacturing lead times.
The Company does not control the manufacture of Nintendo and Sega
cartridge products. The source code for each game title is provided by
the Company to Nintendo or to Sega, as the case may be, manufactures
finished cartridges and delivers them to the Company for distribution
under Company labels.
The Company's software titles carry a limited 90-day warranty.
Returns of defective products under warranty have historically averaged
approximately 2%.
COMPETITION
The video game and personal computer software industry is highly
competitive in both the United States and in foreign markets.
Competition in the industry principally is based upon strength in product
development, product quality, the compatibility of products with popular
computer systems, price, technical support, sales and distribution
support, and marketing effectiveness. Competitors range from small
companies with limited resources to large companies with substantially
greater financial, technical and marketing resources than those of the
Company. In addition, the Company believes that new competitors,
including large software companies and hardware manufacturers, are
increasing their focus on the consumer entertainment software market,
resulting in greater competition for the Company. Although barriers to
entry have increased due to the substantial cost of product development
and marketing, established competitors continually enter the market with
new titles.
A significant portion of the Company's completed products are
designed for use on Nintendo and Sega systems. The Company's primary
competitors in these product categories are Nintendo and Sega, which are
the largest developers and distributors of video game cartridges for
their respective systems. The Company also competes with over 65 other
companies licensed by Nintendo and a similar number of companies licensed
by Sega to develop software for use with Nintendo or Sega systems,
respectively.
Since 1988, the number of available video game titles has increased
substantially. The increased availability of video game software
cartridges due to the larger number of Nintendo and Sega licensees and
the emergence of a video game cartridge rental market has caused an
oversupply of cartridges in video game retail distribution channels.
This has caused a significant increase in competition for retail shelf
space and pricing pressure.
Over the past several years, the Company has focused its activities
on development and publishing video games for the Super NES and SGS and
entertainment software for IBM compatible computers and Apple Macintosh
computers. Due to dramatic changes in the video game business, the
Company is focusing its current development efforts on CD-based platforms
and away from video game cartridges and floppy disk-based software.
There can be no assurance that the Company's efforts to modify its
revenue base will be successful, and these efforts could be adversely
affected by the introduction of new types of hardware platforms and new
technological advances. In addition, there can be no assurance that the
current popularity of interactive entertainment products, and the
Company's ability to generate sales from these products, will continue.
The Company believes that the competitive factors in the
entertainment software and video game marketplace increase the need for
higher quality, distinctive entertainment software concepts. Competition
for titles, themes and characters from television, motion picture and
other media as the basis for "hit" entertainment software products has
increased. The need to produce entertainment software "hits" may result
in higher development costs, as potential licensees compete for a limited
number of media themes, titles and characters and incur substantial non-
refundable advance licensing fees and significant advertising expenses.
Such competition could result in increased financial risks involved in
the development of entertainment software products.
In addition, as the demand for more sophisticated software products
increases, competition is increasingly based on the quality of the
entertainment experiences provided. The ability to incorporate compelling
story lines or game experiences with sophisticated graphics, sound, and
ease of use present artistic as well as technical challenges. As
software becomes more complex, higher development costs could result,
further increasing the financial risks associated with software
development and publishing.
EMPLOYEES
As of June 22, 1995, the Company had the following full-time regular
employees:
Product Corporate,
Development Finance &
Total & Marketing Sales Operations
--------------------------------------------------------
United States 113 74 12 27
United Kingdom 3 1 2 -
Australia 2 - 2 -
Japan 2 - 2 -
--------------------------------------------------------
Total 120 75 18 27
========================================================
The Company from time to time engages temporary employees on both a
full-time and part-time basis. In addition to the persons set forth
above, the Company had approximately 69 of such temporary employees as of
June 22, 1995.
As of June 22, 1995, approximately 30 of the Company's full-time
employees were subject to term employment agreements with the Company.
These agreements commit such employees to employment terms of between one
and three years from the commencement of their respective agreements.
Most of the employees subject to such agreements are member of Activision
Studios and perform services to the Company as producers, associate
producers, computer programmers and game designers. The execution by the
Company of employment agreements with such employees significantly
reduces the Company's turnover during the development and production of
its entertainment software products and allows the Company to more
effectively plan for future development activities.
None of the Company's employees are subject to a collective
bargaining agreement, and the Company has experienced no labor-related
work stoppages.
TRADEMARKS, COPYRIGHTS AND PRODUCT PROTECTION
The Company actively seeks to protect its trade identity,
trademarks, copyrights and other proprietary information throughout the
world. The Company has registered "Activision" and "Infocom" as trade
names and trademarks and may seek to obtain copyright protection for its
software and trademark protection for each title where such protection is
deemed necessary. Copyright and trademark protection is also sought,
where appropriate, for proprietary computer source code, promotional
materials, software manuals and instructions, and point-of-purchase and
advertising materials.
Despite the legal and technical safeguards used by the Company, it
may be possible for competitors or users to copy the Company's products
or obtain information which the Company regards as trade secrets.
Generally, entertainment software cannot be patented, and existing
copyright laws and available technology afford only limited practical
protection. The Company believes that the rapid pace of technological
change in the computer software industry makes copyright protection of
less significance than such factors as the knowledge and experience of
management and software designers and the Company's ability to develop
and market its products.
(d) Financial Information about Foreign and Domestic Operations and
Export Sales
See Note 10 of Notes to Consolidated Financial Statements included
in Item 8.
Item 2. PROPERTIES
The Company's principal corporate, administrative, and product
development offices are located in approximately 36,000 square feet of
leased space in a building located at 11601 Wilshire Blvd., Los Angeles,
California. The lease in Los Angeles was entered into in November 1993
and expires on March 31, 1998. The following is a listing of all
premises maintained by the Company at March 31, 1995:
Location of
Principal Facilities Square Feet Lease Expiration Date
-------------------- ----------- ---------------------
Los Angeles, California 19,000 March 31, 1998
Los Angeles, California 17,000 March 31, 1996
London, United Kingdom 2,000 February 4, 1997
Tokyo, Japan 650 July 9, 1995
Sydney, Australia 400 Month-to-Month
The Company believes that its current physical facilities are
adequate for its current requirements. In the event the Company should
require additional facilities, management believes such facilities to be
readily available.
Item 3. LEGAL PROCEEDINGS
The Company is party to routine claims and suits brought against it
in the ordinary course of business including disputes arising over the
ownership of intellectual property rights and collection matters. In
the opinion of management, the outcome of such routine claims will not
have a material adverse effect on the Company's business, financial
condition or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1994 Annual Meeting of Stockholders on January
27, 1995 in Los Angeles. Four items were submitted to a vote of the
stockholders:
1. The election of six directors to hold office for one year terms
and until their respective successors are elected and have qualified.
All six nominees were recommended by the Board of Directors, and all
were elected. Set forth below are the results of the voting, for each
director.
For Withheld
Robert A. Kotick 9,534,479 2,785
Howard E. Marks 9,534,519 2,746
Keith C. Moore 9,534,519 2,745
Barbara S. Isgur 9,534,518 13,145
Steven T. Mayer 9,524,019 2,745
Martin J. Raynes 9,524,014 13,150
2. The adoption of an amendment to the Company's Amended and
Restated Certificate of Incorporation extending certain restrictions on
transfer of the Company's common stock until January 10, 1997. This
proposal was adopted by a vote of 8,440,293 in favor, 1,027,027
against, and 739 abstentions.
3. The adoption of an amendment to the Company's 1991 Stock Option
and Stock Award Plan to increase the number of shares of the Company's
Common Stock reserved for issuance thereunder from 566,667 to 2,066,667
shares. This proposal was adopted by a vote of 8,346,587 in favor,
76,262 against, and 3,447 abstentions.
4. The adoption of an amendment to the Company's 1991 Stock Option
and Stock Award Plan to expand the categories of persons eligible to
receive grants under the plan to include employees, consultants,
representatives and other contractors and agents of the Company, as
selected by the Stock Option Committee that administers the plan. This
proposal was approved by a vote of 9,424,921 in favor, 65,372 against,
and 2,028 abstentions.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
From March 1991 through October 21, 1993, the Company's Common Stock
traded in the over the counter market under the symbol "MGNC." On
October 22, 1993, the Company's symbol was changed to "ATVI." From
October 22, 1993, the Common Stock was quoted on the NASDAQ SmallCap
Market, and since January 26, 1995, the Common Stock has been quoted on
the NASDAQ National Market System.
The table below reflects the range of high ask and low bid closing
quotations, or high and low reported last sale prices, for each quarterly
period during the Company's two most recent fiscal years, as discussed
below. Prices are adjusted to reflect, retroactively, the 1-for-10
reverse stock split effected August 3, 1992 and the 1-for-3 reverse stock
split which was effected October 20, 1993.
Price quotations for the period through October 21, 1993 are the
high ask prices and the low bid prices for the periods indicated, and do
not reflect actual trades, if any, in the Common Stock. The Company has
no knowledge of the volume of actual trades in the Common Stock prior to
the time the Common Stock was listed on the NASDAQ SmallCap Market on
October 22, 1993. Price quotations for the period October 21, 1993 to
January 25, 1995 are the high and low reported last sale prices for the
Common Stock listed on the NASDAQ SmallCap Market; price quotations for
the period after January 25, 1995 are the high and low reported last sale
prices for the Common Stock listed on the NASDAQ National Market System.
High Low
Ask/Sale Bid/Sale
--------- ---------
Fiscal 1994
----------------
First Quarter ended June 30, 1993 $ 9 $ 3
Second Quarter ended September 30, 1993 $ 10-1/2 $ 4-1/2
Third Quarter:
through October 21, 1993 $ 15-3/4 $ 5-1/4
October 22 to December 31, 1993 $ 13-1/2 $ 9-7/8
Fourth Quarter ended March 31, 1994 $ 14 $ 8
Fiscal 1995
----------------
First Quarter ended June 30, 1994 $ 7-5/8 $ 5
Second Quarter ended September 30, 1994 $ 6-5/8 $ 4
Third Quarter ended December 31, 1994 $ 5-3/4 $ 3-1/4
Fourth Quarter ended March 31, 1995 $ 9 $ 5
Fiscal 1996
----------------
First Quarter:
through June 22, 1995 $ 7-1/8 $ 5-3/4
On June 22, 1995, the reported last sales price for the Common Stock
was $7.125. As of March 31, 1995, the Company had approximately 5,500
stockholders of record, excluding banks, brokers and depository companies
that are the stockholders of record for the account of beneficial owners.
The Company has not paid any dividends on Common Stock since its
inception. The Company presently intends to retain future earnings to
finance the operation of its business and does not anticipate declaring
cash dividends in the foreseeable future.
Restriction on Sales and Purchases of the Common Stock by Certain
Persons. The Company's Amended and Restated Certificate of Incorporation
includes provisions that limit transfers of shares of the Company's
Common Stock, or options, warrants or other securities convertible into
or exercisable for shares of the Company's Common Stock, to or from
persons who, before the transfer, own in excess of 4.75% of the
outstanding Common Stock, or to persons who, after the attempted
transfer, would own more than 4.75% of the outstanding shares of the
Company's Common Stock (the "Transfer Restrictions"). For purposes of
the computation of such percentage, all outstanding options, warrants and
convertible securities are deemed to have been exercised or converted.
The Company has substantial accumulated net operating losses and tax
credit carryforwards that it believes were preserved after its bankruptcy
reorganization in 1992 and may be available to reduce future taxable
income, if any, of the Company. At March 31, 1995 the Company had, for
federal income tax reporting purposes, an immediately available net
operating loss carryforward of approximately $41.5 million. The net
operating loss carryforwards expire from 1999 to 2009. These net
operating losses and tax credits could be eliminated or reduced if a
"change in ownership" within the meaning of Section 382 the Internal
Revenue Code of 1986 (the "Code") were to take place. The Transfer
Restrictions have been included in the Certificate of Incorporation to
ensure that a "change of ownership" does not take place without
consideration of the circumstances and approval by the Board of
Directors.
The Transfer Restrictions terminate on the earlier to occur of (i)
January 10, 1997, (ii) the repeal of Section 382 of the Code (which
provides for reduction or elimination of certain tax benefits upon a
change of ownership), or (iii) the beginning of a taxable year of the
Company to which no Tax Benefits (as defined in the Certificate of
Incorporation) may be carried forward. In addition, the Transfer
Restrictions can be terminated and abandoned, or their imposition
deferred for a reasonable period, if in the opinion of the Board of
Directors such action would be in the best interests of the Company and
its stockholders. The Transfer Restrictions can also be waived by the
Board in its discretion upon the request of a transferor or transferee of
the Company's Common Stock. It is likely that the Board would request an
opinion or other advice from tax counsel before granting any such
request. The extension of the Transfer Restrictions from January 10,
1995 to January 10, 1997 was approved by the stockholders at the Annual
Meeting of Stockholders held on January 27, 1995.
In January, 1994, the Company completed a private placement of
Common Stock and a simultaneous recapitalization transaction in which all
then outstanding preferred stock of the Company was either redeemed or
converted into Common Stock. This transaction resulted in a "change of
ownership" of the Company within the meaning of Section 382 of the Code.
The Company does not believe, however, that such change resulted in the
elimination or reduction of any of the Company's accumulated net
operating losses or tax credit carryforwards. As a result of the change
in ownership, however, the ability of the Company to utilize such losses
and credits may be subject to annual limitations.
Merger Transfer Restrictions. In connection with the ICT Merger
(described in Item 1), certain further restrictions were imposed on the
sale or transfer of the shares of the Company's common stock held by the
former stockholders of ICT. Pursuant to the merger agreement, none of
such holders may transfer or sell any of their shares of common stock
received as a result of the merger, without the prior approval of the
Company's Board of Directors, until after December 31, 1997.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following tables summarize certain selected consolidated financial
data, which should be read in conjunction with the Company's Consolidated
Financial Statements and with Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere herein.
The selected consolidated financial data presented below as of and for
each of the fiscal years in the five-year period ended March 31, 1995
are derived from the consolidated financial statements of the Company,
which financial statements have been audited by Coopers & Lybrand L.L.P.,
independent accountants. The Consolidated Financial Statements as of
March 31, 1995 and 1994 and for each of the fiscal years in the three-
year period ended March 31, 1995, and the report thereon, are included
elsewhere in this Form 10-K.
(IN THOUSANDS, EXCEPT PER SHARE DATA, RATIOS AND EMPLOYEE DATA)
Years ended March
31,
--------------------------------------------------------------
Predecessor Reorganized
Company (1) Activision (1)
------------------ ----------------------------------------
1991 1992(2) 1992(3) 1993 1994 1995
STATEMENT OF OPERATIONS DATA:
Net revenues $28,763 $7,102 $2,066 $21,069 $26,604 $40,669
Gross Profit 6,226 3,253 1,309 9,535 11,293 19,376
EBITDA (4) (21,452) (963) 195 1,525 (366) (1,015)
Operating income (loss) (25,462) (1,121) 136 (208) (2,031) (2,957)
Income (loss) before provision for income taxes (26,635) (1,645) 137 (217) (1,853) (1,365)
Net income (loss) from continuing operations (26,838) (1,749) 64 (279) (1,987) (1,520)
Loss from discontinued operations - - - (1,100) - -
Net income (loss) (26,838) (1,749) 64 (1,379) (1,987) (1,520)
Accumulated, unpaid preferred dividends - - - (3,163) (3,296) -
Earnings (loss) per common share from
continuing operations (5) $(189.44) $(12.32) $0.02 $(1.01) $(0.97) $(0.11)
Earnings (loss) per common share (5) (189.44) (12.32) 0.02 (1.33) (0.97) (0.11)
Weighted average number of shares used in
computing net income (loss) per common
share (5) 142 142 3,129 3,412
5,432 13,944
OTHER OPERATING DATA:
Average number of employees 188 44 18 60
62 93
Net revenues per employee (in thousands) $153 $215 $459 $351
$429 $437
As of March 31,
------------------------------------------------------------
Predecessor Reorganized
Company (1) Activision (1)
-------------------- ---------------------------------
1991 1992 1993 1994 1995
BALANCE SHEET DATA:
Cash and cash equivalents $1,581 $1,509 $1,851 $38,093 $37,355
Working capital (15,466) (678) 5,261 41,218 40,648
Intangible assets - 420 23,429 22,146 20,863
Total assets 4,817 2,789 34,580 68,677 68,883
Long-term debt - - - - -
Redeemable preferred stock (6) - - 25,200 - -
Preferred shareholders' equity (7) - - 4,603 - -
Common shareholders' equity (14,737) 88 (792) 63,985 62,704
(1) For purposes of this presentation, the Company prior to the January 9,
1992 effective date of its Plan of Reorganization (the "Plan of
Reorganization") under Chapter 11 of Title 11 of the United States Code
(the "Bankruptcy Code") is referred to as the "Predecessor Company," and
the Company, after the effective date of the Plan of Reorganization, is
referred to as "Reorganized Activision."
(2) Period from April 1, 1991 to January 8, 1992.
(3) Period from January 9, 1992, the effective date of the Plan of
Reorganization, to March 31, 1992.
(4) EBITDA represents operating income (loss) plus depreciation and
amortization.
(5) Reflects the Company's 1-for-10 reverse stock split effective August
3, 1992 and the 1-for-3 reverse stock split effective October 20, 1993.
Accordingly, previously reported earnings (loss) per share and common
share amount have been retroactively restated.
(6) Does not include accrued dividends of $3,163 as of March 31, 1993.
(7) Represents $5,000 of gross proceeds received from the sale of Series
AA Preferred Stock, less offering expenses and the amount allocated to
warrants sold at the time. See Note 3 of Notes to Consolidated Financial
Statements included in Item 8.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table is a comparative breakdown of net revenues by
territory (in thousands):
Percent
Increase Percent
Fiscal Year ended (Decrease) of Worldwide Revenues
March 31, -------------Year ended March 31,
------------------------- '95 vs '94 vs ----------------------
1995 1994 1993 '94 '93 1995 1994 1993
------ ------ ------ ------ ------ ------ ------ ------
North America:
- --------------
Product sales:
Video games $19,465 $ 7,742 $ 1,919 151% 303% 48% 29% 9%
Computer software 9,311 8,327 4,463 12% 87% 23% 32% 21%
Merchandising 175 1,627 505 (89)% 222% - 6% 2%
------ ------ ------ ------ ------ ------ ------ ------
28,951 17,696 6,887 64% 157% 71% 67% 32%
Merchandising Design
Services 375 2,309 378 (84)% 511% 1% 9% 2%
Licensing 166 171 166 (3)% 3% - 1% 1%
------- ------- ------- ------ ------ ------ ------ ------
Total North America 29,492 20,176 7,431 46% 172% 72% 77% 35%
------- ------- ------- ------ ------ ------ ------ ------
Europe:
- -------
Product sales:
Video games 6,352 1,926 5,834 230% (67)% 16% 7% 28%
Computer software 814 1,183 2,020 (31)% (41)% 2% 4% 10%
Merchandising - 1,072 3,443 (100)% (69)% - 5% 16%
------- ------- ------- ------ ------ ------ ------ ------
7,166 4,181 11,297 71% (63)% 18% 15% 54%
Licensing 408 2 410 *% (100)% 1% - 2%
------- ------- ------- ------ ------ ------ ------ ------
Total Europe 7,574 4,183 11,707 81% (64)% 19% 15% 56%
------- ------- ------- ------ ------ ------ ------ ------
Japan:
- ------
Product Sales
Video Games 270 300 - (10)% - 1% 1% -
Computer Software 30 - - - - - - -
Merchandising 11 108 - (90)% - - - -
------- ------- ------- ------ ------ ------ ------ ------
311 408 - (24)% - 1% 1% -
Licensing 1,883 954 673 97% 42% 4% 4% 3%
------- ------- ------- ------ ------ ------ ------ ------
Total Japan 2,194 1,362 673 61% 102% 5% 5% 3%
------- ------- ------- ------ ------ ------ ------ ------
Australia and New Zealand:
- --------------------------
Product Sales
Video Games 533 118 447 352% (74)% 1% - 2%
Computer Software 645 565 362 14% 56% 2% 2% 2%
Merchandising 231 189 407 22% (54)% 1% 1% 2%
------- ------- ------- ------ ------ ------ ------ ------
1,409 872 1,216 62% (28)% 4% 3% 6%
Licensing - 11 42 (100)% (74)% - - -
------- ------- ------- ------ ------ ------ ------ ------
Total Australia
and New Zealand 1,409 883 1,258 60% (30)% 4% 3% 6%
------- ------- ------- ------ ------ ------ ------ ------
Total Worldwide
Net Revenues $40,669 $26,604 $21,069 53% 26% 100% 100% 100%
======= ======= ======= ====== ====== ====== ====== ======
* Percentage increase is greater than 1,000%.
RESULTS OF OPERATIONS: FISCAL YEAR ENDED MARCH 31, 1995 AS COMPARED TO THE
FISCAL YEAR ENDED MARCH 31, 1994
Net Revenues
Net revenues for the fiscal year ended March 31, 1995 increased 53% over
the prior year, primarily from increased sales of new computer software and
video game titles as well as continued sales of previously released computer
software titles. Net revenues for the fiscal year ended March 31, 1995
include revenues from the initial releases of "Pitfall: the Mayan Adventure"
(Super NES, SGS, and Sega CD), "Radical Rex" (Super NES, SGS and Sega CD),
"Activision's Atari 2600 Action Pack" (PC CD), "Shanghai: Great Moments" (PC
CD), and "Shanghai: Triple Threat (3DO)." North American computer software
net revenues also increased as a result of continued OEM and retail sales of
"Return to Zork" on PC CD, Apple Macintosh CD, and Reel Magic MPEG CD.
European video game net revenues resulted from sales to a single distributor
under an exclusive distribution agreement. In Japan, licensing net revenues
increased as a result of the licensing of additional properties, including
"Return to Zork" and "Shanghai."
Cost of Goods Sold
Cost of goods related to product sales represents the manufacturing cost
of computer software and video games, while cost of goods related to
merchandising design services represents the costs related to providing such
merchandising design services including costs of personnel, subcontractors
and materials. The Company uses outside parties to fulfill all of its
manufacturing requirements. Manufacturers of the Company's computer software
and video game CD-based software are located in the United States and Europe
and are readily available. Video game cartridges are manufactured by the
respective video game console manufacturers, Nintendo and Sega, who require
significant lead time for the Company's orders.
Included in cost of goods related to product sales are royalty
expenses related to amounts due to the developers or title owners on product
sales. Cost of sales related to license revenues consists entirely of such
royalty expenses. Various contracts are maintained with developers and
product title owners. These contracts provide, among other things, a royalty
rate for a specified term. The increase in cost of goods sold is directly
related to the overall increase in net revenues.
Gross Profit
Year Ended March 31, 1995 Year Ended March 31, 1994
Gross Profit Gross Profit
Amount Percentage Amount Percentage
Gross profit:
Product sales, net $ 16,845 44.5% $ 9,418 40.7%
License revenue 2,422 98.6% 1,055 92.7%
Merchandising design services 109 29.1% 820 35.5%
--------- ---------- ---------- ----------
Total gross profit $ 19,376 7.6% $ 11,293 42.4%
========= ========= ========== ==========
Gross profit fluctuates based upon the revenue mix. The gross profit
percentage on product sales, net, increased in fiscal 1995 as a result of an
increase in CD-based software revenues during the fiscal year ended March 31,
1995. CD-based software, both computer software-based and console-based,
typically has a higher gross profit percentage than floppy disk-based and
cartridge-based software. Licensing revenue as a percentage of total net
revenues increased to 6% during the fiscal year ended March 31, 1995 from 4%
during the fiscal year ended March 31, 1994. As licensing revenue generally
yields a higher gross profit margin (because no manufacturing costs are
involved), this sales mix fluctuation resulted in an increased gross profit
percentage for the 1995 fiscal year. The Company expects gross profit
margins to increase during the fiscal year ended March 31, 1996, as the
product mix includes a higher percentage of CD-based products.
Operating Expenses
Year Ended March 31,
1995 1994
% of Net % of Net
Amount Revenues Amount Revenues
Product development $ 7,274 17.9% $ 4,380 16.5%
Sales and marketing 10,410 25.6% 5,013 18.8%
General and administrative 3,366 8.3% 2,648 10.0%
Amortization of intangible assets 1,283 3.2% 1,283 4.8%
------- ------- ------- -------
Total operating expenses $ 22,333 55.0% $ 13,324 50.1%
====== ====== ======= ======
Total operating expenses increased as a percentage of revenues as a
result of a combination of an increase in product development expenses and
sales and marketing expenses, and a decrease in general and administrative
expenses. Product development expenses increased both in amount and as a
percentage of revenues due to an increase in the number of products put into
product development during the 1995 fiscal year as compared to the prior
year. Sales and marketing expenses also increased both in amount and as a
percentage of revenues as a result of the marketing and promotional activity
related to "Pitfall: the Mayan Adventure," which included a substantial
television, radio and print advertising campaign. In addition, product
development and sales and marketing expenses increased in amount as a result
of increased headcount and related expenses. General and administrative
expenses increased in amount due to an increase in headcount related
expenses, but decreased as a percentage of revenues due to the increase in
revenues discussed above.
Amortization of excess purchase price and reorganization expenses
represents the amortization of the excess purchase price over identifiable
assets acquired from the acquisition of Disc Company, Inc. on April 1, 1992.
This asset is being amortized on a straight line basis over a 20-year period.
See Note 4 of Notes to Consolidated Financial Statements included in Item 8.
Also included in the amortization amount is the amortization of capitalized
reorganization costs, which are being amortized using a straight line method
over a five-year period.
Operating Income (Loss)
Year Ended March 31,
1995 1994
Operating loss ($2,957) ($2,031)
Operating loss as a percentage
of net revenues (7.3%) (7.6%)
Operating loss in total increased in the current period due to the increase
in operating expenses, as discussed above.
Other Income (Expense)
Interest income increased to $1,592,000 for the fiscal year ended March
31, 1995 from $178,000 for the fiscal year ended March 31, 1994 as a result
of the increase in cash and cash equivalents that resulted from the Common
Stock private placement completed in January, 1994. See "Liquidity and
Capital Resources."
Provision for Income Taxes
The income taxes recorded in the provision for income taxes of $155,000
and $134,000 for the years ended March 31, 1995 and 1994, respectively,
represent foreign taxes withheld. These foreign taxes may be available in
the future as tax credits against future tax liability. In addition, the
Company has significant net operating losses which may be carried forward
against current and future taxable income for federal, state and foreign tax
purposes.
Net Loss
For the reasons noted above, there was a decrease in the net loss
recorded for the year ended March 31, 1995 as compared to the net loss for
the prior year.
RESULTS OF OPERATIONS: FISCAL YEAR ENDED MARCH 31, 1994 AS COMPARED TO THE
FISCAL YEAR ENDED MARCH 31, 1993
Net Revenues
Net revenues increased for the fiscal year ended March 31, 1994 by 26%
over the prior year, primarily from increased sales of new computer software
and video game titles as well as continued sales of previously released
computer software titles.
Net revenues for the North American territory for the fiscal year ended
March 31, 1994 include revenues from the initial releases of "Mechwarrior"
(Super NES), "Alien vs. Predator" (Super NES and Game Boy), "Biometal"
(Super NES), "X-Kaliber" (Super NES), "Shanghai" (SGS), "Popeye II" (Game
Boy), "Real Ghostbusters" (Game Boy), "Return to Zork" (PC Floppy and PC CD),
"Simon the Sorcerer" (PC Floppy), "Richard Scarry's Best Neighborhood Ever"
(PC CD), "Richard Scarry's Busiest Neighborhood Ever" (PC CD), "Shanghai II"
(Windows) and "Mac Best Sellers" (Macintosh). Net revenues for the European
territory for the fiscal year ended March 31, 1994 include revenues from the
initial releases of "Mechwarrior" (Super NES), "Alien vs. Predator" (Super
NES), "Biometal" (Super NES) and "Return to Zork" (PC Floppy and PC CD). Net
revenues for the Japanese territory for the fiscal year ended March 31, 1994
include the initial releases of "Plok" (Super NES) and "Mac Best Sellers"
(Macintosh), while net revenues for the Australian territory for the fiscal
year ended March 31, 1994 include revenues from the initial releases of
"Mechwarrior" (Super NES), "Alien vs. Predator" (Super NES), "Biometal"
(Super NES), "Return to Zork" (PC Floppy and PC CD) and "Simon the Sorcerer"
(PC Floppy).
North American net revenues increased in fiscal 1994 due to the
Company's expanded operations in the United States and the initial releases
noted above. Additionally, the Company recorded increased merchandising
design service revenues generated by Activision Merchandising. European
video game sales decreased in fiscal 1994 as a result of increased
competition and pricing pressure as a result of changes in the Japanese yen
against European currencies. The decrease in European computer software and
merchandising revenues is the result of the Company's European restructuring.
See "Discontinued Operations." In Japan, the Company began publishing
software and video games directly for the first time during fiscal 1994.
Cost of Goods Sold
Cost of goods related to product sales represents the manufacturing cost
of computer software and video games. Cost of goods related to merchandising
design services represents the costs related to providing such merchandising
design services including costs of personnel, subcontractors and materials.
The Company uses outside parties to fulfill all of its manufacturing
requirements. Manufacturers of the Company's computer software are located
in the United States and Europe and are readily available. Video game
cartridges are manufactured by the respective video game console
manufacturers, Nintendo and Sega, who require significant lead time for the
Company's orders.
Included in cost of goods related to product sales is royalty
expense related to amounts due to the developers or title owners on product
sales. Cost of sales related to license revenues consists entirely of such
royalty expense. Various contracts are maintained with developers and
product title owners which state a royalty rate and term of agreement, among
other items. The increase in cost of goods sold is directly related to the
increase in net revenues, increase in reserves for video game inventory and
the higher concentration of sales in the video game and merchandising design
services categories for the fiscal year ended March 31, 1994 as compared to
the fiscal year ended March 31, 1993.
Gross Profit
Year Ended March 31, 1994 Year Ended March 31, 1993
Gross Profit Gross Profit
Amount Percentage Amount Percentage
Gross profit:
Product sales, net $ 9,418 40.7% $ 8,401 43.3%
License revenues-Other 1,055 92.7% 1,021 79.1%
Merchandising design services 820 35.5% 113 29.9%
------- ------ ------ ------
Total gross profit $ 11,293 42.4% $ 9,535 45.3%
====== ====== ====== ======
Gross profit fluctuates based upon the revenue mix. Licensing revenue
as a percentage of net revenues decreased during the year ended March 31,
1994, as product sales increased. The increase in product revenues for the
fiscal year ended March 31, 1994 is due to an increase in the number of
products released during the 1994 fiscal year as compared to the prior year.
As licensing revenue generally yields a higher gross profit margin (because
no manufacturing costs are involved), this sales mix fluctuation resulted in
a decreased gross profit percentage for the 1994 fiscal year. In addition,
the gross profit percentage for fiscal 1994 decreased as a result of the
addition of costs associated with merchandising services revenues, which had
a lower gross profit percentage than product sales.
Operating Expenses
Year Ended March 31,
1994 1993
% of Net % of Net
Amount Revenues Amount Revenues
Product development $ 4,380 16.5% $ 2,592 12.3%
Sales and marketing 5,013 18.8% 2,386 11.3%
General and administrative 2,648 10.0% 3,482 16.5%
Amortization of intangible assets 1,283 4.8% 1,283 6.1%
------ ------ ------ -----
Total operating expenses $ 13,324 50.1% $ 9,743 46.2%
====== ====== ====== ======
Total operating expenses increased as a percentage of revenues as a
result of a combination of an increase in product development expenses, an
increase in sales and marketing expenses and a decrease in general and
administrative expenses. Product development expenses increased both in
amount and as a percentage of revenues due to an increase in the number of
products put into product development during the 1994 fiscal year as compared
to the prior year. Sales and marketing expenses also increased both in
amount and as a percentage of revenues as a result of expanded marketing
programs for both specific product releases and corporate awareness and
advertising. In addition, sales and marketing expenses include expenses that
are variable in nature and based on sales, such as outside sales commissions
and co-op advertising. General and administrative expenses decreased both
in amount and as a percentage of revenues primarily due to the Company's
European administrative restructuring which occurred at the end of fiscal
1993 when the Company moved all of its European administrative, finance and
corporate operations and functions to its existing Los Angeles facility. The
move of such operations and functions reduced worldwide administrative and
finance personnel and related costs. The decrease in general and
administrative expenses for the year ended March 31, 1994 was offset by an
approximately $295,000 additional provision to the bad debt reserve for
collection risk associated with sales to a single original equipment
manufacturer (OEM) customer.
Amortization of excess purchase price and reorganization expenses
represents the amortization of the excess purchase price over identifiable
assets acquired from the acquisition of Disc Company, Inc. on April 1, 1992.
See Note 4 of Notes to Consolidated Financial Statements included in Item 8.
This asset is being amortized on a straight line basis over a 20-year period.
Also included in the amortization amount is the amortization of capitalized
reorganization costs, which are being amortized using a straight line method
over a five year period.
Operating Income (Loss)
Year Ended March31,
1994 1993
Operating loss $ (2,031) $ (208)
Operating loss as a percentage of net revenues (7.6%) (1.0%)
Operating loss in total increased in the current period due to the
increase in operating expenses and a decrease in gross profit percentage
noted above.
Other Income (Expense)
Interest income increased to $178,000 for the fiscal year ended March
31, 1994 from net interest expense of $9,000 for the fiscal year ended March
31, 1993 as a result of the increase in cash and cash equivalents that
resulted from the Common Stock private placement completed in January, 1994.
See "Liquidity and Capital Resources."
Provision for Income Taxes
The income taxes recorded in the provision for income taxes of $62,000
and $134,000 for the years ended March 31, 1994 and 1993, respectively,
represent foreign taxes withheld. These foreign taxes may be available in
the future as tax credits against future tax liability. In addition, the
Company has significant net operating losses which may be carried forward
against current and future taxable income for federal, state and foreign tax
purposes.
Discontinued Operations
On November 1, 1992, certain of the Company's European subsidiaries
adopted plans to reduce the scope of operations for the Foreign Language
Computer Software Publishing business ("FLCSP"). During the fourth quarter
of the Company's fiscal year ended March 31, 1993, these plans were expanded
to encompass a formal plan to terminate and dissolve FLCSP. As of March 31,
1994 the dissolution process was substantially complete, and no further
losses or costs were incurred during the 1994 fiscal year related to FLCSP.
In general, the plan provided for the liquidation of all accounts receivable,
inventory and equipment and the orderly payment and settlement of the
subsidiary's outstanding liabilities. The operations of the FLCSP business
were conducted in a European subsidiary which, as of March 31, 1994, was in
formal liquidation in connection with the termination of this business. The
liabilities exceeded assets on this subsidiary, and, accordingly, the assets
of this subsidiary are not sufficient to satisfy its claims in full. The
allocation of assets to satisfy such claims will be handled in accordance
with local statutory requirements.
Operating results of the FLCSP business for the period from April 1 to
November 1, 1992 reflect an operating loss of $277,000. Net sales of the
FLCSP business for the phase out period were $673,000 and were not included
in net sales from continuing operations.
The loss on the dissolution of the FLCSP business was approximately
$823,000, including estimated operating losses during the phase-out period of
$186,000.
SEASONALITY
Revenues and profits are extremely seasonal in the software publishing
industry with the fourth calendar quarter generally considered the strongest
due to increased sales for the holiday season. The Company participates in a
highly dynamic and volatile industry, which is affected by seasonality,
changing technology, limited platform cycles, hit products, competition,
components supplies, consumer spending and economic trends and other factors.
In addition, factors specific to the Company such as the timing and
availability of new video game and computer software titles may affect the
predictability of financial results and may contribute further to the
volatility of the price of the Common Stock. As a result of the foregoing
factors, the Common Stock price has experienced significant volatility
historically, and may be subject to continued volatility.
As well as the historically volatile elements noted, the industry is
expected to undergo significant change due in part to the introduction or
planned introduction of numerous new hardware platforms and electronic
delivery systems and the entry and participation of new industries and
companies in interactive media. The difficulties in predicting which such
platforms will be commercially successful, and the timing of such, and which
new companies entering the interactive arena will have a material impact on
the industry, cause additional uncertainty in predicting financial results of
the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased approximately $1.4 million from
March 31, 1994 to March 31, 1995. The Company had approximately $37.3
million in cash and cash equivalents at March 31, 1995. The decrease in
working capital and cash and cash equivalents was attributable primarily to
an increase in property and equipment. At March 31, 1995, net accounts
receivable and inventories were approximately $7.5 million, an increase of
approximately $3.1 million from approximately $4.4 million as of March 31,
1994. This increase is primarily due to an increase in accounts receivable
related to the increase in net revenues.
As of March 31, 1995, accounts payable and accrued liabilities were
approximately $2.5 million and $3.2 million, respectively. Total current
liabilities increased $1.5 million from $4.2 million at March 31, 1994 to
$5.7 million at March 31, 1995 as a result of an increase in selling and
marketing expenses during the year ended March 31, 1995
As of March 31, 1993, the Company consummated a private placement (the
"Preferred Private Placement") of Series AA Preferred Stock ("Series AA
Stock") and warrants to purchase its Common Stock resulting in net proceeds
of approximately $4.9 million. The Company used the net proceeds received
from the Preferred Private Placement for the acquisition of intellectual
property rights for new products, product development activities, working
capital purposes, including the funding of letters of credit as needed for
inventory purchases from Nintendo, Sega and other manufacturers, to increase
staffing of the Company at various levels, including in the Activision
Studios product development area, and for general corporate purposes.
On January 31, 1994, the Company completed a private placement (the
"Common Stock Private Placement") of 5,003,006 shares of its Common Stock at
a price of $8.50 per share. The Company received net proceeds from the
Common Stock Private Placement of approximately $39.5 million. The Company
has used, or intends to use, the proceeds of the Common Stock Private
Placement for the acquisition of intellectual property rights for future
products and the funding of product development, for working capital
purposes, including the funding of letters of credit as needed for inventory
purchases from Nintendo, Sega and other manufacturers, for the purchase of
$2.2 million of its Series AA Stock, and for general corporate purposes.
In May 1995, the Company's revolving credit and letter of credit
facility expired. Prior to its expiration, availability under the facility
was $6.5 million and was as high as $15 million from September 1994 to
December 1994. The facility provided the Company the ability to borrow funds
and issue letters of credit against deposits and eligible domestic accounts
receivable up to $15 million and $6.5 million, respectively. The facility was
due on demand and repayment could be required at the discretion of the bank.
The Company is required to issue letters of credit to vendors for the
purchase of video game cartridges. Letters of credit outstanding as of March
31, 1995 totaled $59,000. The Company had no borrowings outstanding against
the facility as of March 31, 1995. Management is in discussions with the
bank regarding a new the facility on substantially similar terms and
conditions.
Management believes that the Company's existing capital resources are
sufficient to meet its requirements for the foreseeable future. The
Preferred Private Placement and the Common Stock Private Placement have
provided, and will continue to provide, the Company greater resources to
enable it to acquire properties for development, engage in more extensive
product development and expand marketing activities, and increased working
capital for operations.
The Company's management currently believes that inflation has not had,
and will not have in the foreseeable future, a material impact on continuing
operations.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Accountants F-1
Consolidated Balance Sheets as of March 31, 1995 and 1994 F-2
Consolidated Statements of Operations for the years ended
March 31, 1995, 1994 and 1993 F-3
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended March 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash flows for the Years Ended
March 31, 1995, 1994 and 1993 F-5
Notes to Consolidated Financial Statements F-6
Schedule II-Valuation and Qualifying Accounts and Reserves
as of March 31, 1995, 1994 and 1993 F-17
All other schedules of the registrant are omitted because of the
absence of conditions under which they are required or because the
required information is included elsewhere in the financial statements
or in the notes thereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to
the sections of the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on September 15, 1995, entitled
"Election of Directors" and "Executive Officers and Key Employees" to be
filed with the Securities Exchange Commission within 120 days after the
end of the fiscal year covered by this Form 10-K.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the sections of the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on September 15, 1995, entitled
"Executive Compensation" and "Indebtedness of Management" to be filed
with the Securities Exchange Commission within 120 days after the end of
the fiscal year covered by this Form 10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the sections of the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on September 15, 1995, entitled
"Security Ownership of Certain Beneficial Owners and Management" to be
filed with the Securities Exchange Commission within 120 days after the
end of the fiscal year covered by this Form 10-K.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the sections of the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on September 15, 1995, entitled
"Certain Relationships and Related Transactions" to be filed with the
Securities Exchange Commission within 120 days after the end of the
fiscal year covered by this Form 10-K.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1.Financial Statements See Item 8. - Consolidated
Financial Statements and Supplementary Data Index for
Financial Statements and Schedules on page 30 herein.
2. Financial
Statement Schedules See Item 8. - Consolidated Financial
Statements and Supplementary Data Index for Financial
Statements and Schedules on page 30 herein.
3. Exhibits
Required by Item 601 of Regulation S-K
Exhibit
Number Exhibit
2.1Plan of
Reorganization of the Company, as confirmed by the
United States Bankruptcy Court for the Northern
District of California on November 25, 1991
(incorporated by reference to Exhibit 28.2 of the
Company's Current Report on Form 8-K dated October 4,
1991).
2.2Plan and
Agreement of Merger, dated March 30, 1992, among the
Company, Disc Company, Inc. and International
Consumer Technologies Corporation (incorporated by
reference to Exhibit 28.1 of the Company's Current
Report on Form 8-K dated March 31, 1992).
2.3Agreement and
Plan of Merger between Activision, Inc., a California
corporation, and Activision, Inc., a Delaware
corporation, as filed with the Secretary of State of
the State of Delaware (incorporated by reference to
Exhibit 4.7 of Amendment No. 1 to the Company's Form
S-8, Registration No. 33-48411 filed on June 1,
1993).
2.4Plan and
Agreement of Merger, dated October 28, 1994, among
the Company, ACTV Acquisition, Inc. and International
Consumer Technologies Corporation (incorporated by
reference to Exhibit 2.4 of the Company's Quarterly
Report on Form 10-Q for the period ended December 31,
1994).
3.1Amended and
Restated Articles of Incorporation of Activision,
Inc., dated October 15, 1992 (incorporated by
reference to Exhibit 4.5 of Amendment No. 1 to the
Company's Form S-8, Registration No. 33-48411 filed
on June 1, 1993).
3.2Bylaws of
Activision, Inc. (incorporated by reference to
Exhibit 4.6 of Amendment No. 1 to the Company's Form
S-8, Registration No. 33-48411 filed on June 1,
1993).
4.1Certificate of
Designations, Preferences and Rights of Series AA
Preferred Stock, $.000001 par value, of Activision,
Inc., as filed with the Delaware Secretary of State
on March 29, 1993 (incorporated by reference to
Exhibit 28.2 of the Company's Current Report on Form
8-K dated April 19, 1993).
10.1Warrant
Certificate for the purchase of 21,000,000 shares of
Common Stock, issued to International Consumer
Technologies Corporation pursuant to the merger
transaction (incorporated by reference to Exhibit
28.4 of the Company's Current Report on Form 8-K
dated March 31, 1992).
10.2Purchase
Agreement, dated as of March 29, 1993, between
Activision, Inc. and the Purchasers listed therein
(incorporated by reference to Exhibit 28.1 of the
Company's Current Report on Form 8-K dated April 19,
1993).
10.3Form of Private
Placement Warrant Certificate (incorporated by
reference to Exhibit 28.3 of the Company's Current
Report on Form 8-K dated April 19, 1993).
10.4Agreement,
dated as of March 31, 1993, among International
Consumer Technologies Corporation, Activision, Inc.
and the Purchasers listed therein (incorporated by
reference to Exhibit 28.4 of the Company's Current
Report on Form 8-K dated April 19, 1993).
10.5Agreement,
dated as of March 31, 1993, among the stockholders
listed therein and Activision, Inc. (incorporated by
reference to Exhibit 28.5 of the Company's Current
Report on Form 8-K dated April 19, 1993).
10.6Letter
Agreement, dated April 14, 1993 among Activision,
Inc. and the Purchasers listed therein (incorporated
by reference to Exhibit 28.6 of the Company's Current
Report on Form 8-K dated April 19, 1993).
10.7Mediagenic 1991
Stock Option and Stock Award Plan, as amended
(incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-8,
Registration No. 33-91074, filed on April 8, 1995).
10.8Mediagenic 1991
Director Warrant Plan as amended (incorporated by
reference to Exhibit 28.2 to the Company's
Registration Statement on Form S-8, Registration No.
33-63638, filed on June 1, 1993).
10.9Purchase
Agreement, dated as of January 24, 1994, among the
Company and each purchaser who is a signatory thereto
(incorporated by reference to Exhibit 28.1 of the
Company's Form 8-K filed February 9, 1994).
10.10 Registration Rights Agreement, dated as of
January 31, 1994, among the Company and each purchaser
who is a signatory thereto (incorporated by reference
to Exhibit 28.2 of the Company's Form 8-K filed
February 9, 1994).
10.11 Share Exchange and Recapitalization
Agreement, dated as of January 14, 1994, among the
Company, International Consumer Technologies
Corporation, Steven Wynn, J.F. Shea Co., Inc. as
Nominee 1993-6 and ESL Partners, L.P. (incorporated by
reference to Exhibit 28.3 of the Company's Form 8-K
filed February 9, 1994).
10.12 Registration Rights Agreement, dated as of
January 31, 1994, among the Company, International
Consumer Technologies Corporation, Steven Wynn, J.F.
Shea Co., Inc. as Nominee 1993-6 and ESL Partners,
L.P. (incorporated by reference to Exhibit 28.4 of the
Company's Form 8-K filed February 9, 1994).
10.13 Revolving Credit Loan Agreement, dated as of
September 3, 1993, among the Company and Comerica Bank-
California (incorporated by reference to Exhibit 10.13
of the Company's Form 10-K for the year ended March
31, 1994).
10.14 Lease Agreement, as amended, dated as of
November 29, 1993, among the Company and 11601
Wilshire Associates (incorporated by reference to
Exhibit 10.14 of the Company's Form 10-K for the year
ended March 31, 1994).
11Statement
regarding computation of per share earnings
21Principal
Subsidiaries of the Company
23Consent of
Independent Accountants
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: June 28, 1995
ACTIVISION, INC.
By: /s/ Robert A. Kotick
- ---------------------------------
(Robert A. Kotick)
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Robert A. Kotick Chairman, Chief Executive June 28, 1995
(Robert A. Kotick) Officer (Principal Executive
Officer), President and Director
/s/ Keith C. Moore Chief Operating Officer June 28, 1995
(Keith C. Moore) and Director
/s/ Howard E. Marks Senior Vice President June 28, 1995
(Howard E. Marks) and Director
/s/ Brian G. Kelly Chief Financial Officer June 28, 1995
(Brian G. Kelly) (Principal Financial Officer)
/s/ Barry J. Plaga Chief Accounting Officer June 28, 1995
(Barry J. Plaga) (Principal Accounting Officer)
/s/ Barbara S. Isgur Director June 28, 1995
(Barbara S. Isgur)
/s/ Steven T. Mayer Director June 28, 1995
(Steven T. Mayer)
/s/ Martin Raynes Director June 28, 1995
(Martin Raynes)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of ACTIVISION, INC.
We have audited the consolidated financial statements and the financial
statement schedule of ACTIVISION, INC. and Subsidiaries listed in the index
on page 24 of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
ACTIVISION, INC. and Subsidiaries as of March 31, 1995 and 1994, and the
consolidated results of their operations and cash flows for the years ended
March 31, 1995, 1994 and 1993, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the
basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
May 24, 1995
ACTIVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
March 31, March 31,
1995 1994
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 37,355 $ 38,093
Restricted cash - 1,500
Accounts receivable, net 5,566 1,925
Inventories, net 1,972 2,523
Prepaid software and license royalties 1,082 880
Other assets 342 468
--------- ---------
Total current assets 46,317 45,389
Property and equipment, net 1,643 1,045
Other assets 60 268
Excess purchase price over identifiable assets acquired, net 20,863 21,975
--------- ---------
Total assets $ 68,883 $ 68,677
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,516 $ 1,929
Accrued expenses 3,153 2,242
--------- ---------
Total current liabilities 5,669 4,171
Other liabilities 510 521
--------- ---------
Total liabilities 6,179 4,692
--------- ---------
Commitments and contingencies
Shareholders' equity:
Common stock warrants - 120
Common stock, $.000001 par value, 100,000,000 shares
authorized, 14,183,594 and 13,849,264 shares issued
and outstanding as of March 31, 1995 and
March 31, 1994, respectively - -
Additional paid-in capital 67,667 67,356
Accumulated deficit (4,822) (3,302)
Cumulative foreign currency translation (141) (189)
--------- ---------
Total shareholders' equity 62,704 63,985
--------- ---------
Total liabilities and shareholders' equity $ 68,883 $ 68,677
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
ACTIVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except loss per share data)
For the years ended March 31,
1995 1994 1993
----------- ----------- -----------
Net revenues:
Product sales, net $ 37,837$ 23,157 $ 19,400
License revenues 2,457 1,138 1,291
Merchandising design services 375 2,309 378
----------- ----------- -----------
Total net revenues 40,669 26,604 21,069
----------- ----------- -----------
Cost of goods sold:
Product sales, net 20,992 13,739 10,999
License revenues 35 83 270
Merchandising design services 266 1,489 265
----------- ----------- -----------
Total cost of goods sold 21,293 15,311 11,534
----------- ----------- -----------
Gross profit 19,376 11,293 9,535
----------- ----------- -----------
Operating expenses:
Product development 7,274 4,380 2,592
Sales and marketing 10,410 5,013 2,386
General and administrative 3,366 2,648 3,482
Amortization of intangible assets 1,283 1,283 1,283
----------- ----------- -----------
Total operating expenses 22,333 13,324 9,743
----------- ----------- -----------
Operating loss (2,957) (2,031) (208)
Other income (expense):
Interest, net 1,592 178 (9)
----------- ----------- -----------
Loss before provision for income taxes (1,365) (1,853) (217)
Provision for income taxes 155 134 62
----------- ----------- -----------
Loss from continuing operations (1,520) (1,987) (279)
Discontinued operations:
Loss from operations of Foreign Language Computer
Software Publishing business dissolved - - (277)
Loss on dissolution of Foreign Language Computer Software Publishing
business including provision in 1993 of $186 for operating losses
during the phase-out period - - (823)
----------- ----------- -----------
Net loss $ (1,520) $ (1,987) $ (1,379)
========== ========== ==========
Net loss available to common shareholders:
Net loss $ (1,520) $ (1,987) $ (1,379)
Less: Accumulated, unpaid preferred stock dividends - (3,296) (3,163)
----------- ----------- -----------
Net loss available to common shareholders $ (1,520) $ (5,283) $ (4,542)
========== ========== ==========
Loss per common share:
Loss from continuing operations $ (0.11) $ (0.97) $ (1.01)
Loss from discontinued operations - - (0.08)
Loss from dissolution of discontinued operations - - (0.24)
----------- ----------- -----------
Net loss $ (0.11) $ (0.97) $ (1.33)
========== ========== ==========
Weighted average number of shares used in computing
net loss per common share 13,944 5,432 3,412
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
Preferred Preferred Common Cumulative
Stock, Stock, Common Stock Addi- Foreign
Series AA Series Stock Warrants tional Accum-Currency Share-
-------------- ------------ -------------- ----------- Paid-in ulated Trans- holders'
Shares AmountShares AmountShares AmountWarrants AmountCapital Deficit lation Equity
------ ------------ ------ ------ ------ ------- ------ --------------- ------ -------
Balances March 31, 1992 - $ - - $ - 3,129 $ - - $ - $ -$ 64 $ 24 $ 88
Issuance of preferred
stock and common
stock warrants
pursuant to
merger with
Disc Company, Inc. - - 1,856 93 - - 700 45 - - - 138
Conversion of
preferred stock
to common stock - -(1,856) (93) 618 - - - 93 - - -
Issuance of preferred
stock and common
stock warrants pursuant
to preferred stock
private placement 5 - - - - - 667 300 4,603 - - 4,903
Net loss for
the year - - - - - - - - - (1,379) -(1,379)
Foreign currency
translation
adjustment - - - - - - - - - - 61 61
------ ------------ ------ ------ ------ ------ ------ --------------- -------------
Balances March 31,
1993 5 - - - 3,747 - 1,367 345 4,696 (1,315) 85 3,811
Exercise of common stock
warrants pursuant to
restructuring - - - - 1,100 - (1,100) (225) 225 - - -
Conversion of series A
preferred stock pursuant
to restructuring - - - - 3,630 - - - 25,200 - - 25,200
Conversion of series AA
preferred stock pursuant
to restructuring (3) - - - 366 - - - - - - -
Redemption of series AA
preferred stock
pursuant to
restructuring (2) - - - - - - - (2,153) - -(2,153)
Issuance of common stock
pursuant to
common stock
private placement - - - - 5,003 - - - 39,384 - - 39,384
Issuance of common
stock pursuant to
employee stock
purchase plan - - - - 3 - - - 4 - - 4
Net loss for
the year - - - - - - - - - (1,987) -(1,987)
Foreign currency
translation
adjustment - - - - - - - - - - (274) (274)
------ ------------ ------ ------ ------ ------ ------ --------------- -------------
Balance March 31,
1994 - - - - 13,849 - 267 120 67,356 (3,302) (189) 63,985
Exercise of common
stock warrants - - - - 267 - (267) (120) 200 - - 80
Issuance of common
stock pursuant to
employee stock
purchase plan - - - - 59 - - - 99 - - 94
Issuance of common
stock pursuant to
directors stock
purchase plan - - - - 8 - - - 12 - - 17
Net loss for
the year - - - - - - - - - (1,520) -(1,520)
Foreign currency
translation
adjustment - - - - - - - - - - 48 48
------ ------------ ------ ------ ------ ------ ------ --------------- -------------
Balance March 31,
1995 - $ - - $ - 14,183 $ - - $ - $67,667$(4,822) $(141)$62,704
====== ============ ====== ====== ====== ====== ====== =============== =============
The accompanying notes are an integral part of these consolidated financial statements.
ACTIVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the years ended March 31,
1995 1994 1993
----------- ----------- -----------
Cash flows from operating activities:
Net loss $ (1,520) $ (1,987) $ (1,379)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,942 1,665 1,733
Loss on disposal of fixed assets - (2) 183
Change in assets and liabilities net
of effects from acquisitions and disposals:
Accounts receivable (3,641) (166) 446
Inventories 551 (1,580) 628
Prepaid software and license royalties (202) (360) (520)
Other current assets 126 (104) 288
Other assets 37 67 386
Accounts payable 587 (551) 92
Accrued liabilities 911 264 (2,220)
Due to affiliate - (454) (306)
Other (11) 128 313
----------- ----------- -----------
Net cash used in operating activities (1,220) (3,080) (356)
----------- ----------- -----------
Cash flows from investing activities:
Cash acquired through merger with Disc Company, Inc. - - 635
Capital expenditures (1,256) (887) (293)
Restricted cash 1,500 (1,500) 379
Proceeds from sale of fixed assets - 12 3
----------- ----------- -----------
Net cash provided by (used in) investing activities 244 (2,375) 724
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance and exercise of common
stock options and warrants 191 - -
Proceeds from common stock private placement - 39,384 -
Collection of offering proceeds receivable - 5,000 -
Redemption of preferred stock - (2,153) -
Payments under line-of-credit agreements (4,695) (9,631) -
Borrowings under line-of-credit agreements 4,695 9,367 264
Other (1) 4 28
----------- ----------- -----------
Net cash provided by financing activities 190 41,971 292
----------- ----------- -----------
Effect of exchange rate changes on cash 48 (274) 61
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (738) 36,242 721
----------- ----------- -----------
Cash and cash equivalents at beginning of period 38,093 1,851 1,130
----------- ----------- -----------
Cash and cash equivalents at end of period $ 37,355 $ 38,093 $ 1,851
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Activision,
Inc., a Delaware corporation, and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents and Cash Flows
Cash and cash equivalents include cash and short-term investments with
original maturities of not more than 90 days. At March 31, 1995, short-
term investments include approximately $33.3 million in United States
government backed securities. The Company paid interest of approximately
$18,000, $108,000 and $42,000 for the years ended March 31, 1995, March
31, 1994 and March 31, 1993, respectively. In addition, the Company paid
income taxes for such years of approximately $193,000, $129,000 and
$109,000, respectively.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of temporary cash
investments and accounts receivable. The Company places its temporary
cash investments with quality financial institutions. At various times
during the fiscal years ended March 31, 1995, 1994 and 1993, the Company
had deposits in excess of the $100,000 Federal Deposit Insurance
Corporation ("FDIC") limit at these financial institutions. At March 31,
1995, the Company had approximately $33.3 million invested in short-term
United States government based securities. The Company's customer base
includes retail outlets and distributors including consumer electronics
and computer specialty stores, discount chains, video rental stores and
toy stores in the United States and countries worldwide. The Company
performs ongoing credit evaluation of its customers and maintains
allowances for potential credit losses. The Company generally does not
require collateral or other security from its customers. However,
international video game customers have been generally required to furnish
irrevocable letters of credit to minimize the Company's credit risk.
Restricted Cash
Restricted cash of $1.5 million as of March 31, 1994 represented cash on
deposit with the Company's primary lender, the use of which was restricted
pursuant to a $6.5 million revolving credit and letter of credit facility.
The Company had no restricted cash balances as of March 31, 1995.
Capitalized Software Development Costs
Costs related to the conceptual formulation and design of software
products are expensed as product development. Although costs incurred
subsequent to establishing technological feasibility of software products
are permitted capitalization pursuant to Statement of Financial Accounting
Standard No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed," the Company has not capitalized any
software development costs since the impact to the financial statements
for all periods presented has been immaterial.
Prepaid Software and Licensed Property Royalties
Certain of the Company's products are purchased or licensed from
independent software developers and licensed property owners under royalty
agreements that provide for payment of advances against royalties
determined based upon attainment of specified sales levels. Prepaid
royalties are amortized with product shipments. Amortization is computed
based upon the number of units of product expected to be sold.
Substantially all prepaid royalties are amortized within one year of
initial product shipment and are written off upon the abandonment of the
product or upon the determination that there is significant doubt as to
the completion of the product.
Capitalized Reorganization Expenses
The Company capitalized approximately $310,000 in reorganization expenses
as of January 9, 1992. This amount is being amortized over five years,
using the straight-line method. Amortization for the years ended March
31, 1995 and 1994 and 1993 was approximately $62,000 for each period.
Revenue Recognition
The Company recognizes revenue from the sale of its products upon
shipment. Subject to certain limitations, the Company permits customers
to obtain exchanges within certain specified periods and, in lieu of
granting such return privileges, the Company may grant price protection on
unsold merchandise. Revenue from product sales is reflected net of the
allowance for returns and price protection. Recognition of licensing
revenue and royalty income is deferred until the completion by the Company
of its future obligations including, but not limited to, the achievement
of technological feasibility of the products or assets to be delivered
under such obligation and future collectibility. Merchandising design
service revenue is recognized as services are performed.
Advertising Expenses
The Company expenses advertising and the related costs of production
during the period the advertising takes place. Advertising expenses for
the years ended March 31, 1995, 1994 and 1993 were approximately
$3,564,000, $558,000 and $486,000, respectively.
Income Taxes
The Company follows the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
Foreign Currency Translation
The Company's foreign subsidiaries maintain their accounting records in
their local currency. The currencies are then converted to United States
dollars and the effect of the foreign currency translation is disclosed as
a component of shareholders' equity in accordance with Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation."
Loss Per Common Share
Loss per common share is computed using the weighted average number of
common and, when dilutive, common equivalent shares outstanding during the
period. For the year ended March 31, 1993, the net loss in the
computation is increased by approximately $3,163,000 in accumulated but
undeclared preferred stock dividends. For the year ended March 31, 1994,
the net loss in the computation is increased by approximately $3,296,000
in accumulated but undeclared preferred stock dividends. As described in
Note 2 - Common Stock Private Placement and Recapitalization, all
outstanding shares of preferred stock were converted or redeemed in
January 1994. Prior to such conversion, accumulated unpaid dividends on
preferred stock were included in computation of net loss available to
common shareholders. If the preferred stock had been converted or
redeemed on April 1, 1993, net loss per common share for the fiscal year
ended March 31, 1994 would have been $0.37 per share.
Reverse Stock Splits
The accompanying financial statements reflect the Company's 1-for-10 and 1-
for-3 reverse stock splits effective August 3, 1992 and October 20, 1993,
respectively. Accordingly, previously reported loss per share and common
share amounts have been retroactively restated.
Reclassifications
Certain amounts in the Consolidated Financial Statements have been
reclassified to conform with the current year's presentation. These
reclassifications had no impact upon previously reported working capital
or net loss.
2. COMMON STOCK PRIVATE PLACEMENT AND RECAPITALIZATION
Common Stock Private Placement
On January 31, 1994, the Company completed a private placement (the
"Common Stock Private Placement") of 5,003,006 shares of the Company's
common stock, $.000001 par value per share ("Common Stock"), at a price of
$8.50 per share. As a result of the Common Stock Private Placement, the
Company received net proceeds of approximately $39.5 million.
In connection with the Common Stock Private Placement, the Company granted
certain registration rights to the purchasers (the "Common Stock
Purchasers") of the Common Stock offered in the Common Stock Private
Placement.
Recapitalization
Concurrently with the closing of the Common Stock Private Placement, the
Company effected a recapitalization (the "Recapitalization"), resulting in
the exchange of substantially all of its outstanding preferred stock for
Common Stock and the acquisition by the Company of 2,000 shares of the
outstanding Series AA Non-redeemable Cumulative Preferred Stock ("Series
AA Stock") for approximately $2.2 million in cash.
On January 14, 1994, the Company entered into a Share Exchange and
Recapitalization Agreement (the "Recapitalization Agreement") with the
holder of its Series A Redeemable Cumulative Preferred Stock ("Series A
Stock") and the holders of the Series AA Stock. Pursuant to the terms of
the Recapitalization Agreement, on January 31, 1994: (1) 700,000 common
stock warrants with an exercise price of $.60 per share were exercised,
using 33,838 shares ($420,000 liquidation value) of the Series A Stock to
pay the exercise price thereof; (2) 400,000 common stock warrants with an
exercise price of $.30 per share were exercised, using 111 shares
($120,000 liquidation value) of the Series AA Stock to pay the exercise
price thereof; (3) the remaining Series A Stock, with a liquidation
preference of approximately $30.9 million, including accrued and unpaid
dividends through January 28, 1994 (after exercise of 700,000 common stock
warrants), was exchanged for 3,630,368 shares of Common Stock; (4) Series
AA Stock with a liquidation preference of approximately $3.1 million,
including accrued and unpaid dividends through January 28, 1994 (after
exercise of 400,000 common stock warrants), was exchanged for 365,792
shares of Common Stock; and (5) the Company purchased the remaining 2,000
shares of Series AA Stock for an aggregate purchase price of $2,152,822,
which was equal to the aggregate liquidation preference of such Series AA
Stock, including accrued and unpaid dividends through January 28, 1994.
In connection with the Recapitalization, the Company granted certain
registration rights to the holder of the Series A Stock and the holders of
the Series AA Stock who exchanged their Series AA Stock for Common Stock,
the terms of which were substantially similar to the registration rights
granted by the Company to the Common Stock Purchasers in the Common Stock
Private Placement.
As a result of this Recapitalization, in which the Company issued
5,096,160 shares of Common Stock, the Company has no issued and
outstanding preferred stock or any other securities senior in right or
preference to the Common Stock. In addition, other than common stock
options and warrants granted to officers, directors and employees, the
total number of shares of Common Stock issuable upon exercise of
outstanding warrants was reduced to 266,667. All of such Common Stock
warrants were exercised in January 1995.
3. PREFERRED PRIVATE PLACEMENT
As of March 31, 1993, the Company consummated a private placement ("the
Preferred Private Placement") of 5,000 shares of newly created Series AA
Stock and warrants (the "Private Placement Warrants") to purchase 666,667
shares of the Company's Common Stock. The Company received $5.0 million
of gross proceeds from the transaction. As of March 31, 1993, the $5.0
million gross proceeds were recorded as offering proceeds receivable and
were subsequently received in April 1993.
The Series AA Stock ranked senior to all other equity securities of the
Company, was not redeemable and was entitled to a liquidation preference
of $1,000 per share, plus accumulated unpaid dividends. Dividends accrued
quarterly at a compounded rate of 9% per annum and were payable quarterly,
as and when declared by the Board of Directors, after March 31, 1993. The
Private Placement Warrants were exercisable until June 30, 1998, at an
exercise price of $.30 per share, subject to customary anti-dilution
adjustments. As a result of the Common Stock Private Placement and
Recapitalization (See Note 2), the Series AA Stock is no longer
outstanding and Private Placement Warrants to purchase only 266,667 shares
of Common Stock remained outstanding until they were exercised in full in
January 1995.
4. MERGERS WITH DISC COMPANY, INC. AND INTERNATIONAL CONSUMER
TECHNOLOGIES
Effective April 1, 1992, Disc Company, Inc. ("TDC"), a Delaware
corporation and a wholly-owned subsidiary of International Consumer
Technologies ("ICT"), was merged with and into the Company, with the
Company as the surviving corporation (the "Merger"), pursuant to the terms
of an Agreement and Plan of Reorganization, dated March 30, 1992, among
the Company, TDC and ICT (the "Merger Agreement").
TDC was a Los Angeles based company engaged in marketing, distributing,
localizing and publishing computer software products. TDC had operations
in Europe as well as an office in Australia prior to the Merger. TDC's
European subsidiaries managed the operations of the Company's European
subsidiaries under various management services arrangements. TDC's
primary focus was on "bundling" software for major hardware manufacturers,
and it was also engaged to a limited extent in the software publishing
business. The Company and TDC had shared many facilities and personnel
and used similar channels of distribution in various markets around the
world.
Pursuant to the terms of the Merger Agreement, in exchange for all shares
of the outstanding capital stock of TDC, the Company issued to ICT, as the
sole shareholder of TDC: (1) warrants (the "Merger Warrants") to purchase
700,000 shares of Company Common Stock, (2) 2,520,000 shares of newly
created Series A Stock and (3) 1,855,700 shares of newly created Series B
Convertible Preferred Stock (the "Series B Stock"). The Merger Warrants
had a term of five years and were exercisable after October 1, 1992, at an
exercise price equal to $.60 per share. The Series A Stock had a
liquidation preference of $10.00 per share, was entitled to cumulative,
compounding dividends at the rate of 12% per annum for the first two years
it was outstanding and 14% per annum thereafter, and was required to be
redeemed after five years. On October 14, 1992, ICT converted all of the
1,855,700 issued and outstanding shares of the Series B Stock, receiving
618,576 shares of Common Stock. As a result of the Company's Common Stock
Private Placement and Recapitalization (See Note 2), the Series A Stock
and Merger Warrants are no longer outstanding.
The Company's merger with TDC was accounted for by the purchase method of
accounting, and accordingly, the purchase price was allocated to the
assets acquired and the liabilities assumed based on estimated fair
values, which was not materially different from their carrying values as
of the effective date. The purchase price of $25,468,000 exceeded the
fair value of net assets acquired of $1,051,000 resulting in an intangible
asset of approximately $24,417,000. This intangible asset is being
amortized on a straight-line basis over a 20 year period. Amortization
for each of the years ended March 31, 1995, 1994 and 1993 was
approximately $1,221,000. The Company systematically evaluates current
and expected cash flow for the purpose of assessing the recoverability of
recorded goodwill. Some of the factors considered in this evaluation
include operating results, business plans, budgets and economic
projections. Should such factors indicate that recoverability might be
impaired, the Company would appropriately adjust the recorded amount of
the intangible asset and or the period over which the recorded intangible
asset is amortized.
As a result of the Merger with TDC, the Company assumed TDC's non-interest
bearing intercompany obligation to ICT. The balance due ICT as of March
31, 1993 was approximately $454,000. On April 1, 1993, the Company
executed a promissory note in favor of ICT for the portion of the balance
of the obligation, the principal balance of which bore interest at 7% per
annum. During fiscal 1994, the Company repaid ICT the balance due in full
plus interest in the amount of $5,000.
Effective January 1, 1995, ICT was merged with and into a wholly owned
subsidiary of the Company, with ICT as the surviving corporation. ICT's
sole asset at the time of the merger was 5,429,600 shares of the Company's
Common Stock. As a result of the merger, the shares of the Company's
Common Stock previously held by ICT were distributed to the shareholders
of ICT in exchange for their shares of ICT common stock. No other assets
or liabilities were acquired or assumed by the Company as a result of the
merger.
5. ACCOUNTS RECEIVABLE
Accounts receivable, net of reserves were as follows (amounts in
thousands):
March 31, 1995 March 31, 1994
Accounts receivable $ 10,035 $5,191
Less:
Allowance for doubtful accounts (528) (625)
Allowance for sales returns and
price protection (3,941) (2,641)
------- -------
Accounts receivable, net $ 5,566 $1,925
====== ======
Bad debt expense for the years ended March 31, 1995, 1994 and 1993 was
approximately $191,000, $430,000 and $349,000 respectively. The
provision for sales returns and price protection for the years ended March
31, 1995, 1994 and 1993 was approximately $3,604,000, $2,256,000 and
$1,649,000 respectively.
6. INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or
market. Inventories at March 31, 1995 and 1994 reflect an adjustment to
net realizable value of approximately $357,000 and $493,000, respectively.
The provisions for net realizable value for the years ended March 31,
1995, 1994 and 1993 were approximately $134,000, $337,000 and $515,000,
respectively. Inventories were as follows, net of reserves (amounts in
thousands):
March 31, 1995 March 31, 1994
Purchased parts and components $ 203 $ 125
Finished goods 1,769 2,398
------- -------
$ 1,972 $ 2,523
====== ======
Included in finished goods at March 31, 1995 and 1994 are expected
inventory returns at a net realizable value of $311,000 and $499,000.
7. PROPERTY AND EQUIPMENT
Equipment, furniture and leasehold improvements are recorded at cost.
Depreciation and amortization are provided using the straight-line method
over estimated useful lives ranging from three to five years. Property
and equipment, stated at cost, were as follows (amounts in thousands):
March 31, 1995 March 31, 1994
Computer equipment $ 2,079 $ 949
Office furniture and
other equipment 807 679
Leasehold improvements 99 86
---------- ----------
2,985 1,714
Less accumulated depreciation
and amortization (1,342) (669)
---------- ----------
$ 1,643 $ 1,045
====== ======
Depreciation expense for the years ended March 31, 1995, 1994 and 1993 was
$658,000, $382,000 and $450,000 respectively.
8. ACCRUED EXPENSES
Accrued expenses were as follows (amounts in thousands):
March 31, 1995 March 31, 1994
Accrued royalties $ 757 $ 837
Accrued production costs 170 5
Accrued co-op and marketing costs 959 241
Accrued sales commissions 211 158
Accrued professional fees 246 194
Accrued expenses related to
foreign dissolution 557 627
Accrued other 253 180
---------- ----------
$ 3,153 $ 2,242
====== ======
9. PAYABLE TO BANK
In September 1993 the Company obtained from a bank a $6.5 million
revolving credit and letter of credit facility (the "Facility"). The
Facility provides the Company the ability to borrow funds and issue
letters of credit against eligible domestic accounts receivable and
inventory up to $6.5 million. The Facility is due on demand and repayment
may be required at the discretion of the Bank. The Company is required to
issue letters of credit to vendors for the purchase of video game
cartridges. Letters of credit outstanding as of March 31, 1995 totaled
$59,000 under the Facility, and the Company had no borrowings outstanding
against the Facility as of March 31, 1995. The borrowing rate of the
Facility is the bank's prime rate of interest (9% at March 31, 1995) plus
1%, and the Facility expired on May 1, 1995. The Facility contained
various covenants, the most restrictive of which are maintenance of
certain debt and quick ratios, tangible net worth, working capital, and
profitability amounts, as defined. The Company had complied with all of
these covenants.
10.FOREIGN OPERATIONS
The following table summarizes the geographic operations, exclusive of
discontinued operations, of the Company (amounts in thousands):
Year ended March 31,
1995 1994 1993
Net revenues:
North America $ 29,492 $ 20,176 $ 7,431
Europe 7,574 4,183 11,707
Japan 2,194 1,362 673
Australia (including New Zealand) 1,409 883 1,258
--------- --------- ---------
Total net revenues $ 40,669 $ 26,604 $ 21,069
======== ======== ========
Operating income (loss):
North America $ (5,114) $ (2,849) $ (147)
Europe 77 (197) (1,000)
Japan 1,655 707 452
Australia (including New Zealand) 425 308 487
--------- --------- ---------
Total operating loss $ (2,957) $ (2,031) $ (208)
======== ======== ========
At March 31, At March 31,
1995 1994
Assets:
United States $ 68,226 $ 67,402
Foreign 657 1,275
--------- ---------
Total assets $ 68,883 $ 68,677
======== ========
Operating income (loss) by geographic territory is reflected without any
allocation for product development and general and administrative expenses
to the geographic territories other than North America. These expenses
are incurred entirely in North America.
11.DISCONTINUED OPERATIONS
On November 1, 1992, certain of the Company's European subsidiaries
adopted plans to reduce the scope of operations for the Foreign Language
Computer Software Publishing business ("FLCSP"). During the fourth
quarter of the Company's fiscal year ending March 31, 1993, these plans
were expanded to encompass a formal plan to terminate and dissolve FLCSP.
As of March 31, 1995 the dissolution process was substantially complete,
and no further losses or costs were incurred during the 1995 or 1994
fiscal year related to FLCSP. The plan, in general, provided for the
liquidation of all accounts receivable, inventory and equipment and the
orderly payment and settlement of the outstanding liabilities. The
operations of the FLCSP business were conducted in a European subsidiary
which, as of March 31, 1995, was in formal liquidation in connection with
the termination of this business. The liabilities exceeded assets of this
subsidiary, and, accordingly, the assets of this subsidiary are not
sufficient to satisfy all claims in full. The allocation of assets to
satisfy such claims will be handled in accordance with local statutory
requirements.
Operating results of the FLCSP business for the period from April 1 to
November 1, 1992 are shown separately in the accompanying Consolidated
Statement of Operations. Net sales of the FLCSP business for the phase-
out period were $673,000 and were not included in net sales from
continuing operations.
The loss on the dissolution of the FLCSP business was approximately
$823,000, including estimated operating losses during the phase-out period
of $186,000. There were no income tax benefits realized by discontinuing
operations.
The net dissolution deficit of the FLCSP business of $557,000 consisted of
$557,000 of liabilities, which are included in the accrued expenses
balance of the accompanying consolidated balance sheet as of March 31,
1995. These liabilities are reflected at their face amounts.
12.MAJOR CUSTOMERS
During the years ended March 31, 1995, 1994, and 1993, Toys "R" Us, Inc.
("Toys"), a single customer, accounted for approximately 7%, 8% and 3%,
respectively, of net revenues. Sony Electronic Publishing, Ltd. accounted
for approximately 15% of net revenues during the year ended March 31, 1995
pursuant to an exclusive video game distribution agreement covering
Europe. In addition, Walmart Stores, Inc. ("Walmart") accounted for
approximately 9% of net revenues during the year ended March 31, 1995.
During the years ended March 31, 1995, 1994 and 1993, IBM, a customer of
the Company's merchandising division, accounted for approximately 0%, 14%
and 2%, respectively, of net revenues. During the year ended March 31,
1993, Erbe, a European video game distributor, and Baker & Taylor
Software, a domestic software distributor, accounted for approximately 10%
and 6%, respectively, of net revenues. The loss of Toys or Walmart as
customers might have a material adverse impact on the Company's business
and results of operations.
13.INCOME TAXES
Domestic and foreign income (loss) before taxes and details of the income
tax provision (benefit) are as follows (amounts in thousands):
Year ended March 31,
1995 1994 1993
Income (loss) from continuing
operations before taxes:
Domestic $ (3,096) $ (1,407) $ 228
Foreign 1,731 (446) (445)
--------- --------- ---------
$ (1,365) $ (1,853) $ (217)
========= ========= =========
Income tax provision:
Current:
Federal $ - $ - $ -
State - - -
Foreign 155 134 62
--------- --------- ---------
$ 155 $ 134 $ 62
========= ========= =========
The items accounting for the difference between income taxes
computed at the U.S. federal statutory income tax rate and the income tax
provision for each of the years are as follows:
Year ended March 31,
1995 1994 1993
Federal income tax provision at statutory rate (34.0%) (34.0%) (34.0%)
Benefit of net operating loss carryforward - (18.8%) -
Nondeductible (deductible) amortization (8.6%) 23.5% 201.3%
Future deductible reserves 39.3% 27.4% 79.3%
Effect of federal losses providing no tax benefit - - (132.1%)
Incremental effect of foreign and state taxes net of
federal income tax benefit 22.2% 2.4% 9.8%
Effect of foreign losses providing no tax benefit - - 59.9%
Other (7.4%) 6.7% (155.6%)
--------- --------- ---------
11.5% 7.2% 28.6%
========= ========= =========
The components of the net deferred tax asset and liability were as follows
(amounts in thousands):
March 31, 1995 March 31, 1994
Deferred Asset:
Allowance for bad debts $ 186 $ 90
Allowance for sales returns 1,308 705
Inventory reserves 120 72
Miscellaneous 7 99
Net operating loss carryforwards 14,834 13,313
--------- ---------
Deferred tax asset 16,455 14,279
Valuation allowance (16,305) (14,279)
--------- ---------
Net deferred asset 150 -
--------- ---------
Deferred liability:
Amortization (150) -
--------- ---------
Net deferred taxes $ - $ -
========= =========
The deferred tax assets at March 31, 1995 are primarily current, with the
exception of the net operating loss carryforwards. The valuation
allowance is based on the uncertainty of utilizing the net operating loss
carryforwards.
The Company's immediately available net operating loss carryforward for
federal tax reporting purposes approximates $41.5 million. The net
operating loss carryforwards expire from 1999 to 2009. At March 31, 1995,
the Company had a net operating loss carryforward for California tax
reporting purposes of approximately $16.8 million. The California net
operating loss carryforwards expire from 1998 to 2003.
14.COMMITMENTS AND CONTINGENCIES
The Company has four non-cancelable operating leases for office space in
Los Angeles, Tokyo, London and Sydney. The Company's total obligations at
March 31, 1995 under such operating leases are approximately $753,000 for
fiscal 1996, $410,000 for fiscal 1997 and $410,000 for fiscal 1998; the
Company has no obligations under operating leases extending beyond fiscal
1998.
Rent expense for the years ended March 31, 1995, 1994 and 1993 was
approximately $811,000, $497,000 and $675,000, respectively.
The Company has entered into employment contracts with various product
development personnel which have obligated the Company to make total
minimum payments of $1,873,000 and $1,567,000 during the years ending
March 31, 1996 and 1997, respectively.
15.STOCK PLANS
The Company established a stock option, stock bonus, restricted stock and
equity based compensation plan (the "Stock Option Plan") for the benefit
of officers, employees, consultants and others following the effectiveness
of the Reorganization Plan. The Stock Option Plan permits the granting
during a period of ten years from the effective date of the Stock Option
Plan of (1) non-qualified stock options, (2) incentive stock options
("ISOs"), (3) stock appreciation rights ("SARs"), (4) restricted stock
awards, (5) deferred stock awards and (6) other Common Stock-based awards
(each of the foregoing being a "Stock Award" and collectively, the "Stock
Awards").
The total number of shares of Common Stock available for distribution
under the Stock Option Plan is 2,066,667. The plan requires available
shares to consist in whole or in part of authorized and unissued shares or
treasury shares. Shares involved in the unexercised portion of any
lapsed or cancelled options or forfeited restricted stock, deferred stock
or other stock-based awards shall again be available for Stock Awards and
distribution.
The stock option exercise price is determined at the discretion of the
Board of Directors, and for ISO's, is not to be less than the fair market
value at the date of grant, or in the case of non-qualified options must
exceed or be equal to 85% of fair market value at date of grant. Options
typically become exercisable in equal installments over a period not to
exceed five years, must be exercised within 10 years of date of grant and
remain exercisable for 30 days after an individual ceases to be an
employee of the Company. Options issued to employees possessing more than
10% of voting control have an exercise price at least equal to 110% of the
fair market value at the date of grant and must be exercised within five
years of date of grant.
Plan activity was as follows:
Number of Option Price
Shares Per Share
Options outstanding March 31, 1992 140,166 $.75-$1.50
Granted 189,166 $1.50-$3.00
Exercised - -
Cancelled (9,856) $.75-$3.00
----------- -----------
Options outstanding March 31, 1993 319,476 $.75-$3.00
Granted 89,134 $3.00-$10.50
Exercised (3,032) $1.50
Cancelled (7,635) $1.50-$3.00
----------- -----------
Options outstanding March 31, 1994 397,943 $.75-$10.50
Granted 1,072,998 $3.25-$9.00
Exercised (59,230) $.75-$5.25
Cancelled (221,578) $.75-$10.50
----------- -----------
Options outstanding March 31, 1995 1,190,133 $.75-$10.50
========= ===========
As of March 31, 1995, 176,177 options were vested and exercisable with an
exercise price range of $.75-$10.50. There were 610,048 remaining shares
available for grant under the Stock Option Plan as of March 31, 1995.
Restricted Stock
Shares of restricted stock may be issued either alone or in addition to
other Stock Awards granted under the Stock Option Plan. The Board of
Directors determines the time or times within which the restricted Stock
Awards may be subject to forfeiture and all other conditions of the
restricted Stock Awards. The provisions of the restricted Stock Awards
need not be the same with respect to each recipient.
As of March 31, 1995, the Company had granted 137,500 shares of restricted
stock to employees. Such shares of restricted stock were granted as
follows: 136,500 shares during fiscal year 1992, which were 100% vested
as of March 31, 1995, and 1,000 shares during fiscal year 1995, which were
100% vested as of March 31, 1995.
Stock Appreciation Rights/Deferred Stock Awards/Other Stock-Based Awards
The Board of Directors is also authorized under the Stock Option Plan to
award a variety of additional stock related rights, including SARs,
deferred stock awards and other stock based awards. As of March 31, 1995
there were no SARs, deferred stock or other stock-based awards granted
under the Stock Option Plan.
Director Warrant Plan
The Director Warrant Plan provides for the automatic granting of warrants
("Director Warrants") to purchase 16,667 shares of the Common Stock to
each director of the Company who is not an officer or employee of the
Company or any of its subsidiaries. Each then current non-employee
director was automatically granted Director Warrants to purchase 16,667
shares of the Common Stock on January 8, 1992, the effective date of the
Director Warrant Plan, and each new director will receive a similar grant
upon election to office. The total number of shares of Common Stock
available for distribution under the Director Warrant Plan is 100,000.
Available shares shall consist in whole or in part of authorized and
unissued shares or treasury shares. The Company currently intends to fund
the Director Warrants to be granted under the Director Warrant Plan with
authorized and unissued shares. Shares involved in the unexercised
portion of any cancelled Director Warrants shall again be available for
Director Warrants to be granted under the Director Warrant Plan. Director
Warrants granted under the Director Warrant Plan vest 25% on the first
anniversary of the date of grant, 12.5% each six months thereafter, and
the balance on the fifth anniversary of the date of grant. The Director
Warrant Plan expires in 1996.
During the year ended March 31, 1995, 8,333 Director Warrants were
exercised at an exercise price of $1.50, 8,334 Director Warrants were
cancelled and no Director Warrants were granted. As of March 31, 1995,
50,001 Director Warrants with an exercise price of $.75 were outstanding,
with 37,501 Director Warrants fully vested as of that date.
16.RETIREMENT PLAN
The Company has a retirement plan covering substantially all of its
eligible employees. The retirement plan is qualified in accordance with
Section 401(k) of the Internal Revenue Code. The Company's contribution
to the retirement plan is determined by the Board of Directors. There
were no contributions in each of the three years ended March 31, 1995.
17. RELATED PARTY TRANSACTIONS
Promissory Notes Receivable
As of March 31, 1995, other current assets includes promissory notes
receivable from Messrs. Robert A. Kotick, Howard Marks, Keith C. Moore,
Brian G. Kelly and Barry J. Plaga, who are both officers and shareholders
of the Company; in addition, Messrs. Kotick, Marks and Moore are directors
of the Company. Each of the promissory notes are dated December 28, 1994,
have a maturity date of April 28, 1995 and bear interest at 8.5% per annum
and have principal amounts of $44,000, $44,000, $41,000, $22,000 and
$3,000, respectively. Such notes receivable represent loans made by the
Company to fund the individuals' state and local tax liabilities incurred
as a result of certain transactions that occurred prior to the merger with
ICT described in Note 4.
SCHEDULE II
ACTIVISION, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Amounts in thousands)
Col. A Col. B Col. C Col. D Col. E
Balance at Balance at
Beginning Deductions End of
Description of Period Additions (Describe) Period
Year ended March 31, 1993 (C):
Allowance for doubtful accounts $ 40 $ 349 $ 31 (A) $ 358
Allowance for sales returns and
price protection $ 280 $ 1,649 $ 516 (A) $ 1,413
Inventory valuation $ 56 $ 515 $ 415 (B) $ 156
Deferred tax valuation allowance $ - $ 13,990 $ - $ 13,990
Year ended March 31, 1994:
Allowance for doubtful accounts $ 358 $ 430 $ 163 (A) $ 625
Allowance for sales returns and
price protection $ 1,413 $ 2,256 $ 1,028 (A) $ 2,641
Inventory valuation $ 156 $ 337 - (B) $ 493
Deferred tax valuation allowance $ 13,990 $ 289 $ - $ 14,279
Year ended March 31, 1995:
Allowance for doubtful accounts $ 625 $ 191 $ 288 (A) $ 528
Allowance for sales returns and
price protection $ 2,641 $ 3,604 $ 2,304 (A) $ 3,941
Inventory valuation $ 493 $ 134 $ 270 (B) $ 357
Deferred tax valuation allowance $ 14,279 $ 2,026 $ - $ 16,305
(A)Actual write-offs of uncollectible accounts receivable or sales returns and
price protection.
(B)Actual write-offs of obsolete inventory, scrap and reduction in carrying
value of certain portions of inventory.
(C)The balances as of March 31, 1993 for allowance for doubtful accounts and
allowance for sales returns include $671 and $228, respectively, related to
discontinued operations.
EXHIBIT INDEX
Exhibit
Number Exhibit Description Page
2.1Plan of
Reorganization of the Company, as confirmed by the United
States Bankruptcy Court for the Northern District of
California on November 25, 1991 (incorporated by
reference to Exhibit 28.2 of the Company's Current Report
on Form 8-K dated October 4, 1991).
2.2Plan and
Agreement of Merger, dated March 30, 1992, among the
Company, Disc Company, Inc. and International Consumer
Technologies Corporation (incorporated by reference to
Exhibit 28.1 of the Company's Current Report on Form 8-K
dated March 31, 1992).
2.3Agreement and
Plan of Merger between Activision, Inc., a California
corporation, and Activision, Inc., a Delaware
corporation, as filed with the Secretary of State of the
State of Delaware (incorporated by reference to Exhibit
4.7 of Amendment No. 1 to the Company's Form S-8,
Registration No. 33-48411 filed on June 1, 1993).
2.4Plan and
Agreement of Merger, dated October 28, 1994, among the
Company, ACTV Acquisition, Inc. and International
Consumer Technologies Corporation (incorporated by
reference to Exhibit 2.4 of the Company's Quarterly
Report on Form 10-Q for the period ended December 31,
1994).
3.1Amended and
Restated Articles of Incorporation of Activision, Inc.,
dated October 15, 1992 (incorporated by reference to
Exhibit 4.5 of Amendment No. 1 to the Company's Form S-8,
Registration No. 33-48411 filed on June 1, 1993).
3.2Bylaws of
Activision, Inc. (incorporated by reference to Exhibit
4.6 of Amendment No. 1 to the Company's Form S-8,
Registration No. 33-48411 filed on June 1, 1993).
4.1Certificate of
Designations, Preferences and Rights of Series AA
Preferred Stock, $.000001 par value, of Activision, Inc.,
as filed with the Delaware Secretary of State on March
29, 1993 (incorporated by reference to Exhibit 28.2 of
the Company's Current Report on Form 8-K dated April 19,
1993).
10.1Warrant
Certificate for the purchase of 21,000,000 shares of
Common Stock, issued to International Consumer
Technologies Corporation pursuant to the merger
transaction (incorporated by reference to Exhibit 28.4 of
the Company's Current Report on Form 8-K dated March 31,
1992).
10.2Purchase
Agreement, dated as of March 29, 1993, between
Activision, Inc. and the Purchasers listed therein
(incorporated by reference to Exhibit 28.1 of the
Company's Current Report on Form 8-K dated April 19,
1993).
10.3Form of Private
Placement Warrant Certificate (incorporated by reference
to Exhibit 28.3 of the Company's Current Report on Form 8-
K dated April 19, 1993).
10.4Agreement,
dated as of March 31, 1993, among International Consumer
Technologies Corporation, Activision, Inc. and the
Purchasers listed therein (incorporated by reference to
Exhibit 28.4 of the Company's Current Report on Form 8-K
dated April 19, 1993).
Exhibit
Number Exhibit Description Page
10.5Agreement,
dated as of March 31, 1993, among the stockholders listed
therein and Activision, Inc. (incorporated by reference
to Exhibit 28.5 of the Company's Current Report on Form 8-
K dated April 19, 1993).
10.6Letter
Agreement, dated April 14, 1993 among Activision, Inc.
and the Purchasers listed therein (incorporated by
reference to Exhibit 28.6 of the Company's Current Report
on Form 8-K dated April 19, 1993).
10.7Mediagenic 1991
Stock Option and Stock Award Plan, as amended
(incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-8,
Registration No. 33-91074, filed on April 8, 1995).
10.8Mediagenic 1991
Director Warrant Plan as amended (incorporated by
reference to Exhibit 28.2 to the Company's Registration
Statement on Form S-8, Registration No. 33-63638, filed
on June 1, 1993).
10.9 Purchase Agreement, dated as of January 24,
1994, among the Company and each purchaser who is a
signatory thereto (incorporated by reference to Exhibit
28.1 of the Company's Form 8-K filed February 9, 1994).
10.10 Registration Rights Agreement, dated as of
January 31, 1994, among the Company and each purchaser who
is a signatory thereto (incorporated by reference to
Exhibit 28.2 of the Company's Form 8-K filed February 9,
1994).
10.11 Share Exchange and Recapitalization
Agreement, dated as of January 14, 1994, among the
Company, International Consumer Technologies Corporation,
Steven Wynn, J.F. Shea Co., Inc. as Nominee 1993-6 and ESL
Partners, L.P. (incorporated by reference to Exhibit 28.3
of the Company's Form 8-K filed February 9, 1994).
10.12 Registration Rights Agreement, dated as of
January 31, 1994, among the Company, International
Consumer Technologies Corporation, Steven Wynn, J.F. Shea
Co., Inc. as Nominee 1993-6 and ESL Partners, L.P.
(incorporated by reference to Exhibit 28.4 of the
Company's Form 8-K filed February 9, 1994).
10.13
Revolving Credit Loan Agreement, dated as of September 3,
1993, among the Company and Comerica Bank-California
(incorporated by reference to Exhibit 10.13 of the
Company's Form 10-K for the year ended March 31, 1994).
10.14 Lease
Agreement, as amended, dated as of November 29, 1993,
among the Company and 11601 Wilshire Associates
(incorporated by reference to Exhibit 10.14 of the
Company's Form 10-K for the year ended March 31, 1994).
11Statement
regarding computation of per share earnings ___
21Principal
Subsidiaries of the Company ___
23Consent of
Independent Accountants ___
EXHIBIT 11
ACTIVISION AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(Dollar amounts in thousands except per share data)
Year ended Year ended Year ended
March 31, 1995 March 31, 1994 March 31, 1993
Weighted average shares outstanding for the period 13,944 5,432 3,412
Net effect of stock options based on the treasury
stock method - - -
Net effect of common stock warrants - - -
--------- --------- ---------
Average common and common
equivalent shares outstanding 13,944 5,432 3,412
========= ========= =========
Net income (loss) - continuing operations $ (1,520) $ (1,987) $ (279)
Loss - discontinued operations - - (277)
Loss- dissolution of discontinued operations - - (823)
--------- --------- ---------
Net income (loss) (1,520) (1,987) (1,379)
Less accumulated preferred stock dividends - (3,296) (3,163)
--------- --------- ---------
Net income (loss) available for common stock $ (1,520) $ (5,283) $ (4,542)
========= ========= =========
Primary:
Net income (loss) per common
share - continuing operations $ (0.11) $ (0.97) $ (1.01)
Loss per common share - discontinued operations - - (0.08)
Loss per common share - dissolution
of discontinued operations - - (0.24)
--------- --------- ---------
Net income (loss) per common share $ (0.11) $ (0.97) $ (1.33)
========= ========= =========
Fully diluted:
Net income (loss) per common
share - continuing operations $ (0.11) $ (0.97) $ (1.01)
Loss per common share - discontinued operations - - (0.08)
Loss per common share - dissolution
of discontinued operations - - (0.24)
--------- --------- ---------
Net income (loss) per common share $ (0.11) $ (0.97) $ (1.33)
========= ========= =========
EXHIBIT 21
PRINCIPAL SUBSIDIARIES OF THE REGISTRANT
State or Other Jurisdiction
of Incorporation or
Name of subsidiary Organization
- ------------------------------- ---------------
Activision Japan Co., Ltd. Japan
Activision (U.K.) Ltd. United Kingdom
Activision Europe SARL France
Activision Australia Pty Ltd. Australia
TDC Group, Inc. Delaware
Activision Productions, Inc. Delaware
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Activision, Inc. on Forms S-8 (File Nos. 33-48411, 33-
63638 and 33-91074) and Forms S-3 (File Nos. 33-68144 and 33-75878) of
our report dated May 24, 1995, on our audits of the consolidated
financial statements and financial statement schedules of Activision,
Inc. and Subsidiaries as of March 31, 1995 and 1994 and for the years
ended March 31, 1995, 1994 and 1993, which report is included in this
Annual Report on Form 10-K. We also consent to the reference to our
firm under the caption "Selected Consolidated Financial Data."
COOPERS & LYBRAND
Los Angeles, California
June 28, 1995