<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, 1997
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.)
45365 NORTHPORT LOOP WEST
FREMONT, CALIFORNIA 94538-6417
(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, 1997 there were 14,074,471 shares of the registrant's common stock
outstanding.
The Exhibit Index is on page 9.
Page 1 of 10 pages
<PAGE> 2
MICRONICS COMPUTERS, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 1997 and September 30, 1996.......................................... 3
Condensed Consolidated Statements of Results of Operations
for the three months and nine months ended
June 30, 1997 and June 30, 1996............................................... 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended June 30, 1997
and June 30, 1996............................................................. 5
Notes to Condensed Consolidated Financial
Statements.................................................................... 6
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................... 7
Item 3: Quantitative and Qualitative Disclosures About Market Risk............................. 9
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K....................................................... 9
SIGNATURES............................................................................................... 9
EXHIBITS ................................................................................................ 10
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
MICRONICS COMPUTERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
----------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................ $21,178 $19,876
Short-term investments ............................... 1,500 3,188
Accounts receivable, net ............................. 14,308 20,685
Inventories .......................................... 13,117 9,836
Prepaid expenses ..................................... 1,878 1,857
------- -------
Total current assets ............................. 51,981 55,442
Property and equipment, net .............................. 4,882 5,298
Other assets ............................................. 39 823
------- -------
$56,902 $61,563
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $11,046 $11,587
Other accrued liabilities ............................ 7,123 6,088
------- -------
Total current liabilities ........................ 18,169 17,675
Stockholders' equity:
Common stock ......................................... 142 139
Additional paid-in capital ........................... 33,297 32,968
Retained earnings .................................... 5,287 10,718
Unrealized gain on investments ....................... 7 63
------- -------
Total stockholders' equity ....................... 38,733 43,888
------- -------
$56,902 $61,563
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
MICRONICS COMPUTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales .............................. $ 22,274 $ 29,783 $ 82,744 $ 130,650
Cost of sales .......................... 20,170 26,086 73,827 115,407
--------- --------- --------- ---------
Gross profit ........................... 2,104 3,697 8,917 15,243
Operating expenses:
Research and development ........... 1,554 1,866 4,273 5,570
Selling and marketing .............. 2,265 2,514 7,020 6,743
General and administrative ......... 1,280 1,492 3,617 4,751
--------- --------- --------- ---------
Total operating expenses ....... 5,099 5,872 14,910 17,064
--------- --------- --------- ---------
Loss from operations ................... (2,995) (2,175) (5,993) (1,821)
Interest income ........................ 383 279 980 513
Interest expense ....................... -- (22) -- (201)
Other income (expense), net ............ (321) -- (418) (387)
--------- --------- --------- ---------
Total other income (expense) ... 62 257 562 (75)
--------- --------- --------- ---------
Loss before income taxes ............... (2,933) (1,918) (5,431) (1,896)
Income tax benefit ..................... -- (9) -- --
--------- --------- --------- ---------
Net loss ............................... $ (2,933) $ (1,909) $ (5,431) $ (1,896)
========= ========= ========= =========
Net loss per common share .............. $ (0.21) $ (0.14) $ (0.39) $ (0.14)
========= ========= ========= =========
Common and common equivalent shares used
in computing per share amounts ....... 14,051 13,841 13,985 13,786
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
MICRONICS COMPUTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................ $ (5,431) $ (1,896)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization ....................... 803 1,362
Loss on disposal of property and equipment .......... 146 --
Gain on exercise of Osborne put option .............. (44) --
Deferred taxes ...................................... -- (1,074)
Changes in operating assets and liabilities:
Accounts receivable ............................. 6,377 15,907
Inventories ..................................... (3,281) 16,210
Prepaid expenses ................................ (21) (484)
Accounts payable ................................ (541) (11,213)
Other accrued liabilities ....................... 1,035 (1,422)
Income taxes receivable ......................... -- 2,008
-------- --------
Net cash provided by (used in) operating activities ..... (957) 19,398
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments ..................... (5,069) (2,726)
Maturities or sales of short-term investments ........... 6,701 14
Exercise of Osborne put option .......................... 794 --
Purchases of property and equipment, net ................ (533) (663)
Sale of property and equipment, net ..................... -- 566
Deposits and other assets ............................... 34 439
-------- --------
Net cash provided by (used for) investing activities .... 1,927 (2,370)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt principal ............................. -- (35)
Payoff of mortgage on property .......................... -- (416)
Proceeds from issuance of common stock, net ............. 332 555
-------- --------
Net cash provided by financing activities ............... 332 104
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................... 1,302 17,132
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............ 19,876 4,537
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................. $ 21,178 $ 21,669
======== ========
Cash payments for:
Interest ................................................ -- 205
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
MICRONICS COMPUTERS, INC.
NOTES TO CONDENSED 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 adjustments)
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, 1996.
Certain September 30, 1996 balance sheet accounts contain
reclassifications from those presented in the Company's Form 10-K filed with the
SEC in order to be consistently presented in relation to June 30, 1997.
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.
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,
1997 1996
---------- -------------
(UNAUDITED)
<S> <C> <C>
Raw materials ................. $ 6,902 $ 6,497
Work-in-process ............... 1,246 1,053
Finished goods ................ 4,969 2,286
------- -------
$13,117 $ 9,836
======= =======
</TABLE>
NOTE 5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for reporting and displaying
comprehensive income and its components in the consolidated financial
statements. It does not, however, require a specific format for the statement,
but requires the Company to display an amount representing total comprehensive
income for the period in that financial statement. The Company is in the process
of determining its preferred format. This Statement is effective for fiscal
years beginning after December 15, 1997.
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<PAGE> 7
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The Statement establishes standards
for the way public business enterprises are to report information about
operating segments in annual financial statements and requires those enterprises
to report selected information about operating segments in interim financial
reports issued to shareholders. This Statement is effective for financial
statements for the periods beginning after December 31, 1997. The Company does
not believe it has any separately reportable segments.
NOTE 6. SUBSEQUENT EVENT
Subsequent to the end of its June 30, 1997 quarter, the Company
developed and announced a plan to restructure its operations to reduce future
worldwide operating costs. The plan principally relates to a reduction in its
workforce by approximately 30% of its personnel. The plan is expected to be
implemented in the Company's fourth quarter ending September 30, 1997 which will
result in the recognition of approximately $800,000 in related expenses.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
The Company's Common Stock price may be subject to significant
volatility. For any given quarter, a shortfall in the Company's announced
revenue or earnings from the levels expected by securities analysts could have
an immediate and adverse effect on the trading price of the Company's Common
Stock. The Company may not learn of, or be able to confirm, revenue or earnings
shortfalls until late in the quarter or following the end of the quarter. In
general, the Company participates in a very dynamic high technology industry
which can result in significant fluctuations in the Company's Common Stock price
at any time.
Except for the historical information contained herein, the matters
discussed in this Form 10-Q are forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended, that involve risks and uncertainties,
including the rate of orders for the Company's products, the timely availability
and acceptance of new products, changes in management of the Company,
difficulties experienced by the Company with respect to hiring and retaining
qualified personnel, the impact of competitive products and pricing, the impact
of the Company's efforts to implement its evolving long-term strategy and the
other risks detailed below including, without limitation, the risks described in
the section labeled "Factors That May Affect Future Results," and the risks
described from time to time in the Company's other reports filed with the
Securities and Exchange Commission. The actual results that the Company achieves
may differ materially from any forward-looking projections due to such risks and
uncertainties. Words such as "believes," "anticipates," "expects," "future,"
"intends," and similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such statements.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Micronics Computers, Inc. operates in a rapidly changing environment
that involves a number of risks, some of which are beyond the Company's control.
The following discussion highlights some of those risks.
The Company's operating results are subject to quarterly and other
fluctuations due to a variety of factors, including the volume and timing of
orders received, potential cancellation or rescheduling of orders, competitive
pressures, availability and cost of component parts and materials from the
Company's suppliers, the adequate forecasting of the mixed product demand due to
production lead times, the timing of new product announcements and introductions
by the Company or its competitors, changes in the mix of products sold, research
and development expenses associated with new product introductions, the timing
and level of development costs, market cyclical nature of the semiconductor
industry and economic conditions generally or in various geographic areas and
the Company's ability to develop new product features.
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<PAGE> 8
In recent quarters, the Company has experienced declining net sales and
has incurred net losses as a result of competitive pressures and the effects of
the loss of and slowing order rate from its major OEM and government customers.
The Company's ability to reduce the trend of declining net sales, which have
yielded net losses, is dependent on several factors including increased order
rates for the Company's products, successful and timely development and market
acceptance of the Company's next generation products, the availability of
qualified sales and engineering personnel and successful competition with the
Company's competitors on a price, service and performance basis. Many of these
factors are not within the Company's control, and if order rates for the
Company's products fail to increase, if the Company's next generation products
are not successfully and timely developed and accepted by the Company's
customers, or if the Company cannot successfully compete with its competitors,
many of whom have substantially greater resources than the Company, the
Company's net sales will continue to decline. To the extent that the Company is
unable to offset such sales declines with cost reductions, recurring losses are
likely.
COMPARISON OF RESULTS
NET SALES Net sales were $22.3 million for the three months ended June
30, 1997, a decrease of 25% from $29.8 million for the similar period ended June
30, 1996. Net sales for the nine months ended June 30, 1997 totaled $82.7
million, down 37% from $130.6 million through last year's third quarter. The
decreases in the quarter and the nine month net sales between comparable periods
are principally attributable to lower sales to OEM and government markets.
COST OF SALES/GROSS PROFIT The Company's gross profit as a percentage
of net sales was 9.4% and 12.4% for the third quarter of fiscal 1997 and the
third quarter of fiscal 1996, respectively. Gross profit margin percentage was
10.8% and 11.7% for the nine months ended June 30, 1997 and 1996, respectively.
The decline in gross profit margin is primarily the result of intensive price
competition and lower sales levels to cover the Company's manufacturing costs.
OPERATING EXPENSES Operating expenses for the third quarter of fiscal
1997 decreased 13% or $.8 million from the comparable quarter in fiscal 1996 and
were 13% or $2.2 million lower for the nine months ended June 30, 1997 compared
to the prior year period. Research and development and general and
administrative expenses decreased $.5 million for the three months ended June
30, 1997 to $2.8 million compared to $3.3 million for the comparable period
ended June 30, 1996 and decreased $2.4 million for the nine months ended June
30, 1997 to $7.9 million compared to $10.3 million for the nine months ended
June 30, 1996. Selling and marketing expenses also decreased $.2 million for the
three month period ended June 30, 1997 to $2.3 million from $2.5 million for the
comparable three month period but increased $.3 million to $7.0 million from
$6.7 million for the comparable nine month periods ended June 30, 1997 and June
30, 1996, respectively. The net operating expense reductions in the three and
nine month periods in fiscal year 1997 compared to fiscal year 1996 are due to
decreases in the number of employees mainly attributable to the consolidation of
Micronics and Orchid organizations offset by cost increases which are primarily
the result of expanding sales and marketing efforts in the distribution and
international sales channels.
INTEREST AND OTHER INCOME AND EXPENSE Interest income for the quarter
ended June 30, 1997 increased $104,000 or 37% compared to the prior year period
and increased $467,000 or 91% for the first nine months of fiscal 1997 compared
to the comparable prior year period due to higher invested balances. The Company
did not incur any interest expense for the three and nine months periods ended
June 30, 1997. Other expense for the nine months of fiscal year 1997 is
primarily loan fees on the $20 million line of credit signed by the Company in
September 1995.
PROVISION FOR INCOME TAXES The Company's estimated effective tax rate
was 0.0% and 41.0% for the nine months ended June 30, 1997 and 1996,
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. At
September 30, 1996, the Company established a full valuation allowance against
its deferred tax assets, and the Company has recorded no additional benefit
associated with its losses.
SUBSEQUENT EVENT Subsequent to the end of its June 30, 1997 quarter,
the Company developed and announced a plan to restructure its operations to
reduce future worldwide operating costs. The plan principally relates to a
reduction in its workforce by approximately 30% of its personnel. The plan is
expected to be implemented in the Company's fourth quarter ending September 30,
1997 which will result in the recognition of approximately $800,000 in related
expenses.
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<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES:
Working capital at June 30, 1997 was $33.8 million, down $4.0 million
from $37.8 million at September 30, 1996. The decrease in working capital was
primarily due to continued losses and a decrease in accounts receivable of $6.4
million offset by an increase of $3.3 million in inventories. Accounts
receivable decreased principally due to the lower sales in the quarter. The
increase in inventories was primarily related to a change in the inventory
management process by the Company's largest OEM customer, the impact of lower
sales and the effect of new product introductions.
At June 30, 1997, the Company's principal sources of liquidity included
$22.7 million of cash and cash equivalents and short-term interest-bearing
financial instruments. The Company also has a secured line of credit of $20
million. The Company has provided notice to the lender of the Company's decision
to terminate this line of credit agreement as of September 11, 1997.
Management believes existing cash and cash equivalents and short-term
investments will provide sufficient funds to meet the Company's operating and
capital requirements over the next twelve months provided the Company is able to
maintain or increase its sales levels.
FUTURE BUSINESS PLANS:
The Company has and continues to work with its financial advisor to
identify attractive acquisition and strategic partner relationships. While
ongoing opportunities are being explored, the Company will not be in a position
to comment on any potential transaction until a binding agreement is reached,
if any, and it is appropriate under applicable securities laws to make a public
disclosure.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
11.01 Computation of Net Loss Per Share
27.01 Financial Data Schedule
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 14, 1997 /s/ Bill R. Finley
---------------------- -------------------------------
Bill R. Finley
Vice President, Finance and
Chief Financial Officer
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<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<S> <C>
11.01 Computation of Net Loss Per Share
27.01 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11.01
MICRONICS COMPUTERS, INC.
COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY AND FULLY DILUTED
Net loss .................... $ (2,933) $ (1,909) $ (5,431) $ (1,896)
======== ======== ======== ========
Average shares outstanding .. 14,051 13,841 13,985 13,786
======== ======== ======== ========
Net loss per common share ... $ (.21) $ (.14) $ (.39) $ (.14)
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 21,178
<SECURITIES> 1,500
<RECEIVABLES> 14,308
<ALLOWANCES> 0
<INVENTORY> 13,117
<CURRENT-ASSETS> 51,981
<PP&E> 4,882
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,902
<CURRENT-LIABILITIES> 18,169
<BONDS> 0
0
0
<COMMON> 142
<OTHER-SE> 38,591
<TOTAL-LIABILITY-AND-EQUITY> 56,902
<SALES> 82,744
<TOTAL-REVENUES> 82,744
<CGS> 73,827
<TOTAL-COSTS> 73,827
<OTHER-EXPENSES> 14,910
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,431)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,431)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,431)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
