<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
AMENDMENT NO. 1
TO
FORM 8-K
AMENDMENT TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 12, 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of report (Date of earliest event report)
December 12, 1997 (November 26, 1997)
-------------------------------------
ACTIVISION, INC.
---------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 0-12699 94-2606438
- -------------------------------------------------------------------------------
State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation Identification No.)
3100 Ocean Park Blvd., Santa Monica, CA 90405
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (310) 255-2000
--------------------
- -------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
The undersigned hereby amends the following items, financial statements,
exhibits or other portions of its Report on Form 8-K Current Report dated
December 5, 1997 as set forth in the pages hereto:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired:
Audited consolidated financial statements of Combined Distribution
(Holdings) Limited for the period June 28, 1996 (inception) to April
30, 1997 and the for the five months ended September 30, 1996
(unaudited).
(b) Pro forma financial information
Unaudited Pro Forma Condensed Combined Financial Statements.
(c) Exhibits
23.1 Consent of Grant Thornton
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: December 12, 1997
ACTIVISION, INC.
By /s/ BARRY J. PLAGA
-----------------------------------
Barry J. Plaga,
Senior Vice President and
Chief Financial Officer
<PAGE>
Item 7(a)
REPORT OF INDEPENDENT AUDITORS
To the Directors of Combined Distribution (Holdings) Limited and Subsidiaries.
We have audited the accompanying consolidated balance sheet of Combined
Distribution (Holdings) Limited (a United Kingdom Limited Company) and
subsidiaries as of April 30, 1997 and the related consolidated statements of
income, changes in shareholders' equity and cash flows for the period from June
28, 1996 (inception) to April 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Combined Distribution (Holdings) Limited and subsidiaries as of April 30, 1997,
and the consolidated results of their operations and their cash flows for the
ten months then ended in conformity with U.S. generally accepted accounting
principles.
GRANT THORNTON
Registered Auditors
Chartered Accountants
Central Milton Keynes,
England
August 7, 1997 (except for
Note 16 as to which the date
is November 26, 1997)
F-1
<PAGE>
COMBINED DISTRIBUTION (HOLDINGS) LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands except share data)
As of As of
April 30, Sept. 30,
1997 1997
-------- --------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents L 2,289 L -
Accounts receivable, net 7,316 8,153
Inventories, net 2,316 3,746
-------- --------
Total current assets 11,921 11,899
Property and equipment, net 554 725
Costs in excess of assets acquired, net 3,346 3,274
-------- --------
Total assets L 15,821 L 15,898
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft L 985 L 127
Current portion of secured subordinated
loan stock debentures 425 850
Accounts payable 8,529 11,389
Accrued expenses 1,960 1,230
Dividends payable 704 -
-------- --------
Total current liabilities 12,603 13,596
Secured subordinated loan stock debentures 1,575 1,150
Other liabilities 19 87
-------- --------
Total liabilities 14,197 14,833
-------- --------
Redeemable preference, L0.10 stated value,
800,000 shares authorized, issued and outstanding 800 800
Convertible preference, L1.00 stated value,
133,333 shares authorized, issued and outstanding 133 133
Commitments and contingencies - -
Shareholders' equity:
"A" Ordinary, L0.01 stated value, 47,059 shares
authorized, issued and outstanding 1 1
"B" Ordinary, L0.01 stated value, 19,608 shares
authorized, issued and outstanding
Ordinary, L0.01 stated value, 103,030 shares
authorized, 100,000 shares issued and outstanding 1 1
Additional paid-in capital 165 181
Retained earnings 524 (51)
-------- --------
Total shareholders' equity 691 132
-------- --------
Total liabilities and shareholders' equity L 15,821 L 15,898
-------- --------
-------- --------
The accompanying notes are an integral part of this consolidated financial
statement.
F-2
<PAGE>
COMBINED DISTRIBUTION (HOLDINGS) LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands)
June 28, 1996 June 28, 1996 Five Months
(Inception) to (Inception) to Ended
April 30, Sept. 30, Sept. 30,
1997 1996 1997
--------- --------- ---------
(unaudited)
Net revenues L 43,325 L 6,800 L 19,660
Cost of goods sold 36,623 5,385 17,613
--------- --------- ---------
Gross profit 6,702 1,415 2,047
--------- --------- ---------
Operating expenses:
Sales and marketing 1,594 563 1,697
General and administrative 2,492 574 876
Amortization of goodwill 147 44 74
--------- --------- ---------
Total operating expenses 4,233 1,181 2,647
--------- --------- ---------
Operating income 2,469 234 (600)
Other expense:
Interest expense, net 426 153 185
--------- --------- ---------
Income (loss) before income taxes 2,043 81 (785)
Income taxes (benefit) 735 27 (259)
--------- --------- ---------
Net income (loss) L 1,308 L 54 (526)
--------- --------- ---------
--------- --------- ---------
The accompanying notes are an integral part of this consolidated financial
statement.
F-3
<PAGE>
COMBINED DISTRIBUTION (HOLDINGS) LIMITED
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JUNE 28, 1996 (INCEPTION) TO APRIL 30, 1997
AND THE FIVE MONTHS ENDED SEPTEMBER 30, 1997
(In thousands)
<TABLE>
<CAPTION>
Ordinary "A" Ordinary "B" Ordinary
---------------- ----------------- ---------------- Additional
Shareholders' Paid-in Retained
Shares Amount Shares Amount Shares Amount Capital Earnings Equity
------ ------ ------- ------ ------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Inception June 28, 1996 - L - - L - - L - L - L - L -
Issuance of Shares 100 1 47 1 20 - 165 - 167
Net income - - - - - - - 1,308 1,308
Dividends declared - - - - - - - (784) (784)
----- ----- ----- ----- ----- ----- ----- ----- -----
Balance April 30, 1997 100 1 47 1 20 - 165 524 691
Option issuance (unaudited) - - - - - - 16 - 16
Net loss (unaudited) - - - - - - - (526) (526)
Dividends declared
(unaudited) - - - - - - - (49) (49)
----- ----- ----- ----- ----- ----- ----- ----- -----
Balance Sept. 30, 1997
(unaudited) 100 L 1 47 L 1 20 L - L 181 L (51) L 132
----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- -----
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-4
<PAGE>
COMBINED DISTRIBUTION (HOLDINGS) LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
June 28, 1996 June 28, 1996 Five Months
(Inception) to (Inception) to Ended
April 30, Sept. 30, Sept. 30,
1997 1996 1997
--------- --------- ---------
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) L 1,308 L 54 L (526)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 482 146 280
Gain on disposal 21 - 6
Change in assets and liabilities:
Accounts receivable 362 429 (837)
Inventories (536) (632) (1,430)
Accounts payable 1,555 944 2,860
Accrued liabilities (2,264) (1,896) (662)
--------- --------- ---------
Net cash provided by operating activities 928 (955) (309)
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (257) (27) (369)
Cash paid for CentreSoft Ltd. (net of cash acquired) (2,387) (2,387) -
--------- --------- ---------
Net cash used in investing activities (2,644) (2,414) (369)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of secured subordinated
loan stock debentures 2,000 2,000 -
Proceeds from issuance of redeemable preferred stock 800 800 -
Proceeds from issuance of convertible preferred stock 133 133 -
Proceeds from issuance of "A" Ordinary Shares 47 47 -
Proceeds from issuance of "B" Ordinary Shares 20 20 -
Proceeds from issuance of Ordinary Shares 100 100 -
Dividends paid (80) (30) (753)
Bank overdraft 985 299 (858)
--------- --------- ---------
Net cash provided by financing activities 4,005 3,369 (1,611)
--------- --------- ---------
Net increase in cash and cash equivalents 2,289 - (2,289)
Cash and cash equivalents at beginning of year - - 2,289
--------- --------- ---------
Cash and cash equivalents at end of year L 2,289 L - L -
--------- --------- ---------
--------- --------- ---------
Supplemental cash flow information:
Cash paid for income taxes L 112 L - L 206
--------- --------- ---------
--------- --------- ---------
Cash paid for interest L 412 L 162 L 187
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-5
<PAGE>
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with
United States generally accepted accounting principles. A summary of the
significant accounting policies applied in the preparation of the
accompanying financial statements follows.
BUSINESS
The Company is principally engaged in the distribution of entertainment
software, game consoles, low cost business software and peripherals and the
provision of distribution services to software publishers.
COMPANIES ACT OF 1985
These financial statements do not comprise statutory accounts within the
meaning of Section 240 of the Companies Act of 1985 of Great Britain (the
"Companies Act"). The Company's statutory accounts, are prepared in
accordance with generally accepted accounting principles in the United
Kingdom ("UK GAAP") in compliance with the Companies Act and are presented
in pounds sterling. Dividends are required to be declared in pounds
sterling out of profits available for that purpose as determined by UK GAAP
and in accordance with the Companies Act 1985.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Combined
Distribution (Holdings) Limited, and its wholly owned subsidiaries,
CentreSoft Ltd. and PDQ Distribution Ltd. (the Company). All intercompany
accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with United States
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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and short-term investments with
original maturities of not more than three months.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's cash and cash equivalents, accounts
receivable, accounts payable, and accrued liabilities approximate their
carrying values due to the relatively short maturities of these
instruments. Trade receivables are primarily due from retailers.
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.
COST IN EXCESS OF NET ASSETS ACQUIRED, NET
The cost in excess of assets acquired is being amortized to earnings over a
20 year period on a straight-line basis. The Company evaluates its
goodwill in accordance with Financial Accounting Standards Board Statement
No. 121 (SFAS No. 121) to determine potential impairment by comparing the
carrying value to undiscounted future cash flows of the related assets.
The Company modifies or adjusts the value of goodwill if an impairment is
indicated by the difference between the undiscounted cash flows and the
carrying value. All of the Company's goodwill is identified with the
assets acquired and falls under the scope of SFAS No. 121. Amortization of
goodwill was L166,000 for the ten months ended April 30, 1997.
ADVERTISING EXPENSES
F-6
<PAGE>
The Company expenses advertising and the related costs as incurred.
Advertising expenses for the ten months ended April 30, 1997 were
approximately L87,000 and are included in sales and marketing expense in
the statement of income.
INCOME TAXES
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes."
Under SFAS No. 109 income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
REPORTING CURRENCY
The Company maintains its accounting records in its local currency, Great
Britain pounds sterling.
2. ACQUISITION OF CENTRESOFT LIMITED
On June 28, 1996 the Company acquired all the outstanding ordinary shares
of CentreSoft Limited ("CentreSoft") for L4,572,000 in cash from Centregold
plc ("Centregold") a subsidiary of Eidos plc. The acquisition agreement
provides for a contingent payment of a maximum of L500,000 to Eidos if the
Company is sold above a certain price which has not been recorded as of
April 30, 1997. The acquisition of CentreSoft Limited has been accounted
for by the purchase method of accounting.
F-7
<PAGE>
The assets and liabilities of CentreSoft acquired on June 28, 1996 were as
follows:
(amounts in thousands)
BOOK VALUE
&
FAIR VALUE
Assets:
Cash and cash equivalents L 2,185
Accounts receivables, net 7,678
Inventories 1,780
Fixed assets 653
--------
Total assets 12,296
--------
Liabilities:
Accounts payable 6,974
Accrued liabilities 4,242
--------
Total liabilities 11,216
--------
Net assets 1,080
Cost in excess of net assets acquired 3,492
--------
Consideration (including net costs
of L 472) satisfied by cash L 4,572
--------
--------
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (amounts in thousands):
As of As of
April 30, 1997 Sept. 30, 1997
-------------- --------------
Accounts receivable L 8,106 L 9,428
Less: Allowance for doubtful accounts (222) (271)
Less: Allowance for returns (568) (1,004)
-------- --------
L 7,316 L 8,153
-------- --------
-------- --------
4. PROPERTY AND EQUIPMENT
Equipment, furniture and leasehold improvements are recorded at cost.
Depreciation and amortization are provided using the straight-line method
over the shorter of the estimated useful lives or the lease term generally
ranging from three to ten years.
Property and equipment, stated at cost, was as follows at April 30, 1997
(amounts in thousands):
Computer equipment L 1,428
Office furniture and other equipment 594
Leasehold improvements 350
Motor Vehicles 218
---------
2,590
Less: accumulated depreciation and amortization (2,036)
---------
L 554
---------
---------
5. ACCRUED EXPENSES
Accrued expenses at April 30, 1997, were as follows (amounts in thousands):
F-8
<PAGE>
Corporate tax L 904
Rebates 341
Other 715
--------
L 1,960
--------
--------
6. SIGNIFICANT CUSTOMERS
The Company had sales to one customer, which represented 13% of total net
revenues for the ten months ended April 30, 1997.
7. INCOME TAXES
The income tax provision is based on the UK corporation tax rate of 33%.
The Company has no deferred tax assets or liabilities which were material
to the financial statements as of April 30, 1997.
8. BANK LINE OF CREDIT
The Company has a revolving line of credit ("Credit Facility") with a bank,
which provides L2,500,000 of revolving credit. The Credit Facility matures
on June 30, 2000. Interest is at LIBOR plus 2.5%, however, if certain
financial covenants are not met interest will be increased to LIBOR plus
3.5%. The Company was not in violation of any financial covenants and no
amounts were outstanding on the line of credit as of April 30, 1997.
The Company has an overdraft facility with a bank, which provides
L2,500,000 of overdraft protection. The overdraft facility is payable on
demand. As of April 30, 1997, the Company had drawn on this facility
L985,000.
9. SECURED SUBORDINATED LOAN STOCK DEBENTURES
The Secured Subordinated Loan Stock Debentures ("Debentures") bear interest
at the rate of 15% per annum and repayment is required as follows:
(amounts in thousands)
January 1998 L 425
July 1998 425
January 1999 375
July 1999 375
January 2000 375
July 2000 25
--------
L 2,000
--------
--------
The Debentures are debt instruments, secured by the assets of the Company,
and are subordinated to the Credit Facility pursuant to a written
Inter-Creditor Deed. In addition, the Debentures cannot be repaid without
written consent from the Bank. Holders of the Debentures are not entitled
to receive any voting rights, any share of profits or any conversion rights
into equity securities.
10. REDEEMABLE PREFERENCE SHARES
Redeemable Preference Shares consists of 800,000 shares with a stated par
value of L0.10 per share. The Redeemable Preference Shares are entitled to
a cumulative dividend of L0.12 per share per annum. The scheduled
redemption dates are as follows:
July 2000 L 350
January 2001 450
--------
L 800
--------
--------
The Company may make early redemption of these securities at any time,
subject to the terms of the Bank facility. If the Company is unable to
redeem all shares as they become due, the Company shall (i) redeem the
number of shares it is able to redeem and the balance as soon thereafter as
it is able to do so, and (ii)
F-9
<PAGE>
pay a penalty of 4% per annum above the three month LIBOR rate. Under UK
law, shares may only be redeemed out of distributable profits, out of the
proceeds from a new issuance of shares or, in the case of a privately-held
company out of capital (subject in this last instance to the satisfaction
of certain conditions under the UK Companies Act). Therefore, redemption
will occur unless the Company cannot lawfully redeem the shares.
Upon the occurrence of a Specified Event (a Listing (i.e., an IPO) or a
sale of all or substantially all of the Company's assets or 75% or more of
its equity share capital at a price above a specified amount), the
Redeemable Preference Shares are required to be redeemed, unless holders of
50% of the Redeemable Preference Shares give notice to the Company to the
contrary.
The Redeemable Preference Shares shall not be entitled to vote unless: (i)
any preferred dividend is in arrears, or (ii) any preference shares due to
be redeemed are outstanding, or (iii) the vote is with respect to a
resolution adversely affecting, altering or abrogating the rights,
privileges or restrictions attached to the Redeemable Preference Shares or
the Convertible Preference Shares, or (iv) a material breach of warranties
(as specified in the Company's Articles of Association) has occurred, or
(v) any indebtedness shall become repayable prior to its maturity date or
demand is made for payment thereof.
In the event of one or more of the above situations, each holder shall be
entitled to one vote on a show of hands and on a poll to such number of
votes for each share of Redeemable Preference Stock held by him so that the
voting rights conferred on all holders of Redeemable Preference Shares and
Convertible Preference Shares shall represent 90% of the voting rights
attached to all shares of capital of the Company after the application of
this vote enhancement.
11. CONVERTIBLE PREFERENCE SHARES
The Convertible Preference Shares ("Convertible Preference Shares") have a
stated par value of L1 per share and are entitled to a dividend of 12% per
annum. Holders of the Convertible Preference Shares have one vote per
share held, but only on a resolution of the winding up of the Company or on
a resolution affecting the rights attached to the shares. In addition,
holders of the Convertible Preference Shares are entitled to receive, upon
the winding up, in priority to any other class of shares, the sum of L1 per
share together with any dividends in arrears. The Company received net
proceeds of L133,000 upon the issuance of the Preference Shares. The
Preference Shares are convertible into Ordinary Shares on a one-for-one
basis in the event the Company has not redeemed the Preference Shares by
the period ending six months after the final redemption date of January 31,
2001. The redemption schedule for the Convertible Preference Shares is as
follows (amounts in thousands):
January 1998 L 20
July 1998 20
January 1999 18
July 1999 18
January 2000 18
July 2000 18
January 2000 21
------
L 133
------
------
The Company may make early redemptions of the Convertible Preference Shares
at any time, subject to the terms of the Bank facility. If the Company is
unable to redeem all the Convertible Preference Shares as they become due,
it shall (i) redeem the number of shares it is able to redeem and the
balance as soon thereafter as it is able to do so, and (ii) pay a penalty
of 4% per annum above the three month LIBOR rate.
Upon the occurrence of a Specified Event, the Convertible Preference Shares
shall be redeemed, unless holders of 50% of the Redeemable Preference
Shares give notice to the Company to the contrary.
If the Company is unable to redeem the Convertible Preference Shares due to
be redeemed on any redemption date or within six months of the final
redemption date, any Convertible Preference Shares not so redeemed shall
automatically convert on the day falling six months after the final
redemption date into an equal number of "A" Ordinary Shares. The
redemption of the Convertible Preference Shares is subject to the same UK
laws as the Redeemable Preference Shares.
F-10
<PAGE>
If the Company makes an offer or invitation to subscribe for "A" Ordinary
Shares, the Directors shall make a like offer to the holders of the
Convertible Preference Shares as if the conversion rights had been
exercised in full.
The Convertible Preference Shares shall not be entitled to vote unless:
(i) any preferred dividend is in arrears, or (ii) any preference shares
due to be redeemed are outstanding, or (iii) the vote is with respect to
a resolution adversely affecting, altering or abrogating the rights,
privileges or restrictions attached to the Convertible Preference Shares
or the Redeemable Preference Shares, or (iv) a material breach of
warranties (as specified in the Company's Articles of Association) has
occurred, or (v) any indebtedness shall become repayable prior to its
maturity date or demand is made for payment thereof.
In the event of one or more of the above situations, each holder of
Convertible Preference Shares shall be entitled to one vote on a show of
hands and on a poll to such number of votes for each share of Convertible
Preference Stock held by him so that the voting rights conferred on all
holders of Redeemable Preference Shares and Convertible Preference Shares
shall represent 90% of the voting rights attached to all shares of capital
of the Company after the application of this vote enhancement.
12. "A" ORDINARY SHARES, "B" ORDINARY SHARES AND ORDINARY SHARES
The Company has outstanding three classes of ordinary shares consisting of
"A" Ordinary Shares, "B" Ordinary Shares and Ordinary Shares. Each class
has a stated par value of L0.01 per share. Each holder of "A" Ordinary
Shares, "B" Ordinary Shares and Ordinary Shares shall be entitled to attend
and vote at general meetings, and each share is entitled to one vote on a
show of hands and on a poll to one vote for each share. The holders of
"A" Ordinary Shares, "B" Ordinary Shares and Ordinary Shares generally vote
as a group.
Subject to payment of the dividends on the Redeemable Preference Shares and
the Convertible Preference Shares (including any arrears or accruals), the
holders of the "A" Ordinary Shares and "B" Ordinary Shares shall receive a
fixed cumulative net dividend of L0.10 per share per annum ("Ordinary
Dividend") and a cumulative preferential dividend which, when added to the
Ordinary Dividend, equals the higher of 20% of the net profits (as defined
in the Company's Articles of Association) and the dividends declared on any
other class of share capital of the Company for the relevant financial
year. The balance of any profits declared by the Board to be distributed
by way of dividends for a financial year are to be distributed pro rata
among the holders of the "B" Ordinary Shares, the "A" Ordinary Shares and
the Ordinary Shares.
If all Redeemable Preference Shares and Convertible Preference Shares are
redeemed prior to July 31, 1999, and the Debentures required to be repaid
prior to July 31, 1999 actually are repaid by such date, then: (i) if the
Simon Hunt option (see Note 13. "Simon Hunt Option") has not lapsed, 18,182
"B" Ordinary Shares shall be redeemed at L1 per share and the remaining
1,426 "B" Ordinary Shares shall be converted into "A" Ordinary Shares; or
(ii) if the Simon Hunt option has lapsed, all "B" Ordinary Shares shall be
redeemed at L1 per share.
Subject to all dividends in arrears being paid to the holders of all
Ordinary "B" Shares, if a Specified Event (as previously defined) occurs
prior to July 31, 2001 at an Exit Value (as defined in the Company's
Articles of Association) of L13,500,000 or more, then on the date
immediately preceding such Specified Event: (i) if the Hunt option has not
lapsed, 18,182 "B" Ordinary Shares shall be redeemed at a price of L1 per
share and the remaining 1,426 "B" Ordinary Shares shall be converted into
"A" Ordinary Shares; or (ii) if the Hunt option has lapsed, all "B"
Ordinary Shares shall be redeemed at a price of L1 per share.
On June 28, 1996, the Company received net proceeds of L100,000 upon the
issuance of 100,000 shares of Ordinary Shares, L47,059 upon the issuance of
47,059 shares of "A" Ordinary Shares, and L19,608 upon the issuance of
19,608 "B" Ordinary Shares. Close Brothers is the holder of the both the
"A" Ordinary and "B" Ordinary shares.
13. SIMON HUNT OPTION
On June 28, 1996, a stock option to acquire Ordinary Shares was issued to
the non-executive chairman of the Board of Directors, Simon Hunt ("Hunt"),
for total consideration of L16,000, the equivalent of fair value of the
option. The Hunt option is exercisable as follows: (i) in the event the
Redeemable Preference Shares and Convertible Preference Shares are redeemed
in accordance with their terms, an option to acquire 1% of the outstanding
equity share capital after the issuance of the shares underlying the Hunt
Option (i.e., 1,515 Ordinary Shares) shall become exercisable; or, (ii) in
the event a Specified Event occurs with a value of L13,500,000 or greater,
an option to acquire 2% of the outstanding equity share
F-11
<PAGE>
capital after the issuance of the shares underlying the Hunt option (i.e.,
3,030 Ordinary Shares) shall become exercisable.
14. DIVIDENDS
The Company declared dividends on September 30 and December 31, 1996 and
March 31 and June 27, 1997 totaling as follows (amounts in thousands):
Redeemable preference shares, L0.12 per share L 80
Convertible Preference Shares, 12% per annum 13
"A" Ordinary Shares, 4
"B" Ordinary Shares, 2
Ordinary Shares 166
Participating "A" and "B" Ordinary Shares, L7.78 per share 519
------
L 784
------
------
15. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Company leases its facilities under non-cancelable operating lease
agreements. Total future minimum lease commitments as of April 30, 1997
are as follows (amounts in thousands):
Year ending April 30,
1998 L304
1999 283
2000 279
2001 278
2002 278
Thereafter 2,573
-------
L3,995
-------
-------
Rent expense for the ten months ended April 30, 1997 was approximately
L309.
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, results of
operations or liquidity.
16. SUBSEQUENT EVENT
On November 26, 1997, the Company was acquired by Activision, Inc.
("Activision"), a Delaware Corporation, whereby Activision acquired all the
outstanding ordinary, "A" ordinary and "B" ordinary, redeemable preference,
convertible preference, and secured subordinated loan stock debentures in
exchange for 2,787,045 shares of Activision common stock.
F-12
<PAGE>
ITEM 7(b): PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial
statements reflect the business combination between Activision, Inc.
("Activision") and Combined Distribution (Holdings) Limited ("CentreSoft")
which will be accounted on a "pooling of interests" basis. The unaudited pro
forma condensed combined financial statements are based upon the respective
historical financial statements of Activision and CentreSoft and should be
read in conjunction with such historical financial statements and the notes
thereto, which are included herein.
The unaudited pro forma condensed combined balance sheet combines
Activision's September 30, 1997 unaudited condensed consolidated balance sheet
with CentreSoft's September 30, 1997 unaudited condensed consolidated balance
sheet.
The unaudited pro forma statements of income combine the following:
Activision's audited condensed consolidated statement of income for year
ended March 31, 1997 with CentreSoft's audited condensed consolidated
statement of income for the period from June 28, 1996 (inception) to April
30, 1997; Activision's unaudited condensed consolidated statement of income
(loss) for the six months ended September 30, 1997 with CentreSoft's
unaudited condensed consolidated statement of income (loss) for the six
months ended September 30, 1997; and Activision's unaudited condensed
consolidated statement of income (loss) for the six months ended September
30, 1996 with CentreSoft's unaudited condensed consolidated statement of
income (loss) for the period June 28, 1996 (inception) to September 30, 1996.
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results or financial position
that would have occurred if the business combination had been consummated as
presented in the accompanying unaudited pro forma condensed combined financial
information, nor is it necessarily indicative of future operating results or
financial position.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical consolidated financial statements and
related notes thereto of Activision and of CentreSoft included elsewhere herein.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
REFLECTING ACTIVISION, INC.
AFTER GIVING EFFECT TO THE BUSINESS COMBINATION
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, 1997
----------------------------------------------------------------------
Combined
Activision CentreSoft CentreSoft Pro Forma Pro Forma
(D) Adjustments Balance
---------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,286 L - $ - $ 10,286
Accounts receivable, net 38,920 8,153 13,110 52,030
Inventories, net 5,306 3,746 6,024 11,330
Prepaid software and license royalties 8,444 - - 8,444
Prepaid expenses and other current assets 2,632 - - 2,632
Deferred income taxes 4,279 - - 4,279
---------- ---------- ----------- --------- ---------
Total current assets 69,867 11,899 19,134 89,001
Property and equipment, net 9,360 725 1,166 10,526
Deferred income taxes 4,665 - - 4,665
Other assets 246 - - 246
Excess purchase price over identifiable
assets acquired, net 17,934 3,274 5,265 - 23,199
---------- ---------- ----------- --------- ---------
Total assets $ 102,072 L 15,898 $ 25,565 $ 127,637
---------- ---------- ----------- --------- ---------
---------- ---------- ----------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 423 L 127 $ 204 $ 627
Current portion of secured subordinated
loan stock debentures - 850 1,367 (1,367) -
Accounts payable 8,719 11,389 18,314 27,033
Accrued expenses 10,625 1,230 1,978 1,379 13,982
---------- ---------- ----------- --------- ---------
Total current liabilities 19,767 13,596 21,863 (12) 41,642
Secured subordinated loan stock debentures 959 1,150 1,849 (1,849) 959
Other liabilities 189 87 140 329
---------- ---------- ----------- --------- ---------
Total liabilities 20,915 14,833 23,852 (1,837) 42,930
---------- ---------- ----------- --------- ---------
Redeemable preferred stock - 800 1,287 (1,287) -
Convertible preferred stock - 133 214 (214) -
Shareholders' equity:
Common stock - 2 3 (3) -
Additional paid-in capital 82,806 181 291 4,720 87,817
Retained earnings (deficit) 4,032 (51) (90) (1,379) 2,563
Cumulative foreign currency translation (403) - 8 (395)
Less: Treasury stock, cost of 500,000 shares (5,278) - - (5,278)
---------- ---------- ----------- --------- ---------
Total shareholders' equity 81,157 132 212 3,338 84,707
---------- ---------- ----------- --------- ---------
Total liabilities and shareholders' equity $ 102,072 L 15,898 $ 25,565 $ 0 $ 127,637
---------- ---------- ----------- --------- ---------
---------- ---------- ----------- --------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined
financial statements.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
REFLECTING ACTIVISION, INC.
AFTER GIVING EFFECT TO THE BUSINESS COMBINATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Year Ended March 31, 1997
----------------------------------------------------------------------
Combined
CentreSoft CentreSoft Pro Forma Pro Forma
Activision (D) (E) (E) Adjustments Balance
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues (I) $ 86,483 L 43,325 $ 70,219 $ (2,058)(I) $ 154,644
Cost of goods sold (I) 29,822 36,623 59,357 (2,058)(I) 87,121
---------- ---------- ---------- ----------- ---------
Gross profit 56,661 6,702 10,862 0 67,523
---------- ---------- ---------- ----------- ---------
Operating expenses:
Product development 18,195 - - 18,195
Sales and marketing 22,351 1,594 2,583 1,363 (F) 26,297
General and administrative 5,041 2,492 4,040 (1,363)(F) 7,718
Amortization of intangible assets 1,267 147 238 - 1,505
---------- ---------- ---------- ----------- ---------
Total operating expenses 46,854 4,233 6,861 - 53,715
---------- ---------- ---------- ----------- ---------
Operating income 9,807 2,469 4,001 13,808
Other income:
Interest income (expense) (H) 924 (426) (691) - (H) 233
---------- ---------- ---------- ----------- ---------
Income before income taxes 10,731 2,043 3,310 - 14,041
Income tax provision 3,624 735 1,191 - 4,815
---------- ---------- ---------- ----------- ---------
Net income $ 7,107 L 1,308 $ 2,119 $ - $ 9,226
---------- ---------- ---------- ----------- ---------
---------- ---------- ---------- ----------- ---------
Net income per common share (G) $ 0.45 $ 0.75 $ 0.50
---------- ---------- ---------
---------- ---------- ---------
Number of shares used in computing
net income per common share (G) 15,659 2,837 18,496
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined
financial statements.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
REFLECTING ACTIVISION, INC.
AFTER GIVING EFFECT TO THE BUSINESS COMBINATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Six Months Ended September 30, 1997
----------------------------------------------------------------------
Combined
CentreSoft CentreSoft Pro Forma Pro Forma
Activision (D) Adjustments Balance
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues (I) $ 39,972 L 24,563 $ 40,119 $ (562)(I) $ 79,529
Cost of goods sold (I) 15,493 21,478 35,080 (562)(I) 50,011
---------- ---------- ---------- ----------- ---------
Gross profit 24,479 3,085 5,039 0 29,518
---------- ---------- ---------- ----------- ---------
Operating expenses:
Product development 13,918 - - 13,918
Sales and marketing 12,400 1,935 3,160 15,560
General and administrative 3,141 1,034 1,689 4,830
Amortization of intangible assets 611 88 144 755
---------- ---------- ---------- ----------- ---------
Total operating expenses 30,070 3,057 4,993 35,063
---------- ---------- ---------- ----------- ---------
Operating income (loss) (5,591) 28 46 (5,545)
Other income:
Interest income (expense) (H) 229 (229) (374) (H) (145)
---------- ---------- ---------- ----------- ---------
Income (loss) before income taxes (5,362) (201) (328) (5,690)
Income tax provision (benefit) (2,005) (66) (108) (2,113)
---------- ---------- ---------- ----------- ---------
Net income (loss) $ (3,357) L (135) $ (220) $ 0 $ (3,577)
---------- ---------- ---------- ----------- ---------
---------- ---------- ---------- ----------- ---------
Net income (loss) per common share (G) $ (0.22) $ (0.08) $ (0.20)
---------- ---------- ---------
---------- ---------- ---------
Number of shares used in computing
net income (loss) per common share (G) 15,372 2,837 18,209
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined
financial statements.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
REFLECTING ACTIVISION, INC.
AFTER GIVING EFFECT TO THE BUSINESS COMBINATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Six Months Ended September 30, 1996
----------------------------------------------------------------------
Combined
CentreSoft CentreSoft Pro Forma Pro Forma
Activision (D) (E) (E) Adjustments Balance
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues (I) $ 26,196 L 6,800 $ 10,697 $ (332)(I) $ 36,561
Cost of goods sold (I) 7,221 5,385 8,471 (332)(I) 15,360
---------- ---------- ---------- ----------- ---------
Gross profit 18,975 1,415 2,226 0 21,201
---------- ---------- ---------- ----------- ---------
Operating expenses:
Product development 9,154 - - 9,154
Sales and marketing 9,047 563 886 9,933
General and administrative 2,589 574 903 3,492
Amortization of intangible assets 642 44 69 711
---------- ---------- ---------- ----------- ---------
Total operating expenses 21,432 1,181 1,858 23,290
---------- ---------- ---------- ----------- ---------
Operating income (loss) (2,457) 234 368 (2,089)
Other income:
Interest income (expense) (H) 556 (153) (241) -(H) 315
---------- ---------- ---------- ----------- ---------
Income (loss) before income taxes (1,901) 81 127 (1,774)
Income tax provision (benefit) (606) 27 42 (564)
---------- ---------- ---------- ----------- ---------
Net income (loss) $ (1,295) L 54 $ 85 $ 0 $ (1,210)
---------- ---------- ---------- ----------- ---------
---------- ---------- ---------- ----------- ---------
Net income (loss) per common share (G) $ (0.09) $ (0.03) $ (0.07)
---------- ---------- ---------- ----------- ---------
---------- ---------- ---------- ----------- ---------
Number of shares used in computing
net income (loss) per common share (G) 14,884 2,837 17,721
---------- ---------- ---------- ----------- ---------
---------- ---------- ---------- ----------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined
financial statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note (A)
The method of combining the two companies is for the presentation of
Unaudited Pro Forma Condensed Combined financial statements only. The
Unaudited Pro Forma Condensed Combined financial statements, including notes
thereto, should be read in conjunction with the historical consolidated
financial statements of Activision and CentreSoft and notes thereto included
in the Company's Annual Report in Form 10-K and Quarterly Reports in Form
10-Q, and CentreSoft and notes thereto included herein.
Note (B)
The unaudited pro forma condensed combining statements of income for
Activision and CentreSoft have been prepared as if the business combination
was completed at the later of the beginning of the period presented or the
date CentreSoft commenced operations. The unaudited pro forma combined net
income per share is based on the combined weighted average number of common
and common equivalent shares of Activision and CentreSoft common stock for
each period, based on the issuance of 2,787,043 shares of Activision Common
Stock for all the outstanding Ordinary shares, "A" Ordinary shares, "B"
Ordinary shares, redeemable preference shares, convertible preference shares
and secured loan stock debentures of CentreSoft. In addition, options to
acquire 50,325 shares of Activision Common Stock were issued in exchange for
options to acquire Ordinary Shares of CentreSoft.
Note (C)
1. Pro Forma Basis of Presentation
These unaudited pro forma condensed combined financial statements reflect
the issuance of 2,787,043 shares of Activision Common Stock for all the
outstanding Ordinary shares, "A" Ordinary shares, "B" Ordinary shares,
redeemable preference shares, convertible preference shares and secured loan
stock debentures of CentreSoft.
2. Transaction Costs
Activision and CentreSoft estimate they will incur direct transaction
costs of approximately $1.4 million associated with the business combination
consisting of transaction fees for investment bankers, attorneys, accountants
and consultants. At September 30, 1997, no transaction-related costs had
been incurred. These non-recurring transaction costs will be charged to
operations during the quarter ended December 31, 1997 and have not been
reflected in the accompanying unaudited pro forma condensed statements of
income (loss). The pro forma condensed combined balance sheet gives effect
to the estimated direct transaction costs as if they had been incurred as of
September 30, 1997.
Note (D)
CentreSoft balances are in British pounds sterling.
Note (E)
Unaudited pro forma condensed combined income statement data for the year
ended March 31, 1997 includes CentreSoft's results of operations for the period
June 28, 1996 (inception) to April 30, 1997. Unaudited pro forma condensed
combined income statement data for the six months ended September 30, 1997
includes CentreSoft's results of operations for the six months ended September
30, 1997. Accordingly, CentreSoft's results of operations for the month ended
April 30, 1997 have been included in the periods ended April 30, 1997 and
September 30, 1997. CentreSoft's net revenues and net income for the month
ended April 30, 1997 were approximately $8.0 million and $639,000,
respectively. Unaudited pro forma condensed combined income statement data
for CentreSoft for the six months ended September 30, 1996 includes
CentreSoft's results of operations for the period June 28, 1996 (inception)
to September 30, 1996.
Note (F)
There have been no adjustments required to conform the accounting policies
of the combined companies. Certain amounts for CentreSoft have been
reclassified to conform with the financial statements classification followed by
Activision.
Note (G)
Earning per share for CentreSoft are determined using actual shares issued
by Activision in the business combination in exchange for all the outstanding
Ordinary shares, "A" Ordinary shares, "B" Ordinary shares, redeemable preference
shares, convertible preference shares and secured loan stock debentures of
CentreSoft. In
<PAGE>
addition, weighted average shares outstanding includes equivalent common shares,
unless anti-dilutive, outstanding for each period presented.
Note (H)
The pro forma adjustments do not include the elimination of interest
costs associated with CentreSoft indebtedness to shareholders, which was
exchanged for shares of Activision common stock in the business combination.
The after tax effect of such an elimination for the year ended March 31, 1997
and for the six months ended September 30, 1997 and 1996 would be an increase
in net income of $259,000 or $.01 per share, $163,000 or $0.01 per share and
$78,000 or $0.00 per share, respectively.
Note (I)
The pro forma adjustments include the elimination of intercompany sales.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated August 7, 1997 (except for Note 16 as to which
the date is November 26, 1997) accompanying the financial statements of
Combined Distribution (Holdings) Limited and subsidiaries as of April 30, 1997
and for the period June 28, 1996 (inception) to April 30, 1997 included in this
Amendment to Report on Form 8-K. We consent to the incorporation by reference
of said report in the Registration Statements of Activison, Inc. on Forms S-8
(File Nos. 33-48411, 33-63638, 33-91074, 333-06130, 333-12621, 333-06054 and
333-40727) and Forms S-3 (File Nos. 33-68144, 33-75878, 333-30303 and
333-36949).
GRANT THORNTON
Registered Auditors
Chartered Accountants
Central Milton Keynes,
England
December 12, 1997
23
