<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 27, 1999
--------------
or
__ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________to _________
Commission file number 0-15858
IMP, Inc.
(Exact name of registrant as specified in its charter)
Delaware 94-2722142
-------- ----------
(State or other jurisdiction (IRS Employer
of incorporation or Identification No.)
organization)
2830 North First Street, San Jose, CA 95134
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (408) 432-9100
-------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Common Stock, $0.01 par value June 27, 1999
-------------
<S> <C>
3,118,221
</TABLE>
<PAGE> 2
IMP, Inc.
FORM 10-Q
FIRST QUARTER
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I: Financial Information (unaudited)
Condensed Balance Sheet at 4
June 27, 1999 and March 28, 1999
Condensed Statement of 5
Operations for the three months ended
June 27, 1999 and June 28, 1998
Condensed Statement of Cash 6
Flows for the three months ended
June 27, 1999 and June 28, 1998
Notes to condensed financial statements 8
Management's discussion and analysis of 11
financial condition and results of operations
Part II: Other Information
Item 1, Legal Proceedings 20
Item 6, Reports on Form 8K 20
Signatures 21
</TABLE>
<PAGE> 3
IMP, Inc.
CONDENSED BALANCE SHEET
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
June 27, 1999 March 28, 1999
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 664 $ 1,606
Accounts receivable - net of allowances for doubtful
accounts and returns of $272 and $2,529 7,303 9,191
Inventories 6,626 6,076
Deposits and other current assets 387 693
-------- --------
Total current assets 14,980 17,566
Leasehold improvements and equipment 91,538 91,371
Accumulated depreciation (84,412) (83,470)
-------- --------
Net leasehold improvements and equipment 7,126 7,901
Other long term assets 456 494
-------- --------
$ 22,562 $ 25,961
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt $ 4,247 $ 5,212
Trade accounts payable 4,815 6,756
Accrued payroll and related expenses 1,189 1,322
Other accrued liabilities 1,869 1,528
Current portion of capital lease obligations 2,813 3,216
-------- --------
Total current liabilities 14,933 18,034
Long-term portion of debt and
capital lease obligations 3,532 2,942
Stockholders' equity:
Common stock 35 35
Additional paid-in capital 72,681 72,671
Accumulated deficit (64,722) (63,824)
Treasury stock at cost (3,897) (3,897)
-------- --------
Total stockholders' equity 4,097 4,985
-------- --------
$ 22,562 $ 25,961
======== ========
</TABLE>
See notes to unaudited condensed financial statements
<PAGE> 4
IMP, Inc.
CONDENSED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
June 27, 1999 June 28, 1998
------------- -------------
<S> <C> <C>
Net revenues $ 10,630 $ 6,588
Cost of revenues 8,063 5,997
-------- --------
Gross profit 2,567 591
Operating expenses:
Research and development 1,576 2,318
Selling, general and administrative 1,553 1,388
-------- --------
Operating loss (562) (3,115)
Interest:
Expense (336) (325)
Income -- 105
-------- --------
Net interest (336) (220)
Loss before provision
for income taxes (898) (3,335)
Provision for income taxes -- --
-------- --------
Net loss $ (898) $ (3,335)
======== ========
Basic and diluted net
loss per share $ (.29) $ (1.18)
======== ========
Shares used in computing basic and
diluted net loss per share 3,118 2,828
======== ========
</TABLE>
See notes to unaudited condensed financial statements.
<PAGE> 5
IMP, Inc.
CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
June 27, 1999 June 28, 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (898) $ (3,335)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 942 1,326
Increase (decrease) from changes in:
Accounts receivable 1,888 1,004
Inventories (550) (207)
Deposits and other assets 344 (62)
Trade accounts payable (1,941) (573)
Accrued payroll and related expenses (133) (286)
Other accrued liabilities 341 81
-------- --------
Net cash used for operating activities (7) (2,052)
-------- --------
Cash flows from investing activities:
Net cash used for investing activities
for purchase of capital equipment (149) (646)
-------- --------
Cash flows from financing activities:
Proceeds from credit facility 2,601 --
Payments of principal on credit facility (3,953) --
Proceeds from equipment note payable 1,731 --
Payments of principal under capital
lease obligations, net (816) (1,007)
Payments on notes payable (359) (454)
Proceeds from issuance of common stock 10 43
-------- --------
Net cash used for financing activities (786) (1,418)
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
Net decrease in cash and cash
equivalents (942) (4,116)
Cash and cash equivalents at beginning of
the period 1,606 11,819
-------- --------
Cash and cash equivalents at end of the
period $ 664 $ 7,703
======== ========
Supplemental cash flow disclosures:
Interest paid $ 336 $ 220
Supplemental non cash disclosures:
Equipment acquired under capital lease $ 18 $ 100
</TABLE>
See notes to unaudited condensed financial statements.
<PAGE> 7
IMP, Inc.
NOTES TO CONDENSED FINANCIAL
STATEMENTS
(unaudited)
1. Basis of presentation
The accompanying unaudited interim condensed financial statements have
been prepared in conformity with generally accepted accounting
principles, consistent with those applied in, and should be read in
conjunction with, the audited financial statements for the year ended
March 28, 1999 included in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission. The interim
financial information is unaudited, but reflects all adjustments
consisting only of normal recurring adjustments which are, in the
opinion of management, necessary to a fair statement of results for the
interim periods presented. For financial reporting purposes, the
Company reports on a 13 or 14 week quarter and a 52 or 53 week year
ending on the Sunday closest to March 31.
2. Cash
At June 27, 1999, the Company had cash and cash equivalents of
approximately $664,000. The Company's cash balance has decreased over
each of the last several quarters. The Company entered into a new
financing facility during the quarter (see Note 4, Notes Payable &
Financing Arrangements for more detail). In addition, the Company has
taken steps to conserve cash and is currently evaluating possible
strategic options for the Company's future.
3. Inventories
Inventories consist of:
<TABLE>
<CAPTION>
June 27, 1999 March 28, 1999
------------- --------------
<S> <C> <C>
Raw materials $ 809 $1,103
Work-in-process 4,824 4,120
Finished goods 993 853
------ ------
$6,626 $6,076
====== ======
</TABLE>
<PAGE> 8
4. Notes Payable & Financing Arrangements
Credit facility - On April 30, 1999, the Company entered into a
revolving credit facility, which includes term loans, with The CIT
Group. The maximum and minimum amount of the borrowing is $9.5 million
and $2.5 million, respectively. $7.5 million of the facility allows the
Company to borrow up to 80% of eligible accounts receivable and 25% of
the Company's inventory of raw materials. Up to $1.0 million of the
$7.5 million may be based on the raw materials inventory. $2.0 million
of the facility is for term loans relating to equipment. The facility
is for a minimum period to April 30, 2002. The interest rate for the
revolving credit facility is prime rate plus 1.5%, and the term loans
is prime rate plus 2%. At March 31, 2000, if the Company's net income
is greater than $1.0 million, the interest rates are decreased by 0.5%
from March 31, 2000 onward. If the Company has a net loss, the interest
rate will be increased by 0.5% from March 31, 2000 onward. The facility
is collateralized by inventory, equipment and fixtures, and other
assets, excluding all assets under lease from other financiers. As of
June 27, 1999, $2,601,000 was drawn down on the $7.5 million facility,
and the balance outstanding on the term loan was approximately
$1,706,000. This facility replaced the facility from Pacific Business
Funding.
Equipment notes payable - The Company has a $5.0 million facility with
an assets based lender, which is fully utilized. This note does not
contain any restrictive financial covenants. The balance outstanding
under this line at June 17, 1999 was approximately $1,519,000.
5. Earnings per share
FAS 128 requires presentation of both basic and diluted EPS. Basic EPS
is computed by dividing net income (loss) available to common
stockholders by the weighted average number or common shares
outstanding during the period. Diluted EPS is computed using the
weighted average number of common shares outstanding, plus the effects
of options and warrants, during the period, except when antidilutive.
In computing diluted EPS, the average stock price for the period is
used in determining the number of shares assumed to be purchased from
the exercise of stock options. A reconciliation of the numerators and
the denominators of the basic and diluted per share computation as
follows:
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
June 27 June 28
1999 1998
------- -------
<S> <C> <C>
Net loss $ (898) $(3,335)
Shares used in per share computation:
Weighted Average Shares Outstanding 3,118 2,828
Basic and diluted loss per share $ (0.29) $ (1.18)
======= =======
</TABLE>
<PAGE> 9
Options to purchase 261,488 and 221,067 shares of common stock were
outstanding at June 27, 1999, and June 28, 1998 respectively, but were
not included in the computation of diluted EPS as the Company was in a
loss situation, and therefore, to do so would have been antidilutive.
6. Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
a new model for accounting for derivatives and hedging activities. In
July 1999, the Financial Accounting Standards Board SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133" ("SFAS
137"). SFAS 137 deferred the effective date of SFAS 133 until the first
year beginning after June 15, 2000. The impact of the implementation of
SFAS 133 on the consolidated financial statements of the Company is not
expected to be significant.
<PAGE> 10
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operation
Except for the historical information contained herein, the matters discussed in
this document are forward-looking statements that involve certain risks and
uncertainties, including the risks and uncertainties set forth below under
"Factors Affecting Future Results."
Results of Operations - First Quarter of Fiscal 2000 Compared to First Quarter
of Fiscal 1999
Net revenues for the first quarter of fiscal 2000 were $10.6 million compared to
$6.6 million for the same period of the prior year. The increase in net revenues
was due to increased demand for the company's products by customers. Revenues in
the immediate prior quarter were $10.3 million.
Cost of revenues in the first fiscal quarter of 2000 were 76% of revenues
compared to 91% for the same quarter in the prior year. Cost of revenues in the
first quarter of fiscal 2000 are lower as a result of higher utilization of the
Company's manufacturing facility due to the increased demand noted above.
Research and development expenses were $1,576,000 (15% of revenue) in the first
quarter of fiscal 2000 compared to $2,318,000 (35% of revenue) in the
corresponding quarter of the prior year. Due to the Company's focus on the rapid
development of a portfolio of standard analog products, the Company believes
that research and development expenses in absolute dollars will continue at
current levels.
Selling, general and administrative expenses were $1,553,000 (15% of revenue) in
the first quarter of fiscal 2000 up from $1,388,000 (21% of revenue) in the same
quarter of the prior year. The increase was primarily due to increase in
expenses associated with the increase in sales.
Net interest expense was $336,000 for the first quarter of fiscal 2000, compared
to $220,000 for fiscal 1999. The increase is due to a decrease in interest
income as a result of lower cash balances.
Net loss for the first quarter of fiscal 2000 was $898,000 compared to net loss
of $3,335,000 for the same period of the prior year. This resulted in net loss
of $.29 per share for the first quarter of fiscal 2000 compared to $1.18 loss
per share in the same period of the prior year.
<PAGE> 11
Liquidity and Capital Resources
At June 27, 1999, the Company had cash and cash equivalents of approximately
$664,000. The Company's cash balance has decreased over each of the last several
quarters. On April 30, 1999, the Company entered into a $9.5 million financing
facility with The CIT Group. Included in the $9.5 million is a facility for up
to $2.0 million in secured term loans and a facility which allows the Company to
borrow up to $7.5 million based on accounts receivable and inventory balances.
The Company has minimal financial resources and operating needs are funded
principally from the collection of accounts receivable. Should the cash flow
from accounts receivable be lessened or interrupted by slow collections or by a
decrease in revenue generation, the Company could very quickly find itself
unable to meet its obligations. In addition, the Company's cash balance has
decreased over each of the last several quarters. If the Company continues to
report operating losses and negative cash flow it will need to obtain additional
funding to remain in operation. There can be no assurance that such funding will
be available at reasonable rates, if at all.
Factors Affecting Future Results
The Company's business, financial condition and future results of operations
have been, and may in the future, be affected by a variety of factors, including
those described below:
Cash. As discussed above in "Liquidity and Capital Resources" on June 27, 1999
the Company had low cash balances. The Company has minimal financial resources
and operating needs are funded principally from the collection of accounts
receivable. Should the cash flow from accounts receivable be lessened or
interrupted by slow collections or by a decrease in revenue generation, the
Company could very quickly find itself unable to meet its obligations. Should
such a cash flow shortfall occur, the potential sources for additional capital
investment are neither in place nor identified.
Although The Company experienced a growth in revenues in the last three fiscal
quarters, it has reported operating losses and negative cash flow since the
second quarter of fiscal 1997. Unless this trend of increasing revenue
continues, there is substantial risk that the Company will continue to report
losses and negative cash flow in the future. If the Company does continue to
report operating losses and negative cash flow it will need to obtain additional
funding to remain in operation. There is no assurance that such funding will be
available at a reasonable rate, if at all.
Stock Traded on Nasdaq SmallCap Market. On December 11, 1998, a hearing was held
before a Panel authorized by the National Association of Securities Dealers,
Inc. Board of Governors to determine whether the Company would be allowed to
maintain the listing of its common stock on the Nasdaq National Market. The
hearing addressed, among other things, the Company's compliance with the minimum
$1 per share price requirement and the $4 million net tangible assets
requirement for stock traded on
<PAGE> 12
Nasdaq. The Panel concluded that the Company could retain its listing on the
Nasdaq National Market if it complied with the following conditions: (i) effect
a one-for-ten reverse split of our common stock so that the Company's closing
bid price meets or exceeds the $1.00 per share for a minimum of ten consecutive
trading days; (ii) file with the Securities and Exchange Commission (SEC) on or
before February 16, 1999, a December 31, 1998 balance sheet, which, with pro
forma adjustments for significant events and transactions after such date, shows
net tangible assets of at least $4.0 million; and (iii) file with the SEC on or
before March 31, 1999, a balance sheet as of a date 45 days prior thereto,
which, with appropriate pro forma adjustments, shows net tangible assets of at
least $6.5 million. Effective January 13, 1999, the Company effected a
one-for-ten reverse stock split, thus addressing the minimum trading price per
share requirement. On February 16, 1999 the Company filed a proforma balance
sheet dated as of December 31, 1998 incorporating the effect of a February 1999
Private Placement showing net tangible assets of $6.1 million. The Company did
not satisfy the final criterion of net tangible assets of $6.5 million by March
31, 1999. As a result, on April 7, 1999 the Company's common stock was moved
from the Nasdaq National Market to the Nasdaq SmallCap Market where it continues
to trade under the symbol "IMPX."
Because of the low volume of trading on the Nasdaq SmallCap Market, an investor
could find it more difficult to dispose of, or to obtain accurate quotations as
to the market value of, our securities. In addition, if the Company's common
stock trading price remains below $5.00 per share, trading in the Company's
common stock could also be subject to the requirements of certain rules
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which require additional disclosure by broker-dealers in connection with
any trades involving a stock defined as a penny stock (generally, any non-Nasdaq
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions). The additional burdens imposed upon broker-dealers by such
requirements could discourage broker-dealers from trading in the Company's
common stock, which could severely limit the market liquidity of the common
stock and the ability of investors to trade our common stock.
In addition, the Company's market capitalization might decrease and stockholder
value might decrease as a result of the reverse stock split. The reverse split
increased the number of odd-lot holders of the Company's common stock.
Transaction costs involving odd-lot amounts of common stock are generally higher
on a per-share basis than transaction costs involving even-lot amounts of common
stock. Thus, the reverse split might have the effect of increasing the
transaction costs of certain of the Company's stockholders.
Dependence on Foundry Business. In the near term the Company's success depends
on its ability to attract additional business from new and existing customers
for its analog and high-voltage wafer fabrication services. During periods of
low demand, high fixed wafer fabrication costs have historically had a material
adverse effect on the Company's results of operations. For example, during the
last three-quarters of fiscal 1997, all of fiscal 1998 and the first half of
fiscal 1999 the Company's operating results were adversely affected by the low
utilization of the Company's manufacturing facility.
<PAGE> 13
Dependence on New Analog Products. In the long term the Company's success
depends on its ability to develop new analog integrated circuit products for
existing and new applications, to introduce such products in a timely manner,
and to gain customer acceptance for its products. The development of new analog
integrated circuits is highly complex and from time to time the Company has
experienced delays in developing and introducing new products. Successful
product development and introduction depends on a number of factors including
proper new product definition, completion of design and testing of new products
on time, achievement of acceptable manufacturing yields and market acceptance of
the Company's and its customers' products. Moreover, successful product design
and development is dependent on the Company's ability to attract, retain and
motivate qualified analog design engineers, of which there are a limited number.
There can be no assurance that the Company will be able to meet these challenges
or adjust to changing market conditions as quickly and cost-effectively as
necessary to compete successfully. Due to the complexity and variety of analog
circuits, the limited number of analog circuit designers and the limited
effectiveness of computer-aided design systems in the design of analog circuits,
there can be no assurance that the Company will be able to continue to
successfully develop and introduce new products on a timely basis. The Company
seeks to design alternate source products that have already achieved market
acceptance from other vendors, as well as new proprietary IMP products. However,
there can be no assurance that any products introduced by the Company will be
accepted by customers or that any product initially accepted by the Company's
customers will result in production orders. The Company's failure to continue to
develop, introduce and sell new products successfully could materially and
adversely affect its long-term business and operating results.
Dependence upon Ability to Fabricate Higher-Margin Products. 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.
Competition. Currently, the Company's principal competitors in the silicon
foundry market include American Microsystems Inc., a division of Japan Energy
Corporation, Austrian Micro Systems, GMT Microelectronics Corporation, Orbit
Semiconductor, a division of the DII Group, Tower Semiconductor, as well as
internal manufacturing facilities within its customers and excess fabrication
capacity within standard product vendors. To a lesser degree the Company also
competes with large Asian foundries, such as Chartered Semiconductor of
Singapore and TSMC of Taiwan. The Company's principal competitors for existing
and new Analog Products include Dallas Semiconductor, Linear Technology
Corporation, Linfinity Microelectronics, Maxim
<PAGE> 14
Integrated Products, Inc., Micrel, Semtech, Sipex, Supertex, Texas Instruments,
Unitrode Corporation and certain European and Asian manufacturers. Many of the
Company's competitors have substantially greater technical, manufacturing,
financial and marketing resources than the Company. The Company's international
sales are primarily denominated in U.S. currency. Consequently, changes in
exchange rates that strengthen the U.S. dollar could increase the price in local
currencies of the Company's products in foreign markets and make the Company's
products relatively more expensive than competitor's products that are
denominated in local currency.
Due to the current excess of supply over demand for semiconductors of all types,
including both foundry services and analog integrated circuits, the Company
expects continued strong competition from existing suppliers as well as the
entry of new competitors. Such competitive pressures could reduce the market
acceptance of the Company's products and result in market price reductions and
increases in expenses that could adversely affect the Company's business,
financial condition or results of operations.
Patents and Licenses. Although the Company is not currently a party to any
material litigation relating to patents and other intellectual property rights,
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. There can be no assurance that any patent
owned by the Company will not be invalidated, circumvented or challenged, that
the rights granted thereunder will provide competitive advantages to the Company
or that any of the Company's pending or future patent applications will be
issued. The Company has from time to time received, and may in the future
receive, communications from third parties asserting patents, maskwork rights,
or copyrights on certain of our products and technologies. The Company has been
contacted by the Lemelson Medical Foundation. This foundation has filed patent
violation legal actions against 88 semiconductor companies. The Company is
currently not one of the defendants in this action but might be added at a later
date. Although we are not currently a party to any material litigation, if a
third party were to make a valid intellectual property claim and a license were
not available on commercially reasonable terms, our operating results could be
materially and adversely affected. Litigation, which could result in substantial
cost to us and diversion of our resources, may also be necessary to enforce our
patents or other intellectual property rights or to defend us against claimed
infringement of the rights of others.
Manufacturing. The fabrication of integrated circuits is a highly complex and
precise process. Minute impurities, contaminants in the manufacturing
environment, difficulties in the fabrication process, defects in the masks used
to print circuits on a wafer, manufacturing equipment failure, wafer breakage or
other factors can cause a substantial percentage of wafers to be rejected or
numerous die on each wafer to be nonfunctional. The majority of the Company's
costs of manufacturing are relatively fixed, and, consequently, the number of
shippable die per wafer for a given product is critical to the Company's results
of operations. To the extent the Company does not achieve acceptable
manufacturing yields or experiences product shipment delays, its financial
condition or results of operations would be materially and adversely affected.
<PAGE> 15
The Company has from time to time in the past experienced lower than expected
production yields, which have delayed product shipments and adversely affected
gross margins. Moreover, there can be no assurance that the Company in general
will be able to maintain acceptable manufacturing yields in the future.
The Company manufactures all of its wafers at the one fabrication facility in
San Jose. Given the unique nature of the Company's processes, it would be
difficult to arrange for independent manufacturing facilities to supply such
wafers in a short period of time. Any prolonged inability to utilize the
Company's manufacturing facility as a result of fire, natural disaster or
otherwise, would have a material adverse effect on the Company's financial
condition or results of operations. Although it believes that it has adequate
capacity to support its near term plans, the Company has in the past
subcontracted the fabrication of a portion of its wafer production to outside
foundries, and may need to do so again. At the present time, there are several
wafer foundries that are capable of supplying certain of the Company's needs.
However, there can be no assurance that the Company will always be able to find
the necessary foundry capacity.
Due to the relatively long manufacturing cycle for integrated circuits, the
Company builds some of its inventory in advance of receiving orders from its
customers. As a consequence of inaccuracies inherent in forecasting demand for
such products, inventory imbalances periodically occur that result in surplus
amounts of some Company products and shortages of others. Such shortages can
adversely affect customer relationships; surpluses can result in larger than
desired inventory levels.
The Company's backlog consists of distributor and OEM customer orders required
to be shipped within six months following the order date. Customers may
generally cancel or reschedule orders to purchase products without significant
penalty to the customer. As a result, to reflect changes in their needs,
customers frequently revise the quantities of the Company's products to be
delivered and their delivery schedules. Since backlog can be canceled or
rescheduled without significant penalty, the Company does not believe its
backlog is a meaningful indicator of future revenue. In addition, the Company's
backlog includes its orders from domestic distributors as to which revenues are
not recognized until the products are sold by the distributors. Such products
when sold may result in revenue lower than the stated backlog amounts as a
result of discounts that are authorized by the Company at the time of sale by
the distributors.
Furthermore, the Company is dependent on a number of subcontractors for certain
of its manufacturing processes, such as epitaxial deposition services. The
failure of any of these subcontractors to perform these processes on a timely
basis could result in manufacturing delays, which could materially adversely
affect the Company's results of operations. Currently, the Company purchases
certain materials, including silicon wafers, on a purchase order basis from a
limited number of vendors. Any disruption or termination of supply from any of
these suppliers could have a material adverse effect on the Company's financial
condition and results of operations.
<PAGE> 16
The packaging of the Company's products is performed by a limited group of third
party subcontractors located predominantly in Asian and Pacific Rim countries,
including Indonesia. Certain of the raw materials included in such products are
obtained from sole source suppliers. Although the Company seeks to reduce its
dependence on its sole and limited source suppliers, disruption or termination
of any of these sources could occur and such disruptions could have a material
adverse effect on the Company's financial condition or results of operations. In
the event that any of the Company's subcontractors were to experience financial,
operational, production or quality assurance difficulties resulting in a
reduction or interruption in supply to the Company, the Company's operating
results would be adversely affected until alternate subcontractors, if any,
became available.
Environmental and Safety Regulation. Federal, state, and local regulations
impose a variety of safety and environmental controls on the storage, handling,
discharge and disposal of certain chemicals and gases used in semiconductor
manufacturing. The Company's facilities have been designed to comply with these
regulations, and it believes that its activities are conducted in material
compliance with such regulations. There can be no assurance, however, that
interpretation and enforcement of current or future environmental regulations
will not impose costly requirements upon the Company. Any failure of the Company
to control adequately the storage, use and disposal of regulated substances
could result in future liabilities. While the Company to date has not
experienced any materially adverse effects on its business from safety and
environmental regulations, there can be no assurance that changes or new
interpretations of such regulations will not impose costly equipment, facility
or other requirements.
Year 2000 Issues
General. The Company is currently conducting a company-wide Year 2000 readiness
program (the Y2K program). The Y2K program is addressing the issue of computer
programs and embedded computer chips being able to distinguish between the year
1900 and the year 2000. Any of such systems and equipment, including integrated
circuits, computers and manufacturing equipment, sold or used by the Company,
its customers and its suppliers, that recognize a date code field of "00" as the
year 1900 rather than the year 2000 could cause such systems or equipment to
malfunction prior to or in the year 2000 and lead to significant business
delays, additional expenses and disruptions in service or operations. As a
result, the systems and equipment of all business organizations containing
integrated circuits, software or computer hardware may need to be upgraded or
replaced in order to resolve the potential impact of this misinterpretation and
the resulting errors or system failures and to make such systems, equipment and
software Year 2000 compliant.
The Company's Y2K program is divided into four sections - (1) IMP Manufactured
Products, (2) Internal Information Technology (IT) Systems, (3) Manufacturing
Systems and Equipment, and (4) Third Party Suppliers and Customers. The Y2K
<PAGE> 17
program is divided into three phases (i) inventorying potential Year 2000 items,
(ii) assessing the Year 2000 compliance of items determined to be material to
the Company; and (iii) repairing or replacing such material items. The Company
has substantially completed the first two phases of work required to achieve
Year 2000 compliance requirement and in Phase Three it has repaired or replaced
the majority of items on its inventory. It believes that substantially all of
the issues that it identifies will be completed by the end of 1999. Some items
that cannot be tested appropriately may require additional work after that time
Through June 27, 1999, the Company has incurred less than $200,000 in expenses
associated with making its systems and equipment Year 2000 compliant. Based on
the preliminary results of the assessment and the modifications completed to
date, the Company believes that the total cost for year 2000 compliance will not
exceed $500,000. However, there can be no assurance that any such assessments
and updates will be completed on a timely basis, if at all, or within estimated
budgets, or that any required updates or corrections will work as anticipated in
the year 2000.
Impact on Sales of IMP Manufactured Products. The Company designs its products
both internally and through third party design providers. Both sources of
product design rely on licenses of third party technology for certain aspects of
these designs. The Company has done an internal assessment of the Year 2000
compliance of certain of its stand-alone products, and the Company believes that
these products are designed so that they are not dependent on embedded software
or hardware that relies on a date code field and, therefore, such products are
Year 2000 compliant. The Company also manufactures wafers containing designs
implemented by its customers. It has no knowledge of the Year 2000 compliance of
such products. To the extent that date information is necessary for the proper
functioning of the Company's and its customer's products, the products rely on
date information from other manufacturer's devices resident in the networks or
systems in which they operate. Thus, any Year 2000 problems within these third
party products or systems could cause such products not to work accurately
and/or without disruption, if at all, with other companies' devices and systems.
Any failure of these products to be Year 2000 compliant would result in the
malfunctioning of such products or of the systems in which such products
operate. Any failure of the Company's products, its customers designs or any
third party products on which the Company's products rely or any third party
products which incorporate certain of the Company's licensed designs or
technologies to be Year 2000 compliant could result in a substantial decline in
the Company's revenues or could result in the Company's incurring substantial
unexpected expenses associated with product returns, warranty claims and claims
for consequential damages and would materially adversely affect the Company's
business, results of operations and financial condition.
Internal Information Technology (IT) System. With respect to its internal IT
computer systems, the Company is now in Phase Three of the Y2K program. It has
evaluated and has replaced or has tested operating systems for the critical
computers used for its management information systems. Many applications
programs have been modified
<PAGE> 18
and the majority of such programs are expected to be modified by the end of
1999. The Company has also in Phase Three of its non-IT systems, such as
personal computers. Where necessary the Company plans to upgrade or replace
critical non-compliant systems by the end of 1999.
Manufacturing Systems and Equipment. The Company relies on a number of embedded
programs, computer systems and applications to operate and monitor the design,
control and manufacturing aspects of its business. These include its automated
design software and its fabrication, test and physical plant equipment with
embedded hardware and/or software. With respect to such items, the Company is
now in Phase Three of the Y2K program. It has evaluated and has replaced or has
tested modifications for the majority of such systems. The Company believes that
it will complete the remaining critical corrective actions, including testing,
by the end of 1999.
Third Party Suppliers and Customers. The Company has contacted the majority of
its key suppliers and contract manufacturers to assess the possible effects of
their Year 2000 readiness on the Company's business. Although many of these
suppliers and contract manufacturers have notified the Company that they have
been addressing the problem, they have not provided specific assurance regarding
the Year 2000 compliance of their systems and software. The Company's reliance
on suppliers and contract manufacturers and, therefore, on the proper
functioning of their information systems and software, means that failure of
such key suppliers and contract manufacturers to address Year 2000 issues could
have a material impact on the Company's operations and financial results.
In addition to its suppliers and contract manufacturers, the Company relies on a
large variety of business enterprises such as customers, creditors, financial
organizations, and domestic and international governmental entities for the
accurate exchange of data. Any disruption in the computer systems of any of
these third parties could materially and adversely affect the Company.
Summary. The Company has not yet established detailed contingency plans for the
Year 2000 issues, but, based on the results of the assessment of its internal
systems and the audit of its third party suppliers and customers, the Company
will evaluate the need for and begin to implement contingency plans.
Many of the Company's products, systems, suppliers and customers address markets
that are vulnerable to technological issues involving the Year 2000, therefore
substantially all of the Company's revenues may be at risk. Despite the
Company's efforts to address the Year 2000 impact on its products, internal
systems and business operations, the Year 2000 issue may result in a material
disruption of its business or have a material adverse effect on the Company's
business, financial condition or results of operations.
<PAGE> 19
IMP, Inc.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The previously disclosed securities class action and derivative
lawsuits filed against the Company and certain of its present and former
officers and directors have been settled and all claims dismissed with
prejudice.
Item 6. Reports on Form 8-K.
No reports on Form 8-K were filed during the three months ended June 27, 1999.
<PAGE> 20
Signatures
Pursuant to the requirements 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.
IMP, Inc.
Registrant
/s/ J. P. FERGUSON
- ---------------- ---------------------------------
August 11, 1999 J. P. Ferguson
President, Chief Executive Officer
<PAGE> 21
EXHIBIT INDEX
Exhibit Description
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-26-2000
<PERIOD-START> MAR-29-1999
<PERIOD-END> JUN-27-1999
<CASH> 664
<SECURITIES> 0
<RECEIVABLES> 7,303
<ALLOWANCES> 0
<INVENTORY> 6,626
<CURRENT-ASSETS> 14,980
<PP&E> 91,538
<DEPRECIATION> (84,412)
<TOTAL-ASSETS> 22,562
<CURRENT-LIABILITIES> 14,933
<BONDS> 0
0
0
<COMMON> 35
<OTHER-SE> 72,681
<TOTAL-LIABILITY-AND-EQUITY> 22,562
<SALES> 10,630
<TOTAL-REVENUES> 10,630
<CGS> 8,063
<TOTAL-COSTS> 8,063
<OTHER-EXPENSES> 3,129
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 336
<INCOME-PRETAX> (898)
<INCOME-TAX> 0
<INCOME-CONTINUING> (898)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (898)
<EPS-BASIC> (.29)
<EPS-DILUTED> (.29)
</TABLE>
