General History and Background of Astrocade, Inc.
Extracted from Astrocade, Inc. Bankruptcy Plans

I.  About This Paper

     This general history of Astrocade, Inc. is an excerpt from the Astrocade, 
Inc. bankruptcy plans filed on February 10, 1984 in Southern District of Ohio, 
Eastern Division.  The case number is 2-82-04677.  

II.  General History and Background

     The company was incorporated in the State of Delaware on July 3, 1980 as 
Astrovision, Inc.  By Certificate of Amendment filed April 2, 1982 the company 
changed its name to Astrocade, Inc. to avoid confusion with other companies 
using names similar to Astrovision.  The Company was formed by Raymond George 
together with a small investment group organized primarily by James H. Guerin 
for the purpose of acquiring the rights to manufacture and market the Bally 
Arcade Video Game and Home Computer System.  On August 15, 1980 an agreement 
was entered into between the company and Bally Manufacturing Corporation 
whereby the company acquired from Bally a five year worldwide exclusive license 
to certain domestic and foreign patents, patent applications, and inventions 
enabling the company to practice the technology, manufacture, and sell video 
game and home computer systems derived from the Bally Arcade.  The company also 
acquired in that Agreement various component parts inventory, finished goods, 
test equipment, tooling, and other assets directly related to the Bally Arcade.  
Although the company also acquired the right to use the "Bally" trademark, that 
right expired on December 31, 1981 and is no longer available to the company.  
As consideration the company paid Bally approximately One Million Six Hundred 
Fifty Thousand Dollars ($1,650,000.00) during 1980, 1981, and 1982 plus 
royalties based upon product sales.  The company's obligation to Bally 
Manufacturing Corporation for the continued enjoyment of the Agreement includes 
the payment of past due royalties for the fourth quarter 1982 in the 
approximate amount of Twenty-five Thousand Dollars ($25,000.00) plus royalties 
of three percent (3%) of all net sales of product until August 15, 1985.  At 
that time, the company retains a paid up nonexclusive right and license in the 
patents, patent applications, and inventions to continue the practice of the 
technology.

     The product consists of a programmable home video game and micro computer 
system operated in conjunction with a television set.  The arcade includes a 
24-position keyboard that may also be used as a five function ten digit memory 
calculator, three built in video games, and two eight-way hand held controls.  
The arcade offers four player positions and the company markets additional hand 
controls as an accessory.  The arcade has the capacity to display 256 color 
variations and is equipped with sound effects generated by a three-channel 
music synthesizer and sound generator.  A Z-80 Micro-processor provides built 
in memory of 12,000 bytes.  The use of the custom chip set originally developed 
by Bally and the configuration of the hand controls has given the arcade 
industry wide recognition for its technological level.  Continued research and 
development has led to improvements and refinements in the original arcade and 
the company believes the arcade remains competitive on a technological level 
with similarly priced products in the industry.

     The company also markets a BASIC cartridge which allows the operation of 
the Arcade as a home computer with a variety of educational and creative 
applications.  The BASIC cartridge is a self-teaching computer programming 
cartridge which has a built in audio interphase system permitting the permanent 
storage of consumer created programs on cassette tapes.

     The company currently offers approximately 36 video games including space, 
adventure, sports, strategy, action and skill, and educational programs.  With 
the exception of the three games built into the Arcade the remaining games are 
offered as accessories in preprogrammed cassettes.

     The company is also researching the development of a Z-Grass system which 
would permit the use of the arcade as a home computer with a full range of 
typical home computer applications.  The Z-Grass system would include a 60-key 
typewriter style keyboard and an additional 100,000 bytes of memory (64K-RAM, 
32K-ROM and 4K SCREEN-RAM).  The Z-Grass system would permit standard 
interfacing with a variety of peripheral accessories designed and offered by 
independent vendors including compatibility with most standard floppy disc 
systems. Although final determination cannot be made until the development 
research is completed, management believes that the arcade and Z-Grass system 
can be offered at a competitive price with other combination video game and 
home computer systems.

     Until March, 1982 the company purchased its own component parts inventory 
and subcontracted the assembly of the arcade to E. F. Johnson Company and 
Sierratronics, Inc.  The cost of maintaining the component parts inventory was 
a substantial burden on the company and in June, 1982 the company sold its 
component parts inventory to Nitron, Inc.  From that time on it was anticipated 
that Nitron, Inc. would purchase component parts inventory on its own account 
and handle the manufacturing of the arcade as well as software cassettes.  The 
new subcontract for manufacturing with Nitron, Inc. was also designed to cure 
certain quality control problems which the company had experienced previously 
as a result of not having quality control personnel on site at the assembly 
operation.  As a result of Astrocade's inability to pay Nitron, Inc. due to the 
company's financial condition combined with the financial condition of Nitron 
the production of product during the last half of 1982 was sporadic and there 
was no continuing production of new product at the time of the commencement of 
the Chapter 11 proceeding.  After the filing of the Chapter 11 proceeding 
arrangements were made for the production of limited quantities of software to 
fill various orders.  With the exception of the custom silicon data chip set 
which is currently obtainable only from a single source, multiple sources of 
supply are available for virtually all of the materials and components 
comprising the company's products.

     The company's products are presently serviced by E. F. Johnson Company at 
its facility in Garner, Iowa.  The Plan provides that the company will continue 
to honor the standard warranty given with each product sold with respect to 
both pre-petition and post-petition sales to the end consumer.  Subsequent to 
confirmation the Debtor may use a different facility for warranty and repair 
service.  The company's warranty program provides an over-the-counter exchange 
during 90 days following purchase.  These products are returned by the retail 
seller to be repaired and placed in new and saleable condition.  In addition, 
consumers return products outside the 90 day warranty period and pay a flat fee 
for repairs.  Historically, the fees paid by consumers have been sufficient to 
support the repair not only of the out-of-warranty but also the in-warranty 
products.

     The company distributes products through several channels of distribution 
including direct sales to in-house accounts and a network of representatives 
and distributors.  The company's largest single account has been Montgomery 
Ward which comprised approximately one-third of the company's total sales since 
its formation.

     During 1982 the rate of growth in the industry slowed from its tremendous 
growth during 1981.  Notwithstanding the slower rate of growth the industry 
volume was up an estimated 90% from 1981.  Industry analysts generally believe 
this growth trend will continue but at somewhat slower rates of increase.  
Notwithstanding the rapid growth in the industry during the last several years, 
estimated penetration of the United States television households was estimated 
at about 18% at year end 1982.  During 1982 the industry experienced 
overstocking of inventory, and in particular software games.  The industry also 
was entered by a number of software companies producing large volumes of 
relatively low quality games.  The introduction in the second half of 1982 of 
the ColecoVision System demonstrated to many market analysts, however, the 
continuing viability in the industry of systems with high resolution, good 
graphics, and quality software.  At year end 1982 the saturation of the foreign 
market was only estimated to be approximately 3% making this market significant 
for the future of the industry.

     The management of the debtor believes that the Astrocade system and games 
compete on a technological level with the quality of systems and games offered 
by the chief competitors during 1982, however, such competitors control the 
vast majority of the market share.  The debtor is not anticipated to have the 
necessary resources to compete for any significant market share.  Although 
Atari, the industry leader, enjoyed an increase in both console and game sales 
in 1982 from 1981, Atari's market share was eroded by the introduction of the 
ColecoVision system and the market share of software games was eroded by the 
introduction of independent manufacturers of Atari compatible games.

     The sales of the debtor for the year ending December 31, 1981 were 
approximately 9.4 million dollars net of discounts, returns and allowances.  
Although sales at year end 1982 increased to approximately 11.2 million dollars 
net of discounts, returns and allowances, approximately 4 million dollars of 
such sales are the subject of pending disputes.  Due to the cash flow problems 
of the debtor and the traditionally slow market period during the first half of 
the calendar year following the Christmas season, the debtor's sales since the 
filing of the Chapter 11 petition have been negligible.  Management believes, 
however, that sales levels can be restored to previous levels with a steady 
growth rate with the introduction of the product into foreign markets.  The 
debtor has completed the research and development necessary to manufacture the 
console to be compatible with both the NTSC television format used in the 
United States and portions of Asia and the PAL television format used in most 
of Europe.  Marketing of the console in Europe requires the finalization, 
however, of a 50 Hertz Data Chip so that the console will provide full screen 
display on older European televisions.  Management presently believes the 50 
Hertz Data Chip can be finished at a cost of approximately $30,000.00.

     During 1981 the company had continuing cash flow difficulties due 
primarily from the costs of acquiring and maintaining component parts inventory 
for the manufacture of the console.  The continued expense of supporting the 
manufacturing process led the company, however, at year end 1981 to seek 
additional sources of capital.  These efforts resulted in an agreement entered 
into in approximately February, 1982 between the original investor group and 
Roger Greenman in which Mr. Greenman, among other things assumed the role of 
Chief Operating Officer and Chief Executive Officer and obtained the right to 
acquire controlling stock in the company.  Continued efforts to raise capital 
led to an agreement (the effect and validity of which is subject to dispute) 
entered into in May, 1982 with Quaker Oats Company.  Quaker Oats Company, the 
parent of Fisher Price Toys purchased one million shares of the debtor's stock 
for the cash price of $3,000,000.00.  Pursuant to the terms of the agreement 
Quaker Oats exercised its option to rescind the stock purchase and convert the 
three million dollar infusion of funds to debt, all of which was to be repaid 
during 1982.

     At the outset of 1982 the company's right to use the Bally trademark 
expired and the company planned to market its products under its corporate name 
of Astrovision.  After incurring substantial advertising and promotional 
expenses to introduce the Astrovision name, it became apparent that the 
confusion and conflicting claim of rights to that name prevented its use by the 
company.  Thereupon, the Astrocade name was selected.  This caused an 
unfortunate duplication in the expense of gaining market recognition.  The 
company paid through direct media and cooperative advertising approximately 3.5 
million dollars in 1982 and incurred a roughly similar amount which remained 
unpaid at the filing of the Chapter 11 petition.

     The extensive advertising and promotion expense of gaining market 
recognition under the name Astrocade, and the interruption in manufacturing 
resulting from cash flow problems of the company and Nitron, Inc. were all 
significant factors leading to the filing of the Chapter 11 petition.

     Many of the pre-petition transactions of the Debtor are discussed and 
additional financial analysis of the Debtor is contained in the preliminary 
report of the Court appointed Examiner, Ernst & Whinney.  This report is 
available at the Court for inspection by parties in interest.


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