<PAGE> 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 March 31, 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 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.)
455 South Mathilda Avenue, Sunnyvale, CA 94086
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 328-0900
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.
<TABLE>
<CAPTION>
CLASS SHARES OUTSTANDING AT MAY 10, 1996
- ----- ----------------------------------
<S> <C>
Common Stock 63,734,518
</TABLE>
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ATARI CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1995 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
QUARTERS ENDED March 31, 1996 and March 31, 1995 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE QUARTERS ENDED
March 31, 1996 and March 31, 1995 5
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURE 11
</TABLE>
2
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ATARI CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995 March 31, Dec 31,
(In Thousands, Except Share Amounts) 1996 1995
---------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents (including $441and $700 held as restricted
balances at March 31, 1996 and December 31, 1995) $ 23,748 $ 28,941
Marketable securities -- 21,649
Accounts receivable (less allowances for returns and doubtful accounts:
March 31, 1996 $3,995; December 31, 1995 $4,221) 601 2,468
Inventories (See Note 2) 5,526 10,934
Subordinated secured convertible note with JT Storage, Inc. (see Note 4) 25,000 --
Other current assets 1,101 1,134
--------- ---------
Total current assets 55,976 65,126
GAME SOFTWARE DEVELOPMENT COSTS - Net 861 758
EQUIPMENT AND TOOLING - Net 577 671
REAL ESTATE HELD FOR SALE 10,468 10,468
OTHER ASSETS 524 546
--------- ---------
TOTAL $ 68,406 $ 77,569
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,295 $ 4,954
Accrued Liabilities 5,481 5,088
--------- ---------
TOTAL CURRENT LIABILITIES 8,776 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 : March 1996, 63,710,318; December 1995, 63,687,118) 637 637
Additional paid-in capital 196,272 196,209
Unrealized gain on marketable securities -- 7,088
Accumulated translation adjustments (730) (663)
Accumulated deficit (178,903) (178,098)
--------- ---------
Total shareholders' equity 17,276 25,173
--------- ---------
TOTAL $ 68,406 $ 77,569
========= =========
</TABLE>
(See Condensed Notes to Consolidated Financial Statements)
3
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ATARI CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
MARCH 31, 1996 AND MARCH 31, 1995
(Amounts in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Quarter Ended
March 31, March 31,
1996 1995
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<S> <C> <C>
NET SALES $ 1,272 $ 4,874
======== ========
COST AND EXPENSES:
Cost of sales 6,211 3,846
Research and development 201 1,815
Marketing and distribution 758 2,576
General and administrative 1,251 1,795
-------- --------
Total operating expenses 8,421 10,032
-------- --------
OPERATING LOSS $ (7,149) $ (5,158)
Exchange (loss) gain (60) 5
Other income(expense), net 6,640 308
Interest income 332 953
Interest expense (569) (581)
-------- --------
Loss before income taxes and extraordinary credit (806) (4,473)
-------- --------
Provision for income taxes -- --
-------- --------
Loss before extraordinary credit (806) (4,473)
-------- --------
Extraordinary credit - gain on extinguishment of 5 1/4%
convertible subordinated debentures (see Note 3) -- 47
-------- --------
NET LOSS $ (806) $ (4,426)
======== ========
LOSS PER COMMON SHARE: $ (0.01) $ (0.07)
======== ========
Number of shares used in computations 63,701 63,701
</TABLE>
(See Condensed notes to Consolidated Financial Statements)
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ATARI CORPORATION
(Unaudited)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS Quarter Ended
(in thousands) March 31 March 31,
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided (used) by operations $ (947) $(10,813)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities 20,908 492
Proceeds from property sales 33 --
Property purchases -- (51)
Borrowing by JTS (25,000) --
Stock dividend received on investment -- 82
Decrease in other assets 22 99
Increase in software development costs (103) (2,864)
-------- --------
Net cash provided (used) by investing activities (4,140) (2,242)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of borrowings -- (100)
Extinguishment of debt (75) (46)
Issuance of common stock 63 84
-------- --------
Net cash provided (used) by financing activities (12) (62)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
& EQUIVALENTS (94) 47
-------- --------
NET INCREASE (DECREASE) IN CASH & EQUIVALENTS (5,193) (13,070)
CASH & EQUIVALENTS:
Beginning of period 28,941 22,592
-------- --------
End of period $ 23,748 $ 9,522
======== ========
NON CASH INVESTING ACTIVITIES:
Unrealized gain on marketable securities $ -- $ 1,836
</TABLE>
(See Condensed Notes to Consolidated Financial Statements)
5
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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 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 first quarter of 1996 and 1995 was March 30, and April 1,
respectively.
NOTE 2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Finished goods $ 5,049 $ 9,927
Raw materials and work-in-process 477 1,007
------- -------
Total $ 5,526 $10,934
======= =======
</TABLE>
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.
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NOTE 4. MERGER WITH JT STORAGE, INC.
On February 12, 1996, the Company entered into a merger agreement with JT
Storage, Inc. (JTS) providing for the merger of the Company and JTS. On April 8,
1996, the merger agreement was amended and restated. JTS was incorporated on
February 3, 1994 to develop, market and manufacture hard disk drives. The merger
requires shareholder approval and is expected to be consummated in the second
quarter of 1996. In connection with the merger, the Company extended a bridge
loan to JTS in the amount of $25.0 million maturing on September 30, 1996 with a
stated interest rate of 8 1/2% per annum. If the merger is not consummated, the
bridge loan is convertible at the option of Atari or JTS into shares of JTS
Series A Preferred Stock and warrants to acquire JTS Series A Preferred Stock,
subject to certain conditions.
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MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FIRST QUARTER OF 1996 COMPARED
TO THE FIRST 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.
On February 12, 1996, Atari entered into a merger agreement with JT Storage,
Inc. ("JTS") providing for the merger of the Company and JTS (the "Merger"). On
April 8, 1996, the merger agreement was amended and restated. As a result of the
Merger, Atari would be merged with and into JTS, and each outstanding share of
Atari Common Stock would be 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 must be approved by the stockholders of Atari and
JTS and is subject to certain other conditions. The Merger is expected to close
late in the second quarter of calendar year 1996.
By late 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 first quarter 1996 were $1.3 million compared to $4.9 million
for the first quarter 1995, a reduction of $3.6 million. Sales of Jaguar and
related products represented 41% and 72% 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 revenues for the first quarter of 1996 was $6.2 million compared to $3.8
million for 1995. Included in cost of revenues in 1996 were inventory
write-downs of $5 million relating to Jaguar products. These write-downs
resulted from management's revised estimates of sales resulting from continued
disappointing sales of Jaguar.
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 $.2 million for the first quarter of
1996 compared to $1.8 million for the first 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 of 1995. As of March 31,
1996, the Company had capitalized $.9 million of development cost associated
with certain CD titles.
Marketing and distribution expenses were $.8 million for the first quarter of
1996 compared to $2.6 million for the first quarter of 1995. THe reduction was
due to the curltailment of marketing activities for the Jaguar.
8
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General and administrative expenses for the first quarter of 1996, were $1.3
million as compared to $1.8 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 first quarter of 1996 was $6.6 compared
to $0.3 million for the first quarter of 1995. During the 1996 quarter the
Company sold the remaining portion of its holdings in Dixon PLC, a retailer
in England and realized a gain of $6.3 million. For the same quarter of 1995,
the Company re-purchased a portion of its 5 1/4% Convertible Subordinated
Debentures and recorded an extraordinary credit of $47,250.
Interest income for the first quarter of 1996 was $0.3 million compared to
$1.0 million for the first quarter of 1995, reflecting the Company's
significantly lower cash balances during the first 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.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996 , the Company had cash and marketable securities balances
totaling $23.7 million compared to $50.6 million as of December 31, 1995 for
a reduction of $26.9 million.
In February 1996, Atari loaned $25.0 million to JTS in connection with the
Merger. The loan is due to be repaid by JTS in September 1996 and is secured by
substantially all of the assets of JTS. Atari's security interest in such assets
is junior to existing security interests in favor of a bank and certain
equipment lessors. In the event the Merger is not consummated, there can be no
assurance that Atari's security interest in such assets will adequately protect
Atari in the event JTS is unable to repay the loan.
In the first quarter of 1996, the Company used $0.9 million in operating
activities.
9
<PAGE> 10
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
10
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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 17, 1996
By
------------------------------------------
SAM TRAMIEL
President, Chief Executive Officer,
Chief Financial Officer and Director
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 223,148
<SECURITIES> 0
<RECEIVABLES> 601
<ALLOWANCES> 0
<INVENTORY> 5,526
<CURRENT-ASSETS> 55,976
<PP&E> 577
<DEPRECIATION> 0
<TOTAL-ASSETS> 68,406
<CURRENT-LIABILITIES> 8,775
<BONDS> 42,354
0
0
<COMMON> 637
<OTHER-SE> (66,640)
<TOTAL-LIABILITY-AND-EQUITY> 68,406
<SALES> 1,272
<TOTAL-REVENUES> 1,272
<CGS> 6,211
<TOTAL-COSTS> 6,211
<OTHER-EXPENSES> 2,210
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 569
<INCOME-PRETAX> (806)
<INCOME-TAX> 0
<INCOME-CONTINUING> (806)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (806)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
