SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
O R
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-12699
ACTIVISION, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-
2606438
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11601 WILSHIRE BLVD., LOS ANGELES, CA 90025
(Address of principal executive offices) (Zip Code)
(310) 473-9200
(Registrant's telephone number, including area code)
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 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
August 14, 1995 was 14,183,594.
ACTIVISION, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of June 30, 1995 (unaudited)
and March 31, 1995 3
Condensed Consolidated Statements of
Operations for the quarters
ended June 30, 1995 and 1994 (unaudited) 4
Condensed Consolidated Statements of
Cash Flows for the quarters ended
June 30, 1995 and 1994 (unaudited) 5
Notes to Condensed Consolidated Financial
Statements for the quarter ended
June 30, 1995 (unaudited) 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ACTIVISION, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands except share data)
June 30, March 31,
1995 1995
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 33,633 $ 37,355
Accounts receivable, net 2,761 5,566
Inventories, net 2,756 1,972
Prepaid software and license royalties 2,798 1,082
Other assets 535 342
----------- ------------
Total current assets 42,483 46,317
Property and equipment, net 2,020 1,643
Other assets 63 60
Excess purchase price over
identifiable assets acquired, net 20,542 20,863
----------- -----------
Total assets $ 65,108 $ 68,883
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,367 $ 2,516
Accrued expenses 2,442 3,153
Deferred revenue 1,631 -
----------- ----------
Total current liabilities 7,440 5,669
Other liabilities 505 510
----------- ----------
Total liabilities 7,945 6,179
----------- ----------
Commitments and contingencies
Shareholders' equity:
Common stock, $.000001 par value, 100,000,000 shares
authorized, 14,183,594 shares issued
and outstanding as of June 30, 1995 and
March 31, 1995, respectively - -
Additional paid-in capital 67,669 67,667
Accumulated deficit (10,350) (4,822)
Cumulative foreign currency translation (156) (141)
---------- ----------
Total shareholders' equity 57,163 62,704
---------- ----------
Total liabilities and shareholders' equity $ 65,108 $ 68,883
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
ACTIVISION, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the quarters ended June 30,
(in thousands except loss per share data)
(Unaudited)
1995 1994
Net revenues $ 3,319 $ 3,249
Cost of goods sold 1,554 1,809
----------- ----------
Gross profit 1,765 1,440
----------- ----------
Operating expenses:
Product development 4,579 1,315
Sales and marketing 1,893 1,268
General and administrative 986 747
Amortization of intangible assets 321 321
----------- ----------
Total operating expenses 7,779 3,651
----------- ----------
Operating loss (6,014) (2,211)
Other income (expense):
Interest, net 525 349
----------- ----------
Loss before provision for income taxes (5,489) (1,862)
Provision for income taxes 39 11
----------- ----------
Net loss $ (5,528) $ (1,873)
========== ==========
Net loss per common share $ (0.39) $ (0.14)
========== ==========
Number of shares used in computing
net loss per common share 14,184 13,850
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
ACTIVISION, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the quarters ended June 30,
(in thousands)
Increase (Decrease) in Cash
1995 1994
----------- -----------
Net cash used in operating activities $ (3,069) $ (1,039)
----------- -----------
Cash flows from investing activities:
Capital expenditures (638) (263)
------------ -----------
Net cash used in investing activities (638) (263)
------------ -----------
Cash flows from financing activities:
Payments under line of credit agreements - (1,675)
Borrowings under line of credit agreements - 1,675
------------ -----------
Net cash provided by financing activities - -
------------ -----------
Effect of exchange rate changes on cash (15) (61)
------------ -----------
Net decrease in cash and cash equivalents (3,722) (1,363)
------------ -----------
Cash and cash equivalents at beginning of period 37,355 38,093
------------ -----------
Cash and cash equivalents at end of period $ 33,633 $ 36,730
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Activision, Inc. and its subsidiaries. The information
furnished is unaudited and reflects all adjustments which, in the opinion
of management, are necessary to provide a fair statement of the results for
the interim periods presented. The financial statements should be read in
conjunction with the financial statements included in the Company's Annual
Report on Form 10-K for the year ended March 31, 1995.
Certain amounts in the condensed consolidated financial statements have
been reclassified to conform with the current period's presentation. These
reclassifications had no impact on previously reported working capital or
results of operations.
2. ACCOUNTS RECEIVABLE
Accounts receivable comprise (amounts in thousands):
June 30, March 31,
1995 1995
Accounts receivable $ 7,590 $ 10,035
Less:
Allowance for doubtful accounts (568) (528)
Allowance for sales returns
and price protection (4,261) (3,941)
--------- ---------
$ 2,761 $ 5,566
====== ======
The provision for bad debt expense for the quarters ended June 30, 1995 and
1994 was approximately $54,000 and $72,000 respectively. The provision for
sales returns and price protection for the quarters ended June 30, 1995 and
1994 was approximately $977,000 and $522,000 respectively.
3. INVENTORIES
Inventories comprise (amounts in thousands):
June 30, March 31,
1995 1995
Finished goods $ 1,858 $ 1,769
Purchased parts and components 898 203
--------- ---------
$ 2,756 $ 1,972
====== ======
4. DEFERRED REVENUE
The Company defers recognition of revenue from licensing agreements until
the completion by the Company of its future obligations under such
agreements including, but not limited to, the achievement of technological
feasibility of the products or assets to be delivered under such
obligations and future collectibility. Deferred revenue of $1,631,000 as
of June 30, 1995 represents minimum guarantee payments received by the
Company in advance of future deliveries of products and/or assets under
such agreements.
5. AMORTIZATION OF INTANGIBLE ASSETS
Effective April 1, 1992, the Disc Company, Inc. ("TDC"), a Delaware
corporation and a wholly-owned subsidiary of International Consumer
Technologies Corporation, was merged with and into the Company, with the
Company as the surviving corporation. The excess of the purchase price
over the estimated fair values of the net assets acquired was recorded as
an intangible asset in the amount of $24,417,000. This intangible asset
is being amortized on a straight-line basis over a 20 year period.
Amortization was approximately $305,000 for each of the quarters ended June
30, 1995 and 1994. The Company systematically evaluates current and
expected cash flow from operations on a non-discounted basis for the
purpose of assessing the recoverability of recorded intangible assets.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net revenues by territory were as follows (amount in thousands):
Percent Percent of Worldwide Revenues
Quarter ended June 30, Increase Quarter ended June 30,
1995 1994 (Decrease) 1995 1994
---------- ---------- ------------- ---------- ----------
NET REVENUES:
North America:
Set-top systems $ 481 $ 334 44% 15% 10%
Desk-top systems 1,498 1,143 31% 45% 35%
On-Line, OEM, licensing & other 204 926 (78%) 6% 29%
-------- -------- -------- -------- --------
Total North American Net Revenues 2,183 2,403 (9%) 66% 74%
-------- -------- -------- -------- --------
Europe:
Set-top systems 2 185 (99%) - 6%
Desk-top systems 58 106 (45%) 2% 3%
On-Line, OEM, licensing & other 10 35 (71%) - 1%
-------- -------- -------- -------- --------
Total European Net Revenues 70 326 (79%) 2% 10%
-------- -------- -------- -------- --------
Japan:
Set-top systems 131 270 (51%) 4% 8%
Desk-top systems 235 15 1,467% 7% 1%
On-Line, OEM, licensing & other 473 80 491% 14% 2%
-------- -------- -------- -------- --------
Total Japanese Net Revenues 839 365 130% 25% 11%
-------- -------- -------- -------- --------
Australia (including New Zealand):
Set-top systems 71 2 3,450% 2% -
Desk-top systems 156 134 16% 5% 4%
On-Line, OEM, licensing & other - 19 (100%) - 1%
-------- -------- -------- -------- --------
Total Australian Net Revenues 227 155 46% 7% 5%
-------- -------- -------- -------- --------
Total Worldwide Net Revenues $ 3,319 $ 3,249 2% 100% 100%
===== ===== ===== ===== =====
Net revenues by source were as follows:
Quarter Ended June 30,
1995 1994
% of Net % of Net
Amount Revenues Amount Revenues
Activision Studios $ 2,747 82.8% $ 3,001 92.4%
Activision Business Development 572 17.2% 248 7.6%
-------------------- --------------------
$ 3,319 100.0% $ 3,249 100.0%
======= ======= ======= =======
For purposes of the foregoing presentation, net revenues from set-top
systems relate to sales of those entertainment software products designed by the
Company for operation on a hardware device that is connected to a television set
and displayed on a television screen. Examples of set-top systems include Super
Nintendo Entertainment System, Sega Genesis, Sega Saturn, Sony Playstation,
Atari Jaguar, CD-I and 3DO Multiplayer. The Company designs products for
operation on many of these systems, and normally it is required to pay a license
fee for the right to create products for a particular system. Net revenues from
desk-top systems relate to sales of those entertainment software products
designed by the Company for operation through a personal computer's operating
system software and that is displayed on the computer's monitor. Examples of
computer operating systems include MS-DOS, Windows and the Macintosh operating
system. The Company generally is not obligated to pay a license fee for the
right to produce desk-top products.
Net revenues from Activision Studios relate to those entertainment software
products (both set-top and desk-top) designed, developed and produced through
the Company's Activision Studios division and that are owned by the Company.
Net revenues from Activision Business Development relate to those entertainment
software products developed by third parties for which the Company acquires all
or certain distribution rights. Such distribution rights may take the form of a
co-ownership arrangement or a license, and the Company's obligation to incur
marketing, promotion, sales and advertising expenses in connection with the
rights being acquired may vary from product to product.
Net revenues for the quarter ended June 30, 1995 increased 2% from the same
period last year. The increase was primarily due to increased licensing
revenues in Japan. North American set-top revenues for the quarter ended June
30, 1995 increased 44% from the same period last year. The increase was
primarily due to continuing sales of "Pitfall: The Mayan Adventure" which was
originally released in the third quarter of the prior fiscal year. North
American desk-top revenues for the quarter ended June 30, 1995 increased 31%
from the same period last year due to CD-based software releases during the
quarter, including "Paparazzi," "Activision's Atari Action Pack 2," and the
"Infocom Collections" series. European net revenues decreased due to the
absence of any significant new release during the quarter. Japan licensing and
other revenues for the quarter ended June 30, 1995 increased 491% from the same
period last year primarily due to the licensing of "Pitfall: The Mayan
Adventure", "Shanghai Great Moments" and "Return to Zork" for certain platforms
in the territory.
Cost of Goods Sold
Cost of goods related to product sales 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. Video games 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 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 decrease in cost of goods sold is related to the decrease in
product sales.
Gross Profit
Quarter Ended June 30, 1995 Quarter Ended June 30, 1994
Gross Profit Gross Profit
Amount Percentage Amount Percentage
Set-top systems $ 23 3.4% $ - -%
Desk-top systems 1,117 57.4% 675 48.3%
On-Line, OEM, licensing
& other 625 91.0% 765 72.2%
------- ------- ------ ------
Total gross profit $ 1,765 53.2% $ 1,440 44.3%
====== ====== ====== ======
Overall gross profit percentage on total revenues for the quarter ended
June 30, 1995 was higher than for the same period in the prior year due to the
increased concentration of higher profit margin CD-based products and license
revenue.
Operating Expenses
Quarter Ended June 30,
1995 1994
% of Net % of Net
Amount Revenues Amount Revenues
Product development $ 4,579 138.0% $ 1,315 40.5%
Sales and marketing 1,893 57.0% 1,268 39.0%
General and administrative 986 29.7% 747 23.0%
Amortization of excess purchase
price and reorganization expenses 321 9.7% 321 9.9%
-------- --------- --------- ---------
Total operating expenses $ 7,779 234.4% $ 3,651 112.4%
====== ====== ====== ======
Product development expenses increased both in amount and as a percentage
of revenues due to higher head count expenditures related to the increased
number of products in product development and the increase in production costs
associated with live-action video production, enhanced audio content and
technology on such products. Approximately 89% of product development expenses
relate to products which will be released later in the current fiscal year.
Sales and marketing expenses also increased both in amount and as a percentage
of revenues as a result of expanded advertising and marketing programs for both
specific product releases and corporate awareness programs as well as increased
head count related expenses. General and administrative expenses increased due
to an increase in head count related expenses as compared to the same period in
the prior year.
Other Income (Expense)
Interest income was $525,000 and $349,000 for the quarters ended June 30,
1995 and 1994, respectively. The substantial increase was due to the higher
yields earned on cash and cash equivalents during the current fiscal quarter as
compared to the same period in the prior year.
Provision for Income Taxes
The income taxes of approximately $39,000 and $11,000 recorded in the
provision for income taxes for the quarters ended June 30, 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 any future taxable income for both federal and state tax
purposes.
Net Income (Loss)
For the reasons noted above, there was an increase in the net loss recorded
for the quarter ended June 30, 1995 as compared to the net loss for the quarter
ended June 30, 1994. Net loss for the quarter ended June 30, 1995 was
$5,528,000 compared to a net loss of $1,873,000 for the same period of the prior
fiscal year.
Revenues and profits are very seasonal in the software publishing
industry with the fourth calendar quarter generally considered the strongest due
to increased sales for the holiday season. The Company participates in a highly
dynamic and volatile industry, which is affected by seasonality, changing
technology, limited platform cycles, hit products, competition, component
supplies, consumer spending, economic trends and other factors. In addition,
factors specific to the Company such as the timing and availability of new video
game and computer software titles may affect the predictability of financial
results and may contribute further to the volatility of the Company's stock
price. Thus, results for the period should not be annualized and are not
expected to be indicative of annual results. In addition, as a result of the
foregoing factors, the Company's common stock price has experienced significant
volatility historically, and may be subject to continued volatility.
In addition to the historically volatile elements noted, the industry is
expected to undergo significant change due in part to the introduction or
planned introduction of numerous new hardware platforms and electronic delivery
systems and the entry and participation of new companies in interactive media.
The difficulties in predicting which new platforms will be commercially
successful, the timing of such platforms' releases, and which new companies
entering the interactive arena will have a material impact on the industry,
cause additional uncertainty in predicting financial results of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased $5.6 million from March 31, 1995 to
June 30, 1995. The Company had approximately $33.6 million in cash and cash
equivalents at June 30, 1995. At June 30, 1995, net accounts receivable and
inventories were approximately $5.5 million, a decrease of approximately $2.0
million from approximately $7.5 million as of March 31, 1995. The decrease is
due to the collections of receivable balances in the first quarter of the fiscal
year and a decrease in revenues from the fourth quarter of the prior fiscal
year.
As of June 30, 1995, total accounts payable and accrued liabilities were
approximately $6.1 million versus $5.7 million at March 31, 1995. The increase
at June 30, 1995 is related to a increase in operating expenses in the first
quarter of the fiscal year compared with the quarter ended June 30, 1994.
Management believes that the Company's existing capital resources are
sufficient to meet its requirements for the foreseeable future. The private
placements completed by the Company during the 1994 fiscal year have provided,
and will continue to provide, the Company with greater resources to enable it to
acquire properties for development, engage in more extensive product development
and expand marketing activities, and increased working capital for operations.
The Company may use a portion of its working capital to acquire or invest in
other consumer software development or publishing companies; however, the
Company has not entered into any agreements or understandings with regard to any
such acquisitions or investments.
The Company's management currently believes that inflation has not had, and
will not have, a material impact on continuing operations.
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(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: August 14, 1995
ACTIVISION, INC.
/S/Robert A. Kotick Chairman, Chief Executive August 14, 1995
(Robert A. Kotick) Officer (Principal Executive
Officer) and Director
/S/Brian G. Kelly Chief Financial Officer August 14, 1995
(Brian G. Kelly) (Principal Financial Officer)
/S/Barry J. Plaga Chief Accounting Officer August 14, 1995
(Barry J. Plaga) (Principal Accounting Officer)
5
3-MOS
MAR-31-1996
JUN-30-1995
33633
0
7590
4829
2756
42483
3618
1598
65108
7440
0
0
0
0
57163
65108
3319
3319
1554
1554
7779
0
0
(5489)
39
(5528)
0
0
0
(5528)
(.39)
(.39)
