(Boursier.com) — The gross margin ofAtari remained stable at 3.3 ME in H1. This change is mainly due to the suspension of existing VCS manufacturing contracts decided as part of the review of the Group’s Hardware strategy.
Current operating profit for the period was -€4.2 million, compared with -€2.8 million in the first half of the previous year. ‘R&D’ and Marketing costs fell by €1.5 million over the period, reflecting the Group’s efforts to improve the profitability of its Games activity. The increase in general and administrative expenses to €4.9 million reflects transformation and reorganization costs, in particular legal fees and personnel costs resulting from the reorganization of teams.
Operating profit for the period was -5.2 ME, impacted in particular by a reversal of a provision for litigation of 0.9 ME, adjustments concerning royalties recorded the previous year for 0.5 ME, and other income for a total amount of 0.7 ME. These products are also offset by a depreciation of 1.6 ME on VCS inventories, a depreciation of 0.5 ME on a portfolio of crypto-currencies, a depreciation of 0.6 ME on Games, provisions for litigation 0.1 ME and 0.5 ME in depreciation on a Hardware product manufacturing contract.
The Group’s equity increased from 4.4 ME to 12.9 ME in connection with the proceeds of the capital increase of April 2022 for a total amount of 12.5 ME and the allocation of part of the costs of the capital increase on the issue premium for 0.6 ME.
As of September 30, 2022, the group had net cash of €2.5 million, compared to €0.6 million as of March 31, 2022. Financial debt is made up of shareholder loans for a total amount of €2.5 million, account subject to a partial reimbursement by compensation of debts within the framework of the capital increase for an amount of 2.9 ME. Since the loans are denominated in US dollars, the financial debts recorded an exchange effect of +0.4 ME.
DIGITAL ASSETS HELD
The digital assets held by the Company are recorded as intangible assets and include:
972 plots of land in The Sandbox metaverse – These are recorded at historical cost at zero given the absence of an active market at the time of their allocation. Given the high volatility of these assets (whose value changes depending in particular on the cryptocurrency environment) and an illiquid market for large assets, it is difficult to assign an aggregate value to these assets. (although public guidance is available on some marketplaces);
259 million ATRI token – Given the end of the former joint venture Atari Chain, Ltd, Atari does not intend to sell the ATRI tokens held, nor to continue their development in any way. Atari does not anticipate any potential revenue that would be generated by these ATRI tokens, and likely to impact the consolidated accounts. In the financial statements, ATRI tokens are valued only when they are sold or allocated;
As such, 58 million ATRI tokens, corresponding mainly to bonuses awarded but not actually paid to certain Group employees during the decision of the Board of Directors on July 14, 2020, are recognized on the balance sheet in intangible assets for an amount of 0.3 ME. All other ATRI tokens held by Atari are not valued in the accounts;
A portfolio of several crypto-currencies received by the Company as part of swap transactions and its Blockchain activity (sale of NFTs) for an amount of 0.8 ME.
Atari also does not intend to sell its digital assets, ATRI Token and Sandbox plots of land, over the next twelve months.
APPLICATION OF THE PRINCIPLE OF CONTINUITY OF OPERATIONS
The company carried out a review of its liquidity risk on the basis of forecasts established for its four business lines: Games, Hardware, License and Blockchain. These forecasts are based on assumptions, the timetable for which remains uncertain, in particular with regard to the development of new and volatile activities, particularly in the Blockchain, and the success of which is not guaranteed, in particular in Games and Hardware. Any delay encountered in the development of these new activities or underperformance in these new initiatives could modify the generation of turnover and consequently create liquidity needs and recourse to external financing.
In an uncertain macro-economic context for video games and blockchain, the Company considers that the implementation of its new growth strategy could require new financing. Given its uncertain cash horizon, the Company could, when the time comes, conclude new tranches of shareholder loans with Irata at market conditions and enabling it to meet certain short-term maturities (the Group benefits from the support of its reference shareholder IRATA LLC, formalized in writing, until September 2023) and/or, resort to new financing in terms and schedule to be defined (including, where applicable, by appeal to the market), to meet financing needs futures and refinance the company’s debt.
OUTLOOK
In the second half of the fiscal year, Atari intends to focus on the execution of its transformation strategy, and continue its efforts, across all of its four business lines:
Games – Continue the launch of new premium games, based on the Group’s large catalog of intellectual properties. Atari’s collaboration with ecosystem member Republic, FIG Publishing, Inc, to co-produce select new games in development is expected to begin in the first quarter of calendar year 2023;
Hardware – Implementation of the new commercial strategy of the VCS console, the launch of a complementary hardware strategy, in partnerships and under licensing agreements;
Licensing – Continued to develop new licensing opportunities in new verticals and geographies with the support of a specialized brand licensing agency;
Blockchain – Further development of the Atari X Web 3.0 ecosystem and community, including new partnerships and collaborations as well as new sales of NFTs.
At this stage, it is too early to expect the transformation strategy to have a significant impact on the Group’s turnover or profitability. In a difficult macroeconomic environment, both in video games and blockchain in general, Atari intends to continue transforming its operations in its four business lines.
Update on the new token project
Atari communicated in April 2022 its intention to study the creation of a new token which would serve the development of its ecosystem. This project is still at a preliminary stage of its development and Atari intends to carefully consider the various options for structuring its project, also taking into account regulatory issues, changes in the blockchain market environment, to meet expectations of its community of fans and partners. Further announcements regarding this project may be made during the next fiscal year.