<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 September 24, 2000
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)
<TABLE>
<S> <C>
Delaware 94-2722142
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2830 North First Street, San Jose, CA 95134
(Address of principal executive offices) (Zip Code)
</TABLE>
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.
Common Stock, $0.01 par value outstanding at September 24, 2000: 8,839,000
<PAGE> 2
IMP, Inc.
FORM 10-Q
SECOND QUARTER
INDEX
<TABLE>
<CAPTION>
PAGE
Part I: Financial Information (unaudited)
<S> <C>
Condensed Balance Sheets at September 24, 2000 and March 26, 2000 ......... 2
Condensed Statements of Operations for the three months ended September 24,
2000 and September 26, 1999 ............................................... 3
Condensed Statements of Operations for the six months ended September 24,
2000 and September 26, 1999 ............................................... 4
Condensed Statements of Cash Flows for the six months ended September 24,
2000 and September 26, 1999 ............................................... 5
Notes to condensed financial statements ................................... 6
Management's discussion and analysis of financial condition and results of
operations ................................................................ 9
Part II: Other Information ..................................................... 17
Item 1. Legal Proceedings
Item 3. Defaults by the Company on its Senior Securities
Item 6. Reports on Form 8-K
Signatures
</TABLE>
1
<PAGE> 3
IMP, Inc.
CONDENSED BALANCE SHEETS
(In thousands)
(unaudited)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 24, MARCH 26,
2000 2000
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................... $ 67 $ 261
Accounts receivable - net of allowances for
doubtful accounts and returns of $734
and $350 ......................................... 4,554 4,918
Accounts Receivable from a related party ............. 473 85
Inventories .......................................... 7,416 6,724
Other current assets ................................. 451 67
-------- --------
Total current assets ............................. 12,961 12,055
Leasehold improvements and machinery and equipment:
Leasehold improvements ........................... 9,072 9,072
Machinery and equipment .......................... 83,874 83,696
-------- --------
92,946 92,768
Less accumulated depreciation and amortization ... (86,762) (86,854)
-------- --------
Net leasehold improvements and
machinery and equipment ...................... 6,184 5,914
Deposits and other long term assets ................... 392 422
-------- --------
$ 19,537 $ 18,391
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt ........................... $ 3,782 $ 4,191
Current portion of capital lease obligations ...... 2,145 2,788
Trade accounts payable ............................ 3,605 2,814
Accrued payroll and related expenses .............. 1,283 1,162
Other current liabilities ......................... 5,043 3,096
-------- --------
Total current liabilities ..................... 15,858 14,051
Long term portion of capital lease obligations ....... 525 857
Stockholders' equity:
Convertible preferred stock, $0.001 par value;
5,000 shares authorized; no shares issued and
Outstanding .................................... -- --
Common stock, $0.01 par value; 50,000 shares
authorized; 8,839 and 4,043 shares issued
and outstanding .............................. 88 42
Additional paid-in capital .......................... 78,578 74,763
Accumulated deficit ................................. (71,615) (67,425)
Treasury stock; at cost, 203 shares ................. (3,897) (3,897)
-------- --------
Total stockholders' equity ...................... 3,154 3,483
-------- --------
$ 19,537 $ 18,391
======== ========
</TABLE>
See notes to unaudited condensed financial statements
2
<PAGE> 4
IMP, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
SEPTEMBER 24, SEPTEMBER 26,
2000 1999
------- -------
<S> <C> <C>
Net revenues:
Components ............................. $ 7,866 $ 6,465
Design and engineering services ........ 183 1,221
------- -------
$ 8,049 $ 7,686
Cost of revenues:
Components ............................ $ 7,937 $ 6,702
Design and engineering services ....... 123 631
------- -------
$ 8,060 $ 7,333
Gross (loss)/ profit ........................ (11) 353
Operating expenses:
Research and development ................ 989 1,199
Selling, general and administrative ..... 1,361 1,065
------- -------
Total operating expenses .................... 2,350 2,264
Loss from operations ........................ (2,361) (1,911)
Interest and other expenses, net ............ (190) (274)
Net loss .................................... $(2,551) $(2,185)
======= =======
Basic and diluted net loss per share ........ $ (.29) $ (.65)
Shares used in computing basic and
diluted net loss per share ................ 8,839 3,367
======= =======
</TABLE>
See notes to unaudited condensed financial statements.
3
<PAGE> 5
IMP, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
SEPTEMBER 24, SEPTEMBER 26,
2000 1999
-------- --------
<S> <C> <C>
Net revenues:
Components ............................ $ 15,325 $ 16,186
Design and engineering services ....... 721 2,130
-------- --------
16,046 18,316
Cost of revenues:
Components ........................... $ 15,266 14,682
Design and engineering services ...... 360 714
-------- --------
$ 15,626 15,396
Gross profit .............................. 420 2,920
Operating expenses:
Research and development ............... 1,963 2,775
Selling, general and administrative ... 2,356 2,618
-------- --------
Total operating expenses .................. 4,319 5,393
Loss from operations ...................... (3,899) (2,473)
Interest and other expenses, net .......... (291) (610)
-------- --------
Net loss .................................. $ (4,190) $ (3,083)
======== ========
Basic and diluted net loss per share ...... $ (.62) $ (.92)
======== ========
Shares used in computing basic and
diluted net loss per share ............. 6,705 3,367
======== ========
</TABLE>
See notes to unaudited condensed financial statements.
4
<PAGE> 6
IMP, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
SEPTEMBER 24, SEPTEMBER 26,
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................................. $(4,190) $(3,083)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization ...................................... 1,373 1,845
Provision for obsolete and slow moving inventory ................... 67 --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ......................... 364 4,636
Decrease (increase) in accounts receivable from a related party .... (388) --
Decrease (increase) in inventories ................................. (759) 32
Decrease (increase) in other current assets ........................ (384) 395
Decrease (increase) in deposits and other long term assets ......... 30 --
Increase (decrease) in trade accounts payable ...................... 791 (1,572)
Increase (decrease) in accrued payroll and related expenses ........ 121 (184)
Increase (decrease) in other current liabilities ................... 1,927 172
------- -------
Net cash provided by (used in) operating activities .................. (1,048) 2,241
------- -------
Cash flows from investing activities:
Net cash used for investing activities
for purchases of machinery and equipment .......................... (1,643) (183)
------- -------
Cash flows from financing activities:
Proceeds from debt .................................................... 943 2,601
Proceeds from equipment notes payable and term loan ................... -- 1,731
Payments on debt ...................................................... (1,352) (5,624)
Payments on equipment notes payable ................................... -- (563)
Payments under capital lease obligations .............................. (975) (1,021)
Proceeds from issuance of common stock ................................ 3,861 10
------- -------
Net cash provided by (used in) financing activities ................... 2,477 (2,866)
Net decrease in cash and cash equivalents ............................. (214) (808)
Cash and cash equivalents at beginning of period, net ................. 261 1,606
------- -------
Cash and cash equivalents at end of period, net ....................... $ 47 $ 798
======= =======
Supplemental information:
Cash paid during the period for interest .............................. $ 291 $ 610
======= =======
Acquisition of equipment under capital lease
obligations/financing transactions ................................. $ 1,150 $ 18
======= =======
</TABLE>
See notes to unaudited condensed financial statements.
5
<PAGE> 7
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - BASIS OF PRESENTATION AND GOING CONCERN
Pursuant to the rules and regulations of the Securities and Exchange Commission,
IMP, Inc. (the Company) has prepared the accompanying unaudited interim
condensed financial statements. Certain information and note disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. 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. These financial statements should be read in
conjunction with the audited financial statements for the year ended March 26,
2000 included in the Company's Form 10-K. The results of operations for this
interim period are not necessarily indicative of the results that may be
expected for any other period or for the fiscal year that ends March 25, 2001.
For financial reporting purposes, the Company's fiscal year ends on the last
Sunday in March.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. During the months of August,
September, and October 1999, the Company failed to make scheduled payments due
under its equipment notes payable and substantially all of its capital lease
obligations. These instances of non-payment put the Company in default of these
agreements and in default of the revolving credit facility entered into on April
20, 1999 with The CIT Group due to a cross default clause in the revolving
credit facility agreement.
The Company has successfully renegotiated the payment terms under the equipment
notes payable and a number of capital lease obligations. However, the Company
was unable to renegotiate the terms under one capital lease obligation. Due to
ongoing liquidity deficiencies, the Company was unable to immediately exercise
its buy-out option under this capital lease. The Company has negotiated with the
lessor and continues to lease the equipment on a month-to-month basis and
intends to continue to do so until such time as the Company is able to satisfy
the buy-out obligation. As of September 24, 2000, the lessor has not required
acceleration of payment of such obligation and the Company is actively seeking
to arrange alternative capital leasing facilities to refinance this obligation.
Management believes that the implementation of its operating plans, investments
by Teamasia Semiconductors (India) Ltd. (Teamasia) (see note 8) and the
successful renegotiation of the lease obligation will be sufficient to fund the
Company's operations through March 2001.
If the Company is unable to successfully continue to meet its obligations under
the renegotiated payment terms on its capital lease obligations, or if the
creditors of the obligations in default under cross default clauses exercise
their rights to accelerate the payment terms, or if management's operating plans
do not materialize or if additional funding is not made available by Teamasia,
this could significantly and adversely impact the Company's ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
NOTE 2 - CASH
The Company considers all highly liquid financial instruments purchased with a
maturity of three months or less at the date of purchase to be cash equivalents.
The fair market value of these highly liquid instruments approximates cost at
September 24, 2000 and March 26, 2000.
Fair Value of Financial Instruments - Carrying amounts of certain of the
Company's financial instruments including cash and cash equivalents, accounts
receivable, the credit facility, accounts payable and other accrued liabilities
approximate fair value due to their short maturities. Based on borrowing rates
currently available to the Company for loans with similar terms, the carrying
values of the note payable and capital lease obligations approximate fair value.
At September 24, 2000, the Company had cash and cash equivalents of
approximately $67,000 and overdrafts of approximately $20,000.
6
<PAGE> 8
NOTE 3 - 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>
SEPTEMBER 24, 2000 MARCH 26, 2000
(IN THOUSANDS)
<S> <C> <C>
Raw materials ................ $ 565 $ 722
Work-in-process .............. 6,213 4,484
Finished goods ............... 638 1,518
------ ------
$7,416 $6,724
====== ======
</TABLE>
NOTE 4 - LEASEHOLD IMPROVEMENTS, MACHINERY AND EQUIPMENT
Leasehold improvements and machinery and equipment are stated at cost and are
amortized and depreciated using the straight-line method over the shorter of the
period of the lease or the estimated useful lives of the assets. The estimated
useful life of machinery and equipment is five years.
The Company evaluates recoverability of its long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" ("SFAS
No. 121"). SFAS No. 121 requires recognition of impairment of long-lived assets
in the event the net book value of such assets exceeds the future undiscounted
cash flows attributable to such assets. In that event, a loss is recognized
based on the amount by which the carrying value exceeds the fair value of the
long-lived asset. Fair value is determined using the anticipated cash flows
discounted at a rate commensurate with the risk involved. Losses on long-lived
assets to be disposed of are determined in a similar manner, except that fair
values are reduced for the costs of disposal. No losses from impairment have
been recognized in the financial statements.
NOTE 5 - REVENUE RECOGNITION
Component revenues are recognized as products are shipped except for sales
through distributors, which are recognized on a sell-through basis. Design and
engineering service revenues are recognized under design and engineering
contracts as specific development phases are completed by the Company and
accepted by the customers.
NOTE 6 - EARNINGS PER SHARE
Earnings per share are calculated in accordance with the provisions of Statement
of Financial Accounting Standards No. 128 "Earnings per Share" (SFAS No. 128).
SFAS No. 128 requires the Company to report both basic and diluted earnings per
share. Basic EPS is computed by dividing net income (loss) available to common
stockholders by the weighted average number of common shares outstanding during
the period. For the periods presented, no adjustments to net loss reported in
the condensed statements of operations were necessary to determine net loss
available to common shareholders.
Options to purchase 1,157,950 and 179,088 shares of common stock were
outstanding at September 24, 2000 and September 26, 1999 respectively, but do
not impact diluted EPS as the Company was in a loss situation, and therefore,
the effect of these options would have been antidilutive.
NOTE 7 - 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 leases its San Jose facility under a non-cancelable
operating lease which was to expire in December 1999; however, the Company
exercised an option to
7
<PAGE> 9
extend the lease for an additional six-year period. The Company also leases a
facility in Pleasanton, California under a non-cancelable operating lease which
expires in February 2003, with an option to extend the lease for an additional
five-year term. The leases require the Company to pay taxes, insurance and
maintenance expenses. Rental expense is recorded using the straight-line method.
The Company has entered into an agreement with a major customer to produce
specified wafer products. Under the terms of the agreement the customer provided
the Company with equipment valued at approximately $1.2 million to be used in
the manufacturing process. In return the Company will provide a rebate on the
price of wafers delivered until such time as the value of the cumulative rebate
reaches $1.2 million. At that time, title to the equipment is transferred to the
Company. The terms of the agreement are equivalent to a financing transaction
and the Company has recognized the equipment as an asset with a corresponding
liability, included within other current liabilities, for the related rebate.
The Company is currently negotiating this agreement.
NOTE 8 - RELATED PARTY TRANSACTIONS
In October 1999, the Company entered into a stock purchase agreement (the
"Agreement") under which Teamasia, a private corporation headquartered in India
involved in the manufacturing and sale of discrete semiconductor devices,
purchased an aggregate of 16.7% of the Company's common stock outstanding for
consideration of $2,050,000. The transaction closed during the quarter ended
December 26, 1999.
On December 15, 1999, the Company and Teamasia entered into a second stock
purchase agreement (the "Phase Two Stock Purchase Agreement") which was approved
by the shareholders of the Company at the Company's annual meeting held on June
14, 2000. Upon subsequent completion of the transaction, Teamasia and its
affiliates were issued 4,793,235 shares of common stock in exchange for $3.9
million. As of June 16, 2000, Teamasia owned approximately 5,464,000 shares
(62%) of common stock.
As part of the stock purchase agreement entered into in October 1999, Teamasia
agreed to purchase wafers from the Company commencing with the Company's third
fiscal quarter 2000. This agreement further stipulates that Teamasia's purchase
commitments are not to be less than 25% of the Company's installed capacity for
the fourth fiscal quarter 2000 and the first and second fiscal quarters 2001.
However, the Company and Teamasia have agreed to a two quarter delay as to the
purchase quantity commitments.
Accounts receivable and net sales from Teamasia amounted to approximately
$473,000 and $59,800 as of, and for the quarter ended September 24, 2000,
respectively.
NOTE 9 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because the
Company does not currently hold any derivative instruments and does not engage
in hedging activities, the Company expects the adoption of SFAS No. 133 will not
have a material impact on its financial position, results of operations or cash
flows. The Company will be required to adopt SFAS No. 133 in fiscal 2002 in
accordance with SFAS No. 137, which delays the required implementation of SFAS
No. 133 for one year.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements" which
provides guidance related to revenue recognition based on interpretations and
practices followed by the SEC. SAB 101 was effective the first fiscal quarter of
fiscal years beginning after December 15, 1999 and requires companies to report
any changes in revenue recognition as a cumulative change in accounting
principle at the time of implementation in accordance with Accounting Principles
Board Opinion 20, "Accounting Changes". In March 2000, the SEC issued SAB 101A
"Amendment: Revenue Recognition in Financial Statements," which delays
implementation of SAB 101 until the Company's first fiscal quarter of 2001. In
June 2000, the SEC issued SAB 101B "Second Amendment: Revenue Recognition in
Financial Statements," which delays
8
<PAGE> 10
the implementation of SAB 101 until the Company's fourth fiscal quarter of 2001.
The Company will adopt SAB 101 and is currently in the process of evaluating the
impact, if any, SAB 101 will have on its financial position or results of
operations.
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."
This information should be read along with the unaudited condensed financial
statements and notes thereto included in Item I of this Quarterly Report and the
audited financial statements and notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations for the fiscal years
ended March 26, 2000 and March 25, 1999, contained in the Company's Annual
Report filed on Form 10-K.
RESULTS OF OPERATIONS - Second Quarter of Fiscal 2001 Compared to Second Quarter
of Fiscal 2000
The following table sets forth certain items from the Company's condensed
statements of operations as a percentage of net revenues for the periods
indicated.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
September September
24, 2000 26, 1999
--------- ---------
<S> <C> <C>
Total revenues 100.0% 100.0%
Cost of Revenue 100.1 95.4
----- -----
Gross (Loss)/Margin (0.1) % 4.6%
Operating Expenses:
Research and development 12.3 15.6
Selling, general and administrative 16.9 13.8
----- -----
Loss from operations (29.3) (24.8)
Interest and other expenses, net (2.4) (3.6)
----- -----
Loss before provision for income taxes (31.7) (28.4)
Provision for income taxes - -
----- -----
Net loss (31.7)% (28.4)%
----- -----
</TABLE>
Net Revenues. Net revenues for the second quarter of fiscal 2001 were $8.0
million compared to $7.7 million for the same period of the prior year. The
increase in net revenues was due to increased demand for the Company's foundry
and power management products. Foundry product sales accounted for 68% of net
revenues in second quarter fiscal 2001, versus 63% in second quarter fiscal
2000. Power management product sales accounted for 16% of net revenues in second
quarter fiscal 2001, from 6% in the second quarter 2000. The Company continues
its attempt to develop sales of standard products.
In second quarter fiscal 2001, our largest customers were International
Rectifier, National Semiconductor and Linfinity Microelectronics, which
accounted for approximately 34%, 15% and 13% of net revenues and 23%, 20% and
19% of net receivables, respectively.
9
<PAGE> 11
Cost of revenues. Cost of revenues in the second quarter of fiscal 2001 was $8.1
million, representing 100.1% of net revenues for the quarter, compared to $7.3
million, representing 95% of net revenues, for the same quarter in the prior
fiscal year. The increase in cost of revenues as a percentage of sales in the
second quarter reflects downward price pressure on the Company's foundry
products.
Research and Development Expenses. Research and development expenses were $1.0
million (12% of revenue) in the second quarter of fiscal 2001 compared to $1.2
million (16% of revenue) in the corresponding quarter of the prior fiscal year.
Costs of engineering resources associated with design revenue are included in
costs of sales. The Company believes that research and development expenses in
absolute dollars will continue at current levels.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $1.4 million (17% of net revenues) in the second
quarter of fiscal 2001 up from $1.1 million (14% of net revenues) in the same
quarter of the prior year. The increase was principally due to a charge of $0.4
million to doubtful accounts. Renegotiated sales commission agreements resulted
in lower commission expenses.
Other Income and Expenses. Net interest expense was $190,000 for the second
quarter of fiscal year 2001 compared to $274,000 in the same quarter of the
prior year. The decrease in the second quarter of fiscal 2001 was primarily
attributable to lower capital lease obligations as compared to second quarter of
fiscal 2000.
Net Loss. The Company had a net loss of $2.6 million in the second quarter
fiscal 2001, or $0.29 per share, compared to a net loss of $2.2 million in
second quarter fiscal 2000 or $0.65 per share. The fiscal 2001 and 2000 net
losses were primarily attributable to low factory utilization.
RESULTS OF OPERATIONS - First Six Months of Fiscal 2001 Compared to First Six
Months of Fiscal 2000
The following table sets forth certain items from the Company's condensed
statements of operations as a percentage of net revenues for the periods
indicated.
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
September September
24, 2000 26, 1999
--------- ---------
<S> <C> <C>
Total revenues 100.0% 100.0%
Cost of Revenue 97.4 84.1
----- -----
Gross Margin 2.6% 15.9%
Operating Expenses:
Research and development 12.2 15.1
Selling, general and administrative 14.7 14.3
----- -----
Loss from operations (24.3) (13.5)
Interest and other expenses, net (1.8) (3.3)
----- -----
Loss before provision for income taxes (26.1) (16.8)
Provision for income taxes - -
----- -----
Net loss (26.1)% (16.8)%
----- -----
</TABLE>
Net Revenues. Net revenues for the six months ended September 24 of fiscal 2001
fell 12% to $16.0 million compared to $18.3 million for the same period of the
prior year. The decrease in net revenues was principally due to decreased demand
for the Company's standard products. Foundry product sales fell 3% and accounted
for 68% of net revenues in first half fiscal 2001, versus 63% in the first half
fiscal 2000.
10
<PAGE> 12
Power management product sales accounted for 16% of net revenues in first six
months of fiscal 2001, from 6% in the first six months of fiscal 2000.
In first half of fiscal 2001, our largest customers were International
Rectifier, National Semiconductor and Linfinity Microelectronics, which
accounted for approximately 29%, 15% and 11% of net revenues and 23%, 20% and
19% of net receivables, respectively.
Cost of revenues. Cost of revenues in the first six months of fiscal 2001 was
$15.6 million, representing 97% of net revenues for the half year, compared to
$15.4 million, representing 84% of net revenues, for the same period in the
prior fiscal year. Gross margins declined in the first six months and reflect
downward price pressure on the Company's foundry products.
Research and Development Expenses. Research and development expenses were $2.0
million (12% of revenue) in the first six months of fiscal 2001 compared to $2.8
million (15% of revenue) in the corresponding period of the prior fiscal year.
Costs of engineering resources associated with design revenue are included in
costs of sales. The Company believes that research and development expenses in
absolute dollars will continue at current levels.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $2.4 million (15% of net revenues) in the first six
months of fiscal 2001 down from $2.6 million (14% of net revenues) in the same
period of the prior year. The decrease was primarily due to cost reduction
efforts in marketing and sales administration and a renegotiation of sales
commission agreements which resulted in lower commission expenses.
Other Income and Expenses. Net interest expense was $291,000 for the first six
months of fiscal year 2001 compared to $610,000 in the same period of the prior
year. The decrease in the second quarter fiscal 2001 was primarily attributable
to lower capital lease obligations as compared to second quarter fiscal 2000.
Net Loss. The Company had a net loss of $4.2 million for the first six months
fiscal 2001, or $0.62 per share, compared to a net loss of $3.1 million for the
first six months fiscal 2000 or $0.92 per share. The fiscal 2001 and 2000 net
losses were primarily attributable to low factory utilization.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased to $0.0 million at September 24, 2000 from
$0.3 million at March 26, 2000. At June 25, 2000 cash and cash equivalents were
$2.2 million due to the cash from the sale of equity securities of $3.9 million
offset by net repayment of debts. The decrease in cash and cash equivalents
during the second quarter related to operating activities.
Cash and cash equivalents used for investing activities were $1.6 million in the
first half fiscal 2001, and approximately $0.2 million in the first half fiscal
2000, reflecting cash invested in property and equipment acquisitions.
In April 1999, the Company entered into an agreement with The CIT Group for a
$9.5 million financing facility. 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 in debt financing based on accounts receivable and
inventory balances at rates of between 1.5% and 2.5% over prime. On September
24, 2000 the debt balance was $2.0 million and the availability was $5.5
million. However, the availability is restricted by concentration limitations on
qualified accounts receivable.
During the second quarter of fiscal year 2000, the Company was unable to meet
its obligations under its equipment notes payable and certain of its capital
leases. These instances of non-payment put the Company in default of these
agreements and in default of the revolving credit facility entered into in April
1999 and other leases due to cross default clauses in the these agreements. The
Company has been unable to renegotiate the payment terms under one capital lease
obligation. However, as of September 24, 2000,
11
<PAGE> 13
the lessor concerned has not required acceleration of such obligation and
management intends to continue to pursue renegotiated payment terms. As such, as
of September 24, 2000, the Company remains in default of the revolving credit
facility and a number of capital leases due to cross default clauses in these
agreements. As a result, the Company may not be able to continue to draw on
unused amounts under the revolving credit facility.
The Company's current portion of debt and capital lease obligations of $5.9
million is comprised of (i) $1.8 million of equipment notes payable, (ii) $2.0
million of the accounts receivable revolver, and (iii) $2.1 million of capital
lease obligations. The capital lease obligations are comprised of twelve
individual leases of which ten (comprising 71% of the total capital lease
obligations) are currently not in default and two (comprising 29% of the total
obligations) are currently in default.
The Company's long term portion of debt and capital lease obligations of
$525,000 as of September 24, 2000 is comprised of capital lease obligations
only.
The Company has entered into an agreement with a major customer to produce
specified wafer products. Under the terms of the agreement the customer provided
the Company with equipment valued at approximately $1.2 million to be used in
the manufacturing process. In return the Company will provide a rebate on the
price of wafers delivered until such time as the value of the cumulative rebate
reaches $1.2 million. At that time, title to the equipment is transferred to the
Company. The terms of the agreement are equivalent to a financing transaction
and the Company has recognized the equipment as an asset with a corresponding
liability, included within other current liabilities, for the related rebate.
The Company is currently negotiating this agreement.
The Company's operating needs are funded principally from the collection of
accounts receivable. As discussed previously, the Company has been unable at
times to pay all of its obligations as they become due. Should the Company's
cash flow from collection of accounts receivable decline by reason of delays in
collections or a decrease in sales, the Company could find itself again unable
to meet its current obligations.
As of September 24, 2000 we had cash and cash equivalents of approximately
$67,000 and overdrafts of approximately $20,000. Our cash and cash equivalents
have declined over each of the past several quarters except for an increase in
the first quarter of fiscal 2001 due to the sale of equity securities to
Teamasia for $3.9 million. A substantial portion of the proceeds have been used
to pay existing obligations and fund opeations. If we continue to incur
operating losses and negative cash flow, we will need to obtain additional
funding to remain in operation. There can be no assurance that such funding will
be available to us at reasonable rates, if at all.
Even as the Company focuses on short-term liquidity concerns, management
recognizes the need to identify the additional capital that will be required in
the long term to foster the Company's continued operations. To maintain the
Company's liquidity and capital resources, the Company is focused on short and
medium term cash and balance sheet management.
FACTORS AFFECTING FUTURE RESULTS
The Company's business, financial condition and results of operations have been,
and in the future may be, affected by a variety of factors, including those set
forth below and elsewhere in this report.
There May Be A Short-term Need for A Cash Infusion into the Company
We have reported operating losses and negative cash flow, except for the sale of
securities to Teamasia, since the second quarter of fiscal 1997. Unless a trend
of increasing revenue is achieved, there is substantial risk that we will
continue to report losses and negative cash flow in the future. Our cash balance
has decreased over each of the last several quarters. As of September 24, 2000
we had cash and cash equivalents of approximately $67,000 and an overdraft of
$20,000. If operating losses and negative cash flow continues, we will need to
obtain additional funding to remain in operation.
12
<PAGE> 14
The Company has minimal financial resources and operating needs are funded
principally from operations and the collection of accounts receivable. Should
the cash flow from accounts receivable be reduced or interrupted by slow
collections, limited borrowing capabilities from our credit facility, or by a
decrease in revenue generation, the Company could very quickly find itself again
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. There can be no assurance that such funding will be available to us
at reasonable rates, if at all.
Our Common Stock Price May Be Volatile Because Our Stock Trades on the Nasdaq
Smallcap Market
Effective April 1999, our common stock was moved from the Nasdaq National Market
to the Nasdaq SmallCap Market where it continues to trade under the symbol
"IMPX." Our common stock trading price remains below $5.00 per share and 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 our common stock. Additionally, future
announcements concerning the Company, its competitors or its principal
customers, including quarterly operating results, changes in earnings estimates
by analysts, technological innovations, new product introductions, governmental
regulations or litigation may cause the market price of the Company's Common
Stock to continue to fluctuate substantially. Further, in recent years the stock
market has experienced extreme price and volume fluctuations that have
particularly affected the market prices of equity securities of many high
technology companies and that often have been unrelated or disproportionate to
the operating performance of such companies. These fluctuations, as well as
general economic, political and market conditions such as recessions or
international currency fluctuations may materially adversely affect the market
price of the Common Stock.
Control by Existing Shareholders
As of September 24, 2000, Teamasia Semiconductors (India) Ltd and its affiliates
beneficially owned, in the aggregate, 51% of the fully diluted Common Stock of
the Company. As a result, these shareholders, acting together, possess
significant voting power over the Company, giving them the ability among other
things to influence significantly the election of the Company's Board of
Directors and approve significant corporate transactions. Such control could
include a merger, consolidation, takeover or other business combination
involving the Company, or discourage a potential acquirer from making a tender
offer or otherwise attempting to obtain total control of the Company.
Our Success Depends on Operating Our Foundry at High Capacity.
In the near term our success depends on our ability to attract additional orders
from new and existing customers for our analog and high-voltage wafer
fabrication services. In the past, during periods of low demand, high fixed
wafer fabrication costs have had a material adverse effect on our results of
operations. For example, during the last three quarters of fiscal 1997, all of
fiscal 1998, 1999, 2000, and first and second quarters of fiscal 2001, our
operating results were materially adversely affected by the low utilization of
the Company's manufacturing facility.
13
<PAGE> 15
Our Success Depends on Our Development and Marketing of New Analog Products.
In the long term, our success depends on our 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 our products.
The development of new analog integrated circuits is highly complex and from
time to time we have experienced delays in developing and introducing new
products. Successful product development and introduction depends on a number of
factors including new product definition, timely completion of design and
testing of new products, achievement of acceptable manufacturing yields and
market acceptance of our and our customers' products. Moreover, successful
product design and development depends on our ability to attract, retain and
motivate qualified analog design engineers, of which there is a limited number.
There can be no assurance that we 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, we cannot be certain that we will be
able to continue to successfully develop and introduce new products on a timely
basis. We seek to design alternate source products that have already achieved
market acceptance from other vendors, as well as new proprietary IMP products.
However, we cannot be sure that any products we introduce will be accepted by
customers or that any product initially accepted by our customers will result in
significant ongoing production orders. If we fail to continue to develop,
introduce and sell new products successfully, we could experience material and
adverse affects to our long-term business and operating results.
Our Success Will be Dependent Upon Our 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.
We May Not Be Able to Compete Successfully Against Current and Future
Competitors.
Many of our competitors have substantially greater technical, manufacturing,
financial and marketing resources than we do. Our international sales are
primarily denominated in U.S. currency. Consequently, changes in exchange rates
that strengthen the U.S. dollar could decrease our competitiveness against
overseas competitors. Due to the current demand for semiconductors of all types,
including both foundry services and analog integrated circuits, we expect
continued strong competition from existing suppliers and the entry of new
competitors. Such competitive pressures could reduce the market acceptance of
our products and result in market price reductions and increases in expenses
that could adversely affect our business, financial condition or results of
operations.
If Protection of Our Trademarks and Proprietary Rights is Inadequate, Our
Business Will Be Materially Harmed.
It is possible that certain of our designs or processes may involve infringement
of existing patents. We also cannot be sure that any of our patents will not be
invalidated, circumvented or challenged, that the rights granted thereunder will
provide competitive advantages to us or that any of our pending or future patent
applications will be issued. We have 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 Lemelson
Medical Foundation has filed patent violation legal actions against 88
semiconductor companies. The Company has been named as a defendant in this
action. Although management does not expect that this specific claim will have a
material adverse effect on the Company or its business, if a third party were to
make a further valid intellectual property claim and a
14
<PAGE> 16
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.
If We Cannot Manufacture Products in Sufficient Quantity or Quality, Our
Business Will Be Materially Harmed.
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 our costs of manufacturing are
relatively fixed, and, consequently, the number of shippable die per wafer for a
given product is critical to our results of operations. If we do not achieve
acceptable manufacturing yields, or if we experience product shipment delays, or
if we encounter capacity constraints, or issues related to volume production
ramp-ups, our financial condition or results of operations would be materially
and adversely affected. We have from time to time in the past experienced lower
than expected production yields, which have delayed product shipments and
adversely affected gross margins. Moreover, we cannot be sure that we will be
able to achieve acceptable manufacturing yields in the future.
We manufacture all of our wafers at the one fabrication facility in San Jose.
Given the unique nature of our processes, it would be difficult to arrange for
independent manufacturing facilities to supply such wafers in a short period of
time. Any inability to utilize our manufacturing facility as a result of fire,
natural disaster or utility interruption, otherwise, would have a material
adverse effect on our financial condition or results of operations. We believe
that we have adequate capacity to support our near term plans, and at the
present time, there are several wafer foundries that are capable of supplying
certain of our needs. However, we cannot be sure that we will always be able to
find the alternative foundry capacity, if required.
Our Inability to Forecast Correctly Could Adversely Affect our Relationships
With Customers and Result in Larger Than Desired Inventory Levels
Due to the relatively long manufacturing cycle for integrated circuits, we build
some of our inventory before we receive orders from our customers. Because of
inaccuracies inherent in forecasting demand, inventory imbalances periodically
occur that result in surplus amounts of some of our products and shortages of
others. Shortages can adversely affect customer relationships while surpluses
can result in excess inventory or obsolescence issues. Our 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. Customers frequently revise the
quantities of our products to be delivered and their delivery schedules to their
customer's changing needs. Consequently, we do not believe our backlog is a
meaningful indicator of future revenue. In addition, our backlog includes orders
from domestic distributors for 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 we
may authorize at the time of sale by the distributors.
If Our Subcontractors are Unable to Perform in a Timely Manner or We are Unable
to Obtain Materials Necessary for Our Products, Our Business will be Materially
Harmed
We depend on a number of subcontractors for certain of our manufacturing
processes, such as epitaxial deposition services. If any of these subcontractors
fails to perform these processes on a timely basis, there could be manufacturing
delays, which could materially adversely affect our results of operations.
Currently, we purchase certain materials, including silicon wafers, on a
purchase order basis from a limited number of vendors. Any interruption or
termination of supply from any of these suppliers could have a material adverse
effect on our financial condition and results of operations. Our products are
packaged by a limited group of third party subcontractors in Indonesia and other
Asian countries. Certain of the raw materials included in such products are
obtained from sole source suppliers. Although we are trying to reduce our
dependence on our sole and limited source suppliers, disruption or termination
of any of these sources
15
<PAGE> 17
could occur and such disruptions could have a material adverse effect on our
financial condition or results of operations. As is common in the industry,
independent third party subcontractors in Asia currently assemble all of our
products. In the event that any of our subcontractors were to experience
financial, operational, production or quality assurance difficulties resulting
in a reduction or interruption in our supply, our operating results would be
adversely affected until alternate subcontractors, if any, became available.
If We Fail to Comply with Environmental and Safety Regulations, Our Business
Will Be Materially Harmed.
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. Our facilities
have been designed to comply with these regulations, and we believe that our
activities are conducted in material compliance with such regulations. We cannot
be sure, however, that interpretation and enforcement of current or future
environmental regulations will not impose costly requirements upon us. If we
fail to control adequately the storage, use and disposal of regulated
substances, we could incur future liabilities.
Increasing public attention has been focused on the safety and environmental
impacts of electronic manufacturing operations. While to date we have not
experienced any materially adverse effects on our business from such
regulations, we cannot be sure that changes or new interpretations of such
regulations will not impose costly equipment, facility or other requirements.
Dependence on Key Personnel
The present and future success of the Company depends on its ability to continue
to attract, retain and motivate qualified senior management, including a Chief
Executive Officer and Chief Financial Officer, sales and technical personnel,
particularly highly skilled semiconductor design and development personnel, and
process engineers, for whom competition is intense. The loss of key executive
officers, key design and development personnel, or process engineers, or the
inability to hire and retain sufficient qualified personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be able
to retain these employees.
16
<PAGE> 18
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.
The Company has received a claim that some of its products infringes on
patents of a third party. The Company disputes such claim and intends to
vigorously contest it. Management does not expect that such claim will have a
material adverse effect on the Company or its business.
Item 3. Defaults by the Company on its Senior Securities
The Company has failed to make its scheduled payments due during the months
of August, September, and October 1999 under its credit facilities and certain
of its equipment leases, for a total aggregate amount of $1,035,654.
Item 6. Reports on Form 8-K.
6.1 Changes in Registrant's Certifying Accountant-Resignation of Principal
Accountants.(Incorporated by reference to the Form 8-K filed by the
Registrant on August 8, 2000).
6.2 Changes in Registrant's Certifying Accountant-Appointment of Principal
Accountants. (Incorporated by reference to the Form 8-K filed by the
Registrant on October 13, 2000).
27.1 Financial Data Schedule
17
<PAGE> 19
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 8th day of November, 2000.
IMP, INC.
By: /s/ Sugriva Reddy
------------------------------------
Sugriva Reddy, President and Chief
Executive Officer
18
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<S> <C>
27.1 Financial Data Schedule
</TABLE>
