<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 DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
(510) 651-2300
(Address, including zip code, of registrant's principal
executive offices and 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 January 31, 1997, there were 13,979,077 shares of the registrant's common
stock outstanding.
The Exhibit Index is on page 10.
Page 1 of 10 pages
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and September 30, 1996 . . . . . . . . . . 3
Consolidated Statements of Income for the three months ended December 31, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the three months ended December 31, 1996
and December 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 6: Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 9
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Exhibit (also see item 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
MICRONICS COMPUTERS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 15,169 $ 19,876
Short-term investments . . . . . . . . . . . . . . . . . . . . . . 7,173 3,188
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . 23,466 20,685
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,334 9,836
Prepaid expenses and other current assets . . . . . . . . . . . . . 2,416 1,857
------------- -------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 60,558 55,442
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . 5,067 5,298
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 823
------------- -------------
$ 65,685 $ 61,563
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,563 $ 11,587
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . 6,950 6,088
------------- -------------
Total current liabilities . . . . . . . . . . . . . . . . . . . 21,513 17,675
Stockholders' equity:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 139
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 33,141 32,968
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 10,884 10,718
Unrealized gain on investments . . . . . . . . . . . . . . . . . . 7 63
------------- -------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 44,172 43,888
------------- -------------
$ 65,685 $ 61,563
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
MICRONICS COMPUTERS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------------------
1996 1995
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,188 $ 60,215
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,503 52,698
------------- -------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,685 7,517
Operating expenses:
Research and development . . . . . . . . . . . . . . . . . . . 1,310 1,824
Selling and marketing . . . . . . . . . . . . . . . . . . . . . 2,142 2,524
General and administrative . . . . . . . . . . . . . . . . . . 1,223 1,569
------------- -------------
Total operating expenses . . . . . . . . . . . . . . . . . . 4,675 5,917
------------- -------------
Income from operations . . . . . . . . . . . . . . . . . . . . . . 10 1,600
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . 305 84
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . - (69)
Other (expense), net . . . . . . . . . . . . . . . . . . . . . . . (149) (111)
------------- -------------
Total other income (expense) . . . . . . . . . . . . . . . . . . . 156 (96)
------------- -------------
Income before income taxes . . . . . . . . . . . . . . . . . . . . 166 1,504
Provision for income taxes . . . . . . . . . . . . . . . . . . . . - 575
------------- -------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 166 $ 929
============= =============
Net income per common share . . . . . . . . . . . . . . . . . . . . $ 0.01 $ 0.07
============= =============
Common and common equivalent shares used in
computing per share amounts . . . . . . . . . . . . . . . . . . 13,926 13,750
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
MICRONICS COMPUTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------------------
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 166 $ 929
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 293 422
Loss on disposal of property and equipment . . . . . . . . . . . 75 --
Gain on exercise of Osborne put option . . . . . . . . . . . . (44) --
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . -- 546
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . (2,781) (2,484)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . (2,498) 9,017
Income taxes receivable . . . . . . . . . . . . . . . . . . . -- 1,197
Prepaid expenses and other assets . . . . . . . . . . . . . . (559) (312)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 2,976 (8,185)
Other accrued liabilities . . . . . . . . . . . . . . . . . . 862 3,178
------------- -------------
Net cash provided by (used in) operating activities . . . . . . . . . (1,510) 4,508
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments . . . . . . . . . . . . . . . . . (4,067) --
Maturities or sales of investments . . . . . . . . . . . . . . . . . . 26 14
Exercise of Osborne put option . . . . . . . . . . . . . . . . . . . . 794 --
Purchases of property and equipment, net . . . . . . . . . . . . . . . (137) (108)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 (94)
------------- -------------
Net cash used in investing activities . . . . . . . . . . . . . . . . (3,371) (188)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt principal . . . . . . . . . . . . . . . . . . . . . -- (7)
Proceeds from issuance of common stock, net . . . . . . . . . . . . . 174 307
------------- -------------
Net cash provided by financing activities . . . . . . . . . . . . . . 174 300
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . (4,707) 4,420
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . 19,876 4,537
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . $ 15,169 $ 8,957
============= =============
Cash payments for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 69
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
MICRONICS COMPUTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Micronics Computer, Inc., a Delaware corporation (the "Company") 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 Company's financial
position, results of operations 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 December 31,
1996.
6
<PAGE> 7
NOTE 2. NET INCOME PER COMMON SHARE
Net income 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 equity securities with an amortized
cost of $7,173,000 which is approximately equal to fair value. These
investments are carried at amortized cost with unrealized gains or losses
reflected as a component of stockholders equity.
NOTE 4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------- -------------
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,363 $ 6,497
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . 2,597 1,053
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . 2,374 2,286
------------- -------------
$ 12,334 $ 9,836
============= =============
</TABLE>
7
<PAGE> 8
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, the impact of competitive
products and pricing, the management of growth, the impact of the Company's
efforts to implement its evolving long-term strategy and the other risks
detailed below and from time to time in the Company's other reports filled 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. The Company has identified with a preceding Asterisk
(*) various sentences with this form 10-Q which contain such forward looking
statements, and 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. In addition, the section labeled "Factors That May Affect Future
Results," which has 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.
FACTORS THAT MAY EFFECT FUTURE RESULTS
Micronics Computers, Inc. operates in a rapid changing environment
that involves a number of risks, some of which are beyond the Companies
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
pricing 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 and capacity constraints, 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. The Company's ability to
develop new product features.
In recent quarters the company has experienced declining net sales and
has incurred net losses on a quarterly basis as a result of the effects of the
semiconductor industries slowing order rate, continuation of a high level of
research and spending one of the company's next generation products, and
competitive pressures. 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 generations
products and successful competition with the Company's competitors on a price
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 recourses
than the Company, the Company's net sales will continue to decline.
NET SALES Net sales were approximately $36.2 million for the three
months ended December 31, 1996, a decrease of 40% from $60.2 million for the
three months ended December 31, 1995. The decrease in the quarter sales between
comparable periods are principally attributable to lower than anticipated
orders from the Company's OEM customer base and the U.S. government. Net sales
to OEM and strategic accounts, the government channel, and the combined
distributor/VAR and other channels were 72%, 6% and 22% in the first quarter of
fiscal 1997, compared to 65%, 24% and 11% in the first quarter of fiscal 1996,
respectively. The decrease in OEM and strategic account sales is largely
attributable to lower system board shipments to existing customers. Such
shipments were also at lower average selling prices. The increase in
distributor/VAR sales is primarily due to higher sales of peripheral products
compared to the first quarter of fiscal 1996, offset by lower system board
shipments. Micron Electronics was the only customer accounting for ten percent
or more of the Company's sales.
COST OF SALES/GROSS PROFIT The Company's gross profit as a percentage
of net sales was 12.9% and 12.5% for the first quarter of fiscal 1996 and 1997
respectively. The increased gross margin percentage in fiscal quarter 1997 is
primarily due to improved controls over inventories, lower overhead spending and
lower inventory reserves required due to the disposal of older products in
fiscal 1996. Over the last several quarters the Company has realigned
operations, reducing headcount and operating expenses, to realize greater
operating efficiencies and improve sales channels.
OPERATING EXPENSES Operating expenses for the first quarter of fiscal
1997 decreased $1.2 million from the comparable quarter in fiscal 1996. The
decrease is principally due to lower spending for research and development;
sales and marketing; and general and administrative expenses. These cost
reductions are primarily the result of the continued consolidation of the
Micronics and Orchid organizations.
INTEREST AND OTHER, NET Interest income for the quarter ended December
31, 1996 increased $221,000 or 263% compared to the same period for the prior
year due to significantly higher invested funds and exercise of the Osborne put
option. Interest expense for the first quarter of fiscal 1997 decreased $69,000
resulting from the Company paying off its long-term debt. Other expense in the
first quarter of fiscal 1997 is primarily comprised of 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 38.2% for the three months ended December 31, 1996 and 1995,
respectively. The provision for income taxes for each period was computed by
applying the expected fiscal year effective tax rate (net of 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.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital at December 31, 1996 was $39.0 million, up from $37.8
million at September 30, 1996. Cash, cash equivalents and short-term
investments decreased by $0.7 million during the quarter primarily due net
increases in accounts receivable and inventory, partially offset by the
exercise of the Osborne Computers, Ltd. put option and an increase in accounts
payable.
8
<PAGE> 9
At December 31, 1996, the Company's principal sources of liquidity
included $22.3 million of cash, cash equivalents and short term investments. The
Company also has a $20 million secured line of credit expiring in September
1997. Borrowings under the line of credit are limited to specified 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 were no
borrowings under this line during the quarter ended December 31, 1996.
Management believes existing cash, cash equivalents and short-term
investments, together with cash generated by future(*) 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.
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
11.01 Computation of Net Income Per Share (see page 10)
27.01 Financial Data Schedule
(b) Reports on Form 8-K. The Company did not file any reports on Form 8-K
during the three months ended December 31, 1996.
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: February 12, 1996 /s/ Bill R. Finley
----------------------- ---------------------------------------
Bill Finley Vice President
Finance and Chief Financial
Officer
9
<PAGE> 10
Exhibit Index
11.01 Computation of Net Income Per Share (see page 10)
27.01 Financial Data Schedule
<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
DECEMBER 31,
----------------------------------
1996 1995
------------- -------------
<S> <C> <C>
PRIMARY
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 166 $ 929
============= =============
Average shares outstanding . . . . . . . . . . . . . . . . . . . . 13,923 13,742
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 8
------------- -------------
Total common stock and common stock equivalents . . . . . . . . 13,926 13,750
============= =============
Net income per common share . . . . . . . . . . . . . . . . . . . $ 0.01 $ 0.07
============= =============
FULLY DILUTED
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 166 $ 929
============= =============
Average shares outstanding . . . . . . . . . . . . . . . . . . . . 13,923 13,742
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 8
------------- -------------
Total common stock and common stock equivalents . . . . . . . . 13,926 13,750
============= =============
Net income per common share . . . . . . . . . . . . . . . . . . . $ 0.01 $ 0.07
============= =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 15,169
<SECURITIES> 7,173
<RECEIVABLES> 23,466
<ALLOWANCES> 0
<INVENTORY> 12,334
<CURRENT-ASSETS> 2,476
<PP&E> 5,067
<DEPRECIATION> 0
<TOTAL-ASSETS> 65,685
<CURRENT-LIABILITIES> 21,513
<BONDS> 0
0
0
<COMMON> 140
<OTHER-SE> 44,032
<TOTAL-LIABILITY-AND-EQUITY> 65,685
<SALES> 36,188
<TOTAL-REVENUES> 36,188
<CGS> 31,503
<TOTAL-COSTS> 4,675
<OTHER-EXPENSES> 156
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 166
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 166
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
