1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 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)
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 December 24, 2000: 9,127,504
2
IMP, Inc.
FORM 10-Q
Quarter Ended December 24, 2000
INDEX
PAGE
Part I: Financial Information (unaudited)
Condensed Balance Sheets at December 24, 2000 and March 26, 2000 2
Condensed Statements of Operations for the three months ended
December 24, 2000 and December 26, 1999 3
Condensed Statements of Operations for the nine months ended
December 24, 2000 and December 26, 1999 4
Condensed Statements of Cash Flows for the nine months ended
December 24, 2000 and December 26, 1999 5
Notes to condensed financial statements 6
Management's discussion and analysis of financial condition
and results of operations 10
Part II: Other Information 17
Item 1. Legal Proceedings
Item 3. Defaults by the Company on its Senior Securities
Item 5. Other Information
Item 6. Exhibits and reports rts on Form 8-K
Signatures
3
IMP, Inc.
CONDENSED BALANCE SHEETS
(In thousands)
(unaudited)
ASSETS
DECEMBER 24, MARCH 26,
2000 2000
------------ ---------
Current assets:
Cash and cash equivalents $ 201 $ 261
Accounts receivable - net of allowances for doubtful
accounts and returns of $1,235 and $217 5,162 4,918
Accounts receivable from related party 780 85
Inventories 7,118 6,724
Other current assets 1,029 67
-------- --------
Total current assets 14,290 12,055
Leasehold improvements and machinery
and equipment 94,296 92,768
Less accumulated depreciation and
amortization (87,441) (86,854)
-------- --------
Net leasehold improvements and machinery
and equipment 6,855 5,914
Deposits and other long term assets 378 422
-------- --------
$ 21,523 $ 18,391
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of Credit $ 2,782 $ 1,667
Current portion of equipment notes 486 2,524
Current portion of capital lease obligations 1,472 2,788
Convertible debenture from related party 3,500 --
Short-term loan from related party 51 --
Trade accounts payable 4,764 2,814
Accrued payroll and related expenses 1,023 1,162
Other current liabilities 3,707 3,096
-------- --------
Total current liabilities 17,785 14,051
Equipment notes, less current portion 822 --
Capital lease obligations, less current portion 781 857
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 4,246 shares issued and outstanding 91 42
Additional paid-in capital 78,762 74,763
Accumulated deficit (72,821) (67,425)
Treasury stock; at cost, 203 shares (3,897) (3,897)
-------- --------
Total stockholders' equity 2,135 3,483
-------- --------
$ 21,523 $ 18,391
======== ========
See notes to unaudited condensed financial statements.
4
IMP, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
THREE MONTHS ENDED
---------------------------
DECEMBER 24, DECEMBER 26,
2000 1999
------------ ------------
Net revenues:
Components:
Third party sales $ 9,266 $ 7,374
Related party sales 377 --
Design and engineering services 532 1,366
-------- --------
10,175 8,740
Cost of revenues:
Components:
Third party sales 8,954 5,893
Related party sales 160 --
Design and engineering services 398 702
-------- --------
9,512 6,595
Gross profit 663 2,145
Operating expenses:
Research and development 495 1,137
Selling, general and administrative 637 824
-------- --------
Total operating expenses 1,132 1,961
Income (loss) from operations (469) 184
Interest and other expenses, net (738) (261)
-------- --------
Net loss $ (1,207) $ (77)
======== ========
Basic and diluted net loss per share $ (.14) $ (.02)
======== ========
Shares used in computing basic and diluted
net loss per share 8,839 3,641
======== ========
See notes to unaudited condensed financial statements.
5
IMP, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
NINE MONTHS ENDED
---------------------------
DECEMBER 24, DECEMBER 26,
2000 1999
------------ ------------
Net revenues:
Components:
Third party sales $ 23,779 $ 23,560
Related party sales 1,189 --
Design and engineering services 1,253 3,496
-------- --------
26,221 27,056
Cost of revenues:
Components:
Third party sales 23,569 20,574
Related party sales 810 --
Design and engineering services 759 1,416
-------- --------
25,138 21,990
Gross profit 1,083 5,066
Operating expenses:
Research and development 2,458 3,912
Selling, general and administrative 2,992 3,443
-------- --------
Total operating expenses 5,450 7,355
Loss from operations (4,367) (2,289)
Interest and other expenses, net (1,029) (871)
-------- --------
Net loss $ (5,396) $ (3,160)
======== ========
Basic and diluted net loss per share $ (.73) $ (.91)
======== ========
Shares used in computing basic and
diluted net loss per share 7,417 3,457
======== ========
See notes to unaudited condensed financial statements.
6
IMP, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
NINE MONTHS ENDED
---------------------------
DECEMBER 24, DECEMBER 26,
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss $(5,396) $(3,160)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,526 2,690
Provision for obsolete and slow moving inventory 88 --
Noncash warrant expense 184 35
Changes in operating assets and liabilities:
Accounts receivable (244) 2,477
Accounts receivable from related party (695) --
Inventories (482) 49
Other current assets (962) --
Deposits and other long term assets 44 367
Trade accounts payable 1,950 (4,492)
Accrued payroll and related expenses (139) (372)
Other current liabilities 611 740
------- -------
Net cash used in operating activities (3,515) (1,666)
------- -------
Cash flows from investing activities:
Net cash used for investing activities for
purchases of machinery and equipment (2,467) (188)
------- -------
Cash flows from financing activities:
Proceeds from line of credit, net 1,115 (675)
Proceeds from equipment notes payable 282 1,731
Payments on equipment notes payable (1,498) (766)
Payments under capital lease obligations (2,210) (1,475)
Proceeds from capital lease obligations 818 --
Proceeds from related party debt 3,551 --
Proceeds from issuance of common stock 3,864 2,064
------- -------
Net cash provided by financing activities 5,922 879
Net decrease in cash and cash equivalents (60) (975)
Cash and cash equivalents at beginning of period, net 261 1,606
------- -------
Cash and cash equivalents at end of period, net $ 201 $ 631
======= =======
Supplemental information:
Cash paid during the period for interest 1,211 $ 871
------- =======
Acquisition of equipment under capital lease obligations $ 2,251 $ 18
======= =======
See notes to unaudited condensed financial statements.
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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 condensed
financial statements. Certain information and note disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted pursuant
to such rules and regulations. The condensed financial information is unaudited,
but reflects all adjustments consisting only of normal recurring adjustments
which are, in the opinion of management, necessary for a fair statement of
results for the interim periods presented. These condensed 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 unaudited condensed 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. As a result of these instances of non-payment, the
Company is in default of these agreements and 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 was successful in renegotiating 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 negotiated
with the lessor and continued to lease the equipment on a month-to-month basis.
In November and December 2000, the Company exercised buyout options and
refinanced several of its capital lease obligations. The refinanced and buyout
amounts, totaling $1.1 million, were refinanced generally by entering into two
year lease financing arrangements.
In November and December 2000, Teamasia Semiconductors India, Ltd. (Teamasia),
owner of 62% of the Company's outstanding common stock, loaned the Company a
total of $3.5 million under two convertible debenture agreements. The debentures
mature in May and June 2001, respectively, bear zero interest, and are
convertible at Teamasia's option into a total of 2 million shares of the
Company's common stock.
Management believes that the additional liquidity provided by Teamasia and
continued progress in implementing its operating plan will be sufficient to fund
the Company's operations through March 2001.
If the Company is unable to meet its obligations under the renegotiated payment
terms on its capital lease obligations, equipment notes, line of credit or other
borrowing arrangements, 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
December 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 line of credit, accounts payable and other accrued liabilities
approximate fair value due to their short maturities. Based on borrowing rates
currently
8
available to the Company for loans with similar terms, the carrying values of
the equipment notes and capital lease obligations approximate fair value. The
fair value of the convertible debentures approximates their face amount due to
their short maturity.
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 (in thousands):
DECEMBER 24, 2000 MARCH 26, 2000
----------------- --------------
Raw materials $ 1,234 $ 722
Work-in-process 5,292 4,484
Finished goods 592 1,518
------- -------
$ 7,118 $ 6,724
------- -------
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 condensed 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 - WARRANTS
On December 15, 2000, the Company issued warrants to certain entities and
individuals to acquire 288,504 shares of common stock. The warrants were issued
as compensation to these entities and individuals as settlement of a claim. The
warrants were vested on the date issued, and are exercisable between December
15, 2001 and December 15, 2002 at $1.125 per share. The fair value of these
warrants, totaling $184,065, was charged to selling, general and administrative
expense in the quarter ended December 24, 2000.
The fair value of the warrants was computed using the Black-Scholes model using
the following assumptions: zero dividends; 2 year term; 214% volatility; and
6.40% risk-free interest rate.
9
NOTE 7 - EARNINGS PER SHARE
Earnings per share are calculated in accordance with the provisions of SFAS No.
128 "Earnings per Share". 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 stockholders.
Options to purchase 921,403 and 139,031 shares of common stock outstanding at
December 24, 2000 and December 26, 1999 respectively, debentures convertible
into 2,000,000 shares of common stock and warrants to acquire 288,504 shares of
common stock outstanding at December 24, 2000 have been excluded from the
calculation of diluted EPS since they are antidilutive due to the net losses
generated by the Company.
NOTE 8 - LEASING ARRANGEMENTS AND COMMITMENTS
The Company leases certain machinery and equipment under long-term lease
agreements which are reported as capital leases. The terms of the leases range
from two 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
that expires in December 2005. 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 will be 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 has not shipped any wafer products under the terms
of this agreement, and at December 24, 2000, the liability remains at $1.2
million.
NOTE 9 - RELATED PARTY TRANSACTIONS
Teamasia, a private corporation headquartered in India involved in the
manufacturing and sales of discrete semiconductor devices, owns 62% of the
common stock of the Company, and has entered into a number of sales and
financing transactions with the Company. The terms of these transactions may not
reflect the terms of similar transactions entered into with unrelated parties.
In October 1999, the Company entered into a stock purchase agreement under which
Teamasia purchased an aggregate of 671,173 shares of the Company's common stock
outstanding for consideration of $2.1 million. 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 under which Teamasia and its affiliates were issued 4,793,235
shares of common stock in exchange for $3.9 million.
As part of the stock purchase agreement entered into in October 1999, Teamasia
agreed to purchase wafers from the Company commencing on January 1, 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 quarters ended March
26, 2000, June 28, 2000 and September 24, 2000. However, the Company and
Teamasia
10
agreed to a two quarter delay as to the purchase quantity commitments. To date,
Teamasia has not met the minimum purchase commitment.
On November 28, 2000, the Company issued $1.2 million of convertible debentures
to Teamasia. The convertible debentures are due on May 28, 2001 and carry an
interest rate of zero percent. At Teamasia's option, the principal can be
converted into 685,714 shares of common stock, representing a conversion ratio
of $1.75 per share.
On December 18, 2000 the Company issued $2.3 million of convertiable debentures
to Teamasia. The convertible debenture is due on June 18, 2001 and carries an
interest rate of zero percent. At Teamasia's option, the principal can be
converted into 1,314,286 shares of common stock, representing a conversion ratio
of $1.75 per share.
On December 18, 2000, the Company purchased $1.2 million of fabrication
equipment from Teamasia. The equipment's sales price was determined through an
independent appraisal of the equipment, and the sales price was approved by the
Company's Board of Directors.
Certain sales to Teamasia are recorded when products are complete and ready for
shipment, and Teamasia takes title and assumes risk of ownership. These products
are stored at the Company's fabrication facility, segregated from the Company's
inventory, until such time as Teamasia provides further shipping instructions.
At December 24, 2000, products with a sales value of approximately $648,305
relating to sales to Teamasia remained at the Company's fabrication facility.
NOTE 10 - 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 delayed 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 delayed
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 delayed 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.
11
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 - Third Quarter of Fiscal 2001 Compared to Third 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.
Three Months Ended
--------------------------
December 24, December 26,
2000 1999
------------------------------------------------------------------------
Total revenues 100.0% 100.0%
Cost of Revenue 93.5 75.5
----- -----
Gross Margin 6.5% 24.5%
Operating Expenses:
Research and development 4.9 13.0
Selling, general and administrative
6.3 9.4
----- -----
Income (loss) from operations (4.7) 2.1
Interest and other expenses, net (7.2) (3.0)
----- -----
Income (loss) before provision for
income taxes (11.9) (0.9)
Provision for income taxes -- --
----- -----
Net loss (11.9)% (0.9)%
===== =====
Net Revenues. Net revenues for the third quarter of fiscal 2001 were $10.2
million compared to $8.7 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 77% of net
revenues in third quarter fiscal 2001, versus 62% in third quarter of fiscal
2000. Power management product sales accounted for 17% of net revenues in third
quarter of fiscal 2001, from 6% in the third quarter of fiscal 2000. The Company
continues to focus on sales of standard power management products.
In third quarter of fiscal 2001, the Company's largest customers were
International Rectifier, National Semiconductor and Linfinity Microelectronics,
which accounted for approximately 30%, 16% and 11% of net revenues and 32%, 24%
and 7% of net receivables, respectively.
Cost of revenues. Cost of revenue in the third quarter of fiscal 2001 was $9.5
million, representing 93% of net revenues for the quarter, compared to $6.6
million, representing 74% 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
third quarter reflects downward price pressure on the Company's foundry products
well as low manufacturing yields on recently introduced standard products. The
Company is achieving improving yields as it gains experience in the manufacture
of these specific new products.
Research and Development Expenses. Research and development expenses were $0.5
million (5% of revenue) in the third quarter of fiscal 2001 compared to $1.1
million (13% 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 increase from current levels as it invests in the
development and introduction of standard products.
12
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $0.6 million (6% of net revenues) in the third
quarter of fiscal 2001 down from $0.9 million (10% of net revenues) in the same
quarter of the prior year. Renegotiated sales commission agreements resulted in
lower commission expenses.
Other Income and Expenses. Net interest expense was $738,281 for the third
quarter of fiscal year 2001 compared to $261,000 in the same quarter of the
prior year. The increase in the third quarter of fiscal 2001 was primarily
attributable to an increase in average borrowings and one-time fees and expenses
associated with the financing and buyout of certain capital lease obligation
purchase options as compared to third quarter of fiscal 2000.
Net Loss. The Company had a net loss of $1.2 million in the third quarter fiscal
2001, or $0.14 per share, compared to a net loss of $0.1 million in third
quarter fiscal 2000 or $0.02 per share. The fiscal 2001 net loss was primarily
attributable to lower yields from the production process.
RESULTS OF OPERATIONS - First Nine Months of Fiscal 2001 Compared to First Nine
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.
Nine Months Ended
--------------------------
December 24, December 26,
2000 1999
------------------------------------------------------------------------
Total revenues 100.0% 100.0%
Cost of Revenue 95.8 81.3
----- -----
Gross Margin 4.2% 18.7%
Operating Expenses:
Research and Development 9.4 14.5
Selling, general and administrative 11.4 12.7
----- -----
Loss from operations (16.6) (8.5)
Interest and other expenses, net (4.6) (3.2)
----- -----
Loss before provision for income taxes (21.2) (11.7)
Provision for income taxes -- --
----- -----
Net loss (21.2)% (11.7)%
===== =====
Net Revenues. Net revenues for the nine months ended December 24 of fiscal 2001
fell 3% to $26.5 million compared to $27.2 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 increased 12% and
accounted for 73% of net revenues in first nine months of fiscal 2001, versus
63% in the first nine months of fiscal 2000. Power management product sales
increased over 159% and accounted for 17% of net revenues in first nine months
of fiscal 2001, from 6% in the first nine months of fiscal 2000.
In first nine months of fiscal 2001, the Company's largest customers were
International Rectifier, National Semiconductor and Linfinity Microelectronics,
which accounted for approximately 29%, 16% and 11% of net revenues and 22%, 17%
and 6% of net receivables, respectively.
13
Cost of revenues. Cost of revenues in the first nine months of fiscal 2001 was
$25.1 million, representing 96% of net revenues for the nine months, compared to
$22.0 million, representing 81% of net revenues, for the same period in the
prior fiscal year. Gross margins declined in the first nine months and reflect
downward price pressure on the Company's foundry products.
Research and Development Expenses. Research and development expenses were $2.5
million (9% of revenue) in the first nine months of fiscal 2001 compared to $3.9
million (14% 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 and as a percent of sales, will increase significantly from
current levels.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $3.0 million (11% of net revenues) in the first
nine months of fiscal 2001 down from $3.5 million (13% of net revenues) in the
same period of the prior year. The decrease was primarily due to cost reduction
efforts in marketing, sales and administration and a renegotiation of sales
commission agreements which resulted in lower commission expenses.
Other Income and Expenses. Net interest expense was $1,029,000 for the first
nine months of fiscal year 2001 compared to $871,000 in the same period of the
prior year. The increase in the first nine months of fiscal 2001 was primarily
attributable to the one-time fees and expenses associated with refinancing and
buyout of certain capital lease obligation purchase options as compared to same
period in fiscal 2000.
Net Loss. The Company had a net loss of $5.4 million for the first nine months
fiscal 2001, or $0.73 per share, compared to a net loss of $3.2 million for the
first nine months fiscal 2000 or $0.91 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 $0.2 million at December 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 third quarter related primarily to operating and investing
activities.
Cash and cash equivalents used for investing activities were $2.3 million in the
first nine months of fiscal 2001, and approximately $0.2 million in the first
nine months of 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 December 24,
2000 the outstanding balance was $2.8 million and there was no additional
borrowing availability under the line.
During the second quarter of fiscal year 1999, 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. In
November and December 2000, the Company exercised buyout options and refinanced
several of its capital lease agreements. The refinanced and buyout amounts,
totaling $1.1 million, were refinanced by the Company, generally by entering
into two year lease financing arrangements.
14
The Company's operating needs are funded principally from the collection of
accounts receivable. 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 again be unable to meet its current obligations.
The Company's cash and cash equivalents have fluctuated significantly over each
of the past several quarters. Cash increased 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 has been used to pay existing obligations
and fund operations. In the third quarter of fiscal 2001 Teamasia loaned the
Company $3.5 million under convertible debenture agreements. The proceeds were
used to pay existing obligations, purchase capital equipment and fund
operations. If the Company again incurs operating losses and negative cash flow,
it will need to obtain additional funding to remain in operation. The Company is
focused on cost reduction and manufacturing yield improvements to minimize the
need for future capital infusions.
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 an Immediate Short-term Need for 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 the
current trend of increasing revenue is sustained, there is substantial risk that
we will continue to report losses and negative cash flow in the future. Our cash
balance has fluctuated significantly over each of the last several quarters. As
of December 24, 2000 we had cash and cash equivalents of approximately $201,046.
If the Company is unable to reverse its current trend of unprofitable
operations, we will need to obtain additional funding to remain in operation.
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 line of credit, 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 technology
companies and that often have been unrelated or disproportionate to the
operating performance
15
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 Company's common stock.
Control by Existing Shareholders
As of December 24, 2000, Teamasia Semiconductors (India) Ltd. and its affiliates
beneficially owned, in the aggregate, 62% of the fully diluted common stock of
the Company. As a result, these stockholders, 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 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.
16
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. 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 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 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
17
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 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.
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 Lemelson Medical Foundation has filed patent violation legal actions
against 88 semiconductor companies. The Company has been named as a defendant in
this action, and the Company satisfied this specific claim.
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 5. Other Information
On February 13, 2001, Mr. A.S. Thiyaga Rajan was elected to the Company's
Board of Directors. Mr. Rajan is a Managing Director of Aquarius Investment
Advisors Pte Ltd.
Item 6. Reports on Form 8-K.
6.1 Convertible Debenture Due May 28, 2001. (Incorporated by reference to
the Form 8-K filed by the Registrant on December 6, 2001).
6.2 Convertible Debenture Due June 18, 2001. (Incorporated by reference to
the Form 8-K filed by the Registrant on January 16, 2001).
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.
Date: February 26, 2001 IMP, Inc.
Registrant
By: /s/ Sugriva Reddy
-------------------------------------
Name: Sugriva Reddy
Title: Chief Executive Officer