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
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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
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ATARI CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, Except Share Amounts) Mar 31, Dec 31,
<TABLE> 1994 1993
(Unaudited)
ASSETS
<S> <C> <C>
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
</TABLE>
See condensed notes to consolidated financial statements.
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ATARI CORPORATION
(Unaudited)
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS Quarter Ended
(in thousands, except per share amounts) ----------------------------
March 31, March 31,
1994 1993
<S> <C> <C>
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.
</TABLE>
<PAGE>
ATARI CORPORATION
(Unaudited)
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS Quarter Ended
(in thousands) ----------------------------
March 31, March 31,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
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
</TABLE>
<PAGE>
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):
<TABLE>
March 31, December 31,
1994 1993
-------------------------------
<S> <C> <C>
Finished goods $ 10,117 $ 10,354
Raw materials 2,779 2,194
--------- ---------
TOTAL $ 12,896 $ 12,548
</TABLE>
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.
<PAGE>
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.
<PAGE>
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
<TABLE>
<S> <C> <C>
Research & Development $ 1,310 $ 1,356
Marketing & Distribution 1,730 2,176
General & Administrative 1,710 2,413
Total $ 4,750 $ 5,945
</TABLE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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)
