UNITED STATES
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 27, 2008
OR
o
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 000-51642
Aviza Technology, Inc.
(Exact Name of Registrant as Specified in its Charter)
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Delaware |
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20-1979646 |
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification Number) |
440 Kings Village Road
Scotts Valley, California 95066
(Address of Principal Executive Offices including Zip Code)
(831) 438-2100
(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.
YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
Accelerated filer o |
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Non-accelerated filer o |
Smaller reporting company x |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o NO x
As of August 6, 2008, the registrant had 21,856,473 shares of its common stock, par value $0.0001 per share, outstanding.
Aviza Technology, Inc.
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Page
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PART I. FINANCIAL INFORMATION |
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Condensed Consolidated Balance Sheets — at June 27, 2008 and September 28, 2007 |
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1 |
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2 |
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3 |
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4 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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16 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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25 |
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25 |
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26 |
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26 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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26 |
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26 |
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26 |
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27 |
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27 |
AVIZA TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par amounts and number of shares)
(1) Amounts were derived from our audited consolidated financial statements for the year ended September 28, 2007 included in our Annual Report on Form 10-K.
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
AVIZA TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
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Quarter Ended |
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Nine Months Ended |
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June 27, |
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June 29, |
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June 27, |
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June 29, |
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2008 |
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2007 |
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2008 |
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2007 |
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NET SALES |
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$ |
33,505 |
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$ |
57,421 |
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$ |
97,693 |
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$ |
181,251 |
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COST OF GOODS SOLD: |
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Cost of goods sold |
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22,490 |
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39,246 |
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67,808 |
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125,304 |
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Cost of goods sold - restructuring charges |
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— |
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— |
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13,029 |
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— |
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Total cost of goods sold |
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22,490 |
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39,246 |
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80,837 |
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125,304 |
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GROSS PROFIT |
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11,015 |
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18,175 |
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16,856 |
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55,947 |
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OPERATING EXPENSES: |
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Research and development |
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7,337 |
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8,101 |
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23,357 |
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23,815 |
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Selling, general and administrative |
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9,001 |
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8,217 |
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28,084 |
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24,846 |
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Restructuring and other charges |
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— |
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— |
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7,792 |
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— |
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Total operating expenses |
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16,338 |
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16,318 |
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59,233 |
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48,661 |
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INCOME (LOSS) FROM OPERATIONS |
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(5,323 |
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1,857 |
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(42,377 |
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7,286 |
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OTHER INCOME (EXPENSE): |
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Interest income |
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22 |
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146 |
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106 |
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283 |
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Interest expense |
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(487 |
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(663 |
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(1,435 |
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(2,978 |
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Other income - net |
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15 |
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(449 |
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49 |
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(425 |
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Total other expense - net |
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(450 |
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(966 |
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(1,280 |
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(3,120 |
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INCOME (LOSS) BEFORE INCOME TAXES |
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(5,773 |
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891 |
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(43,657 |
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4,166 |
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PROVISION FOR (BENEFIT FROM) INCOME TAXES |
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(128 |
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382 |
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594 |
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1,178 |
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NET INCOME (LOSS) |
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$ |
(5,645 |
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$ |
509 |
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$ |
(44,251 |
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$ |
2,988 |
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Net income (loss) per share: |
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Basic |
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$ |
(0.26 |
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$ |
0.02 |
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$ |
(2.05 |
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$ |
0.16 |
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Diluted |
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$ |
(0.26 |
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$ |
0.02 |
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$ |
(2.05 |
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$ |
0.16 |
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Weighted average common shares: |
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Basic |
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21,856,473 |
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20,763,221 |
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21,590,985 |
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18,150,976 |
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Diluted |
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21,856,473 |
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21,607,161 |
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21,590,985 |
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18,964,575 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
AVIZA TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
(Unaudited)
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Nine Months Ended |
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June 27, |
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June 29, |
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2008 |
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2007 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income (loss) |
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$ |
(44,251 |
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$ |
2,988 |
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Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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Depreciation |
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4,045 |
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2,908 |
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Amortization |
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420 |
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945 |
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Non-cash restructuring and other charges |
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17,676 |
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— |
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Fair value of common stock issued for prototype materials |
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125 |
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— |
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Stock-based compensation |
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1,451 |
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1,530 |
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Gain on disposal of equipment |
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(296 |
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— |
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Provision for allowance for doubtful accounts |
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141 |
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(19 |
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Write-off costs of prior financing agreements |
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— |
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176 |
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Reduction in acquired intangible assets due to the use of acquired net operating losses |
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— |
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509 |
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Changes in assets and liabilities: |
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Accounts receivable |
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9,494 |
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(13,936 |
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Inventory |
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(10,902 |
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8,829 |
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Prepaid expenses and other assets |
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1,175 |
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104 |
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Accounts payable |
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(772 |
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(11,199 |
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Warranty liability |
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(3,593 |
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1,104 |
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Accrued liabilities |
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5,438 |
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1,609 |
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Net cash used in operating activities |
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(19,849 |
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(4,452 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of property, plant and equipment |
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(2,511 |
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(7,479 |
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Purchase of technology license |
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(48 |
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— |
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Proceeds from sale of equipment |
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324 |
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— |
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Proceeds from sale of the net assets of ET Equipments Ltd. |
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600 |
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— |
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Net cash used in investing activities |
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(1,635 |
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(7,479 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Net proceeds (repayments) on credit lines |
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13,075 |
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(12,341 |
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Proceeds from the issuance of common stock |
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9 |
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27,689 |
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Net proceeds on refinancing of mortgage loan |
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— |
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5,635 |
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Proceeds from equipment loan |
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— |
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4,000 |
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Payments on mortgage loan |
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(333 |
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(253 |
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Payments on other borrowings |
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(985 |
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(958 |
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Payments on equipment loan |
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(973 |
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(95 |
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Payments on capital lease obligations |
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(234 |
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(195 |
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Net cash provided by financing activities |
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10,559 |
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23,482 |
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Effect of exchange rates on foreign cash balances |
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(338 |
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(281 |
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
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(11,263 |
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11,270 |
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CASH AND CASH EQUIVALENTS: |
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Beginning of period |
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23,087 |
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10,722 |
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End of period |
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$ |
11,824 |
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$ |
21,992 |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Cash paid for interest |
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$ |
1,320 |
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$ |
2,560 |
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Cash paid for income taxes |
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$ |
629 |
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$ |
353 |
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NONCASH INVESTING AND FINANCING ACTIVITIES: |
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Fair value of common stock issued in the acquisition of technology license |
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$ |
1,715 |
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$ |
— |
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Property and equipment purchases included in accounts payable at end of period |
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$ |
129 |
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$ |
537 |
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Equipment acquired under capital lease |
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$ |
71 |
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$ |
715 |
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Notes payable issued for services to be rendered |
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$ |
— |
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$ |
1,737 |
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The accompanying notes are an integral part of these condensed consolidated financial statements
3
AVIZA TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 27,
2008
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States (U.S.) generally accepted accounting principles for interim financial information and applicable regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of financial position and results of operations have been included. Our operating results for the quarter and nine months ended June 27, 2008 are not necessarily indicative of the results that may be expected for future quarters and the fiscal year ending September 26, 2008. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended September 28, 2007, which are included in our Annual Report on Form 10-K, and the risk factors contained therein.
The preparation of the accompanying unaudited condensed consolidated financial statements requires the use of estimates that affect the reported amounts of assets, liabilities, revenues, expenses and contingencies. These estimates include, but are not limited to, estimates related to revenue recognition, allowance for doubtful accounts, inventory valuation, tangible and intangible long-lived asset valuation, warranty and other obligations, contingent liabilities and litigation. Estimates are updated on an ongoing basis and are evaluated based on historical experience and current circumstances. Changes in facts and circumstances in the future may give rise to changes in these estimates which may cause actual results to differ from current estimates.
Aviza Technology, Inc.’s (the “Company” or “Aviza”) current fiscal year will end on September 26, 2008 and includes 52 weeks. We close our fiscal quarters on the last Friday of December, March, June and September.
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
4
2. Balance Sheet Details
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June 27, |
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September 28, |
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2008 |
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2007 |
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(in thousands) |
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Inventory: |
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Raw materials |
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$ |
28,985 |
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$ |
28,667 |
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Work-in-process |
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12,636 |
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13,692 |
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Finished goods and evaluation systems |
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4,320 |
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3,170 |
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Total |
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$ |
45,941 |
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$ |
45,529 |
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Prepaid expenses and other current assets: |
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Insurance |
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$ |
375 |
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$ |
96 |
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Deferred installation costs |
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249 |
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385 |
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Taxes |
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2,055 |
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2,621 |
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Other |
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2,449 |
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2,215 |
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Total |
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$ |
5,128 |
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$ |
5,317 |
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Property, plant and equipment - net: |
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Land |
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$ |
1,839 |
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$ |
1,839 |
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Buildings and improvements |
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12,217 |
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12,198 |
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Machinery and equipment |
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18,964 |
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18,659 |
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Office furnishings, fixtures and equipment |
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6,672 |
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6,564 |
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Construction-in-process |
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758 |
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3,820 |
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Total |
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40,450 |
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43,080 |
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Accumulated depreciation |
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(15,042 |
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(11,299 |
) |
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Property, plant and equipment - net |
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$ |
25,408 |
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$ |
31,781 |
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Accrued liabilities: |
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Accrued payroll and payroll taxes |
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$ |
5,190 |
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$ |
5,660 |
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Accrued legal and accounting fees |
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4,618 |
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1,643 |
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Deferred revenue |
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974 |
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1,076 |
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Accrued restructuring charges |
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1,646 |
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— |
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Other taxes payable |
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3,455 |
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3,557 |
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Other |
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2,846 |
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1,455 |
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Total |
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$ |
18,729 |
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$ |
13,391 |
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3. Stock-Based Compensation
Effective October 1, 2005, we adopted the provisions of Statement of Financial Accounting Standards, or SFAS, No. 123(R), Share-Based Payment , or SFAS 123(R). SFAS 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the employee’s requisite service period. The measurement of stock-based compensation cost is based on several criteria including, but not limited to, the valuation model used and associated input factors such as expected term of the award, stock price volatility, dividend rate, risk-free interest rate and award cancellation rate. The input factors used in the valuation model are based on subjective future expectations combined with management judgment. If there is a difference between the assumptions used in determining stock-based compensation costs and the actual factors, which become known over time, we may change future input factors used
5
in determining stock-based compensation costs. These changes may materially impact our results of operations in the periods over which such costs are expensed.
The fair value of each option is estimated at the date of grant using the Black-Scholes option valuation model. We estimate the expected stock price volatility and expected life of our options based on historical data and representative peer group data. We use historical data to estimate forfeiture rates. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield with similar expected life.
Under our stock option plans, we may grant options to purchase up to a maximum of 6,644,000 shares of common stock, including outstanding options to employees, directors and consultants at a price not less than the fair market value on the date of the grant. These options generally vest over two to five years and generally expire seven to ten years from the date of the grant.
We recognized stock-based compensation expense of $456,000 and $1,451,000 during the quarter and nine months ended June 27, 2008, respectively, and $616,000 and $1,530,000 during the quarter and nine months ended June 29, 2007, respectively. Due to uncertainty surrounding the realization of the income tax benefit related to stock based compensation expense, there is no related income tax benefit recognized in the consolidated statements of operations for the quarter and nine months ended June 27, 2008 and June 29, 2007, respectively, as a full valuation allowance has been provided against the deferred tax asset.
The fair value of our stock options granted in the quarter and nine months ended June 27, 2008 and June 29, 2007, respectively, was estimated at the date of grant using the following weighted average assumptions:
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Quarter Ended |
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Nine Months Ended |
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June 27, |
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June 29, |
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June 27, |
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June 29, |
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2008 |
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2007 |
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2008 |
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2007 |
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Expected life (years) |
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3.0 |
|
4.8 |
|
3.6 |
|
4.6 |
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Risk-free interest rate |
|
2.6% |
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4.6% |
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2.8% |
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4.7% |
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Stock price volatility |
|
58.0% |
|
60.1% |
|
56.3% |
|
60.8% |
|
|
Dividend yield |
|
0.0% |
|
0.0% |
|
0.0% |
|
0.0% |
|
6
The following table summarizes our stock option activity under the stock plans during the quarter and nine months ended June 27, 2008 :
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Weighted Average |
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Number of |
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Weighted Average |
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Remaining Contractual |
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Aggregate Intrinsic |
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Shares |
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Exercise Price |
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Term (Years) |
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Value |
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Outstanding at September 28, 2007 |
|
4,202,499 |
|
$ |
5.01 |
|
6.51 |
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$ |
3,496,801 |
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Granted |
|
410,000 |
|
1.78 |
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|
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Exercised |
|
(9,924 |
) |
0.95 |
|
|
|
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|
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Forfeited |
|
(35,932 |
) |
12.78 |
|
|
|
|
|
||
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Outstanding at December 28, 2007 |
|
4,566,643 |
|
4.66 |
|
6.27 |
|
1,266,487 |
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Granted |
|
100,000 |
|
1.10 |
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|
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|
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Exercised |
|
— |
|
— |
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|
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Forfeited |
|
(78,540 |
) |
9.55 |
|
|
|
|
|
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|
Outstanding at March 28, 2008 |
|
4,588,103 |
|
4.50 |
|
6.01 |
|
— |
|
||
|
Granted |
|
883,500 |
|
0.52 |
|
|
|
|
|
||
|
Exercised |
|
— |
|
— |
|
|
|
|
|
||
|
Forfeited |
|
(232,346 |
) |
4.52 |
|
|
|
|
|
||
|
Outstanding at June 27, 2008 |
|
5,239,257 |
|
3.83 |
|
5.57 |
|
— |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
|
Options vested and expected to vest at June 27, 2008 |
|
4,948,238 |
|
3.87 |
|
5.57 |
|
— |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
|
Options vested at June 27, 2008 |
|
2,904,720 |
|
4.55 |
|
5.55 |
|
— |
|
||
The aggregate intrinsic value represents total pre-tax intrinsic value based on the closing stock price of $0.52, $0.50, $1.81 and $3.45 per share at June 27, 2008, March 28, 2008, December 28, 2007 and September 28, 2007, respectively.
As of June 27, 2008, there was $3.2 million of unrecognized compensation cost related to unvested stock options granted and outstanding, net of estimated forfeitures. The cost is expected to be recognized over a weighted average period of approximately 2.4 years.
The following table details total stock-based compensation expense for the quarters and nine months ended June 27, 2008 and June 29, 2007, respectively:
|
|
|
Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
June 27, |
|
June 29, |
|
June 27, |
|
June 29, |
|
||||
|
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
|
|
|
(in thousands) |
|
||||||||||
|
Cost of goods sold |
|
$ |
50 |
|
$ |
58 |
|
$ |
152 |
|
$ |
159 |
|
|
Research and development |
|
110 |
|
140 |
|
350 |
|
363 |
|
||||
|
Selling, general and administrative |
|
296 |
|
418 |
|
949 |
|
1,008 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Pre-tax stock-based compensation expense |
|
456 |
|
616 |
|
1,451 |
|
1,530 |
|
||||
|
Income tax benefits |
|
— |
|
— |
|
— |
|
— |
|
||||
|
Stock-based compensation expense |
|
$ |
456 |
|
$ |
616 |
|
$ |
1,451 |
|
$ |
1,530 |
|
7