1
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to ________________
Commission File Number 0-15858
IMP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2722142
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2830 NORTH FIRST STREET
SAN JOSE, CALIFORNIA 95134
(Address of Principal Executive Offices, including Zip Code)
Registrant's telephone number, including area code: (408) 432-9100
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Yes [X] No [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant, as of March 31, 2001 was approximately $2.9 million (based upon the
closing price for shares of the Registrant's common stock as reported by the
Nasdaq Smallcap Market System on that date). Shares of common stock held by each
officer, director and holder of 5% or more of the outstanding common stock have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
On March 31, 2001 approximately 9,046,000 shares of Common Stock, $0.01
par value, were outstanding.
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PART I
The following discussion contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the section entitled
"Business" and in the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
This Annual Report on Form 10-K, and the documents incorporated herein by
reference, contains forward-looking statements that have been made pursuant to
and in reliance on the provisions of the Private Securities Litigation Reform
Act of 1995.
Statements regarding the Company's business that are not historical facts are
"forward-looking statements" that involve risks and uncertainties, including,
but not limited to demand for the Company's products, foundry utilization, the
ability of the Company to develop new products, demand by end-users for the
products produced by the Company's customers, and the other risks detailed from
time to time in the Company's reports filed with the Securities and Exchange
Commission. Words such as "anticipates," "expects," "intends," "plan,"
"believe," "seeks," "estimates," and variations of such words and similar
expressions relating to the future operations are intended to identify
forward-looking statements.
All forward-looking statements are based on the Company's current expectations,
estimates, projections, beliefs and plans or objectives about its business and
its industry. These statements are not guarantees of future performance and are
subject to risk and uncertainty. Actual results may differ materially from those
predicted or implied in any such forward-looking statement.
The Company undertakes no obligation to update any forward-looking statement,
whether as a result of new information relating to existing conditions, future
events or otherwise. However, readers should carefully review future reports and
documents that the Company files from time to time with the Securities and
Exchange Commission, such as its quarterly reports on Form 10-Q (particularly
"Management's Discussion and Analysis of Financial Condition and Results of
Operations") and any current reports on Form 8-K.
ITEM 1. BUSINESS
IMP Inc. ("IMP" or the "Company") designs, manufactures and sells integrated
circuit (IC) semiconductor devices, also known as microchips. The Company's
focus is on a specialized technology sector called the analog IC market. IMP
sells its analog IC technology in two basic forms: Manufacture of IC wafers for
other semiconductor vendors using IMP's own and customer-developed processes.
This has comprised the majority of IMP revenues for the last decade. Following a
downturn in IMP's historic lines of business in fiscal 1997, IMP decided to
expand its activities into the market for standard analog power-management ICs.
IMP's goal is to provide a broad portfolio of devices to manage the power supply
needs of the portable, wireless and internet-based systems that are driving
today's computer and communications revolution. This new product direction
builds on the historical strengths of IMP's people, technology and manufacturing
capabilities and is intended to serve a broad base of customers in a growing
market opportunity.
IMP's wafer production, test factory, design and research and development
activities are located in San Jose, California. This facility is certified to
meet the quality demands of the International Standards Organization
specification number ISO 9001. IMP operates its own wafer fabrication plant in
order to develop and control the specialized analog technologies that are
essential for the design of products offering unique technical advantages to the
customer.
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IMP was founded as a California corporation in January 1981 under the name of
International Microelectronic Products, and reincorporated in Delaware as
International Microelectronic Products, Inc. in April 1987 and initial public
stock offering was made that same year. In September 1993, its Certificate of
Incorporation was amended to formally change the name of the Company to the
commonly used abbreviation of IMP, Inc. IMP stock is traded on the Nasdaq
Smallcap Market under the ticker symbol of IMPX. IMP's main offices are located
at 2830 North First Street, San Jose, California 95134-2071. IMP can be
contacted by telephone at 408 432-9100, by fax at 408 434-0335, and by e-mail at
info@impinc.com.
IMP BACKGROUND
IMP was founded to employ proprietary computer aided engineering software to
provide fast-turnaround design and prototyping, as well as volume manufacturing
services, for customer-designed application-specific IC (ASIC) devices. The
Company was one of the first vendors to apply this design technology to
complementary metal-oxide semiconductor (CMOS) processes. In the early 1980's,
in order to offer fast turnaround and low-cost, companies, including IMP, had to
build and operate their own wafer fabrication and testing facilities. The
Company also used this capacity to provide wafer foundry services to
semiconductor companies that did not own their own wafer fabrication factory or
that needed additional capacity. IMP has delivered production wafers
representing hundreds of millions of finished microchips to such customers as
International Rectifier, Level One, Linfinity Microsemi, Teamasia
Semiconductors, and National Semiconductor.
During the 1980's, IMP engineers created some of the industry's first
standard-cell-based analog and mixed signal designs. They applied this analog
expertise to the first non-custom products sold under the IMP name in the early
1990s. These were application-specific devices, such as programmable filters,
integrated read-channels, preamplifiers, and write drivers, for applications in
disk drive and PC tape back-up mass-storage systems. Customers for these
products included Hewlett-Packard, Iomega, Seagate Technology, and the 3M
Corporation. The revenues generated individually by these customers were in the
range of $3.0 million to $25.0 million on average, annually. In early fiscal
year 1997, demand for IMP's wafer foundry services and mass-storage products
declined at the same time that significant additional foundry capacity was
brought on-line throughout the world. As a result the Company's sales dropped
significantly. Management took many actions to reduce costs, including canceling
non-contributing products, freezing salaries, work force reduction and
increasing the productivity of the remaining personnel. However, due to the high
fixed costs of operating the factory, it was not possible to achieve
profitability at such a depressed revenue level.
In 1997, a new IMP management team made the decision to invest in the design of
standard catalog analog products to help increase demand for its products. The
specific choice of analog power-management ICs was determined by the
capabilities of the existing equipment, by the skills of the research and
development personnel and by the long-term growth opportunities forecast for
these products. In addition to matching these capabilities, these products are
sold to a broad base of users throughout the world and are expected to reduce
IMP's historical dependence on a limited base of customers. These analog
products also have the potential to increase the profit that can be generated by
each wafer.
Management believes that focusing on analog products does not guarantee a return
to profitability, but is believed to be the best long-term opportunity for the
Company. The difficulty of returning the Company to profitability has been
compounded by the Asian economic difficulties that further reduced revenue
through much of fiscal year 1999. The first new analog products resulting from
this strategy began to contribute to revenue of $340,000 in the third quarter of
fiscal year 1999, $2.3 million in fiscal year 2000 and $3.6 million in fiscal
year 2001.
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THE ANALOG INTEGRATED CIRCUIT MARKET
Integrated circuits are called either digital or analog devices based on their
mode of operation. Circuits combining both analog and digital modes on the same
chip are known as mixed-signal devices. Mixed-signal devices are frequently
employed to translate information presented as an analog signal into digital
information and vice versa.
Digital circuits generate a succession of high and low signal levels. Each level
represents a one or a zero in binary arithmetic. Digital functions are most
efficient at storing and processing signals inside a computer. Analog circuits
process continuously varying signal levels that convey information about the
value of some linear characteristic, such as the amplitude, phase, or frequency
of voltage or current. The continuously varying signals may represent "real
world" properties such as temperature, pressure, weight, or speed.
The analog integrated circuit market comprises those devices having a purely
analog operating mode, as well as mixed-signal devices having a high degree of
analog content. Examples of analog devices include, amplifiers, comparators,
regulators and certain specialized functions used in power management
applications. Mixed-signal devices falling into the analog category, include
disk-drive read-channels, data communications interface and data conversion
devices, such as analog-to-digital (ADC) and digital-to-analog converter (DAC)
products. Mixed-signal chips with predominantly digital content, such as modems,
PC audio, and graphics display functions are usually included in the market
category of digital products.
From the 1960s through the 1980s divisions of large semiconductor companies
controlled the mainstream analog IC business. While these companies are still
dominant in terms of unit shipments today, especially in the area of circuits
for TV, radio, and other consumer products, the analog IC market is also served
by a large number of independent, specialized "high-performance" analog vendors.
Some of these smaller vendors generate higher profit margins and market
valuations than their much larger counterparts. According to World Semiconductor
Trade Statistics (WSTS) data, in calendar year 2000, the worldwide analog IC
revenue was approximately $27.0 billion out of total integrated circuit sales of
$208 billion and in calendar year 1999, the worldwide analog IC revenue was
$22.1 billion out of total integrated circuit sales of $130.2 billion. The
analog market segment increased by approximately 37% in the calendar year 2000
over calendar year 1999. Semiconductor Industry Association (SIA) analysts
project that new electronic systems design activity, particularly that related
to supporting the ongoing wireless and internet driven communications
revolution, will support continued growth in the market for analog ICs in the
year 2001.
MARKETS AND APPLICATIONS
Digital signals are most efficient for manipulation of bits of data. Analog
signals best represent the values of real world parameters outside of a
computer. Analog components are therefore an essential element of every
electronic system that must operate in a real world environment, from battery
powered computers, mobile phones, pagers, hearing aids and hand-held instruments
to desktop computers, servers and mainframes to industrial equipment,
automobiles, and avionics.
A simple example of an application for analog devices is in a thermostatically
controlled electric fan. Changes in room temperature are detected using a sensor
and an amplifier and measured as an analog signal. This signal is converted with
an ADC into a digital value for a microcontroller in the fan to determine when
the motor should be turned on and at what speed. When the decision is made, a
DAC then converts the digital output of the controller back into an analog
signal which is then amplified to a high current level to drive the fan motor.
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The customers for analog ICs are manufacturers of electronic equipment serving
numerous and widely differing applications in instrumentation, industrial
control, data processing, military, video, medical equipment, and voice and data
communications over private and public, local area and wide-area network
systems, such as the Internet. For each application, different users may have
unique requirements for circuits with specific resolution, accuracy, linearity,
speed, power, and signal amplitude capability, which results in a high degree of
market complexity. As a result, compared to the market for digital integrated
circuits, the analog market is characterized by a wider range of standard
products used in smaller quantities by a large number of customers. Further,
many of these products have historically enjoyed longer life cycles, less
competition from foreign manufacturers, lower capital requirements as a result
of using more mature manufacturing technologies, and relatively stable growth
rates.
An established analog IC supplier may offer hundreds of different basic device
types, in numerous package variations and operating ranges, representing
thousands of part numbers serving many different end-market segments. Power
management ICs control, distribute, generate, monitor and regulate the supply of
voltage and current, and provide electrical and thermal protection to an
electronic system. SIA's 2001 report indicates an annual growth of 37% for
analog IC suppliers in calendar year 2001. Analog ICs was projected by SIA to
offer one of the most promising segments of the IC business because of their use
in fast growing portable electronic systems.
IMP PRODUCTS AND SERVICES
Our revenues derive primarily from two types of activities:
1. Wafer Foundry and Custom IC Manufacturing Services - This is the
original base of IMP's business and in fiscal 2001 still generated more
than 80% of our revenue. We process silicon wafers using our specialized
analog BiCMOS, CMOS and DMOS technologies for other semiconductor
companies that do not own their own factory or who need additional
capacity. These customers usually design the products themselves.
Processed wafers are round silicon slices that contain hundreds or
thousands of completed microchips ready to be separated and assembled
into individual packages. This activity is commonly referred to as the
"wafer foundry" business. A number of older IMP-designed and owned
products for tape-based, mass-storage systems are today essentially
custom circuits because each is sold to a single customer.
2. Power Management ICs - These are new families of standard catalog
microchips that improve the power consumption efficiency of a wide range
of electronic systems. We focus our research and development activity on
low-power and high-voltage features for handheld and portable
battery-operated communication systems, such as pagers, cell phones, and
electronic organizers. In addition to communications systems, power
management products are used in just about every piece of electronic
equipment being designed today. We introduced our first power management
products in early fiscal 1999 and they began to contribute to revenue in
the third fiscal quarter. In fiscal 2001 they represented $6.1 million
or approximately 20% of net revenues.
By following the approach outlined below, we are using our expertise in analog
processing circuit design and high-volume production to establish IMP as a
supplier of finished power-management ICs:
1. Develop wafer-manufacturing processes that enable the production of
advanced analog devices. Our current development activities are
addressing a variety of BiCMOS, CMOS and DMOS technologies, ranging from
30 volts to several hundred volts in capability. We are using these
technologies for our own products as well as offering them to potential
new foundry customers.
2. Complete the portfolio of industry-standard analog power-management IC
products, based on the new processes described above. Using upon
customer feedback about our first round portfolio of products, develop
follow-on products to expand our offerings to meet continuously evolving
customer requirements.
3. Analog products require an extensive customer support "network" of
application and systems engineers. In order to expedite the sales of our
standard products while we develop our "network", we intend to work with
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industry leading merchant analog semiconductor manufacturing companies
to leverage our standard products through their sales and marketing
channels.
4. Our future standard product development is focused on differentiated and
value-added products. We use the following Product Competency
description to define what we mean by differentiated and value-added:
- A product must add a perceived value to the end use -(Measured
by significantly impacting any two of the following):
- Performance
- Ease of Use
- Energy Efficiency
- Size or Weight
- Price
- A product must be difficult for a competitor to imitate
- A product must be leverageable in many diverse markets
See "Research and Development" below for a list of new products
introduced during fiscal 2001.
SALES, DISTRIBUTION AND MARKETING
The Company sells its products both directly to OEM customers, with the
assistance of independent sales representatives, and indirectly through
independent distributors.
In North America, at the end of fiscal year 2001 the Company worked with various
sales representative firms and distribution companies in the United States,
Canada and Southeast Asia. In some cases these organizations promote products
that compete with our products. In the fiscal year ended March 31, 2001, sales
through our North American distribution outlets accounted for less than 5% of
net revenues. As we proceed with our transition to sales of more standard analog
IC products, we expect that our sales through distribution firms will account
for an increasing percentage of net revenue. As is customary in the industry,
distributors are entitled to price rebates and product return privileges if the
market outlook and the prices for our products change.
Our sales to customers in the United States, Asia and Europe accounted for 82%,
15% and 3% respectively, of our net revenues for fiscal year 2001, compared to
81%, 8%, and 11% respectively, of the Company's net revenues for fiscal year
2000, and 88%, 6% and 6% respectively, of the Company's net revenues for fiscal
year 1999. Our standard products are sold throughout the world. while our custom
and foundry products are sold primarily to North American customers. European
currency issues are not material due to the Company's minimal contact with
European markets.
In fiscal year 2001 our largest customers were International Rectifier, National
Semiconductor, and Linfinity Microelectronics, which accounted for approximately
30%, 15%, and 11%, of net revenues, respectively. In fiscal year 2000,
International Rectifier, Level One, CMS (a subsidiary of Hewlett Packard) and
Infinity Microelectronics accounted for 22%, 11%, 12%, and 10%, respectively, of
net revenue. In fiscal 1999, International Rectifier and Linfinity
Microelectronics accounted for approximately 29% and 16% of net revenues,
respectively.
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Outside North America, we sell our products through various channels, including
independent sales representative, distributor, and stocking
representative/distributor firms. These companies may buy and stock our products
for resale or may act as our agent in arranging for direct sales from our
factory to a customer. A Sales Distribution agreement has been reached with
Teamasia Semiconductors to market IMP's products in Southeast Asia.
Our international sales are primarily denominated in U.S. currency. As a result,
changes in exchange rates that strengthen the U.S. dollar can increase the price
in local currency of our products in foreign markets and make the Company's
products relatively more expensive than those of local manufacturers. This could
lead to a reduction in our sales or our profitability in those foreign markets.
We have not taken any measures, such as hedging currencies, to protect us
against possible changes in exchange rates. We do not expect the Euro trends or
issues to have a material effect on our revenues during fiscal 2001.
Our export sales are subject to some governmental restrictions, including
regulations contained in the Export Administration Act of 1979 and the Export
Administration Amendments Act of 1985. However, we have not experienced any
material difficulties to date because of these restrictions.
Due to the relatively long manufacturing cycle for integrated circuits, we build
some of our inventory in advance of receiving orders from our customers. As a
consequence of inaccuracies inherent in forecasting demand for such products,
inventory imbalances periodically occur that result in surplus amounts for some
of our products and shortages of others. Such shortages can adversely affect our
relationships with our customers; surpluses can result in larger than desired
inventory levels.
Our backlog consists of distributor and OEM customer orders typically required
to be shipped no more than six months following the order date. Our customers
may generally cancel or reschedule orders to purchase products without
significant penalty. As a result, to reflect changes in their needs, our
customers frequently revise the quantities of our products to be delivered and
their delivery schedules. Since backlog can be canceled or rescheduled without
significant penalty, we do not believe our backlog is a meaningful indicator of
future revenue. When these products are shipped to the distributor, the company
does not recognize them as revenue until the distributor sells them to the end
customer. Such products when sold may result in revenue lower than the stated
backlog invoice amounts as a result of discounts we may authorize at the time of
sale by the distributors.
RESEARCH AND DEVELOPMENT
The Company's ability to compete depends, in part, upon its continued
introduction of technologically innovative products on a timely basis and
expanding the current portfolio of existing standard products. Meanwhile, we
have many more first generation standard products in the final stages of
development (these products were started over a year ago). Because it takes
between six months and two years (or sometimes more) to create a new standard
product, it will take some time for products meeting our Product Competency
standard to be introduced.
Research and development in analog integrated circuits is characterized
primarily by new process development, circuit design and product and test
engineering contributions that enable new device functionality or improved
performance. Our research and development efforts are also directed at improving
and reducing the cost of existing manufacturing process technologies and
products. With respect to more established products, our research and
development efforts also include product redesign, reduction of chip size and
improvement in the yield of good die per wafer to reduce device costs.
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As of March 31, 2001, we had eight people engaged in research and development.
Our research and development efforts are dependent upon attracting and retaining
qualified analog process, design, product engineering, test and applications
engineers, of which there is a limited supply. We also use independent
contractors for certain research and development projects.
In fiscal years 2001, 2000, and 1999 we spent approximately $3.4 million, $4.7
million, and $8.2 million respectively, on research and development. We expect
to continue to invest funds in research and development activities.
Our research and development programs are currently focused on the development
of new power management analog IC products and enhancing and expanding our
portfolio of CMOS and BiCMOS processes with the greatest amount of resources
concentrated in the area of IC product development.
During fiscal year 2001 we introduced the following new products to the market:
PULSE WIDTH MODULATION (PWM) CONTROLLER integrated circuits for Switch Mode
Power Supply (SMPS) and DC-to-DC converter manufactures. Notable among the
improvements of the BiCMOS IMP38H4X devices are zero
cross-conduction/shoot-through current, reduced start-up and operating current,
improved under voltage lockout and lower current-sense delay times. All
improvements increase efficiency or improve system reliability.
MICROPROCESSOR SUPERVISORY integrated circuits with user selectable watchdog
timeout period and selectable threshold level. The IMP 1232LP microprocessor
supervisors monitor the processor 5-volt power supply and through a watchdog
timer will restart a "hung-up" microprocessor. In addition, compared to
competitive offering from Dallas Semiconductor, Linear Technology and Maxim
Integrated Products, the IMP1232LP power consumption is lower by at least 40
percent.
DUAL ELECTRO LUMINESCENT LAMP DRIVER integrated circuit. Extend from the success
of the IMP528 Electro-luminance Lamp Driver, IMP522 provides the driver
capability for two lamps with a small 10-pin MSOP package. IMP522 delivers
output drive capability of 220 Vpp, highest in the industry.
UART, DUART, VME CONTROLLER AND TVS DIODE NETWORKS were added to the IMP product
portfolio. These products were acquisitions from EPIC Semiconductor, Inc.
There can be no assurance that we will be successful in selling the new products
introduced so far, or that we will be able to successfully complete the products
currently in development. There can also be no assurance that we will be able to
identify additional new product opportunities successfully and develop and bring
to market such new products or that we will be able to respond effectively to
new technological changes or new product announcements by others. Moreover, the
end markets for our new products, such as the computer, communications and
control markets, are subject to rapid technological change and there can be no
assurance that as such markets change our product offerings will remain current
and suitable for them.
COMPETITION
The semiconductor industry is intensely competitive and is characterized by
rapid technological change, product or process obsolescence and price erosion in
many markets.
We currently compete in the markets for analog silicon foundry services,
application specific mass-storage and data communications devices, and standard
analog power-management integrated circuit products.
Currently, our principal competitors in the analog silicon foundry services
market include American Microsystems Inc., a division of Japan Energy
Corporation; Austrian Micro Systems; California Micro Devices; Supertex, and
Tower Semiconductor, as well as internal manufacturing facilities within our
customers. To a lesser degree we compete with large Asian foundries, such as
Chartered Semiconductor of Singapore, Taiwan Semiconductor Manufacturing
Company, and UMC Group of Taiwan.
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The principal competitive factors in the silicon foundry market include service,
price, manufacturing capability, quality, and manufacturing cycle time. We
believe that our competitive strengths arise from our experience in
manufacturing specialized CMOS and BiCMOS analog and high-voltage process
technologies. There can be no assurance that we will be able to compete
successfully in the future.
The market for analog ICs is also intensely competitive with the competitive
pressures expected to increase. Significant competitive factors in the analog
market for standard products include product features, performance, price, the
timing of product introductions, the emergence of new computer and communication
standards, quality and customer support. With respect to application-specific
mass-storage products such as read channels, our principal competitor is Texas
Instruments. With respect to application-specific data communications devices
such as SCSI termination devices, our principal competitors are Maxim Integrated
Products, Linfinity Microelectronics and Unitrode, a division of Texas
Instruments. We plan to continue to supply our mass-storage and SCSI devices as
long as a viable market remains for them, however we are not currently
developing any new products based on these technologies. In the focus area of
power management products, because the markets are diverse and highly
fragmented, we expect to encounter different competitors on different products.
Our principal competitors are expected to include Micrel, Supertex, Sipex,
TelCom Semiconductor, Linear Technology, and Maxim Integrated Products. Other
competitors will likely include Analog Devices Inc., Linfinity Microelectronics,
Motorola, National Semiconductor Corporation, Texas Instruments, and certain
European and Asian manufacturers.
In addition, we have licensed technology from and to parties, which have, in
certain cases, the right to use the technology to develop products competitive
with ours.
Our principal competitors and many of our potential competitors have
substantially greater technical, manufacturing, financial and marketing
resources than we have. We also face competition from smaller highly focused
companies, although not all such companies have internal wafer manufacturing
capability. Due to the increasing demands for analog circuits, we expect
intensified competition from existing suppliers and from the entry of new
competitors. Increased competition could adversely affect our financial
condition or results of operations.
There can be no assurance that we will be able to compete successfully in the
future, or that competitive pressure will not adversely affect us. Competitive
pressures could reduce market acceptance of our products and result in price
reductions and increases in expenses that could have an adverse affect on our
business, financial condition or results of operations.
PATENTS AND LICENSES
We have been granted 23 United States patents, one of which is jointly owned,
and we have filed for additional United States and foreign patent applications
on our inventions. The issued patents expire between 2003 to 2016. Although
patents, patent protection and patent applications may have value, we believe
that other factors such as managerial and technological experience and creative
abilities of our personnel are of more significance in our industry. There are
five patents that apply to currently shipped products.
In the past we have entered into cross-licensing agreements under which we have
acquired certain products and rights to the technologies of our partners and our
customers in exchange for the transfer of similar rights to our partners and our
customers for royalties, up-front fees or for other consideration. We expect to
enter into additional arrangements in the future.
Because of technological developments in the semiconductor industry, it is
possible that certain of our designs or processes may involve infringement of
existing patents or patents that have not yet been issued. From time to time
other companies and individuals have advised us that some of our products and
technologies may violate their patent rights, mask work rights, copyrights or
trademark rights. We have signed agreements with two such parties to allow us to
use their patents in exchange for royalty payments.
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In fiscal year 2000, Lemelson Medical Foundation filed a claim against us and 87
other Semiconductor companies regarding alleged patent violations. In December
2000, we settled all claims with the Lemelson Medical Foundation for $150,000 to
be paid in annual installments, the last of which is due in December 2002, in
exchange for certain licensing rights.
We have acquired software and licenses to software from a number of software
companies, primarily for computer-aided design of our integrated circuits.
We attempt to protect our trade secrets and other proprietary information
through employment proprietary information and invention agreements with our
employees, and non-disclosure agreements with appropriate customers and
suppliers. The non-disclosure agreements generally have terms ranging from one
to five years and may cover information such as technical, or financial, or
operational, or sales, or marketing. Depending upon the circumstances, either
mutual or one-way non-disclosures are covered. Although we plan to protect our
rights vigorously, there can be no assurance that our measures will be
successful.
MANUFACTURING
During fiscal 2001, all of the wafers we shipped directly or that were assembled
as finished products were manufactured in our San Jose, California facility.
This wafer manufacturing facility has the capacity to produce up to 15,000
five-inch wafers per month. The maximum practical number of wafers may be less,
or more, than this at any specific time due to the number of masking levels or
other critical process steps demanded by the current product mix. We believe
that our in-house wafer fabrication facility provides us with the ability to
produce competitive products because it allows close collaboration between our
design and process engineers, provides control over wafer supply, offers the
potential for lower manufacturing costs, and accelerates product introduction
schedules.
During periods of low demand, the high fixed costs associated with our wafer
fabrication factory have had a serious impact on our ability to run a profitable
operation. For example, during the first half of fiscal year 1999, and all of
fiscal years 2000 and 2001, our operating results were negatively impacted due
to low utilization of the factory. During some of this time, we operated the
factory at less than 50% of capacity.
Because of the unique nature of our manufacturing processes, it would be
difficult for us to arrange for independent suppliers to make wafers for us in a
short period of time. If a fire, natural disaster, utility interruption or any
other event prevents us from operating the factory for more than a few days, our
revenue and financial condition could be severely impacted. We believe that we
have sufficient manufacturing capacity to meet our near term plans although
prolonged problems with any specific piece of equipment could cause us to miss
our goals. At periods of peak demand in the past we have subcontracted some
production to outside foundries. If this situation arises again there are a
number of foundries which, given appropriate lead times, could meet some of our
needs. However, we cannot guarantee that we will be able to meet our customers
required delivery schedules.
We use subcontractors for a number of very specialized processing steps where
our volume is not sufficient to justify purchasing and operating the equipment
ourselves. One example is growing special epitaxial layers of silicon on our
wafers. We purchase most of our raw materials, including silicon wafers, on a
purchase order basis from a limited number of vendors. If our subcontractors or
our vendors are unable to provide these services or materials in the future our
relationships with our customers could be seriously affected and our revenues
and financial condition could be severely damaged.
On those products where we provide finished devices to our customers, after the
wafers are fabricated and tested at our San Jose, California facility, they are
sent to contract assembly houses to be packaged. After the wafers are scribed
and the individual die is packaged, the units are returned to us for final
testing. We then ship the completed devices to distributors and customers
worldwide. The Company has initiated procedures and taken steps to perform
testing and shipping functions at external vendors.
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Our products are packaged by a limited number of third party subcontractors in
Indonesia and other Asian countries. Some of the raw materials included in these
operations are obtained from sole source suppliers. Although we seek to reduce
our dependence on sole and limited source suppliers both for assembly services
and for materials, disruption or financial, operational, production, yield or
quality assurance difficulties at any of these sources could occur and cause us
to have severe delivery problems.
EXECUTIVE OFFICERS OF THE COMPANY
The current executive officers of the Company as of June 1, 2001 were:
NAME AGE POSITION
---- --- --------
Sugriva Reddy............................... 52 Interim President, CEO and Director
Frederick Diaz.............................. 48 Vice President of Finance
Tarsaim Batra............................... 62 Vice President, Manufacturing and Chief Operating Officer
Moiz B. Khambaty............................ 67 Vice President, Technology
John Chu.................................... 59 Vice President, Sales & Marketing
Mr. Sugriva Reddy joined the Company in July 2000, as the Interim President and
Chief Executive Officer. Mr. Reddy brings more than 24 years of semiconductor
manufacturing experience, having worked in various senior management positions
at National Semiconductor. Mr. Reddy joined Teamasia in 1997 as Vice President.
Mr. Frederick Diaz joined the Company in March of 2001 as the Vice President of
Finance. Mr. Diaz joined the company from UniSil Corporation where he served as
the Chief Financial Officer and Vice President. Mr. Diaz is a CPA with over 27
years of financial experience in various financial management positions.
Dr. Tarsaim Batra joined the Company in November 1994 as a yield improvement
consultant. In May 1995, he was promoted to Manager, Operations Research. In
November 1996, he was promoted to Director of Manufacturing and in February 1997
he was promoted to Vice President, Manufacturing. In November 1999, he was
promoted to Chief Operating Officer. Prior to joining IMP, Dr. Batra's thirty
year career in the semiconductor industry encompassed various manufacturing,
engineering and research positions. He was General Manager, Semiconductor
Division of California Micro Devices from 1989 to 1994.
Dr. Moiz Khambaty joined the Company in November 1981 as Manager of Technology
Development. In October 1983 he was promoted to Director, Technology Development
and in April 1984 to Vice President, Technology. From 1978 to 1981 Dr. Khambaty
was a Sr. Staff Scientist with Gould Electronics (AMI, Inc.). From 1956 to 1978
he was employed in various engineering and managerial positions with Siemens,
Fairchild, Honeywell and the Atomic Energy Establishment of the Government of
India.
Mr. John Chu, joined the Company in January 2001 as Vice President of
Engineering and Strategic Marketing. Mr. Chu is responsible for profit and loss
of the Standard Product Group, new product development, and worldwide sales and
marketing. Prior to joining IMP, Mr. Chu was Vice President of Analog Business
Unit at Fairchild for 7 years. Mr. Chu was product line director at Advanced
Micro Devices for 11 years.
Officers are elected by and serve at the discretion of the Board of Directors.
EMPLOYEES
As of March 31, 2001, IMP employed approximately 206 people including
approximately 156 in manufacturing; 9 in research and development, and 41 in
administrative, financial, sales and marketing and management positions.
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None of our employees are represented by collective bargaining agreements, nor
have we ever experienced any work stoppage through employee initiated actions.
We believe that our employee relations are good.
Our ability to attract and retain qualified personnel is essential to our future
success. The number of skilled analog designers and other specialized engineers
and technicians, qualified to meet the demands of IMP's business is particularly
limited, and competition for these people is intense. Our growth also requires
the hiring or training of middle and upper-level managers. Our ability to
attract and retain qualified personnel has been adversely affected by the
performance of our stock prices in recent periods. If we are unable to hire,
retain, and motivate enough qualified technical and management people, our
operations and financial results will be adversely affected.
ENVIRONMENTAL AND SAFETY REGULATION
The Company is subject to a variety of federal, state and local government
regulations related to the use, storage, discharge and disposal of toxic,
volatile or otherwise hazardous chemicals used in the manufacturing process.
Although the Company believes that its activities conform to presently
applicable environmental regulations, the failure to comply with the present or
future regulations could result in penalties being imposed on the Company,
suspension of production or a cessation of operations. There can be no assurance
that regulatory changes in regulatory interpretation or enforcement will not
render compliance more difficulty and costly. Any failure of the Company to
control the use of, or adequately restrict the discharge of hazardous
substances, or otherwise comply with environmental regulations, could subject it
to significant future liabilities.
ITEM 2. PROPERTIES
All of the Company's activities, including manufacturing, design, sales and
marketing and process technology research and development activities are located
in a 69,000 square foot building in San Jose, California leased under agreements
expiring in fiscal 2006. The Company also leases approximately 4000 square feet
of warehouse space in San Jose, California. The Company believes that its
current facilities are adequate to meet its current requirements for the near
term.
ITEM 3. LEGAL PROCEEDINGS
The Company was named as one of many defendants in a legal action brought by the
Lemelson Medical Foundation for patent violations. In December 2000, we settled
all claims with the Lemelson Medical Foundation for $150,000 to be paid in
annual installments, the last of which is due in December 2002, in exchange for
certain licensing rights.
We are subject to litigation in the ordinary course of our business. An adverse
could have a material adverse impact on our business and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Change of Control:
During the fourth quarter of the fiscal year covered by this report, our
majority stockholders approved our Amended and Restated Imp Inc. 2000 Stock
Option Plan, subject to compliance with the provisions of Rule 19c-2 under the
Exchange Act of 1934, as amended (the "Exchange Act").
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company was traded on the Nasdaq National Market under
the symbol "IMPX". As of April 7, 1999, the Common Stock of the Company began
trading on the Nasdaq Smallcap Market. The following tables set forth the high
and the low last reported sales price for the Common Stock as reported by the
Nasdaq National Market. All share price figures reflect the 1-for-10 reverse
split that occurred during fiscal year 1999. The Board of Directors and majority
stockholder of the Company have approved a 1 for 5 reverse stock split, subject
to compliance with the provisions of Rule 14c-2 under the Exchange Act.
FISCAL YEAR ENDED MARCH 31, 2001 FISCAL YEAR ENDED MARCH 26, 2000
-------------------------------- --------------------------------
HIGH LOW HIGH LOW
------ ------- ------ -------
First Quarter $4.88 $2.06 $4.25 $2.31
Second Quarter $3.50 $1.38 $4.50 $1.06
Third Quarter $1.75 $0.47 $6.12 $2.00
Fourth Quarter $2.38 $0.41 $8.06 $3.06
The Company intends to retain any future earnings for the use in its business
and, accordingly, does not anticipate paying any cash dividends on its common
stock in the foreseeable future.
As of June 16, 2000, there were approximately 855 shareholders of record (not
including beneficial holders of stock held in street name) of the Company's
Common Stock, which closed at $2.75 per share on the Nasdaq Smallcap Market as
of that date.
ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEAR ENDED(1)
-----------------------------------------------------------------------------
MARCH 31, MARCH 26, MARCH 28, MARCH 29, MARCH 30,
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Operations Data:
Net revenues $ 31,520 $ 34,837 $ 33,391 $ 40,420 $ 64,891
Net loss(2) (10,487) (3,601) (7,919) (3,799) (12,367)
Basic and diluted net loss
per share(3) (1.31) (1.00) (2.73) (1.35) (4.39)
Balance Sheet Data:
Total assets 18,825 18,391 25,961 31,949 37,271
Long term obligations excluding current portion 4,260 857 2,942 6,173 9,074
Stockholders' equity (deficit) $ (2,915) $ 3,483 $ 4,985 $ 10,598 $ 14,301
------------
(1) In 2001, the Company changed its fiscal year end to March 31. Prior to
2001, the Company's fiscal year ended on the Sunday nearest March 31.
Fiscal years 2000, 1999, 1998, and 1997 each consisted of 52 weeks;
fiscal year 2001 consisted of 53 weeks.
(2) In fiscal year 1997, the Company recorded $1,862,000 in restructuring
charges.
(3) See Note 1 of Notes to Financial Statements for an explanation of the
computation of net loss per share.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, the matters discussed
below are forward-looking statements that involve certain risks and
uncertainties, including the risks and uncertainties set forth below in this
section under the sub-heading "Factors Affecting Future Results."
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's statements of
operations as a percentage of net revenues for the periods indicated.
Fiscal Year Ended
----------------------------------------------------
March 31, 2001 March 26, 2000 March 28, 1999
-------------- -------------- --------------
Total revenues 100.0% 100.0% 100.0%
Cost of revenue 105.1 81.1 80.4
----- ----- -----
Gross profit (loss) (5.1) 18.9 19.6
Operating expenses:
R&D/Design 11.0 13.5 24.5
Selling, general and administrative 14.7 12.5 15.7
----- ----- -----
Operating loss (30.7) (7.1) (20.6)
Other expense, net (2.6) (3.2) (3.1)
----- ----- -----
Net loss (33.3)% (10.3)% (23.7)%
===== ===== =====
Net Revenues. Net revenues in fiscal year 2001 decreased 9.5% to $31.5 million,
from $34.8 million in fiscal year 2000. Net revenues in fiscal year 2000
increased 4% to $34.8 million from $33.4 million in fiscal year 1999. Foundry
product sales accounted for 80% of net revenues in fiscal year 2001, 69% in
fiscal year 2000, and 83% in fiscal year 1999. The Company is attempting to
shift from foundry product sales to sales of the Company's standard products.
The decrease in net revenues of foundry and standard products from fiscal year
2000 to fiscal year 2001 is the result of the general economic slowdown and weak
business conditions, low factory utilization, declining sales prices and poor
factory execution due to manufacturing problems associated with the
Manufacturing Information System failure in the last quarter of fiscal year
2001. In addition, inventories of certain devices were discontinued as IMP
streamlined its product portfolio. Finally, revenue decreased as a result of
discontinued orders of standard products from certain customers.
Our sales to customers in the United States, Asia and Europe accounted for 82%,
15%, and 3% respectively, of our net revenues for fiscal year 2001, compared to
81%, 8% and 11%, respectively, of the Company's net revenues for fiscal year
2000, and 88%, 6% and 6%, respectively, of the Company's net revenues for fiscal
year 1999. Our standard products are sold throughout the world, while our custom
and foundry products are sold primarily to North American customers. In fiscal
year 2001, our largest customers were International Rectifier, National
Semiconductor and Linfinity Microelectronics, which accounted for approximately
30%, 14% and 11%, of net revenues, respectively. No other customer accounted for
more than 10% of net revenues during fiscal year 2001. In fiscal year 2000,
IMP's largest customers were International Rectifier, with 22% of net revenues,
and Linfinity Microelectronics, with 10% of net revenues.
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Management expects improved overall margins due to the shift to standard product
sales, new product introductions, better pricing from subcontractors and
utilization of manufacturing capacity as the Company adjusts production
activities to meet the changing product demands. However, while the Company is
working on programs to continue to improve manufacturing efficiencies, and
achieve faster introduction of new and qualified second source vendor for
products, there can be no assurance that the Company will not encounter
difficulties due to delays with technology introduction, changes in product mix,
unfavorable product mix, unfavorable manufacturing yields, or other
manufacturing difficulties in the future. Gross margin may fluctuate from
quarter to quarter.
Cost of revenues. Cost of revenues as a percentage of net revenues was 105% in
fiscal year 2001 compared to 81% in fiscal year 2000 and 80% in fiscal 1999. The
24 percentage point increase in cost of revenues as a percentage of net revenues
in fiscal year 2001 compared to fiscal year 2000 was principally the result of
lower factory utilization, selling price erosion and product mix changes on
standard products. The increase in cost of revenues as a percentage of net
revenues in fiscal year 2000 compared to fiscal year 1999 was due to lower
factory utilization, selling price erosion and product mix changes on standard
products.
Research and Development Expenses. Research and development expense in fiscal
year 2001 was $3.4 million, compared to $4.7 million in fiscal year 2000, and
$8.2 million in fiscal year 1999. The decrease from fiscal year 2000 to fiscal
year 2001 was due to cost reduction efforts, lower personnel related costs, and
to a lesser extent, lower depreciation. The decrease from fiscal year 1999 to
fiscal year 2000 was also due to cost reduction efforts, including a
reduction-in-force in September 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expense in fiscal year 2001 was $4.6 million compared to $4.4
million in fiscal year 2000, and $5.2 million in fiscal year 1999. The decrease
in selling, general and administrative expense in fiscal year 2001 was the
result of cost reduction efforts put in place during the latter part of fiscal
year 2001, especially outside consulting fees, legal expense and other expenses.
These reductions were partially offset by an increase in bad debt expense. The
decrease in expenses in fiscal year 2000, as compared to fiscal year 1999, was
primarily due to cost reduction efforts, including a reduction-in-force that
occurred in September 1999, as well as a renegotiation of sales commission
agreements which resulted in lower commission expenses in fiscal year 2000.
Interest Expense. Interest expense in fiscal year 2001 rose $173,000 or 16% from
fiscal year 2000 amounts. The increase was due to slightly lower average
outstanding balances, offset by penalty interest and other financing charges
incurred in connection with past due principal installments and lease
obligations. Interest expense decreased from fiscal year 1999 to fiscal year
2000 by $155,000 or 12%, primarily due to lower outstanding balances.
Other Income. Other income includes interest income earned on cash and cash
equivalents and other miscellaneous items. Interest income has declined as the
Company's cash and cash equivalent average balances have decreased. Included in
other revenue in fiscal year 2001 is approximately $450,000 of previously
accrued royalty obligations that were forgiven.
Net loss. The Company had a net loss of $10.5 million in fiscal year 2001, or
$1.31 per share, compared to a loss of $3.6 million in fiscal year 2000 or $1.00
per share, and a loss of $7.9 million in fiscal year 1999, or $2.73 per share.
The fiscal years' 2001, 2000 and 1999 net losses were primarily attributable to
low factory utilization due to fluctuating market conditions.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased to $41,000 at March 31, 2001 from $261,000
at March 26, 2000. The decrease from fiscal 2000 to fiscal 2001 was primarily
due to continued operating losses, lower borrowing capabilities from our credit
facilities due to concentration limitations on qualified accounts receivable and
continued repayment of debt.
Cash and cash equivalents used by operating activities in fiscal year 2001 were
$2.8 million, compared to cash and cash equivalents provided by operating
activities in fiscal year 2000 of $1.5 million, and cash and cash
Page 16 of 50
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equivalents used by operating activities of $8.3 million in fiscal year 1999.
The fiscal 1999 to fiscal 2000 increase in cash and cash equivalents provided by
operating activities were primarily due to lower operating losses and lower
accounts receivable.
Cash and cash equivalents used for investing activities were $1.5 million in
fiscal year 2001, $1.4 million in fiscal year 2000 and approximately $1.8
million in fiscal year 1999, reflecting cash invested in property and equipment
acquisitions.
Cash and cash equivalents used in financing activities were approximately $4.0
million in fiscal year 2001, $1.5 million in fiscal 2000 and $37,000 in fiscal
year 1999. In fiscal year 2001, the Company received proceeds of $3.5 million
from the issuance of convertible debentures, $3.9 million from the sale of
common stock, and $1.3 million in advances from a related party. The Company
made payments of $3.0 million on capital lease obligations and $1.2 million on
its revolving credit facility. In fiscal year 2000, the Company received
proceeds of $4.3 million from its revolving credit facility, including $1.7
million in equipment notes payable, repaid $4.9 million on the credit facility,
repaid $1.1 million of equipment notes payable, and made principal payments of
$1.9 million on capital lease obligations. In addition, the Company had proceeds
from the sale of stock of $2.1 million.
In April 1999, the Company entered into an agreement with The CIT Group for a
$9.5 million facility. Included in the facility are secured term loans for up to
$2.0 million for equipment purchases and a revolving credit facility that allows
the Company to borrow up to $7.5 million based on qualifying accounts receivable
and inventory balances at 1.5% over prime. On March 26, 2001, the outstanding
balance was $1.9 million. The remaining $7.6 million under the facility was
unavailable due to concentration limitations on qualified accounts receivable.
The agreement was subsequently terminated.
During the second quarter of fiscal year 2000, the Company was unable to meets
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 due to a cross
default clause in the revolving credit facility agreement. As of June 26, 2000,
the Company was in default of the revolving credit facility and capital lease
obligations with an aggregate total balance of $4,934,000.
During fiscal year 2001, management actively negotiated with the Company's
creditors. As a result of these negotiations, and from proceeds from sales of
stock in June 2000 and convertible debentures in November and December 2000 to
Teamasia totaling $7,430,000, the Company was able to bring current, pay off, or
refinance certain of its debt and lease obligations. As of March 31, 2001, the
Company remained in default of its revolving credit facility and equipment notes
with an aggregate balance of $2,672,000.
As of March 31, 2001, the Company's current portion of debt and capital lease
obligations of $5.5 million is comprised of (i) $734,000 of equipment notes,
(ii) $1.9 million of the revolving credit facility, (iii) $1.6 million of
capital lease obligations and (iv) $1.3 million short term advance from a
related party. The capital lease obligations are comprised of nine individual
leases, all of which are past due.
As of March 31, 2001, the Company's long term portion of debt and capital lease
obligations of $4.3 million is comprised of $760,000 of capital lease
obligations and $3.5 million of convertible debentures due in May 2002. The
capital lease obligation is comprised of four lessors that account for the
outstanding long-term portion of the capital lease obligation.
In May 2001, the Company entered into a Memorandum of Understanding ("MOU") with
Teamasia whereby Teamasia agreed, among other provisions, to extend the due date
of $3.5 million of convertible debentures until May 2002. In addition, under the
MOU, an investor group led by the Chairman of the Board of Directors agreed to
purchase stock representing 72% of the Company's fully diluted equity for $6.0
million, to be received in installments, the last of which was due in July 2001.
All proceeds were received by July 31, 2001.
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In July 2001, the CIT Group gave notice of termination and acceleration and
demand for repayment for the revolving credit facility, including the equipment
term loans. As of June 30, 2001, $1.7 million remained outstanding under the
revolving credit and equipment term loan financing arrangement with the CIT
Group. Management is actively negotiating with several lenders to replace the
CIT Group revolving credit facility.
Management's plans to solve the liquidity problems and return the Company to
profitability include:
- Downsizing the Company, including reducing headcount, and
consolidating operations;
- Focusing on the manufacturing and sales of standard analog
products;
- Improving the yield of the manufacturing process;
- Implementing strict controls over cash disbursements;
- Enhancing collection efforts over past due accounts receivables;
and
- Arranging a financing facility to fund the Company's operations.
Management believes these measures will enable the Company to continue
operations; however, there can be no assurance that these measures will be
successful in sustaining the Company and additional actions may be necessary,
including obtaining additional equity contributions. There can be no assurance
that such financing will be available.
FACTORS AFFECTING FUTURE RESULTS
Except for historical information contained herein, the matters set forth in
this Annual Report on Form 10-K, including the statements in the following
paragraphs, are forward-looking statements that are dependent on certain risks
and uncertainties including such factors as, among others, operating cash
availability, delays in new product and process technology announcements and
product introductions by the Company or its competitors, competitive pricing
pressures, fluctuations in manufacturing yields, changes in the mix or markets
in which products are sold, availability and costs of raw materials, reliance on
subcontractors, the cyclical nature of the semiconductor industry, industry-wide
wafer processing capacity, political and economic conditions in various
geographic areas, and costs associated with other events, such as under
utilization or expansion of production capacity, intellectual property disputes,
litigation, or environmental regulation and other factors described below.
The Company has minimal financial resources and its operating needs in fiscal
2001 were funded principally from the collection of accounts receivable and from
the sale of common stock and convertible debentures to Teamasia. Should the cash
flow from accounts receivable be lessened or interrupted by slow collections, or
by a decrease in revenue generation, the Company will be unable to meet its
obligations. The Company continues to focus on restructuring its operations to
conserve cash.
We have reported operating losses and negative cash flow since the second
quarter of fiscal 1997. Unless a trend of increasing revenue is achieved or the
Company lowers its break-even point.
Our cash balance has decreased over each of the last several quarters. As of
March 31, 2001 we had cash and cash equivalents of approximately $41,000.
The Company sells its products to distributors and manufactures in Southeast
Asia which is currently experiencing an economic downturn. Sales in this region
accounted for 25% of the Company's net revenues in fiscal year 2001. The Company
experienced a slight growth in revenues from this region during fiscal year
2001. However, should the region not be able to overcome its economic problems,
there is no assurance that the Company's results of operations will not be
adversely affected.
As a result of the severe downturn in the semiconductor market, the Company
experienced a significant drop off in sales in the fourth quarter of fiscal year
2001 and first quarter of fiscal year 2002. The reduced sales and corresponding
reduction in cash flow has compounded the Company's liquidity issues. The
downturn in the semiconductor market is expected to continue for the foreseeable
future.
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In June 2001, International Rectifier Corporation (IR) notified the Company that
they will be canceling future orders. The final shipments of product to IR is
expected to occur in August 2001. Revenues for the year ended March 31, 2001
totaled $9.3 million. The impact of this cancellation could have a significant
negative impact on the results of operations of the Company.
The semiconductor industry is extremely capital intensive. To remain
competitive, the Company may have to continue investing in advanced design
tools, manufacturing equipment and process technologies. The Company anticipates
significant continuing capital expenditure during the following several years.
The Company will be required to seek additional debt or equity financing to
satisfy its cash and capital needs and such financing may not be available on
terms satisfactory to the Company. If such financing is not available on terms
satisfactory to the Company, its operations would be materially adversely
affected.
New products and process technology require significant research and development
expenditures. However, there can be no assurance that the Company will be able
to develop and introduce new products in a timely manner, that new products will
gain market acceptance or that new process technologies can be successfully
implemented. If the Company is unable to develop new products in a timely
manner, and to sell them at gross margins comparable to the Company's current
products, the future results of operations could be adversely impacted.
Part of the Company's future product development strategy included the
acquisition of the product portfolio of Epic Semiconductor based in Phoenix,
Arizona. Such products are based on the UARTs and MOSFET technologies. The
Company currently believes that, if successful in manufacturing and marketing of
such products, these products could enhance the revenue of the Company. However
there can be no assurance that the manufacturing and marketing of these products
can be successfully implemented in a timely manner. From time to time, the
Company has experienced manufacturing difficulties due to equipment failures
that have caused delivery delays and product returns. There can be no assurance
that the Company will not experience manufacturing problems and product delays
in the future as a result of , among other reasons, changes to the process
technologies, equipment failure, or production scheduling issues. The Company
depends on outside contract assembly vendors to assemble and package our
products, and, any delays in product delivery, quality and assembly problems
from these outside contract assembly companies could adversely affect the
Company's operating results.
Although we are not currently a party to any material litigation relating to
patents and other intellectual property rights, because of technological
developments in the semiconductor industry, it may be 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. Although we are not
currently a party to any material litigation, if a third party were to make a
valid intellectual property claim and a license were not available on
commercially reasonable terms, our operating results could be materially and
adversely affected. Litigation, which could result in substantial cost to us and
diversion of our resources, may also be necessary to enforce our patents or
other intellectual property rights or to defend us against claimed infringement
of the rights of others.
The Company is subject to a variety of federal, state, and local governmental
regulations related to the use, storage, discharge and disposal of toxic,
volatile or otherwise hazardous chemicals and gases used in its manufacturing
process. Although the Company believes that its activities conform to presently
applicable environmental regulations, the failure to comply with present or
future regulations could result in penalties being imposed on the Company,
suspension of production or a cessation of operations. There can be no assurance
that regulatory changes or changes in regulatory interpretation or enforcement
will not render compliance more difficult and costly. Any failure of the Company
to control the use of, or adequately restrict the discharge of, hazardous
substances, or otherwise comply with environmental regulations, could subject it
to significant future liabilities.
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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.
On July 26, 2001, the Company attended a hearing with Nasdaq representatives to
discuss the delisting of the Company's common stock from the exchange. The
reasons for the delisting include low stock price over a continued period of
time, late filings of Forms 10-K and 10-Q and the financial weakness of the
Company. As a result of this hearing, the Company agreed to meet certain filing
deadlines in connection with its reporting obligations under the Securities
Exchange Act of 1934, maintain certain financial requirements and exercise a
reverse stock split by August 24, 2001. The results of the hearing of the Nasdaq
panel are not yet known, the Company does not know whether it will be able to
maintain its Nasaq listing.
The Company initiated a year 2000 remediation plan during fiscal 1999 to make
the Company's primary and ancillary information systems year 2000 compliant. The
plan included the implementation of year 2000 compliant financial application
and upgrading the manufacturing- execution software. The financial system
application software and the manufacturing -- execution software were deemed
adequate to comply with year 2000 requirements. However, the Company took
addition steps in fiscal 2001 to complete a major upgrade to its
manufacturing-execution software and hardware and currently is in the final
stages of implementing financial application software and hardware. The Company
expects that all upgrades to the financial system will be completed in the
second quarter of fiscal year 2002.
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.
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.
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
Page 20 of 50
21
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 maintain acceptable manufacturing yields in the
future.
In 2001, we experienced difficulties meeting product specifications for certain
customers and, as a result, accepted product returns from these customers. We
have since implemented changes to our processes to ensure our products meet
customer acceptance criteria, however, there can be no assurance that we will
not be required to accept product returns in the future.
We manufacture all of our wafers at our 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.
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 products without penalty. 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.
The Company utilizes various external " silicon wafer service foundries" (for
epitaxial growth) and assembly sites to assemble and package its products. Any
product delivery delays, quality and manufacturing problems from these external
operations could adversely affect the Company's operating results.
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 would 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 would have a material adverse
effect on our financial condition, results of operations, or liquidity. Our
products are packaged by a limited group of third party subcontractors in
Southeast Asia. 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.
Page 21 of 50
22
The present and future success of the Company depends on its ability to continue
to attract, retain and motivate qualified senior management, sales and technical
personnel, particularly highly skilled semiconductor design and development
personnel, and process engineers, for whom competition is intense. The Company
is currently engaged in an executive search to hire a chief financial officer
and a controller. 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this section, as well as in the section entitled
"Factors Affecting Future Results". The Company is exposed to market risk
related to changes in interest rates, and foreign currency exchange rates. The
Company does not use derivative financial instruments for speculative or trading
purposes.
Interest Rate Sensitivity: The Company has various debt instruments outstanding
that mature by 2002. Certain of these instruments have interest rates that are
based on associated rates that may fluctuate over time based on economic changes
in the environment, such as the Prime Rate. The Company is subject to interest
rate risk, and could be subjected to increased interest payments if market
interest rates fluctuate. The Company estimates that a five percent increase in
interest rates would cause interest expense to increase by an immaterial amount.
Due to its international sales, the Company is exposed to risks associated with
foreign exchange rate fluctuations. Those exposures may change over time as
business practices evolve and could have a material adverse effect on the
Company's operating results and financial condition. All of the Company's sales
are denominated in U.S. dollars. An increase in the value of the U.S. dollar
relative to foreign currencies could make the Company's products more expensive,
reducing the demand for the Company's products. A decline in the demand of the
Company's product could have a material adverse effect on the Company's
operating results, financial position, or liquidity. European currency issues
are not material due to the Company's minimal contact with European markets.
At March 31, 2001, the Company had approximately $2.35 million of outstanding
obligations under capital lease arrangements. As the lease payments associated
with these arrangements with these arrangements do not have variable interest
rates, an increase of 10 percent in short-term would not have material impact on
the Company's net income or cash flows. The Company does not hedge any interest
rate exposures.
Since the Company does not have any significant exposure to changing interest
rates, the Company did not undertake any specific actions to cover exposure to
interest rate risk and the Company is not a party to any interest rate risk
management transactions. The Company did not purchase or hold any derivative
financial instruments for trading purposes.
Foreign Currency Exchange Risk. All of the Company's financial transactions are
conducted in US Currencies.
Page 22 of 50
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to financial statements and financial statement schedules
PAGE
----
Financial statements:
Independent Auditors' Report ................................................................... 24
Report of Independent Accountants .............................................................. 25
Balance sheets as of March 31, 2001 and March 26, 2000 ......................................... 26
Statements of operations for each of the three years in the period ended March 31, 2001 ........ 27
Statement of stockholders' equity for each of the three years in the period March 31, 2001 ..... 28
Statements of cash flows for each of the three years in the period ended March 31, 2001 ........ 29
Notes to financial statements .................................................................. 30
Financial statement schedule for each of the three years in the period ended March 31, 2001
Independent Auditor's Report on Financial Statement Schedules .................................. 49
Schedule I - Valuation and Qualifying Accounts ................................................. 50
Page 23 of 50
24
Independent Auditors' Report
The Board of Directors
IMP, Inc.
We have audited the accompanying balance sheet of IMP, Inc. (the "Company") as
of March 31, 2001 and the related statements of operations, stockholders' equity
(deficit), and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion of these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IMP, Inc. as of March 31, 2001,
and the results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the Unites States of
America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
Mountain View, California
August 6, 2001
Page 24 of 50
25
Report of Independent Accountants
To the Board of Directors and Stockholders of IMP, Inc.:
In our opinion, the balance sheet as of March 26, 2000 and the related
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended March 26, 2000 (appearing on pages 26 through 29
of this Form 10-K) present fairly, in all material respects, the financial
position of IMP, Inc. at March 26, 2000, and the results of its operations and
its cash flows for each of the two years in the period ended March 26, 2000, in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedules on page
50 present fairly, in all material respects, the information set forth therein
for each of the two years in the period ended March 26, 2000 when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion. We have not
audited the financial statements of IMP, Inc. for any period subsequent to March
26, 2000.
The financial statements referred to above have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has failed to make the scheduled payments due
under certain of its debt and capital lease obligations due to ongoing liquidity
deficiencies that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements referred to above do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
San Jose, California
June 19, 2000
Page 25 of 50
26
IMP, Inc.
BALANCE SHEETS
(In thousands, except per share data)
MARCH 31, MARCH 26,
2001 2000
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents $ 41 $ 261
Accounts receivable, net of allowances
for doubtful accounts and returns of $2,290 and $220 2,095 4,918
Accounts receivable from related party 720 85
Inventories 7,462 6,724
Other current assets 1,445 67
-------- --------
Total current assets 11,764 12,055
Property and equipment:
Leasehold improvements 9,073 9,072
Machinery and equipment 86,341 83,696
-------- --------
95,414 92,768
Less accumulated depreciation and amortization 88,897 86,854
-------- --------
Net property and equipment 6,517 5,914
Deposits and other long term assets 544 422
-------- --------
$ 18,825 $ 18,391
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of debt $ 3,925 $ 4,191
Current portion of capital lease obligations 1,593 2,788
Trade accounts payable 7,183 2,814
Accrued payroll and related expenses 1,325 1,162
Other current liabilities 3,454 3,096
-------- --------
Total current liabilities 17,480 14,051
Long term portion of debt 3,500 --
Long term portion of capital lease obligations 760 857
-------- --------
Total liabilities 21,740 14,908
Commitments and contingencies
Stockholders' equity (deficit):
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; 9,046 and 4,246 shares
issued and outstanding 90 42
Additional paid in capital 78,764 74,763
Obligations to issue common stock 40 --
Treasury stock; at cost, 203 shares (3,897) (3,897)
Accumulated deficit (77,912) (67,425)
-------- --------
Total stockholders' equity (deficit) (2,915) 3,483
-------- --------
$ 18,825 $ 18,391
======== ========
The accompanying notes are an integral part of these financial statements.
Page 26 of 50
27
IMP, Inc.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
YEARS ENDED
--------------------------------------------------
MARCH 31, MARCH 26, MARCH 28,
2001 2000 1999
-------- -------- --------
Net revenues:
Component $ 28,684 $ 29,764 $ 31,087
Related party component 1,435 134 --
Design and engineering services 1,401 4,939 2,304
-------- -------- --------
31,520 34,837 33,391
Cost of revenues:
Component 32,271 25,915 25,563
Design and engineering services 861 2,356 1,273
-------- -------- --------
33,132 28,271 26,836
Gross profit (loss) (1,612) 6,566 6,555
-------- -------- --------
Operating expenses:
Research and development 3,435 4,693 8,191
Selling, general and administrative 4,622 4,370 5,243
-------- -------- --------
Total operating expenses 8,057 9,063 13,434
-------- -------- --------
Loss from operations (9,669) (2,497) (6,879)
Interest expense (1,279) (1,106) (1,261)
Other income 461 2 221
-------- -------- --------
Net loss $(10,487) $ (3,601) $ (7,919)
======== ======== ========
Net loss per common share:
Basic and diluted $ (1.31) $ (1.00) $ (2.73)
======== ======== ========
Shares used in per share computation:
Basic and diluted 8,013 3,602 2,901
======== ======== ========
The accompanying notes are an integral part of these financial statements.
Page 27 of 50
28
IMP, Inc.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
OBLIGATION
COMMON STOCK ADDITIONAL TO ISSUE TOTAL
----------------- PAID IN COMMON TREASURY ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCK STOCK DEFICIT EQUITY/(DEFICIT)
------ ------ ---------- ---------- -------- ----------- ----------------
Balances, March 29, 1998 3,034 $ 30 $70,370 $-- $(3,897) $(55,905) $ 10,598
Issuance of common stock under
employee stock
purchase plans 8 -- 53 -- -- -- 53
Issuance of common stock and
warrants in conjunction
with equity financing 527 5 2,248 -- -- -- 2,253
Net loss -- -- -- -- -- (7,919) (7,919)
----- ---- ------- ----- ------- -------- --------
Balances, March 28, 1999 3,569 35 72,671 -- (3,897) (63,824) 4,985
Issuance of common stock under
employee stock
purchase plans 6 -- 14 -- -- -- 14
Issuance of common stock in
conjunction with stock purchase
agreement 671 7 2,043 -- -- -- 2,050
Issuance of warrants to a consultant -- -- 35 -- -- -- 35
Net loss -- -- -- -- -- (3,601) (3,601)
----- ---- ------- ----- ------- -------- --------
Balances, March 26, 2000 4,246 42 74,763 -- (3,897) (67,425) 3,483
Obligation to issue common stock
in connection with asset purchase -- -- -- 40 -- -- 40
Issuance of common stock under
employee stock purchase plans 7 -- 10 -- -- -- 10
Issuance of warrants in connection
with settlement of claim -- -- 184 -- -- -- 184
Issuance of common stock in
conjunction with stock purchase
agreement 4,793 48 3,807 -- -- -- 3,855
Net loss -- -- -- -- -- (10,487) (10,487)
----- ---- ------- ----- ------- -------- --------
Balances, March 31, 2001 9,046 $ 90 $78,764 $ 40 $(3,897) $(77,912) $ (2,915)
===== ==== ======= ===== ======= ======== ========
The accompanying notes are an integral part of these financial statements.
Page 28 of 50
29
IMP, Inc.
STATEMENTS OF CASH FLOWS
(In thousands)
YEARS ENDED
-------------------------------------------
MARCH 31, MARCH 26, MARCH 28,
2001 2000 1999
-------- -------- -----------
Cash flows from operating activities:
Net loss $(10,487) $(3,601) $ (7,919)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 2,685 3,384 4,923
Warrants issued to consultant -- 35 --
Warrants issued to settle claim 184 -- --
Gain on disposal of fixed assets (75) -- --
Provision for obsolete and slow moving inventory 832 358 (305)
Provision for (recoveries of) doubtful accounts receivables 1,931 (35) (187)
Changes in operating assets and liabilities:
Accounts receivable 742 4,308 (3,647)
Accounts receivable from related party (635) (85) --
Inventories (1,571) (1,006) (2,707)
Other current assets (1,378) 626 257
Deposits and other long term assets 58 72 (119)
Trade accounts payable 4,369 (3,561) 357
Accrued payroll and related expenses 163 (160) (632)
Other current liabilities 358 1,187 1,633
-------- ------- --------
Net cash provided by (used in) operating activities (2,824) 1,522 (8,346)
-------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment (1,528) (1,379) (1,830)
Proceeds from sale of property and equipment 75 -- --
-------- ------- --------
(1,453) (1,379) (1,830)
-------- ------- --------
Cash flows from financing activities:
Proceeds from revolving credit facility -- 2,601 3,953
Proceeds from equipment notes payable and term loan -- 1,731 --
Proceeds from issuance of convertible debentures 3,500 -- --
Proceeds from advances from related party 1,253 -- --
Proceeds from the issuance of common stock 3,865 2,064 2,253
Payments on revolving credit facility (1,167) (4,887) --
Payments on equipment notes payable (352) (1,060) (3,164)
Payments under capital lease obligations (3,042) (1,937) (3,132)
Proceeds from exercise of options to purchase common stock -- -- 53
-------- ------- --------
Net cash provided by (used in) financing activities 4,057 (1,488) (37)
-------- ------- --------
Net decrease in cash and cash equivalents (220) (1,345) (10,213)
Cash and cash equivalents at beginning of period 261 1,606 11,819
-------- ------- --------
Cash and cash equivalents at end of period $ 41 $ 261 $ 1,606
======== ======= ========
Supplemental information:
Cash paid during the year for interest $-- $ 1,106 $ 1,205
======== ======= ========
Acquisition of equipment under capital lease obligations $ 1,750 $ 18 $ 610
======== ======= ========
Obligation to issue common stock in connection
with asset purchase $ 190 $ -- $ --
======== ======= ========
The accompanying notes are an integral part of these financial statements.
Page 29 of 50
30
IMP, Inc.
NOTES TO FINANCIAL STATEMENTS
Years ended March 31, 2001, March 26, 2000,
and March 28, 1999
NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
IMP, Inc. (the "Company") develops and manufactures analog CMOS integrated
circuit solutions for communications, computer and control applications. In
October and December 1999, Teamasia Semiconductors (India) Ltd., ("Teamasia"), a
private corporation headquartered in India, entered into agreements to acquire
51% of the Company, on a fully diluted basis. These transactions were completed
in June 2000.
Fiscal year. In 2001, the Company changed its year end to March 31, 2001. Prior
to the year ended March 31, 2001, the Company's fiscal year ended on the Sunday
nearest to March 31. The years ended March 26, 2000 and March 28, 1999, each
consisted of 52 weeks. The year ended March 31, 2001 contained 53 weeks.
Basis of presentation. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Reverse stock split. Effective January 13, 1999, the Company effected a
one-for-ten reverse stock split of its common stock. All shares and per share
amounts in these financial statements have been retroactively restated to
reflect such reverse split.
Going concern. The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has failed to
make various scheduled payments due under its credit facility, equipment notes
payable and its capital lease obligations. As a result the Company is in default
with respect to these agreements as well as the revolving credit facility
entered into on April 30, 1999 due to a cross default clause in the revolving
credit facility agreement.
As of March 26, 2000, the Company was in default of the revolving credit
facility and capital lease obligations with an aggregate outstanding balance of
$4,934,000. During fiscal year 2001, management actively negotiated with the
Company's creditors. As a result of these negotiations, the Company was able to
bring current or pay off certain of its debt and lease obligations using cash
from sales of stock and convertible debentures. As of March 31, 2001, the
Company remained in default of its revolving credit facility and equipment notes
with an aggregate balance of $2,672,000 and was past due on all capital
obligations.
The indebtedness related to agreements in which the Company is in default is
classified as current on the Company's balance sheets as of March 31, 2001 and
2000 because such creditors and lessors continue to have the right to
effectively declare the principal amount of the Company's indebtedness to be
immediately due and payable (or to exercise an equivalent remedy with respect to
a capitalized lease).
Subsequent to March 31, 2001, the following events have occurred that may affect
the Company's ability to continue as a going concern:
Page 30 of 50
31
On May 10, 2001, the Company entered into a memorandum of understanding
("MOU") with Teamasia and an investor group led by the Chairman of the
Company's Board of Directors ("investor group"). The general terms of
the MOU are as follows:
- the due date of the $3.5 million convertible debentures held by
Teamasia was extended to May 2002;
- the Company agreed to issue a warrant to Teamasia to purchase
1,599,000 shares of common stock at an exercise price of $0.22;
- the interest rate on the convertible debentures was raised from
0% to prime;
- the convertible debentures are convertible into common stock at
a conversion ratio equal to $0.69 per share;
- the Company will sell to the investor group shares of common
stock representing 72% of the Company's fully diluted equity for
$6.0 million, to be received in installments, the last of which
is due in July 2001.
In June 2001, International Rectifier Corporation (IR) notified the
Company that they are canceling future orders. The final shipments of
products to IR will occur in August 2001. Revenues from IR for the years
ended March 31, 2001 and March 26, 2000 totaled $9.3 million and $7.7
million, respectively. Accounts receivable due from IR as of March 31,
2001 totaled $807,000. The impact of this cancellation could have
significant negative impact on the results of operations of the Company.
On July 10, 2001, CIT gave notice of termination and acceleration and
demand for repayment for both the revolving credit facility and the term
loan. This cancellation results from defaults under both the CIT
agreement and related forbearance letters. CIT has declared all
obligations due and payable as of July 11, 2001. No final payoff was
made on this facility on July 11, 2001 and new financing has not yet
been secured.
The Company incurred net losses of $10,487,000 for the year ended March 31,
2001, and has a net stockholders' deficit of $2,915,000 as of March 31, 2001.
Management has put in place plans to reduce the costs of operating the business,
improve the operating efficiency of the Company's manufacturing facility and
obtain new customers. If the Company is unable to successfully continue to meet
its obligations under the renegotiated payment terms on its borrowings, 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.
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 defined development phases are completed by the Company
and accepted by the customers.
In December 1999, the Securities and Exchange Commission (the SEC) issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements.
SAB No. 101 summarizes certain of the SEC's views in applying accounting
principles generally accepted in the United States of America to revenue
recognition in financial statements. Under SAB No. 101, no revenue can be
recognized unless there is persuasive evidence of an arrangement, the fee is
fixed or determinable, delivery has occurred and collectibility is probable. The
Company adopted SAB No. 101 in the fourth quarter of fiscal year 2001, effective
January 1, 2001. The adoption of SAB No. 101 did not have an impact on the
Company's financial statements.
Sales return allowance. The Company reduces sales for estimated returns of
products. The sales return allowance is based on the Company's historical
experience.
Page 31 of 50
32
Cash and cash equivalents. The Company considers all highly liquid financial
instruments purchased with an original maturity of 90 days or less to be cash
equivalents. The fair market value of these highly liquid instruments
approximates cost at March 26, 2000. As of March 31, 2001, there were no cash
equivalents.
Fair Value of Financial Instruments. Carrying amounts of certain of the
Company's financial instruments including cash and cash equivalents, accounts
receivable, accounts receivable from related party, the revolving 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 equipment
notes and capital lease obligations approximate fair value.
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):
MARCH 31, 2001 MARCH 26, 2000
-------------- --------------
Raw materials $ 849 $ 722
Work-in-process 4,490 4,484
Finished goods 2,123 1,518
--------- ---------
$ 7,462 $ 6,724
========= =========
Property and equipment. Property and equipment are stated at cost and are
amortized using the straight-line method over the shorter of the term of the
lease or the estimated useful lives of the assets. The estimated useful life of
machinery and equipment is five years. Machinery and equipment at March 31, 2001
and March 26, 2000 includes $11.4 million and $10.2 million, respectively, of
assets under capital leases. Accumulated amortization for such machinery and
equipment under capital leases approximated $10.4 million and $8.7 million at
March 31, 2001 and March 26, 2000, respectively.
Long-lived assets. 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 disclosed 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.
Stock-based compensation. The Company accounts for employee stock options in
accordance with accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees. The Company adopted Financial Accounting Standards
Board (FASB) Interpretation (FIN) No. 44, Accounting for Certain Transactions
Involving Stock Compensation, an Interpretation of APB Opinion No. 25, on July
1, 2000. FIN No. 44 clarifies the application of APB Opinion No. 25 and, among
other issues, clarifies the following: The definition of an employee for the
purposes of applying APB Opinion No. 25; the criteria for determining whether a
plan qualifies as a noncompensatory plan; the accounting consequence of various
modifications to the terms of previously fixed stock options or awards; and the
accounting for an exchange of stock compensation awards in a business
combination. The adoption of FIN No. 44 did not have an effect on the Company's
financial statements.
SFAS No. 123, Accounting for Stock-Based Compensation, established accounting
and disclosure requirements using a fair value method of accounting for
stock-based employee compensation plans. As allowed by SFAS No. 123, the Company
elected to continue to apply the intrinsic-value method of accounting under APB
No. 25, and has adopted the disclosure requirements of SFAS No. 123.
Income taxes. The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between financial statement carrying amounts and the tax basis of
existing assets and liabilities. The Company records a valuation allowance to
reduce deferred tax assets to an amount for which realization is more likely
than not.
Net loss per share. Basic net loss per share is computed by dividing net loss by
the weighted average number or common shares outstanding during the period.
Diluted net loss per share is computed using the weighted average number of
common and potential common shares outstanding under stock option plans during
the
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33
period, except when anti-dilutive. In computing dilutive net loss per share, the
average stock price for the period is used in determining the number of shares
assumed to be purchased from the exercise of stock options.
Options to purchase 2,152,000, 264,000 and 262,000 shares of common stock were
outstanding at March 31 2001, March 26, 2000 and March 28, 1999, respectively,
but were not included in the computation of diluted net loss per share as the
Company was in a loss situation and to do so would have been anti-dilutive.
Allowance for bad debts. The Company maintains an allowance for bad debts based
on estimated uncollectible accounts receivable. Management estimates the
allowance based on an analysis of specific customers, taking into consideration
the age of the past due account and an assessment of the customer's ability to
pay.
Concentration of credit risk. The Company evaluates the credit worthiness of
customers based on a review of available information and knowledge of individual
customers. At March 31, 2001, customers individually representing more than 10%
of fiscal year 2001 net revenues also accounted for 47% of accounts receivable.
At March 26, 2000 customers individually representing more than 10% of fiscal
year 2000 net revenues also accounted for 36% of accounts receivable.
During fiscal years 2001, 2000, and 1999, sales to certain customers
individually represented more than 10% of net revenues as follows in thousands:
FISCAL YEARS ENDED
-----------------------------------------
MARCH 31, MARCH 26, MARCH 28,
2001 2000 1999
-------- -------- --------
International Rectifier 30% 22% 29%
Level One * 11% *
CMS a subsidiary of Hewlett Packard * 12% *
National Semiconductor 14% * *
Linfinity 11% 10% 16%
* less than 10% of net revenues
Financial statements comparability. Certain prior years balances were
reclassified to conform to current year presentation.
Recent accounting pronouncements. In July 2001, the Financial Accounting
Standards Board issued SFAS No. 141, Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001 as well as all purchase method business combinations completed after
June 30, 2001. SFAS No. 141 also specifies conditions intangible assets acquired
in a purchase method business combination must meet to be recognized and
reported apart from goodwill. SFAS No. 142 specifies that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets
with determinable useful lives be amortized over their useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121.
The Company is required to adopt the provisions of SFAS No. 141 for any future
business combination entered into. SFAS No. 142 is effective for the Company on
January 1, 2002, and its adoption is not expected to have a significant impact
on the Company's financial condition or results of operations until such time
when significant goodwill or intangible assets are recorded by the Company.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities and requires recognition of all derivatives as assets or
liabilities and measurement of those instruments at fair value. In June 1999,
the Financial Accounting Standards Board issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133, which deferred the required date of adoption of SFAS No.
133 for one year, to fiscal
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34
years beginning after June 15, 2000. The Company adopted SFAS No. 133 on April
1, 2001. The adoption of SFAS No. 133 did not have an effect on the Company's
financial statements.
NOTE 2 -- BORROWINGS
The Company has entered into various borrowing arrangements to finance
operations and equipment purchases. Borrowings consist of the following (in
thousands):
MARCH 31, MARCH 26,
2001 2000
-------- --------
Revolving credit facility $1,938 $3,105
Equipment notes 734 1,086
Short term advance from related party 1,253 --
Convertible debentures from related party 3,500 --
------ ------
Total borrowings 7,425 4,191
Less current portion 3,925 4,191
------ ------
Long term borrowings $3,500 $ --
====== ======
Revolving Credit Facility. On April 30, 1999, the Company entered into a
revolving credit facility with the CIT Group (CIT). The maximum and minimum
amount of the borrowing under the facility is $9.5 million and $2.5 million,
respectively. The Company is able to borrow up $7.5 million secured by up to 80%
of eligible accounts receivable and 25% of the Company's inventory of raw
materials. Up to $1.0 million of the $7.5 million may be based on the raw
material inventory. The remaining $2.0 million of the facility is for term loans
for equipment purchases. The original term of the facility is for a minimum
period to April 30, 2002, however, due to default by the Company of the terms of
the facility, on July 10, 2001, CIT accelerated repayment of both the revolving
credit facility and equipment term loans to July 11, 2001. The interest rate for
credit facility is prime rate plus 1.5%, and the term loan is prime rate plus
2%. The facility is collateralized by inventory, equipment and fixtures, and
other assets, excluding all assets under leases from other financiers. On March
31, 2001, there was no availability under the credit facility due to
concentration limitations on qualified accounts receivable.
Equipment notes. The Company borrowed $5.0 million to purchase equipment from an
asset-based lender allowing the Company to finance 100% of the cost of
collateralized equipment. The note accrues interest at 9.98% and requires 60
equal monthly principal payments that began in June 1996. The note does not
contain any restrictive or financial covenants.
Short term advance from related party. Teamasia advanced the Company various
amounts during the year to cover operating expenses, and paid certain operating
expenses directly on behalf of the Company. The advance does not bear interest
and no repayment terms have been established.
Convertible debenture from related party. In November 2000, Teamasia loaned the
Company $1.2 million under a convertible debenture due on May 28, 2001. The
debenture is non-interest bearing and converts into 685,714 shares of common
stock at Teamasia's option, representing a conversion ratio equal to $1.75 per
share.
In December 2000, Teamasia loaned the an additional Company $2.3 million under a
convertible debenture due on June 18, 2001. The debenture is non-interest
bearing and convertible into 1,314,286 shares of common stock, at Teamasia's
option, representing a conversion ratio equal to $1.75 per share.
In May 2001, a Memorandum of Understanding was entered into with Teamasia that
modified the terms of the convertible debentures as follows:
- the due date for both debentures was extended until May 2002;
- the Company agreed to issue warrants to Teamasia to purchase
1,599,000 shares of common stock at an exercise price of $0.22;
- the interest rate was raised to prime; and
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35
- the convertible debentures are convertible into common stock, at
Teamasia's option, at a conversion ratio equal to $0.69 per
share.
NOTE 3 -- OTHER CURRENT LIABILITIES
Other current liabilities consist of the following (in thousands):
MARCH 31, MARCH 26,
2001 2000
-------- --------
Equipment liabilities $1,266 $ 740
Accrued commissions 413 607
Accrued royalties 33 607
Other 1,742 1,142
------ ------
$3,454 $3,096
====== ======
During fiscal year 2001, the Company entered into an agreement with a major
customer to produce specified wafer products. Under terms of the agreement, the
customer provided the Company with equipment valued at approximately $1.15
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 that the value
of the rebate reaches $1.15 million. At that time, title to the equipment will
be transferred to the Company. The terms of the transaction are equivalent to a
financing arrangement and the Company has recorded the equipment and a
corresponding liability for the total rebate amount. The Company has not shipped
any wafer products under the terms of the agreement, and at March 31, 2001, the
liability remains at $1.15 million.
NOTE 4 - STOCKHOLDERS' EQUITY (DEFICIT)
Common stock. In October 1999, the Company entered into a stock purchase
agreement (the "Agreement") under which Teamasia purchased an aggregate of 16.7%
of the Company's common stock outstanding for $2,050,000. The transaction closed
during the quarter ended December 26, 1999. The agreement placed certain
restrictions on the use of the funds received by the Company. Teamasia is also
obligated to place orders with the Company for wafer fabrication.
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. 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.
In January 2001, the Company acquired the intangible property rights and certain
testing equipment related to a product manufactured by the Company under a
subcontracting arrangement with the designer of the product. The purchase price
for these assets consisted of the forgiveness of $150,000 of accounts receivable
due from the product designer for subcontracting services performed by the
Company and the issuance of 80,000 shares of common stock to the product's
designer. The assets have been capitalized at a value of $190,000 which is the
sum of the value of the accounts receivable forgiven and the fair value of the
common stock on the date the agreement was effective. As of March 31, 2001, the
80,000 shares of common stock had not been issued and are therefore reflected as
an obligation to issue common stock on the March 31, 2001 balance sheet.
Employee stock purchase plan. The Company offers a qualified "employee stock
purchase plan" under Section 423 of the Internal Revenue Code. Shares are
purchased by participants at 85% of the lower of the fair market value at the
date of entry into the plan or at the end of the offering period through payroll
deductions (up to 15% of participant's base compensation). During fiscal year
2001, 7,000 shares at an aggregate price of approximately $10,000 were issued.
During fiscal year 2000, 6,000 shares at an aggregate price of approximately
$14,000 were issued. During fiscal year 1999, 8,000 shares at an aggregate price
of approximately $53,000 were issued.
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36
Stock option plan. The Company has stock option plans which provide for the
issuance of incentive stock options and non-statutory stock options to
employees, officers and directors to purchase common stock at a price not less
than 85% (100% for incentive stock options) of the fair market value of the
stock on the grant date. To date all options have been granted at 100% of fair
market value. The stock option plan provides for a total of 4,361,000 shares of
the stock to be issued. Options granted under the plan generally vest ratably
over four years and expire five to ten years from the date of grant. The Board
of Directors has the right to determine the terms of each option including
allowing optionees to exercise their options early, subject to a right to
repurchase unvested shares.
The Board of Directors may grant the right to surrender unexercised options for
an amount equal to the difference between the fair market value of the number of
shares underlying vested options on the surrender date and the aggregate option
price vested for such shares. The Company has not granted any such stock
appreciation rights.
The following table summarizes the Company's stock option activity and related
weighted average exercise price for each of the fiscal years ended March 31,
2001, March 26, 2000, and March 28, 1999 (in thousands, except per share
amounts):
2001 2000 1999
---------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
Outstanding
at beginning of fiscal year 264 $ 6.84 262 $10.97 234 $13.00
Granted 2,638 2.79 135 2.33 58 5.16
Canceled (750) 4.28 (133) 10.35 (30) 15.46
Exercised -- -- -- -- -- --
------ ------ ---- ------ ---- ------
Outstanding
at end of fiscal year 2,152 $ 2.74 264 $ 6.84 262 $10.97
====== ====== ==== ====== ==== ======
Exercisable
at end of fiscal year 262 $ 4.54 86 $12.66 113 13.09
====== ====== ==== ====== ==== ======
On March 31, 2001, 2,210,000 shares were available for grant under the Company's
option plan. On March 26, 2000, the Company had commitments to grant options for
1,150,000 shares of common stock. On June 15, 2000, the shareholders approved
the adoption of the 1999 and the 2000 stock option plans which authorized
250,000 and 1,000,000 shares, respectively, as available for grant.
The following table summarizes information with respect to stock options
outstanding at March 31, 2001.
OUTSTANDING EXERCISABLE WEIGHTED
-------------------------- ------------------------ AVERAGE
WEIGHTED WEIGHTED REMAINING
AVERAGE AVERAGE CONTRACTUAL
RANGE OF EXERCISE EXERCISE LIFE
EXERCISE PRICES SHARES PRICE SHARES PRICE (YEARS)
--------------- ------ -------- ------ -------- -----------
$0 - $2.24 1,538 $ 1.97 136 $ 2.10 10
2.25 - 5.00 548 3.76 73 3.68 9
5.30 - 11.30 2 8.80 2 8.78 6
11.60 - 14.40 63 12.07 50 12.12 7
15.00 - 59.40 1 20.99 1 20.99 5
----- ------ --- ------
2,152 $ 2.74 262 $ 4.54
===== ====== === ======
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period. Had the Company recorded
compensation costs based on the fair value on grant date as defined by SFAS No.
123, for awards granted under its stock option plan, the Company's net loss and
net loss per share would have been increased to the pro forma amounts below for
the years ended March 31, 2001, March 26, 2000, and March 28, 1999:
2001 2000 1999
--------- --------- ---------
Pro forma net loss (in thousands) $ (11,394) $ (4,309) $ (8,706)
Pro forma basic and diluted loss per share $ (1.42) $ (1.20) $ (3.00)
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The pro forma effect on net loss and loss per share may not be representative of
the pro forma effects in future years.
The fair value of options granted in fiscal years 2001, 2000 and 1999 was
estimated using the Black-Scholes option pricing model with the following
assumptions:
STOCK OPTION PLAN
------------------------------------
2001 2000 1999
---- ---- ----
Expected life (in years) 4 4 6
Risk-free interest rate 5.29% 6.0% 5.35%
Volatility 135% 135% 135%
Dividend yield 0% 0% 0%
The weighted average estimated fair value of shares granted under the Stock
Option Plan during fiscal years 2001, 2000 and 1999 was $2.35, $1.98 and $4.72,
respectively.
Warrants. In November 1999, the Company issued a warrant to purchase 20,220
shares of common stock at an exercise price of $2.47 per share to a consultant.
The warrant was exercisable immediately and will expire in November 2004. The
fair value of the warrant was determined to be approximately $34,900 on the date
of issuance using the Black-Scholes option pricing model with the following
assumptions: risk-free interest rate of 5.92%, dividend yield of 0%, a
volatility of 135%, and an expected life of 3 years. This amount was charged as
selling, general and administrative expenses.
In December 2000, the Company issued warrants to purchase a total of 288,504
shares of common stock at an exercise price of $1.125 to certain stockholders.
The warrants are exercisable between December 15, 2001 and December 15, 2002.
The warrants were issued as settlement to a claim that the Company failed to
register shares of common stock purchased by the stockholders as required under
the terms of the purchase agreement. The fair value of the warrants was
determined to be approximately $184,000 on the date of issuance using the
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 6.40%, dividend yield of 0%, a volatility of 214% and an
expected life of 2 years. This amount was changed to selling, general and
administrative expense in fiscal year 2001.
NOTE 5 - LITIGATION
In fiscal year 2001, the Company settled a lawsuit brought by a third party who
claimed certain of the Company's products infringed on their patents. In
December 2000, the claim was settled for $150,000 due in annual installments, in
exchange for certain licensing rights. The final installment of the settlement
is due in December 2002.
Several lawsuits have been filed against the Company related to non-payment of
amounts to creditors and vendors. Management is currently negotiating with
creditors and its vendor to resolve these situations.
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NOTE 6 - INCOME TAXES
No provision for federal or state income taxes has been recorded for fiscal
years 2001, 2000 and 1999. The Company's income tax provisions are computed by
applying the estimated net loss, taking into account net operating loss carry
forwards and alternative minimum taxes. At March 31, 2001, the Company had net
operating loss carry forwards for federal and state income tax purposes of
approximately $57 million and $17.2 million, respectively, which may be utilized
to reduce future taxable income. These amounts expire at various dates,
beginning in 2002 through 2021. Such carry forwards may be limited in certain
circumstances, including but not limited to, cumulative stock ownership changes
of more than 50 percent over a three year period. As a result of the sale of
common stock to Teamasia, the Company believes that these carry forwards will be
limited. Deferred tax assets (liabilities) are comprised of the following (in
thousands):
MARCH 31, 2001 MARCH 26, 2000
-------------- --------------
Net operating loss carry forwards, tax-effected $ 20,385 $ 19,788
Currently non-deductible expenses 1,255 1,659
Investment and R&D tax credit 2,188 2,261
Other 91 (112)
-------- --------
Total 23,918 23,596
Valuation allowance (23,918) (23,596)
-------- --------
Net deferred tax asset $ -- $ --
======== ========
Management has recorded a full valuation allowance against all of its deferred
tax assets on the basis that sufficient uncertainty exists regarding the
realizability of the assets. These factors include losses generated in prior
years and the lack of carry back capacity to realize deferred tax assets. The
valuation allowance increased $322,486 in fiscal year 2001, decreased $6,694,000
in fiscal year 2000 and increased $1,687,000 in fiscal year 1999.
NOTE 7 - GEOGRAPHIC INFORMATION AND SEGMENT REPORTING
The Company is organized as a single operating segment for purposes of making
operating decisions and assessing performance. The chief operating decision
maker evaluates performance, makes operating decisions and allocates resources
based on financial data consistent with the presentation in the accompanying
financial statements.
The Company is engaged in the design, development, manufacture and marketing of
analog integrated circuits. Revenue has been allocated to regions on the basis
of the location to which billings were mailed. Revenue allocated to analog for
fiscal years 2001, 2000 and 1999 are as follows (in millions, except
percentages):
MARCH 31, 2001 MARCH 26, 2000 MARCH 28, 1999
------------------------ ------------------------ ------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
------ ---------- ------ ---------- ------ ----------
United States $25.89 82% $ 28.3 81% $ 29.4 88%
Asia 4.7 15% 2.6 8% 2.1 6%
Rest of the World .9 3% 3.9 11% 1.9 6%
------ ------ ------
Net revenues $31.15 $ 34.8 $ 33.4
====== ====== ======
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 four to five years, with purchase options at the end of the respective
lease terms.
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The Company leases its San Jose facility under a non-cancelable operating lease
which expires in 2006. The leases require the Company to pay taxes, insurance
and maintenance expenses. Rental expense is recorded using the straight-line
method and totaled $1,939,000, $1,529,000, and $1,360,000, in fiscal years 2001,
2000, and 1999 respectively. Future minimum lease payments, including
capitalized purchase options, at March 31, 2001 are as follows (in thousands):
CAPITAL OPERATING
FISCAL YEAR ENDING MARCH, 31 LEASES LEASES
---------------------------- ------- ---------
2002 $1,896 $1,230
2003 958 1,267
2004 40 1,335
2005 -- 1,328
Thereafter -- 1,250
------ ------
Total minimum payments 2,894 6,410
====== ======
Less imputed interest 541
------
Present value of payments under capital leases 2,353
Less current portion 1,593
------
Long-term lease obligations $ 760
======
NOTE 9 -- RELATED PARTY TRANSACTIONS
Two members of the Board of Directors of the Company have an ownership interest
in Teamasia. Their combined ownership is approximately 22%.
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. To
date, Teamasia has not met the minimum purchase commitment.
Transactions and balances with Teamasia are as follows (in thousands):
MARCH 31, MARCH 26, MARCH 28,
2001 2000 1999
-------- -------- --------
Revenue for the years ended $1,435 $134 $ --
Accounts receivable as of $ 720 $ 85 $ --
Short term advance as of $1,253 $ -- $ --
Convertible debenture as of $3,500 $ -- $ --
NOTE 10 -- FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
The following table presents the quarterly information for fiscal years 2001 and
2000 (in thousands, except per share data):
YEAR ENDED MARCH 31, 2001 YEAR ENDED MARCH 26, 2000
------------------------------------------- ---------------------------------------------
Mar. 31, Dec. 24, Sept. 24, Jun. 25, Mar. 26, Dec. 26, Sept. 26, Jun. 27,
2001 2000 2000 2000 2000 1999 1999 1999
------- ------- -------- ------- ------- ------- ------- ---------
Net sales 5,299 10,175 8,049 7,997 7,781 8,740 7,686 10,630
Gross Margin (2,695) 663 (11) 431 1,501 2,145 353 2,567
Net loss (5,090) (1,207) (2,551) (1,639) (441) (77) (2,185) (898)
Basic and diluted loss
per share: (.56) (.14) (.29) (.36) (.11) (.02) (.65) (.27)
Weighted average common
shares outstanding
used in basic and diluted
loss per share 9,117 8,839 8,839 4,572 4,040 3,641 3,367 3,367
Common stock price -- high 2.38 1.75 3.50 4.88 8.06 6.12 4.50 4.25
Common stock price -- low 0.41 0.47 1.38 2.06 3.06 2.00 1.06 2.31
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NOTE 11 - SUBSEQUENT EVENTS
On July 26, 2001, management met with representatives of NASDAQ to discuss
delisting of the Company's common stock from the exchange. The reasons for this
delisting include low stock price over a continued period of time, delinquent
filing of previous registration statements Forms 10-K and 10-Q, and financial
weakness of the Company. As a result of this meeting, the Company agreed to meet
certain filing deadlines in connection with its reporting obligations under the
Securities Exchange of 1934, maintain certain financial requirements and
exercise a reverse stock split by August 24, 2001.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company engaged KPMG LLP as its independent auditors in August 2000,
replacing PricewaterhouseCoopers LLP.
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PART III
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
(1) Identification of Directors:
BOARD OF DIRECTORS OF THE COMPANY
The current board of directors of the Company as of March 31, 2001 with their
respective ages and positions were:
NAME AGE
---- ---
Subbarao Pinamaneni................................. 44
Sugriva Reddy....................................... 52
Ralph Brandi........................................ 61
A S T Rajan......................................... 49
Marcus Thompson..................................... 41
Mr. Subbarao Pinamaneni, Chairman of Board, has over 20 years of experience in
the semiconductor industry. He has worked for major semiconductor companies,
including National Semiconductor and Altera Semiconductors, in the United States
and Asia. His responsibilities have included managing packaging and testing
operations. Mr. Pinamaneni is the nominee to the Company's Board of Directors of
Teamasia Semiconductors (India) Ltd. pursuant to the provisions of the Stock
Purchase Agreement, dated October 8, 1999, by and between the Company and
Teamasia. Mr. Pinamaneni serves as Managing Director of Teamasia.
Mr. Reddy, Acting President & CEO, brings more than 24 years of semiconductor
manufacturing experience, having worked in various senior management positions
at National Semiconductor. Mr. Reddy joined Teamasia in 1997 as Vice President
and has brought a wealth of technical, process transfer and management skills to
provide leadership and growth to a company that is poised for profitability in
the semiconductor industry.
Mr. Brandi, Director has been a member of the Microsemi management team since
the company acquired Linfinity Microelectronics in April 1999. He joined
Linfinity in 1978, holding a variety of engineering and operational management
positions there, including the responsibility for the division's successful line
of backlight inverter products that power lamps in LCD displays. Mr. Brandi
became Corporate Vice President of Operations in April 2001, responsible for
Microsemi's strategic planning and new market development. He holds a B.S.E.E.
degree from the University of California, Los Angeles and held a variety of
engineering management positions at TRW prior to joining the staff at Linfinity
Microelectronics.
Mr. Anaiyampatti Sivaswamy Thiyagarajan -- Mr. Rajan, Director is presently the
Managing Director of Aquarius Investment Advisors Pte Ltd, an investment
advisory firm registered in Singapore. The Company advises international Funds
and investors about investments in the Asia Pacific region, with specific focus
on India. The firm has funds under advisory exceeding USD200 Million. The
investments range from equity, debt, convertibles, loans and venture capital.
Mr. Rajan has over 27 years of investment banking and funds management
experience. He was the Head of Corporate and Investment Banking for the Indian
Sub-continent for Citibank and later worked with its US headquarters in New
York. Then Mr. Rajan was the Corporate Treasurer for a large conglomerate in
Indonesia after which he moved to take up his present position. Mr. Rajan has
intimate knowledge of capital markets in this region and has vast contacts and
corporate relationships in this area. He has handled many capital market issue
offerings, fund management activities, treasury activities and large corporate
relationships. He has a Masters degree in Science from University of Madras,
India and he is an Harvard Business School Alumni.
Marcus Thompson, Director, is chief investment officer, HSBC Private Equity Ltd.
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(2) Identification of Executive Officers:
See Part 1, Item 1, "Executive Officers of the Company"
(3) Information with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated by reference from the
information under the caption "Section 16(a) Information" in the
Registrant's Amended Annual Report on Form 10-K405 for the year ended
March 26, 2000 filed with the Securities and Exchange Commission on June
23, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation received by the Chief Executive Officer of the Company and the five
most highly compensated executive officers of the Company ("Named Executive
Officers"), for services rendered to the Company and its subsidiaries whose
total salary and bonus for such fiscal year exceeded $100,000 for each of the
last three (3) fiscal years and all individuals serving as the registrant's
chief executive officer or acting in a similar capacity during the last
completed fiscal year ("CEO"), regardless of compensation level.
SUMMARY COMPENSATION TABLE
Long Term
Securities
Salary Underlying Other Compensation
Year ($)(1) Bonus ($) Options ($)(2)
---- ------- ---------- ------- ------------
Subbarao Pinamaneni 2001 200,000(3) -- -- --
Chairman 2000 -- -- -- --
1999 -- -- -- --
Sugriva Reddy, Acting President, Chief Executive 2001 51,682 -- -- --
Officer and Director 2000 80,733 -- -- --
1999 -- -- -- --
Brad Whitney, former President & CEO
Tarsaim Batra, Vice President, Manufacturing and 2001 51,386 -- 3,000
Chief Operating Officer 2000 144,942 -- 30,000 6,984
1999 132,126 -- 6,636
Moiz Khambaty, 2001 45,267 -- -- --
Vice President, 2000 147,490 -- 25,000 9,320
Technology 1999 146,480 -- -- 9,192
Ron Laugesen, (1) 2001 34,849 -- -- --
Vice President, 2000 135,291 -- 20,000 3,984
Product Engineering 1999 137,388 -- -- 3,636
John Chu, 2001 49,259 -- -- --
Vice President, 2000 -- -- 300,000 --
Design Engineering 1999
-----------
(1) As of March 27, 2000, Mr. Ron Laugesen was no longer an officer of the
Company, and as of April 6, 2001, Mr. Laugessen is no longer with the
Company.
(2) Includes premiums paid on behalf of each executive for supplemented life
insurance plus any other assurance as indicated for each individual.
(3) This represents accrued compensation. No cash payments have been made as
of June 30, 2001.
OPTION EXERCISES AND HOLDINGS
The table below sets forth information concerning the exercise of stock options
during the 2001 fiscal year by the Named Executive Officers and those who were
formerly Executive Officers during fiscal year 2001 and the unexercised options
held as of the end of the 2001 fiscal year by such individuals. For purpose of
the latter calculation, the fiscal year end market value of the shares was
deemed to be $95,000 the closing sale price of the Company's Common Stock as
reported on the National Association of Securities Dealers Automated Quotations
System on March 30, 2001. No stock appreciation rights were exercised by the
Named Executive Officers and those who where formerly Executive Officers during
the 2001 fiscal year, and no stock appreciation rights were held by those
individuals at the end of such year.
Page 42 of 50
43
VALUE OF UNEXERCISED
NUMBER NUMBER OF OPTIONS AT IN-THE-MONEY OPTIONS AT
OF SHARES FY01-END (#) FY01-END ($)
ACQUIRED VALUE --------------------------- -----------------------------
NAME ON EXERCISE REALIZED EXERCISED UNEXERCISED EXERCISED UNEXERCISED
---- ----------- -------- --------- ----------- --------- -----------
Tarsaim Batra -- -- 8,490 158,955 41,389 165,531
Moiz Khambaty -- -- 6,540 138,960 31,883 138,743
Ron Laugesen -- -- 7,117 83,373 34,695 113,943
----------------
(1) As of April 6, 2001, Mr. Laugesen was no longer with the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
regarding the ownership of the Company's Common Stock as of March 31, 2001 for
(i) each director (ii) all persons who are beneficial owner of five percent (5%)
or more of the Company's Common Stock, (iii) the Company's Chief Executive
Officer and the Company's four most highly paid executive officers who earned in
excess of $100,000 during the fiscal year ended March 31, 2001, and (iv) all
current directors and executive officers of the Company as a group. Unless
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned, subject to community
property laws where applicable.
Percent of
Number of Total Shares
Name Shares Outstanding
---- --------- -----------
Teamasia Semiconductors PTE Ltd. 5,464,408 62%
Moiz Khambaty 7,167 *
Subbarao Pinamaneni(2) -- *
Tarsaim Batra 9,499 *
Ron Laugesen 11,512 *
Total 5,492,586 60.7%
----------------
- Less than one percent (1%).
(1) Percentage of beneficial ownership is calculated assuming 9,051,306
shares of Common Stock were outstanding on June 30, 2001. This
percentage may include Common Stock of which such individual or entity
has the right to beneficial ownership within 60 days of June 30, 2001,
including but not limited to the exercise of an option; however, such
Common Stock shall not be deemed outstanding for the purpose of
computing the percentage owned by any other individual or entity. Such
calculation is required by General Rule 13d-3(d)(1)(i) under the
Securities Exchange Act of 1934.
(2) Mr. Pinamaneni is a Managing Director and stockholder of Teamasia PTE
Ltd. Mr. Pinamaneni disclaims beneficial ownership of the Company's
Common Stock owned by Teamasia Semiconductors PTE Ltd. (except to extent
of his beneficial ownership therein).
Page 43 of 50
44
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of June 26, 2000, Teamasia owned approximately 5,464,000 shares of common
stock representing a 62% ownership of the Company. In November and December
2000, Teamasia purchased convertible debentures totaling $3,500,000 to fund the
Company's ongoing operations. The convertible debentures are convertible into a
total of $2,000,000 shares of common stock representing a conversion ratio of
$1.75 per share.
The Company has entered into a memorandum of understanding pursuant to which it
will sell to an investor group comprised of members of management, shares of
common stock representing 72% of the Company's fully diluted equity for $6.0
million.
EMPLOYMENT CONTRACTS
Except as described below, none of the Company's executive officers have
employment contracts or severance agreements with the Company, and their
employment may be terminated at any time at the discretion of the Board of
Directors.
By letter agreement between the Company and its new Acting Chief Executive
Officer and President, Mr. Sugriva Reddy, dated August 1, 2000, the Company
confirmed, among other things, an annual salary of $200,000.
By letter agreement between the Company and its new Vice President of
Engineering and Strategic Marketing, Mr. John Chu, dated January 2, 2001, the
Company confirmed, among other things, an annual salary of $230,000 along with a
severance package that includes twelve (12) months' salary in the event of an
involuntary termination of Mr. Chu's employment without cause. Mr. Chu will also
receive stock options and other employee benefits and can earn a
performance-based bonus if the Company meets certain financial results.
By letter agreement between the Company and its new Vice President of Finance,
Mr. Fred Diaz dated March 12, 2001, the Company confirmed, among other things,
an annual salary of $140,000 along with stock options and other employee
benefits, including a monthly car allowance. As of August 6, 2001, Mr. Diaz was
no longer with the Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
The following financial statements are included in Item 8 of
this Annual Report on Form 10-K:
- Report of Independent Auditors
- Balance sheets as of March 31, 2001 and March 26, 2000
- Statements of operations for each of the three years in the
period ended March 31, 2001
- Statement of stockholder's equity (deficit) for each of the
three years in the period ended March 31, 2001
- Statements of cash flows for each of the three years in the
period ended March 31, 2001
- Notes to financial statements
Page 44 of 50
45
Financial statement schedules for each of the three years in the
period ended March 31, 2001: Report of Independent Auditors on
Financial Statement Schedule II - Valuation and Qualifying
Accounts. All other schedules are omitted since the required
information is not present in amounts sufficient to require
submission of the schedules, or because the required information
is included in the financial statements or notes thereto.
(b) Reports on Form 8-K
o The Company filed a report on Form 8-K on May 1, 2001 in
connection with a change in control of the Company.
o The Company filed a report on Form 8-K on March 12, 2001 in
connection with the change of the Company's fiscal year-end
from March 24 to March 31.
o The Company filed a report on Form 8-K on January 16, 2001
in connection with the issuance of a convertible debenture
due June 18, 2001.
o The Company filed a report on Form 8-K on December 6, 2000
in connection with the issuance of a convertible due May 28,
2001.
o The Company filed a report on Form 8-K on October 13, 2000
in connection with the appointment of KPMG LLP as the
Company's new independent accountants as of September 14,
2000.
o The Company filed a report on Form 8-K on August 15, 2000 in
connection with the resignation of PriceWaterhouseCoopers
LLP as the principal accountant as of August 8, 2000.
o The Company filed a report on Form 8-K on June 30, 2000 in
connection a change in control of the Company.
o The Company filed a report on Form 8-K on February 16, 1999
in connection with the sale of common stock.
(c) Listing of Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1(5) Restated Certificate of Incorporation.
3.2(1) Bylaws.
3.3(8) Certificate of Amendment to Restated Certificate of
Incorporation.
10.21(1) Real Property Lease Agreement dated as of August 26,
1981 between the Company and Orchard Investment Company
No. 701.
10.22(1) Real Property Lease Agreement dated as of July 6, 1983
between the Company and Orchard Investment Company No.
701.
10.23(1) Real Property Lease Agreement dated as of August 1, 1984
between the Company and Orchard Investment Company No.
701.
10.29(1) Form of Indemnification Agreement executed by the
Company and its officers and directors.
10.40(2)+ Letter Agreement dated October 19, 1987 between the
Company and George Rassam.
10.47(6) Technology Agreement between the Company and IMP Europe
Limited.
10.48(6) Supply Agreement between the Company and IMP Europe
Limited.
10.49(6) Agreement for the sale and purchase of all the A
Ordinary Shares in IMP Europe Limited dated as of July
3, 1990, between the Company and Dialogue Semiconductor
Limited.
10.50(7)* License Agreement dated as of September 12, 1991,
between the Company and Asahi Chemical Industry Co.,
Ltd.
10.51(7)* Distributorship Agreement dated as of December 1, 1991
by and between the Company and Asahi Chemical Industry
Co., Ltd.
10.53(7)* Heads of Agreement dated as of March 27, 1992, between
the Company and South African Micro-Electronic Systems
Pty Limited.
10.54(8) First Amendment dated March 11, 1994 to Real Property
Lease Agreement dated August 26, 1981 between the
Company and Orchard Investments Company No. 701.
10.55(8) First Amendment dated December 21, 1987, Second
Amendment dated March 15, 1989, Third Amendment dated
November 25,1991, Fourth Amendment dated December 13,
1993 and Fifth Amendment dated March 11, 1994 to the
Real Estate Lease Agreement dated July 6, 1983 between
the Company and Orchard Investment Company No. 701.
10.56(9) Loan Modification Agreement dated September 19, 1995 by
and between the Company and Silicon Valley Bank.
10.57(9)+ Letter Agreement dated February 13, 1995 between the
Company and David Laws.
10.58(9) Real Property Sublease Agreement dated November 9, 1992
by and between the Company and AT&T Resource Management
Corporation, and Master Lease dated September 23, 1986
by and between AT&T Resource Management Corporation and
American Telephone and Telegraph Company.
Page 45 of 50
46
10.60(3)+ 1996 Employee Stock Purchase Plan.
10.61(4)+ IMP, Inc. Stock Option Plan (as amended and restated
through May 14, 1997).
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.2 Consent of KPMG LLP, Independent Auditors
- Indicates, as required by Item 14(a)(3), a management contract or
compensation plan required to be filed as an exhibit.
- "*" on such exhibits indicates that portions have been omitted for which
confidential treatment has been requested and filed separately with the
Securities and Exchange Commission.
(1) Incorporated by reference from an identically numbered exhibit filed
with the Company's Registration Statement on Form S-1 (File No.
33-13600) declared effective by the Securities and Exchange Commission
on June 10, 1987.
(2) Incorporated by reference from an identically numbered exhibit filed
with the Company's Annual Report on Form 10-K for the year ended March
27, 1988 filed with the Securities and Exchange Commission on June 25,
1988.
(3) Incorporated by reference to exhibit number 99.1 filed with the
Company's Registration Statement on Form S-8 (File No. 333-14997), as
filed with the Securities and Exchange Commission on October 29, 1996.
(4) Incorporated by reference to exhibit number 99.1 filed with the
Company's Registration Statement on Form S-8 (File No. 333-36723) as
filed with the Securities and Exchange Commission on September 30, 1997.
(5) Incorporated by reference from an identically numbered exhibit filed
with the Company's Annual Report on Form 10-K for the year ended March
26, 1989 filed with the Securities and Exchange Commission on June 26,
1989.
(6) Incorporated by reference from an identically numbered exhibit filed
with the Company's Annual Report on Form 10-K for the year ended March
31, 1991 filed with the Securities and Exchange Commission on July 1,
1991.
(7) Incorporated by reference from an identically numbered exhibit filed
with the Company's Annual Report on Form 10-K for the year ended March
29, 1992 filed with the Securities and Exchange Commission on June 29,
1992, as amended by Amendment to Application or Report on Form 8 filed
with the Securities and Exchange Commission on September 16, 1992.
(8) Portions incorporated by reference from an identically numbered exhibit
filed with the Company's Amendment to the Annual Report on Form 10-K for
the year ended March 27, 1994 filed with the Securities and Exchange
Commission on July 6, 1994.
(9) Portions incorporated by reference from an identically numbered exhibit
filed with the Company's Annual Report on Form 10-K for the year ended
March 26, 1995 filed with the Securities and Exchange Commission on June
26, 1995.
Page 46 of 50
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in San Jose, California on
this 26th day of July, 2001.
IMP, INC.
By: /s/ Sugriva Reddy
--------------------------------
Sugriva Reddy
Acting President and CEO
Page 47 of 50
48
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Sugriva Reddy and Frederick Diaz, or either of
them, with the power of substitution, his attorney-in-fact and agents, to sign
any and all amendments to this Annual Report on Form 10-K, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorney-in-fact, or his substitute or substitutes may do or cause
to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ Sugriva Reddy Acting President and Chief Executive Officer July 26th, 2001
---------------------------
Sugriva Reddy
/s/ Frederick Diaz Vice President Finance July 26th, 2001
---------------------------
Frederick Diaz
/s/ Subbarao Pinamaneni Chairman of the Board July 26th, 2001
---------------------------
Subbarao Pinamaneni
/s/ Marcus P S Thompson Director July 26th, 2001
---------------------------
Marcus P S Thompson
/s/ Ralph Brandi Director July 26th, 2001
---------------------------
Ralph Brandi
/s/ A.S.T. Rajan Director July 26th, 2001
---------------------------
A.S.T. Rajan
Page 48 of 50
49
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors
IMP, Inc.
Under date of August 6, 2001, we reported on the balance sheet of IMP, Inc. (the
Company) as of March 31, 2001, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the year ended March 31,
2001. The audit report on the financial statements of IMP, Inc., referred to
above, contains an explanatory paragraph that states that the Company's
recurring losses from operations and net capital deficiency raise substantial
doubt about the entity's ability to continue as a going concern. In connection
with our audit of the aforementioned financial statements, we also audited the
related financial statement schedule. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audit. The financial
statement schedule does not include any adjustments that might result from the
outcome of the uncertainty about the Company's ability to continue as a going
concern.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/KPMG LLP
Mountain View, California
August 6, 2001
Page 49 of 50
50
SCHEDULE II
IMP, Inc.
Valuation and Qualifying Accounts
(in thousands)
BALANCE AT THE CHARGED TO BALANCE AT
BEGINNING OF COSTS AND DEDUCTIONS THE END OF
THE PERIOD EXPENSES WRITE-OFFS PERIOD
-------------- ---------- ---------- ----------
Allowance for doubtful accounts and returns:
Year ended March 28, 1999 $2,715 $ (186) $ -- $2,529
Year ended March 26, 2000 $2,529 $ (35) $(2,274) $ 220
Year ended March 31, 2001 $ 220 $2,091 $ (21) $2,290
Allowance for obsolete and slow moving inventories:
Year ended March 28, 1999 $1,177 $ -- $ 305 $ 872
Year ended March 26, 2000 $ 872 $1,011 $ 653 $1,230
Year ended March 31, 2001 $1,230 $ 832 $ 236 $1,826
Page 50 of 50
51
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1(5) Restated Certificate of Incorporation.
3.2(1) Bylaws.
3.3(8) Certificate of Amendment to Restated Certificate of
Incorporation.
10.21(1) Real Property Lease Agreement dated as of August 26,
1981 between the Company and Orchard Investment Company
No. 701.
10.22(1) Real Property Lease Agreement dated as of July 6, 1983
between the Company and Orchard Investment Company No.
701.
10.23(1) Real Property Lease Agreement dated as of August 1, 1984
between the Company and Orchard Investment Company No.
701.
10.29(1) Form of Indemnification Agreement executed by the
Company and its officers and directors.
10.40(2)+ Letter Agreement dated October 19, 1987 between the
Company and George Rassam.
10.47(6) Technology Agreement between the Company and IMP Europe
Limited.
10.48(6) Supply Agreement between the Company and IMP Europe
Limited.
10.49(6) Agreement for the sale and purchase of all the A
Ordinary Shares in IMP Europe Limited dated as of July
3, 1990, between the Company and Dialogue Semiconductor
Limited.
10.50(7)* License Agreement dated as of September 12, 1991,
between the Company and Asahi Chemical Industry Co.,
Ltd.
10.51(7)* Distributorship Agreement dated as of December 1, 1991
by and between the Company and Asahi Chemical Industry
Co., Ltd.
10.53(7)* Heads of Agreement dated as of March 27, 1992, between
the Company and South African Micro-Electronic Systems
Pty Limited.
10.54(8) First Amendment dated March 11, 1994 to Real Property
Lease Agreement dated August 26, 1981 between the
Company and Orchard Investments Company No. 701.
10.55(8) First Amendment dated December 21, 1987, Second
Amendment dated March 15, 1989, Third Amendment dated
November 25,1991, Fourth Amendment dated December 13,
1993 and Fifth Amendment dated March 11, 1994 to the
Real Estate Lease Agreement dated July 6, 1983 between
the Company and Orchard Investment Company No. 701.
10.56(9) Loan Modification Agreement dated September 19, 1995 by
and between the Company and Silicon Valley Bank.
10.57(9)+ Letter Agreement dated February 13, 1995 between the
Company and David Laws.
10.58(9) Real Property Sublease Agreement dated November 9, 1992
by and between the Company and AT&T Resource Management
Corporation, and Master Lease dated September 23, 1986
by and between AT&T Resource Management Corporation and
American Telephone and Telegraph Company.
52
10.60(3)+ 1996 Employee Stock Purchase Plan.
10.61(4)+ IMP, Inc. Stock Option Plan (as amended and restated
through May 14, 1997).
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.2 Consent of KPMG LLP, Independent Auditors
- Indicates, as required by Item 14(a)(3), a management contract or
compensation plan required to be filed as an exhibit.
- "*" on such exhibits indicates that portions have been omitted for which
confidential treatment has been requested and filed separately with the
Securities and Exchange Commission.
(1) Incorporated by reference from an identically numbered exhibit filed
with the Company's Registration Statement on Form S-1 (File No.
33-13600) declared effective by the Securities and Exchange Commission
on June 10, 1987.
(2) Incorporated by reference from an identically numbered exhibit filed
with the Company's Annual Report on Form 10-K for the year ended March
27, 1988 filed with the Securities and Exchange Commission on June 25,
1988.
(3) Incorporated by reference to exhibit number 99.1 filed with the
Company's Registration Statement on Form S-8 (File No. 333-14997), as
filed with the Securities and Exchange Commission on October 29, 1996.
(4) Incorporated by reference to exhibit number 99.1 filed with the
Company's Registration Statement on Form S-8 (File No. 333-36723) as
filed with the Securities and Exchange Commission on September 30, 1997.
(5) Incorporated by reference from an identically numbered exhibit filed
with the Company's Annual Report on Form 10-K for the year ended March
26, 1989 filed with the Securities and Exchange Commission on June 26,
1989.
(6) Incorporated by reference from an identically numbered exhibit filed
with the Company's Annual Report on Form 10-K for the year ended March
31, 1991 filed with the Securities and Exchange Commission on July 1,
1991.
(7) Incorporated by reference from an identically numbered exhibit filed
with the Company's Annual Report on Form 10-K for the year ended March
29, 1992 filed with the Securities and Exchange Commission on June 29,
1992, as amended by Amendment to Application or Report on Form 8 filed
with the Securities and Exchange Commission on September 16, 1992.
(8) Portions incorporated by reference from an identically numbered exhibit
filed with the Company's Amendment to the Annual Report on Form 10-K for
the year ended March 27, 1994 filed with the Securities and Exchange
Commission on July 6, 1994.
(9) Portions incorporated by reference from an identically numbered exhibit
filed with the Company's Annual Report on Form 10-K for the year ended
March 26, 1995 filed with the Securities and Exchange Commission on June
26, 1995.
(10) Reports on Form 8-K
- The Company filed a report on Form 8-K on May 1, 2001 in connection
with a change in control of the Company.
- The Company filed a report on Form 8-K on March 12, 2001 in
connection with the change of the Company's fiscal year-end from
March 24 to March 31.
- The Company filed a report on Form 8-K on January 16, 2001 in
connection with the issuance of a convertible debenture due
June 18, 2001.
- The Company filed a report on Form 8-K on December 6, 2000 in
connection with the issuance of a convertible due May 28, 2001.
- The Company filed a report on Form 8-K on October 13, 2000 in
connection with the appointment of KPMG LLP as the Company's new
independent accountants as of September 14, 2000.
- The Company filed a report on Form 8-K on August 15, 2000 in
connection with the resignation of PriceWaterhouseCoopers LLP as
the principal accountant as of August 8, 2000.
- The Company filed a report on Form 8-K on June 30, 2000 in
connection a change in control of the Company.
- The Company filed a report on Form 8-K on February 16, 1999 in
connection with the sale of common stock.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in San Jose, California
on this 26th day of July, 2001.
IMP, INC.