IMP INC, 10-K, 1997-06-27

IMP INC
10-K, 1997-06-27
SEMICONDUCTORS & RELATED DEVICES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K
(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED MARCH 30, 1997

OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

FOR THE TRANSITION PERIOD FROM
--------------- TO
---------------

COMMISSION FILE NUMBER 0-15858

IMP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 94-2722142
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>

2830 NORTH FIRST STREET
SAN JOSE, CALIFORNIA 95134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(408) 432-9100

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ---------------------------------------------------------------------------------------------
<S> <C>
NONE NONE
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.001 par value

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] [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of voting stock held by non-affiliates of the
Registrant, as of June 25, 1997 was approximately $51,179,960 (based upon the
closing price for shares of the Registrant's Common Stock as reported by the
Nasdaq National Market System on that date). Shares of Common Stock held by each
officer, director and holder of 5% or more of the outstanding Common Stock have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

On June 25, 1997, approximately 30,284,000 shares of Common Stock, $.001
par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE.

Information contained in the Registrant's Proxy Statement for the 1997
Annual Meeting of Stockholders to be held on August 20, 1997 has been
incorporated by reference in Part III of this Form 10-K.
================================================================================
<PAGE> 2

PART I

ITEM I. BUSINESS.

Except for the historical information contained herein, the matters
discussed in this document are forwardlooking statements that involve certain
risks and uncertainties, including the risks and uncertainties set forth below
and under "Management Discussion and Analysis of Financial Condition and Results
of Operation -- Factors Affecting Future Results" which could cause actual
results to differ materially.

INTRODUCTION

IMP, Inc. ("IMP" or the "Company") is a supplier of analog and mixed signal
CMOS integrated circuit solutions for communications, computer and control
applications.

Wafers are manufactured using CMOS and BiCMOS process technologies in the
Company's fabrication plant in San Jose, California. IMP uses these facilities
to provide wafer foundry and full IC manufacturing services for its own products
and for other semiconductor vendors and OEM customers.

The Company was originally incorporated in California in January 1981 as
International Microelectronic Products. It reincorporated in Delaware as
International Microelectronic Products, Inc., in April 1987 and the new
corporation succeeded to the business of its predecessor. The Company made its
initial public stock offering in 1987 and is traded on the Nasdaq National
Market System under the symbol IMPX. The Company amended its Certificate of
Incorporation in September 1993 to change its name to IMP, Inc.

IMP BUSINESS STRATEGY

The Company's original focus was the design, development and manufacturing
of digital cell-based, CMOS, application-specific custom ICs ("ASICs"). It was a
pioneer in this segment of the business, being one of the first vendors to
employ advanced computer aided engineering ("CAE") software and an extensive
library of pre-characterized cells. IMP was also one of the first vendors to
offer mixed analog and digital functions on the same chip.

In the early 1990's, IMP redirected its wafer fabrication and process
development resources away from the design and fabrication of custom circuits
and towards the supply of analog wafer foundry services to other semiconductor
companies. To date, the Company has manufactured more than 1,000 designs from
customer database tapes.

The IMP business strategy today is to utilize its facilities and
capabilities in high-volume manufacturing of analog integrated circuit wafers
to:

- Provide added-value, analog and high voltage wafer foundry services to
other IC vendors

- Create a portfolio of CMOS and BiCMOS analog and mixed-signal
application-specific and standard ICs to sell under the IMP brand name.

ANALOG WAFER FOUNDRY SERVICES

The Analog Wafer Foundry Services business provides wafer fabrication
services on value-added analog processes to OEM manufacturers and other
semiconductor vendors. IMP is able to support both fast-turn prototype and
high-volume production demands. The product line also manages selective ASIC
design programs.

IMP offers manufacturing capability on a broad range of CMOS processes in
its Class 10, 16,000 sq. foot wafer fabrication plant in San Jose, California.
Processes available today include BiCMOS, CMOS and EEPROM technologies.
Alliances with off-shore wafer foundries which have installed IMP process
technologies ensure security of supply and access to additional manufacturing
capacity on selected processes to the Company and its customers.

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IMP manufactures products using N-well and P-well, single and double layer
poly CMOS analog processes. Process geometries range from 5 micron for
high-voltage applications, down to 0.8 micron for high speed applications. IMP
process capabilities include double-poly technology to ensure maximum capacitor
stability in analog circuits. Vertical and lateral bipolar transistors are
available to minimize noise in analog inputs and support high-drive outputs.
Other processes were created for battery-operated circuits to provide
low-voltage operation down to 1.5V. BiCMOS technology options provide solutions
for users seeking to combine the speed of bipolar and the low power/high density
of CMOS. Electrically Erasable CMOS modules permit the incorporation of
user-configurable features into digital, analog and mixed-signal designs.

ANALOG INTEGRATED CIRCUIT PRODUCTS

The Analog Integrated Circuit Products business designs CMOS and BiCMOS
analog and mixed-signal IC products for computer, communications and control
applications to sell under the IMP brand name. The majority of the effort in
this area to date has been aimed at highly-integrated solutions for
removable-media mass storage peripheral systems. IMP customers for these devices
have included the Colorado Memory Systems division of Hewlett-Packard Company,
Iomega Corporation ("Iomega") and Seagate Technology, Inc.

The first standard products introduced by IMP in 1991 were CMOS
programmable, continuous-time filter chips. Three families of devices replaced
dozens of discrete components and low-density IC packages for small form-factor
tape and disk drive systems. In 1992, IMP introduced the 62C738, the first
completely integrated CMOS read-channel IC for high-performance hard disk
drives. It was the industry's first 3V device and was aimed at low-power
applications in the portable PC market. A successor to this product, the 62C538,
was later used in the production of the high-density, removable-media Zip drive
by Iomega.

Since 1995 IMP has introduced a series of circuits for tape storage
applications based on its BiCMOS technology. The 55T500 integrates a
read-channel function together with preamplifier and write driver circuits for
Travan and Quarter Inch Cartridge ("QIC")-based disk-drive back-up storage
peripherals. This device combines functions previously occupying three separate
chips. The 55T510 preamplifier and the 55T520 read-channel provide these same
capabilities for higher performance Travan 4 and 5 systems for personal computer
and corporate network tape back-up applications.

Most IMP mass-storage devices incorporate the ability for the user to
program specific electrical parameters to allow for process tolerance variations
in manufacturing and operation. In 1995 IMP shipped the industry's first
Electrically-Programmable Analog Circuit ("EPAC(R)") products which extended the
concept of programmable analog solutions both in terms of the degree of
programmability and the range of applications. Other user benefits of EPAC
devices include high levels of integration, ease-of-development fast
time-to-market and the ability to change device functionality in the system. IMP
supplies a Windows-based CAE design tool called Analog Magic(TM) software to
support user programming of EPAC devices.

Two devices are currently available. The 50E10 Analog Signal Conditioning
Circuit is aimed at general-purpose data acquisition, data conversion and analog
interface applications. The 50E30 Analog Monitoring and Diagnostic Circuit
allows designers to add programmable monitoring and diagnostics data acquisition
features to servers, process control and other high-end systems. IMP is
evaluating the market reaction to these devices prior to developing additional
EPAC products.

The Company is currently developing other proprietary and second-source
devices which can take advantage of its expertise in analog circuit design and
specialized process technology development. There can be no assurance that the
Company's development efforts will be successful.

MARKETING, SALES AND CUSTOMERS

IMP's marketing strategy is to identify the key growth areas for wafer
fabrication services and analog integrated ICs to attract business from market
leaders and emphasize quality, service and performance. The Company typically
engages in extensive discussions with its customers' management and engineering
personnel to understand the customers' needs.

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The Company sales force consists of two (2) Sales Managers and one (1) Vice
President of Sales who reports to the President and Chief Executive Officer. The
sales staff manages manufacturers' representatives organizations in the United
States and internationally. In some cases these representatives promote products
that are competitive with those of the Company. The Company works closely with
the manufacturers' representatives to target their sales forces on prospective
customers identified by IMP. Potential new customers are reviewed by IMP for the
opportunities they present and for consistency with IMP's marketing strategies.

In fiscal 1995, the Company entered into distribution agreements with three
firms; Wyle Laboratories in the United States, Tekelec in the European market
and Macnica in Japan. In fiscal 1996, the Company entered into an agreement with
Digi-Key in the United States to sell IMP products through their catalog sales
operation.

Export sales, principally in Europe and the Pacific Basin, accounted for
33%, 6% and 21% of the Company's total revenues in fiscal 1997, 1996 and 1995,
respectively. The Company's export sales are billed in United States dollars and
therefore are not subject to currency exchange fluctuations. However, such
fluctuations could affect demand for the company's products. Although export
sales are subject to certain governmental restrictions, including the Export
Administration Act of 1979, the Export Administration Amendments Act of 1985 and
regulations promulgated thereunder, the Company has not experienced any material
difficulties to date because of these restrictions.

In fiscal 1997, IMP's largest customer was Iomega Corporation ("Iomega")
accounting for approximately 39% of total sales. International Rectifier
Corporation ("IR") accounted for approximately 15% of total sales, and Rockwell
International ("Rockwell") accounted for approximately 10% of total sales. Other
than the companies identified above, no other end customer accounted for more
than 10% of total sales during fiscal 1997. The Company's product mix of sales
revenue in fiscal 1997 was comprised of approximately 58% for sales of foundry
services and approximately 42% for sales of analog ICs. The Company does not
expect to make continued sales to Rockwell in the foreseeable future, and it
anticipates that sales to both Iomega and IR will be substantially lower than
those in fiscal 1997. See "Factors Affecting Future Results" section for further
information on markets and customers.

The Company had a backlog of approximately $10.5 million as of March 30,
1997 compared to approximately $42 million at March 31, 1996. Such reduced
backlog was due primarily to decreased sales orders for the Company's products.
Backlog represents only those orders released for shipment within six months.
However, because of changes in delivery schedules or cancellations by customers,
the Company's backlog as of any particular date may not be representative of
sales for any succeeding period. The Company typically warrants its products
against defects in materials and workmanship for a period of one year.

RESEARCH AND DEVELOPMENT

IMP's strategy to design and manufacture ICs requires a significant
commitment to research and development. The Company's research and development
efforts consist of direct research and development expenditures, product
development work funded by customers and through strategic alliances with
technology partners which provide the Company with access to additional
technologies and design expertise. The Company's total research and development
expenses were approximately $10.3 million, $9.9 million and $8.6 million in
fiscal 1997, 1996 and 1995, respectively, and such expenses are expected to
remain at or below the fiscal 1997 level for fiscal 1998.

The Company's research and development programs are currently focused on
development of new IC products and enhancing its CMOS, BiCMOS and high voltage
manufacturing processes. The greatest amount of resources are concentrated in
the area of IC product development. The Company has in the past and expects in
the future to enter into cross-licensing agreements under which it would acquire
certain rights pertaining to the technologies of its partners in exchange for
the transfer of similar rights to its partners or for other consideration. See
"Marketing, Sales and Customers" and "Patents and Licenses."

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COMPETITION

The Company currently competes in the markets for silicon foundry and
application specific standard analog integrated circuit products. The silicon
foundry market is intensely competitive and IMP expects competition will
increase. Currently, the Company's principal competitors in this market include
Orbit Semiconductor, American MicroSystems, Matra Harris, GMT Microelectronics,
IC Works and to a lesser extent, off-shore foundry suppliers such as TSMC.

The principal competitive factors in the silicon foundry market include
service, price, design consultancy and manufacturing capability, quality, and
manufacturing cycle time. IMP believes its competitive strengths arise from its
experience in CMOS process technologies and mixed analog/digital capability.
There can be no assurance that the Company will be able to compete successfully
in the future.

The market for analog ICs is also intensely competitive with the
competitive pressures expected to increase. With respect to programmable filters
and removable media and tape storage read channels, the Company's principal
competitor is Silicon Systems Inc., a division of Texas Instruments. In
addition, the Company has licensed technology from and to parties which have, in
certain cases, the right to use the technology to develop products competitive
to those of the Company. The principal competitive factors in the market are
knowledge of the needs of system designers, manufacturing cycle time, sales
coverage, price and service.

With respect to EPAC products, Motorola, Inc. ("Motorola") recently
announced the introduction of a field-programmable analog array ("FPAA") which
will compete with the Company's EPAC products in certain applications. Unlike an
EPAC device, FPAA is an array of identical analog cells, each of which features
programmable functionality and characteristics similar to those found in some of
the cells of an EPAC device. FPAAs are also supported by a PC-based development
system. Other specialty analog circuit vendors including, Advanced Linear
Devices and Zetex Ltd., introduced electrically programmable analog devices
during 1997.

The Company's principal competitors and many of its potential competitors
have substantially greater technical, manufacturing, financial and marketing
resources than the Company. In addition, IMP faces competition from smaller
companies, although many of such companies do not have an internal wafer
manufacturing capability.

PATENTS AND LICENSES

The Company has 23 patents, of which 19 are in the US; the remaining 4
patents are in individual countries of Europe. The issued patents expire at
various times from 2003 to 2014. Although patents, patent protection and patent
applications may have value, the Company believes that other factors such as
managerial and technological experience and creative abilities of its personnel
are of more significance in the rapidly changing semiconductor industry.

The Company has also obtained licenses for certain devices and technology,
and may obtain additional licenses in the future. Because of technological
developments in the semiconductor industry, it is possible that certain of the
Company's designs or processes may involve infringement of existing patents. The
Company has from time to time received communications from third parties
asserting patent rights, mask work rights, copyrights or trademark rights on
certain of the Company's products and technologies. The Company has entered into
an agreement with two such parties pursuant to which the Company obtained a
license to certain rights in exchange for making certain royalty payments. The
Company believes that, based upon industry practice, any necessary licenses or
rights under patents could be obtained on conditions that would not have a
material adverse effect on the Company. However, there can be no assurance that
such licenses could in fact be obtained.

The Company has also acquired software and licenses to software from a
number of software companies, primarily for CAD and CAE applications.

The Company attempts to protect its trade secrets and other proprietary
information through agreements with customers and suppliers, proprietary
information agreements with employees and other security

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measures. Although the Company intends to protect its rights vigorously, there
can be no assurance that these measures will be successful.

EMPLOYEES

As of March 30, 1997, the Company employed approximately 226 persons,
including approximately 136 in manufacturing, 30 in manufacturing support, 30 in
design engineering, 10 in research and development, 7 in sales and marketing and
13 in administrative, financial and management positions. The Company went
through significant reductions in force in fiscal 1997.

The Company's ability to attract and retain qualified personnel is
essential to its continued success. None of the Company's employees is
represented by collective bargaining agreements, nor has the Company ever
experienced any work stoppage through employee initiated actions. The Company
believes its employee relations are good.

ITEM 2. PROPERTIES.

The Company's primary manufacturing activities and process technology
research and development activities are located in a 59,000 square foot building
in San Jose, California leased under an agreement expiring in fiscal 2000. The
Company's general administrative activities and design services are located in a
nearby 22,000 square foot building leased under an agreement expiring in fiscal
2000. The Company's design research and development activities are performed in
a 8,800 square foot office located in Pleasanton, California. The Company has
available foundry capacity and believes that its existing facilities are
adequate to meet its requirements for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS.

IMP v. Power Max

On or about July 14, 1995, the Company instituted a collection action in
the California Superior Court, Santa Clara County (#CV751019) against a former
customer, Power Max Enterprises, Inc. ("Power Max"). The Company later amended
the complaint to add the shareholders, directors and officers of Power Max (and
a related company) personally liable for the debts of Power Max. Power Max filed
a cross-complaint against the Company, alleging that the Company interfered with
a contractual relationship between Power Max and Ma Laboratories, Inc. The
Company in turn filed a cross-complaint for indemnity against Ma Laboratories,
Inc. Subsequently the parties reached a settlement with respect to the disputed
issues.

IMP v. ID Technologies

On or about January 5, 1996, the Company instituted a collection action in
the California Superior Court, Santa Clara County (#CV755019) against a former
customer, ID Technologies. ID Technologies filed an answer generally denying the
allegations and filed a cross-complaint against the Company for allegedly
breaching a contract. The parties have reached a settlement in principle whereby
ID Technologies will make certain payments over time and dismiss its
cross-complaint.

Class Action Lawsuits

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are Shockley, et al., v. Carrington, et al., No. CV762109 (Superior Court, Santa
Clara County, January 15, 1997) and Walsh, et al., v. Carrington, et al., No.
C97-20238-SW (N.D. Cal. March 18, 1997. These lawsuits, all of which include
similar factual allegations, allege that the Company and certain of its present
and former officers and directors issued false or misleading statements
regarding the Company's business, resulting in inflation of the Company's stock
price, and that certain of the defendants traded stock while in possession of
material adverse information. These lawsuits assert claims under the federal
securities laws, California securities laws, and California common law. The
plaintiffs in all actions seek damages in an unspecified amount.

These cases are presently in the early stages, and no trial dates have been
established. The Company believes it has valid defenses to these claims, and
intends to defend them vigorously. There is no assurance, however, that the
lawsuits will be resolved in a timely or satisfactory manner or that the
lawsuits will be resolved without additional significant costs to the Company.
The Company has incurred significant costs to date in its defense and even if
the lawsuits are resolved in a timely or satisfactory manner, these lawsuits
have in the past and in the future will cause management distraction from the
operations of the Company. Therefore, irrespective of the outcome of the
litigation, there could be a material adverse effect upon the Company's
business, financial condition and results of operations. Due to the inherent
uncertainty of litigation, management is not able to reasonably estimate losses
that may be incurred in relation to this litigation. However, based on the facts
presently known, management believes that the resolution of this matter will not
have a material adverse impact on the Company's financial position, results of
operations or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 30, 1997.

EXECUTIVE OFFICERS OF THE COMPANY

The current executive officers of the Company with their respective ages
and positions are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- ---------------------------------------------
<S> <C> <C>
James Phillips Ferguson 66 President, Chief Executive Officer and
Director
David A. Laws 56 Chairman of the Board of Directors
George Rassam 50 Chief Financial Officer and Secretary
Tarsiam Batra 62 Vice President, Manufacturing
Russ Almand(1) 52 Senior Vice President, Worldwide Sales
Robert Crossley 58 and Strategic Marketing Vice President,
Administration
Moiz B. Khambaty 63 Vice President, Technology
Greg Koskowich(2) 36 Vice President, Product Development
Jerry DaBell 51 Senior Vice President, Product Development
</TABLE>

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(1) On June 23, 1997, Mr. Almand submitted his resignation from the Company
which is effective as of July 7, 1997.

(2) Effective May 23, 1997, Dr. Koskowich resigned from his position at the
Company.

Mr. Ferguson, 66, joined the Company in June 1997 as President, Chief
Executive Officer and a member of the Board of Directors. He served as a
consultant to the Company from December 1996 to June 1997. From 1967 to June
1997 he was a principal in Ferguson Associates, a firm providing domestic and
international consulting services. Recent consulting assignments included Mr.
Ferguson assuming chief executive officer or chief operating officer
responsibilities with QuickLogic Corporation, Plus Logic and Paradigm
Technologies. Mr. Ferguson's prior employment included positions at Texas
Instruments and Fairchild Semiconductor and he was founder, President and Chief
Executive Officer of General Microelectronics.

Mr. Laws joined the Company in February 1995 as its Senior Vice President,
Marketing and Business Development. From May 1996 until June 1997, he served as
President and Chief Executive Officer and as a

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director of the Company and in June 1997 he was appointed to serve as Chairman
of the Board of Directors. Mr. Laws was President and Chief Executive Officer of
QuickLogic Corporation, a company engaged in the development of field
programmable gate arrays, from September 1990 to January 1994. From January 1986
to September 1990, Mr. Laws was Vice President of Marketing for Altera
Corporation, a supplier of programmable logic devices. Prior to Altera, he
served in various positions at Advanced Micro Devices from May 1975 to January
1986, including Managing Director of the PLD business unit and Vice President of
Business Development.

Mr. Rassam joined the Company in June 1983 as Controller. In November 1996,
he was named Chief Financial Officer and Secretary. Prior to joining IMP, Mr.
Rassam was Operations Controller at Zilog Corporation from 1978 to 1983. From
1973 to 1978 Mr. Rassam was employed as Manager, Cost Accounting by AMI, Inc.

Dr. Batra joined the Company in November 1994 as a Yield Improvement
Consultant. In May 1995, he was promoted to Manager, Operations Research. In
November 1996, he was promoted to Director of Manufacturing and in February 1997
he was promoted to Vice President, Manufacturing. Prior to joining IMP, Dr.
Batra's thirty year career in the semiconductor industry encompassed various
manufacturing, engineering and research positions, most recently General
Manager, Semiconductor Division of California Micro Devices from 1989 to 1993.

Mr. Almand joined the Company in June 1994 as its Vice President of Sales.
In May of 1996 he was promoted to Senior Vice President Sales and in August 1996
he was named Senior Vice President, Worldwide Sales and Strategic Marketing.
Prior to joining IMP, Mr. Almand was Director of Sales of Pacific Monolithics
from 1992 to 1994. From 1987 to 1992, Mr. Almand was founder and owner of
Spinnaker Sales an independent representative's firm for component
manufacturers. From 1966 to 1987, Mr. Almand was employed in various sales
management positions including Vice President Sales for AMCC, Vice President of
Sales for North America for AMD. On June 23, 1997, Mr. Almand submitted his
resignation from the Company which is effective as of July 7, 1997.

Mr. Crossley joined the Company in February 1988 as Manager, Human
Resources. In June 1990 he was named Director, Human Resources and in November
1991 he was named Vice President, Administration. Prior to joining IMP, Mr.
Crossley was employed by Advanced Micro Devices for 13 years, most recently as
Director, Human Resources.

Dr. Khambaty joined the Company in November 1981 as Manager of Technology
Development. In October 1983 he was promoted to Director, Technology Development
and in April 1984 to Vice President, Technology. From 1978 to 1981 Dr. Khambaty
was a Sr. Staff Scientist with Gould Electronics (AMI, Inc.). From 1956 to 1978
he was employed in various engineering and managerial positions with Siemens,
Fairchild, Honeywell and the Atomic Energy Establishment of the Government of
India.

Dr. Koskowich joined the Company in September 1995 as Director, Signal
Processing Products. In February 1997 he was promoted to Vice President of
Product Development. From 1992 to 1995 Dr. Koskowich was Manager,
Microelectronics Engineering for Resound Corporation. From 1991 to 1992, Dr.
Koskowich was employed as Manager, Communications Products, ELDEC Corporation.
From 1982 to 1991 he served in various engineering positions with IBM
Corporation, Flow Laboratories, Inc., The Tom Baker Cancer Center and the
Universities of Washington and Texas. Effective May 23, 1997, Dr. Koskowich
resigned from his position at the Company.

Mr. DaBell joined the Company in May 1988 as Vice President of Design
Technology. In July 1988 he was promoted to Vice President of Design
Engineering. In March 1993 he was assigned to the position of Vice President,
Business Development and in May 1997 was promoted to Senior Vice President,
Product Development. From 1973 to 1988 Mr. DaBell was employed in various design
engineering and management positions with Gould Electronics (AMI, Inc.). From
1971 to 1973 he served as an instrumentation engineer with the General Electric
Company.

Officers are elected by and serve at the discretion of the Board of
Directors.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

PRICE RANGE OF COMMON STOCK

The Common Stock of the Company is traded on the Nasdaq National Market
under the symbol "IMPX". The following tables set forth the high and the low
last reported sales price for the Common Stock as reported by the Nasdaq
National Market during the fiscal quarters indicated:

<TABLE>
<CAPTION>
FISCAL YEAR END FISCAL YEAR END
MARCH 30, 1997 MARCH 31, 1996
------------------ -----------------
HIGH LOW HIGH LOW
------- ------ ------ ------
<S> <C> <C> <C> <C>
First Quarter.......................... $21.750 $6.875 $3.562 $1.625
Second Quarter......................... $10.625 $4.437 $7.500 $3.250
Third Quarter.......................... $ 4.937 $2.625 $9.250 $5.562
Fourth Quarter......................... $ 2.843 $1.625 $8.812 $5.000
</TABLE>

The Company intends to retain any future earnings for the use in its
business and, accordingly, does not anticipate paying any cash dividends on its
common stock in the foreseeable future.

As of June 25, 1997, there were approximately 939 shareholders of record
(not including beneficial holders of stock held in street name) of the Company's
Common Stock, which closed at $1.690 per share on the Nasdaq National Stock
Market as of that date.

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1)
-----------------------------------------------------------------
MARCH 30, MARCH 31, MARCH 26, MARCH 27, MARCH 28,
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues........................ $ 64,891 $76,827 $59,750 $48,195 $55,935
Net income (loss)(2)................ (12,367) 5,469 790 390 (2,322)
Net income (loss) per share(3)...... (.44) .20 .03 .01 (.09)
Balance Sheet Data:
Total assets........................ 37,271 50,733 41,301 36,397 36,149
Long term obligations excluding
current portion.................. 11,074 8,979 4,799 1,648 2,240
Stockholders' equity.................. $ 14,301 $25,445 $18,463 $17,183 $16,328
</TABLE>

- ---------------

(1) The Company's fiscal year ends on the Sunday nearest March 31. Fiscal 1997,
1995 and 1994 each consisted of 52 weeks; and fiscal 1996 and 1993 consisted
of 53 weeks.

(2) In fiscal 1997, the Company recorded $1,862,000 of restructuring charges.
(See Note 2 of Notes to Financial Statements).

(3) See Note 1 of Notes to Financial Statements for an explanation of the
computation of net income (loss) per share.

ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION

Except for the historical information contained herein, the matters
discussed below are forward-looking statements that involve certain risks and
uncertainties, including the risks and uncertainties set forth below in this
section under the sub-heading "Factors Affecting Future Results."

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RESULTS OF OPERATIONS

Revenues in fiscal 1997 declined 16% to $64.9 million, from $76.8 million
in fiscal 1996. Revenues in fiscal 1996 increased 28% over the $59.8 million of
fiscal 1995. The decline in revenues from fiscal 1996 to fiscal 1997 was
primarily due to lower than expected orders from one customer after the Company
had structured its business to concentrate on this customer and a general
decline in foundry business due to excess supply relative to demand experienced
by several customers. The fiscal 1995 to fiscal 1996 growth was driven mainly by
increased demand for standard products for secondary storage applications and
higher average selling prices for foundry products. Foundry product sales
accounted for 58% of sales in fiscal 1997, 73% in fiscal 1996, and 88% in fiscal
1995, reflecting a continued shift from foundry product sales to sales of the
Company's standard products. The Company anticipates that revenues for fiscal
1998 will be lower than in fiscal 1997.

Cost of revenues as a percentage of sales was 83.0% in fiscal 1997 compared
to 67.9% in fiscal 1996, and 70.9% in fiscal 1995. The increase in fiscal 1997
was primarily due to less than optimum utilization of the Company's wafer
manufacturing capacity, due to the adverse business environment discussed
earlier and the Company's exit from the gate array business. Specifically
included in cost of revenues for fiscal 1997 are provisions of $1.4 million for
gate array inventories related to the Company's decision to discontinue the gate
array product line (See Note 2 of Notes to Financial Statements) and $1.9
million for specific inventories associated with customer order cancellations
and an overall decline in customer demand. The improvement from fiscal 1995 to
fiscal 1996 was due to a higher level of factory utilization and an increased
mix of standard products, with a higher average selling price than foundry
products.

Research and development expense in fiscal 1997 was $10.3 million, compared
to $9.9 million in fiscal 1996, and $8.6 million in fiscal 1995. The increase
from fiscal 1996 to fiscal 1997 was due to higher product development efforts on
new standard products. The increase from fiscal 1995 to fiscal 1996 was due to
higher product development spending for secondary storage and EPAC(TM) products.
Due to the downturn in the Company's business, the Company is currently
evaluating its planned expense level for research and development. The Company
believes that research and development expense will remain at or below the
fiscal 1997 level during fiscal 1998, but it could fluctuate as a percentage of
sales.

Selling, general and administrative expense in fiscal 1997 was $10.0
million compared to $8.3 million in fiscal 1996, and $6.8 million in fiscal
1995. The increase in fiscal 1997 was primarily due to accounts receivable
provisions of approximately $2.5 million due to the Company's exit from the gate
array business (see Note 2 of Notes to Financial Statements) and additional
reserves taken for potential bad debts, partially offset by lower sales
commissions. The increase from fiscal 1995 to fiscal 1996 was due primarily to
higher sales commissions.

During the second quarter of fiscal 1997, the Company's operating results
were affected by a decline in product demand and a downturn in the market. In
response to the downturn, the Company made the decision to implement a
restructuring plan which involved discontinuing the gate array product line,
downsizing the workforce and closing a recently acquired new product design
center.

The Company incurred a restructuring charge of approximately $1.9 million
during the second quarter of fiscal 1997. The charge comprises: employee
termination costs of $998,000 associated with reductions in the workforce; a
design center equipment write-off of $587,000 due to management's decision to
close one of the Company's design center facilities; and $277,000 associated
with wafer cancellation costs and the write-off of gate array capital equipment
no longer usable.

Net interest expense in fiscal 1997 was approximately $1.2 million compared
to $879,000 in fiscal 1996 and $1.2 million in fiscal 1995. The increase from
fiscal 1996 to fiscal 1997 was due to costs associated with increases in leased
equipment, while the decrease from fiscal 1995 to fiscal 1996 was due to lower
interest rates on capitalized leases.

The Company had a net loss of $12.4 million in fiscal 1997, or $.44 per
share, compared to a profit of $5.5 million in fiscal 1996 or $.20 per share,
and $800,000 in fiscal 1995, or $.03 per share. The fiscal 1997 net

10
<PAGE> 11

loss was primarily attributable to low factory utilization, costs associated
with exiting the gate array business, and the closing of a new product design
center.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalent increased to $13.3 million at March 30, 1997 from
$9.0 million at March 31, 1996, and $8.5 million at March 26, 1995. The increase
from fiscal 1996 to fiscal 1997 was primarily due to financing of equipment used
in production and management's continuous efforts to reduce costs to be more in-
line with current sales levels. The increase from fiscal 1995 to fiscal 1996 was
due primarily to increased cash flows from operations offset by the purchase of
capital equipment and payments on existing lines of credit and capital lease
obligations.

Cash flows provided by operating activities in fiscal 1997 were $5.8
million compared to $11 million in fiscal 1996 and $2.4 million in fiscal 1995.
The fiscal 1996 to fiscal 1997 decrease in cash flows provided by operating
activities was due primarily to the net loss of $12.4 million and a decrease in
accounts payable and other current liabilities of $3.3 million. Partially
offsetting these factors was a decrease of $7.5 million in accounts receivable
due to a decrease in sales, a decrease of $7.0 million in inventories due to
management efforts to reduce inventory to be more in-line with current sales
levels and an increase of $1.9 million in depreciation and amortization expense.
The fiscal 1995 to fiscal 1996 increase in cash flows provided by operating
activities was due primarily to the fiscal 1996 net profit of approximately $5.5
million and increases in accrued payroll, related expenses and current
liabilities, partially offset by an increase in accounts receivable and
inventories.

Cash used for investing activities was approximately $1.9 million in fiscal
1997, $2.0 million in fiscal 1996 and $900,000 in fiscal 1995, reflecting cash
invested in property and equipment acquisitions. Management expects capital
additions for fiscal 1998 to remain flat or below fiscal 1997 capital additions.

Cash flows provided for financing activities in fiscal 1997 were $377,000
as compared to $8.5 million used for such activities in fiscal 1996 and $621,000
in fiscal 1995. During fiscal 1997, the Company made payments on capital lease
obligations and notes payable of $4.0 million and $4.4 million, respectively.
This was offset by proceeds from notes payable of $7.6 million and proceeds of
$1.2 million related to stock option exercises. Cash flows used for financing
activities in fiscal 1996 consisted primarily of payments on capital lease
obligations of $4.0 million and payments on the Company's line of credit of $6.0
million, offset by $1.5 million of proceeds from stock option exercises. Cash
flows used for financing activities in fiscal 1995 consisted primarily of
payments on capital lease obligations of $4.1 million offset by proceeds of long
term financing of $3.0 million and proceeds from stock option exercises of
$490,000. The Company's recent operations have consumed substantial amounts of
cash. The Company believes that its existing cash balances, expected cash flows
from operations, equipment lease financing and its available line of credit will
be sufficient to meet its projected working capital and other cash requirements
throughout fiscal 1998. Although the Company has taken measures to conserve
cash, there can be no assurance as to when it will return to profitability or
that such additional financing, if required, can be obtained on acceptable
terms, if at all.

At March 30, 1997, the Company had a line of credit agreement with a bank
which provides through October 31, 1997, for borrowings up to the lesser of
$5,000,000 or up to 80% of eligible accounts receivable. At March 30, 1997, no
amounts were outstanding under this line of credit. Borrowings under this line
of credit accrue interest at the bank's reference rate plus .50% resulting in an
interest rate of 9.0% at March 30, 1997 and are collateralized by all of the
assets of the Company. Under the agreement, the Company is restricted from
paying dividends and is required to maintain certain financial ratios among
other restrictive covenants. At March 30, 1997, the Company was not in
compliance with certain financial covenants under this financing agreement due
to the decline in the Company's operating results, for which it expects to
obtain a waiver from the bank. The Company intends to renew this line of credit
under a new agreement in October 1997 but there is no guarantee that it will be
able to do so upon acceptable terms.

11
<PAGE> 12

FACTORS AFFECTING FUTURE RESULTS

The Company's business, financial condition and results of operations have
been, and may in the future, be affected by a variety of factors, including
markets for its products and those of its customers, foundry utilization,
concentration of customers, its ability to retain trained design and process
engineers, the development and introduction of new technology and products and
the availability of raw materials. The fulfillment arrangements for standard
analog products generally provide that orders may be terminated at will by
either party and the customer is not required to commit to purchase a specific
number of products, although cancellation or rescheduling charges may be imposed
in certain circumstances. The unanticipated loss of any of its major customers
or the unanticipated cancellation or rescheduling of orders by any of them could
have a material adverse impact on the Company's business, particularly if the
Company's efforts with other customers do not result in the volume of
manufacturing orders anticipated by the Company.

Iomega, which accounted for approximately 39% of revenues in fiscal 1997,
has advised the Company that the Company's products will not be a part of
Iomega's long-term product strategy and sales to Iomega are projected to be
lower in the foreseeable future than they were during fiscal 1997. Orders from
the Company's largest foundry customer, IR, declined significantly during the
year and sales in the foreseeable future are projected to be significantly less
than they were during fiscal 1997. Orders for Rockwell were completed during the
fiscal year and the Company does not anticipate continued sales to Rockwell in
fiscal 1998. The above described actions by such major customers, along with
other cancellations and delays by the Company's customers will adversely affect
the Company's business and results of operations through fiscal 1998 and for the
foreseeable future. Any further decline in demand for the Company's products, or
any other decline in the demand by end-users of the products produced by the
Company's customers could lead to a further decline in, or cancellation of,
orders for the Company's products by its customers, which could adversely affect
the Company's business and results of operations.

In addition, the current business climate has and will continue to result
in less than optimum utilization of the Company's foundry, which will adversely
affect the Company's business and results of operations. The Company made two
significant reductions in workforce during fiscal 1997 that primarily affected
manufacturing employees.

The ability of the Company to transition from the fabrication of
lower-margin products to higher-margin products, including both those developed
by the Company and those for which it serves as a third-party foundry, is very
important for the Company's future results of operations. Rapidly changing
customer demands may result in the obsolescence of existing Company inventories.
There can be no assurances that the Company will be successful in its efforts to
keep pace with changing customer demands. In this regard, the ability of the
Company to develop higher-margin products will be materially and adversely
affected if it is unable to retain its engineering personnel due to the
Company's current business climate.

Although the Company believes it currently has adequate access to necessary
raw materials, it does not have any long-term commitments for the supply of raw
wafers and polysubstrates.

LITIGATION

IMP v. Power Max

On or about July 14, 1995, the Company instituted a collection action in
the California Superior Court, Santa Clara County (#CV751019) against a former
customer, Power Max Enterprises, Inc. The Company later amended the complaint to
add the shareholders, directors and officers of Power Max (and a related
company) personally liable for the debts of Power Max. Power Max filed a
cross-complaint against the Company, alleging that the Company interfered with a
contractual relationship between Power Max and Ma Laboratories, Inc. The Company
in turn filed a cross-complaint for indemnity against Ma Laboratories, Inc.
Subsequently the parties reached a settlement with respect to the disputed
issues.

12
<PAGE> 13

IMP v. ID Technologies

Class Action Lawsuits

Several purported securities class action and derivative lawsuits have been
filed against the Company and certain of its present and former officers and
directors based on events which allegedly occurred in the time period of April
24, 1996 through July 22, 1996. The lawsuits are as follows: two stockholder
class actions are pending: Lee, et al., v. IMP, Inc., et al., No. CV760793
(Superior Court, Santa Clara County, September 17, 1996) is a purported
securities class action consolidating several complaints filed in California
State Superior Court. In re IMP, Inc. Securities Litigation, No. C96-20826-SW
(N.D. Cal. October 1, 1996) is a purported securities class action consolidating
several complaints filed in the United States District Court for the Northern
District of California. In addition, two stockholder derivative actions are
pending and purport to assert claims on behalf of the Company against certain of
its present and former officers and directors. They are Shockley, et al., v.
Carrington, et al., No. CV762109 (Superior Court, Santa Clara County, January
15, 1997) and Walsh, et al., v. Carrington, et al., No. C97-20238-SW (N.D. Cal.
March 18, 1997. These lawsuits, all of which include similar factual
allegations, allege that the Company and certain of its present and former
officers and directors issued false or misleading statements regarding the
Company's business, resulting in inflation of the Company's stock price, and
that certain of the defendants traded stock while in possession of material
adverse information. These lawsuits assert claims under the federal securities
laws, California securities laws, and California common law. The plaintiffs in
all actions seek damages in an unspecified amount.

13
<PAGE> 14

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial statements:

Report of Independent Accountants................................................ 15
Balance sheets as of March 30, 1997 and March 31, 1996........................... 16
Statements of operations for each of the three years in the period ended March
30, 1997........................................................................ 17
Statement of stockholders' equity for each of the three years in the period ended
March 30, 1997.................................................................. 18
Statements of cash flows for each of the three years in the period ended
March 30, 1997................................................................. 19
Notes to financial statements.................................................... 20

Financial statement schedule for each of the three years in the period ended
March 30, 1997:

Report of Independent Accountants on Financial Statement Schedule................ 32
II -- Valuation and Qualifying Accounts.......................................... 33
</TABLE>

14
<PAGE> 15

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of IMP, Inc.

In our opinion, the accompanying balance sheets and related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of IMP, Inc. at March 30, 1997 and
March 31, 1996, and the results of its operations and its cash flows for each of
the three years in the period ended March 30, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

San Jose, California
May 9, 1997

15
<PAGE> 16

IMP, INC.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
MARCH 30, MARCH 31,
1997 1996
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................................ $ 13,306 $ 9,038
Accounts receivable, net of allowances for doubtful accounts and
returns of $2,041 and $655........................................ 6,112 13,658
Inventories.......................................................... 3,306 10,302
Other current assets................................................. 759 491
-------- --------
Total current assets......................................... 23,483 33,489
-------- --------
Leasehold improvements & machinery & equipment:
Leasehold improvements............................................... 7,883 7,883
Machinery and equipment.............................................. 78,115 73,782
-------- --------
85,998 81,665
Less accumulated depreciation and amortization....................... (72,285) (64,496)
-------- --------
Net leasehold improvements and machinery and equipment............... 13,713 17,169
-------- --------
Deposits and other long term assets.................................... 75 75
-------- --------
$ 37,271 $ 50,733
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable..................................... $ 3,739 $ 2,256
Current portion of capital lease obligations......................... 3,733 3,717
Trade accounts payable............................................... 4,111 6,175
Accrued payroll and related expenses................................. 1,563 2,140
Other current liabilities............................................ 750 2,021
-------- --------
Total current liabilities.................................... 13,896 16,309
-------- --------
Long term portion of notes payable................................... 3,018 1,315
-------- --------
Long term portion of capital lease obligations....................... 6,056 7,664
-------- --------
Commitments & contingencies (Notes 5 and 8)
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 5,000 shares
authorized; no shares issued and outstanding...................... -- --
Common stock, $0.001 par value; 50,000 shares authorized; 30,284 and
29,133 shares issued and outstanding.............................. 30 29
Additional paid in capital........................................... 70,274 69,052
Accumulated deficit.................................................. (52,106) (39,739)
Treasury stock; at cost, 2,029 shares................................ (3,897) (3,897)
-------- --------
Total stockholders' equity................................... 14,301 25,445
-------- --------
$ 37,271 $ 50,733
======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

16
<PAGE> 17

IMP, INC.

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
MARCH 30, MARCH 31, MARCH 26,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net revenues................................................ $ 64,891 $76,827 $59,750
Cost of revenues............................................ 53,889 52,155 42,340
-------- ------- -------
Gross profit................................................ 11,002 24,672 17,410
-------- ------- -------
Operating expenses:
Research and development.................................. 10,286 9,934 8,590
Selling, general and administrative....................... 10,000 8,284 6,796
Restructuring charges..................................... 1,862 -- --
-------- ------- -------
Total operating expenses.................................... 22,148 18,218 15,386
-------- ------- -------
Income (loss) from operations............................... (11,146) 6,454 2,024
Interest and other expense, net........................... (1,221) (985) (1,234)
-------- ------- -------
Net income (loss)........................................... $ (12,367) $ 5,469 $ 790
======== ======= =======
Net income (loss) per share (Note 1)........................ $ (.44) $ .20 $ .03
-------- ------- -------
Shares used in computing net income (loss) per share (Note
1)........................................................ 28,153 27,956 26,462
======== ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

17
<PAGE> 18

IMP, INC.

STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID IN ACCUMULATED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT STOCK EQUITY
------ ------ ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 27, 1994....................... 27,688 $ 28 $ 67,050 $ (45,998) $ (3,897) $ 17,183
Issuance of common stock under incentive stock
option plan and employee stock purchase
plan........................................ 356 -- 490 -- -- 490
Net income.................................... -- -- -- 790 -- 790
------ --- ------- -------- ------- -------
Balance, March 26, 1995....................... 28,044 28 67,540 (45,208) (3,897) 18,463
Issuance of common stock under incentive stock
option plan and employee stock purchase
plan........................................ 1,089 1 1,512 -- -- 1,513
Net income.................................... -- -- -- 5,469 -- 5,469
------ --- ------- -------- ------- -------
Balance, March 31, 1996....................... 29,133 29 69,052 (39,739) (3,897) 25,445
Issuance of common stock under incentive stock
option plan................................. 1,104 1 1,222 -- -- 1,223
Issuance of shares in conjunction with
warrants exercised.......................... 47 -- -- -- -- --
Net loss...................................... -- -- -- (12,367) -- (12,367)
------ --- ------- -------- ------- -------
Balance, March 30, 1997....................... 30,284 $ 30 $ 70,274 $ (52,106) $ (3,897) $ 14,301
====== === ======= ======== ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

18
<PAGE> 19

IMP, INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
MARCH 30, MARCH 31, MARCH 26,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (12,367) $ 5,469 $ 790
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 7,789 5,913 5,258
Increase (decrease) from changes in:
Accounts receivable.................................... 7,546 (1,859) (3,341)
Inventories............................................ 6,996 (1,154) (506)
Other current assets................................... (268) 328 (154)
Trade accounts payable................................. (2,064) 172 (27)
Accrued payroll and related expenses................... (577) 552 341
Other current liabilities.............................. (1,271) 1,562 41
-------- ------- -------
Net cash provided by operating activities.............. 5,784 10,983 2,402
-------- ------- -------
Cash flows from investing activities:
Net cash used for investing activities for purchase of
capital equipment...................................... (1,893) (1,959) (922)
-------- ------- -------
Cash flows from financing activities:
Principal payments on notes payable....................... (4,383) (5,929) --
Principal payments under capital lease obligations........ (4,032) (4,054) (4,111)
Proceeds from long term financing agreement............... 7,569 -- 3,000
Proceeds from exercise of options to purchase common
stock.................................................. 1,223 1,513 490
-------- ------- -------
Net cash provided by (used for) financing activities........ 377 (8,470) (621)
-------- ------- -------
Net increase in cash and cash equivalents................... 4,268 554 859
Cash and cash equivalents at beginning of period............ 9,038 8,484 7,625
-------- ------- -------
Cash and cash equivalents at end of period, including
restricted cash of $2,000 at March 26, 1995............... $ 13,306 $ 9,038 $ 8,484
======== ======= =======
Supplemental information:
Cash paid during the year for interest.................... $ 1,521 $ 1,065 $ 1,329
Acquisition of equipment under capital lease
obligations............................................ $ 2,440 $10,147 $ 4,380
</TABLE>

The accompanying notes are an integral part of these financial statements.

19
<PAGE> 20

IMP, INC.

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 30, 1997, MARCH 31, 1996, AND MARCH 26, 1995

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

IMP, Inc. (the "Company") develops and manufactures analog mixed signal
CMOS integrated circuit solutions for communications, computer and control
applications.

Fiscal Year -- The Company's fiscal year ends on the Sunday nearest March
31. Fiscal 1997 and 1995 each consisted of 52 weeks and fiscal 1996 consisted of
53 weeks.

Basis of Presentation -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management 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 the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents -- For purposes of the statement of cash flows,
the Company considers all highly liquid financial instruments purchased with an
original maturity of three months or less to be cash equivalents. The fair
market value of these highly liquid instruments approximates cost at March 30,
1997 and March 31, 1996.

Inventories -- Inventories are stated at the lower of standard cost (which
approximates actual cost on a first-in first-out basis) or market.

Inventories consist of the following:

<TABLE>
<CAPTION>
MARCH 30, MARCH 31,
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.......................................... $ 965 $ 987
Work-in-process........................................ 1,589 8,425
Finished goods......................................... 752 890
------ -------
$ 3,306 $10,302
====== =======
</TABLE>

Included in cost of sales for the year ended March 30, 1997 are provisions
of $1,400,000 for gate array inventories related to the Company's decision to
discontinue the gate array product line (Note 2) and $1,873,000 for specific
inventories associated with customer order cancellations and an overall decline
in customer demand.

Leasehold improvements and machinery and equipment -- Leasehold
improvements and machinery and equipment are stated at cost and are amortized
using the straight-line method over the shorter of the period of the lease or
the estimated useful lives of the assets. Machinery and equipment under capital
lease obligations have a capitalized value and net book value of $43,664,000 and
$10,171,000 at March 30, 1997 and $41,224,000 and $12,589,000 at March 31, 1996.

Net revenues -- Component revenues are recognized as products are shipped.
Design revenues are recognized under design and engineering contracts as defined
development phases are completed by the Company and accepted by the customers.
Design engineering revenues aggregated $1,539,000, $2,580,000, and $2,283,000
for fiscal 1997, 1996 and 1995, respectively. Costs related to design
engineering aggregating $1,100,000, $1,576,000 and $1,403,000 for fiscal 1997,
1996 and 1995, respectively, are included in research and development expense as
incurred.

Related party -- During fiscal 1995, the Company purchased $2,700,000 of
inventory from SAMES, one of the Company's strategic foundry partners, and at
March 26, 1995, IMP had an accounts payable balance to SAMES of $602,000. In
fiscal 1996, IMP and SAMES' management resigned from the seat each occupied on

20
<PAGE> 21

IMP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 30, 1997, MARCH 31, 1996, AND MARCH 26, 1995

the other's Board of Directors. During fiscal 1997, the Company continued to
conduct purchasing and selling activities with SAMES under a standard
customer/vendor arrangement.

Stock based compensation -- Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), establishes a fair
value method of accounting for stock-based employee compensation plans. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and to comply with the pro forma
disclosure requirements of SFAS 123.

Net income (loss) per share -- Net loss per share is computed using the
weighted average number of Common shares outstanding. Common stock equivalents
are excluded as their effect is anti-dilutive. Net income per share is based
upon weighted average common and common equivalent shares outstanding during the
period. Common stock equivalents consist of stock options using the treasury
stock method.

Concentration of credit risk -- The Company performs credit evaluations of
its customers and maintains reserves for losses. At March 30, 1997 customers
individually representing more than 10% of the Company's 1997 net revenues also
accounted for 51% of accounts receivable. At March 31, 1996, customers
individually representing more than 10% of the Company's 1996 net revenues also
accounted for 46% of accounts receivable. The Company's products are primarily
sold to resellers.

Recent accounting pronouncement -- In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128 ("SFAS 128"), "Earnings per Share." This statement redefines earnings
per share under generally accepted accounting principles. Under the new
standard, primary earnings per share is replaced by basic earnings per share and
fully diluted earnings per share is replaced by diluted earnings per share. The
Company is required to adopt the new standard in the fourth calendar quarter of
1997. The following table sets forth primary earnings per share as reported and
unaudited pro forma basic and diluted earnings per share assuming SFAS 128 had
been applied during the periods presented:

<TABLE>
<CAPTION>
MARCH 30, MARCH 31, MARCH 26,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Primary earnings (loss) per share as
reported.................................. $(.44) $ .20 $ .01
Pro forma basic net income (loss) per
share..................................... (.44) $ .20 .02
Pro forma diluted net income (loss) per
share..................................... (.44) $ .19 .01
</TABLE>

Reclassifications -- Certain reclassifications have been made to the 1996
financial statements to conform to the 1997 presentation.

NOTE 2 -- RESTRUCTURING AND OTHER CHARGES

The Company incurred a $1,862,000 restructuring charge during the second
quarter of fiscal 1997. The charge comprises: employee termination costs of
$998,000 associated with reductions in the workforce; a design center equipment
write-off of $587,000 due to management's decision to close one of their design
center facilities; and $277,000 associated with wafer cancellation costs and
gate array capital equipment no longer usable.

21
<PAGE> 22

IMP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 30, 1997, MARCH 31, 1996, AND MARCH 26, 1995

NOTE 3 -- NOTES PAYABLE

Notes payable consist of the following:

<TABLE>
<CAPTION>
MARCH 30, MARCH 31,
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Bank equipment term loan............................... $ 2,640 $ 1,311
Equipment notes payable................................ 4,117 2,260
------- -------
Total notes payable.................................... 6,757 3,571
Less current portion................................... (3,739) (2,256)
------- -------
Long term portion of notes payable..................... $ 3,018 $ 1,315
======= =======
</TABLE>

Bank equipment term loan -- At March 30, 1997 and March 31, 1996, the
Company had a financing agreement in place with a bank under which the Company
may borrow up to $3,000,000 to finance 100% of the cost of collateralized
equipment. In fiscal 1997 and 1996, the Company utilized $2,640,000 and
$1,311,000, respectively under this financing agreement. Borrowings accrue
interest at the bank's reference rate plus 1.0 percent (9.50% at March 30, 1997)
and requires 60 equal monthly principal payments. Borrowings outstanding at
March 30, 1997 expire at various dates through 2002. Under the agreement, the
Company is restricted from paying dividends and is required to maintain certain
financial ratios among other restrictive covenants. At March 30, 1997, the
Company was not in compliance with certain financial covenants under this
financing agreement for which it expects to obtain a waiver from the bank.

Equipment notes payable -- In fiscal 1995, the Company fully utilized a
$3,000,000 borrowing facility with an asset-based lender allowing the Company to
finance 100% of the cost of collateralized equipment. In May 1996, the facility
was increased to $5,000,000 which the Company fully utilized. The Company used
the additional proceeds to purchase equipment. The note accrues interest at
9.98% and requires 60 equal monthly principal payments which began in June 1996.
The note does not contain any restrictive or financial covenants.

Maturities of loans and notes payable -- The aggregate maturities of notes
payable at March 30, 1997 are as follows (in thousands):

Fiscal year ending March 31:

<TABLE>
<S> <C>
1998................................................ $3,739
1999................................................ 1,349
2000................................................ 1,418
2001................................................ 251
------
Total............................................... $6,757
======
</TABLE>

Line of credit -- At March 30, 1997 and 1996, the Company had a line of
credit agreement with a bank which provides through October 31, 1997, for
borrowings up to the lessor of $5,000,000 or up to 80% of eligible accounts
receivable. At March 30, 1997, no amounts were outstanding under this line of
credit. Borrowings under this line of credit accrue interest at the bank's
reference rate plus .50% (9.0% at March 31, 1997) and are collateralized by all
the assets of the Company. Under the agreement, the Company is restricted from
paying dividends and is required to maintain certain financial ratios among
other restrictive covenants. At March 30, 1997, the Company was not in
compliance with certain financial covenants under this financing agreement for
which it expects to obtain a waiver from the bank.

22
<PAGE> 23

IMP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 30, 1997, MARCH 31, 1996, AND MARCH 26, 1995

NOTE 4 -- STOCKHOLDERS' EQUITY

Employee stock purchase plan -- In December 1986, the Company adopted a
qualified "employee stock purchase plan" under Section 423 of the Internal
Revenue Code, which was effective on June 10, 1987, upon the completion of the
Company's initial public offering of its common stock. During fiscal year 1997,
no shares were issued under the plan. In Fiscal 1996, 378,000 shares at an
aggregate price of approximately $586,000 were issued under the plan and 301,000
shares at an aggregate price of $440,000 were issued in fiscal year 1995 under
the plan.

Shares are purchased by participants at 85% of the lower fair market value
on certain marking dates through payroll deductions (up to 15% of participants
base compensation).

Stock option plan -- The Company has an option plan which provides for the
issuance of incentive stock options and non-statutory stock options to
employees, officers and directors to purchase common stock at a price not less
than 85% (100% for incentive stock options) of the fair market value of the
stock on the grant date. To date all options have been granted at 100% of fair
market value. The plan was most recently restated in August 1994 and renamed the
Stock Option Plan which terminates in 2005. In May 1997, the Company's Board of
Directors authorized an additional 750,000 shares to be reserved for issuance
under the plan, subject to approval by the stockholders, and after stockholders
approval of the 750,000 share increase, the Stock Option Plan will provide for a
total of 6,117,000 shares of the stock to be issued. Options granted under the
plan generally vest ratably over four years and expire five to ten years from
the date of grant. The Board of Directors has the right to determine the terms
of each option including allowing optionees to exercise their options early,
subject to a right to repurchase unvested shares.

The Board of Directors may grant the right to surrender unexercised options
for an amount equal to the difference between the fair market value of the
number of shares vested at the surrender date and the aggregate option price
vested for such shares. The Company has not granted any such stock appreciation
rights.

Summary of option activity -- The following table summarizes the Company's
stock option activity and related weighted average exercise price within each
category for each of the years ended March 30, 1997, March 31, 1996 and March
26, 1995 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding.......................... 1,893 $ 2.01 2,319 $ 1.27 1,814 $ 1.15
Options granted.............................. 615 3.50 359 5.28 615 1.61
Options canceled............................. (180) 5.96 (74) 2.41 (55) 1.57
Options exercised............................ (1,104) 1.09 (711) 1.29 (55) .93
------ ----- ----- ----- ----- -----
Options outstanding at end of fiscal year.... 1,224 $ 2.96 1,893 $ 2.01 2,319 $ 1.27
====== ===== ===== ===== ===== =====
Options exercisable at end of fiscal year.... 228 $ 3.60 1,060 $ 1.18 1,545 $ 1.13
====== ===== ===== ===== ===== =====
</TABLE>

At March 30, 1997, 770,000 shares were available for grant.

23
<PAGE> 24

IMP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 30, 1997, MARCH 31, 1996, AND MARCH 26, 1995

Option groups outstanding at March 30, 1997 and related weighted average
exercise price and remaining contractual life information are as follows:

<TABLE>
<CAPTION>
OPTION WITH OUTSTANDING EXERCISABLE REMAINING
EXERCISE PRICES ----------------- ----------------- LIFE
RANGING FROM: SHARES PRICE SHARES PRICE (YEARS)
- ---------------- ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ .81 - $ 1.88 458 $ 1.57 106 $ 1.56 8
2.12 - 5.00 528 2.57 23 2.36 10
5.38 - 9.25 225 6.13 99 6.08 9
10.50 - 19.63 13 13.56 -- -- 9
--
----- ----- --- -----
1,224 $ 2.96 228 $ 3.60 9
===== ===== === ===== ==
</TABLE>

Fair value of stock options and employee purchase rights

The fair value of options granted in fiscal 1997 and 1996 was estimated
using the Black-Scholes model with the following assumptions:

<TABLE>
<CAPTION>
EMPLOYEE
1992 STOCK STOCK
OPTION PLAN PURCHASE PLAN
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Expected life (in years)...................... 4 4 -- .5
Risk-free interest rate....................... 6.0% 6.3% -- 5.2%
Volatility.................................... 82% 75% -- 75%
Dividend yield................................ 0% 0% -- 0%
</TABLE>

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's options have characteristics significantly
different from those traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in the opinion of
management, the existing models do not necessarily provide a reliable single
measure of the fair value of its options.

The weighted average fair value of Employee Stock Purchase Plan shares
granted during fiscal 1996 was $.29 per share. The weighed average estimated
fair value of shares granted under the 1992 Stock Option Plan during fiscal 1997
and 1996 was $2.20 and $3.20, respectively.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Had the
Company recorded compensation costs based on the estimated grant date fair
value, as defined by SFAS 123, for awards granted under its stock option plan
and employee stock purchase plan, the Company's net income (loss) and net income
(loss) per share would have been reduced to the pro forma amounts below for the
years ended March 30, 1997 and March 31, 1996:

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Pro forma net income (loss).......................... $(13,070) $ 5,186
Pro forma net income (loss) per share................ $ (.46) $ .18
</TABLE>

The effects on pro forma disclosures of applying SFAS No. 123 are not
likely to be representative of the effects on pro forma disclosures of future
years. Because SFAS No. 123 is applicable only to options granted subsequent to
March 31, 1995, the pro forma effect will not be fully reflected until fiscal
2001.

24
<PAGE> 25

IMP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 30, 1997, MARCH 31, 1996, AND MARCH 26, 1995

Warrants -- In 1991, the Company issued warrants to purchase 50,000 shares
of common stock at a price of $1.00 per share in connection with a credit line
from a bank. In fiscal 1997, the warrants were exercised, and as provided in the
warrant agreement, the warrant holder received a reduced number of shares in
exchange for the aggregate purchase price due, resulting in the issuance by the
Company of 46,666 shares.

NOTE 5 -- LITIGATION

Several purported securities class action and derivative lawsuits have been
filed against the Company and certain of its present and former officers and
directors based on events which allegedly occurred in the time period of April
24, 1996 through July 22, 1996. The lawsuits are as follows: two stockholder
class actions are pending: Lee, et al, v. IMP, Inc., et. al., No. CV760793
(Superior Court, Santa Clara County, September 17, 1996) is a purported
securities class action consolidating several complaints filed in California
State Superior Court. In re IMP, Inc. Securities Litigation, No. C96-20826-SW
(N.D. Cal. October 1, 1996) is a purported securities class action consolidating
several complaints filed in the United States District Court for the Northern
District of California. In addition, two stockholder derivative actions are
pending and purport to assert claims on behalf of the Company against certain of
its present and former officers and directors. They are Shockley, et. al., v.
Carrington, et. al., No. CV762109 (Superior Court, Santa Clara County, January
15, 1997) and Walsh, et. al., v. Carrington, Et., al., No. C97-20238-SW (N.D.
Cal. March 18, 1997. These lawsuits, all of which include similar factual
allegations, allege that the Company and certain of its present and former
officers and directors issued false or misleading statements regarding the
Company's business, resulting in inflation of the Company's stock price, and
that certain of the defendants traded stock while in possession of material
adverse information. These lawsuits assert claims under the federal securities
laws, California securities laws, and California common law. The plaintiffs in
all actions seek damages in an unspecified amount.

NOTE 6 -- INCOME TAXES

In fiscal 1997, the Company incurred a net operating loss for tax purposes.
The remaining net Federal and State operating loss carry-forwards of
approximately $50,600,000 and $14,600,000, respectively, may be

25
<PAGE> 26

IMP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 30, 1997, MARCH 31, 1996, AND MARCH 26, 1995

utilized to reduce future taxable income. These amounts expire beginning in 1998
through 2009. Deferred tax assets (liabilities) under SFAS 109 are comprised of
the following (in thousands):

<TABLE>
<CAPTION>
MARCH 30, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
Federal:
Net operating loss, tax-effected................ $ 17,103 $ 10,703
Non-deductible expenses......................... 4,803 3,044
Investment and R&D tax credit................... 3,046 2,469
Other........................................... (124) 577
-------- --------
Total........................................... 24,828 16,793
Valuation allowance............................. (24,828) (16,793)
-------- --------
Net deferred tax asset.......................... $ -- $ --
======== ========
</TABLE>

The Company has recorded a full valuation allowance against the gross
deferred tax asset, because future realization is uncertain. In accordance with
SFAS 109 this valuation allowance is allocated prorata to federal and state
current and non-current deferred tax assets.

NOTE 7 -- SEGMENT INFORMATION

The Company operates in one industry segment and is engaged in the design
development, manufacture and marketing of integrated circuits. Export sales to
Western Europe were $62,000, $2,277,000, and $3,796,000 and to Asia $21,409,000,
$2,194,000, and $8,842,000 in fiscal 1997, 1996, and 1995, respectively. During
fiscal 1997, 1996, and 1995, sales to certain customers individually represented
more than 10% of the Company's net revenues as follows:

<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Rockwell............................................ 10% 33% 34%
Iomega.............................................. 39% 13% *
Qlogic.............................................. * 10% *
International Rectifier............................. 15% *
</TABLE>

- ---------------

* less than 10% of net revenues

Sales to Rockwell, Iomega and International Rectifier are projected to be
signifcantly less in future years.

NOTE 8 -- LEASING ARRANGEMENTS AND COMMITMENTS

The Company leases certain machinery and equipment under long-term lease
agreements which are reported as capital leases. The terms of the leases range
from four to five years, with purchase options at the end of the respective
lease terms. The Company intends to exercise such purchase options, which will
require minimal payments. The Company leases its facility under a noncancelable
operating lease which expires in December 1999, with options to extend the lease
for two additional six year periods. Rent expense is recorded using the
straight-line method and totaled $1,450,000, $1,460,000 and $1,545,000 in fiscal
1997, 1996 and

26
<PAGE> 27

IMP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 30, 1997, MARCH 31, 1996, AND MARCH 26, 1995

1995, respectively. Future minimum lease payments, including capitalized
purchase options, at March 30, 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR ENDING MARCH 31 LEASES LEASES
--------------------------------------------------------- ------- ---------
<S> <C> <C>
1998..................................................... $ 4,906 $ 1,448
1999..................................................... 3,527 1,302
2000..................................................... 1,558 977
2001..................................................... 1,142 --
2002..................................................... 126 --
------- -----
Total minimum payments................................... 11,259 $ 3,727
=====
Less imputed interest.................................... (1,470)
-------
Present value of payments under capital leases........... 9,789
Less current portion..................................... (3,733)
-------
Long-term lease obligations.............................. $ 6,056
=======
</TABLE>

27
<PAGE> 28

PART III

ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT

(1) Identification of Directors:

The information concerning the Company's directors and nominees is
incorporated by reference from the section entitled "Proposal No. 1 -- Election
of Directors" in the Proxy Statement for the 1997 Annual Meeting of Stockholders
to be held on August 20, 1997, a copy of which will be filed with the Securities
and Exchange Commission no later than 120 days from the end of the Company's
last fiscal year.

(2) Identification of Executive Officers:

See Part I, "Executive Officers of the Company."

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference from the section entitled "Executive
Compensation" in the Proxy Statement for the 1997 Annual Meeting of Stockholders
to be held on August 20, 1997, a copy of which will be filed with the Securities
and Exchange Commission.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference from the sections entitled "Share Ownership" in
the Proxy Statement for the 1997 Annual Meeting of Stockholders to be held on
August 20, 1997, a copy of which will be filed with the Securities and Exchange
Commission.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference from the section entitled "Certain Relationships
and Related Transactions" in the Proxy Statement for the 1997 Annual Meeting of
Stockholders to be held on August 20, 1997, a copy of which will be filed with
the Securities and Exchange Commission.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. Financial Statements

The following financial statements are included in Item 8 of this
Annual Report on Form 10-K:

-- Report of Independent Accountants
-- Balance sheets as of March 30, 1997 and March 31, 1996
-- Statements of operations for each of the three years in the
period ended March 30, 1997
-- Statement of stockholder's equity for each of the three years in
the period ended March 30, 1997
-- Statements of cash flows for each of the three years in the
period ended March 30, 1997
-- Notes to financial statements

2. Financial statement schedules for each of the three years in the
period ended March 30, 1997:

Report of Independent Accountants on Financial Statement Schedule
II -- Valuation and Qualifying Accounts

All other schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedules, or because
the required information is included in the financial statements or notes
thereto.

28
<PAGE> 29

3. Listing of Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- ---------------------------------------------------------------------------
<S> <C>
3.1(5) Restated Certificate of Incorporation.
3.2(1) Bylaws.
3.3(9) Certificate of Amendment to Restated Certificate of Incorporation.
10.21(1) Real Property Lease Agreement dated as of August 26, 1981 between the
Company and Orchard Investment Company No. 701.
10.22(1) Real Property Lease Agreement dated as of July 6, 1983 between the Company
and Orchard Investment Company No. 701.
10.23(1) Real Property Lease Agreement dated as of August 1, 1984 between the
Company and Orchard Investment Company No. 701.
10.28(1) Employment Agreement dated as of March 4, 1987, between the Company and
Barry Carrington.
10.29(1) Form of Indemnification Agreement executed by the Company and its officers
and directors.
10.39(2) Letter Agreement dated January 21, 1988 between the Company and Barry
Carrington.
10.40(2) Letter Agreement dated October 19, 1987 between the Company and George
Rassam.
10.47(6) Technology Agreement between the Company and IMP Europe Limited.
10.48(6) Supply Agreement between the Company and IMP Europe Limited.
10.49(6) Agreement for the sale and purchase of all the A Ordinary Shares in IMP
Europe Limited dated as of July 3, 1990, between the Company and Dialogue
Semiconductor Limited.
10.50(7)* License Agreement dated as of September 12, 1991, between the Company and
Asahi Chemical Industry Co., Ltd.
10.51(7)* Distributorship Agreement dated as of December 1, 1991 by and between the
Company and Asahi Chemical Industry Co., Ltd.
10.53(7)* Heads of Agreement dated as of March 27, 1992, between the Company and
South African Micro-Electronic Systems Pty Limited.
10.54(9) First Amendment dated March 11, 1994 to Real Property Lease Agreement dated
August 26, 1981 between the Company and Orchard Investments Company No.
701.
10.55(9) First Amendment dated December 21, 1987, Second Amendment dated March 15,
1989, Third Amendment dated November 25,1991, Fourth Amendment dated
December 13, 1993 and Fifth Amendment dated March 11, 1994 to the Real
Estate Lease Agreement dated July 6, 1983 between the Company and Orchard
Investment Company No. 701.
10.56(10) Loan Modification Agreement dated September 19, 1995 by and between the
Company and Silicon Valley Bank.
10.57(10) Letter Agreement dated February 13, 1995 between the Company and David
Laws.
10.58(10) Real Property Sublease Agreement dated November 9, 1992 by and between the
Company and AT&T Resource Management Corporation, and Master Lease dated
September 23, 1986 by and between AT&T Resource Management Corporation and
American Telephone and Telegraph Company.
10.59 Letter agreement dated December 10, 1996 between the Company an David Laws.
23.1 Consent of Price Waterhouse LLP, Independent Accountants.
27.1 Financial Data Schedule.
</TABLE>

- ---------------

* "*" on such exhibits indicates that portions have been omitted for which
confidential treatment has been requested and filed separately with the
Securities and Exchange Commission.

29
<PAGE> 30

(1) Incorporated by reference from an identically numbered exhibit filed with
the Company's Registration Statement on Form S-1 (File No. 33-13600)
declared effective by the Securities and Exchange Commission on June 10,
1987.

(2) Incorporated by reference from an identically numbered exhibit filed with
the Company's Annual Report on Form 10-K for the year ended March 27, 1988
filed with the Securities and Exchange Commission on June 25, 1988.

(3) Incorporated by reference to an identically numbered exhibit filed with the
Post-Effective Amendment No. 1 to the Company's Registration Statement on
Form S-8 (File No. 33-16624), as filed with the Securities and Exchange
Commission on November 13, 1987.

(4) Incorporated by reference to an identically numbered exhibit filed with the
Company's Registration Statement on Form S-8 (File No. 33-24635) as filed
with the Securities and Exchange Commission on September 15, 1988.

(5) Incorporated by reference from an identically numbered exhibit filed with
the Company's Annual Report on Form 10-K for the year ended March 26, 1989
filed with the Securities and Exchange Commission on June 26, 1989.

(6) Incorporated by reference from an identically numbered exhibit filed with
the Company's Annual Report on Form 10-K for the year ended March 31, 1991
filed with the Securities and Exchange Commission on July 1, 1991.

(7) Incorporated by reference from an identically numbered exhibit filed with
the Company's Annual Report on Form 10-K for the year ended March 29, 1992
filed with the Securities and Exchange Commission on June 29, 1992, as
amended by Amendment to Application or Report on Form 8 filed with the
Securities and Exchange Commission on September 16, 1992.

(8) Portions incorporated by reference from an identically numbered exhibit
filed with the Company's Annual Report on Form 10-K for the year ended
March 28, 1993 filed with the Securities and Exchange Commission on June
28, 1993.

(9) Portions incorporated by reference from an identically numbered exhibit
filed with the Company's Amendment to the Annual Report on Form 10-K for
the year ended March 27, 1994 filed with the Securities and Exchange
Commission on July 6, 1994.

(10) Portions incorporated by reference from an identically numbered exhibit
filed with the Company's Annual Report on Form 10-K for the year ended
March 26, 1995 filed with the Securities and Exchange Commission on June
26, 1995.

(b) Reports on Form 8-K

Not applicable

30
<PAGE> 31

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in San Jose,
California on this 26th day of June, 1997.

IMP, INC.

By: /s/ George Rassam

------------------------------------
George Rassam
Chief Financial Officer and
Secretary
(Principal Financial and Accounting
Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James Phillips Ferguson or George Rassam,
or either of them, with the power of substitution, his attorney-in-fact and
agents, to sign any and all amendments to this Annual Report on Form 10-K, and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorney-in-fact, or his substitute or
substitutes may do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

<TABLE>
<C> <S> <C>
/s/ JAMES PHILLIPS FERGUSON President and Chief June 26, 1997
- ----------------------------------------------- Executive Officer and
James Phillips Ferguson Director (Principal
Executive Officer)

/s/ GEORGE RASSAM Chief Financial Officer and June 26, 1997
- ----------------------------------------------- Secretary (Principal
George Rassam Financial and Accounting
Officer)

/s/ DAVID A. LAWS Chairman of the Board of June 26, 1997
- ----------------------------------------------- Directors
David A. Laws

/s/ ZVI GRINFAS Director June 26, 1997
- -----------------------------------------------
Zvi Grinfas

/s/ PETER D. OLSON Director June 26, 1997
- -----------------------------------------------
Peter D. Olson

/s/ BERNARD V. VONDERSCHMITT Director June 26, 1997
- -----------------------------------------------
Bernard V. Vonderschmitt
</TABLE>

31
<PAGE> 32

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders of IMP, Inc.

Our audits of the financial statements referred to in our report dated May 9,
1997 appearing in this Annual Report on Form 10-K also included an audit of the
Financial Statement Schedule listed in Item 14(a)(2) of this Form 10-K. In our
opinion, this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related financial statements.

PRICE WATERHOUSE LLP

San Jose, California
May 9, 1997

32
<PAGE> 33

IMP, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT THE BALANCE AT
BEGINNING OF CHARGED TO COSTS DEDUCTIONS THE END OF
THE PERIOD AND EXPENSES* WRITE-OFFS PERIOD
-------------- ---------------- ---------- ----------
<S> <C> <C> <C> <C>
Provisions for returns, allowance and doubtful
accounts and returns:
Year ended March 26, 1995.................... $556 $ (239) $ 0 $ 795
Year ended March 31, 1996.................... $795 $ 0 $ 140 $ 655
Year ended March 30, 1997.................... $655 $3,388 $2,002 $2,041
</TABLE>

- ---------------

*Includes amounts charged directly to revenues

33
<PAGE> 34

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
--------- ----------------------------------------------------------------------
<S> <C> <C>
3.1(5) Restated Certificate of Incorporation.
3.2(1) Bylaws.
3.3(9) Certificate of Amendment to Restated Certificate of Incorporation.
10.21(1) Real Property Lease Agreement dated as of August 26, 1981 between the
Company and Orchard Investment Company No. 701.
10.22(1) Real Property Lease Agreement dated as of July 6, 1983 between the
Company and Orchard Investment Company No. 701.
10.23(1) Real Property Lease Agreement dated as of August 1, 1984 between the
Company and Orchard Investment Company No. 701.
10.28(1) Employment Agreement dated as of March 4, 1987, between the Company
and Barry Carrington.
10.29(1) Form of Indemnification Agreement executed by the Company and its
officers and directors.
10.39(2) Letter Agreement dated January 21, 1988 between the Company and Barry
Carrington.
10.40(2) Letter Agreement dated October 19, 1987 between the Company and George
Rassam.
10.47(6) Technology Agreement between the Company and IMP Europe Limited.
10.48(6) Supply Agreement between the Company and IMP Europe Limited.
10.49(6) Agreement for the sale and purchase of all the A Ordinary Shares in
IMP Europe Limited dated as of July 3, 1990, between the Company and
Dialogue Semiconductor Limited.
10.50(7)* License Agreement dated as of September 12, 1991, between the Company
and Asahi Chemical Industry Co., Ltd.
10.51(7)* Distributorship Agreement dated as of December 1, 1991 by and between
the Company and Asahi Chemical Industry Co., Ltd.
10.53(7)* Heads of Agreement dated as of March 27, 1992, between the Company and
South African Micro-Electronic Systems Pty Limited.
10.54(9) First Amendment dated March 11, 1994 to Real Property Lease Agreement
dated August 26, 1981 between the Company and Orchard Investments
Company No. 701.
10.55(9) First Amendment dated December 21, 1987, Second Amendment dated March
15, 1989, Third Amendment dated November 25,1991, Fourth Amendment
dated December 13, 1993 and Fifth Amendment dated March 11, 1994 to
the Real Estate Lease Agreement dated July 6, 1983 between the Company
and Orchard Investment Company No. 701.
10.56(10) Loan Modification Agreement dated September 19, 1995 by and between
the Company and Silicon Valley Bank.
10.57(10) Letter Agreement dated February 13, 1995 between the Company and David
Laws.
</TABLE>
<PAGE> 35

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
<S> <C> <C>
10.58(10) Real Property Sublease Agreement dated November 9, 1992 by and between
the Company and AT&T Resource Management Corporation, and Master Lease
dated September 23, 1986 by and between AT&T Resource Management
Corporation and American Telephone and Telegraph Company.
10.59 Letter agreement dated December 10, 1996 between the Company an David
Laws.
23.1 Consent of Price Waterhouse LLP, Independent Accountants.
27.1 Financial Data Schedule.
</TABLE>

- ---------------

* "*" on such exhibits indicates that portions have been omitted for which
confidential treatment has been requested and filed separately with the
Securities and Exchange Commission.

<PAGE> 1
EXHIBIT 10.59

December 10, 1996

David A. Laws
IMP, Inc.
2830 North First Street
San Jose, CA 95134

NEW COMPENSATION ARRANGMENT
---------------------------

Dear Dave:

After discussions with you and among the Compensation Committee, I am
pleased to offer you the following compensation arrangement:

1. In the event that you are employed by either IMP, Inc. (the
"Company") or a Board-approved spinout of the Company on June 1, 1997, you will
receive a $250,000 bonus.

2. In the event that you successfully consummate a Board-approved
spinout before June 1, 1997, you will receive a $250,000 bonus, and the June 1,
1997 bonus set forth in 1. above will no longer be payable to you.

3. In the event you are terminated without "cause" by the Company or
are "constructively terminated," you will receive six months salary and benefits
as severance.

4. Your equity incentives and vesting set forth in Exhibit A to the
minutes of the February 15, 1995 Board of Directors' meeting remain unchanged,
as do the cash bonus incentives based on corporate performance. In addition to
the above-referenced vesting provisions, if a "corporate transaction" is
consummated, and you are terminated without cause by the surviving entity or are
constructively terminated within six months after the closing of the corporate
transaction, the vesting for all of your options accelerate, provided, that if
in the opinion of the auditors for either the acquiror or the Company, such
acceleration would preclude pooling-of-interests accounting treatment, then such
acceleration shall not occur.

5. In the event of a corporate transaction, the monetary incentives
shall be applicable to the surviving entity in the acquisition.

6. Salary shall be based on the higher of $3,847 per week ($200,044 per
annum), which is your current rate, or your then-current salary. The severance
payments for 3. shall be made over normal payroll periods. The bonus payment
under either 1. or 2. shall be made in one lump sum at the next payroll date.

<PAGE> 2

7. "Cause" shall mean any of the following: (i) conviction for any
crime involving fraud, moral turpitude or any felony, (ii) intentional or
reckless conduct or conduct constituting gross negligence materially harmful to
the Company's business and affairs, including pursuant to a violation of any
non-competition or confidentiality agreement; provided that poor performance in
the achievement of job objectives shall not constitute "Cause," nor shall
termination for death or any disability.

8. "Constructive termination" shall mean your voluntary resignation
following (i) a change in your position with the Company that materially reduces
your level of responsibility, (ii) a reduction of greater than 5% in your
current level of compensation (including base salary, fringe benefits and any
non-discretionary and objective-standard incentive payment or bonus award) or
(iii) a relocation of your principal place of employment by more than fifty (50)
miles, provided and only if such change, reduction or relocation is effected
without your consent.

9. A "corporate transaction" shall mean one of the following
stockholder-approved transactions:

(A) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State in which the Company is incorporated;

(B) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete liquidation or
dissolution of the Company; or

(C) any reverse merger in which the Company is the surviving
entity but in which all of the Company's outstanding voting stock is transferred
to the acquiring entity or its wholly-owned subsidiary,

<PAGE> 3

* * *

If the foregoing accurately sets forth your understanding of your
compensation arrangement, please indicate your acceptance by signing below and
returning the executed copy to Bob Crossley.

Sincerely,

/s/ Peter D. Olson

Peter D. Olson
On Behalf of the IMP, Inc.
Compensation Committee

ACCEPTED AND AGREED

/s/ David A. Laws
- ------------------------
David A. Laws

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-85008), No. 33-65578 and No. 33-62751) of IMP,
Inc. of our report dated May 9, 1997, appearing in this Annual Report on Form
10-K. We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears in the Form 10-K.

PRICE WATERHOUSE LLP

San Jose, California
June 24, 1997

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