UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
| (Mark One) | ||
| x |
Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended September 30, 2003 |
|
| or | ||
| o |
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from______to_________ |
AXT, INC.
| DELAWARE | 94-3031310 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| Incorporation or organization) | Identification No.) |
| 4281 Technology Drive, Fremont, California (Address of principal executive offices) |
94538 (Zip 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 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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YES o NO x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at September 30, 2003 | |||
| Common Stock, $.001 par value | 22,931,338 | |||
1
AXT, INC.
TABLE OF CONTENTS
| Page | ||||||||||
| PART I. FINANCIAL INFORMATION | ||||||||||
| Item 1. | Financial Statements |
|||||||||
Condensed Consolidated Balance Sheets at September 30, 2003 and December 31, 2002 |
3 | |||||||||
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2003 and 2002 |
4 | |||||||||
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002 |
5 | |||||||||
Notes To Condensed Consolidated Financial Statements |
6-14 | |||||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
14-34 | ||||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
34 | ||||||||
| Item 4. | Controls and Procedures |
34-35 | ||||||||
| PART II. OTHER INFORMATION | ||||||||||
| Item 1. | Legal Proceedings |
35 | ||||||||
| Item 6. | Exhibits and Reports on Form 8-K |
36 | ||||||||
Signatures |
37 | |||||||||
Exhibits |
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2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AXT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except per share data)
| September 30 | December 31, | ||||||||||
| 2003 | 2002 | ||||||||||
| (Unaudited) | |||||||||||
Assets: |
|||||||||||
Current assets
|
|||||||||||
Cash and cash equivalents |
$ | 21,486 | $ | 13,797 | |||||||
Short-term investments |
14,010 | 8,205 | |||||||||
Accounts receivable |
4,953 | 7,195 | |||||||||
Inventories |
26,095 | 37,598 | |||||||||
Prepaid expenses and other current assets |
1,804 | 4,002 | |||||||||
Income tax receivable |
72 | 8,783 | |||||||||
Assets held for sale |
1,000 | 5,957 | |||||||||
Total current assets |
69,420 | 85,537 | |||||||||
Property, plant and equipment |
22,730 | 39,982 | |||||||||
Other assets |
4,773 | 5,341 | |||||||||
Restricted deposits |
9,402 | 11,150 | |||||||||
Long-term investments |
2,406 | 3,657 | |||||||||
Total assets |
$ | 108,731 | $ | 145,667 | |||||||
Liabilities and Stockholders’ Equity: |
|||||||||||
Current liabilities
|
|||||||||||
Accounts payable |
$ | 1,899 | $ | 4,228 | |||||||
Accrued liabilities |
9,483 | 11,407 | |||||||||
Current portion of long-term debt |
1,765 | 965 | |||||||||
Current portion of capital lease obligation |
— | 3,562 | |||||||||
Total current liabilities |
13,147 | 20,162 | |||||||||
Long-term debt, net of current portion |
10,874 | 13,289 | |||||||||
Long-term capital lease, net of current portion |
— | 4,847 | |||||||||
Other long-term liabilities |
1,583 | 1,712 | |||||||||
Total liabilities |
25,604 | 40,010 | |||||||||
Stockholders’ equity: |
|||||||||||
Preferred stock, $.001 par value per share; 2,000 shares authorized; 883
shares issued and outstanding |
3,532 | 3,532 | |||||||||
Common stock, $.001 par value per share; 70,000 shares authorized;
22,931 and 22,495 shares issued and outstanding |
154,937 | 154,485 | |||||||||
Accumulated deficit |
(76,813 | ) | (52,197 | ) | |||||||
Other comprehensive income (loss) |
1,471 | (163 | ) | ||||||||
Total stockholders’ equity |
83,127 | 105,657 | |||||||||
Total liabilities and stockholders’ equity |
$ | 108,731 | $ | 145,667 | |||||||
See accompanying notes to these unaudited condensed consolidated financial statements.
3
AXT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Revenue |
$ | 8,529 | $ | 11,726 | $ | 25,583 | $ | 36,362 | ||||||||||
Cost of revenue |
8,029 | 12,885 | 24,135 | 35,505 | ||||||||||||||
Gross profit |
500 | (1,159 | ) | 1,448 | 857 | |||||||||||||
Operating expenses: |
||||||||||||||||||
Selling, general and administrative |
2,654 | 3,495 | 7,973 | 11,108 | ||||||||||||||
Research and development |
301 | 486 | 1,048 | 1,742 | ||||||||||||||
Property, plant and equipment impairment loss |
— | 542 | — | 14,632 | ||||||||||||||
Total operating expenses |
2,955 | 4,523 | 9,021 | 27,482 | ||||||||||||||
Loss from operations |
(2,455 | ) | (5,682 | ) | (7,573 | ) | (26,625 | ) | ||||||||||
Interest expense |
145 | 105 | 368 | 362 | ||||||||||||||
Other (income)/expense, net |
(3 | ) | (308 | ) | 1,035 | 8,183 | ||||||||||||
Loss before income tax benefit |
(2,597 | ) | (5,479 | ) | (8,976 | ) | (35,170 | ) | ||||||||||
Income tax provision |
— | 10,673 | — | 4,433 | ||||||||||||||
Loss from continuing operations |
(2,597 | ) | (16,152 | ) | (8,976 | ) | (39,603 | ) | ||||||||||
Discontinued operations: |
||||||||||||||||||
Loss from operations |
(1,591 | ) | (19,533 | ) | (6,165 | ) | (32,149 | ) | ||||||||||
Gain /(loss) on disposal |
1,625 | — | (9,475 | ) | — | |||||||||||||
Income tax (benefit) |
— | (7,012 | ) | — | (8,103 | ) | ||||||||||||
Gain /(loss) from discontinued operations |
34 | (12,521 | ) | (15,640 | ) | (24,046 | ) | |||||||||||
Net loss |
$ | (2,563 | ) | $ | (28,673 | ) | $ | (24,616 | ) | $ | (63,649 | ) | ||||||
Basic and diluted loss per share: |
||||||||||||||||||
Loss from continuing operations |
(0.11 | ) | (0.72 | ) | (0.39 | ) | (1.76 | ) | ||||||||||
Loss from discontinued operations |
0.00 | (0.56 | ) | (0.69 | ) | (1.07 | ) | |||||||||||
Net loss |
(0.11 | ) | (1.28 | ) | (1.08 | ) | (2.84 | ) | ||||||||||
Shares used in per share calculations: |
||||||||||||||||||
Basic |
22,857 | 22,478 | 22,727 | 22,443 | ||||||||||||||
Diluted |
22,857 | 22,478 | 22,727 | 22,443 | ||||||||||||||
See accompanying notes to these unaudited condensed consolidated financial statements.
4
AXT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
| Nine Months Ended | ||||||||||||
| September 30 | ||||||||||||
| 2003 | 2002 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net loss: |
$ | (24,616 | ) | $ | (63,649 | ) | ||||||
Adjustments to reconcile net loss to cash provided by operations: |
||||||||||||
Depreciation |
4,583 | 7,498 | ||||||||||
Amortization |
279 | 299 | ||||||||||
Deferred income taxes |
— | 3,259 | ||||||||||
Loss on disposal |
9,475 | — | ||||||||||
Impairment write-down on investments |
— | 9,160 | ||||||||||
Impairment write-down on property, plant and equipment |
— | 39,086 | ||||||||||
Non-cash (gain)\loss on marketable equity securities |
1,320 | (251 | ) | |||||||||
(Gain) loss on disposal of property, plant and equipment |
(11 | ) | 323 | |||||||||
Stock based compensation |
28 | — | ||||||||||
Changes in assets and liabilities: |
||||||||||||
Accounts receivable |
1,576 | 3,816 | ||||||||||
Inventories |
9,529 | 5,017 | ||||||||||
Prepaid expenses |
1,988 | (2,341 | ) | |||||||||
Other assets |
(139 | ) | (125 | ) | ||||||||
Accounts payable |
(2,329 | ) | 1,959 | |||||||||
Accrued liabilities |
(4,306 | ) | (3,336 | ) | ||||||||
Income taxes |
8,711 | (5,031 | ) | |||||||||
Other long-term liabilities |
(129 | ) | 294 | |||||||||
Net cash provided by (used in) operating activities |
5,959 | (4,022 | ) | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Purchases
of property, plant and equipment |
(1,911 | ) | (10,412 | ) | ||||||||
Proceeds from sale of property, plant and equipment from discontinued opto-electronics
business |
9,600 | — | ||||||||||
Proceeds
from sale of property located in Fremont, California |
5,172 | |||||||||||
Purchases of marketable securities |
(3,305 | ) | (16,366 | ) | ||||||||
Proceeds from sale of marketable securities |
5,700 | 15,570 | ||||||||||
Increase in restricted cash |
(4,012 | ) | — | |||||||||
Net cash provided by (used in) investing activities |
11,244 | (11,208 | ) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Proceeds from (payments of): |
||||||||||||
Issuance of common stock |
424 | 850 | ||||||||||
Capital leases payments |
(8,409 | ) | (4,620 | ) | ||||||||
Long-term debt borrowings |
— | 637 | ||||||||||
Long-term debt payments |
(1,615 | ) | (6,699 | ) | ||||||||
Net cash used in financing activities |
(9,600 | ) | (9,832 | ) | ||||||||
Effect of exchange rate changes |
86 | 171 | ||||||||||
Net increase (decrease) in cash and cash equivalents |
7,689 | (24,891 | ) | |||||||||
Cash and cash equivalents at the beginning of the period |
13,797 | 37,538 | ||||||||||
Cash and cash equivalents at the end of the period |
$ | 21,486 | $ | 12,647 | ||||||||
Non cash activity: |
||||||||||||
Purchase of PP&E through financing |
$ | — | $ | 577 | ||||||||
See accompanying notes to these unaudited condensed consolidated financial statements.
5
AXT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying condensed consolidated balance sheets as of September 30, 2003 and December 31, 2002, the condensed consolidated statements of income for the three and nine months ended September 30, 2003 and 2002, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2003 and 2002 have been prepared by AXT, Inc. (“AXT” or the “Company”) and are unaudited. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary to present fairly the financial position, results of operations and cash flows of AXT and its subsidiaries for all periods presented.
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ materially from those estimates.
The results of operations are not necessarily indicative of the results to be expected in the future or for the full fiscal year. It is recommended that these condensed consolidated financial statements be read in conjunction with the Company’s consolidated financial statements and the notes thereto included in its 2002 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 21, 2003.
As a result of the significant revenue declines experienced over the past eight quarters, the Company has taken cost reduction measures and continues to pursue additional alternatives to reduce costs and increase cash flows. At September 30, 2003, the Company had available cash, cash equivalents and liquid short and long-term investments of $35.2 million. The Company believes that its existing cash and liquid investments, cash generated from operations, coupled with additional efforts to reduce expenditures in support of the continuing substrate business will be sufficient to meet working capital expenditure requirements for the next 12 months. However, existing cash and liquid investments could decline during the remainder of 2003 due to a continued or further weakening of the economy or changes in our planned cash outlay.
If the Company’s sales continue to decrease, the ability to generate cash from operations will be adversely affected which could impact its future liquidity, requiring it to use cash at a more rapid rate than expected, and require it to seek additional capital. There can be no assurance that such additional capital will be available or, if available, on terms acceptable to the Company.
Certain reclassifications have been made to the prior years consolidated financial statements to conform to current period presentation.
Note 2. Discontinued Operations
On June 24, 2003, the Company’s Board of Directors approved management’s plan to exit the Company’s unprofitable opto-electronics business. On September 27, 2003 the Company completed a sale of substantially all of the assets of its opto-electronics business to Lumei-Optoelectronics, Corporation and Dalian Luming Science and Technology Group, Co., Ltd. for the RMB equivalent of $9.6 million. The company retains a building located in Monterey Park, CA, that it expects to sell in 2004. This asset is classified as Held for Sale on the Company’s consolidated balance sheet at September 30, 2003. One million dollars of the sale proceeds will be held in escrow for up to one year and accordingly, has been excluded from the determination of gain/(loss) on disposal.
6
The Company recorded a gain on disposal of $1.6 million due to excess proceeds received over net carrying value of assets sold.
The Company’s financial statements have been presented to reflect the opto-electronics business as a discontinued operation for all periods presented. Operating results of the discontinued operation are as follows:
| Three months ended | Nine months ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Revenue |
227 | 3,222 | 7,246 | 14,557 | ||||||||||||||
Cost of revenue |
854 | 5,606 | 9,973 | 15,736 | ||||||||||||||
Gross profit (loss) |
(627 | ) | (2,384 | ) | (2,727 | ) | (1,179 | ) | ||||||||||
Operating expenses: |
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