<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE 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: 0-19272
MICRONICS COMPUTERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0132288
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification No.)
221 WARREN AVENUE
FREMONT, CALIFORNIA 94539-7085
(Address of principal executive offices)
(510) 651-2300
(Registrant's telephone number, including area code)
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. X Yes No
----- -----
At July 31, 1996 there were 13,865,929 shares of the registrant's common stock
outstanding.
The Exhibit Index is on page 10.
Page 1 of 12 pages
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MICRONICS COMPUTERS, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1996
INDEX
PART I: FINANCIAL INFORMATION PAGE
Item 1: Financial Statements
Consolidated Balance Sheets at
June 30, 1996 and September 30, 1995 ......................... 3
Consolidated Statements of Operations for the three
months and nine months ended June 30, 1996
and June 30, 1995 ............................................ 4
Consolidated Statements of Cash Flows for
the nine months ended June 30, 1996
and June 30, 1995 ............................................ 5
Notes to Consolidated Financial
Statements ................................................... 6
Item 2: Management's Discussion and Analysis
of Financial Condition and Results
of Operations ................................................ 7
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K ............................. 10
SIGNATURES ................................................................. 11
EXHIBITS ................................................................... 12
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
MICRONICS COMPUTERS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............... $21,669 $ 4,537
Short-term investments .................. 2,840 51
Accounts receivable, net ................ 20,715 36,622
Inventories ............................. 11,464 27,674
Income taxes receivable ................. 2,272 4,280
Deferred income taxes ................... 9,195 8,080
Prepaid expenses ........................ 2,534 2,050
------- -------
Total current assets ................. 70,689 83,294
Property and equipment, net ................. 5,502 6,767
Other assets, net ........................... 2,754 3,193
------- -------
$78,945 $93,254
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................ $14,845 $26,058
Other accrued liabilities ............... 5,524 6,946
Current portion of long-term debt ....... 2,651 2,705
------- -------
Total current liabilities ............ 23,020 35,709
Long-term debt .............................. -- 397
Deferred income taxes ....................... 635 594
Stockholders' equity:
Preferred stock ......................... -- --
Common stock ............................ 139 137
Additional paid-in capital .............. 32,968 32,677
Retained earnings ...................... 22,110 24,006
Treasury stock .......................... -- (262)
Unrealized gain(loss) on investments .... 73 (4)
------- -------
Total stockholders' equity ........... 55,290 56,554
------- -------
$78,945 $93,254
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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MICRONICS COMPUTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
1996 1995 1996 1995
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales .......................................... $29,783 $ 53,840 $130,650 $166,231
Cost of sales ...................................... 26,086 57,925 115,407 154,612
------- -------- -------- --------
Gross profit (loss) ................................ 3,697 (4,085) 15,243 11,619
Operating expenses:
Research and development ....................... 1,866 1,805 5,570 5,399
Selling and marketing .......................... 2,514 3,508 6,743 10,291
General and administrative ..................... 1,492 1,974 4,751 5,086
Write off of accounts receivable
from Osborne Computers ....................... -- 11,857 -- 11,857
------- -------- -------- --------
Total Operating Expenses ........................... 5,872 19,144 17,064 32,633
------- -------- -------- --------
Loss from operations ............................... (2,175) (23,229) (1,821) (21,014)
Interest income ..................................... 279 59 513 275
Interest expense ................................... (22) (140) (201) (307)
Other expense, net ................................. -- (128) (387) (32)
------- -------- -------- --------
Loss before income taxes ........................... (1,918) (23,438) (1,896) (21,078)
------- -------- -------- --------
Benefit from income taxes .......................... (9) (8,278) -- (7,405)
------- -------- -------- -------
Net loss ........................................... $(1,909) $(15,160) $ (1,896) $(13,673)
------- -------- -------- -------
Net loss per common share .......................... $ (0.14) $ (1.11) $ 0.14) $ (1.02)
======= ======== ======== =======
Common and common equivalent
shares used in computing per
share amounts................................... 13,841 13,601 13,786 13,453
======= ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
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MICRONICS COMPUTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
-------------------------
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................. $ (1,896) $(13,673)
Adjustments to reconcile net loss to net
cash provided by (used for) operating activities:
Depreciation and amortization ...................... 1,362 1,255
Deferred taxes ..................................... (1,074) (3,990)
Realized loss on investments ....................... -- 255
Changes in operating assets and liabilities:
Accounts receivable ................................ 15,907 (3,166)
Inventories ........................................ 16,210 (14,138)
Prepaid expenses ................................... (484) 246
Accounts payable ................................... (11,213) 14,651
Other accrued liabilities .......................... (1,422) 2,112
Income taxes receivable ............................ 2,008 (3,915)
-------- --------
Net cash provided by (used for) operating activities ... 19,398 (20,363)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments .................. (2,726) (1,000)
Maturities or sales of short-term investments ........ 14 9,343
Purchases of property and equipment, net ............. (663) (38)
Sale of property and equipment, net .................. 566 --
Deposits and Other assets,net ........................ 439 (864)
-------- --------
Net cash provided by (used for) investing
activities ........................................... (2,370) 7,441
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings .................. -- 9,000
Repayment of debt principal .......................... (451) (278)
Proceeds from issuance of common stock, net .......... 555 1,504
Repurchase of common stock ........................... -- (262)
-------- --------
Net cash provided by financing activities .............. 104 9,964
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .......................................... 17,132 (2,958)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....... 4,537 7,876
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............. $ 21,669 $ 4,918
======== ========
Cash payments for:
Income taxes ......................................... $ -- $ 581
Interest ............................................. 205 307
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 6
MICRONICS COMPUTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the consolidated financial statements
reflect all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation of the financial position,
operating results and cash flows for those periods presented. The results of
operations for the interim periods presented are not necessarily indicative of
the results that may be expected for the full fiscal year. The accompanying
consolidated financial statements should be read together with the audited
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K for the year ended September 30, 1995.
NOTE 2. NET LOSS PER COMMON SHARE
Net Loss per common share has been computed based on the weighted average
number of common and common equivalent shares outstanding.
NOTE 3. SHORT-TERM INVESTMENTS
Short-term investments consist of corporate bonds and U.S. agency
securities with original maturities beyond three months and less than twelve
months. These investments are carried at amortized cost with unrealized gain or
loss reflected as a component of stockholder's equity.
NOTE 4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
------------- ----------
(UNAUDITED)
<S> <C> <C>
Raw materials ........................... $ 8,552 $18,626
Work-in-process ......................... 1,219 4,173
Finished goods .......................... 1,693 4,875
------- -------
11,464 27,674
======= =======
</TABLE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS:
Net Sales: Net sales were $29.8 million for the three months ended June
30, 1996, a decrease of 44.7% from $53.8 million for the three months ended June
30, 1995. Net sales for the nine months ended June 30, 1996 totaled $130.6
million, down 21.4% from $166.2 million through last year's third quarter. The
decrease in the quarter and year to date sales between comparable periods are
principally attributable to lower than anticipated orders from the Company's OEM
and distribution customers. The product transition from the Orion and Triton
I-based motherboard to the Natoma and Triton II-based products, respectively,
resulted in lower sales to the Company's OEM customer base. The lower sales in
the distribution channel are primarily due to increased competition.
Cost of Sales/Gross Profit: The Company's gross profit as a percentage of
net sales was 12.4% and (7.6%) for the third quarter of fiscal 1996 and the
third quarter of fiscal 1995, respectively. Gross profit margin percentage was
11.7% and 7.0% for the nine months ended June 30, 1996 and 1995, respectively.
The improved gross margin for the third quarter and nine months over the same
periods in the previous year was primarily due to the recording of lower
inventory reserves. The Company has improved its materials management and
end-of-life planning allowing the Company to maintain gross margins during this
period of intense price pressure and lower sales volume.
Operating Expenses: Operating expenses for the third quarter of fiscal
1996 decreased $13.3 million from the comparable quarter in fiscal 1995 and were
$15.6 million lower for the nine months ended June 30, 1996 compared to the
prior year period (which included an $11.9 million accounts receivable write off
for Osborne Computers). Research and development expenses were essentially flat
for the third quarter and year to date periods of fiscal 1996 as compared to the
same periods in fiscal 1995. Selling and marketing costs were down for the
quarter ended June 30, 1996 by $1.0 million as compared to the same quarter in
the previous year and down by $3.5 million for the nine months ended June 30,
1996 as compared to the same nine month period in fiscal 1995. These reductions
are primarily the result of the consolidation of the sales and marketing
organizations of Micronics and Orchid Technology. General and administrative
expenses were down $482,000 and $335,000 for the third quarter and year to date
of fiscal 1996, respectively, as compared to the same periods in fiscal 1995.
This lower level of spending is also primarily the result of savings generated
by consolidating the Micronics and Orchid Technology general and administrative
activities.
Interest and Other Income and Expense: Interest income for the quarter
ended June 30, 1996 increased $220,000 or 373% compared to the prior year
period, and increased $238,000 or 87% for the first nine months of fiscal 1996
compared to the prior year period due to higher average invested balances. The
Company recorded $22,000 and $201,000 of interest expense for the three and nine
months ended June 30, 1996, respectively. This expense is primarily related to
the long-term debt on real property owned by the Company. During the third
quarter of 1995
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<PAGE> 8
the Company had an outstanding balance on its line of credit which accounted for
the higher interest expense than has been incurred during 1996 when there have
been no borrowings against that line of credit.
Benefit from Income Taxes: The Company's estimated effective tax benefit
rate was 35.1% and 0% for the nine months ended June 30, 1995 and 1996,
respectively. The benefit from income taxes for 1995 was computed by applying
the estimated fiscal year effective tax benefit rate (net federal and state
statutory rate as adjusted for various tax credits and the estimated tax effect
of certain permanent items) to loss before income taxes for that period. For the
third quarter of fiscal 1996, the Company chose to take a conservative
accounting approach and not book a tax benefit resulting from the operating
loss.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital at June 30, 1996 was $47.7 million, effectively unchanged
from $47.6 million at September 30, 1995. Cash, cash equivalents and short-term
investments increased by $4.2 million during the quarter as the result of
decreases in accounts receivable and accrued liabilities. Inventories were down
by $16.2 million from September 30, 1995; largely attributable to improved
inventory management combined with increased emphasis on the liquidation of
potentially excess or obsolete inventory. Accounts receivable decreased
principally due to the lower sales in the quarter. The decreases in accounts
payable and accrued liabilities resulted from lower sales related reserves and
reduced purchasing activity.
At June 30, 1996, the Company's principal sources of liquidity included
$24.5 million of cash, cash equivalents and short-term interest-bearing
financial instruments. The Company also has a $20 million secured line of
credit, expiring in September 1997. Borrowings under this line of credit are
limited to specific percentages of eligible accounts receivable and are
collateralized by a lien on substantially all assets of the Company. Borrowing
availability under this line is reduced by outstanding advances and letters of
credit. There have been no borrowings under this line of credit during the nine
months ended June 30, 1996.
Management believes existing cash, cash equivalents and short-term
investments, together with cash generated by operations and the Company's
available borrowing capacity, will provide sufficient funds to
meet the Company's operating and capital requirements over the next
twelve months.
BUSINESS OUTLOOK:
Except for the historical information contained herein, the matters
discussed in this Form 10-Q are forward-looking statements that involve risks
and uncertainties, including: the Company's ability to retain existing and win
new OEM business; business conditions and growth in the personal computer
industry and general economy; changes in customer order patterns including
timing of delivery; competitive factors, such as acceptance of new products and
price pressures; availability of third-party component products at reasonable
prices; risks of nonpayment
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<PAGE> 9
of accounts receivable; risks of inventory obsolescence due to shifts in market
demand; meeting product introduction schedules; changes in the mix of system
boards and Nucleus products; litigation involving intellectual property and
consumer issues and the other risks detailed below and from time to time in the
Company's other SEC reports. The actual results that the Company achieves may
differ materially from any forward-looking projections due to such risks and
uncertainties.
The Company still expects a strong rebound in its fourth quarter with
revenues in the $45-$50 million range. The Company anticipates improvement in
shipments to the OEM channel as it believes customers have worked their way
through their product transitions. The Company expects revenue from all other
channels to improve as compared to the third quarter. The Company expects the
fourth quarter gross profit percentage to be lower as compared to the third
quarter due to continued pricing pressure. Operating expenses in dollars are
expected to be comparable to the third quarter spending level to allow for sales
and marketing costs associated with the Orchid 3D product launch.
The Company undertakes no obligation to publicly release the results of
any revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
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<PAGE> 10
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit. Page Number
11.01 Computation of Net Income Per Share 12
(b) Reports on Form 8-K. The Company did not file any reports on Form
8-K during the three months ended June 30, 1996.
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<PAGE> 11
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.
Micronics Computers, Inc.
------------------------------
Registrant
Date: August , 1996 /s/Shanker Munshani
------------------------- ------------------------------
Shanker Munshani
Chief Executive Officer and
Chief Financial Officer
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<PAGE> 1
Exhibit 11.01
MICRONICS COMPUTERS, INC.
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-----------------------------------------------
1996 1995 1996 1995
PRIMARY (1) ----------- --------- -------- ----------
<S> <C> <C> <C> <C>
Net loss ......................... $(1,909) $(15,160) $(1,896) $(13,673)
======= ======== ======= ========
Average shares outstanding ....... 13,841 13,601 13,786 13,453
Options .......................... -- -- -- --
------- -------- ------- --------
Total common stock and common
stock equivalents ............ 13,841 13,601 13,786 13,453
======= ======== ======= ========
Net loss per common share.......... $ (0.14) $ (1.11) $ (0.14) $ (1.02)
======= ======== ======= ========
</TABLE>
(1) FULLY DILUTIVE AND PRIMARY ARE THE SAME.
- 12 -
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000874737
<NAME> MICRONICS COMPUTERS, INC.
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 2
<CASH> 21,669
<SECURITIES> 2,840
<RECEIVABLES> 20,715
<ALLOWANCES> 0
<INVENTORY> 11,464
<CURRENT-ASSETS> 70,689
<PP&E> 5,502
<DEPRECIATION> 0
<TOTAL-ASSETS> 78,945
<CURRENT-LIABILITIES> 23,020
<BONDS> 0
0
0
<COMMON> (139)
<OTHER-SE> 55,151
<TOTAL-LIABILITY-AND-EQUITY> 78,945
<SALES> 130,650
<TOTAL-REVENUES> 130,650
<CGS> 115,407
<TOTAL-COSTS> 115,407
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 201
<INCOME-PRETAX> (1,896)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,896)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,896)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> 0
</TABLE>
