<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 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: 0-19272
MICRONICS COMPUTERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-013228
(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 April 30, 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
<PAGE> 2
MICRONICS COMPUTERS, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
INDEX
PART I: FINANCIAL INFORMATION PAGE
----
Item 1: Financial Statements
Consolidated Balance Sheets at
March 31, 1996 and September 30, 1995............ 3
Consolidated Statements of Income for the three
months and six months ended March 31, 1996
and March 31, 1995............................... 4
Consolidated Statements of Cash Flows for
the six months ended March 31, 1996
and March 31, 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 4: Submission of Matters to a Vote of Security Holders...... 10
Item 6: Exhibits and Reports on Form 8-K......................... 10
SIGNATURES............................................................... 11
EXHIBITS ................................................................ 12
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
MICRONICS COMPUTERS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995
--------------- -------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................. $18,820 $ 4,537
Short-term investments................................................. 1,517 51
Accounts receivable, net............................................... 25,027 36,622
Inventories............................................................ 10,077 27,674
Income taxes receivable................................................ 3,363 4,280
Deferred income taxes.................................................. 7,889 8,080
Prepaid expenses....................................................... 2,007 2,050
------- -------
Total current assets................................................ 68,700 83,294
Property and equipment, net................................................ 6,226 6,767
Other assets, net.......................................................... 2,973 3,193
------- -------
$77,899 $93,254
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $11,672 $26,058
Other accrued liabilities.............................................. 5,693 6,946
Current portion of long-term debt...................................... 3,076 2,705
------- -------
Total current liabilities........................................... 20,441 35,709
Long-term debt............................................................. -- 397
Deferred income taxes...................................................... 580 594
Stockholders' equity:
Preferred stock........................................................ -- --
Common stock........................................................... 138 137
Additional paid-in capital............................................. 32,722 32,677
Retained earnings...................................................... 24,018 24,006
Treasury stock......................................................... -- (262)
Unrealized loss on investments......................................... -- (4)
------- -------
Total stockholders' equity.......................................... 56,878 56,554
------- -------
$77,899 $93,254
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 4
MICRONICS COMPUTERS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales................................................. $40,652 $ 53,578 $100,867 $112,391
Cost of sales............................................. 36,623 47,058 89,321 96,687
------- -------- -------- --------
Gross profit.............................................. 4,029 6,520 11,546 15,704
Operating expenses:
Research and development.............................. 1,880 1,858 3,704 3,595
Selling and marketing................................. 1,705 3,150 4,229 6,783
General and administrative............................ 1,690 1,484 3,259 3,111
------- -------- -------- --------
Total operating expenses........................... 5,275 6,492 11,192 13,489
------- -------- -------- --------
Income (loss) from operations............................. (1,246) 28 354 2,215
Interest income........................................... 150 72 234 217
Interest expense.......................................... (110) (85) (179) (167)
Other income (expense), net............................... (276) 74 (387) 95
------- -------- -------- -------
Income (loss) before income taxes......................... (1,482) 89 22 2,360
Provision (benefit) for income taxes...................... (566) 9 9 873
------- -------- -------- --------
Net income (loss)......................................... $ (916) $ 80 $ 13 $ 1,487
======= ======== ======== ========
Net income (loss) per common share........................ $ (0.07) $ .01 $ 0 $ .11
======= ======== ======== ========
Common and common equivalent
shares used in computing per
share amounts......................................... 13,765 13,716 13,759 13,587
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
MICRONICS COMPUTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
---------------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income........................................................ $ 13 $ 1,487
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities:
Depreciation and amortization.................................. 883 1,126
Deferred taxes................................................. 177 (33)
Changes in operating assets and liabilities:
Accounts receivable......................................... 11,595 (6,859)
Inventories................................................. 17,597 (13,064)
Prepaid expenses............................................ 43 161
Accounts payable............................................ (14,386) 5,813
Other accrued liabilities................................... (1,253) 2,532
Income taxes receivable..................................... 917 325
-------- --------
Net cash provided by (used for) operating
activities..................................................... 15,586 (8,512)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments............................... (1,476) (1,000)
Maturities or sales of short-term investments..................... 14 7,739
Purchases of property and equipment, net.......................... (142) (464)
Deposits and other assets......................................... 20 (180)
-------- --------
Net cash provided(used for)investing
activities..................................................... (1,584) 6,095
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt principal....................................... (26) (59)
Proceeds from issuance of common stock, net....................... 307 774
Repurchase of common stock........................................ -- (217)
-------- --------
Net cash provided by financing activities......................... 281 498
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................................... 14,283 (1,919)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD......................................................... 4,537 7,876
-------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................................................ $ 18,820 $ 5,957
======== ========
Cash payments for:
Income taxes...................................................... $ -- $ 581
Interest.......................................................... 138 167
</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 INCOME(LOSS)PER COMMON SHARE
Net Income (Loss) per common share has been computed based on the
weighted average number of common and common equivalent shares outstanding.
Common equivalent shares result from the assumed exercise of outstanding stock
options that have a dilutive effect when applying the treasury stock method.
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 which approximates fair
value.
NOTE 4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995
--------- -------------
(UNAUDITED)
<S> <C> <C>
Raw materials ................................... $ 8,110 $18,626
Work-in-process ................................... 595 4,173
Finished goods ................................... 1,372 4,875
------- -------
$10,077 $27,674
======= =======
</TABLE>
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<PAGE> 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
NET SALES Net sales were $40.7 million for the three months ended March
31, 1996, a decrease of 24% from $53.6 million for the three months ended March
31, 1995. Net sales for the six months ended March 31, 1996 totaled $100.9
million, down 10% from $112.4 million through last year's second 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
customer base which continued to work through its inventories remaining after
the December quarter and significantly lower sales to the U.S. government due to
the recent federal budget impasse.
COST OF SALES/GROSS PROFIT The Company's gross profit as a percentage of
net sales was 9.9% and 12.2% for the second quarter of fiscal 1996 and the
second quarter of fiscal 1995, respectively. Gross profit margin percentage was
11.4% and 14.0% for the six months ended March 31, 1996 and 1995, respectively.
The lower gross margin percentage for both periods are primarily due to the
lower revenue with the same level of manufacturing costs.
OPERATING EXPENSES Operating expenses for the second quarter of fiscal
1996 decreased $1.2 million from the comparable quarter in fiscal 1995 and were
$2.3 million lower for the six months ended March 31, 1996 compared to the prior
year period. Research and development expenses grew slightly as the Company
continued it's investment in developing new technology. Selling and marketing
costs were down for the quarter ended March 31, 1996 by $1.4 million as compared
to the same quarter in the previous year and down by $2.6 million for the six
months ended March 31, 1996 as compared to the same six month period in fiscal
1995. These cost reductions are primarily the result of the nearly completed
consolidation of the Micronics and Orchid sales and marketing organizations.
General and administrative spending increased slightly for the quarter and six
months, as compared to the same periods last year. This increase is due
principally to a $215,000 charge related to a settlement with a landlord on a
property in the U.K. which had previously been vacated.
INTEREST AND OTHER INCOME AND EXPENSE Interest income for the quarter
ended March 31, 1996 increased $78,000 or 108% compared to the prior year
period, and increased $17,000 or 8% for the first half of fiscal 1996 compared
to the prior year period due to higher average invested balances. The Company
recorded $110,000 and $179,000 of interest expense for the three and six months
ended March 31, 1996, respectively, related to long-term debt on real property
owned by Orchid. Included in other expense is the amortization of loan fees on
the $20 million line of credit and a $200,000 accrual to reflect a writedown to
actual sales value of real estate in France which the Company has agreed to
sell.
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<PAGE> 8
PROVISION FOR INCOME TAXES The Company's estimated effective tax rate was
41.0% and 36.8% for the six months ended March 31, 1996 and 1995, respectively.
The provision for income taxes for each period was computed by applying the
estimated fiscal year effective tax rate (net federal and state statutory rate
as adjusted for various tax credits and the estimated tax effect of certain
permanent items) to income before income taxes for each period.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital at March 31, 1996 was $48.3 million, up from $47.6
million at September 30, 1995. Cash, cash equivalents and short-term investments
increased by $11.3 million during the quarter the result of decreases in
accounts receivable and inventory only partially offset by decreases in accounts
payable and accrued liabilities. The decrease in inventories was 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 the lower
levels of net sales and related reduced purchasing activity.
At March 31, 1996, the Company's principal sources of liquidity included
$20.3 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 six
months ended March 31, 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 10Q 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; change 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;
risk of nonpayment of accounts receivable; risk 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
-8-
<PAGE> 9
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 expects sales through the third quarter to be approximately
30 percent below the second quarter. Stiff price competition and a product
transition-induced slowdown are expected to result in a substantial decline in
shipments to the OEM channel. The Company was informed by its largest OEM
customer that, as this customer's business grows, the customer expects to
purchase a portion of it's motherboard requirements from other suppliers. At
this time, the Company estimates that it will retain approximately two-thirds of
this customer's unit purchases of motherboards. For the third quarter,
government sales are expected to show improvement. The Company expects revenue
from all other channels to be comparable to the second quarter. The Company
expects a significant decrease in the third quarter gross margin percentage due
to the lower revenue projected above. The Company expects operating expenses for
it's third quarter in dollars to be flat as compared to the second quarter. The
Company expects the loss from interest and other income to decline for the third
quarter as compared to the second quarter.
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.
-9-
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on February 13,
1996 in Fremont, California. Of the 13,715,031 shares outstanding as of the
record date, 12,165,701 shares were present or represented by proxy at the
meeting.
The following matters were submitted to a vote of security holders:
(1) To elect the following to serve as a Director of the Company:
<TABLE>
<CAPTION>
Votes For Votes Abstained
--------- ---------------
<S> <C> <C>
Steven P. Kitrosser 9,988,838 2,176,863
Shanker Munshani 10,033,705 2,131,996
William E. Shelander 10,031,172 2,134,529
</TABLE>
<TABLE>
<CAPTION>
(2) To ratify the selection of KPMG Peat Marwick LLP as independent accountants for the Company for the current fiscal
year:
<S> <C>
Votes for: 11,879,742
Votes against: 116,568
Votes abstaining: 169,391
</TABLE>
(3) To consider a stockholder recommendation to the Board of Directors of
the Company that the Board of Directors take the steps necessary to
achieve a sale or cash merger of the Company on terms that will
maximize values as promptly as possible:
<TABLE>
<S> <C>
Votes for: 3,673,799
Votes against: 3,628,468
Votes abstaining: 119,864
Broker non-votes: 4,743,570
</TABLE>
The stockholder recommendation failed for want of a vote sufficient to
pass the proposal. The vote required was a majority of the shares of
Common Stock present at the Meeting in person or by proxy (without
counting broker non-votes toward the quorum nor the vote required), or
at least 3,711,066 shares of the Company's Common Stock. The number of
shares represented at the Meeting and voting "FOR" this proposal was
3,673,799.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. 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 March 31, 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: May 15, 1996 /s/Robert V. Mahoney
------------------------------ --------------------------
Robert V. Mahoney
Duly Authorized Officer and
Chief Accounting 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 SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
PRIMARY
<S> <C> <C> <C> <C>
Net income (loss)........................................... $ (916) $ 80 $ 13 $ 1,487
======= ======= ======= ========
Average shares outstanding.................................. 13,765 13,424 13,752 13,371
Options..................................................... -- 292 7 216
------ ------- ------- --------
Total common stock and common
stock equivalents....................................... 13,765 13,716 13,759 13,587
======= ======= ======= ========
Net income(loss) per common share........................... $ (.07) $ .01 $ 0 $ .11
======= ======= ======= =========
FULLY DILUTED
Net income(loss)............................................ $ (916) $ 80 $ 13 $ 1,487
======= ======= ======= ========
Average shares outstanding.................................. 13,765 13,424 13,752 13,371
Options..................................................... -- 313 7 328
Total common stock and common ------- ------- ------- --------
stock equivalents....................................... 13,765 13,737 13,759 13,699
======= ======= ======= ========
Net income(loss) per common share........................... $ (.07) $ .01 $ 0 $ .11
======= ======= ======= ========
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 2
<CASH> 18,820
<SECURITIES> 1,517
<RECEIVABLES> 25,027
<ALLOWANCES> 0
<INVENTORY> 10,077
<CURRENT-ASSETS> 68,700
<PP&E> 6,226
<DEPRECIATION> 0
<TOTAL-ASSETS> 77,899
<CURRENT-LIABILITIES> 20,441
<BONDS> 0
0
0
<COMMON> 138
<OTHER-SE> 56,740
<TOTAL-LIABILITY-AND-EQUITY> 77,899
<SALES> 100,867
<TOTAL-REVENUES> 100,867
<CGS> 89,321
<TOTAL-COSTS> 89,321
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 179
<INCOME-PRETAX> 22
<INCOME-TAX> 9
<INCOME-CONTINUING> 13
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
