-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ShK0bxsE4iIv2KsjZjNhet/Zp0TxpVjjQ0c3UXBL7namxI3fPIii/EAIXCuIER2r UVBNtiIAleNP2vPt850K7w== 0000802019-94-000006.txt : 19940602 0000802019-94-000006.hdr.sgml : 19940602 ACCESSION NUMBER: 0000802019-94-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATARI CORP CENTRAL INDEX KEY: 0000802019 STANDARD INDUSTRIAL CLASSIFICATION: 3571 IRS NUMBER: 770034553 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09281 FILM NUMBER: 94528726 BUSINESS ADDRESS: STREET 1: 1196 BORREGAS AVE CITY: SUNNYVALE STATE: CA ZIP: 94089 BUSINESS PHONE: 4087452000 MAIL ADDRESS: STREET 1: 1196 BORREGAS AVE CITY: SUNNYVALE STATE: CA ZIP: 94087 10-Q 1 UNITED STATES SECURITY AND EXCHANGE COMMISSION Washington, D.C. 20549 - - ----------------------- FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For Quarterly Period Ended March 31, 1994 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission File Number I-9281 ATARI CORPORATION (Exact name as specified in its charter) NEVADA 77-0034553 (State or other jurisdiction (IRS Employer incorporation or organization) Identification No.) 1196 Borregas Avenue, Sunnyvale, CA 94089 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (408) 745-2000 NONE (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO_______ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS SHARES OUTSTANDING AT APRIL 23, 1994 Common Stock 58,796,662 ATARI CORPORATION TABLE OF CONTENTS PAGE PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS 3 March 31, 1994 and December 31, 1993 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTER ENDED March 31, 1994 and March 31, 1993 4 CONDENSED CONSOLIDATED STATEMENTS OF 5 CASH FLOWS FOR THE QUARTER ENDED March 31, 1994 and March 31, 1993 CONDENSED NOTES TO CONSOLIDATED 6 FINANCIAL STATEMENTS ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 7 RESULTS OF OPERATIONS AND FINANCIAL CONDITION PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 10 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10 SIGNATURES 11 ATARI CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, Except Share Amounts) Mar 31, Dec 31, 1994 1993 (Unaudited) ASSETS CURRENT ASSETS: Cash and equivalents (including $12,034 and $18,965 held as restricted balances at March 31, 1994 and December 31, 1993) $ 24,242 $ 23,059 Marketable securities (See Note 2) 8,194 7,680 Accounts receivables (less allowances for returns and doubtful accounts: March 31, 1994 $1,042; December 31, 1993 $1,048) 6,309 5,929 Inventories (See Note 3) 12,896 12,548 Other current assets 1,789 2,172 TOTAL CURRENT ASSETS 53,430 51,388 EQUIPMENT AND TOOLING - NET 992 1,020 REAL ESTATE HELD FOR SALE 20,849 20,924 OTHER ASSETS 1,248 1,501 TOTAL $ 76,519 $ 74,833 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 13,482 $ 11,621 Accrued liabilities 6,026 5,871 TOTAL CURRENT LIABILITIES 19,508 17,492 LONG-TERM OBLIGATIONS 52,987 52,987 SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value - authorized, 10,000,000 shares; none outstanding Common stock, $.01 par value - authorized, 100,000,000 shares; (outstanding: March 1994 57,223,862; December 1993 57,214,587) 572 572 Additional paid-in capital 142,513 142,497 Notes receivable from sale of common stock --- (3) Accumulated deficit (138,842) (137,916) Unrealized gain on marketable securities (See Note 2) 514 --- Accumulated translation adjustments (733) (796) TOTAL SHAREHOLDERS' EQUITY (See Note 4) 4,024 4,354 TOTAL $ 76,519 $ 74,833
See condensed notes to consolidated financial statements. ATARI CORPORATION (Unaudited) CONSOLIDATED STATEMENTS OF OPERATIONS Quarter Ended (in thousands, except per share amounts) ---------------------------- March 31, March 31, 1994 1993 NET SALES $ 8,156 $ 10,150 COST AND EXPENSES: Cost of sales 6,778 7,279 Research and development 1,310 1,356 Marketing and distribution 1,730 2,176 General and administrative 1,710 2,413 Total Operating Expenses 11,528 13,224 OPERATING LOSS (3,372) (3,074) Exchange gain (loss) 272 731 Other income (expense), net 2,392 169 Interest income 353 617 Interest expense (572) (572) LOSS BEFORE INCOME TAXES (927) (2,129) PROVISION (CREDIT) FOR INCOME TAXES --- (111) NET LOSS $ (927) $ (2,018) NET LOSS PER COMMON AND EQUIVALENT SHARE: $ (0.02) $ (0.03) Weighted average number of shares used in the computation 57,219 57,804 See condensed notes to consolidated financial statements.
ATARI CORPORATION (Unaudited) CONSOLIDATED STATEMENTS OF CASH FLOWS Quarter Ended (in thousands) ---------------------------- March 31, March 31, 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net cash provided (used) by operations $ 1,060 $ (4,459) CASH FLOWS FROM INVESTING ACTIVITIES: Property purchases (70) (387) Sale of property --- 778 Decrease in other assets 111 219 Net cash provided by investing activities 41 610 CASH FLOWS FROM FINANCING ACTIVITIES: Additions (repayments) of borrowings --- (69) Issuance of common stock 19 -- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 19 (69) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS 63 (1,242) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 1,183 (5,160) CASH AND EQUIVALENTS: Beginning of period 23,059 39,290 End of period $ 24,242 $ 34,130 OTHER CASH FLOW INFORMATION FROM CONTINUING OPERATIONS: Interest paid $ 0 $ 252 Income taxes paid (recovered) 63 (14) NON CASH INVESTING ACTIVITIES: Unrealized gain on marketable securities $ 514 --- See condensed notes to consolidated financial statements
ATARI CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Basis of Presentation The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 1993 Annual Report on Form 10-K, filed with the Securities and Exchange Commission. The unaudited condensed financial statements included herein reflect all adjustment (which include only normal, recurring adjustments), which are, in the opinion of management, necessary to state fairly the results for the periods presented. The results for such periods are not necessarily indicative of the results to be expected for the full fiscal year. The Company operates with 52/53 week fiscal calendar. Both quarters covered by this report have 13 weeks and for simplicity of presentation, the calendar quarter date is used to represent the quarter end. The actual fiscal closing date for the first quarter of 1994 was April 2. Note 2. Marketable Securities. In the first quarter of 1994, the Company adopted Statement of Financial Accounting Standards No. 115 ("SFAS 115") "Accounting for Certain Investments in Debt and Equity Securities." Marketable securities are carried as available-for-sale securities and reported at the fair market value for the period. Unrealized gains are reported as a separate component of shareholder equity as unrealized gain on marketable securities. The amounts reported and the related book value and unrealized gain are: Number of Market Unrealized Gain on Issue Shares Cost Value Marketable Securities March 31, 1994; Dixon Common Stock 2,777,778 $7,680 $8,194 $514 Note 3. Inventories Inventories consist of the following (in thousands): March 31, December 31, 1994 1993 ------------------------------- Finished goods $ 10,117 $ 10,354 Raw materials 2,779 2,194 --------- --------- TOTAL $ 12,896 $ 12,548
Note 4. Subsequent Event On April 19, 1994, the Company closed the sale of an additional 1.5 million shares of Common Stock to Time Warner, Inc. at $8.50 per share for an aggregate of $12.8 million. Including this transaction, Time Warner, Inc. now owns 27% of the total shares outstanding. ATARI CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS First Quarter 1994 compared with First Quarter 1993: GENERAL Over the past years, the Company has undergone significant business changes. The Company recognized, in the fall of 1991, that the products it was currently marketing in the computer and video game business were rapidly becoming technologically obsolete. Competition in both the computer and the video game markets continued to introduce products which were more powerful and more fully featured than some of the Company's products. As a result of these rapid technological changes, the Company, as well as the entire computer and video game industries, experienced intense pricing pressure. Due to intense competition from larger competitors and shrinking margins in computer products, the Company decided to exit this line of products and refocus itself as an interactive media entertainment company. In an effort to ensure its competitive advantage, the Company developed a 64-bit system called Jaguar. The Jaguar was launched in the fourth quarter of 1993 and is the only 64-bit interactive media entertainment system in the market today. Recognizing its competitive position and the resultant potential of reduction in sales, the Company began to reduce its overhead and focus its marketing efforts on certain products. The Company implemented cost control programs and took steps to simplify its business operations. Concurrently, while the Company was reducing overhead, changes in the European Econcomic Community (EEC) regulations occurred which allowed for the free flow of goods between countries within the EEC. Taking advantages of these changes, the Company centered its European operations into the Netherlands and closed its German, French, and other European locations. In addition, in order to improve its operating efficiency, the Company sold its main manufacturing facility in Taiwan and currently has all of its products manufactured/assembled by third-party subcontractors. Accordingly, the Company closed its operations in Taiwan, Japan, and Hong Kong. Further, the Company consolidated its North American operations into its headquarters in California and closed the Canadian and Mexican operations and other offices in the U.S. The Company plans to distribute its product in Australia and other Pacific Rim and Far East markets through distributors and, accordingly, closed its Australian operations. Today, the Company has operations in the United States, at its Sunnyvale, California facility, in the Netherlands, and in the United Kingdom. NET SALES Net Sales for the first quarter of 1994 were $8.2 million as compared to $10.1 million for the first quarter of 1993. Sales of interactive multimedia products represented approximately 70% of total revenue for the first quarter of 1994. For the first quarter of 1993, sales of game products and computer products were approximately 24% and 76%, respectively. As stated above, the Company is phasing out of its computer business and older video game products. GROSS MARGINS For the first quarter of 1994, gross margin was $1.4 million or 16.9% of sales, as compared to $2.9 million or 28.3% of sales for the same period in 1993. In order to attract consumers to the platform, the Jaguar console unit is priced very competitively. A key element of the gross margin in the multi-media industry is the sale of game software. During the first quarter of 1994, the Company made available five pieces of game software for the Jaguar. The resultant mix of game software sales to hardware sales substantially affected the low margin in the first quarter of 1994. As the library of game software increases, the Company expects the overall mix of software sales to hardware sales to improve. A portion of the gross margin for the first quarter of 1993 was from the sales of the Company's Falcon030 computer system which was launched in the first quarter of 1993. These computers as well as the sales of older game product, which have a wider availability of game software, resulted in an overall margin of 28% for the first quarter of 1993. OPERATING EXPENSES For the reasons as stated in the General section above, Operating Expenses are lower in the first quarter of 1994, as compared to the first quarter of 1993. Below is a summary of these expenses: Comparative Operating Expenses For the Quarter Ended March 31st: (In Thousands) ------------------------------------------------------------- 1994 1993 Research & Development $ 1,310 $ 1,356 Marketing & Distribution 1,730 2,176 General & Administrative 1,710 2,413 Total $ 4,750 $ 5,945
The Company is continuing its investment in research & development for both the Jaguar hardware enhancements and for interactive entertainment software. Marketing and distribution expenses for 1994 were $.4 million lower than in the first quarter of 1993. As stated, the Company has consolidated its European operation and accordingly reduced distribution expenses from $1.7 million in 1993 to $.6 million in 1994. This reduction was partially offset by increased marketing expenses for the Jaguar during 1994. General and administrative expenses are down as a result of reduced headcount and fewer locations around the world. OTHER INCOME For the first quarter of 1994, other income was $2.4 million as compared to $0.2 million for the first quarter of 1993. For the first quarter of 1994, a substantial portion of other income represents a settlement of litigation. INTEREST INCOME Interest income for the first quarter of 1994 was $0.4 million as compared to $0.6 million in the first quarter 1993, reflecting lower average cash balances in the first quarter of 1994 as compared to the first quarter of 1993. INTEREST EXPENSE Interest Expense for both the first quarter of 1994, as well as the first quarter of 1993 was $0.6 million, which is interest expense associated with the Company's 5-1/4% Subordinated Convertible Debentures. NET LOSS For the reasons stated above, the Company incurred a net loss for the first quarter of 1994 of $.9 million, as compared to a $2.0 million loss for the first quarter of 1993. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES For 1994, the Company had a net increase in cash of $1.2 million, primarily as a result of cash flow from operations of $1.1 million. Favorable changes in working capital items offset the net loss for the period. On April 19, 1994, the Company closed the sale of an additional 1.5 million shares of Common Stock to Time Warner, Inc. at $8.50 per share for an aggregate of $12.8 million. Including this transaction, Time Warner, Inc. now owns 27% of the total shares outstanding. Management believes that existing cash balances and the additional funds received as discussed in the preceding paragraph, are sufficient to meet its cash requirements for its current and near-term levels of production through 1994. To increase to mass production and market Jaguar products, the Company is planning to seek additional capital in an equity or debt offering during the remainder of 1994. At this time, however, no assurances can be given that any such funding can be established at terms acceptable to the Company, or at all. PART II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company is not aware of any other pending legal proceedings against the Company and its consolidated subsidiaries other than routine litigation incidental to their normal business. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - None (b) Reports on Form 8-K - None SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. ATARI CORPORATION ------------------ (Registrant) DATE: May 14, 1994 By ___________________ AUGUST J. LIGUORI Vice President, Finance (Duly authorized Officer Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----