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 June 30, 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 of (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
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(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 JULY 25, 1994
- - ------------ - ----------------------------------
Common Stock 58,796,662
<PAGE>
ATARI CORPORATION
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
June 30, 1994; December 31, 1993; and June 30, 1993
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE 4
QUARTER AND SIX MONTHS ENDED
June 30, 1994 and June 30, 1993
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR 5
THE SIX MONTHS ENDED
June 30, 1994 and June 30, 1993
CONDENSED NOTES TO CONSOLIDATED 6
FINANCIAL STATEMENT
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 8
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF 13
SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
<PAGE>
ATARI CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, Except Share and Per Share Amounts)
<TABLE>
June 30, Dec. 31, June 30,
1994 1993 1993
(Unaudited (Unaudited)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents (incl. $11,431 and
$18,965 held as restricted balances in
June 1994 and Dec. 1993) $ 27,611 $ 23,059 $ 26,809
Marketable securities (Note 2) 7,561 7,680 8,056
Trade receivables (less allowances for
returns and doubtful accounts:
June 1994 $1,055; Dec. 1993 $1,048;
June 1993 $2,975.) 6,597 5,929 10,084
Inventories (Note 3) 14,918 12,548 32,577
Other current assets 3,521 2,172 5,649
Total Current Assets 60,208 51,388 83,175
EQUIPMENT AND TOOLING - NET 1,206 1,020 3,184
REAL ESTATE HELD FOR SALE 12,754 20,924 22,831
OTHER ASSETS 1,464 1,501 1,724
TOTAL $ 75,632 $ 74,833 $ 110,914
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,352 $ 11,621 $ 7,304
Accrued liabilities 3,143 5,871 7,413
Total Current Liabilities 17,495 17,492 14,717
LONG-TERM OBLIGATIONS 45,461 52,987 53,295
SHAREHOLDERS' EQUITY
Common stock, $.01 par value - authorized,
100,000,000 (shares outstanding:
June 1994 58,796,662; Dec. 1993
57,214,587, June 1993 57,132,382) 588 572 571
Additional paid-in capital (Note 4) 155,836 142,497 142,315
Notes receivable from sale of
common stock 0 (3) (19)
Accumulated deficit (142,240) (137,916) (97,710)
Unrealized loss on marketable
securities (Note 2) (119) 0 0
Accumulated translation adjustments (1,389) (796) (2,255)
Total shareholders' equity 12,676 4,354 42,902
TOTAL $ 75,632 $ 74,833 $ 110,914
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ATARI CORPORATION
<TABLE> (Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS Quarter Ended Six Months Ended
(in thousands, except per share amounts) - -------------- ------------ ------
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
NET SALES $ 8,194 $ 5,719 $ 16,350 $ 15,869
COST AND EXPENSES:
Cost of sales 6,950 4,582 13,728 11,861
Research and development 1,539 1,093 2,849 2,449
Marketing and distribution 1,951 1,870 3,681 3,934
General and administrative 1,641 2,128 3,351 4,653
Total Operating Expenses 12,081 9,673 23,609 22,897
OPERATING INCOME (LOSS) (3,887) (3,954) (7,259) (7,028)
Exchange gain (loss) 580 (3,072) 852 (2,341)
Other income (expense), net 168 195 2,560 364
Interest income 311 608 664 1,225
Interest expense (570) (573) (1,142) (1,145)
INCOME (LOSS) BEFORE INCOME TAXES (3,398) (6,796) (4,325) (8,925)
(CREDIT) FOR INCOME TAXES (153) (264)
NET INCOME (LOSS) $ (3,398) $ (6,643) $ (4,325) $ (8,661)
(LOSS) PER COMMON AND
EQUIVALENT SHARE $ (0.06) $ (0.12) $ (0.07) $ (0.15)
Weighted average
number of shares used in
the computation 58,511 57,137 57,865 57,137
See notes to consolidated financial statements.
</TABLE>
<PAGE>
ATARI CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOW Six Months Ended
(in thousands) (Unaudited)
----------------------------
June 30, June 30,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used) by operations $ (8,034) $ (14,950)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities --- 2,525
Purchase of marketable securities --- (376)
Property purchases (427) (443)
Sale of real estate held for sale 7,693 ---
Decrease in other assets 80 301
Net cash provided by investing activities 7,346 2,007
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) of borrowings (7,526) (156)
Reductions in notes receivable from
sale of common stock 3 ---
Issuance of common stock 13,356 ---
Net cash provided (used) by financing activities 5,833 (156)
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND EQUIVALENTS (593) (618)
NET INCREASE (DECREASE)IN CASH AND EQUIVALENT 4,552 (12,481)
CASH AND EQUIVALENTS:
Beginning of period 23,059 39,290
End of period $ 27,611 $ 26,809
OTHER CASH FLOW INFORMATION FROM
CONTINUING OPERATIONS:
Interest paid $ 2,289 $ 1,145
Income taxes (paid) recovered 96 (264)
</TABLE>
<PAGE>
ATARI CORPORATION
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 second quarter of 1994 was July 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 and losses are reported as a separate component of share-
holders' equity. The amounts reported at June 30, 1994, and the related book
value are:
(In thousands)
Number of Market Unrealized loss on
Issue Shares Cost Value marketable securities
Dixon Common Stock 2,778 $7,680 $7,561 $ (119)
The U.S. dollar valuation of Dixon Common Stock declined $733,000 in the
second quarter of 1994. As Dixon is a publicly traded United Kindgom company,
the drop reflected a reduction in the market price of the security offset by
strengthening of the Sterling compared to the U.S. dollar.
<PAGE>
Note 3. Inventories
Inventories consist of the following (in thousands):
<TABLE>
June 30, December 31, June 30,
1994 1993 1993
---------------------------------------
<S> <C> <C> <C>
Finished goods $ 11,426 $ 10,354 $ 28,711
Raw materials 3,492 2,194 3,866
TOTAL $ 14,918 $ 12,548 $ 32,577
</TABLE>
Note 4. Equity
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 aggregated
amount 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
Second Quarter 1994 compared with Second 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 businesses were rapidly becoming
technologically obsolete. Competitors 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 and marketing pressure. Due to
intense competition from competitors and shrinking margins in computer products
which represented a substantial portion of the Company's revenues, the Company
decided to discontinue these types of products and refocus as an interactive
media entertainment company.
The Company operations and product offering during the reporting periods
has changed significantly. Product lines have been dropped and reduced, sub-
sidiaries have been closed, and distribution operations have been consolidated.
The resultant restructuring brought on by the these events is substantially
complete. In an effort to ensure its competitive advantage, the Company
developed a 64-bit system called the Atari 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.
NET SALES
Net sales for the second quarter of 1994 were $8.2 million compared to
$5.7 million in 1993, an increase of 43%. For the second quarter of 1994, sales
of JAGUAR multimedia video entertainment systems called JAGUAR and related
software represented 79% of net sales; and sales of other video games and
computers represented 21% of net sales. In the second quarter of 1993, sales
of video games provided 15% of net sales and sales of computers provided 85%
of net sales.
GROSS MARGIN
Gross margin for the second quarter of 1994 was $1.2 million or 15% as
compared to a margin of $1.1 million or 20% in the second quarter of 1993.
Margin for the period in 1994 reflects the sales of JAGUR hardware units with
a limited software library to complement the unit. The 1993 margin reflected
the planned exit from unprofitable products and the disposal of discontinued
product lines.
<PAGE>
OPERATING EXPENSES
The table below sets forth a comparative overhead structure for the
first and second quarters of 1994 and the second quarter for 1993:
<TABLE>
First Quarter Second Quarter Second Quarter
1994 1994 1993
(000's) (000's) (000's)
<S> <C> <C> <C>
Product Development $ 1,310 $ 1,539 $ 1,093
Marketing and Distribution 1,730 1,951 1,870
General and Administrative 1,710 1,641 2,128
Total $ 4,750 $ 5,131 $ 5,091
</TABLE>
Operating expenses for the period in 1994 reflect the Company's strategy
of investment in Research and Development for the JAGUAR system for expanding
the software library, and for the development of the JAGUAR CD peripheral which
is scheduled to ship during the fourth quarter of 1994. Marketing and
Distribution expense increased for the second quarter 1994 compared to the
first quarter 1994 and the second quarter 1993. The Company closed many of
its domestic and international sales locations, during its restructuring in
1993, which reduced headcount and related facilities expense. These savings
were offset by the Company's increased promotional activities for the JAGUAR.
During this same period, General and Administrative expenses declined primarily
due to reduced headcount from the closure and consolidation of operations.
EXCHANGE GAINS/LOSSES
A combination of fluctuation in exchange rates, a lower foreign assets
exposure, and greater sales from the U.S. resulted in an exchange gain of
$0.6 million for the second quarter of 1994 as compared to a loss of $3.1
million in 1993.
INTEREST INCOME
Interest income in the second quarter of 1994 decreased to $0.3 million
compared to $0.6 million in 1993 as a result of lower interest rates.
INTEREST EXPENSE
Interest expense remained at $0.6 million in the second quarter of 1994
compared to $0.6 million in 1993. In both periods this primarily reflects
interest on the 5 1/4% convertible debentures.
TAX PROVISION
As the Company was in a loss position, no tax provision was required.
NET LOSS
For the above reasons relating to the operations of the Company, the
Company incurred an operating loss for the second quarter 1994 of $3.9 million
as compared to an operating loss of $4.0 for second quarter 1993. Primarily
as a result of foreign exchange activity, the Company incurred a net loss of
$3.4 million for the second quarter 1994 compared to a net loss of $6.6 million
for the same period of 1993.
<PAGE>
First Six Months of 1994 compared with First Six Months of 1993:
NET SALES
Net sales for the first six months of 1994 were $16.4 million compared
to $15.9 million in 1993, a 3% increase in sales. During the first six months
1994 approximately 75% of revenues were derived from sales of the JAGUAR
system and related software. In fiscal 1993, sales were primarily of computers
and related products.
GROSS MARGIN
Gross Margin for 1994 was $2.6 million or 16% as compared with $4.0 million
or 25% in the same period 1993. The low margin percent in 1994 reflects the
limited availability of higher margin JAGUAR software coupled with JAGUAR
system sales which are competitively priced to foster market penetration.
For 1993, the margin reflects the Company's planned exit from various product
lines.
OPERATING EXPENSES
The Company has substantially completed its restructuring of its North
American, Asian and European operations. The restructuring resulted in lower
payroll and facilities cost. These savings were partially offset by increased
promotional costs resulting from the Company's on-going marketing of JAGUAR.
Accordingly, General and Administrative expenses for the first six months of
1994 were $3.4 million compared with $4.7 for the first half of 1993. Marketing
and distribution expenses for 1994 were $3.7 million versus $3.9 million for
1993.
EXCHANGE GAIN/LOSSES
A combination of fluctuation in exchange rates, a lower foreign assets
exposure, and greater sales from the U.S. resulted in an exchange game of $0.9
million for the first six months of 1994 as compared to a loss of $2.3 million
in 1993.
OTHER INCOME
For 1994, other income was $2.6 million as compared to $0.4 million in
1993. A substantial portion of other income in 1994 represents a payment
received in a settlement of litigation.
INTEREST INCOME
Interest income for 1994 was $0.6 million versus $1.2 million for 1993,
reflecting the lower interest rates during the period.
INTEREST EXPENSE
Interest expense for 1994 was $1.1 million as compared with $1.1 million
in 1993, representing interest on the 5 1/4% Debentures.
<PAGE>
NET LOSS
Primarily for the reasons stated above, the Company incurred an operating
loss of $7.3 million in 1994 compared with a $7.0 million operating loss in
1993. The receipt of a litigation settlement in the first quarter 1994,
combined with a favorable currency exchange for the first six month of 1994,
resulted in a net loss of $4.3 million. In addition to the operating loss of
$7.0 million for the first six months of 1993, the Company incurred a foreign
exchange loss of $2.3 million. This exchange loss was offset by other
income items which resulted in a net loss of $8.7 million.
<PAGE>
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
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
aggregated amount of $12.8 million. Including this transaction, Time
Warner inc. now owns 27% of the total shares outstanding.
Cash and equivalents increased by $4.5 million from $23.1 million as of
December 31, 1993 to $27.6 million as of June 30, 1994. The increase was due
to the Time Warner Inc. investment of $12.8 million. The Company utilized
$8.0 of these funds in operations through the second quarter of 1994. This
usage is comprised of a net loss of $4.3 million, increases in accounts
receivable, inventory, and an additional investment in software contracts of
$1.6 million. The Company made debenture interest payments during the period
of $2.3 million. In total, working capital increased from $33.9 million as of
December 31, 1993 to $42.8 million as of June 30, 1994, an increase of $8.9
million, or 26%.
During the second quarter the Company completed the sale of the German
facility. During 1993 the German facility had been written down to its net
realizable value and there was no cash or operating impact to the Comapny in
1994. Marketable securities are carried as available-for-sale securities and
reported at the fair market value for the period. As of June 1994, the
unrealized loss on Dixon shares was $119,000.
The Company believes that existing cash balances and funds anticipated to
be generated from future operations will be sufficient to meet anticipated
working capital requirements. However, as sales of JAGUAR systems and software
expand the Company intents to raise additional funds through the borrowings
and/or capital for working capital requirements. No negotiations have commenced
with prospective lenders and/or investors as yet, and no assurances can be given
that any such funding can be established in terms acceptable to the Company.
<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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of Atari Corporation was held on
June 17, 1994. There were two matters which were voted on at the meeting:
1. Election of Directors
2. Ratification of Auditors
With respect to the election of directors, the following directors were
elected with the following vote tabulation:
<TABLE>
NAME FOR WITHHELD
<S> <C> <C>
Jack Tramiel 52,841,168 88,126
Sam Tramiel 52,841,367 87,927
Leonard I. Schreiber 52,841,952 87,342
Michael Rosenberg 52,840,452 88,842
August J. Liguori 52,840,122 89,172
</TABLE>
With respect to the ratification's of the auditors, Deloitte & Touche
was ratified as auditors of the Company. The vote was as follows:
FOR 52,853,468
AGAINST 75,826
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
ATARI CORPORATION
---------------------------------
(Registrant)
DATE: August 12, 1994 By /S/ August J. Liguori
AUGUST J. LIGUORI
Vice President, Finance
Chief Financial Officer,
Chief Accounting Officer
