<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 December 27, 1998 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 organization) Identification No.)
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 [ ]
<PAGE> 2
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 December 27, 1998
-----------------
<S> <C>
2,832,609
</TABLE>
<PAGE> 3
IMP, Inc.
FORM 10-Q
THIRD QUARTER
INDEX
Part I: Financial Information (unaudited)
<TABLE>
<CAPTION>
Page
<S> <C>
Condensed Balance Sheet at
December 27, 1998 and March 29, 1998 4
Condensed Statement of
Operations for the three months ended
December 27, 1998 and December 28, 1997 5
Condensed Statement of
Operations for the nine months ended
December 27, 1998 and December 28, 1997 6
Condensed Statement of Cash
Flows for the nine months ended
December 27, 1998 and December 28, 1997 7
Notes to condensed financial statements 9
Management's discussion and analysis of
financial condition and results of
operations 12
Part II: Other Information
Item 1, Legal Proceedings 23
Item 5, Special meeting of stockholders 23
Item 6, Reports on Form 8K 23
Signatures 24
</TABLE>
<PAGE> 4
IMP, Inc.
CONDENSED BALANCE SHEET
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Dec 27, March 29,
ASSETS 1998 1998
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,356 $ 11,819
Accounts receivable - net 7,544 5,357
Inventories 5,519 3,064
Deposits and other current assets 1,189 950
-------- --------
Total current assets 15,608 21,190
Leasehold improvements and equipment 91,043 88,931
Accumulated depreciation (82,352) (78,547)
-------- --------
Net leasehold improvements and equipment 8,691 10,384
Other long term assets 319 375
-------- --------
$ 24,618 $ 31,949
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable $ 4,203 $ 3,348
Trade accounts payable 7,037 6,018
Accrued payroll and related expenses 1,056 1,954
Other accrued liabilities 616 276
Current portion of capital lease obligations 2,500 3,582
-------- --------
Total current liabilities 15,412 15,178
Long-term portion of notes payable
and capital lease obligations 5,360 6,173
Stockholders' equity:
Common stock 30 30
Additional paid-in capital 70,423 70,370
Accumulated deficit (62,710) (55,905)
Treasury stock at cost (3,897) (3,897)
-------- --------
Total stockholders' equity 3,846 10,598
-------- --------
$ 24,618 $ 31,949
======== ========
</TABLE>
See notes to unaudited condensed financial statements
<PAGE> 5
IMP, Inc.
CONDENSED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------
Dec 27, Dec 28,
1998 1997
------- -------
<S> <C> <C>
Net revenues $ 9,755 $ 9,398
Cost of revenues 5,901 7,056
------- -------
Gross profit 3,854 2,342
Operating expenses:
Research and development 2,748 2,400
Selling, general and administrative 1,048 965
------- -------
Operating income (loss) 58 (1,023)
Interest:
Expense (266) (261)
Income 20 144
------- -------
Net interest (246) (117)
Loss before provision
for income taxes (188) (1,140)
Provision for income taxes -- --
------- -------
Net loss $ (188) $(1,140)
======= =======
Basic and diluted net
loss per share $ (.07) $ (.40)
======= =======
Shares used in computing basic and
diluted net loss per share 2,833 2,825
======= =======
</TABLE>
See notes to unaudited condensed financial statements.
<PAGE> 6
IMP, Inc.
CONDENSED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
Dec 27, Dec 28,
1998 1997
-------- --------
<S> <C> <C>
Net revenues $ 23,080 $ 31,425
Cost of revenues 18,079 22,642
-------- --------
Gross profit 5,001 8,783
Operating expenses:
Research and development 7,255 6,355
Selling, general and administrative 3,817 4,435
-------- --------
Operating loss (6,071) (2,007)
Interest:
Expense (892) (1,068)
Income 158 442
-------- --------
Net interest (734) (626)
Loss before provision for
income taxes (6,805) (2,633)
Provision for income taxes -- --
-------- --------
Net loss $ (6,805) $ (2,633)
======== ========
Basic and diluted net loss per share $ (2.40) $ (.93)
======== ========
Shares used in computing basic and
diluted net loss per share 2,830 2,822
======== ========
</TABLE>
See notes to unaudited condensed financial statements.
<PAGE> 7
IMP, Inc.
CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------
Dec 27, Dec 28,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,805) $ (2,633)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 3,805 4,546
Increase (decrease) from changes in:
Accounts receivable (2,187) 604
Inventories (2,455) 758
Deposits and other assets (183) (626)
Trade accounts payable 1,019 2,115
Accrued payroll and related expenses (898) 124
Other accrued liabilities 340 (382)
-------- --------
Net cash (used for) provided by
operating activities (7,364) 4,506
-------- --------
Cash flows from investing activities:
Net cash used for investing activities
for purchase of capital equipment (955) (261)
-------- --------
Cash flows from financing activities:
Payments of principal under capital
lease obligations, net (2,713) (4,093)
Payments on notes payable 516 --
Proceeds from issuance of common stock 53 96
-------- --------
Net cash used for financing activities (2,144) (3,997)
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
Net increase (decrease) in cash and cash
equivalents (10,463) 248
Cash and cash equivalents at beginning of
the period 11,819 13,306
-------- --------
Cash and cash equivalents at end of the
period $ 1,356 $ 13,554
======== ========
Supplemental cash flow disclosures:
Interest paid $ 734 $ 626
Supplemental non cash disclosures:
Equipment acquired under capital lease $ 1,183 --
</TABLE>
See notes to unaudited condensed financial statements.
<PAGE> 9
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 29, 1998 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 December 27, 1998, the Company had cash and cash equivalents of
approximately $1,356,000. The Company's cash balance has decreased over
each of the last several quarters. The Company has taken steps to
conserve cash, has borrowed against its accounts receivable, and is
working with its financial institutions to restructure debt and
otherwise improve cash flow. In addition, the Company is evaluating
possible strategic options for the Company's future.
3. Inventories
Inventories consist of:
<TABLE>
<CAPTION>
Dec 27, March 29,
1998 1998
-------- ---------
<S> <C> <C>
Raw materials $ 861 $1,111
Work-in-process 4,206 1,650
Finished goods 452 303
------ ------
$5,519 $3,064
====== ======
</TABLE>
<PAGE> 10
4. Notes Payable & Financing Arrangements
Bank equipment term loan - This loan has been paid by the Company.
Equipment notes payable - The Company had a $5,000,000 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 December 27, 1998 was approximately $2,326,000.
The Company has entered into a factoring arrangement with a financial
institution under which it may draw down funds on eligible accounts
receivable. Such facility bears interest at a rate of 18% per annum. As
of December 27, 1998, $3,206,000 was drawn down on this facility.
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 Nine Months Ended
----------------------- -----------------------
Dec 27 Dec 28 Dec 27 Dec 28
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net loss $ (188) $(1,140) $(6,805) $(2,633)
Shares used in per share computation:
Weighted Average Shares Outstanding 2,833 2,825 2,830 2,822
Basic and diluted income (loss) per share $ (0.07) $ (0.40) $(2,31) $ (0.93)
======= ======= ======= =======
</TABLE>
Options to purchase 261,480 and 28,459 shares of common stock were
outstanding at December 27, 1998, and December 28, 1997 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.
<PAGE> 11
6. Recently Issued Accounting Standard
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"). FAS 133 establishes a
new model for accounting for derivatives and hedging activities and
supersedes and amends a number of existing accounting standards. SFAS
133 requires that all derivatives be recognized in the balance sheet at
their fair market value, and the corresponding derivative gains or
losses be either reported in the statement of operations or as a
deferred item depending on the type of hedge relationship that exists
with respect to such derivative. Adopting the provisions of SFAS 133 is
not expected to have a material effect on the Company's financial
statements, which will be effective for the Company's fiscal 2001.
<PAGE> 12
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 - Third Quarter of Fiscal 1999 Compared to Third Quarter
of Fiscal 1998
Net revenues for the third quarter of fiscal 1999 were $9.8 million compared to
$9.4 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 $6.7 million. Included in the results are
$250,000 for non-recurring license fees from a customer.
Cost of revenues in the third fiscal quarter of 1999 were 60% of revenues
compared to 75% for the same quarter in the prior year. Cost of revenues in the
third quarter of fiscal 1999 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 $2,748,000 (28% of revenue) in the third
quarter of fiscal 1999 compared to $2,400,000 (26% 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 remain higher
than fiscal 1998 levels.
Selling, general and administrative expenses were $1,048,000 (11% of revenue) in
the third quarter of fiscal 1999 up from $965,000 (10% 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. In addition, due to a change in
the Company's health policy, certain reserves were no longer needed and were
released in the quarter ending December 27, 1998.
Net interest expense was $246,000 for the third quarter of fiscal 1999, compared
to $117,000 for fiscal 1998. The increase is due to a decrease in interest
income as a result of lower cash balances.
Net loss for the third quarter of fiscal 1999 was $188,000 compared to net loss
of $1,140,000 for the same period of the prior year. This resulted in net loss
of $.07 per share for the third quarter of fiscal 1999 compared to $.40 loss per
share in the same period of the prior year.
<PAGE> 13
Results of Operations - First Nine Months of Fiscal 1999 Compared to First Nine
Months of Fiscal 1998.
Net revenues for the nine-month period ended December 27, 1998 were down by 27%
compared to the same period of the prior year. The decrease in net revenues was
due to lower demand for the company's products by customers reflecting the
general slow down in the semiconductor industry for the first half of fiscal
1999. Included in the results for the nine-month period are $250,000 for
non-recurring license fees from a customer.
Cost of revenues in the nine-month period ended December 27, 1998 was 78% of
revenues compared to 72% in the corresponding period of the prior year. The
increase is due to less than optimum utilization of the Company's manufacturing
facility during the first half of fiscal 1999.
Research and development expenses were $7,255,000 (31% of revenue) for the nine
month period ended December 27, 1998 compared to $6,355,000 (20% of revenue) in
the comparable period of fiscal 1998. 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 remain higher
than fiscal 1998 levels.
Selling, general and administrative expenses were $3,817,000 (16% of revenue)
for the nine months ended December 27, 1998 compared to $4,435,000 (14% of
revenue) in the corresponding period of the prior year. The decrease in absolute
dollars was primarily due to lower commission expenses associated with lower
sales for the first half of fiscal 1999. In addition, due to a change in the
Company's health policy, certain reserves were no longer needed and were
released in the quarter ending December 27, 1998.
Net interest expense was $734,000 for the nine-month period ended December 27,
1998 compared to $626,000 for the corresponding period of the prior year. The
increase is due to a decrease in interest income as a result of lower cash
balances.
Net loss was $6,805,000 for the nine-month period ended December 27, 1998
compared to a loss of $2,633,000 for the same period of the prior year. Loss per
share was $2.40 for the nine month period ended December 27, 1998 compared to
$.93 loss per share for the same period of the prior year.
<PAGE> 14
Liquidity and Capital Resources
At December 27, 1998, the Company had cash and cash equivalents of approximately
$1,356,000. The Company's cash balance has decreased over each of the last
several quarters. The Company has entered into a factoring arrangement with a
financial institution under which it may draw down funds on eligible accounts
receivable. Such facility bears interest at the rate of 18% per annum. As of
December 27, 1998, $3,206,000 was drawn down on this facility. The Company is
also working with its financial institutions to restructure debt and otherwise
improve cash flow. In addition, on February 8, 1999 the Company raised $2.37
million in private placement, with net proceeds to the Company of $2.25 million.
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 December 27,
1998 the Company had low cash balances. However on February 8, 1999 the Company
raised $2.37 million in private placement, with net proceeds to the Company of
$2.25 million.
Potential Delisting from Nasdaq National 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 ("Nasdaq"). 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 Nasdaq.
The Panel indicated that the Company could retain its listing on the Nasdaq if
it complied with the following conditions: (i) the Company must effect a
one-for-ten reverse split of its Common Stock so that the Company's closing bid
price must meet or exceed $1.00 per share for a minimum of ten consecutive
trading days; (ii) the Company must 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 $4,000,000; and (iii) the
Company must 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 $6,500,000. Effective January 13, 1999,
the Company effected a one-for-ten reverse stock split, thus addressing the
minimum trading price per share requirement. The financial statements have been
adjusted to reflect the stock split.
<PAGE> 15
If the Company's securities are delisted from Nasdaq, trading, if any, of the
Company's securities would thereafter have to be conducted in the Nasdaq
SmallCap Market or the Nasdaq over-the-counter market. In such an event, an
investor could find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, the Company's securities. In addition, if
the Common Stock were to become delisted from trading on Nasdaq and the trading
price of the Common Stock were to remain below $5.00 per share, trading in the
Company's Common Stock would 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
effecting transactions in the Common Stock, which could severely limit the
market liquidity of the Common Stock and the ability of investors to trade the
Company's Common Stock.
In addition, the Company's market capitalization might decrease and stockholder
value might decrease as a result of the reverse split. The reverse split will
have the effect of increasing 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' 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. Due to the reduction
in demand for such services as a result of the current worldwide decline in the
semiconductor business, the market for such services is limited. As long as this
situation continues the slowdown in foundry business has and will continue to
result in less than optimum utilization of the Company's manufacturing
facilities. 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 and all
of fiscal 1998 the Company's operating results were adversely affected by the
low utilization of the Company's manufacturing facility.
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, timely completion of design and testing of new
products, achievement of acceptable manufacturing yields and market acceptance
of the
<PAGE> 16
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.
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 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
<PAGE> 17
of the Company's designs or processes may involve infringement of existing
patents. There can also 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 with the scope of
the claims protection may be unavailable or limited in certain foreign
countries. The Company has from time to time received, and may in the future
receive, communications from third parties asserting patents, mask work rights,
or copyrights on certain of the Company's products and technologies. Although
the Company is not currently a party to any material litigation, in the event a
third party were to make a valid intellectual property claim and a license was
not available on commercially reasonable terms, the Company's operating results
could be materially and adversely affected. Litigation, which could result in
substantial cost to the Company and diversion of its resources, may also be
necessary to enforce patents or other intellectual property rights of the
Company or to defend the Company 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.
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
<PAGE> 18
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.
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.
<PAGE> 19
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
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 December 27, 1998, the company has incurred less than $150,000 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 $1,000,000. 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
<PAGE> 20
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 the 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 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
<PAGE> 21
their information systems and software, means that failure of such key suppliers
and contract manufacturers to address Year 200 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> 22
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 5. Special Meeting of Stockholders of IMP, Inc.
The following proposals were voted upon by the Company's stockholders at
the special meeting held on October 27, 1998.
Proposal 1
Proposal to approve an amendment to the Company's certificate of
incorporation to effect a one-for-ten reverse split of the Company's common
stock.
<TABLE>
<S> <C>
For 24,186,744
Against 1,876,788
Abstain 377,100
</TABLE>
This represented 89 percent of the eligible voting shares.
Item 6. Reports on Form 8-K.
No reports on Form 8-K were filed during the three months ended December 27,
1998.
<PAGE> 23
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/ GEORGE RASSAM
- ----------------- ---------------------------------
February 10, 1999 George Rassam
Chief Financial Officer
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit # Description
- --------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-28-1999
<PERIOD-START> MAR-30-1998
<PERIOD-END> DEC-27-1998
<CASH> 1,356
<SECURITIES> 0
<RECEIVABLES> 7,544
<ALLOWANCES> 0
<INVENTORY> 5,519
<CURRENT-ASSETS> 15,608
<PP&E> 91,043
<DEPRECIATION> (82,352)
<TOTAL-ASSETS> 24,618
<CURRENT-LIABILITIES> 15,412
<BONDS> 0
0
0
<COMMON> 30
<OTHER-SE> 70,423
<TOTAL-LIABILITY-AND-EQUITY> 24,618
<SALES> 9,755
<TOTAL-REVENUES> 9,755
<CGS> 5,901
<TOTAL-COSTS> 5,901
<OTHER-EXPENSES> 3,796
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 246
<INCOME-PRETAX> (188)
<INCOME-TAX> 0
<INCOME-CONTINUING> (188)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (188)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
