Struggling Atari Expects Little Help From Parent Infogrames

The company disclosed in a separate SEC filing that another executive had left the company -- Senior Vp and Controller Jodi Scheurenbrand, “by mutual agreement,” effective Feb. 21. No other details were provided on the principal accounting officer’s exit. Scheurenbrand’s departure came only about 2 weeks after CFO Diane Baker resigned to pursue new career opportunities (CED Feb 13 p4). Adding to the company’s shaky management situation, Atari said last year that Bruno Bonnell - also head of Infogrames

- would serve as Atari CEO only on an “interim basis” until a replacement could be found for James Caparro, who resigned in June to head Glenayre Technologies (CED June 9 p8). Bonnell, however, remains Atari’s CEO 8 months later.

Atari said in the 10-Q that Infogrames “currently plans to provide some financial support to us during our fiscal 4th quarter.” But Atari warned that Infogrames had “incurred significant continuing operating losses” and as it “continues to address its own financial condition, its ability to fund its subsidiaries’ operations, including ours, remains limited.” As a result, Atari said, “there can be no assurance we will ultimately receive any funding from them.” Atari also warned that if Infogrames couldn’t resolve its own financial issues with creditors, “it may taint our relationship with our suppliers and distributors, damage our business reputation, affect our ability to generate business and enter into agreements on financially favorable terms, and otherwise impair our ability to raise and generate capital.”

The publisher also said in the filing that Infogrames’s financial situation played into its admission early this month of “substantial doubt” about Atari’s “ability to continue as a going concern.” The company said then that lender HSBC Business Credit (USA) had notified Atari it violated covenants of its resolving credit facility and HSBC wouldn’t extend further credit for now.

Atari again said that it was “exploring various alternatives to improve our financial position and secure other sources of financing,” including replacing its credit facility, new arrangements to license intellectual property, selling some intellectual property rights or development studios, and securing equity capital from external sources. “To reduce working capital requirements and further conserve cash,” Atari said “we will need to take additional actions in the near-term, which may include personnel reductions and suspension of certain development projects.” The company noted it had this month completed a sale of intellectual property for about $2.2 million, which will be recorded in its 4th quarter. Atari said late last week its restructuring will cut its work force about 20% (CED Feb 22 p8). The company said Wed. that it expects to complete the cuts “by March 31” and plans to record a restructuring reserve in Q4 to reflect severance packages of about $1.6 million. But Atari said it expects an unspecified portion of that liability “to remain with us through the 2nd quarter of fiscal 2007.”

The 10-Q was filed late by Atari, which prompted a Nasdaq notice of delisting, it said. But Atari said that, in filing the 10-Q Wed., it was once again in compliance with Nasdaq’s rules and “are no longer subject to delisting.”

Atari also revealed in the 10-Q that Games, Chicago West Pullman and Games CEO Roger Ach voluntarily dismissed claims made against it, “without prejudice,” Feb. 7. Atari, Atari Interactive and Hasbro sued Games, Ach and Chicago West Pullman in U.S. Dist. Court, N.Y.C., in 2004, seeking a temporary restraining order and preliminary injunction to stop what it said was Games’ and Ach’s use of trademarks and copyrights owned by Atari Interactive and Hasbro. The plaintiffs claimed that an interim license Atari granted Games to develop and publish games in a specified online format expired when Games failed to pay Atari fees in time. Damages were awarded the plaintiffs in June 2005 and the defendants were enjoined from selling or distributing any product that contained the IP it licensed in its contract with Atari. An appeals court affirmed the decision Feb. 2. But Atari said the defendants filed a complaint and motion for temporary restraining order in 2005 against the plaintiffs after Atari filed a garnishment proceeding against the defendants. Atari Interactive and Hasbro were later dismissed from the action. An amended complaint was filed against Atari alone Jan. 24 but Atari said the claims were voluntarily dismissed Feb. 7. Atari said it had tried to collect the judgment in its favor and was “currently investigating further options with respect to our collection efforts.” At 2005’s end, Atari had “not recorded any amounts related to this matter,” it said.

The publisher also said a hearing in its legal battle with former Atari Europe employee Rafael Curulla was postponed from Feb. 16 and a new date hadn’t been set. Atari said Curulla sued it in France last year after the company “terminated” his assignment in the U.S. at Atari’s Santa Monica studio, which it decided to close. Curulla claimed he was owed damages for dismissal without serious cause of

88,674, a bonus of 5,494, compensation for dismissal in the amount of 4,261 and damages of 2,000 plus expenses under Article 700 of the New Code of Civil Procedure. Discovery closed Jan. 5, Atari said.

Atari also said sales to “key” retail customers Wal- Mart, Target, Best Buy and GameStop accounted for 31.6%, 13.9%, 9.4% and 8.5% of total sales in the 9 months ended Dec. 31.