UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(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, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-50770
Leadis Technology, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 77-0547089 | |
| (State or other jurisdiction of Incorporation or organization) |
(I.R.S. Employer Identification Number) |
474 Potrero Ave., Suite A
Sunnyvale, California, 94085
(Address of principal executive office and zip code)
(408) 387-8000
(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 filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
As of October 26, 2004, 27,827,290 shares of the Registrant’s common stock, $0.001 par value, were outstanding.
FORM 10-Q
INDEX
| PART I—FINANCIAL INFORMATION |
||||
| Item 1. |
Financial Statements (unaudited): | |||
| Condensed Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003 |
3 | |||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 | ||
| Item 3. |
Qualitative and Quantitative Disclosure About Market Risk | 31 | ||
| Item 4. |
Controls and Procedures | 32 | ||
| PART II— OTHER INFORMATION |
||||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 32 | ||
| Item 6. |
Exhibits | 33 | ||
| Signatures | 34 | |||
2
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
| September 30, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 100,971 | $ | 22,956 | ||||
| Restricted cash |
— | 1,500 | ||||||
| Short-term investments |
10,099 | — | ||||||
| Accounts receivable, net |
27,716 | 28,213 | ||||||
| Inventory |
7,894 | 5,863 | ||||||
| Prepaid expenses and other current assets |
4,143 | 1,425 | ||||||
| Total current assets |
150,823 | 59,957 | ||||||
| Property and equipment, net |
1,876 | 979 | ||||||
| Other assets |
1,042 | 716 | ||||||
| Total assets |
$ | 153,741 | $ | 61,652 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 22,832 | $ | 25,123 | ||||
| Accrued liabilities |
5,468 | 3,595 | ||||||
| Taxes payable |
752 | 4,281 | ||||||
| Deferred revenue |
161 | 488 | ||||||
| Total current liabilities |
29,213 | 33,487 | ||||||
| Other noncurrent liabilities |
479 | 258 | ||||||
| Commitments |
||||||||
| Mandatorily redeemable convertible preferred stock |
— | 14,300 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock and additional paid-in capital |
101,969 | 6,567 | ||||||
| Deferred stock-based compensation |
(4,480 | ) | (3,592 | ) | ||||
| Retained earnings |
26,436 | 10,595 | ||||||
| Accumulated other comprehensive income |
124 | 37 | ||||||
| Total stockholders’ equity |
124,049 | 13,607 | ||||||
| Total liabilities and stockholders’ equity |
$ | 153,741 | $ | 61,652 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
| Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||
| 2004 |
2003 |
2004 |
2003 | |||||||||
| Revenue |
$ | 40,898 | $ | 22,257 | $ | 116,986 | $ | 44,278 | ||||
| Costs and expenses: |
||||||||||||
| Cost of revenue |
26,205 | 13,319 | 74,056 | 29,599 | ||||||||
| Research and development (1) |
3,499 | 1,784 | 9,451 | 3,358 | ||||||||
| Selling, general and administrative (1) |
1,726 | 954 | 4,448 | 2,321 | ||||||||
| Stock based compensation |
1,099 | 203 | 3,217 | 366 | ||||||||
| Total costs and expenses |
32,529 | 16,260 | 91,172 | 35,644 | ||||||||
| Operating income |
8,369 | 5,997 | 25,814 | 8,634 | ||||||||
| Interest and other income, net |
314 | 112 | 814 | 165 | ||||||||
| Income before provision for income taxes |
8,683 | 6,109 | 26,628 | 8,799 | ||||||||
| Provision for income taxes |
3,723 | 2,138 | 10,787 | 3,079 | ||||||||
| Net income |
$ | 4,960 | $ | 3,971 | $ | 15,841 | $ | 5,720 | ||||
| Net income per share: |
||||||||||||
| Basic |
$ | 0.18 | $ | 0.19 | $ | 0.68 | $ | 0.28 | ||||
| Diluted |
$ | 0.16 | $ | 0.17 | $ | 0.59 | $ | 0.25 | ||||
| Shares used in computing net income per share: |
||||||||||||
| Basic |
27,187 | 20,592 | 23,362 | 20,492 | ||||||||
| Diluted |
30,615 | 23,717 | 26,791 | 23,276 | ||||||||
| (1) | Amounts exclude amortization of employee deferred stock-based compensation as follows: |
| Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||
| 2004 |
2003 |
2004 |
2003 | |||||||||
| Research and development |
$ | 459 | $ | 181 | $ | 1,280 | $ | 307 | ||||
| Selling, general and administrative |
640 | 22 | 1,937 | 59 | ||||||||
| Total |
$ | 1,099 | $ | 203 | $ | 3,217 | $ | 366 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 15,841 | $ | 5,720 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
225 | 105 | ||||||
| Amortization of deferred stock-based compensation |
3,414 | 560 | ||||||
| Allowance for doubtful accounts |
59 | 327 | ||||||
| Provision for excess and obsolete inventory |
3,181 | 205 | ||||||
| Changes in current assets and liabilities: |
||||||||
| Accounts receivable |
808 | (17,030 | ) | |||||
| Inventories |
(5,183 | ) | (3,165 | ) | ||||
| Prepaid expenses and other assets |
(2,958 | ) | (1,812 | ) | ||||
| Accounts payable |
(2,296 | ) | 10,107 | |||||
| Accruals and other liabilities |
1,991 | 4,439 | ||||||
| Taxes payable |
(3,529 | ) | — | |||||
| Deferred revenue |
(326 | ) | 63 | |||||
| Net cash provided by (used in) operating activities |
11,227 | (481 | ) | |||||
| Cash flows from investing activities: |
||||||||
| Purchases of available-for-sale securities |
(10,099 | ) | — | |||||
| Restricted cash |
1,500 | (500 | ) | |||||
| Purchase of property and equipment |
(1,089 | ) | (385 | ) | ||||
| Net cash used in investing activities |
(9,688 | ) | (885 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from initial public offering, net of issuance costs |
76,583 | — | ||||||
| Proceeds from issuance of Series B redeemable convertible preferred stock, net of issuance costs |
— | 1,050 | ||||||
| Proceeds from issuance of common stock |
99 | 33 | ||||||
| Receipt of stockholder note receivable |
119 | — | ||||||
| Principal payments on capital lease obligations |
— | (10 | ) | |||||
| Net cash provided by financing activities |
76,801 | 1,073 | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
(325 | ) | 24 | |||||
| Net increase (decrease) in cash and cash equivalents |
78,015 | (269 | ) | |||||
| Cash and cash equivalents at beginning of period |
22,956 | 8,685 | ||||||
| Cash and cash equivalents at end of period |
$ | 100,971 | $ | 8,416 | ||||
| Supplemental disclosure of non-cash investing and financing activities: |
||||||||
| Deferred stock-based compensation |
$ | 4,301 | $ | 1,639 | ||||
| Conversion of redeemable convertible preferred stock to common stock |
$ | 14,300 | $ | — | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
Leadis Technology, Inc. (“Leadis”) was incorporated in Delaware on May 15, 2000. We design, develop and market mixed-signal semiconductors that enable and enhance the features and capabilities of small panel displays.
Basis of presentation
The unaudited condensed consolidated financial statements include the accounts of Leadis and all of our subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.
Our accompanying condensed consolidated financial statements have been prepared without audit in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted in accordance with these rules and regulations. The information in this report should be read in conjunction with our audited financial statements and notes thereto included in our Registration Statement on Form S-1 (File No. 333-113880) filed with the SEC in connection with our initial public offering.
On May 15, 2004, our board of directors approved, and on June 10, 2004 our stockholders approved, an amendment to our Amended and Restated Certificate of Incorporation to effect a 3 for 2 split of our common stock and preferred stock. A Certificate of Amendment to our Amended and Restated Certificate of Incorporation effecting the stock split was filed on June 10, 2004. All information related to common stock, preferred stock, options and warrants to purchase common or preferred stock and earnings per share included in the accompanying condensed consolidated financial statements has been retroactively adjusted to give effect to the stock split.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly our financial position, results of operations and cash flows for the interim periods presented. The operating results for the three-month and nine-month periods ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004 or for any other future period. The balance sheet as of December 31, 2003 is derived from the audited financial statements as of and for the year then ended.
Foreign currency translation
Foreign subsidiaries use their local currency as their functional currency. Assets and liabilities of foreign operations are translated into U.S. dollars at current rates of exchange, and revenue and expenses are translated using average rates. Gains and losses from foreign currency translation are included as a separate component of stockholders’ equity. Foreign currency transaction gains and losses are included as a component of interest and other income, net, in our condensed consolidated statements of income.
Foreign exchange contracts
We record our forward contracts at fair value with the related gains or losses recorded in interest and other income, net. The gains and losses on these contracts are substantially offset by transaction gains and losses on the underlying balances being hedged. As of September 30, 2004, we held forward contracts with an aggregated notional value of $18.8 million to hedge the risks associated with U.S. dollar denominated assets and liabilities held by our Korean subsidiary. Aggregate net foreign exchange gains and losses on these hedging transactions and foreign currency remeasurement gains and losses are included in interest and other income, net, in our condensed consolidated statements of income.
6
Cash, cash equivalents and short-term investments
We held $111.1 million of cash, cash equivalents and short-term investments at September 30, 2004, which includes the $76.6 million net proceeds from our initial public offering on June 15, 2004. We invest our cash, cash equivalents and short-term investments through various banks and investment banking institutions. All short-term investments are classified as available-for-sale.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, and such differences could affect the results of operations reported in future periods.
Risks and uncertainties and concentrations of credit risk
Our products are currently manufactured, assembled and tested by third-party contractors in Asia. We do not have long-term agreements with any of these contractors. A significant disruption in the operations of one or more of these contractors would impact the production of our products for a substantial period of time, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, investments and accounts receivable. We place our cash primarily in checking and money market accounts with reputable financial institutions. Deposits held with these financial institutions may exceed the amount of insurance provided on such deposits. We have not experienced any material losses on deposits of our cash and cash equivalents. Short-term investments consist of a diversified portfolio of municipal bonds, commercial paper, and government agency bonds with maturities less than one year or specifically identified to fund current operations. All investments are classified as available-for-sale. We do not hold or issue financial instruments for trading purposes.
We perform ongoing credit evaluations of each of our customers and adjust credit limits based upon payment history and the customer’s credit worthiness, as determined by our review of their current credit information. We regularly monitor collections and payments from our customers and maintain an allowance for doubtful accounts based upon our historical experience and any specific customer collection issues we have identified.
Significant customer information is as follows: