Back to GetFilings.com
F-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
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 ___X___ 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. [ X ]
The aggregate market value of the Common Stock of the registrant held by non-
affiliates of the registrant on July 2, 1996 was $152,768,000.
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 __X__ No _____
The number of shares of the registrant's Common Stock outstanding as of July 2,
1996 was 13,854,745.
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 August 22, 1996 are incorporated by reference into
Part III of this Annual Report.
INDEX
Page No.
PART I.
Item 1.Business 3
Item 2.Properties 16
Item 3.Legal Proceedings 16
Item 4.Submission of Matters to a Vote of Security
Holders 16
PART II.
Item 5.Market for Registrant's Common Equity and
Related Stockholder Matters 17
Item 6.Selected Consolidated Financial Data 19
Item 7.Management's Discussion and Analysis of
Financial Condition and Results of Operations 20
Item 8.Consolidated Financial Statements and
Supplementary Data 26
Item 9.Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 26
PART III.
Item 10.Directors and Executive Officers of the
Registrant 27
Item 11.Executive Compensation 27
Item 12.Security Ownership of Certain Beneficial
Owners and Management 27
Item 13.Certain Relationships and Related
Transactions 27
PART IV.
Item 14.Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 28
SIGNATURES 31
PART I
Item 1. BUSINESS
(a) General
Activision, Inc. (together with its subsidiaries, the "Company") is a
diversified international publisher and developer of interactive
entertainment software in a wide variety of formats. The Company was
incorporated in California in 1979. In December 1992, the Company
reincorporated in Delaware.
(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
INDUSTRY BACKGROUND
The interactive entertainment software market is composed of two
markets: the desktop systems market -- software created for use on personal
computers ("PCs"), including PCs utilizing the MS-DOS, Windows 3.1 and
Windows 95 operating systems as well as Apple Macintosh computers; and the
set-top systems market -- software created for dedicated game consoles that
use the television as a display, including the Sony Playstation, Sega
Saturn and Super Nintendo Entertainment Systems.
Desktop Systems. According to IDC/LINK, 40% of U.S. households had at
least one PC at the end of 1995. IDC/LINK is projecting this installed
base to grow to 44% by the end of 1996. This increase in PC ownership
appears to be spurred by lower-cost Pentium-based multimedia PCs ("MPCs")
which incorporate higher-speed CD-ROM drives, modems and increasingly
sophisticated graphics capabilities, as well as by the continued growth and
interest in the Internet. IDC/LINK reports that MPC shipments to the home
reached 8.9 million units in 1995 and are expected to increase to 11.2
million units in 1996, bringing the total installed base of MPC units to 25
million by the end of 1996. The improved functionality and ease-of-use
provided by Windows 95, the continued production of compelling
entertainment and education applications, and increasingly favorable price
to performance ratios for PCs also appear to be major contributing factors
to the increased growth in this industry.
As a result of all these factors, demand is growing for PC-based
entertainment software, as evidenced by increases in the sale of
entertainment software titles. According to IDC/LINK, North American sales
of entertainment software grew from $930 million in 1994 to $1.2 billion in
1995. IDC/LINK further expects 1996 sales to increase to $1.4 billion.
The Company believes that the continued growth of the interactive
entertainment market in the future will be dependent upon the development
of increasingly sophisticated software incorporating advanced graphics and
sound, compelling story lines and rewarding game play.
Set-top Systems. The set-top systems market currently is finishing
the transition from 16-bit systems to 32 and 64-bit systems ("next
generation systems"). Next generation 32-bit systems have experienced
healthy growth following their introduction in 1995 and have begun to
establish significant installed bases. Sony's PlayStation has been
particularly strong, establishing an installed base of approximately one
million units in North America. The Company currently believes that the
PlayStation will continue to enjoy major growth through 1996.
According to IDC/LINK, the U.S. installed base of next generation
systems at the end of 1995 was approximately 1.5 million units and will
reach approximately 3.6 million units by the end of 1996. IDC/LINK
projects further growth in the installed base of next generation systems to
approximately 6.2 million units by the end of 1997. The Company believes
that the continued success of these systems will be dependent upon the
ability of hardware manufacturers to lower prices to a level that will
allow for mass market penetration and a consistent supply of increasingly
sophisticated software for the consumer.
Distribution. The distribution channels for entertainment software
have expanded significantly in recent years. During the 1980s, set-top
entertainment software was sold primarily through mass merchants and toy
stores. Desktop entertainment software typically was sold through
specialty software stores. The distribution of desktop software is now
expanding into traditional set-top channels such as mass merchants,
specialty retailers and warehouse stores, while set-top software has begun
to penetrate specialty software stores and other traditional desktop
outlets. Although the number of distribution channels for entertainment
software has increased overall, an abundance of new software titles has
forced retailers to be highly selective when allocating shelf space.
Competition for shelf space has intensified as retailers, especially mass
merchants, continue to carry only products that are expected to sell in
high volumes.
To be successful in this more competitive distribution environment,
companies must demonstrate to retailers that their products have broad
appeal and can become best sellers. In order to achieve broad appeal,
companies must utilize the enhanced capabilities of MPCs and next
generation systems to create sophisticated products with high production
values and appealing game play. Since this approach results in higher
development budgets, companies that can institute disciplined development
processes to lower cost overruns and innovative marketing campaigns that
increase consumer awareness will be in the best position to maximize their
return on product investments.
CERTAIN CAUTIONARY INFORMATION
In connection with the Private Securities Litigation Reform Act of
1995 (the "Litigation Reform Act"), the Company is hereby disclosing
certain cautionary information to be used in connection with written
materials (including this Annual Report on Form 10-K) and oral statements
made by or on behalf of its employees and representatives that may contain
Oforward-looking statementsO within the meaning of the Litigation Reform
Act. Such statements consist of any statement other than a recitation of
historical fact and can be identified by the use of forward-looking
terminology such as "may," "expect," "anticipate," "estimate" or "continue"
or the negative thereof or other variations thereon or comparable
terminology. The listener or reader is cautioned that all forward-looking
statements are necessarily speculative and there are numerous risks and
uncertainties that could cause actual events or results to differ
materially from those referred to in such forward-looking statements. The
discussion below highlights some of the more important risks identified by
management, but should not be assumed to be the only factors that could
affect future performance. The reader or listener is cautioned that the
Company does not have a policy of updating or revising forward-looking
statements and thus he or she should not assume that silence by management
over time means that actual events are bearing out as estimated in such
forward-looking statements.
Fluctuations In Quarterly Results; Future Operating Results Uncertain;
Seasonality. The Company's quarterly operating results have in the past
varied significantly and will likely in the future vary significantly
depending on a variety of factors, many of which are not under the
Company's control. Such factors include, but are not limited to, demand
for the Company's products and those of its competitors, the size and rate
of growth of the interactive entertainment software market, development and
promotional expenses relating to the introduction of new products, changes
in computing platforms, product returns, the timing of orders from major
customers, delays in shipment, the level of price competition, the timing
of product introduction by the Company and its competitors, product life
cycles, software defects and other product quality problems, the level of
the Company's international revenues, and personnel changes. Products are
generally shipped as orders are received, and consequently, the Company
operates with little or no backlog. Net revenues in any quarter are,
therefore, substantially dependent on orders booked and shipped in that
quarter.
The Company's expenses are based in large part on the Company's product
development and marketing budgets. Product development and marketing costs
are expensed as incurred, which is often long before a product ever is
released. In addition, a large portion of the Company's expenses are
fixed. As the Company increases its development and marketing activities,
current expenses will increase and, if sales from previously released
products are below expectations, net income is likely to be
disproportionately affected.
Due to all of the foregoing, revenues and operating results for any
future quarter are not predictable with any significant degree of accuracy.
Accordingly, the Company believes that period-to-period comparisons of its
operating results are not necessarily meaningful and should not be relied
upon as indications of future performance.
The Company's business has experienced and is expected to continue to
experience significant seasonality, in part due to consumer buying
patterns. Net revenues are typically significantly higher during the
fourth calendar quarter, due primarily to the increased demand for consumer
software during the year-end holiday buying season. Net revenues in other
quarters are generally lower and vary significantly as a result of new
product introductions and other factors. For example, the Company's net
revenues in its last five quarters were $6.6 million for the quarter ended
March 31, 1995, $3.3 million for the quarter ended June 30, 1995, $18.8 for
the quarter ended September 30, 1995, $17.6 million for the quarter ended
December 31, 1995 and $21.6 million for the quarter ended March 31, 1996.
The Company expects its net revenues and operating results to continue to
reflect significant seasonality.
Dependence On New Product Development; Product Delays. The Company's
future success depends on the timely introduction of successful new
products to replace declining revenues from older products. If, for any
reason, revenues from new products were to fail to replace declining
revenues from older products, the Company's business, operating results and
financial condition would be materially and adversely affected. In
addition, the Company believes that the competitive factors in the
interactive entertainment software marketplace create the need for higher
quality, distinctive products that incorporate increasingly sophisticated
effects and the need to support product releases with increased marketing,
resulting in higher development and marketing costs. The lack of market
acceptance or significant delay in the introduction of, or the presence of
a defect in, one or more products could have material adverse effect on the
Company's business, operating results and financial condition, particularly
in view of the seasonality of the Company's business. Further, because a
large portion of a product's revenue is generally associated with initial
shipments, the delay of a product introduction expected near the end of a
fiscal quarter may have a material adverse affect on operating results for
that quarter.
The Company has, in the past, experienced significant delays in the
introduction of certain new products. The timing and success of
interactive entertainment products remain unpredictable due to the
complexity of product development, including the uncertainty associated
with technological developments. Although the Company has implemented
substantial development controls, there will likely be delays in developing
and introducing new products in the future. There can be no assurance that
new products will be introduced on schedule, or at all, or that they will
achieve market acceptance or generate significant revenues.
From time to time, the Company utilizes independent contractors for
certain aspects of product development and production. The Company has
less control over the scheduling and the quality of work by independent
contractors than that of its own employees. A delay in the work performed
by independent contractors or a lack of quality in such work may result in
product delays. Although the Company intends to focus on internal product
development, the Company's business and future operating results will
depend, in part, on the Company's continued ability to maintain
relationships with skilled independent contractors. There can be no
assurance that the Company will be able to maintain such relationships.
Uncertainty Of Market Acceptance; Short Product Life Cycles. The
market for entertainment systems and software has been characterized by
shifts in consumer preferences and short product life cycles. Consumer
preferences for entertainment software products are difficult to predict
and few entertainment software products achieve sustained market
acceptance. There can be no assurance that new products introduced by the
Company will achieve any significant degree of market acceptance, that such
acceptance will be sustained for any significant period, or that product
life cycles will be sufficient to permit the Company to recoup development,
marketing and other associated costs. In addition, if market acceptance is
not achieved, the Company could be forced to accept substantial product
returns to maintain its relationships with retailers and its access to
distribution channels. Failure of new products to achieve or sustain
market acceptance or product returns in excess of the Company's
expectations would have a material adverse effect on the Company's
business, operating results and financial condition.
Product Concentration; Dependence On Hit Products. A key aspect of the
Company's strategy is to focus its development efforts on selected, high
quality software entertainment products. The Company derives a significant
portion of its revenues from a select number of high quality entertainment
software products released each year, and many of these products have
substantial production and marketing budgets. Due to this dependence on a
limited number of products, the Company may be adversely affected if one or
more principal entertainment software products fail to achieve anticipated
results. During fiscal 1995, approximately 59% of the Company's net
revenues were derived from one title. During fiscal 1996, approximately
49% of the Company's net revenues were derived from one other title.
Industry Competition; Competition For Shelf Space. The interactive
entertainment software industry is intensely competitive. Competition in
the industry is principally based on product quality and features, the
compatibility of products with popular platforms, company or product line
brand name recognition, access to distribution channels, marketing
effectiveness, reliability and ease of use, price and technical support.
Significant financial resources also have become a competitive factor in
the entertainment software industry, principally due to the substantial
cost of product development and marketing that is needed for best-selling
titles. In addition, competitors with large product lines and popular
titles typically have greater leverage with distributors and other
customers who may be willing to promote titles with less consumer appeal in
return for access to such competitor's most popular titles.
The Company's competitors range from small companies with limited
resources to large companies with substantially greater financial,
technical and marketing resources than those of the Company. The Company's
competitors currently include Electronic Arts, Inc., Lucas Arts
Entertainment Company, Microsoft Corporation ("Microsoft"), Sega, Nintendo,
Sierra On-Line, Inc., Good Times Interactive, Inc., Interplay, Inc. and
Maxis, Inc., among many others. In addition, the Company believes that new
competitors, including large divisions of major media and communications
companies such as Viacom, Inc., Time Warner, Inc., The Walt Disney Company
and Dreamworks SKG, are entering the market or are increasing their focus
on the entertainment software market, resulting in greater competition for
the Company.
As competition increases, significant price competition, increased
production costs and reduced profit margins may result. In addition,
competition from new technologies, such as on-line or networked games, may
reduce demand in markets in which the Company has traditionally competed.
Prolonged price competition or reduced demand would have a material adverse
effect on the Company's business, operating results and financial
condition. There can be no assurance that the Company will be able to
compete successfully against current or future competitors or that
competitive pressures faced by the Company will not have a material adverse
affect on its business, operating results and financial condition.
Retailers typically have a limited amount of shelf space, and there is
intense competition among entertainment software producers for adequate
levels of shelf space and promotional support from retailers. As the
number of entertainment software products increase, the competition for
shelf space has intensified resulting in greater leverage for retailers and
distributors in negotiating terms of sale, including price discounts and
product return policies. The Company's products constitute a relatively
small percentage of a retailer's sale volume, and there can be no assurance
that retailers will continue to purchase the Company's products or promote
the Company's products with adequate levels of shelf space and promotional
support.
Changes In Technology And Industry Standards. The consumer software
industry is undergoing rapid changes, including evolving industry
standards, frequent new platform introductions and changes in consumer
requirements and preferences. The introduction of new technologies,
including operating systems such as Microsoft's Windows 95 and media
formats such as on-line delivery, could render the Company's previously
released products obsolete or unmarketable. The development cycle for
products utilizing new operating systems, microprocessors or formats may be
significantly longer than the Company's current development cycle for
products on existing operating systems, microprocessors and formats and may
require the Company to invest resources in products that may not become
profitable. There can be no assurance that the mix of the Company's future
product offerings will keep pace with technological changes or satisfy
evolving consumer preferences or that the Company will be successful in
developing and marketing products for any future operating system or
format. Failure to develop and introduce new products and product
enhancements in a timely fashion could result in significant product
returns and inventory obsolescence and could have a material adverse effect
on the Company's business, operating results and financial condition.
Limited Protection Of Intellectual Property And Proprietary Rights;
Risk Of Litigation. The Company holds copyrights on its products, manuals,
advertising and other materials and maintains trademark rights in the
Company name, the Activision logo, and the names of products published by
the Company. The Company regards its software as proprietary and relies
primarily on a combination of trademark, copyright and trade secret laws,
employee and third-party nondisclosure agreements, and other methods to
protect its proprietary rights. Unauthorized copying is common within the
software industry, and if a significant amount of unauthorized copying of
the Company's products were to occur, the Company's business, operating
results and financial condition could be adversely affected. There can be
no assurance that third parties will not assert infringement claims against
the Company in the future with respect to current or future products. As
is common in the industry, from time to time the Company receives notices
from third parties claiming infringement of intellectual property rights of
such parties. The Company investigates these claims and responds as it
deems appropriate. Policing unauthorized use of the Company's products is
difficult, and while the Company is unable to determine the extent to which
piracy of its software products exists, software piracy can be expected to
be a persistent problem. In selling its products, the Company relies
primarily on "shrink wrap" licenses that are not signed by licensees and,
therefore, may be unenforceable under the laws of certain jurisdictions.
Further, the Company enters into transactions in countries where
intellectual property laws are not well developed or are poorly enforced.
Legal protections of the Company's rights may be ineffective in such
countries. Any claims or litigation, with or without merit, could be
costly and could result in a diversion of management's attention, which
could have a material adverse effect on the Company's business, operating
results and financial condition. Adverse determinations in such claims or
litigation could also have a material adverse effect on the Company's
business, operating results and financial condition.
Dependence On Key Personnel. The Company's success depends to a
significant extent on the performance and continued service of its senior
management and certain key employees. In particular, the loss of the
services of Robert A. Kotick, Brian G. Kelly or Howard E. Marks could have
a material adverse effect on the Company. The Company maintains life
insurance policies only on Messrs. Kotick, Kelly and Marks. Competition
for highly skilled employees with technical, management, marketing, sales,
product development and other specialized training is intense, and there
can be no assurance that the Company will be successful in attracting and
retaining such personnel. Specifically, the Company may experience
increased costs in order to attract and retain skilled employees. Although
the Company generally enters into term employment agreements with its
skilled employees and other key personnel, there can be no assurance that
such employees will not leave the Company or compete against the Company.
The Company's failure to attract additional qualified employees or to
retain the services of key personnel could have a material adverse affect
on the Company's business, operating results and financial condition.
Dependence On Distributors; Risk Of Customer Business Failure; Product
Returns. Certain mass market retailers have established exclusive buying
relationships under which such retailers will buy consumer software only
from one or two intermediaries. In such instances, the price or other
terms on which the Company sells to such retailers may be adversely
affected by the terms imposed by such intermediaries, or the Company may be
unable to sell to such retailers on terms which the Company deems
acceptable. The loss of, or significant reduction in sales attributable
to, any of the Company's principal distributors or retailers could
materially adversely affect the Company's business, operating results and
financial condition. Distributors and retailers in the computer industry
have from time to time experienced significant fluctuations in their
businesses and there have been a number of business failures among these
entities. The insolvency or business failure of any significant
distributor or retailer of the Company's products could have a material
adverse effect on the Company's business, operating results and financial
condition. Sales are typically made on credit, with terms that vary
depending upon the customer and the nature of the product. The Company does
not hold collateral to secure payment. Although the Company maintains a
reserve for uncollectible receivables that it believes to be adequate, a
payment default by a significant customer could have a material adverse
affect on the Company's business, operating results and financial
condition.
The Company also is exposed to the risk of product returns from
distributors and retailers. Although the Company provides reserves for
returns that it believes are adequate, and although the Company's
agreements with certain of its customers place certain limits on product
returns, the Company could be forced to accept substantial product returns
to maintain its relationships with retailers and its access to distribution
channels. Product returns that exceed the Company's reserves could have a
material adverse effect on the Company's business, operating results and
financial condition.
Risks Associated With International Operations. International sales
and licensing accounted for 24%, 28% and 23% of the Company's total
revenues in the fiscal years 1994, 1995 and 1996, respectively. The
Company intends to continue to expand its direct and indirect sales and
marketing activities worldwide. Such expansion will require significant
management time and attention and financial resources in order to develop
adequate international sales and support channels. There can be no
assurance, however, that the Company will be able to maintain or increase
international market demand for its products. International sales are
subject to inherent risks, including the impact of possible recessionary
environments in economies outside the United States, the costs of
transferring and localizing products for foreign markets, longer receivable
collection periods and greater difficulty in accounts receivable
collection, unexpected changes in regulatory requirements, difficulties and
costs of staffing and managing foreign operations, and political and
economic instability. There can be no assurance that the Company will be
able to sustain or increase international revenues or that the foregoing
factors will not have a material adverse effect on the Company's future
international revenues and, consequently, on the Company's business,
operating results and financial condition. The Company currently does not
engage in currency hedging activities. Although exposure to currency
fluctuations to date has been insignificant, there can be no assurance that
fluctuations in currency exchange rates in the future will not have a
material adverse impact on revenues from international sales and licensing
and thus the Company's business, operating results and financial condition.
Risk Of Software Defects. Software products such as those offered by
the Company frequently contain errors or defects. Despite extensive
product testing, in the past the Company has released products with defects
and has discovered software errors in certain of its product offerings
after their introduction. In particular, the personal computer hardware
environment is characterized by a wide variety of non-standard peripherals
(such as sound cards and graphics cards) and configurations that make
pre-release testing for programming or compatibility errors very difficult
and time-consuming. There can be no assurance that, despite testing by the
Company, errors will not be found in new products or releases after
commencement of commercial shipments, resulting in a loss of or delay in
market acceptance, which could have a material adverse effect on the
Company's business, operating results and financial condition.
STRATEGY
The Company's objective is to be a worldwide leader in the development
and delivery of exceptional and innovative interactive entertainment
software designed for a range of platforms, appealing to existing and new
audiences for entertainment software products, and incorporating
sophisticated graphics, sound, video, compelling story lines and game
experiences. The Company's strategy includes the following elements:
Develop best-selling titles. The Company believes that competitive
factors in the interactive entertainment software marketplace create the
need for higher quality, distinctive products that provide superior gaming
experiences. Accordingly, the Company intends to focus on a select number
of major new titles each year. Several of these titles will be based on
existing franchises, while others will be based on new concepts. The
Company intends to support the development, production and marketing of
these titles with the resources necessary to create best selling products.
In order to reduce the financial risks associated with the higher budgets
required for this strategy, the Company may from time to time pre-sell
various rights, including ancillary rights and rights with respect to
delivery platforms which the Company does not intend to support itself, in
selected geographical territories.
Leverage and enhance franchise properties. The Company seeks to
develop product franchises that have sustainable consumer appeal and brand
recognition. Through its long history in personal computer and video
gaming, the Company has accumulated a rich backlist of titles, several of
which were best-sellers when originally released. The Company has
successfully converted a number of these popular titles to franchise
product lines, including its Zork, Shanghai and Pitfall series. For
example, the Company has released seven versions of Zork since the
introduction in 1982 of the original Zork title, including, Return to Zork,
which has sold over one million copies since its introduction in 1993, and
the recently released Zork Nemesis. The Company intends to create
additional franchises from its broad library of content and from new,
original concepts.
Disciplined product development and production processes. The Company
recently has implemented product development and production processes that
are designed to limit cost and schedule overruns within an environment that
fosters creativity. Such processes enable the Company to identify and
address the majority of the technical and creative risks before the Company
commences production of the title. The Company has also implemented a
series of defined, measurable milestones throughout development and
production in order to increase its ability to maintain control over these
processes.
Utilize studio model. The Company develops and produces products
using a studio model, in which a core group of creative, production,
technical, marketing and financial professionals at the Company have
overall responsibility for the entire development and production processes
and for the supervision and coordination of internal and external
resources. The Company believes that this studio model allows the Company
to supplement internal expertise with top quality external resources on an
as needed basis.
Focus on CD-ROM based systems and other popular platforms. The
Company seeks to capitalize on the popularity of platforms as they are
adopted by consumers. The Company's current focus is on CD-ROM products to
be used with MPCs. During the fiscal year ended March 31, 1996,
approximately 91% of the Company's revenues were from CD-ROM products to be
used with MPCs. The Company also believes that the next generation systems
will become popular platforms in the future and, accordingly, it currently
is developing certain of its existing titles, as well as several new
titles, for these platforms. In order to maintain platform flexibility,
the Company has developed proprietary development and production processes
and cross-platform authoring tools that enable it to develop products that
can be adapted to multiple platforms efficiently.
Develop and utilize proprietary technologies. The Company has
developed proprietary development tools which enable its producers,
directors, artists and programmers to achieve visual and creative effects
that differentiate the Company's products. For example, MechWarrior 2
utilized specialized real-time 3-D texture mapping and sophisticated
artificial intelligence. Zork Nemesis utilized technology allowing for
true 360 degree movement within an environment. All of these tools were
developed by the Company's technology teams. The Company intends to
continue to develop and utilize proprietary technologies to create products
that provide innovative interactive experiences.
Expand distribution channels. The Company's strategy is to continue
to expand its independent, direct distribution of its products. Through
its internal sales force, the Company sells its software products directly
to major computer and software retailing organizations, consumer electronic
stores, discount warehouses and mail order companies in North America. For
the fiscal year ended March 31, 1996, 61% of the Company's North America
publishing revenues were direct to these retail organizations. The Company
believes that a direct relationship with retail accounts results in more
effective inventory management, merchandising and communications than would
be possible through indirect relationships. The Company seeks to continue
to increase the number of retail outlets reached through its sales force
and also is enhancing its current distribution relationships by introducing
real-time ordering and invoicing links to its major distribution partners.
In addition, the Company intends to pursue further direct international
sales and distribution activities.
PRODUCTS
The Company is best known for its action, adventure and
action/simulation products. However, it recently has expanded its product
line into new categories and expects to continue such expansion efforts.
The Company's platform strategy is to capitalize on the popularity of
hardware platforms as they are adopted by consumers. Many of the Company's
products are released in multiple formats for use on more than one desktop
or set-top systems. The Company has developed interactive entertainment
software for a variety of platforms since its founding in 1979. Throughout
the 1980s the Company developed over 100 titles for the Apple Macintosh,
MS-DOS compatible, Amiga and Commodore platforms as well as the Atari
2600 and 8-bit and 16-bit set-top systems. The majority of the
Company's current titles are being developed for PCs using the Windows 95
and MS-DOS operating systems. The Company also expects to introduce
products for the next generation systems during the fiscal year ending
March 31, 1997.
The Company's current and future products can be divided into four
categories:
Franchise Products. Franchise Products include one or more lines of
products based on an original best selling title and are then extended to
sequels and related products. All Franchise Products are based on
underlying properties that are owned by the Company.
Licensed Products. Licensed Products consist of titles based on
licensed properties. Some of these products have been extended to series.
The Company does not consider them Franchise Products, however, as it does
not control the underlying content.
Original Products. Original Products consist of releases based on
original characters or concepts. Because the underlying properties of
these titles are owned or controlled by the Company, these titles, if
successful can become new "franchises."
Catalog Products. Catalog Products consists of collections of
backlist or "classic" titles which the Company has been able to compile and
repackage for current popular platforms.
The Company's focus is on creating new franchises and extending
franchises through the introduction of new products based on existing
franchises. The Company believes that its Original Products will play an
important role in creating future franchises. Catalog Products represent a
relatively small portion of the Company's revenues, but require little
development investment and in the past have been highly profitable. From
time to time the Company also may continue to license properties for new
Licensed Products. Licensed Products are expected to comprise a smaller
portion of the Company's revenues over time, however, as it focuses its
development effort on Original Products.
Franchise Products. The Company seeks to create product franchises which
have sustainable consumer appeal and brand recognition. Through its long
history in interactive entertainment software, the Company has accumulated
a rich backlist of titles, a number of which were best-sellers. The
Company has converted three of these titles, Zork, Pitfall and Shanghai, -
to Franchise Product lines. For example, the Company has released six
additional titles in the Zork series since the introduction in 1982 of the
original Zork title, including most recently Zork Nemesis. Since April 1,
1993, the Company has sold more than 3.3 million copies of products based
on the Zork, Pitfall and Shanghai properties.
ZORK: Zork is an adventure series in which the player is
placed into a fantasy world where he must save mankind by
picking up objects, finding his way through the world, killing
or avoiding characters and solving puzzles. The original Zork
and the next four releases were text-based games released on the
Apple II, MS-DOS and Atari platforms. Return to Zork
incorporated video and graphics for the first time into the Zork
universe and was released for the MS-DOS and Macintosh
platforms. Zork Nemesis, for Windows 95 and MS-DOS, was
released in March 1996; Zork Nemesis currently is being
developed for the Macintosh, Playstation and Saturn systems.
PITFALL!: Pitfall!, an action/adventure game originally
released on the Atari 2600 system in 1982, was one of the
industry's best selling video game titles. Throughout the game,
players must guide Pitfall Harry through a series of settings,
avoiding traps and evil characters. The most recent Pitfall
product, Pitfall: The Mayan Adventure, was released in 1994 and
is available for use on the Windows 95, SNES, Genesis, Sega 32X
and Sega CD systems. The Company's next Pitfall game,
tentatively titled Pitfall 3-D, currently is under development
for the Windows 95, Playstation and Saturn systems.
SHANGHAI: Shanghai is an internationally popular strategy game
based on the ancient Chinese game of mahjongg, which requires
players to manipulate intricately designed tiles. Shanghai
titles are available on a variety of platforms, including MS-
DOS, Windows 3.1, Windows 95, Macintosh, Saturn, SNES, 3DO and
Genesis.
Other Franchise Products. The Company currently intends to
publish a sequel to one of its older best selling titles,
Planetfall, a science fiction text adventure game first
introduced in 1982. The Company intends to introduce the
Planetfall sequel for Windows 95, Playstation and Saturn in
fiscal 1998. However, there can be no assurance that such
product will be released on schedule or at all and, if
introduced, that it will generate any significant revenues or
become a successful franchise.
Licensed Products. The Company selectively licenses from third
parties intellectual property or other character or story rights,
including rights associated with motion pictures or literary
properties, and then develops titles based on these rights. Certain
of these products have been extended into series; the Company does not
consider them Franchise Products, however, since the underlying
property is not owned and, therefore, controlled by the Company.
Licensed Products are attractive to the Company because of the proven
nature of the underlying property and, in certain cases, because they
enable the Company to enter new areas, such as children's titles, with
a well known property, thereby reducing risk. In developing products
based on licensed intellectual property rights, the Company seeks to
capitalize on the name recognition, marketing efforts and goodwill
associated with the underlying property. Certain of the Company's
currently available or soon to be released Licensed Products are:
BATTLETECH/MECHWARRIOR -- Since 1987, when the Company released
the first of the action/adventure games in this series for use
with the MS-DOS operating system, the Company has released six
additional titles based on the "Battletech Universe." The most
recent of such titles is MechWarrior 2, which was released in
1995 for the MS-DOS operating system. In December 1995, the
Company released an add-on disc to MechWarrior 2 entitled
MechWarrior 2 Expansion Pack: Ghost Bear's Legacy, as well as a
version of MechWarrior 2 that operates on the Windows 95
operating system and allows for head-to-head combat via modem
and multi-player interaction over a local area network. Other
titles in the MechWarrior series previously released by the
Company include MechWarrior (SNES) and MechWarrior 3050 (SNES).
During fiscal 1997, the Company expects to release MechWarrior 2
on the Playstation and Saturn systems. It also intends to
introduce a sequel to MechWarrior 2 for the MS-DOS and Windows
95 systems entitled MechWarrior 2: Mercenaries. There can be no
assurance that any such products will be released on schedule or
at all and, if introduced, that they will generate any
significant revenues.
EARTHWORM JIM -- A humorous action game, Earthworm Jim is based
on the set-top game. In the game, Jim is a simple worm who
suddenly finds himself endowed with super-human qualities. The
Company released this game for the Windows 95 platform in 1995.
MUPPET TREASURE ISLAND -- This desktop children's title under
development features Kermit the Frog, Miss Piggy, actor Tim
Curry and a host of other Muppet characters. The Muppet
Treasure Island CD-ROM is based on a feature film of the same
name, which was produced by Jim Henson Productions and released
by Walt Disney Pictures in February 1996. The Company currently
expects to release this title in the fall of 1996.
Catalog Products. The Company continues to exploit its extensive library
of content by re-packaging and re-releasing many of its original successful
products in collection formats. For example, the Company released seven
collections of computer text adventures that previously were published
under the Infocom brand name, including two which were released by the
Company under the title Lost Treasures of Infocom, three collections of
Atari 2600 video games under the title Activision's Atari 2600 Action Pack,
and one collection of Commodore 64 games under the title Activision's
Commodore 64 15 Pack. The latter two series of collections have been
converted for use with one or more of the MS-DOS, Windows 3.1, Windows 95
and Macintosh operating systems. The Company intends to continue to
exploit its library through compilations and re-releases as opportunities
arise. Since April 1, 1993, the Company has shipped more than 370,000
copies of products of this nature.
Original Products. In addition to exploiting its existing library of
content, the Company develops and publishes new entertainment software
products based on original characters or concepts conceived by the
Company's staff and independent writers and designers. Because the
elements of these titles are owned by the Company, these titles, if
successful, can become new "franchise" properties serving as a basis for
sequels, adaptations and further ancillary exploitation. However, there
can be no assurance that any of these products will be released on schedule
and, if released, that they will develop into franchise products. Original
Products that the Company recently has released or currently is developing
and producing for Windows 95 and/or the next generation systems include:
SPYCRAFT: THE GREAT GAME -- An espionage thriller, Spycraft:
The Great Game teams former adversaries William Colby, ex-CIA
director, and Oleg Kalugin, former KGB Major General, as
consultants on the project and actors in the game. As a CIA
operative, the player is drawn into the dangerous world of
international intrigue. The product was released on the MS-
DOS, Windows 95 and Macintosh platforms in March 1996.
HYPERBLADE -- A fast-action, real time, 3-D, multiplayer
sports game, HyperBlade combines the hard-hitting action of
such sports as hockey, soccer, lacrosse and speed skating and
pits players against each other in a 3-D virtual arena.
SANTA FE MYSTERIES -- A role-playing murder mystery series
set in Sante Fe, New Mexico.
INTERSTATE `76 -- An off-road, 3-D, real time automotive
combat simulation game, set in the 1970s, in which the player
drives a 1969 Fairlane Cobra in a race to save America by
finding and protecting the last oil refinery from the evil
forces of OPEC.
BLAST CHAMBER -- A unique action game set in a rotatable 3-D
cube which allows up to four players to challenge each other in
a pressure-packed race against time. Players must stay one
step ahead of their opponents as they maneuver their character
through an intricate maze of obstacles, obtain control of a
crystal and place it into the appropriate transmitter before a
deadly time bomb strapped to their character is triggered.
Affiliated Label Products. The Company also periodically publishes and
distributes software products for other developers. As the Company seeks
to associate the "Activision" mark only with the highest quality
interactive entertainment products, it is selective in acquiring publishing
and distribution rights from third party developers. All of such products
are marketed under the Company's name as well as the name of the original
developer. The Company believes that this affiliated label business
enables it to leverage its investment in its marketing and sales forces and
add a new source of products without incurring all of the risks inherent in
original product development and production. Certain of the Company's
currently available or soon to be released affiliated label products are:
TIME COMMANDO -- A sophisticated 3-D real-time, action-
adventure game with vivid pre-rendered backgrounds. Featuring
nine distinct time periods, players travel deep into the past
and are propelled forward into the future as they battle over
60 historical enemies using over 50 different types of weapons.
In each world, players face enemies representative of the time
period, and must master the weapons of that era to defeat
opponents.
MIGHTY MORPHIN POWER RANGERS COLORING BOOK, MIGHTY MORPHIN
POWER RANGERS JIGSAW PUZZLES, MIGHTY MORPHIN POWER RANGERS
PRINT KIT, MIGHTY MORPHIN POWER RANGERS CREATE A MOVIE, MIGHTY
MORPHIN POWER RANGERS SCREEN SAVER -- These five separate
titles released in November and December 1995 feature the
Mighty Morphin Power Rangers, including digitized images from
the Power Rangers' television series as well as "Mighty Morphin
Power Rangers: The Movie."
OPERATING DIVISIONS
Activision Studios
Activision Studios, the Company's development and production group, is
responsible for the selection, design, development, production, quality
assurance and customer support of the Company's interactive entertainment
software products. The Company's creative development and production staff
selects and develops new products, adapts existing products for additional
hardware platforms, modifies licensed or acquired products and manages the
external development of products by independent developers.
Product Development. The Company develops and produces products using a
studio model, in which a core group of creative, production, technical,
marketing and financial professionals on staff at the Company have overall
responsibility for the entire development and production process and for
the supervision and coordination of internal and external resources. Each
project team, which is led by a game producer and includes one or more
associate producers, game designers, production coordinators, a creative
executive, a technology executive and a quality assurance manager, all of
whom are on the Company's staff, assembles the necessary creative elements,
using where appropriate outside programmers, graphic and other artists,
animators, musicians and songwriters, sound effects and special effects
experts, and sound and video studios. The Company believes that this model
allows the Company to supplement internal expertise with top quality
external resources on an as needed basis.
The Company has adopted and implemented a rigorous internal procedure for
the selection, development, production and quality assurance of its
entertainment software titles. The process involves a pre-development
phase, a development phase and a production phase, each of which includes
various measurable performance milestones. This procedure is designed to
enable the Company to manage and control production and development budgets
and timetables, to identify and address production and technical issues
quickly, and to coordinate marketing and quality control strategies
throughout the production and development phases, all in an environment
that fosters creativity. Checks and balances are provided through the
structured interaction of the project team with the Company's creative,
technical, marketing and quality assurance/customer support personnel, as
well as the legal, accounting and finance departments.
Before actual development can begin on a new title, the product concept
is subjected to a preliminary development process designed to ensure that
there is a clear and sound vision for the product. At the conclusion of
this pre-development process, which can last up to six months, management
will have approved a preliminary design document, a comprehensive
development budget and schedule and a staffing plan for the development and
production phases. A creative executive also will have been assigned to
the project. The development phase, which lasts from four to six months
after pre-development, includes the assignment of the internal project
team, the identification of external talent and suppliers and the
preparation of a final design document and a complete plan for the product.
During the production process, which can last six to 18 months after
conclusion of development, the Company requires regular budget and other
reviews and reports to enable management to monitor all aspects of the
production process. Key elements of the production process include the
assembling of all creative elements in a manner that maximizes the
efficiency with which the title can be converted to new platforms and
translated and localized for new markets, and the planning and
implementation of the marketing strategy for the product.
Quality Assurance and Customer Support. The Company's quality assurance
personnel are involved throughout the development and production processes
for each title, and products are subjected to extensive testing before
release. To support its products after release, the Company provides on-
line support on a 24-hour basis and operator help lines during regular
business hours. The customer support group tracks customer inquiries and
this data is used to improve the development and production processes.
Marketing
The Company's marketing efforts include on-line activities (such as the
creation of World Wide Web pages specifically to promote Zork Nemesis,
Spycraft: The Great Game, The Elk Moon Murder and Muppet Treasure Island),
public relations, print and broadcast advertising, coordinated in-store and
industry promotions including merchandising and point of purchase displays
and participation in cooperative advertising programs, direct response
vehicles, and product sampling through demonstration software distributed
through the Internet or on compact discs. In addition, the Company's most
recent products contain software that enables customers to Oelectronically
registerO their purchases with the Company via modem. Through this
process, the Company captures electronic mail addresses for its customers
as well as a variety of additional market research data. The Company
intends to increase its on-line marketing activities using these electronic
mail addresses for direct response promotions, and making its titles and
upgrades available for sale through on-line services when appropriate.
The Company believes that certain of its franchise properties (such as
the Zork series) have loyal and devoted audiences who purchase the
Company's sequels as a result of dedication to the property and
satisfaction from previous product purchases. Marketing of these sequels
is therefore directed both toward the established market as well as broader
audiences. In marketing titles based on feature films or other licensed
properties, the Company believes that it derives marketing synergies and
related benefits from the marketing and promotional activities of the
property owners.
Sales and Distribution
Domestic sales and distribution. The Company's products are domestically
available for sale or rental in thousands of retail outlets ranging from
consumer electronics and computer specialty stores to department stores,
discount chains, video rental stores and toy stores. The Company's
customers in these categories include Best Buy, CompUSA, Computer City,
Neostar, Egghead Discount Software, Electronic Boutique, Sears, WalMart, K-
Mart, Target, Blockbuster Video and Toys "R" Us. For the fiscal year ended
March 31, 1996, sales made to two customers (CompUSA and Best Buy)
accounted for approximately 6% and 7% of consolidated net revenues of the
Company, respectively. The loss of either of such customers could have a
material adverse impact on the Company's business, operating results and
financial condition. The majority of the Company's North American sales
are made directly to the retailers. The Company believes that a direct
relationship with retail accounts results in more effective inventory
management, merchandising and communications than would be possible through
indirect relationships. The Company has implemented EDI linkage with
several retailers to facilitate the placing and shipment of orders. The
Company seeks to continue to increase the number of retail outlets reached
directly through its internal sales force. To a lesser extent, the Company
sells its products through wholesale distributors, such as Ingram Micro,
Handelman and Merisel.
International Sales and Distribution. The Company conducts a substantial
portion of its international sales, licensing and distribution activities
through its offices in Japan, England and Australia. At present, the
Company's office in Australia handles the Company's distribution and
marketing efforts in Australia, New Zealand, Singapore, and other South
Pacific Rim countries. Through its office in Japan, the Company
facilitates the licensing and distribution of its products in the Japanese
and certain other Asian markets. The licensing and distribution of the
Company's products in Europe is performed through the Company's London
office. The Company recently established a sales office in Miami to
oversee the Company's distribution and marketing efforts in Latin America.
The Company seeks to broaden the distribution of its products in
international markets by translating and localizing certain of its products
into foreign languages. The Company also currently intends to increase its
staff in Japan so that new titles can be developed and published directly
by the Company for the Japanese market. To this end, the Company may seek
new development partners in Japan.
OEM Transactions. The Company seeks to enhance the distribution of its
products through licensing arrangements with original equipment
manufacturers ("OEM"s). Under these arrangements, one or more of the
CompanyOs titles are ObundledO with hardware or peripheral devices sold and
distributed by the OEM so that the purchaser of the hardware or device
obtains the Company's software as part of the purchase or on a discounted
basis. Although it is customary for the Company to receive a lower per
unit price on sales through OEM bundle arrangements, the OEM customer makes
a high unit volume commitment to the Company and there are no associated
marketing costs. In addition, the Company from time to time receives
substantial advance payments from the OEM customer. The Company also
believes that such arrangements can substantially expand the distribution
of its titles to a broader audience. Recent OEM partners include
Microsoft, IBM, Sony, Compaq, Apple and NEC.
Affiliated Developer Business. The Company periodically licenses or
acquires from other developers software products for publishing and
distribution by the Company. Acquired titles are marketed under the
CompanyOs name as well as the name of the original developer. The
agreements with affiliated developers provide for the grant to the Company
of exclusive distribution rights for a specific period of time for
specified platforms and territories.
Licensing and Merchandising Activities
The Company believes that a number of its products have the potential to
be exploited in ancillary markets and media, such as product merchandising
and traditional entertainment media. Directly and through third party
agents, the Company actively is seeking opportunities for the exploitation
of these ancillary rights. Potential opportunities include the publication
of strategy guides for selected titles, the adaptation of titles into comic
books, novels, television or motion pictures, and the licensing of product
merchandising rights. The Company believes that these types of licensing
activities can provide additional sources of revenue and increase the
visibility of the title, thereby leading to additional unit sales and
greater potential for additional sequels. There can be no assurance that
the Company will be successful in exploiting its properties in ancillary
markets or media.
Similarly, the Company believes that there are opportunities for further
exploitation of its titles through the Internet, on-line services such as
America Online, Prodigy, the Microsoft Network and CompuServe, and through
recently created on-line gaming services such as Dwango, X-Band and MPath.
The Company has established "900" telephone numbers as hint lines for
certain of its titles, and has realized revenues from large numbers of
calls to these numbers. The Company also is actively exploring the
establishment of on-line game playing opportunities, on-line hint sites,
and Internet services as a method for realizing additional revenues from
its products. There can be no assurance that the Company will be
successful in exploiting these opportunities.
HARDWARE LICENSES
The Company's set-top products currently are being developed or published
for one or more systems owned by Nintendo, Sega or Sony. Each of the set-
top systems owned by these companies has unique and proprietary
configurations. In order to gain access to the set-top systems that the
Company currently is supporting, the Company has obtained licenses for each
of the SNES, Genesis, Sega CD, Saturn and PlayStation systems. Each
license allows the Company to create one or more products for the
applicable system, subject to certain approval rights as to quality which
are reserved by each licensor. Each license also requires that the Company
pay the licensor a per unit license fee from product sales.
In contrast, the Company currently is not required to obtain any license
for the development and production of desktop products. Accordingly, the
Company's per unit manufacturing cost for desktop products is less than the
per unit manufacturing cost for set-top products.
MANUFACTURING
The Company prepares a set of master program copies, documentation and
packaging materials for its products for each respective hardware platform
on which the product will be released. Except with respect to products for
use on the Nintendo, Sony and Sega systems, the Company's disk duplication,
packaging, printing, manufacturing, warehousing, assembly and shipping are
performed by third party subcontractors.
In the case of products for the Nintendo, Sony and Sega systems, in order
to maintain protection over their hardware technologies, such hardware
producers generally specify and/or control the manufacturing and assembly
of finished products. The Company delivers the master materials to the
licensor or its approved replicator which then manufactures finished goods
and delivers them to the Company for distribution under the Company's
label. At the time the Company's product unit orders are filled by the
manufacturer, the Company becomes responsible for the costs of
manufacturing and the applicable per unit royalty on such units, even if
the units do not ultimately sell.
To date, the Company has not experienced any material difficulties or
delays in the manufacture and assembly of its products or material returns
due to product defects.
EMPLOYEES
As of March 31, 1996, the Company had 319 employees, including 220 in
Activision Studios, 43 in Sales and Marketing, 41 in Finance, Operations
and Administration, two in Licensing and Merchandising and 11 in its
offices in Japan, England and Australia.
As of March 31, 1996, 88 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 members of either Activision
Studios or the Company's Sales and Marketing divisions and perform services
to the Company as directors, producers, associate producers, computer
programmers, game designers, sales directors and product managers. The
execution by the Company of employment agreements with such employees, in
the Company's experience, significantly reduces the Company's turnover
during the development and production of its entertainment software
products and allows the Company to plan more effectively 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.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales
See Note 9 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 57,000 square feet of
leased space in a building located at 11601 Wilshire Blvd., Los Angeles,
California. The lease in Los Angeles was first entered into in November
1993. The following is a listing of all premises maintained by the Company
at March 31, 1996:
Location of
Principal Facilities Square Feet Lease Expiration Date
----------------------------------- ---------------------
Los Angeles, California 19,000 March 31, 1998
Los Angeles, California 38,000 March 31, 1997
London, United Kingdom 2,000 February 4, 1997
Tokyo, Japan 450 July 31, 1997
Sydney, Australia 400 Month-to-Month
The Company currently is searching for new premises for its Los
Angeles offices. Although management believes that physical facilities
that meet the Company's requirements are available in the Los Angeles area,
there can be no assurance that it will be successful in its attempt to find
such facilities on terms acceptable to the Company.
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
Not applicable.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCK-HOLDER
MATTERS
From October 22, 1993, through January 25, 1995 the Company's Common
Stock was quoted on the NASDAQ SmallCap Market. Since January 26, 1995,
the Common Stock has been quoted on the NASDAQ National Market.
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.
The following table sets forth the periods indicated at the high and
low reported closing prices for the Common Stock.
High Low
Ask/Sale Bid/Sale
-------- --------
Fiscal 1995
------------
First Quarter ended June 30, 1994 $ 7.62 $ 5.00
Second Quarter ended September 30, 1994 $ 6.22 $ 4.00
Third Quarter ended December 31, 1994 $ 5.75 $ 3.25
Fourth Quarter ended March 31, 1995 $ 9.00 $ 5.00
Fiscal 1996
----------------
First Quarter ended June 30, 1995 $ 7.18 $ 5.75
Second Quarter ended September 30, 1995 $19.75 $ 6.75
Third Quarter ended December 31, 1995 $18.50 $ 8.13
Fourth Quarter ended March 31, 1996 $15.13 $ 8.63
Fiscal 1997
----------------
First Quarter ended June 30, 1996 $15.00 $11.75
Second Quarter through July 2, 1996 $14.63 $13.00
On July 2, 1996, the reported last sales price for the Common Stock
was $14.00. As of March 31, 1996, 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 never paid cash dividends on its capital stock and
does not intend to pay cash dividends at any time in the foreseeable
future. The Company expects that earnings will be retained for the
continued growth and development of the Company's business. Future
dividends, if any, will depend upon the Company's earnings, financial
condition, cash requirements, future prospects and other factors deemed
relevant by the Company's Board of Directors.
During the period from December 11, 1996 to December 14, 1996 the
Company purchased in open market transactions 500,000 of its shares of
common stock, at prices ranging from $10.25 to $10.875, aggregating
approximately $5.3 million. These purchases were made pursuant to the
Company's announced share repurchase program. The company may from time to
time in the future make additional open market purchases of its common
stock.
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 Transfer Restrictions terminate by their terms 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.
On March 27, 1996 the Board of Directors voted to terminate the Transfer
Restrictions effective on that date. Therefore, the Transfer Restrictions
are no longer applicable.
Merger Transfer Restrictions. In connection with the ICT Merger
(described in the Notes to Consolidated Financial Statements contained in
Item 8), 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. On March 27, 1996, such
restrictions were terminated by the Company's Board of Directors.
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, 1996
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, 1996 and 1995 and for each of the fiscal years in the three-year
period ended March 31, 1996, and the report thereon, are included elsewhere
in this Form 10-K.
(IN THOUSANDS, EXCEPT PER SHARE DATA, RATIOS AND EMPLOYEE DATA)
Fiscal Years Ended March 31,
1992 (4) 1993 1994 1995 1996
STATEMENT OF OPERATIONS DATA:
Net revenues $9,168 $21,069 $26,604 $40,669 $61,393
Gross profit 4,562 9,535 11,293 19,376 39,644
Operating income (loss) (985) (208) (2,031) (2,957) 2,532
Income (loss) before
provision for income
taxes (1,508) (217) (1,853) (1,365) 4,239
Net income (loss) from
continuing operations (1,685) (279) (1,987) (1,520) 5,530
Loss from discontinued
operations - (1,100) - - -
Net income (loss) (1,685) (1,379) (1,987) (1,520) 5,530
Accumulated, unpaid
preferred dividends - (3,163) (3,296) - -
Earnings (loss) per common
share from continuing
operations (1) $(1.90) $(1.01) $(0.97) $(0.11) $0.37
Earnings (loss) per
common share (1) (1.90) (1.33) (0.97) (0.11) 0.37
Weighted average number
of shares used in computing
net income (loss) per
common share (1) 889 3,412 5,432 13,944 14,950
OTHER OPERATING DATA:
Average number of
employees 38 60 62 93 234
Net revenues per
employee (in thousands) $241 $351 $429 $437 $262
CAPTION As of March 31,
1992 1993 1994 1995 1996
BALANCE SHEET DATA:
Cash and cash equivalents $1,509 $1,851 $38,093 $37,355 $25,288
Working capital (678) 5,261 41,218 40,648 40,227
Intangible assets 420 23,429 22,146 20,863 19,580
Total assets 2,789 34,580 68,677 68,883 77,613
Long-term debt - - - - -
Redeemable preferred
stock (3) - 25,200 - - -
Preferred shareholders'
equity (4) - 4,603 - - -
Common shareholders' equity 88 (792) 63,985 62,704 62,999
(1) 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.
(2) Does not include accrued dividends of $3,163 as of March 31, 1993.
(3) 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.
(4)For purposes of this presentation, the fiscal year ended March 31, 1992
includes the results of the Company from April 1, 1991 to January 8, 1992 (the
"Predecessor Company" results) and the period January 9, 1992, the 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") to March 31,
1992 (the "Reorganized Activision" results). Results for the period January 9,
1992 to March 31, 1992 ("Reorganized Activision") include net revenues of
$2,066, gross profit of $1,309, operating income of $136, income before
provision for income taxes of $137, net income of $64, earnings per share of
$0.02, weighted average number of shares used computing net income per common
share of 3,129, average number of employees of 18 and net revenues per employee
of $459.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FISCAL YEARS ENDED MARCH 31, 1996 AND 1995
Net Revenues
Net revenues for the fiscal year ended March 31, 1996 increased by 51% over
the prior year, primarily as a result of an increase in the release of new
desktop titles. Desktop net revenues increased by 285% over the prior year as a
result of the initial release of MechWarrior 2 (MS-DOS and Windows 95),
MechWarrior 2 Expansion Pack: Ghost Bear's Legacy (MS-DOS), Zork Nemesis (MS-
DOS/Windows 95), Spycraft: The Great Game (MS-DOS/Windows 95 and Macintosh),
Pitfall: The Mayan Adventure (Windows 95), Earthworm Jim (Windows 95) and five
Mighty Morphin Power Ranger titles (MS-DOS and Mac). The Company currently
expects its revenues from desktop products to grow in fiscal 1997, but at a
slower rate than fiscal 1996 growth.
The decrease in set-top net revenues during the fiscal year was due to the
Company's strategic change in its business emphasis from cartridge-based set-top
systems to CD-based desktop systems. The Company expects revenues from set-top
products to grow as a result of an increase in new releases of CD based set-top
products for the Playstation and Saturn.
On-line, OEM, licensing and other revenues increased over the prior year
due to the Company's increased commitment to generating additional OEM revenues
and the availability of several additional titles for the OEM market. OEM and
licensing revenues during the 1996 fiscal year primarily were derived from sales
and licenses of MechWarrior 2 (MS-DOS, Windows 95 and an enhanced 3-D version),
Earthworm Jim (Windows 95), Pitfall: The Mayan Adventure (Windows 95) and
Shanghai: Great Moments (MS-DOS and Windows 95).
North America, Japan and Australia net revenues increased as a result of
the increase in desktop, OEM and licensing revenues discussed above. The Company
expects revenues in each of these territories to grow in fiscal 1997, but at a
slower rate than fiscal 1996 growth. The decrease in Europe net revenues was
attributable to a change from the publishing by the Company of its products
under an exclusive guaranteed distribution agreement in fiscal 1995 to the
publishing by the Company of its products directly to retailers and resellers in
fiscal 1996, combined with the change of the Company's business emphasis from
cartridge-based set-top systems to CD-based desktop systems.
Net revenues by territory were as follows (amounts in thousands):
Fiscal Years Ended March 31,
1996 1995
% of Net % of Net
Amount Revenues Amount Revenues % Change
North America $47,176 76.8% $29,492 72.5% 60.0%
Europe 6,501 10.6% 7,574 18.6% (14.2%)
Japan 4,768 7.8% 2,194 5.4% 117.3%
Australia and
Pacific Rim 2,948 4.8% 1,409 3.5% 109.2%
------- ------- ------- ------ ------
$61,393 100.0% $40,669 100.0% 51.0%
======= ======= ======= ====== ======
Net revenues by platform were as follows (amounts in thousands):
Fiscal Years Ended March 31,
1996 1995
% of Net % of Net
Amount Revenues Amount Revenues % Change
Set-top $5,161 8.4% $26,069 64.1% (80.2%)
Desktop 56,232 91.6% 14,600 35.9% 285.2%
---------------------------------------------------
$61,393 100.0% $40,669 100.0% 51.0%
======= ====== ======= ====== =====
Net revenues by distribution channel were as follows (amount in thousands):
Fiscal Years Ended March 31,
1996 1995
% of Net % of Net
Amount Revenues Amount Revenues % Change
Retailer/reseller $46,192 75.2% $34,706 85.3% 33.1%
OEM 10,728 17.5% 2,637 6.5% 306.8%
On-line licensing
and other 4,473 7.3% 3,326 8.2% 34.5%
----------------------------------------------------
$61,393 100.0% $40,669 100.0% 51.0%
======= ====== ======= ====== =====
Cost of Goods Sold
Cost of goods sold related to set-top, desktop and OEM revenues represents
the manufacturing and related costs of computer software and video games.
Manufacturers of the Company's computer software are located in the United
States and Europe and are readily available. Set-top cartridges and CDs are
manufactured by the respective video game console manufacturers, Sony, Nintendo
and Sega, who require significant lead time to fulfill the Company's orders.
Also included in cost of goods sold is royalty expense related to amounts
due to developers, title owners or other royalty participants based on product
sales. Various contracts are maintained with developers, product title owners
or other royalty participants which state a royalty rate and term of agreement,
among other items. The increase in total cost of goods sold is related to the
increase in desktop and OEM net revenues.
Gross Profit
Gross profit as a percentage of net revenues increased to 64.6% for the
fiscal year ended March 31, 1996, from 47.6% for fiscal 1995, as a result of an
increase in desktop CD-based net revenues. Net revenues from CD-based desktop
products generally yield a higher gross profit margin than net revenues from
set-top products as a result of the lower costs of goods sold attributable to
such desktop products. The increase in gross profit also was due to the
increase in on-line, OEM, licensing and other revenues, which also yield higher
gross profit margins.
Operating Expenses
Total operating expenses increased as a percentage of net revenues as a
result of a substantial increase in product development expenses. This increase
was partially offset, however, by a decrease in sales and marketing expenses and
general and administrative expenses as a percentage of net revenues. Product
development expenses increased both in amount and as a percentage of net
revenues due to the continued growth of the CompanyOs product development
departments, the increased number of products in product development, and the
increased costs associated with enhanced production content and new technologies
incorporated into such products. Approximately $5.5 million of product
development expenses for the year ended March 31, 1996 related to products which
will be released in subsequent periods. Sales and marketing expenses increased
in actual amount, but not as a percentage of net revenues, as a result of the
marketing and promotional activity related to newly released titles. General
and administrative expenses increased in actual amount, but not as a percentage
of net revenues, due to an increase in headcount related expenses.
(Amounts in thousands)
Fiscal Years Ended March 31,
1996 1995
% of Net % of Net
Amount Revenues Amount Revenues % Change
Product development $17,505 28.5% $7,274 17.9% 140.7%
Sales and marketing 13,920 22.7% 10,410 25.6% 33.7%
General and administrative 4,404 7.2 3,366 8.3% 30.8%
Amortization of intangible
assets 1,283 2.1% 1,283 3.2% -
------- ----- ------ ----- ------
Total operating expenses $37,112 60.5% $22,333 55.0% 66.2%
======= ===== ======= ===== ======
Other Income (Expense)
Interest income increased to $1,707,000 for the fiscal year ended March 31,
1996, from $1,592,000 for the fiscal year ended March 31, 1995, as a result of
higher yields earned on cash and cash equivalents. See "Liquidity and Capital
Resources".
Provision for Income Taxes
During the quarter and year ended March 31, 1996, the Company recognized a
tax benefit of $1.5 million through a reduction in the Company's deferred tax
asset valuation allowance. This reduction in the valuation allowance resulted
principally from the Company's assessment of the realizability of its deferred
tax assets, based on recent operating history, as well as an assessment that
operations will continue to generate taxable income. Realization of the
deferred tax assets is dependent upon the continued generation of sufficient
taxable income prior to expiration of tax credits and loss carryforwards.
Although realization is not assured, management believes it is more likely than
not that the net deferred tax asset of $1.5 million will be realized. The
amount of the deferred tax assets considered realizable, however, could be
reduced in the future if estimates of future taxable income during the
carryforward period are reduced. The income taxes recorded in the provision for
taxes for the year ended March 31, 1995 represents foreign taxes withheld.
RESULTS OF OPERATIONS - FISCAL YEARS ENDED MARCH 31, 1995 AND 1994
Net Revenues
Net revenues for the fiscal year ended March 31, 1995 increased by 53% over
the prior year, primarily as a result of increased sales of new desktop and set-
top titles as well as continued sales of previously released desktop titles.
Set-top net revenues increased in fiscal 1995 due to net revenues generated from
the initial releases of Pitfall: The Mayan Adventure (SNES, Genesis, and Sega
CD), Radical Rex (SNES, Genesis and Sega CD) and Shanghai: Triple Threat (3DO).
Desktop net revenues for the fiscal year ended March 31, 1995 include revenues
from the initial releases of Activision's Atari 2600 Action Pack (MS-DOS) and
Shanghai: Great Moments (MS-DOS). Desktop net revenues for fiscal 1995 also
include continuing net revenues from Return to Zork (MS-DOS and Mac). On-line,
licensing and other net revenues decreased due to the decrease in design
services and design merchandising revenues. OEM net revenues in fiscal 1995
includes net revenues from Return to Zork (MS-DOS and a Reel Magic MPEG
version). Licensing net revenues includes net revenues from Return to Zork and
the Shanghai series of products.
Net revenues by territory were as follows (amounts in thousands):
Fiscal Years Ended March 31,
1995 1994
% of Net % of Net
Amount Revenues Amount Revenues % Change
North America $29,492 72.5% $20,176 75.9% 46.2%
Europe 7,574 18.6% 4,183 15.7% 81.1%
Japan 2,194 5.4% 1,362 5.1% 61.1%
Australia and
Pacific Rim 1,409 3.5% 883 3.3% 60.0%
--------------------------------------------------------
$40,669 100.0% $26,604 100.0% 52.9%
======= ====== ======= ====== =====
Net revenues by platform were as follows (amounts in thousands):
Fiscal Years Ended March 31,
1995 1994
% of Net % of Net
Amount Revenues Amount Revenues % Change
Set-top $26,069 64.1% $10,637 40.0% 145.1%
Desktop 14,600 35.9% 13,658 51.3% 6.9%
Merchandising
design services - - 2,309 8.7% (100.0%)
----------------------------------------------------------
$40,669 100.0% $26,604 100.0% 52.9%
======= ====== ======= ====== =====
Net revenues by channel were as follows (amount in thousands):
Fiscal Years Ended March 31,
1995 1994
% of Net % of Net
Amount Revenues Amount Revenues % Change
Retailer/reseller $34,706 85.3% $19,177 72.1% 81.0%
OEM 2,637 6.5% 2,370 8.9% 11.3%
On-line licensing
and other 3,326 8.2% 5,057 19.0% (34.2%)
---------------------------------------------------------
$40,669 100.0% $26,604 100.0% 52.9%
======= ====== ======= ====== =====
Cost of Goods Sold
Cost of goods sold related to set-top, desktop and OEM revenues represents
the manufacturing and related costs of computer software and video games.
Manufacturers of the Company's computer software are located in the United
States and Europe and are readily available. Set-top cartridges and CDs are
manufactured by the respective video game console manufacturers, Nintendo and
Sega, who require significant lead time to fulfill the Company's orders.
Also included in cost of goods sold is royalty expense related to amounts
due to developers, title owners or other royalty participants based on product
sales. Various contracts are maintained with developers, product title owners
or other royalty participants which state a royalty rate and term of agreement,
among other items. The increase in cost of goods sold is related to the
increase in set-top, desktop and OEM net revenues.
Gross Profit
Gross profit as a percentage of net revenues increased to 47.6% for the
fiscal year ended March 31, 1995, from 42.4% for fiscal 1994, as a result of an
increase in set-top revenues and the increase in set-top and desktop CD-based
net revenues as a percentage of total net revenues. CD-based revenues generally
yield a higher gross profit margin than set-top cartridge-based revenues.
Operating Expenses
Total operating expenses as a percentage of net revenues increased as a
result of an increase in product development expenses and sales and marketing
expenses. This increase was partially offset, however, by a decrease in general
and administrative expenses as a percentage of net revenues. Product
development expenses increased both in actual 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. Sales and marketing expenses 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 actual amount
as a result of increased headcount and related expenses. General and
administrative expenses increased in actual amount, but not as a percentage of
net revenues, due to an increase in headcount related expenses.
(Amounts in thousands)
Fiscal Years Ended March 31,
1995 1994
% of Net % of Net
Amount Revenues Amount Revenues % Change
Product development $7,274 17.9% 4,380 16.5% 66.1%
Sales and marketing 10,410 25.6% 5,013 18.8% 107.7%
General and administrative 3,366 8.3% 2,648 10.0% 27.1%
Amortization of intangible
assets 1,283 3.2% 1,283 4.8% -
------- ----- ------- ----- ------
Total operating expenses $22,333 55.0% $13,324 50.1% 67.6%
======= ===== ======= ===== ======
[FN]
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.
QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have in the past varied
significantly and will likely in the future vary significantly depending on
numerous factors, several of which are not under the Company's control.
Products generally are shipped as orders are received, and consequently the
Company operates with little or no backlog. Net revenues in any quarter
therefore are substantially dependent on orders received and shipped in that
quarter. The Company's expense levels are based in large part on the Company's
product development and marketing budgets. Product development and marketing
costs are expensed as incurred, which often is long before a product ever is
released. As the Company increases its development and marketing activities,
current expenses will increase and, if sales from previously released products
are below expectations, net income is likely to be disproportionately affected.
Due to all of the foregoing, revenues and operating results for any future
quarter are not predictable with any significant degree of accuracy.
Accordingly, the Company believes that period-to-period comparisons of its
operating results are not necessarily meaningful and should not be relied upon
as indications of future performance.
The following table is a comparative breakdown of the Company's quarterly
results for the immediately preceding eight quarters (amounts in thousands):
Quarter ended
June 30, Sept. 30, Dec. 31, March 31,
1994 1994 1994 1995
Net revenues 3,249 4,635 26,185 6,600
Gross profit 1,440 3,120 9,929 4,887
Operating income (loss) (2,211) (977) 924 (693)
Net income (loss) (1,873) (632) 1,304 (319)
Earnings (loss) per share (0.14) (0.05) 0.09 (0.02)
Quarter ended
June 30. Sept.30, Dec. 31, March 31,
1995 1995 1995 1996
Net revenues 3,319 18,848 17,578 21,648
Gross profit 1,765 12,105 10,477 15,327
Operating income (loss) (6,014) 2,366 1,573 4,607
Net income (loss) (5,528) 2,765 1,948 6,345
Earnings (loss) per share (0.39) 0.18 0.13 0.43
LIQUIDITY AND CAPITAL RESOURCES
On January 31, 1994, the Company completed a private placement of
approximately 5,000,000 shares of its Common Stock. The net proceeds from this
private placement, approximately $39.5 million, together with funds from
operations, have been the Company's primary sources of liquidity for the fiscal
years ended March 31, 1995 and 1996. At March 31, 1996, the Company had a
balance of approximately $25.3 million of cash and cash equivalents.
The Company uses its working capital to finance ongoing operations,
including the acquisition of inventory, the development, marketing and
distribution of new products, and the acquisition of intellectual property
rights for future products from third parties.
Cash flows used in operating activities of $3.8 million primarily was the
result of the increase in accounts receivable and inventories of approximately
$15.3 million to $22.9 million as of March 31, 1996. This increase partially
was offset by an $8.6 million increase in accounts payable and accrued
liabilities to $14.3 million during this period. The increase in accounts
receivable and inventories was due to the increase in net revenues during the
quarter and year ended March 31, 1996 as compared to the same periods in the
prior fiscal year, while the increase in accounts payable and accrued
liabilities was due to an increase in cost of goods sold and operating expenses
in such periods.
The Company's working capital decreased approximately $0.4 million from
March 31, 1995 to March 31, 1996. The decrease in working capital primarily was
attributable to the Company's purchases of shares of its common stock in the
open market in the amount of $5.3 million, and changes in current assets and
liabilities. The cash flows used in financing activities also were attributable
to this purchase of treasury stock.
Net cash used in investing activities primarily was attributable to capital
expenditures related to the increase in headcount and the number of products in
product development during the fiscal year. During fiscal 1997, the Company
expects to incur additional capital expenditures relating to the development of
its products and the general operation of its business. The Company also plans
on moving its Los Angeles headquarters to a new facility by the end of fiscal
1997 and, although a new site has not been finally identified, the Company may
consider a site purchase as opposed to a new lease.
Management currently believes that the Company's existing capital resources
are sufficient to meet its requirements for the foreseeable future. Previous
common stock and preferred stock private placements have provided, and will
continue to provide, the Company with resources to enable it to acquire
properties for development, engage in more extensive product development and
expand marketing activities, and increase working capital for operations.
Management also currently believes that inflation has not had, and will not
have in the foreseeable future, a material impact on continuing operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation." The accounting or disclosure requirements of this statement are
effective for the Company's fiscal year 1997. The Company has not yet
determined whether it will adopt the accounting requirements of this standard or
whether it will elect only the disclosure requirements and continue to measure
compensation cost using Accounting Principles Board Opinion No. 25.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Accountants F-1
Consolidated Balance Sheets as of
March 31, 1996 and 1995 F-2
Consolidated Statements of Operations for
the Years ended March 31, 1996, 1995 and 1994 F-3
Consolidated Statements of Changes in
Shareholders' Equity for the Years Ended
March 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flows for
the Years Ended March 31, 1996, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6
Schedule II-Valuation and Qualifying Accounts
and Reserves as of March 31, 1996, 1995
and 1994 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 August 22, 1996, 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 August 22, 1996, 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 August 22, 1996, 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 August 22, 1996, 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 Schedule on page 26 herein.
2. Financial Statement Schedules See Item 8. -Consolidated
Financial Statements and Supplementary Data Index for
Financial Statements and Schedule on page 26 herein.
3. Exhibits Required by Item 601 of Regulation S-K
Exhibit
Number Exhibit
2.1 Plan 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).
2.2 Plan 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 Curren Report on
Form 8-K dated March 31, 1992).
2.3 Agreement and Plan of Merger between
Activision, Inc., a California corporation,
and Activision, Inc., a Delaware corporation,
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).
2.4 Plan and Agreement of Merger, dated October28,
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).
3.1 Amended 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).
3.2 Bylaws 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).
4.1 Certificate 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).
10.1 Warrant 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).
10.2 Purchase 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).
10.3 Form 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).
10.4 Agreement, 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).
10.5 Agreement, 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. Letter 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).
10.7 Mediagenic 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. 33-63638,
filed on December 8, 1995).
10.8 Mediagenic 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,
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 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).
11. Statement regarding computation of per share
earnings.
21. Principal Subsidiaries of the Company.
23. Consent 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: July 2, 1996
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 July 2, 1996
(Robert A. Kotick) Officer (Principal Executive
Officer), President and Director
/s/ Howard E. Marks Executive Vice President July 2, 1996
(Howard E. Marks) and Director
/s/ Brian G. Kelly Chief Financial and Operating July 2, 1996
(Brian G. Kelly) Officer and Director
(Principal Financial Officer)
/s/ Barry J. Plaga Chief Accounting Officer July 2, 1996
(Barry J. Plaga) (Principal Accounting Officer)
/s/ Barbara S. Isgur Director July 2, 1996
(Barbara S. Isgur)
/s/ Steven T. Mayer Director July 2, 1996
(Steven T. Mayer)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of ACTIVISION, INC. and Subsidiaries.
We have audited the consolidated financial statements and the financial
statement schedule of ACTIVISION, INC. and Subsidiaries listed in the index
on page 26 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, 1996 and 1995, and the
consolidated results of their operations and cash flows for each of the
three years in the period ended March 31, 1996, 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 15, 1996
ACTIVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
March 31, March 31,
1996 1995
------------- --------
ASSETS
Current assets:
Cash and cash equivalents $25,288 $37,355
Accounts receivable, net 19,909 5,566
Inventories, net 2,975 1,972
Prepaid software and license royalties 3,652 1,082
Other assets 1,183 342
Deferred income taxes 1,500 -
------------ -------
Total current assets 54,507 46,317
Property and equipment, net 3,326 1,643
Other assets 200 60
Excess purchase price over identifiable
assets acquired, net 19,580 20,863
------------ --------
Total assets $77,613 $68,883
============ ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $4,592 $2,516
Accrued expenses 9,688 3,153
--------- -------
Total current liabilities 14,280 5,669
Other liabilities 334 510
--------- -------
Total liabilities 14,614 6,179
--------- -------
Commitments and contingencies
Shareholders' equity:
Common stock, $.000001 par value, 100,000,000
shares authorized, 14,250,180 and 14,183,594
shares issued and 13,750,180 and 14,183,594
outstanding, respectively - -
Additional paid-in capital 67,904 67,667
Retained earnings (accumulated deficit) 708 (4,822)
Cumulative foreign currency translation (335) (141)
Less: Treasury stock, cost of 500,000 shares (5,278) -
-------- -------
Total shareholders' equity 62,999 62,704
-------- -------
Total liabilities and shareholders' equity $77,613 $68,883
======== =======
ACTIVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
For the years ended March 31,
1996 1995 1994
---------------------------------
Net revenues $61,393 $40,669 $26,604
Cost of goods sold 21,749 21,293 15,311
---------------------------------
Gross profit 39,644 19,376 11,293
---------------------------------
Operating expenses:
Product development 17,505 7,274 4,380
Sales and marketing 13,920 10,410 5,013
General and administrative 4,404 3,366 2,648
Amortization of intangible assets 1,283 1,283 1,283
---------------------------------
Total operating expenses 37,112 22,333 13,324
---------------------------------
Operating income (loss) 2,532 (2,957) (2,031)
Other income:
Interest, net 1,707 1,592 178
---------------------------------
Income (loss) before income tax provision (benefit) 4,239 (1,365) (1,853)
Income tax provision (benefit) (1,291) 155 134
---------------------------------
Net income (loss) $5,530 $(1,520) $(1,987)
====== ======== ========
Net income (loss) available to common shareholders:
Net income (loss) $5,530 $(1,520) $(1,987)
Less: Accumulated, unpaid preferred stock dividends - - (3,296)
---------------------------------
Net income (loss) available to common
shareholders $5,530 $(1,520) $(5,283)
====== ======== ========
Net income (loss) per common share $0.37 $(0.11) $(0.97)
====== ======= =======
Number of shares used in computing
net income (loss) per common share 14,950 13,944 5,432
====== ====== =====
ACTIVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands)
Additional Retained
Common Stock Common Stock Paid-in Earnings
Shares Amount Warrants Amount Capital (Deficit)
-------------- ------------------- -------- ---------
Balance March 31, 1993 3,747 $ - 1,367 $34 $4,696 $(1,315)
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 -
Conversion of series AA
preferred stock pursuant
to restructuring 366 - - - - -
Redemption of series AA
preferred stock pursuant
to restructuring - - - - (2,153) -
Issuance of common stock
pursuant to common stock
private placement 5,003 - - - 39,384 -
Issuance of common stock
pursuant to employee
stock purchase plan 3 - - - 4 -
Net loss for the year - - - - - (1,987)
Foreign currency
translation adjustment - - - - - -
------ ------ ------ ------ ------ -------
Balance March 31, 1994 13,849 - 267 120 67,356 (3,302)
Exercise of common
stock warrants 267 - (267) (120) 200 -
Issuance of common stock
pursuant to employee
stock purchase plan 59 - - - 99 -
Issuance of common stock
pursuant to directors
stock purchase plan 8 - - - 12 -
Net loss for the year - - - - - (1,520)
Foreign currency
translation adjustment - - - - - -
----- ----- ------ ------ ----- ------
Balance March 31, 1995 14,183 - - - 67,667 (4,822)
Issuance of common stock
pursuant to employee
stock purchase plan 50 - - - 224 -
Issuance of common stock
pursuant to directors
stock purchase plan 17 - - - 13 -
Purchase of
treasury stock - - - - - -
Net income for the year - - - - - 5,530
Foreign currency
translation adjustment - - - - - -
----- ------ ------ -------- ------- -------
Balance March 31, 1996 14,250 $ - - $ - $67,904 $708
====== ====== ====== ======== ======= =======
ACTIVISON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Cumulative
Foreign
Currency Treasury Stock Shareholders'
Translation Shares Amount Equity
Balances March 31, 1993 $85 - - $3,811
Exercise of common stock
warrants pursuant to
restructuring - - - -
Conversion of series A
preferred stock pursuant
to restructuring - - - 25,200
Conversion of series AA
preferred stock pursuant
to restructuring - - - -
Redemption of series AA
preferred stock pursuant
to restructuring - - - (2,153)
Issuance of common stock
pursuant to common stock
private placement - - - 39,384
Issuance of common stock
pursuant to employee
stock purchase plan - - - 4
Net loss for the year - - - (1,987)
Foreign currency
translation adjustment (274) - - (274)
----- ----- ------ --------
Balances March 31, 1994 (189) - - 63,985
Exercise of common
stock warrants - - - 80
Issuance of common stock
pursuant to employee
stock purchase plan - - - 99
Issuance of common stock
pursuant to directors
stock purchase plan - - - 12
Net loss for the year - - - (1,520)
Foreign currency
translation adjustment 48 - - 48
----- ----- ------ --------
Balances March 31, 1995 (141) - - 62,704
Issuance of common stock
pursuant to employee
stock purchase plan - - - 224
Issuance of common stock
pursuant to directors
stock purchase plan - - - 13
Purchase of treasury stock - 500 (5,278) (5,278)
Net income for the year - - - 5,530
Foreign currency
translation adjustment (194) - - (194)
----- ----- ------ --------
Balances March 31, 1996 (335) 500 (5,278) 62,999
===== ===== ======= ========
ACTIVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the years ended March 31,
1996 1995 1994
-------------------------------------------
Cash flows from operating activities:
Net income (loss) $5,530 $(1,520) $(1,987)
Adjustments to reconcile net
income (loss) to net cash used
in operating activities:
Deferred income taxes (1,500) - -
Depreciation and amortization 2,646 1,942 1,665
Change in assets and liabilities:
Accounts receivable (14,343) (3,641) (166)
Inventories (1,003) 551 (1,580)
Prepaid software and license
royalties (2,570) (202) (360)
Other current assets (841) 126 (104)
Other assets (140) 37 67
Accounts payable 2,076 587 (551)
Accrued liabilities 6,535 911 264
Due to affiliate - - (454)
Other (176) (11) 128
---------------------------------------------
Net cash used in
operating activities (3,786) (1,220) (3,078)
---------------------------------------------
Cash flows from investing activities:
Capital expenditures (3,045) (1,256) (877)
Restricted cash - 1,500 (1,500)
---------------------------------------------
Net cash provided by (used in)
investing activities (3,045) 244 (2,377)
---------------------------------------------
Cash flows from financing activities:
Proceeds from issuance and
exercise of common stock
options and warrants 237 191 -
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
Other - (1) 4
Purchase of treasury stock (5,278) - -
---------------------------------------------
Net cash provided (used) by
financing activities (5,041) 190 41,971
---------------------------------------------
Effect of exchange rate
changes on cash (195) 48 (274)
---------------------------------------------
Net increase (decrease) in cash
and cash equivalents (12,067) (738) 36,242
---------------------------------------------
Cash and cash equivalents at
beginning of period 37,355 38,093 1,851
-------- -------- -------
Cash and cash equivalents at
end of period $25,288 $37,355 $38,093
========= ========= =========
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company is a diversified international publisher of interactive
entertainment software. The Company develops and publishes entertainment
software for a variety of platforms, including both personal computer CD-ROM
desktop systems, including the Windows 95 operating system, and video game
set-top hardware systems such as the Sega Saturn ("Saturn") and Sony
Playstation ("Playstation"). The Company distributes its products worldwide
primarily through its direct sales force and, to a lesser extent through
third party distributors and licensees.
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. The Company paid interest of
approximately $20,000, $18,000 and $108,000 for the years ended March 31,
1996, 1995 and 1994, respectively. In addition, the Company paid income
taxes for such years of approximately $124,000, $193,000 and $129,000,
respectively, primarily for state and foreign income taxes.
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, 1996, 1995 and 1994, the Company had deposits in excess of
the $100,000 Federal Deposit Insurance Corporation ("FDIC") limit at these
financial institutions. At March 31, 1996, the Company had approximately
$23.9 million invested in short-term United States government backed
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.
Capitalized Software Development Costs
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,"
provides for the capitalization of certain software development costs once
technological feasibility is established. The capitalized costs are then
amortized on a straight-line basis over the estimated product life, or on
the ratio of current revenues to total projected revenues, whichever is
greater. The software development costs that have been capitalized to date
have been immaterial.
Prepaid Software and Licensed Property Royalties
Prepaid royalties represent prepayments made to independent software
developers under development agreements. Prepaid royalties are expensed at
the contractual royalty rate as cost of goods sold based on actual net
product sales. Management evaluates the future realization of prepaid
royalties quarterly, and charges to cost of goods sold any amounts that
management deems unlikely to be amortized at the contract royalty rate
through product sales.
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, 1996
and 1995 and 1994 was approximately $62,000 for each period.
Revenue Recognition
Product Sales: 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 provides
price protection on certain unsold merchandise. Revenue from product sales
is reflected net of the allowance for returns and price protection.
Software Licenses: For those license agreements which provide the customers
the right to multiple copies in exchange for guaranteed amounts, revenue is
recognized at delivery of the product master or the first copy. Per copy
royalties on sales which exceed the guarantee are recognized as earned.
Advertising Expenses
The Company expenses advertising and the related costs as incurred.
Advertising expenses for the years ended March 31, 1996, 1995 and 1994 were
approximately $1,940,000, $3,564,000 and $558,000, 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 reflected as a
component of shareholders' equity in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation."
Net Income (loss) Per Common Share
Net income (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, 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.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Recently Issued Accounting Standards
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation." The accounting or disclosure requirements of this statement
are effective for the Company's fiscal year 1997. The Company has not yet
determined whether it will adopt the accounting requirements of this
standard or whether it will elect only the disclosure requirements and
continue to measure compensation cost using Accounting Principles Board
Opinion No. 25.
Reclassifications
Certain amounts in the Consolidated Financial Statements have been
reclassified to conform with the current year's presentation.
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 (OSeries AA
StockO) 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 (OSeries A
StockO) 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"). TDC was a Los Angeles based company
engaged in marketing, distributing, localizing and publishing computer
software products with its primary focus on ObundlingO software for major
hardware manufacturers.
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, 1996, 1995 and 1994 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.
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, 1996 March 31, 1995
Accounts receivable $ 26,914 $ 10,035
Less:
Allowance for doubtful accounts (688) (528)
Allowance for sales returns and
price protection (6,317) (3,941)
---------- ----------
Accounts receivable, net $ 19,909 $ 5,566
====== ======
Reserves for doubtful accounts, sales returns and price protection are
established based upon historical experience and management's estimates as
shipments are made. Bad debt expense for the years ended March 31, 1996,
1995 and 1994 was approximately $319,000, $191,000 and $430,000,
respectively.
6. INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market.
Inventories at March 31, 1996 and 1995 reflect an adjustment to net
realizable value of approximately $145,000 and $357,000, respectively. The
provisions for net realizable value for the years ended March 31, 1996, 1995
and 1994 were approximately $744,000, $134,000 and $337,000, respectively.
Inventories were as follows, net of reserves (amounts in thousands):
March 31, 1996 March 31, 1995
Purchased parts and components $ 876 $ 203
Finished goods 2,099 1,769
---------- ----------
$ 2,975 $ 1,972
====== ======
Included in finished goods at March 31, 1996 and 1995 are expected inventory
returns at a net realizable value of $427,000 and $311,000, respectively.
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, 1996 March 31, 1995
Computer equipment $ 4,360 $ 2,079
Office furniture and
other equipment 1,338 807
Leasehold improvements 310 99
---------- ----------
6,008 2,985
Less accumulated depreciation
and amortization (2,682) (1,342)
---------- ----------
$ 3,326 $ 1,643
====== ======
Depreciation expense for the years ended March 31, 1996, 1995 and 1994 was
$1,362,000, $658,000 and $382,000, respectively.
8. ACCRUED EXPENSES
Accrued expenses were as follows (amounts in thousands):
March 31, 1996 March 31, 1995
Accrued royalties $ 3,104 $ 757
Accrued production costs 1,241 170
Accrued selling and marketing costs 1,759 959
Accrued professional fees 248 246
Accrued expenses related to
foreign dissolution - 557
Deferred revenue 2,242 -
Other 1,094 464
---------- ----------
$ 9,688 $ 3,153
====== ======
9. OPERATIONS BY GEOGRAPHIC AREA
The following table summarizes the geographic operations of the Company
(amounts in thousands):
Year ended March 31,
1996 1995 1994
Net revenues:
North America $47,176 $29,492 $20,176
Europe 6,501 7,574 4,183
Japan 4,768 2,194 1,362
Australia and Pacific 2,948 1,409 883
--------- ---------- ---------
Total net revenues $61,393 $40,669 $26,604
====== ====== ======
Operating income (loss):
North America $(5,110) $(5,114) $(2,849)
Europe 2,547 77 (197)
Japan 3,814 1,655 707
Australia and Pacific 1,281 425 308
--------- --------- --------
Total operating income (loss) $ 2,532 $(2,957) $(2,031)
====== ====== ======
At March 31, At March 31, At March 31
1996 1995 1994
Assets:
United States $73,377 $68,226 $67,402
Foreign 4,236 657 1,275
--------- --------- ---------
Total assets $77,613 $68,883 $68,667
========= ========= =========
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.
10.SIGNIFICANT CUSTOMERS
During the years ended March 31, 1996, 1995 and 1994 a total of 4, 3 and 2
customers, each representing more than 5% of net revenues, accounted for a
total of approximately 27%, 31% and 24% of net revenues, respectively. The
mix of significant customers has changed each fiscal year; however the loss
of any of fiscal 1996's significant customers might have a material adverse
impact on the Company's business and results of operations.
11.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,
1996 1995 1994
Income (loss) before taxes:
Domestic $3,681 $(3,096) $(1,407)
Foreign 558 1,731 (446)
------- ------- -------
$4,239 $(1,365) $(1,853)
======= ======= =======
Income tax provision:
Current:
Federal $106 $ - $ -
State 25 - -
Foreign 78 155 134
------- ------- --------
Total current 209 155 134
------- ------- --------
Deferred:
Federal (1,369) - -
State (131) - -
------- ------- --------
Total deferred (1,500) - -
------- ------- --------
$(1,291) $155 $134
======= ======= ========
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
1996 1995 1994
Federal income tax provision
at statutory rate 34.0% (34.0%) (34.0%)
Benefit of net operating loss
carryforward (25.7%) - (4.6%)
Nondeductible amortization 10.3% 30.4% 23.5%
Future (current) deductible
reserves (4.9%) 39.3% 27.4%
Research and development credits (8.7%) (41.9%) (14.2%)
Incremental effect of foreign
and state taxes net of
federal income tax benefit (0.5%) 22.2% 2.4%
Reduction of valuation allowance (35.4%) - -
Other 0.4% (4.5%) 6.7%
------------ ------------ ------------
(30.5%) 11.5% 7.2%
======= ======= =======
The components of the net deferred tax asset and liability were as follows
(amounts in thousands):
March 31, 1996 March 31, 1995
Deferred asset:
Allowance for bad debts $ 211 $ 186
Allowance for sales returns 785 1,308
Inventory reserves 39 120
Miscellaneous 10 7
Tax credit carrforwards 1,450 1,026
Net operating loss
carryforwards 13,310 14,003
----------- ----------
Deferred tax asset 15,805 16,650
Valuation allowance (14,305) (16,500)
----------- ----------
Net deferred asset 1,500 150
----------- ----------
Deferred liability:
Amortization - (150)
----------- ----------
Net deferred taxes $ 1,500 $ -
=========== ==========
During the quarter and year ended March 31, 1996, the Company recognized a
tax benefit of $1.5 million through a reduction in the Company's deferred
tax asset valuation allowance. This reduction in the valuation allowance
resulted principally from the Company's assessment of the realizability of
its deferred tax assets based on recent operating history as
well as an assessment that operations will continue to generate taxable
income. Realization of the deferred tax assets are dependent upon the
continued generation of sufficient taxable income prior to expiration of tax
credits and loss carryforwards. Although realization is not assured,
management believes it is more likely than not that the net deferred tax
assets of approximately $1.5 million will be realized. The amount of the
deferred tax assets considered realizable, however, could be reduced in the
future if estimates of future taxable income during the carryforward period
are reduced. The income taxes recorded in the provision for taxes for the
year ended March 31, 1995 represents foreign taxes withheld.
The Company's available net operating loss carryforward for federal tax
reporting purposes approximates $34.4 million and is subject to certain
limitations as defined under Section 382 of the Internal Revenue Code and
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," issued by the American Institute
of Certified Public Accountants. The net operating loss carryforwards
expire from 1999 to 2009. At March 31, 1996, 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.
12.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, 1996 under such operating leases are approximately $1,182,000 for fiscal
1997, and $431,000 for fiscal 1998; the Company has no obligations under
operating leases extending beyond fiscal 1998.
Rent expense for the years ended March 31, 1996, 1995 and 1994 was
approximately $1,348,000, $811,000 and $497,000, respectively.
As of March 31, 1996, the Company has entered into employment contracts with
various personnel which have obligated the Company to make total minimum
payments of $3,881,000 and $230,000 during the years ending March 31, 1997
and 1998, respectively.
13.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 4,066,667. 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. There were 91,561 remaining shares available for grant under
the Stock Option Plan as of March 31, 1996.
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 (amounts in thousands, except weighted average
exercise price amounts):
1996 1995 1994
Shares Wtd Avg Shares Wtd Avg Shares Wtd Avg
(000) Ex Price (000) Ex Price (000) Ex Price
Outstanding
at beginning
of year 1,190 $5.20 398 $2.98 319 $2.22
Granted 2,805 13.61 1,073 5.61 89 6.20
Exercised (50) 4.54 (59) 1.67 (3) 1.50
Forfeited (220) 6.07 (222) 4.13 (7) 9.29
Expired - - - - - -
------ ------- ------ ------ ---- ------
Outstanding
at end
of year 3,725 $11.37 1,190 $5.20 398 $2.98
====== ====== ====== ====== ==== ======
Exercisable at
end of year 334 $4.55 176 $3.82 91 $2.04
Restricted Stock
Shares of restricted stock may be issued either alone or in addition to
other Stock Awards granted under the Stock Option Plan. As of March 31,
1996, 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, 1996, and 1,000 shares during fiscal year 1995, which were 100% vested
as of March 31, 1996.
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, 1996 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. The total number of shares of Common Stock
available for distribution under the Director Warrant Plan is 100,000.
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 on December 19, 1996. The expiration has no effect on
the outstanding Warrants
Director Warrant activity was as follows (amounts in thousands, except
weighted average exercise price amounts):
1996 1995 1994
Shares Wtd Avg Shares Wtd Avg Shares Wtd Avg
(000) Ex Price (000) Ex Price (000) Ex Price
Outstanding
at beginning
of year 50 $0.75 67 $0.94 67 $0.94
Granted 60 7.50 - - - -
Exercised (17) 0.75 (8) 1.50 - -
Forfeited (20) 7.50 (9) 1.50 - -
Expired - - - - - -
----- ----- ---- ----- -- -----
Outstanding
at end
of year 73 $4.43 50 $0.75 67 $0.94
===== ===== === ===== == =====
Exercisable
at end
of year 39 $2.47 38 $0.75 31 $0.90
14.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 plan permits the Company to make
matching contributions up to 15% of the participantsO compensation, which
vest immediately. The Company made matching contributions to the Company's
401K Plan of approximately $10,000 during the year ended March 31, 1996; The
Company made no contributions in the years ended March 31, 1995 and 1994.
15. RELATED PARTY TRANSACTIONS
Promissory Notes Receivable
As of March 31, 1996, other current assets includes $163,000 in promissory
notes receivable from Mr. Robert A. Kotick, a director, officer and
shareholder of the Company; The promissory notes are dated December 28, 1994
and April 28, 1995, have maturity dates, as amended, of June 30, 1996 and
bear interest at 9.0% per annum.
16. QUARTERLY FINANCIAL AND MARKET INFORMATION (UNAUDITED)
(Dollars in thousands, except per share data)
Quarter Ended Year
June 30 Sept 30 Dec 31 Mar 31 Ended
Fiscal 1996:
Net revenues $ 3,319 $18,848 $17,578 $21,648 $61,393
Operating income (loss) (6,014) 2,366 1,573 4,607 2,532
Net income (loss) (5,528) 2,765 1,948 6,345 5,530
Net income (loss) per
common share $(0.39) $0.18 $0.13 $0.43 $0.37
Common stock price per share
High $7 1/8 $19 3/4 $18 1/2 $15 1/8 $19 3/4
Low 5 3/4 6 3/4 8 1/8 8 5/8 5 3/4
Fiscal 1995:
Net revenues $3,249 $4,635 $26,185 $6,600 $40,669
Operating income (loss) (2,211) (977) 924 (693) (2,957)
Net income (loss) (1,873) (632) 1,304 (319) (1,520)
Net income (loss) per
common share $(0.14) $(0.05) $0.09 $0.02 $(0.11)
Common stock price per share
High $7 5/8 $6 5/8 $5 3/4 $9 $9
Low 5 4 3 1/4 5 3 1/4
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, 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 $15,047 $484 - $15,531
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 $15,531 $969 - $16,500
Year ended March 31, 1996:
Allowance for
doubtful accounts $528 $319 $159 (A) $688
Allowance for
sales returns and
price protection $3,941 $12,083 $9,707 (A) $6,317
Inventory valuation $357 $532 $744 (B) $145
Deferred tax
valuation allowance $16,500 $(695) $1,500 $14,305
(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.
EXHIBIT INDEX
Exhibit Sequential Page
Number Exhibit Number
2.1 Plan 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).
2.2 Plan 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).
2.3 Agreement 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).
2.4 Plan 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).
3.1 Amended 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).
3.2 Bylaws 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).
4.1 Certificate 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).
10.1 Warrant 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).
10.2 Purchase 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).
10.3 Form 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).
10.4 Agreement, 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).
10.5 Agreement, 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).
10.6 Letter 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).
10.7 Mediagenic 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. 33-63638, filed on
December 8, 1995).
10.8 Mediagenic 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 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).
11. Statement regarding computation of per share earnings.
51
21. Principal Subsidiaries of the Company.
52
23. Consent of Independent Accountants.
53
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, 1996 March 31, 1995 March 31, 1994
Weighted average shares
outstanding for the period 14,011 13,944 5,432
Net effect of stock options
based on the treasury
stock method 939 - -
Net effect of common stock warrants - - -
------- ------ -----
Average common and common
equivalent shares outstanding 14,950 13,944 5,432
======= ====== =====
Net income (loss)
continuing operations $5,530 $(1,520) $(1,987)
Loss - discontinued operations - - -
Loss- dissolution of
discontinued operations - - -
------ ------ -------
Net income (loss) 5,530 (1,520) (1,987)
Less accumulated preferred
stock dividends - - (3,296)
------ ------- ------
Net income (loss) available
for common stock $5,530 $(1,520) $(5,283)
====== ======= =======
Primary:
Net income (loss) per common share -
continuing operations $0.37 $(0.11) $(0.97)
Loss per common share -
discontinued operation s - - -
Loss per common share - dissolution
of discontinued operations - - -
------- ------ ------
Net income (loss) per common share $0.37 $(0.11) $(0.97)
======= ===== ======
Fully diluted:
Net income (loss) per common share -
continuing operations $0.37 $(0.11) $(0.97)
Loss per common share -
discontinued operation - - -
Loss per common share - dissolution
of discontinued operations - - -
------- ------ ------
Net income (loss) per common share $0.37 $(0.11) $(0.97)
======= ====== ======
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 15, 1996,
on our audits of the consolidated financial statements and financial statement
schedules of Activision, Inc. and Subsidiaries as of March 31, 1996 and 1995 and
for the years ended March 31, 1996, 1995 and 1994, which report is included in
this Annual Report on Form 10-K.
COOPERS & LYBRAND
Los Angeles, California
July 2, 1996