<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 25, 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)
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)
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 June 25, 2000: 8,839,000
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IMP, Inc.
FORM 10-Q
FIRST QUARTER
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Part I: Financial Information (unaudited)
Condensed Balance Sheets at June 25, 2000 and March 26, 2000 3
Condensed Statements of Operations for the three months ended June 25, 2000 and June 27, 1999 4
Condensed Statements of Cash Flows for the three months ended June 25, 2000 and June 27, 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
Item 1. Legal Proceedings 15
Item 3. Defaults by the Company on its Senior Securities 15
Item 6. Reports on Form 8K 15
Signatures 16
</TABLE>
2
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IMP, Inc.
CONDENSED BALANCE SHEETS
(In thousands)
(unaudited)
ASSETS
<TABLE>
<CAPTION>
JUNE 25, 2000 MARCH 26, 2000
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,166 $ 261
Accounts receivable - net of allowances for
doubtful accounts and returns of $220
and $350 3,708 4,918
Accounts Receivable from a related party 659 85
Inventories 6,552 6,724
Other current assets 280 67
-------- --------
Total current assets 13,365 12,055
Leasehold improvements and machinery and equipment:
Leasehold improvements 9,072 9,072
Machinery and equipment 83,481 83,696
-------- --------
92,553 92,768
Less accumulated depreciation and amortization (87,030) (86,854)
-------- --------
Net leasehold improvements and
machinery and equipment 5,523 5,914
Deposits and other long term assets 407 422
-------- --------
$ 19,295 $ 18,391
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt $ 2,931 $ 4,191
Current portion of capital lease obligations 2,658 2,788
Trade accounts payable 2,997 2,814
Accrued payroll and related expenses 965 1,162
Other current liabilities 3,575 3,096
-------- --------
Total current liabilities 13,126 14,051
Long term portion of capital lease obligations 464 857
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 (69,064) (67,425)
Treasury stock; at cost, 203 shares (3,897) (3,897)
-------- --------
Total stockholders' equity 5,705 3,483
-------- --------
$ 19,295 $ 18,391
======== ========
</TABLE>
See notes to unaudited condensed financial statements
3
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IMP, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
JUNE 25, 2000 JUNE 27, 1999
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<S> <C> <C>
Net revenues:
Components $ 7,459 $ 9,721
Design and engineering services 538 909
-------- --------
$ 7,997 $ 10,630
Cost of revenues
Components $ 7,328 $ 7,980
Design and engineering services 238 83
-------- --------
$ 7,566 $ 8,063
Gross profit 431 2,567
Operating expenses:
Research and development 974 1,576
Selling, general and administrative 995 1,553
-------- --------
Total operating expenses 1,969 3,129
Loss from operations (1,538) (562)
Interest and other expenses, net (101) (336)
-------- --------
Net loss $ (1,639) $ (898)
======== ========
Basic and diluted net loss per share $ (0.36) $ (.27)
======== ========
Shares used in computing basic and
diluted net loss per share 4,572 3,367
======== ========
</TABLE>
See notes to unaudited condensed financial statements.
4
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IMP, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
JUNE 25, 2000 JUNE 27, 1999
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,639) $ (898)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 565 942
Provision for obsolete and slow moving inventory 182 --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 1,208 1,888
Decrease (increase) in accounts receivable from a related party (574) --
Decrease (increase) in inventories (9) (550)
Decrease (increase) in other current assets (213) 344
Decrease (increase) in long term assets 15 --
Increase (decrease) in trade accounts payable 184 (1,941)
Increase (decrease) in accrued payroll and related expenses (196) (133)
Increase (decrease) in other current liabilities 479 341
------- -------
Net cash provided by (used in) operating activities 2 (7)
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Cash flows from investing activities:
Net cash used for investing activities
for purchases of capital equipment (174) (149)
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Cash flows from financing activities:
Proceeds from credit facility 2,601 2,601
Proceeds from equipment notes payable and term loan 1,731 1,731
Payments on credit facility (3,544) (3,953)
Payments on equipment notes payable (2,048) (359)
Payments under capital lease obligations (524) (816)
Proceeds from issuance of common stock 3,861 10
------- -------
Net cash provided by (used in) financing activities 2,077 (786)
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Net increase (decrease) in cash and cash equivalents 1,905 (942)
Cash and cash equivalents at beginning of period 261 1,606
------- -------
Cash and cash equivalents at end of period $ 2,166 $ 664
======= =======
Supplemental information:
Cash paid during the year for interest $ 149 $ 336
======= =======
Acquisition of equipment under capital lease obligations $ 18 $ 18
======= =======
</TABLE>
See notes to unaudited condensed financial statements.
5
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IMP, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION AND GOING CONCERN
Pursuant to the rules and regulations of the Securities and Exchange Commission,
the Company has prepared the accompanying unaudited interim condensed financial
statements. Certain information and footnote 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 the 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 June 25, 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.
On June 15, 2000, the Company received $3.9 million from the sale of equity
securities (see Note 8). Management believes that the implementation of its
operating plans in conjunction with the successful renegotiation of the lease
obligation and the cash received on the sale of equity securities 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, 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
June 25, 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 June 25, 2000, the Company had cash and cash equivalents of approximately
$2,166,000. The Company's cash balance increased as a result of the sale of
equity securities to Teamasia Semiconductors (India) Ltd. (see Note 8).
6
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NOTE 3 - INVENTORIES
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>
JUNE 25, 2000 MARCH 26, 2000
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(IN THOUSANDS)
--------------------------------
<S> <C> <C>
Raw materials $ 701 $ 722
Work-in-process 5,137 4,484
Finished goods 714 1,518
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$6,552 $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 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 1,382,878 and 261,067 shares of common stock were
outstanding at June 25, 2000, and June 27, 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.
7
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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 extend the lease for an additional six-year period. The
Company also leases a facility in Pleasanton 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.
NOTE 8 - RELATED PARTY TRANSACTIONS
In October 1999, the Company entered into a stock purchase agreement (the
"Agreement") under which Teamasia Semiconductors (India) Ltd., ("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. The agreement
places certain restrictions on the use of the funds received by the Company for
the sale of stock under the agreement.
On December 15, 1999, the Company and Teamasia entered into a second stock
purchase agreement (the "Phase Two Stock Purchase Agreement") under which
Teamasia would make an additional equity investment in the Company. The Phase
Two Stock Purchase Agreement 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 of common stock representing a 51% ownership of
the Company on a fully diluted basis.
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 revenues from related parties amounted to approximately
$659,000 and $1,081,000 as of, and for the quarter ended June 25, 2000,
respectively.
NOTE 9 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards,
(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 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 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.
In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"), Accounting for
Certain Transactions Involving Stock Compensation - an Interpretation of APB 25.
This Interpretation clarifies (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a non compensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. This Interpretation is effective July 1, 2000, but certain
conclusions in this Interpretation cover specific events that occur after either
December 15, 1998, or January 12, 2000. To the extent that this Interpretation
covers events occurring during the period after December 15, 1998, or January
12, 2000, but before the effective date of July 1, 2000, the effects of applying
this Interpretation are recognized on a prospective basis from July 1, 2000.
NOTE 10 - SUBSEQUENT EVENT
The Lemelson Medical, Education & Research Foundation has filed patent violation
legal actions against 88 semiconductor companies and the Company has been named
as one of the defendants in this action. The Company has been hereby summoned on
August 1, 2000. Management does not expect that such claim will have a material
adverse effect on the Company or its business.
8
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Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 - First Quarter of Fiscal 2001 Compared to First 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
---------------------------------
June 25, 2000 June 27, 1999
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<S> <C> <C>
Total revenues 100.0% 100.0%
Cost of revenues 94.6 75.9
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Gross margin 5.4% 24.1%
Operating Expenses:
Research and development 12.2 14.8
Selling, general and administrative 12.4 14.6
----- -----
Loss from operations (19.2) (5.3)
Interest and other expenses, net (1.3) (3.2)
----- -----
Net loss (20.5)% (8.5)%
===== =====
</TABLE>
Net Revenues. Net revenues decreased 25% to $8.0 million in the first quarter of
fiscal 2001, versus $10.6 million in first quarter fiscal 2000. The decrease in
net revenues was primarily due to a decrease in sales for the Company's foundry
and standard products. Foundry product sales accounted for 68% of net revenues
in first quarter fiscal 2001, versus 62% in first quarter fiscal 2000. Standard
product sales accounted for 26% of net revenues in first quarter fiscal 2001,
from 29% in first quarter 2000. The Company continues its attempt to shift from
foundry product sales to sales of standard products.
In first quarter fiscal 2001, our largest customers were International
Rectifier, National Semiconductor, Teamasia Semiconductors and Linfinity
Microelectronics, which accounted for approximately 23%, 13%, 13% and 9%, of net
revenues, respectively.
Cost of revenues. Cost of revenues decreased 6% to $7.6 million in the first
quarter of fiscal 2001, versus $8.1 million in first quarter fiscal 2000. Cost
of revenues as a percentage of net revenues increased by 19 percentage points in
the first quarter fiscal 2001 compared to the same quarter of the prior year
principally as a result of lower factory utilization and an increase in the
provision for obsolete and slow moving inventories.
Research and Development Expenses. Research and development expense decreased
38% to $1.0 million in the first quarter of fiscal 2001, from $1.6 million in
first quarter fiscal 2000. This decrease was due to cost reduction efforts and
the assignment of engineers to revenue producing projects.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 36% to $1.0 million in the first quarter of
fiscal 2001, from $1.6 million in first quarter fiscal 2000. This decrease was
primarily due to cost reduction efforts as well as renegotiation of sales
commission agreements which resulted in lower commission expenses.
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Other Income and Expenses. Net interest and other expenses decreased 70% to $0.1
million in the first quarter of fiscal 2001, versus $0.3 million in first
quarter fiscal 2000. The decrease in first quarter fiscal 2001 was primarily
attributable to lower borrowing on credit facility as compared to first quarter
fiscal 2000.
The Company had a net loss of $1.6 million in the first quarter fiscal 2001, or
$0.36 per share, compared to a net loss of $898,000 million in fiscal 2000 or
$0.27 per share. The fiscal 2001 and 2000 net losses were primarily attributable
to low factory utilization.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased to $2.2 million at June 25, 2000 from $0.3
million at March 26, 2000. The increase during the first quarter fiscal 2001 was
primarily due to the cash from the sale of equity securities of $3.9 million
offset by net repayment of debts.
Cash and cash equivalents used for investing activities were $0.2 million in the
first quarter fiscal 2001, and approximately $0.1 million in the first quarter
2000, reflecting cash invested in property and equipment acquisition.
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 2.0% over prime. On June 25, 2000 the debt balance was
$1.9 million and the availability was $5.6 million. However, the availability
was severely limited 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 these agreements. The
Company has been unable to renegotiate the payment terms under one capital lease
obligation. However, as of June 26, 2000, the lessor concerned has not required
acceleration of such obligation and management intends to continue to pursue
renegotiated payment terms. As such, as of June 26, 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 $5.6
million is comprised of (i) $2.2 million of equipment notes payable, (ii) $0.7
million of the accounts receivable revolver, and (iii) $2.7 million of capital
lease obligations. The capital lease obligations are comprised of twelve
individual leases of which seven (comprising 31% of the total dollar amount of
the current obligations) are currently not in default and five (comprising 69%
of the total obligations) are currently in default.
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The Company's long term portion of debt and capital lease obligations of
$464,000 as of June 25, 2000 is comprised of capital lease obligations only.
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 fall 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 June 25, 2000 we had cash and cash equivalents of approximately
$2,166,000. Our cash and cash equivalents have declined over each of the past
several quarters and increased in the first quarter fiscal 2001 due to the sale
of equity securities to Teamasia Semiconductors (India) Ltd. The Company sold
4,793,235 shares of its Common Stock for a cash purchase price of $3,930,000. A
substantial portion of the proceeds was used to pay existing obligations. If we
continue to report 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 growth. To ensure an improvement
in the Company's liquidity and capital resources, the Company has implemented
stronger cash management practices and has focused heavily on balance sheet
management.
YEAR 2000 ISSUES
The Company conducted a Year 2000 readiness program (the "Y2K Program") to
ensure that its information systems and other date-sensitive equipment continue
uninterrupted into the Year 2000. All of the Company's essential processes,
systems and business functions were compliant with the Year 2000 requirements by
the end of 1999. The Company did not experience any Year 2000 consequences that
affected its business, financial position, liquidity or results of operations.
The costs of the Company's Y2K Program were funded with cash flows from
operations. Some of these costs related solely to the modification of existing
systems, while others were for new systems that also improved business
functionality. The total cost to the Company of its Y2K Program has not been and
is not presently anticipated to be material to the Company's business, financial
position, liquidity or results of operations. See "Factors Affecting Future
Results -- Year 2000 Compliance" below.
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
The Company has minimal financial resources and operating needs are funded
principally from operations and the collection of accounts receivable. Should
the cash flow generated 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.
We May Continue to Report Losses and Negative Cash Flow in the Future
We have reported operating losses and negative cash flow before 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. As of June 25,
2000 we had cash and cash equivalents of approximately $2,166,000. If operating
losses and negative cash flow continues, we will need to obtain additional
funding beyond the Teamasia cash infusions to remain in operation. 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
11
<PAGE> 12
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 June 15, 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 the first quarter of fiscal 2001, our operating
results were materially adversely affected by the low utilization of the
Company's manufacturing facility.
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 proper new product definition, 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
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
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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 increase the price in local currencies of
our products in foreign markets and make our products relatively more expensive
than our competitor's products that are denominated in local currency. 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 a defendant in this action
and, summoned as of August 1, 2000. Although management does not expect that
such 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
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 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 maintain
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. Although we
believe that we have adequate capacity to support our near term plans, we have
in the past subcontracted the fabrication of a portion of our 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 our needs.
However, we cannot be sure that we will always be able to find the necessary
foundry capacity.
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 the demand for such products, inventory
imbalances periodically occur that result in surplus amounts of some of our
products and shortages of others. Such shortages can adversely affect customer
relationships; surpluses can result in larger than desired inventory levels. 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
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products without significant penalty to the customer. As a result, to reflect
changes in their needs, customers frequently revise the quantities of our
products to be delivered and their delivery schedules. Because backlog can be
canceled or rescheduled without significant penalty, we do not believe our
backlog is a meaningful indicator of future revenue. In addition, our backlog
includes our 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 we 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 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
permanent Chief Executive Officer, sales and technical personnel, particularly
highly skilled semiconductor design and development personnel, and process
engineers, for whom competition is intense. The loss of Dr. Khambaty, 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.
Year 2000 Compliance
The Company has completed its Year 2000 Program and generally believes that its
products, IT systems and non-IT systems are Year 2000 compliant. At this time
the Company has not experienced any Year 2000 compliance problems. However, due
to the general uncertainty inherent in the Year 2000 problem, resulting in part
from the uncertainty of the Year 2000 readiness of third-parties and the
interconnectedness of global businesses, the Company cannot ensure its ability
to timely and cost-effectively resolve problems associated with the Year 2000
issue that may affect the Company's operations and business, or expose it to
third-party liability.
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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. 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. 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 (See Note 1 to Condensed Financial Statements).
Item 6. Reports on Form 8-K.
NO REPORTS ON FORM 8-K WERE FILED DURING THE THREE MONTHS ENDED JUNE 25, 2000.
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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/ Sugriva Reddy
Dated: August 21, 2000 -----------------------------------
Sugriva Reddy, President and Chief
Executive Officer
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EXHIBIT INDEX
Exhibit 27.1 Financial Data Schedule
