UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| For the quarterly period ended September 30, 2003 | Commission File No. 0-27338 |
ATARI, INC.
| DELAWARE | 13-3689915 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
417 FIFTH AVENUE, NEW YORK, NY 10016
(Address of principal executive offices)
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 726-6500
Indicate by check mark whether the registrant (1) has filed all reports required 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.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
As of November 10, 2003, there were 121,213,191 of the registrant’s Common Stock outstanding.
ATARI, INC. AND SUBSIDIARIES
SEPTEMBER 30, 2003 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
| Page | |||||||
PART I - FINANCIAL INFORMATION |
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Item 1. Financial Statements: |
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Consolidated Balance Sheets as of March 31, 2003 and September 30, 2003 (unaudited) |
3 | ||||||
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months and Six Months Ended September 30, 2002 (unaudited), and for the
Three Months and Six Months Ended September 30, 2003 (unaudited)
|
4 | ||||||
Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2002 and 2003 (unaudited) |
5 | ||||||
Consolidated
Statements of Stockholders’ Equity (Deficiency) for the Nine
Months Ended March 31, 2003 and Six Months Ended September 30, 2003 (unaudited) |
7 | ||||||
Notes to the Consolidated Financial Statements (unaudited) |
8 | ||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations |
20 | ||||||
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
30 | ||||||
Item 4. Controls and Procedures |
30 | ||||||
PART II - OTHER INFORMATION |
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Item 1. Legal Proceedings |
31 | ||||||
Item 4. Submission of Matters to a Vote of Security Holders |
32 | ||||||
Item 5. Other Information |
32 | ||||||
Item 6. Exhibits and Reports on Form 8-K |
33 | ||||||
Signature |
34 | ||||||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ATARI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
| March 31, | September 30, | |||||||||||
| 2003 | 2003 | |||||||||||
| (unaudited) | ||||||||||||
ASSETS |
||||||||||||
Current assets: |
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Cash |
$ | 815 | $ | 27,019 | ||||||||
Receivables, net |
47,053 | 31,145 | ||||||||||
Inventories, net |
37,827 | 35,366 | ||||||||||
Income taxes receivable |
395 | 409 | ||||||||||
Due from related parties |
2,656 | 2,184 | ||||||||||
Prepaid expenses and other current assets |
16,958 | 18,328 | ||||||||||
Total current assets |
105,704 | 114,451 | ||||||||||
Advances to related parties |
32,184 | — | ||||||||||
Property and equipment, net |
14,727 | 14,347 | ||||||||||
Goodwill, net of accumulated amortization of $26,116 in both periods |
70,224 | 70,224 | ||||||||||
Other intangible assets, net of accumulated amortization of $619 and $956, at
March 31, 2003 and September 30, 2003, respectively |
2,081 | 1,744 | ||||||||||
Other assets |
7,162 | 12,275 | ||||||||||
Total assets |
$ | 232,082 | $ | 213,041 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY) |
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Current liabilities: |
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Accounts payable |
$ | 39,587 | $ | 39,174 | ||||||||
Accrued liabilities |
31,872 | 32,637 | ||||||||||
Revolving credit facility |
10,651 | — | ||||||||||
Current portion of related party medium-term loan |
40,000 | — | ||||||||||
Related party credit facility |
44,800 | — | ||||||||||
Royalties payable |
13,653 | 13,270 | ||||||||||
Income taxes payable |
1,965 | 1,348 | ||||||||||
Short-term deferred income |
2,077 | 2,077 | ||||||||||
Due to related parties |
12,747 | 9,538 | ||||||||||
Total current liabilities |
197,352 | 98,044 | ||||||||||
Related party debt |
124,610 | — | ||||||||||
Deferred income |
4,131 | 4,093 | ||||||||||
Other long-term liabilities |
2,907 | 2,749 | ||||||||||
Total liabilities |
329,000 | 104,886 | ||||||||||
Commitments and contingencies |
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Stockholders’ equity (deficiency): |
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Preferred stock, $0.01 par value, 5,000 shares authorized, none issued or
outstanding |
— | — | ||||||||||
Common stock, $0.01 par value, 300,000 shares authorized, 69,920 and 120,933
shares issued and outstanding at March 31, 2003 and September 30, 2003,
respectively |
699 | 1,209 | ||||||||||
Additional paid-in capital |
486,053 | 734,814 | ||||||||||
Accumulated deficit |
(586,851 | ) | (631,141 | ) | ||||||||
Accumulated other comprehensive income |
3,181 | 3,273 | ||||||||||
Total stockholders’ (deficiency) equity |
(96,918 | ) | 108,155 | |||||||||
Total liabilities and stockholders’ (deficiency) equity |
$ | 232,082 | $ | 213,041 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Page 3
ATARI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(unaudited)
| Three Months | Six Months | ||||||||||||||||||
| Ended | Ended | ||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||
| 2002 | 2003 | 2002 | 2003 | ||||||||||||||||
Net revenues |
$ | 109,367 | $ | 60,575 | $ | 238,970 | $ | 211,933 | |||||||||||
Cost of goods sold |
53,895 | 37,950 | 113,920 | 108,796 | |||||||||||||||
Gross profit |
55,472 | 22,625 | 125,050 | 103,137 | |||||||||||||||
Selling and distribution expenses |
19,599 | 13,804 | 41,364 | 33,932 | |||||||||||||||
General and administrative expenses |
8,217 | 8,685 | 16,714 | 17,232 | |||||||||||||||
In-process research and development |
— | — | 7,400 | — | |||||||||||||||
Research and development |
22,085 | 23,576 | 43,485 | 45,805 | |||||||||||||||
Depreciation and amortization |
2,075 | 1,996 | 3,994 | 3,946 | |||||||||||||||
Operating income (loss) |
3,496 | (25,436 | ) | 12,093 | 2,222 | ||||||||||||||
Interest expense, net |
3,252 | 3,716 | 7,322 | 6,762 | |||||||||||||||
Other income (expense) |
494 | (534 | ) | (3,064 | ) | (417 | ) | ||||||||||||
Income (loss) before provision for (benefit
from) income taxes |
738 | (29,686 | ) | 1,707 | (4,957 | ) | |||||||||||||
Provision for (benefit from) income taxes |
7 | (955 | ) | 1,685 | (18 | ) | |||||||||||||
Net income (loss) |
$ | 731 | $ | (28,731 | ) | $ | 22 | $ | (4,939 | ) | |||||||||
Dividend to parent |
— | (39,351 | ) | — | (39,351 | ) | |||||||||||||
Net income (loss) attributable to common
stockholders |
$ | 731 | $ | (68,082 | ) | $ | 22 | $ | (44,290 | ) | |||||||||
Basic and diluted net income (loss)
attributable to
common stockholders per share |
$ | 0.01 | $ | (0.90 | ) | $ | 0.00 | $ | (0.61 | ) | |||||||||
Basic weighted average shares outstanding |
69,826 | 75,594 | 69,826 | 72,800 | |||||||||||||||
Diluted weighted average shares outstanding |
69,952 | 75,594 | 69,961 | 72,800 | |||||||||||||||
Net income (loss) |
$ | 731 | $ | (28,731 | ) | $ | 22 | $ | (4,939 | ) | |||||||||
Other comprehensive income: |
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Foreign currency translation adjustments |
— | 48 | 288 | 92 | |||||||||||||||
Comprehensive income (loss) |
$ | 731 | $ | (28,683 | ) | $ | 310 | $ | (4,847 | ) | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Page 4
ATARI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Six Months | Six Months | |||||||||||||
| Ended | Ended | |||||||||||||
| September 30, | September 30, | |||||||||||||
| 2002 | 2003 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income (loss) |
$ | 22 | $ | (4,939 | ) | |||||||||
Adjustments to reconcile net income (loss) to
net cash provided by operating activities: |
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Depreciation and amortization |
3,994 | 3,946 | ||||||||||||
Write-down of investment held at cost |
3,622 | — | ||||||||||||
Amortization of discount on related party debt |
1,435 | 1,339 | ||||||||||||
Accrued interest |
4,900 | 3,082 | ||||||||||||
Accretion of interest on short-term promissory notes |
66 | — | ||||||||||||
Amortization of deferred financing fees |
478 | 1,794 | ||||||||||||
Deferred income |
— | (38 | ) | |||||||||||
Write-off of property and equipment |
496 | 39 | ||||||||||||
In-process research and development related to acquisition of
Shiny Entertainment, Inc. |
7,400 | — | ||||||||||||
Changes in operating assets and liabilities: |
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Receivables, net |
(363 | ) | 15,908 | |||||||||||
Inventories, net |
(11,398 | ) | 2,460 | |||||||||||
Due from related parties |
(8,400 | ) | 958 | |||||||||||
Due to related parties |
2,650 | (4,971 | ) | |||||||||||
Prepaid expenses and other current assets |
1,409 | 1,279 | ||||||||||||
Accounts payable |
22,327 | (436 | ) | |||||||||||
Accrued liabilities |
8,483 | 588 | ||||||||||||
Royalties payable |
8,596 | (383 | ) | |||||||||||
Income taxes payable |
962 | (640 | ) | |||||||||||
Deferred income |
553 | — | ||||||||||||
Income taxes receivable |
5,280 | — | ||||||||||||
Other long-term liabilities |
2,078 | (166 | ) | |||||||||||
Other assets |
524 | (1,084 | ) | |||||||||||
Net cash provided by operating activities |
55,114 | 18,736 | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||||
Purchases of property and equipment |
(3,769 | ) | (3,105 | ) | ||||||||||
Advances to related parties |
— | (14,368 | ) | |||||||||||
Acquisition of Shiny Entertainment, Inc., net of nominal cash acquired |
(34,010 | ) | — | |||||||||||
Net cash used in investing activities |
(37,779 | ) | (17,473 | ) | ||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
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Payment of related party credit facility, net |
(17,667 | ) | — | |||||||||||
Borrowings from related party medium-term loan |
48,278 | — | ||||||||||||
Payments to third parties |
(7,291 | ) | — | |||||||||||
Payments under short-term promissory notes |
(8,833 | ) | — | |||||||||||
Payments of BNP Paribus revolving credit facility |
(24,888 | ) | — | |||||||||||
Payments of General Electric Capital Corporation Senior Credit
Facility, net |
— | (10,651 | ) | |||||||||||
Proceeds from exercise of stock options |
16 | 440 | ||||||||||||
Proceeds from employee stock purchase plan |
75 | 103 | ||||||||||||
Net proceeds from public stock offering |
— | 35,000 | ||||||||||||
Net cash (used in) provided by financing activities |
(10,310 | ) | 24,892 | |||||||||||
Effect of exchange rates on cash |
62 | 49 | ||||||||||||
Net increase in cash |
7,087 | 26,204 | ||||||||||||
Cash — beginning of fiscal period |
4,685 | 815 | ||||||||||||
Cash — end of fiscal period |
$ | 11,772 | $ | 27,019 | ||||||||||
Page 5
| Six Months | Six Months | ||||||||
| Ended | Ended | ||||||||
| September 30, | September 30, | ||||||||
| 2002 | 2003 | ||||||||
SUPPLEMENTAL CASH FLOW INFORMATION |
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SUPPLEMENTAL DISCLOSURE OF
OPERATING ACTIVITIES: |
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Cash paid for interest |
2,393 | 4,213 | |||||||
Cash paid for taxes |
— | 695 | |||||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES: |
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Acquisition of Shiny Entertainment, Inc.: |
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Fair value of assets acquired |
$ | 50,776 | $ | — | |||||
Less: Short-term promissory notes issued to seller and others |
16,059 | — | |||||||
Assumption of stock options |
672 | — | |||||||
Other payments due seller |
31 | — | |||||||
Cash acquired |
4 | — | |||||||
Acquisition, net of cash acquired |
$ | 34,010 | $ | — | |||||
Acquisition of Atari license for 2,000 shares of common stock |
— | 8,500 | |||||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES: |
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