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Video Games :: Jaguar :: The "official" ending...

The following information is from SEC (Securities and Exchange Commission) filings during the time when Atari was officially "merging" with JTS the hard-disk drive manufacturer in 1996.   Atari gives a rare insight into its sales figures and internal operations through these official documents and we can conclude how many Jaguars were manufactured by Atari approximately.

The following factors should be considered carefully in evaluating the proposals to be voted on at the Atari Special Meeting and the JTS Special Meeting. For periods following the Merger, references to the products, business, results of operations or financial condition of JTS should be considered to refer to JTS and Atari, unless the context otherwise requires. 


Significant Operating Losses. Disappointing Sales of Jaguar Products. Atari has incurred significant operating losses for the past five fiscal years. Most recently, Atari incurred an operating loss of $53.7 million for fiscal 1995 and $24.0 million for fiscal 1994. Over the past several years, Atari has undergone significant change. In 1992 and 1993, Atari significantly downsized its operations, decided to exit the computer products business and focused its efforts on its video game business.  While restructuring, Atari developed its 64-bit Jaguar interactive multimedia entertainment system, which was introduced in the fourth quarter of 1993. For 1995 and 1994, net sales of Jaguar and related software and accessories were $9.9 million and $29.3 million, respectively, and were substantially below Atari's expectations. Atari attributes the poor performance of Jaguar products to a number of factors including:

(i) extensive delays in development of software for Jaguar which resulted in reduced orders due to consumer concern as to when titles for the platform would be released and how many titles would ultimately be available, and 
(ii) the introduction of competing products by Sega Enterprises, Ltd. ("Sega") and Sony Corporation ("Sony") in May 1995 and September 1995, respectively. Due to disappointing sales and competitive pricing pressures, Atari reduced the suggested retail price of the Jaguar console from its original price of $249.99 to its current price of $99.99. 

As a result of Jaguar price reductions, the substantial curtailment of sales and marketing activities for the Jaguar and the substantial curtailment of efforts by Atari and independent software developers to develop additional software titles for the Jaguar, Atari expects sales of Jaguar and related products to decline substantially in 1996 and thereafter. 

The failure of Jaguar to achieve commercial acceptance has had a severe financial impact on Atari. In this regard, Atari reported a net loss of $49.6 million for 1995 compared to net income of $9.4 million in 1994, and Atari's net revenues declined from $38.7 million in 1994 to $14.6 million in 1995.   Accelerated amortization and write-offs of software development costs in the amount of $16.6 million and inventory write-downs of $12.6 million contributed significantly to the 1995 loss. The net loss for the first quarter of 1996 was $800,000 compared to a net loss of $4.4 million for the first quarter of 1995 and Atari's net revenues declined from $4.9 million for the first quarter of 1995 to $1.3 million for the comparable period in 1996. 

The net loss in the first quarter of 1996 was impacted by the $6.3 million gain from sale of marketable securities offset by a $5.0 million inventory write-down in the quarter. In response to these losses, the number of employees at Atari was reduced from 101 at December 31, 1994 to 73 at December 31, 1995 and to 31 at March 31, 1996. In addition to reductions in the Atari workforce, this downsizing resulted in significant curtailment of research and development and sales and marketing activities for Jaguar and related products. Accordingly, Atari has decided to focus its efforts on selling its inventory of Jaguar and related products and to emphasize its existing licensing and development activities related to multimedia entertainment software for various platforms.

Risk of Additional Inventory Write-Downs. From the introduction of Jaguar in late 1993 through May 1996, Atari sold approximately 135,000 units of Jaguar.

As of December 31, 1995, Atari had approximately 100,000 units of Jaguar in inventory and the value of Jaguar inventory and related software was approximately $9.9 million. Due to disappointing sales of Jaguar and increased competition from products introduced by Sega and Sony, Atari reduced the suggested retail price of Jaguar to $99.99 and recorded an inventory write-down of $12.6 million in 1995. 

Despite the introduction of four additional game titles in the first quarter of 1996, sales of Jaguar and related software have remained disappointing due to uncertainty about Atari's commitment to the Jaguar platform, increased price competition and pending competitive product introductions. As a result of continued disappointing sales, management revised estimates and wrote-down inventory by an additional $5.0 million in the first quarter of 1996. As of the end of May 1996, Atari had approximately 90,000 units of Jaguar in inventory. 

Volume sales of Jaguar and related software in 1996 have consisted primarily of a large order from a new European customer. Atari is also pursuing wholesale sales channels in the U.S. as well as licensing opportunities. There can be no assurance that Atari's substantial unsold inventory of Jaguar and related software can be sold at current or reduced prices, if at all. In addition, any further decrease in the value of such inventory could result in additional inventory write-downs by Atari.  

Risk of Potential Liabilities. In connection with the restructuring of Atari's business in 1992 and 1993 and Atari's decision in late 1995 to significantly downsize its Jaguar operations, Atari has terminated and plans to terminate numerous contracts and business relationships, including several related to software development activities. Although Atari does not regard any of such contracts or business relationships as material, the termination of contracts and relationships has, from time to time, resulted in litigation, diverting management and financial resources. There can be no assurance that the parties to such contracts will not commence or threaten to commence litigation related to such contracts. Any such litigation or threatened litigation would further divert management and financial resources and could have a material adverse effect on Atari's business, operating results and financial condition. 

In addition, Atari holds several properties for sale, some of which are currently being leased. The ownership and use of such properties subjects Atari to numerous risks, including risks of environmental and personal injury liabilities. Although Atari is attempting to sell certain of such properties, such sales are not expected to eliminate all the risks associated with Atari's ownership of such properties, including potential environmental liabilities and ongoing indemnification and other contractual obligations. At present, Atari has no such indemnification obligations and is not aware of any such environmental liability. 

Intellectual Property. Atari has exclusive use of its "Atari" name and "Fuji" logo in all areas other than coin-operated arcade video game use. Atari also has a portfolio of other intellectual properties including patents, trademarks, and copyrights associated with its video game and computer businesses. Atari believes its patents, trademarks and other intellectual property are important assets. 

As of May 31, 1996, Atari held over 150 patents in the United States and other jurisdictions which expire from 1996 to 2010 and had applications pending for three additional patents. There can be no assurance that any of these patent rights will be upheld in the future or that Atari will be able to preserve any of its other intellectual property rights. Atari has in the past received communications from third parties asserting rights to certain of its intellectual property. 

Atari has also been involved in several major lawsuits regarding its intellectual property, including a suit with Nintendo of America, Inc. and its affiliates ("Nintendo.") which was settled in March 1994 and a suit with Sega which was settled in September 1994. In the event any third party were to make a valid claim with respect to Atari's intellectual property and a license were not available on commercially reasonable terms, Atari's business, financial condition and results of operations would be materially and adversely affected. Litigation, which has in the past resulted and could in the future result in substantial costs and diversion of resources, may also be necessary to enforce Atari's patents or other intellectual property rights or to defend against third party infringement claims. The occurrence of litigation relating to patent infringement or other intellectual property matters, regardless of the outcome, could have a material adverse effect on Atari's business, financial condition and results of operations. 

Competition. The video game business is intensely competitive. Since its introduction in late 1993, the Jaguar, Atari's principal product, has failed to achieve broad market acceptance. Atari does not expect that the Jaguar, even at its substantially reduced price, will ever become a broadly accepted video game console, or that Jaguar technology will be broadly adopted by software title developers. The video game industry is also characterized by unpredictable and rapid shifts in the popularity of certain platforms, by severe price competition, and by frequent new technology and product introductions. In this regard, numerous companies have introduced or have developed and are expected to introduce video game consoles that are or may become competitive with Jaguar. In addition, an increasing number of entertainment titles are being developed for or ported to the PC platform. Most of Atari's competitors have greater experience and expertise in 3D graphics and multimedia technology and have substantially greater engineering, marketing and financial resources than Atari.

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