-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VTxn/ywW7B+XV4eCsmPToehQOdupSXwZFIXuIfndvf+pIuIEPtfLCayv93qNNwog LJ3BR0XKZ4upFtQjCjlpPw== 0000891618-96-001856.txt : 19960928 0000891618-96-001856.hdr.sgml : 19960928 ACCESSION NUMBER: 0000891618-96-001856 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960820 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATARI CORP CENTRAL INDEX KEY: 0000802019 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944] IRS NUMBER: 770034553 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21115 FILM NUMBER: 96617857 BUSINESS ADDRESS: STREET 1: 455 SOUTH MATHILDA SVE CITY: SUNNYVALE STATE: CA ZIP: 94086 BUSINESS PHONE: 4083280900 MAIL ADDRESS: STREET 1: 455 SOUTH MATHILDA AVE CITY: SUNNYVALE STATE: CA ZIP: 94086 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1996 1 UNITED STATES SECURITIES 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 June 30, 1996 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 O-21085 JTS CORPORATION (Exact name as specified in its charter) DELAWARE 77-0364572 - ---------------------------- ------------------- (State or other jurisdiction (IRS Employer incorporation or organization) Identification No.) 166 Baypointe Parkway, San Jose, CA 95134 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (408) 468-1800 ------------- 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 AUGUST 19, 1996 - ------------ ---------- Common Stock 104,187,326 2 JTS CORPORATION TABLE OF CONTENTS
PAGE PART I. FINANCIAL INFORMATION ITEM 1. EXPLANATORY NOTE REGARDING FINANCIAL RESULTS INCLUDED HEREIN 3 ITEM 2. CONDENSED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS June 30, 1996 and December 31, 1995 4 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTERS ENDED June 30, 1996 and June 30, 1995 5 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED June 30, 1996 and June 30, 1995 6 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 ITEM 3. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 9 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12 SIGNATURE 13
2 3 Explanatory note regarding financial results included herein On July 30, 1996, Atari Corporation ("Atari") was merged with and into JTS Corporation ("JTS") and the separate existence of Atari ceased. Although the business combination resulted in Atari merging into the JTS legal entity, the substance of the transaction was that Atari, as a public company with substantially greater operating history and net worth owns approximately 62% of the equity of the merged company. At July 30, 1996 the acquisition was accounted for as a purchase of JTS by Atari and accordingly, the operating results of JTS for the periods subsequent to July 30, 1996 will be combined with the operating results of Atari and reported as JTS. While the financial reports included herein are those of JTS, the financial results represent those of Atari, the predecessor entity, as of June 30, 1996 and 1995 and for the three and six months periods ended June 30, 1996 and 1995. See Note 4. 3 4 JTS CORPORATION-see Note 4 CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND DECEMBER 31, 1995 (In Thousands, Except Share Amounts)
June 30, Dec 31, 1996 1995 --------- --------- ASSETS CURRENT ASSETS: Cash and equivalents (including $700 held as restricted balance at December 31, 1995) $ 21,195 $ 28,941 Marketable securities -- 21,649 Accounts receivable (less allowances for returns and doubtful accounts: June 30, 1996 $3,995; December 31, 1995 $4,221) 648 2,468 Inventories (See Note 2) 4,598 10,934 Other current assets 1,221 1,134 --------- --------- Total current assets 27,662 65,126 GAME SOFTWARE DEVELOPMENT COSTS - Net 901 758 EQUIPMENT AND TOOLING - Net 406 671 SUBORDINATED SECURED CONVERTIBLE NOTE WITH JT CORP. (SEE NOTE 4) 25,000 -- REAL ESTATE HELD FOR SALE 10,445 10,468 OTHER ASSETS 501 546 --------- --------- TOTAL $ 64,915 $ 77,569 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,623 $ 4,954 Accrued Liabilities 3,180 5,088 --------- --------- TOTAL CURRENT LIABILITIES 5,803 10,042 --------- --------- LONG-TERM OBLIGATIONS 42,354 42,354 --------- --------- 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 : June 1996, 63,854,718; December 1995, 63,687,118) 639 637 Additional paid-in capital 196,704 196,209 Unrealized gain on marketable securities -- 7,088 Accumulated translation adjustments (770) (663) Accumulated deficit (179,815) (178,098) --------- --------- Total shareholders' equity 16,758 25,173 --------- --------- TOTAL $ 64,915 $ 77,569 ========= =========
(See Condensed Notes to Consolidated Financial Statements) 4 5 6 JTS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTERS AND SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995 (Amounts in Thousands, Except Per Share Amounts) Quarter Ended Six Months Ended
Quarter Ended Six Months Ended June 30, June 30, June 30, June 30, 1996 1995 1996 1995 NET SALES $ 1,040 $ 3,015 $ 2,312 $ 7,762 ========= ========= ======== ======= COST AND EXPENSES: Cost of sales 931 1,971 7,142 5,689 Research and development 106 1,758 307 3,574 Marketing and distribution 218 2,581 976 5,157 General and administrative 661 1,595 1,912 3,390 ------- --------- -------- -------- Total operating expenses 1,916 7,905 10,337 17,810 ------- ------- -------- --------- OPERATING LOSS $ (876) $ (4,890) $ (8,025) (10,048) Exchange gain 68 (8) 8 (3) Other income(expense), net 135 648 6,775 1,003 Interest income 331 853 663 1,806 Interest expense (569) (590) (1,138) (1,171) -------- ---------- ---------- -------- NET LOSS $ (911) $ (3,987) $ (1,717) (8,413) ======== ========= ========== ========= LOSS PER COMMON SHARE: $ (0.01) $ (0.06) $ (0.03) $ (0.13) ========= ========== ========= =========== Number of shares used in computations 63,770 63,643 63,770 63,643
(See Condensed notes to Consolidated Financial Statements) 5 7 JTS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Six Months Ended June 30, June 30, 1996 1995 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net cash provided (used) by operations $ (4,027) $(20,171) CASH FLOWS FROM INVESTING ACTIVITIES: Sale of marketable securities 20,908 51,916 Proceeds from property sales 33 -- Property purchases -- (204) Borrowing by JTS (25,000) -- Stock dividend received on investment -- 82 Decrease in other assets 68 189 Increase in software development costs (143) (4,298) -------- -------- Net cash (used) provided by investing activities (4,134) 47,685 CASH FLOWS FROM FINANCING ACTIVITIES: Extinguishment of debt (75) (53) Issuance of common stock 497 46 -------- -------- Net cash provided (used) by financing activities 422 (7) -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH & EQUIVALENTS (7) 58 -------- -------- NET INCREASE (DECREASE) IN CASH & EQUIVALENTS (7,746) 27,565 CASH & EQUIVALENTS: Beginning of period 28,941 22,592 -------- -------- End of period $ 21,195 $ 50,157 ======== ======== OTHER CASH FLOW INFORMATION FROM CONTINUING OPERATIONS: Interest paid 2,290 2,306 NON CASH INVESTING ACTIVITIES: Unrealized gain on marketable securities $ -- $ 2,294
(See Condensed Notes to Consolidated Financial Statements) 6 8 JTS 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 1995 Annual Report on Form 10-K, filed with the Securities and Exchange Commission. The unaudited condensed financial statements included herein reflect all adjustments (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 a 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 second quarter of 1996 and 1995 was June 29, and July 1, respectively. NOTE 2. INVENTORIES Inventories consist of the following (in thousands): June 30, December 31, 1996 1995 -------- ------------ Finished goods $ 4,300 $ 9,927 Raw materials and work-in-process 298 1,007 --------- ---------- Total $ 4,598 $ 10,934 ======= ========= NOTE 3. REPURCHASE OF 5 1/4% SUBORDINATED CONVERTIBLE DEBENTURES In the first quarter of 1995, the Company repurchased a portion of its 5 1/4% subordinated convertible debentures. The Company repurchased 100 bonds at face value of $1,000 each, and recorded an extraordinary credit of $47,250. 7 9 NOTE 4. MERGER WITH JTS CORPORATION ("JTS") On July 30, 1996, Atari was merged with and into JTS and the separate existence of Atari ceased. Although the business combination will result in Atari merging into the JTS legal entity, the substance of the transaction is that Atari, as a public company with substantially greater operating history and net worth owns approximately 62% of the equity of the merged company. The $25 million loan Atari had made to JTS in February was increased to $30 million in early July, and upon consummation of the merger the loan was cancelled. The acquisition will be accounted for as a purchase of JTS by Atari and accordingly, the operating results of JTS from July 30, 1996, the date of the merger forward will be combined with Atari's operating results and reported as JTS. The aggregate purchase price of $112.3 million has been preliminarily allocated to the acquired assets and liabilities of JTS. The fair value of the JTS assets and liabilities will be revised when complete and final information becomes available regarding liabilities assumed and direct transaction costs and the receipt of a final allocation report. Management believes the final allocation of the purchase price will not be materially different from the preliminary allocation. The preliminary allocation resulted in $151 million allocated to purchased technology, $112 million of which represented in-process research and development. The $112 million will be expensed in Atari's July operations as the technology had not yet reached technological feasibility and does not have alternative future uses. The net assets acquired were preliminarily allocated as follows: (in thousands) Inventory, trade accounts receivables and other current assets $ 24,989 Equipment and tooling 19,469 In-process technology 112,357 Existing technology 25,812 Goodwill 13,666 Liabilities assumed (84,000) -------- Net assets acquired $112,293
The following unaudited profoma information shows the results of operations for the six months ended June 30, 1996 and 1995 as if the JTS acquisition had occurred at the beginning of each period presented and at the purchase price established on July 30, 1996. The results are not necessarily indicative of what would have occurred had the acquisition actually been made at the beginning of each of the respective periods presented or of future operations of the combined companies. The proforma results for 1996 combine Atari's results for the six month period ended June 30, 1996 with the results of JTS for the six month period ended July 28, 1996. The proforma results for 1995 combine Atari's results for the six month period ended June 30, 1995 with JTS' six month fiscal period (26 weeks) ended July 30, 1995. The following unaudited proforma results include the straight-line amortization of intangibles over periods ranging from three years to seven years.
(in thousands) 1996 1995 ---- ---- Revenue $36,076 $13,294 Net (loss) (47,477) (20,805) Net (loss) per share $ (0.26) $ (0.25) Weighted average common and common 103,305 83,286 equivalent shares outstanding
8 10 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE SECOND QUARTER OF 1996 COMPARED TO THE SECOND QUARTER OF 1995 This Quarterly Report on Form 10Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of the risk related factors set forth herein, and in the JTS Registation Statement on Form S-4 declaring effective by the Securities Exchange Commisson on July 12, 1996. On July 30, 1996, Atari was merged with and into JTS, and each outstanding share of Atari Common Stock was exchanged and converted into one share of JTS Common Stock. JTS was incorporated in February 1994 to develop, market and manufacture hard disk drives. The Merger was approved by the stockholders of Atari and JTS and finalized in Shareholder Meetings on July 30, 1996. In 1995, Atari recognized that despite the significant commitment of financial resources that were devoted to the Jaguar and related products, it was unlikely that the Jaguar would ever become a broadly accepted video game console or that Jaguar technology would be broadly adopted by software title developers. As a result, Atari decided to significantly downsize its Jaguar operations. This downsizing resulted in significant reductions in Atari's work force, and significant curtailment of research and development and sales and marketing activities for the Jaguar and related products. Accordingly, Atari 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. Net sales for the second quarter 1996 were $1.0 million compared to $3.0 million for the second quarter 1995, a reduction of $2.0 million. Sales of Jaguar and related products represented 65% and 70% of total revenues for 1996 and 1995, respectively, and sales of other products and royalties represented the balance of revenues in each such year. The reduction in revenues was primarily the result of lower unit volumes of Jaguar products and lower average selling prices of Jaguar and certain of its software titles. As a result of the Jaguar price reductions and the substantial curtailment of sales and marketing activities for Jaguar, Atari expects sales of Jaguar and related products to decline substantially in 1996 and thereafter. Cost of sales revenues for the second quarter of 1996 were $.9 million compared to $2.0 million for 1995. The substantial decline was due to the reduction of revenues. Despite the introduction of four additional game titles in the first quarter of 1996, interactive multimedia entertainment market sales have not rebounded due to uncertainty about Atari's commitment to the Jaguar platform, increased price competition and pending competitive product introductions. The Company is pursuing alternative sales channels and licensing opportunities. Atari expects the market to remain highly competitive throughout the year. Research and development expenses were $.1 million for the second quarter of 1996 compared to $1.8 million for the second quarter of 1995. The substantial decline is due to the elimination of the Company's internal Jaguar development team and other development staff in the fourth quarter 1995. As of June 30, 1996, the Company had capitalized $.9 million of development cost associated with certain CD titles. 9 11 Marketing and distribution expenses were $0.2 million for the second quarter 1996 as compared to $2.6 million for the second quarter of 1995. The reduction was due to the curtailment of marketing activities for the Jaguar. General and administrative expenses for the second quarter of 1996, were $0.7 million compared to $1.6 million for the same period in 1995. The decrease in such expenses was primarily the result of staff reductions, reduced rent, and other reductions in operating costs. Other Income (Expense), net for the second quarter of 1996 was $0.1 compared to $0.6 million for the second quarter of 1995. In the second quarter of 1995, the company sold a portion of its common stock holdings in Dixon PLC, a United Kingdom retailer, and realized a gain of approximately $0.5 million. Interest income for the second quarter of 1996 was $0.3 million compared to $0.9 million for the second quarter of 1995, reflecting the Company's significantly lower cash balances during the second quarter of 1996. Interest expenses for the 1996 and 1995 quarters were $0.6 million which represents interest due on the Company's 5 1/4% Convertible Subordinated Debentures. In April 1996, the Company made an annual payment of interest on its bonds that totaled $2.2 million. 10 12 MANAGEMENT DISCUSSION ANALYSIS FOR THE FIRST SIX MONTHS 1996 AS COMPARED TO THE FIRST SIX MONTHS FOR 1995 Net sales for the first six months ended 1996 were $2.3 million as compared to $7.8 million for the same period of 1995. Sales of Jaguar and related products represented 52% of sales for 1996 and 72% for 1995, and sales of other products and royalties represented the balance of revenues in each such year. The reduction in revenues was primarily the result of lower unit volumes of Jaguar products and lower average selling prices of Jaguar and certain of its software titles. As a result of the Jaguar price reductions and substantial curtailment of sales and marketing activities for Jaguar. Atari expects sales of Jaguar and related products to decline substantially in 1996 and thereafter. Cost of sales for the first six months of 1996 were $7.1 million. Included in cost of sales in 1996 were inventory write-downs of $5.0 million relating to Jaguar products. These write-downs resulted from management's revised estimates of sales resulting from continued disappointing sales of Jaguar. Research and development expenses for the first six months were $0.3 million as compared to $3.6 million for the 1995 period. The substantial decline is due to the elimination of the Company's internal Jaguar development team and other development staff in the fourth quarter 1995. As of June 30, 1996 the Company had capitalized $0.9 million of development costs associated with certain CD titles. Marketing and distribution expenses were $1.0 million for the first six months of 1996 as compared to $5.2 million for the 1995 period. The reduction was due to the curtailment of marketing activities for the Jaguar. General and administrative expenses for the first six months of 1996 were $2.0 million as compared to $3.4 million for 1995. The decrease in such expenses was primarily the result of staff reductions, reduced rent, and other reductions in operating costs. The Company maintains operations in Sunnyvale, California and Slough in the United Kingdom. Other Income (Expense), net for the six months ended 1996 was $6.8 million as compared to $1.0 million in 1995. For 1996, the company sold the remaining portion of its holdings in Dixon PLC., a retailer in England and realized a gain of $6.3 million. Interest income for 1996 was $0.7 million as compared to $1.8 million for 1995. The decrease in interest income is attributable to significantly lower cash balances during the first half of 1996 as compared to 1995. Interest expense for the first six months of both periods was $1.2 million and is a result of the Company's 5 1/4% Convertible Subordinated Debentures. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1996 , the Company had cash and marketable securities balances totaling $21.2 million compared to $50.6 million as of December 31, 1995 for a reduction of $29.4 million. In February 1996, Atari loaned $25.0 million to JTS in connection with the Merger and in July the loaned amount was increased to $30.0 million. Upon comsummation of the merger the loan was cancelled. For the first six months of 1996, the Company used $4.0 million in operating activities. 11 13 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 Ex-27 Financial Data Schedule (b) Reports on Form 8-K - None 12 14 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: Auugust 19, 1996 By W. VIRGINIA WALKER --------------------------------- W. Virginia Walker Chief Financial Officer 13 15 EXHIBIT INDEX Exhibits Ex-27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1000 US DOLLARS 3-MOS DEC-31-1995 APRIL-01-1996 JUN-29-1996 21195 0 648 0 4598 52662 406 0 64915 5803 42354 639 0 0 16119 64915 1040 1040 931 985 0 0 569 (911) 0 (911) 0 0 0 (911) (0.1) (0.1)
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