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Atari Inc – ‘10-Q’ for 9/30/97

As of: Friday, 11/14/97 · For: 9/30/97 · Accession #: 950123-97-9541 · File #: 0-27338

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

11/14/97  Atari Inc                         10-Q        9/30/97    2:36K                                    RR Donnelley/FA

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Gt Interactive Software Corp                          16     75K 
 2: EX-27.1     Financial Data Schedule                                1      6K

10-Q — Gt Interactive Software Corp
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Changes in Securities Exhibits and Reports on Form 8-K Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations
1	1st Page - Filing Submission
9	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
14	Item 1. Legal Proceedings
"	Item 2. Changes in Securities
15	Item 6. Exhibits and Reports on Form 8-K

10-Q 1st Page of 16 TOC ↑Top Previous Next ↓Bottom Just 1st
 

================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

----------

 FORM 10-Q
QUARTERLY REPORT
 PURSUANT TO SECTION 13 OR 15 (d) OF THE
 SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1997    Commission File No. 0-27338

----------

 GT INTERACTIVE SOFTWARE CORP.
(Exact name of registrant as specified in its charter)

    Delaware                                              13-3689915
(State or other jurisdiction of                             (I.R.S. employer    
incorporation or organization)                             identification no.)  

16 East 40th Street, New York, NY                             10016       
(Address of principal executive offices)                       (Zip code)       

Registrant's telephone number, including area code: (212) 726-6500

----------

       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 for 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 |_|    

        As of November 1, 1997, there were 67,829,641 shares of the registrant's
Common Stock outstanding.                                                       

Page 1 of 17

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 GT INTERACTIVE SOFTWARE CORP.
1997 QUARTERLY REPORT ON FORM 10-Q
 TABLE OF CONTENTS

Part I - Financial Information                                                  

                                                                            Page
Item 1. Financial Statements (Unaudited):                                       

Consolidated Balance Sheets as of December 31, 1996             
      (audited) and September 30, 1997                                     3

Consolidated Statements of Operations for the three months and  
      the nine months ended September 30, 1996 and 1997                    4

Consolidated Statements of Cash Flows for the nine months       
      ended September 30, 1996 and 1997                                    5

      Notes to Consolidated Financial Statements                           6

Item 2. Management's Discussion and Analysis of Financial Condition             
      and Results of Operations                                            9

Part II - Other Information                                                     

Item 1. Legal Proceedings                                                   14  

Item 2. Changes in Securities                                               14  

Item 6. Exhibits and Reports on Form 8-K                                    15  

Signatures                                                                  16  

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Part I.  Financial Information                                                  
Item 1.  Financial Statements (Unaudited)                                       

GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS

                                                                [Download Table]

                                                         December 31,  September 30,
                                                             1996         1997      
                                                         ------------  -------------
                                                           (audited)    (unaudited) 
                                                                (in thousands)      
                                                                                    
ASSETS                                                                              
Current assets:                                                                     
  Cash and cash equivalents                                $ 71,867     $  8,070    
  Short-term investments                                      4,717          105    
  Receivables, net                                           95,941      141,099    
  Inventories, net                                           60,457       83,047    
  Royalty advances                                           69,202       87,542    
  Deferred income taxes                                      15,283        9,452    
  Prepaid expenses and other current assets                   6,510       10,796    
                                                           --------     --------    
     Total current assets                                   323,977      340,111    
Property and equipment, net                                  10,082       19,252    
Goodwill, net                                                21,003       20,286    
Investments                                                   9,829        9,992    
Other assets                                                  2,220        1,176    
                                                           --------     --------    
     Total assets                                          $367,111     $390,817    
                                                           ========     ========    

LIABILITIES AND STOCKHOLDERS' EQUITY                                                
Current liabilities:                                                                
  Accounts payable                                         $107,842     $ 92,604    
  Accrued liabilities                                        52,812       44,854    
  Royalties payable                                          33,378       33,071    
  Deferred income                                             4,783          596    
  Current portion of long-term liabilities                    1,334            8    
  Due to related party                                          601        1,143    
  Income taxes payable                                        9,575        5,362    
                                                           --------     --------    
     Total current liabilities                              210,325      177,638    
Long-term debt                                                   --       40,400    
Other long-term liabilities                                   4,648        1,606    
                                                           --------     --------    
     Total liabilities                                      214,973      219,644    
                                                           --------     --------    

Commitments and contingencies                                                       

STOCKHOLDERS' EQUITY:                                                               
  Common stock, $.01 par, 150,000,000 shares authorized,                            
  67,097,347 shares issued and outstanding                      664          671    
  Additional paid-in capital                                119,033      120,800    
  Retained earnings                                          32,441       49,702    
                                                           --------     --------    
     Total stockholders' equity                             152,138      171,173    
                                                           --------     --------    

     Total liabilities and stockholders' equity            $367,111     $390,817    
                                                           ========     ========    

 The accompanying footnotes are an integral part of these financial statements.     
                                     Page 3                                         

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GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)

                                                        [Enlarge/Download Table]

                                          For The Three Months           For The Nine Months   
                                           Ended September 30,           Ended September 30,   
                                          ---------------------       ------------------------ 
                                            1996          1997           1996          1997    
                                          -------      ---------       --------      --------- 
                                                         (in thousands, except per share data) 
                                                                                               
Net sales                                 $86,192      $ 120,990       $230,475      $ 317,108 
Cost of goods sold                         47,684         65,767        130,232        183,813 
Selling and distribution expenses          17,709         26,671         50,757         65,699 
General and administrative expenses         8,223         13,619         22,918         35,679 
Amortization of goodwill                      273            283            819            913 
                                          -------      ---------       --------      --------- 
     Operating income                      12,303         14,650         25,749         31,004 
Interest and other income (expense), net      575           (612)         2,827           (990)
                                          -------      ---------       --------      --------- 
     Income before income taxes            12,878         14,038         28,576         30,014 
Provision for income taxes                  4,148          5,512         11,951         12,565 
                                          -------      ---------       --------      --------- 
     Net income                           $ 8,730      $   8,526       $ 16,625      $  17,449 
                                          =======      =========       ========      ========= 

Net income per share                      $  0.13      $    0.13       $   0.24      $    0.26 

Weighted average shares outstanding        69,217         67,032         68,903         66,600 
                                          =======      =========       ========      ========= 

The accompanying footnotes are an integral part of these financial statements.
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GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)

                                                        [Enlarge/Download Table]

                                                                    For the Nine Months   
                                                                    Ended September 30,   
                                                                  ----------------------- 
                                                                     1996         1997    
                                                                  ---------      -------- 
                                                                       (in thousands)     
                                                                                          
OPERATING ACTIVITIES:                                                                     
  Net income                                                      $ 16,625       $ 17,449 
  Adjustments to reconcile net income to net cash used in                                 
     operating activities:                                                                
       Depreciation and amortization                                 2,089          3,459 
       Deferred income taxes                                           471          5,831 
       Deferred income                                              (1,119)        (8,092)
       Changes in operating assets and liabilities:                                       
          Receivables, net                                         (10,784)       (44,034)
          Inventories, net                                         (13,912)       (22,101)
          Royalty advances                                         (27,780)       (18,340)
          Due to related party, net                                   (710)           542 
          Prepaid expenses and other current assets                 (5,083)        (4,088)
          Accounts payable                                         (18,862)       (16,912)
          Accrued liabilities                                       (5,126)        (7,959)
          Royalties payable                                          5,844           (308)
          Income taxes payable                                       1,173         (4,245)
          Other                                                       (904)         1,320 
                                                                  --------       -------- 
             Net cash used in operating activities                 (58,078)       (97,478)
                                                                  --------       -------- 

INVESTING ACTIVITIES:                                                                     
  Purchase of investments                                           (9,521)          (163)
  Purchase of One Stop                                                  --           (846)
  Purchase of property and equipment                                (3,518)       (11,558)
  Sales of short-term investments, net                               4,730          4,613 
                                                                  --------       -------- 
             Net cash used in net investing activities              (8,309)        (7,954)
                                                                  --------       -------- 

FINANCING ACTIVITIES:                                                                     
  Issuance of stock                                                    632             -- 
  Repurchase of warrants                                            (1,935)            -- 
  Long-term debt                                                        --         40,400 
  Proceeds from exercise of warrants and stock options                  --          2,788 
  Other long-term liabilities                                         (363)          (528)
                                                                  --------       -------- 
             Net cash provided by (used in) financing activities    (1,666)        42,660 
                                                                  --------       -------- 

Effect of exchange rates on cash and cash equivalents                   --         (1,025)
Net decrease in cash and cash equivalents                          (68,053)       (62,772)
Cash and cash equivalents - beginning of year                       84,069         71,867 
                                                                  ========       ======== 
Cash and cash equivalents - end of period                         $ 16,016       $  8,070 
                                                                  ========       ======== 

The accompanying footnotes are an integral part of these financial statements.
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GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)

NOTE 1 - Significant Accounting Policies                                        

Basis of Presentation                                                           

  The accompanying interim consolidated financial statements of GT
Interactive Software Corp. and Subsidiaries (the "Company") are unaudited but in
the opinion of management reflect all adjustments, consisting of normal         
recurring accruals, necessary for a fair presentation of the results for the    
interim period in accordance with instructions for Form 10-Q. Accordingly, they 
do not include all information and footnotes required by generally accepted     
accounting principles for complete financial statements. These interim          
consolidated financial statements should be read in conjunction with the        
consolidated financial statements and footnotes thereto included in the         
Company's Annual Report on Form 10-K for the fiscal year ended December 31,     
1996.                                                                           

Reclassifications                                                               

        Certain reclassifications have been made to the prior year's financial
statements to conform classifications used in the current period.               

NOTE 2 - Acquisitions                                                           

        In June 1996, the Company acquired all of the outstanding common stock
of WizardWorks Group, Inc. ("WizardWorks"), a developer and publisher of        
consumer software, in exchange for 2.4 million shares of the Company's common   
stock, par value $.01 per share ("Common Stock").                               

        In June 1996, the Company acquired all of the outstanding common stock
of Candel Inc., the parent company of FormGen Corp. ("FormGen"), a publisher of 
multimedia consumer software, in exchange for 1.0 million shares of the         
Company's Common Stock.                                                         

        In July 1996, the Company acquired all of the outstanding common stock
of Humongous Entertainment, Inc. ("Humongous"), a premier developer and         
publisher of quality children's software, in exchange for 3.5 million shares of 
the Company's Common Stock.                                                     

WizardWorks, FormGen and Humongous (collectively the "Acquired
Companies") have been accounted for as pooling of interests and accordingly are 
included in the Company's Consolidated Financial Statements as if the           
acquisitions had occurred as of the beginning of the periods presented.         

In November 1996, the Company acquired the business of Warner 
Interactive Europe ("Warner") for $6.3 million in cash, including acquisition   
costs. Warner's financial results have been included in the Company's           
Consolidated Financial Statements on a purchase basis for the period since the  
acquisition.                                                                    

      In January 1997, the Company acquired all of the outstanding capital
stock of Premier Promotion Limited ("One Stop"), the parent company of One Stop 
Direct Limited, a leading European value software publisher, for $.8 million in 
cash. One Stop's financial results have been included in the Company's          
Consolidated Financial Statements on a purchase basis for the period since the  
acquisition.                                                                    

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GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Unaudited)

NOTE 3 - Inventories, net                                                       

Inventories consist of the following:                         

                                                                [Download Table]

                                                  December 31,    September 30,
                                                      1996           1997      
                                                  ------------    -------------
                                                         (in thousands)        
                                                                               
Finished goods                                      $58,464         $78,322    
Raw materials                                         1,993           4,725    
                                                    -------         -------    
                                                    $60,457         $83,047    
                                                    =======         =======    

NOTE 4 - Commitments and Contingencies                                          

  On January 21, 1997, the Company entered into a Revolving Credit
Agreement (the "Credit Agreement") with banks expiring on December 31, 1998. The
Credit Agreement was amended on June 30, 1997 to increase the facility from $40 
million to a maximum of $65 million to be used for borrowings and letters of    
credit. Borrowing is limited to fifty percent of adjusted, as defined,          
consolidated accounts receivable, and is secured by these receivables. The      
borrowings under this agreement bear interest at either the banks' reference    
rate (which is generally equivalent to the published prime rate) or the LIBOR   
rate plus 1 1/4%. The Company pays a commitment fee of 1/4% based on the unused 
portion of the line. The Credit Agreement requires maintenance of certain       
financial ratios and net income levels.                                         

      At September 30, 1997, the Company had outstanding long-term debt of
$40.4 million, representing borrowings under the Credit Agreement, and letters  
of credit amounting to $15.1 million.                                           

NOTE 5 - Supplemental Cash Flow Information                                     

                                                                [Download Table]

                                                          For the Nine Months   
                                                          Ended September 30,   
                                                      ------------------------- 
                                                        1996              1997  
                                                       ------            -------
                                                            (in thousands)      
                                                                                
Cash paid for income taxes                             $9,204            $10,223
Cash paid for interest                                    134              1,013

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NOTE 6 - Subsequent Events                                                      

         On October 5, 1997, the Company entered into an agreement to acquire by
merger MicroProse, Inc., a Delaware corporation ("MicroProse") and a developer, 
producer and publisher of entertainment software for personal computers and     
certain console platforms. Under the proposed transaction, the Company will     
exchange 0.700 shares of its Common Stock for each of MicroProse's outstanding  
shares of common stock and, additionally, the Company will exchange one share of
its newly created series of convertible preferred stock for each outstanding    
share of MicroProse's convertible preferred stock. The transaction, which is    
anticipated to be completed in the quarter ending December 31, 1997, will be    
accounted for as a pooling of interests.                                        

     On October 10, 1997, the Credit Agreement was seasonally amended to
increase the facility from $65 million to a maximum of $75 million through      
December 31, 1997.                                                              

On October 15, 1997, the Company completed its acquisition of 
SingleTrac Entertainment Technologies, Inc., a Delaware corporation             
("SingleTrac") and a developer of entertainment software. Total consideration   
included approximately $5 million of cash and approximately 731,000 shares of   
the Company's Common Stock, as well as an assumption of the outstanding options 
of SingleTrac which are now convertible into an aggregate of approximately      
307,000 shares of the Company's Common Stock. The transaction will be accounted 
for as a purchase. The Company anticipates taking a one time charge of $12 to   
$14 million, during the quarter ending December 31, 1997, for the write off of  
purchased-in-process research and development costs. Additionally, pursuant to  
the agreement, the Company has structured a one time retention oriented bonus   
pool of up to approximately $10 million in cash and Common Stock of the Company,
which will be distributed to SingleTrac employees based on the achievement of   
certain performance goals of SingleTrac over the succeeding two years.          

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Item 2. Management's Discussion and Analysis of Financial Condition and Results 
of Operations                                                   

 The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements which   
involve risks and uncertainties. The Company's actual results or future events  
could differ materially from those anticipated in these forward-looking         
statements as a result of certain factors, including, but not limited to,       
world-wide business and industry conditions, adoption of new hardware systems,  
product delays, software development requirements and their impact on product   
launches, company customer relations and other risks and factors detailed, from 
time to time, in the Company's SEC filings including, but not limited to, the   
factors described on pages 10-15 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.                                        

Overview                                                                        

The Company creates, publishes, merchandises and distributes interactive        
entertainment, edutainment and value-priced consumer software for a variety of  
platforms on a world-wide basis. Since it commenced operations in February 1993,
the Company has experienced rapid revenue growth and its product and customer   
mix have changed substantially.                                                 

    An important element of the Company's financial performance is its
product mix, which has varied over time as the Company has built its business.  
The Company's product mix has been composed of two broad product categories:    
published software and third party software. Because each of these product      
categories has different associated costs, the Company's margins have depended  
and will depend, in part, on the percentage of net sales attributable to each   
category. In addition, the Company's margins may vary significantly from quarter
to quarter depending on the timing of its new published product releases. To the
extent that mass merchants require greater proportions of third party software  
products, some of which may yield lower margins, the Company's operating results
may be impacted accordingly.                                                    

     The world-wide consumer software industry has undergone a number of
profound changes with the introduction of new hardware platforms. The "next     
generation" of game systems are based on 32- and 64-bit microprocessors that    
incorporate dedicated graphics chipsets. The Company began shipping Doom for the
Sony PlayStation ("PlayStation") internationally in the first quarter of 1996.  
Domestically, shipments of Doom and Hexen for the Sega Saturn, Tigershark for   
the PlayStation and Hexen for the Nintendo 64 System ("N64") and PlayStation    
began shipping during the first half of 1997. Shipment of Abe's Oddysee for the 
PlayStation began shipping in the quarter ended September 30, 1997. As evidenced
by the strong initial sales of these platforms, the Company believes that       
significant growth opportunities exist across a variety of next generation      
hardware platforms, including PlayStation and N64, for which the Company is     
creating software products.                                                     

    In June 1996, the Company acquired all of the outstanding stock of
WizardWorks, a leading developer and publisher of value-priced interactive      
entertainment, edutainment and productivity software, in exchange for 2.4       
million newly issued shares of the Company's common stock, par value $.01 per   
share ("Common Stock"). WizardWorks develops, publishes and distributes consumer
software for Windows, DOS and Macintosh formats.                                

    In June 1996, the Company acquired all of the outstanding stock of
Candel Inc., the parent company of FormGen, a leading publisher of interactive  
PC shareware and software in exchange for 1.0 million newly issued shares of the
Company's Common Stock.                                                         

        In July 1996, the Company acquired all of the outstanding common stock
of Humongous, a premier developer and publisher of quality children's software, 
in exchange for 3.5 million newly issued shares of the Company's Common Stock.  

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WizardWorks, FormGen and Humongous (collectively the "Acquired
Companies"), have each been accounted for as a pooling of interests.            
Accordingly, the Company's historical Consolidated Financial Statements have    
been restated to include the results of the Acquired Companies.                 

In November 1996, the Company acquired the business of Warner 
Interactive Europe for $6.3 million in cash, including acquisition costs.       
Warner's financial results have been included in the Company's Consolidated     
Financial Statements on a purchase basis for the period since the acquisition.  

      In January 1997, the Company acquired all of the outstanding capital
stock of Premier Promotion Limited, the parent company of One Stop, a leading   
European value software distributor and publisher, for $.8 million in cash. One 
Stop's financial results have been included in the Company's Consolidated       
Financial Statements on a purchase basis for the period since the acquisition.  

      Sales are recorded net of expected future returns which historically
have been experienced and reserved for at approximately 30% of gross sales.     

     The consumer software industry is seasonal. Net sales are typically
highest during the fourth calendar quarter. This seasonality is primarily a     
result of the increased demand for consumer software during the year-end holiday
buying season.                                                                  

Results of Operations                                                           

  The following table sets forth certain consolidated statement of
operations data as a percentage of net sales for the periods indicated:         

                                                        [Enlarge/Download Table]

                                             For the Three Months       For the Nine     
                                                                           Months        
                                             Ended September 30,     Ended September 30, 
                                           -----------------------  ---------------------
                                              1996        1997         1996       1997   
                                             -----       -----        -----       -----  
                                                                                         
Net sales                                    100.0%      100.0%       100.0%      100.0% 
Cost of goods sold                            55.3        54.4         56.5        58.0  
Selling and distribution expenses             20.5        22.0         22.0        20.7  
General and administrative expenses            9.5        11.3          9.9        11.3  
Amortization of goodwill                       0.3         0.2          0.4         0.3  
                                             -----       -----        -----       -----  
     Operating income                         14.3        12.1         11.2         9.8  
Interest  and other income (expense), net      0.7        (0.5)         1.2        (0.3) 
                                             -----       -----        -----       -----  
     Income before income taxes               14.9        11.6         12.4         9.5  
Provision for income taxes                     4.8         4.6          5.2         4.0  
                                             -----       -----        -----       -----  
     Net income                               10.1%        7.0%         7.2%        5.5% 
                                             =====       =====        =====       =====  

         Net sales for the three months and nine months ended September 30, 1997
increased approximately $34.8 million, or 40.4%, and $86.6 million, or 37.6%,   
respectively, as compared to the three                                          

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and nine months ended September 30, 1996. This growth in net sales for the three
and nine months ended September 30, 1997 was primarily attributable to the      
release of newly published titles which include Abe's Oddysee for the           
PlayStation, Total Annihilation and Shadow Warrior, the continuing strong sales 
of Duke Nukem 3D and Quake and an increase in royalty income. In addition, an   
increase in sales from its existing mass merchant shelf space and an increase in
the number of mass merchant stores supplied and serviced by the Company         
contributed to the sales growth. Additionally, during the nine months ended     
September 30, 1997, the Company released Hexen for the N64 and the PlayStation, 
Blood, Putt Putt Travels Through Time and Tigershark for the PlayStation.       

       Cost of goods sold primarily includes costs of purchased products and
royalties paid to software developers. Cost of goods sold for the three and nine
months ended September 30, 1997 increased approximately $18.1 million, or 37.9%,
and $53.6 million, or 41.1%, respectively, as compared to the three and nine    
months ended September 30, 1996. Cost of goods sold as a percentage of net sales
for the three months ended September 30, 1997 decreased to 54.4% as compared to 
55.3% for the three months ended September 30, 1996, and increased during the   
nine months ended September 30, 1997 to 58.0% from 56.5% for the comparable     
period of the prior year. The decrease for the three months ended September 30, 
1997 was primarily due to a shift in the Company's overall sales mix toward its 
published and value priced products which increased to approximately 68% of net 
revenue compared to approximately 63% during the prior period and a change in   
product mix within the third party business to higher margin products. The      
release of internally developed titles, most notably Total Annihilation,        
contributed to an increase in margins for the three months ended September 30,  
1997. The increase in cost of goods sold for the nine months ended September 30,
1997 was primarily due to the increase in sales of lower margin N64 titles and  
the decline in the average wholesale price of the Company's value priced        
products.                                                                       

        Selling and distribution expenses primarily include shipping expenses,
sales and distribution labor expenses, advertising and promotion expenses and   
distribution facilities costs. These expenses increased approximately $9.0      
million, or 50.6%, and $14.9 million, or 29.4%, during the three and nine months
ended September 30, 1997, respectively, compared to the comparable periods of   
the prior year. The increase is attributable to the overall increase in sales   
volume. Selling and distribution expenses as a percentage of net sales for the  
three months ended September 30, 1997 increased to 22.0% as compared to 20.5%   
for the three months ended September 30, 1996. This increase was primarily      
attributable to the growth in advertising expense to promote the Company's      
published titles. For the nine months ended September 30, 1997 these expenses as
a percentage of net sales decreased to 20.7%, as compared to 22.0% during the   
nine months ended September 30, 1996, due to the Company realizing greater      
economies of scale.                                                             

 General and administrative expenses primarily include personnel
expenses, facilities costs, professional expenses and other overhead charges.   
These expenses for the three and nine months ended September 30, 1997 increased 
approximately $5.4 million, or 65.6%, and $12.8 million, or 55.7%, respectively,
as compared to the three and nine months ended September 30, 1996. The increase 
was due primarily to additional personnel required to support the expansion of  
the Company's research and development and publishing operations. This increase 
was partially offset by the decline in professional fees attributable to the    
Company's acquisitions. General and administrative expenses as a percentage of  
net sales for the three and nine months ended September 30, 1997 increased to   
11.3%, from 9.5% and 9.9% for the three and nine months ended September 30,     
1996, respectively.                                                             

         Interest and other income, net decreased approximately $1.2 million and
$3.8 million for the three and nine months ended September 30, 1997,            
respectively, as compared to the comparable periods of the prior year. This     
decrease was primarily attributable to the decrease in short-term investments   
and cash balances and the interest costs associated with borrowings under the   
Credit Agreement.                                                               

Liquidity and Capital Resources                                                 

        Resources used to finance significant expenditures for the nine months
ended September 30, 1997                                                        

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and 1996 are reflected in the following table:                                  

                                                                [Download Table]

                                                      Nine Months Ended  
                                                        September 30,    
                                                 ------------------------
                                                     1996         1997   
                                                 -----------   ----------
                                                     (in millions)       
                                                                         
 Resources used:                                                         
   Total Payables and accrued liabilities           $(17.0)      $(29.4) 
   Receivables, net                                  (10.8)       (44.0) 
   Inventories, net                                  (13.9)       (22.1) 
   Purchase of investments                            (9.5)        (0.2) 
   Purchase of One Stop                                 --         (0.8) 
   Purchase of property and equipment                 (3.5)       (11.6) 
   Royalty advances                                  (27.8)       (18.3) 
   Other, net                                         (6.9)          --  
                                                    ------       ------  
                                                     (89.4)      (126.4) 
Financed by:                                                             
  Net income                                          16.6         17.4  
  Long-term debt                                        --         40.4  
  Sales of short-term investments, net                 4.7          4.6  
  Other, net                                            --          1.2  
                                                    ------       ------  
                                                      21.3         63.6  
                                                    ------       ------  
    Cash and cash equivalents balance decrease      $(68.1)      $(62.8) 
                                                    ======       ======  

      As of September 30, 1997, the Company's working capital increased to
$162.5 million compared to $113.7 million at December 31, 1996. Cash and cash   
equivalents decreased for the nine months ended September 30, 1997 by           
approximately $62.8 million. The primary sources of cash during the nine months 
ended September 30, 1997 were bank borrowings of $40.4 million under the Credit 
Agreement and net income of $17.4 million. These externally and internally      
generated funds were primarily used to fund payables and accrued liabilities    
(which includes accounts payable, royalties payable, income taxes payable and   
accrued liabilities) of $29.4 million, receivables of $44.0 million, inventories
of $22.1 million, property and equipment of $11.6 million and royalty advances  
of $18.3 million. The decrease in payables for the nine months ended September  
30, 1997, as compared to the comparable period in 1996, was primarily           
attributable to payment of the seasonally high balance of December 31, 1996, the
shift in sales toward published titles versus third party products, which on    
average have higher costs than published products and the fact that Nintendo,   
Sega and Sony products require cash payments on most purchases. The Company     
utilizes its Credit Agreement to fund these purchases when required. The        
receivable balance increase reflected higher sales at the end of the quarter.   
The increase in property and equipment is primarily due to the investment in    
computer hardware and software to support the Company's growth.                 

        Royalty advances of $87.5 million as of September 30, 1997 represented
advances to outside parties for various products expected to be delivered       
throughout the next several years. The Company regularly reviews the expected   
return of prepaid royalties over the anticipated life of these products         
developed or to be developed and establishes reserves where appropriate for     
products not expected to recoup prepaid royalties. In light of the acquisition  
of SingleTrac in October 1997 and the anticipated acquisition of MicroProse in  
December 1997, the Company is reviewing the status of these advances to         
determine the expected rate of return and whether, in view of the Company's     
evolving strategy of increasing its focus on internally developed product,      
certain of these third party products may be abandoned in favor of internally   
generated products or for other reasons. To the extent the Company determines   
as a result of this review that any product will not be supported or pursued,   
the Company expects to expense the applicable advance account in connection     
with the acquisition of MicroProse.                                             

         On January 21, 1997, the Company entered into the Credit Agreement with
banks expiring on December 31, 1998. The Credit Agreement was amended on June   
30, 1997 to increase the facility from $40 million to a maximum of $65 million  
to be used for borrowings and letters of credit. On October 10, 1997, the Credit
Agreement was seasonally amended to increase the facility from $65 million to a 
maximum of $75 million through December 31, 1997. At September 30, 1997, the    
Company had outstanding, under                                                  

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the Credit Agreement, long-term debt and letters of credit issued of            
approximately $40.4 million and $15.1 million, respectively.                    

     General Atlantic Partners II, L.P., an affiliate of various General
Atlantic Partners entities which are stockholders of the Company, exercised its 
warrants to purchase an aggregate of 504,000 shares of Common Stock on May 2,   
1997 for approximately $2.1 million in cash.                                    

    The Company expects continued volatility in the use of cash due to
varying seasonal, receivable payment cycles and quarterly working capital needs 
to finance its growing publishing and distribution business.                    

The Company believes that existing cash, cash equivalents and 
short-term investments, together with cash expected to be generated from        
operations and cash available through the Credit Agreement, will be sufficient  
to fund the Company's anticipated operations for the next twelve months.        

         On October 5, 1997, the Company entered into an agreement to acquire by
merger MicroProse, Inc., a Delaware corporation ("MicroProse") and a developer, 
producer and publisher of entertainment software for personal computers and     
certain console platforms. Under the proposed transaction, the Company will     
exchange 0.700 shares of its Common Stock for each of MicroProse's outstanding  
shares of common stock and, additionally, the Company will exchange one share of
its newly created series of convertible preferred stock for each outstanding    
share of MicroProse's convertible preferred stock. The transaction, which is    
anticipated to be completed in the quarter ending December 31, 1997, will be    
accounted for as a pooling of interests.                                        

On October 15, 1997, the Company completed its acquisition of 
SingleTrac Entertainment Technologies, Inc., a Delaware corporation             
("SingleTrac") and a developer of entertainment software. Total consideration   
included approximately $5 million of cash and approximately 731,000 shares of   
the Company's Common Stock, as well as an assumption of the outstanding options 
of SingleTrac which are now convertible into an aggregate of approximately      
307,000 shares of the Company's Common Stock. The transaction will be accounted 
for as a purchase. The Company anticipates taking a one time charge of $12 to   
$14 million, during the quarter ending December 31, 1997, for the write off of  
purchased-in-process research and development costs. Additionally, pursuant to  
the agreement, the Company has structured a one time retention oriented bonus   
pool of up to approximately $10 million in cash and Common Stock of the Company,
which will be distributed to SingleTrac employees based on the achievement of   
certain performance goals of SingleTrac over the succeeding two years.          

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Part II - Other Information                                   

Item 1.  Legal Proceedings                                    

  On September 18, 1997, Scavenger, Inc. ("Scavenger"), a software
developer, filed an action against the Company in New York State Supreme Court  
(New York County) claiming that the Company breached a software development     
contract between the parties dated November 28, 1995 (the "Development          
Agreement"). By a letter dated January 20, 1997, the Company had given notice of
Scavenger's material breach for its failure to comply with the delivery         
requirements under the Development Agreement, and, by a letter dated March 12,  
1997, the Company terminated the Development Agreement. Scavenger alleges that  
the Company, after paying $2.5 million in advances and accepting delivery of    
gold master discs for two computer games, refused to pay additional advances,   
including advances relating to the development of two additional games under the
Development Agreement. On a breach of contract theory, Scavenger is suing for   
the remaining advances ($4.3 million) and for future royalties ($5 million), and
also seeks consequential damages for allegedly being forced out of business     
($100 million) and losing contracts with unspecified third parties ($4 million) 
as a result of the Company's alleged breach. The Company believes it has        
meritorious defenses to all of these claims. On October 10, 1997, the Company   
filed an answer to the complaint and counterclaimed for damages of not less than
$5 million.                                                                     

    The Company is also involved in certain other claims or litigation
arising in the ordinary course of business which are not considered material to 
the operations of the Company.                                                  

Item 2.  Changes in Securities                                

      There were no sales of unregistered securities by the Company during
the quarter ended September 30, 1997.                                           

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Item 6. Exhibits and Reports on Form 8-K                      

(a)  Exhibits                                                 

            The following exhibits are filed as part of this report:

Exhibit No.  Description                                              
-----------  -----------                                              

3.1      Amended and Restated Certificate of Incorporation    
             (incorporated herein by reference to the exhibit with the
              corresponding number filed as part of the Company's Annual
              Report on Form 10-K for the fiscal year ended December 31,
1995).                                      

         3.2      Amended and Restated By-laws (incorporated herein by reference
                 to the exhibit with the corresponding number filed as part of
             the Company's Registration Statement on Form S-1 filed on
                  October 18, 1996, and all amendments thereto (Registration No.
333-14441)).                                

27.1     Financial Data Schedule.                             

(b)  Reports on Form 8-K                                      

               No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1997.           

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SIGNATURES

      Pursuant to the requirements 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.                 

               GT INTERACTIVE SOFTWARE CORP.

                By:      /s/ Ronald Chaimowitz
                                         -------------------------------------
                     Ronald Chaimowitz
                                      Chief Executive Officer, President
                and Director
                           Date: November 14, 1997

            By:      /s/ Andrew Gregor
                                         -------------------------------------
                 Andrew Gregor
                                      Chief Financial Officer and Senior
                               Vice President, Finance and
                  Administration
                           Date: November 14, 1997

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	12/31/98	7	12	10-Q
	12/31/97	8	13	10-K/A, 10-K405, 5, 5/A
	11/19/97
Filed on:	11/14/97	16
	11/1/97	1
	10/15/97	8	13
	10/10/97	8	14
	10/5/97	8	13	8-K
For Period End:	9/30/97	1	15
	9/18/97	14
	6/30/97	7	12	10-Q
	5/2/97	13
	3/12/97	14
	1/21/97	7	12
	1/20/97	14
	12/31/96	2	12	10-K
	10/18/96	15		S-1
	9/30/96	2	11	10-Q
	12/31/95	15
	11/28/95	14
				List all Filings

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Atari Inc – ‘10-Q’ for 9/30/97

As of: Friday, 11/14/97 · For: 9/30/97 · Accession #: 950123-97-9541 · File #: 0-27338

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Quarterly Report — Form 10-QFiling Table of Contents

10-Q — Gt Interactive Software CorpDocument Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Quarterly Report — Form 10-Q
Filing Table of Contents

10-Q — Gt Interactive Software Corp
Document Table of Contents