UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2006
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)
|
Delaware |
|
20-1979646 |
|
(State or Other Jurisdiction of Incorporation or Organization) |
|
(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 ý NO o |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer o |
Accelerated filer o |
Non-accelerated filer ý |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
|
YES o NO ý |
As of August 10, 2006, the registrant had 16,144,099 shares of its common stock, par value $0.0001 per share, outstanding.
Aviza Technology, Inc.
Table of Contents
2
AVIZA TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par amounts and number of shares)
(unaudited)
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
AVIZA TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
|
|
|
Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
June 30,
|
|
June 24,
|
|
June 30,
|
|
June 24,
|
|
||||
|
NET SALES |
|
$ |
43,662 |
|
$ |
43,799 |
|
$ |
108,846 |
|
$ |
138,692 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
COST OF GOODS SOLD |
|
32,916 |
|
36,978 |
|
81,774 |
|
118,419 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
GROSS PROFIT |
|
10,746 |
|
6,821 |
|
27,072 |
|
20,273 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
||||
|
Research and development |
|
6,547 |
|
7,266 |
|
17,743 |
|
16,353 |
|
||||
|
Selling, general and administrative |
|
6,795 |
|
4,410 |
|
18,392 |
|
12,255 |
|
||||
|
In-process research and development |
|
(29 |
) |
— |
|
373 |
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total operating expenses |
|
13,313 |
|
11,676 |
|
36,508 |
|
28,608 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
LOSS FROM OPERATIONS |
|
(2,567 |
) |
(4,855 |
) |
(9,436 |
) |
(8,335 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
||||
|
Interest income |
|
79 |
|
4 |
|
132 |
|
14 |
|
||||
|
Interest expense |
|
(1,424 |
) |
(1,050 |
) |
(4,166 |
) |
(2,857 |
) |
||||
|
Other income (expense) - net |
|
16 |
|
18 |
|
(129 |
) |
34 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total other income (expense) |
|
(1,329 |
) |
(1,028 |
) |
(4,163 |
) |
(2,809 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
LOSS BEFORE INCOME TAXES |
|
(3,896 |
) |
(5,883 |
) |
(13,599 |
) |
(11,144 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
INCOME TAXES |
|
70 |
|
144 |
|
310 |
|
420 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
NET LOSS |
|
$ |
(3,966 |
) |
$ |
(6,027 |
) |
$ |
(13,909 |
) |
$ |
(11,564 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Loss per common share: |
|
|
|
|
|
|
|
|
|
||||
|
Basic and diluted |
|
$ |
(0.27 |
) |
$ |
(12.70 |
) |
$ |
(1.45 |
) |
$ |
(33.52 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average common shares: |
|
|
|
|
|
|
|
|
|
||||
|
Basic and diluted |
|
14,667,980 |
|
474,382 |
|
9,563,903 |
|
344,982 |
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
AVIZA TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
Nine Months Ended |
|
||||
|
|
|
June 30,
|
|
June 24,
|
|
||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
||
|
Net loss |
|
$ |
(13,909 |
) |
$ |
(11,564 |
) |
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
||
|
Depreciation |
|
2,500 |
|
1,692 |
|
||
|
Amortization |
|
1,984 |
|
1,149 |
|
||
|
Fair value of common stock warrants issued in exchange for loan guarantee |
|
251 |
|
— |
|
||
|
Stock based compensation |
|
700 |
|
— |
|
||
|
Mandatorily redeemable preferred stock dividend accrued |
|
497 |
|
— |
|
||
|
(Gain) loss on disposal of equipment |
|
(75 |
) |
983 |
|
||
|
Provision for allowance for doubtful accounts |
|
(156 |
) |
(476 |
) |
||
|
Changes in assets and liabilities: |
|
|
|
|
|
||
|
Accounts receivable |
|
5,656 |
|
(1,875 |
) |
||
|
Inventories |
|
(6,476 |
) |
1,995 |
|
||
|
Prepaid and other assets |
|
4,584 |
|
(3,292 |
) |
||
|
Accounts payable |
|
3,504 |
|
6,283 |
|
||
|
Warranty liability |
|
(2,088 |
) |
240 |
|
||
|
Accrued liabilities |
|
3,550 |
|
1,432 |
|
||
|
|
|
|
|
|
|
||
|
Net cash provided by (used in) operating activities |
|
522 |
|
(3,433 |
) |
||
|
|
|
|
|
|
|
||
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
||
|
Cash acquired from Trikon merger net of direct merger costs |
|
7,366 |
|
— |
|
||
|
Purchase of technology license |
|
— |
|
(2,000 |
) |
||
|
Purchases of property and equipment, net |
|
(4,248 |
) |
(4,025 |
) |
||
|
Proceeds from sale of equipment |
|
175 |
|
— |
|
||
|
|
|
|
|
|
|
||
|
Net cash provided by (used in) investing activities |
|
3,293 |
|
(6,025 |
) |
||
|
|
|
|
|
|
|
||
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
||
|
Net proceeds from credit lines |
|
260 |
|
6,749 |
|
||
|
Proceeds from short-term borrowings |
|
— |
|
499 |
|
||
|
Proceeds from issuance of common stock |
|
15,041 |
|
242 |
|
||
|
Proceeds from issuance of mandatorily redeemable Series B preferred stock |
|
— |
|
2,000 |
|
||
|
Payments on mortgage loan |
|
(210 |
) |
(186 |
) |
||
|
Payments on capital lease obligations |
|
(44 |
) |
— |
|
||
|
Payments on short-term borrowings |
|
(8,658 |
) |
(454 |
) |
||
|
|
|
|
|
|
|
||
|
Net cash provided by financing activities |
|
6,389 |
|
8,850 |
|
||
|
|
|
|
|
|
|
||
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
10,204 |
|
(608 |
) |
||
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
||
|
Beginning of period |
|
7,437 |
|
9,429 |
|
||
|
|
|
|
|
|
|
||
|
Effect of exchange rates on foreign cash balances |
|
210 |
|
(266 |
) |
||
|
|
|
|
|
|
|
||
|
End of period |
|
$ |
17,851 |
|
$ |
8,555 |
|
|
|
|
|
|
|
|
||
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
||
|
Cash paid for interest |
|
$ |
2,368 |
|
$ |
1,533 |
|
|
Income taxes paid |
|
$ |
139 |
|
434 |
|
|
|
Noncash investing and financing activities: |
|
|
|
|
|
||
|
Fair value of common stock, options and warrants issued in the acquisition of Trikon Technologies, Inc. |
|
$ |
24,131 |
|
$ |
— |
|
|
Conversion of mandatorily redeemable preferred stock, Series B and B-1, and accrued dividends to common stock |
|
$ |
11,594 |
|
$ |
— |
|
|
Purchase of technology license and fixed assets |
|
$ |
— |
|
2,000 |
|
|
|
Fair value of common stock warrants issued in exchange for loan guarantee |
|
$ |
251 |
|
$ |
— |
|
|
Property and equipment included in accounts payable at quarter end |
|
$ |
134 |
|
$ |
— |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
AVIZA TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(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 Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America 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 operations have been included. Operating results for the quarter and nine months ended June 30, 2006 are not necessarily indicative of the results that may be expected for future quarters and the fiscal year ended September 29, 2006. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Aviza Technology, Inc. (the “Company” or “Aviza”) for the year ending September 30, 2005, which are included in the Company’s Annual Report on Form 10-K and the risk factors contained herein and 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-term 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.
The Company’s current fiscal year will end on September 29, 2006 and includes 52 weeks. The Company closes its fiscal quarters on the last Friday of December, March, June and September.
On December 1, 2005, Aviza, Inc., formerly Aviza Technology, Inc. (“Former Aviza”) completed its consolidation through merger with Trikon Technologies, Inc. (“Trikon”). The merger transaction was effected through the formation of a new company originally named New Athletics, Inc., which issued shares of common stock in exchange for the outstanding shares of common stock of Trikon and outstanding shares of common and Series A preferred stock of Former Aviza. For accounting purposes, Former Aviza is deemed to have acquired Trikon because, immediately after the merger transaction, former stockholders of Former Aviza owned approximately 56% of the combined company and former stockholders of Trikon owned approximately 44% of the combined company. Each outstanding share of Former Aviza common and Series A preferred stock was exchanged for .90043 of a share of New Athletics, Inc. common stock. All common stock and Series A preferred stock and per share amounts for Former Aviza in these financial statements have been adjusted to give retroactive effect to this exchange ratio for all periods presented. Shares of mandatorily redeemable Series B and B-1 preferred stock of Former Aviza were not exchanged in the merger transaction and, accordingly, the related share and per share amounts have not been adjusted.
In connection with the merger transaction, New Athletics, Inc. changed its name to Aviza Technology, Inc., the common stock of which is publicly traded on the NASDAQ National Market under the symbol “AVZA (changed to AVZAQ on June 19, 2009).”
The following table details the impact of the exchange of shares associated with the merger on December 1, 2005:
|
|
|
Pre Exchange
|
|
Exchange
|
|
Post Exchange
|
|
|
Former Aviza: |
|
|
|
|
|
|
|
|
Series A preferred stock |
|
5,804,446 |
|
0.90043 |
|
5,226,496 |
|
|
Common stock |
|
559,889 |
|
0.90043 |
|
504,140 |
|
|
|
|
6,364,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trikon: |
|
|
|
|
|
|
|
|
Common stock |
|
15,754,985 |
|
0.29 |
|
4,568,946 |
|
|
|
|
|
|
|
|
|
|
|
Total post exchange shares |
|
|
|
|
|
10,299,582 |
|
Trikon and Former Aviza continue as subsidiaries of the Company. The financial information presented in this report represents:
1) the financial position of the Company and its subsidiaries as of June 30, 2006;
6
2) the financial position of Former Aviza as of September 30, 2005;
3) the results of operations of the Company and its subsidiaries for the quarter and nine months ended June 30, 2006, including Trikon from December 2, 2005 through June 30, 2006;
4) the changes in cash flow of the Company and its subsidiaries for the nine months ended June 30, 2006, including Trikon from December 2, 2005 through June 30, 2006;
5) the results of operations of Former Aviza for the quarter and nine months ended June 24, 2005; and
6) the changes in cash flow of Former Aviza for the nine months ended June 24, 2005.
See Note 6 for additional information related to the merger transaction.
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
2 . Recent Accounting Pronouncements
Effective October 1, 2005, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No.
123(R), “Share-Based Payment” (“SFAS 123(R)”). SFAS 123(R) establishes accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite service period. The Company previously applied Accounting Principles Board (“APB”) Opinion No. 25, “ Accounting for Stock Issued to Employees ,” and related Interpretations and provided the pro forma disclosures of SFAS No. 123, “ Accounting for Stock-Based Compensation ” (“SFAS 123”). The Company adopted the modified prospective application method as provided by SFAS 123(R). Under this method, SFAS 123(R) was applied to new awards and to awards modified, repurchased or cancelled after the effective date. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered, such as unvested stock options, that are outstanding as of the date of adoption will be recognized as the remaining requisite services are rendered. The compensation cost relating to unvested awards on October 1, 2005 was based on the grant-date fair value for those awards granted after June 24, 2005, the date of the Company’s initial filing of its Form S-4 registration statement relating to the Trikon merger as discussed in Note 6, and based on the intrinsic values as previously recorded under APB Opinion No. 25 for awards granted prior to that date.
In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151, Inventory Costs, an Amendment of ARB No. 43, Chapter 4 (“SFAS 151”). The amendments made by SFAS 151 are intended to improve financial reporting by clarifying that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges and by requiring the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after November 23, 2004. The provisions of SFAS 151 will be applied prospectively. Aviza’s historical treatment of inventory costs is consistent with SFAS 151, and therefore, adoption of SFAS 151 did not have an effect on its consolidated financial statements.
In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143 (“FIN 47”). FIN 47 clarifies that the term “conditional asset retirement obligation” as used in FASB Statement No. 143, refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditioned on a future event that may or may not be within the control of the entity. An entity is required to recognize a liability for the fair value of a “conditional asset retirement obligation” if the fair value of the liability can be reasonably estimated. This interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of a “conditional asset retirement obligation.” FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. Aviza does not believe the adoption of this interpretation will have an impact on its results of operations.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (“SFAS No. 154”), which changes the requirements for the accounting and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement that does not include specific transition provisions. SFAS No. 154 requires that changes in accounting principle be retrospectively applied. SFAS No. 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. SFAS No. 123(R), however,
allowed for a modified prospective approach of adoption. The Company does not expect the adoption of SFAS No. 154 to have a significant impact on its results of operations or financial condition.
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN No. 48”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB No. 109,
7
Accounting For Income Taxes (“FASB No. 109”). The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 requires that tax positions previously held which no longer meet the more-likely-than-not recognition threshold should be derecognized in the first financial reporting period in which the threshold is no longer met. Use of a valuation allowance, as per FASB No. 109, is no longer an appropriate substitute for the derecognition of a tax position. The interpretation is effective for fiscal years beginning after December 15, 2006. The Company does not expect the adoption of FIN No. 48 to have a significant impact on its results of operations or financial condition.
3. Balance Sheet Details
|
|
|
June 30,
|
|
September 30,
|
|
||
|
|
|
(in thousands) |
|
||||
|
Inventories: |
|
|
|
|
|
||
|
Raw materials |
|
$ |
25,857 |
|
$ |
14,149 |
|
|
Work-in-process |
|
13,911 |
|
10,104 |
|
||
|
Finished goods and evaluation systems |
|
5,857 |
|
— |
|
||
|
Total |
|
$ |
45,625 |
|
$ |
24,253 |
|
|
|
|
|
|
|
|
||
|
Prepaid expenses and other current assets: |
|
|
|
|
|
||
|
Debt issuance costs |
|
$ |
1,157 |
|
$ |
2,079 |
|
|
Deferred installation costs |
|
1,733 |
|
3,685 |
|
||
|
Acquisition costs |
|
— |
|
4,112 |
|
||
|
Other |
|
4,331 |
|
1,756 |
|
||
|
Total |
|
$ |
7,221 |
|
$ |
11,632 |
|
|
|
|
|
|
|
|
||
|
Property, plant and equipment, net: |
|
|
|
|
|
||
|
Land |
|
$ |
1,839 |
|
$ |
1,839 |
|
|
Buildings and improvements |
|
11,198 |
|
11,330 |
|
||
|
Machinery and equipment |
|
11,434 |
|
6,677 |
|
||
|
Office furnishings, fixtures and equipment |
|
2,580 |
|
1,420 |
|
||
|
Leasehold improvement |
|
792 |
|
— |
|
||
|
Construction in process |
|
1,862 |
|
2,213 |
|
||
|
Total |
|
29,705 |
|
23,479 |
|
||
|
Accumulated depreciation |
|
(6,305 |
) |
(3,910 |
) |
||
|
Net property, plant and equipment |
|
$ |
23,400 |
|
$ |
19,569 |
|
|
|
|
|
|
|
|
||
|
Intangible assets, net: |
|
|
|
|
|
||
|
Licenses |
|
$ |
4,026 |
|
$ |
4,000 |
|
|
Developed technology |
|
686 |
|
— |
|
||
|
Brands and trademarks |
|
95 |
|
— |
|
||
|
Customer relationships |
|
218 |
|
— |
|
||
|
Patents |
|
77 |
|
— |
|
||
|
Total |
|
5,102 |
|
4,000 |
|
||
|
Accumulated amortization |
|
(231 |
) |
— |
|
||
|
Net intangible assets |
|
$ |
4,871 |
|
$ |
4,000 |
|
|
|
|
|
|
|
|
||
|
Accrued liabilities: |
|
|
|
|
|
||
|
Accrued payroll and payroll taxes |
|
$ |
4,845 |
|
$ |
2,766 |
|
|
Deferred revenue |
|
5,332 |
|
545 |
|
||
|
Customer advance payments |
|
425 |
|
— |
|
||
|
Other |
|
5,106 |
|
5,503 |
|
||
|
Total |
|
$ |
15,708 |
|
$ |
8,814 |
|
4. Stock-Based Compensation
Effective October 1, 2005, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No.
123(R), “ Share-Based Payment ” (“SFAS 123(R)”). SFAS 123(R) establishes accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite service period. The Company previously applied Accounting Principles
8
Board (“APB”) Opinion No. 25, “ Accounting for Stock Issued to Employees ,” and related Interpretations and provided the pro forma disclosures of SFAS No. 123, “ Accounting for Stock-Based Compensation ” (“SFAS 123”).
The Company adopted the modified prospective application method as provided by SFAS 123(R). Under this method, SFAS 123(R) was applied to new awards and to awards modified, repurchased or cancelled after the effective date. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered, such as unvested stock options, that were outstanding as of the date of adoption are being recognized as the remaining requisite services are rendered. The compensation cost relating to unvested awards at the date of adoption was based on the grant-date fair value for those awards granted after June 24, 2005, the date of the Company’s initial filing of a Form S-4 registration statement relating to the merger transaction as discussed in Note 6, and based on the intrinsic values as previously recorded under APB Opinion No. 25 for awards granted prior to that date.
The fair value of each option is estimated at the date of grant using the Black-Scholes option valuation model. The Company estimates expected stock price volatility based on historical volatility within a representative peer group. The Company uses historical data to estimate expected life and forfeiture rates. The risk-free interest rate for periods within the expected life of the option is based on the U.S. Treasury yield.
Under Aviza’s stock option plans, Aviza may grant options to purchase up to a maximum of 4,106,510 shares of common stock, including outstanding options, to employees, directors, and consultants at prices not less than the fair market value on the date of grant. These options generally vest over four to five years and generally expire seven to ten years from the date of grant.
The Company recognized stock-based compensation expense of $61,000 and $700,000 during the quarter and nine months ended June 30, 2006. There is no related income tax benefit recognized in the condensed consolidated statements of operations recorded for the quarter and nine months ended June 30, 2006. The estimated fair value of the Company’s stock options, less expected forfeitures, is amortized over the awards’ vesting period on a straight-line basis.
The modified prospective transition method of SFAS 123(R) requires the presentation of pro forma information, for periods presented prior to the adoption of SFAS 123(R), regarding net loss and net loss per share as if the Company had accounted for its stock plans under the fair value method of SFAS 123(R). For pro forma purposes, the fair value of stock options was estimated using the Black-Scholes option valuation model and amortized on a straight-line basis. The pro forma amounts are as follows:
|
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
||
|
|
|
(in thousands, except per share data) |
|
||||
|
Net loss - as reported |
|
$ |
(6,027 |
) |
$ |
(11,564 |
) |
|
Deduction: Stock-based employee compensation expense determined under the fair value method |
|
(20 |
) |
(83 |
) |
||
|
Net loss - pro forma |
|
$ |
(6,047 |
) |
$ |
(11,647 |
) |
|
|
|
|
|
|
|
||
|
Loss per common share: |
|
|
|
|
|
||
|
Basic and diluted - as reported |
|
$ |
(12.70 |
) |
$ |
(33.52 |
) |
|
Basic and diluted - pro forma |
|
$ |
(12.75 |
) |
$ |
(33.76 |
) |
The fair value of the Company’s stock options granted in the quarter and nine month periods ended June 30, 2006 and June 24, 2005 was estimated at the date of grant using the following weighted average assumptions:
|
|
|
Quarter Ended |
|
Nine Months Ended |
|
||||
|
|
|
June 30,
|
|
June 24,
|
|
June 30,
|
|
June 24,
|
|
|
Expected life (years) |
|
4.8 |
|
5.0 |
|
5.3 |
|
5.0 |
|
|
Risk-free interest rate |
|
5.0 |
% |
3.8 |
% |
4.5 |
% |
3.8 |
% |
|
Stock price volatility |
|
67.2 |
% |
0.0 |
% |
74.6 |
% |
0.0 |
% |
|
Dividend yield |
|
0.0 |
% |
0.0 |
% |
0.0 |
% |
0.0 |
% |
9
The following table summarizes the Company’s stock option activity under its stock plans as of June 30, 2006 and changes during the nine months ended June 30, 2006:
|
|
|
Shares |
|
Weighted Average
|
|
|
|
Outstanding at September 30, 2005 |
|
1,554,444 |
|
$ |
0.96 |
|
|
Options assumed in merger with Trikon |
|
512,401 |
|
$ |
21.57 |
|
|
Granted |
|
815,000 |
|
$ |
5.60 |
|
|
Exercised |
|
(30,276 |
) |
$ |
0.87 |
|
|
Forfeited |
|
(16,940 |
) |
$ |
16.42 |
|
|
Outstanding at December 30, 2005 |
|
2,834,629 |
|
$ |
5.93 |
|
|
Granted |
|
1,069,000 |
|
$ |
4.94 |
|
|
Exercised |
|
(14,406 |
) |
$ |
0.97 |
|
|
Forfeited |
|
(91,170 |
) |
$ |
28.65 |
|
|
Outstanding at March 31, 2006 |
|
3,798,053 |
|
$ |
5.12 |
|
|
Granted |
|
38,000 |
|
$ |
4.87 |
|
|
Exercised |
|
(8,310 |
) |
$ |
0.90 |
|
|
Forfeited |
|
(22,045 |
) |
$ |
9.34 |
|
|
Outstanding at June 30, 2006 |
|
3,805,698 |
|
$ |
5.10 |
|
As of June 30, 2006, there was $5.5 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 1.75 years.
The following table details total stock-based compensation expense for the quarter and nine months ended June 30, 2006:
|
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
||
|
|
|
(in thousands) |
|
||||
|
Cost of goods sold |
|
$ |
(21 |
) |
$ |
66 |
|
|
Research and development |
|
(44 |
) |
99 |
|
||
|
Selling, general and administrative |
|
126 |
|
535 |
|
||
|
Pre-tax stock-based compensation expense |
|
61 |
|
700 |
|
||
|
Income tax benefits |
|
— |
|
— |
|
||
|
Net stock-based compensation expense |
|
$ |
61 |
|
$ |
700 |
|
The options outstanding and exercisable at June 30, 2006 were in the following exercise price ranges:
|
|
|
Options Outstanding |
|
Options Exercisable |
|
||||||||||||||
|
Range of Exercise
|
|
Number of
|
|
Weighted
|
|
Weighted
|
|
Aggregate
|
|
Number Vested
|
|
Weighted
|
|
Aggregate
|
|
||||
|
|
|
|
|
(in years) |
|
|
|
(in thousands) |
|
|
|
|
|
(in thousands) |
|
||||
|
$0.83 - $0.83 |
|
1,130,668 |
|
7.63 |
|
$ |
0.83 |
|
$ |
4,930 |
|
706,024 |
|
$ |
0.83 |
|
$ |
3,078 |
|
|
$0.84 - $5.41 |
|
1,563,311 |
|
7.18 |
|
$ |
4.15 |
|
1,657 |
|
208,541 |
|
$ |
2.14 |
|
635 |
|
||
|
$5.42 - $5.60 |
|
815,000 |
|
9.48 |
|
$ |
5.60 |
|
— |
|
101,250 |
|
$ |
5.60 |
|
— |
|
||
|
$5.61 - $10.69 |
|
150,375 |
|
7.67 |
|
$ |
8.63 |
|
— |
|
128,692 |
|
|||||||