Take a look at the stock charts of video game software developers Electronic Arts (NASDAQ:ERTS), Activision (NASDAQ:ATVI), and Take Two (NYSE:TTWO). They have one thing in common: a positive upward trend.

Now take a look at the chart of the current No. 2 independent video game publisher, the once-legendary Atari (NASDAQ:ATAR). The stock has fallen from a high of over $100 per share (post-reverse split) in 1996 to as low as $1.34 on October 9, 2002 -- and that $1.34 is with the benefit of a 1-for-5 reverse split in June 2000. By March 31, 2003, Atari looked like it was in the verge of default, with a grand total of $815,000 in cash on its balance sheet and $218 million in debt.

During the second quarter, some of those things changed.

Atari completed a $131 million stock offering, as part of a $200 million recapitalization. As a result, Atari has $27 million in cash and zero debt going into the holiday quarter. The stock bounced from $1.78 on March 31 to close at $3.97 before the company announced earnings Monday afternoon.

Atari's second quarter loss was mitigated by the strength of Enter the Matrix, based on Time Warner's (NYSE:TWX) blockbuster Matrix movie franchise. The game -- with versions on Sony's (NYSE:SNE) Playstation 2 and Microsoft (NASDAQ:MSFT) Xbox, the Nintendo GameCube, and PC CD-ROM -- topped the early summer sales charts until EA's Madden 2004 arrived.

For the coming holiday quarter, Atari expects sales to more than triple from $60.6 million in the second quarter to between $215 million and $235 million, with further contributions from Dragon Ball Z and new arrivals such as Terminator 3 and Mission Impossible. The company also expects to earn from $28 million to $36 million, or between $0.23 and $0.30 per share for the quarter.

We won't see Atari's big-time games Driver 3 and Unreal Tournament 2004 until the fourth quarter. But the turnaround looks to be underway, and management reaffirmed its full-year revenue and earnings guidance. After hours, the stock continued its own rebound, rising 4% to $4.12.

Jeff Hwang can be reached at JHwang@fool.com.