UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD
ENDED JUNE 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ___________ TO _____________
COMMISSION FILE NUMBER 000-26124
IXYS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 770140882-5
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3540 BASSETT STREET
SANTA CLARA, CALIFORNIA 95054-2704
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 982-0700
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 periods 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 [_]
The number of shares of the Registrant's Common Stock outstanding as of
July 31, 1999 was 11,987,014.
INDEX
PART I FINANCIAL INFORMATION............................................................... 2
ITEM 1. FINANCIAL STATEMENTS................................................................ 2
Condensed Consolidated Balance Sheets..................................................... 2
Condensed Consolidated Statements of Operations........................................... 3
Condensed Consolidated Statements of Comprehensive Income................................. 4
Condensed Consolidated Statements of Cash Flows........................................... 5
Condensed Notes to Consolidated Financial Statements...................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................................... 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF RISK.................................... 14
PART II OTHER INFORMATION................................................................... 14
ITEM 1. LEGAL PROCEEDINGS................................................................... 14
ITEM 2. CHANGES IN SECURITIES............................................................... 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................................................... 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................. 16
ITEM 5. OTHER INFORMATION................................................................... 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................... 16
SIGNATURES..................................................................................... 17
1.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IXYS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31, June 30,
1999 1999
----------- -----------
(Unaudited)
ASSETS
Cash and cash equivalents................ $ 8,480 $ 7,551
Trade accounts receivable, net........... 11,731 12,467
Inventories, net......................... 20,167 18,629
Other current assets..................... -- 158
Deferred income taxes.................... 1,617 1,617
----------- -----------
Total current assets.................. 41,995 40,422
Property and equipment, net.............. 11,323 10,966
Goodwill and other intangible assets, -- 578
net.....................................
Other.................................... 2,743 1,899
Deferred income taxes.................... 1,039 1,039
----------- -----------
Total operating expenses............... $ 57,100 $ 54,904
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion, capital leases.......... $ 1,102 $ 1,080
Current portion, long term debt.......... 4,369 3,514
Accounts payable......................... 5,161 4,580
Other accrued liabilities................ 6,954 6,264
----------- -----------
Total current liabilities.............. 17,586 15,438
----------- -----------
Long term capital leases................. 2,195 2,133
Long term debt........................... 6,211 6,663
Pension obligations...................... 5,388 5,222
----------- -----------
Total liabilities..................... 31,380 29,456
----------- -----------
Common stock............................. 120 120
Additional paid-in capital............... 43,297 43,290
Notes receivable from employees.......... (936) (901)
Cumulative translation adjustment........ (164) (1,621)
Accumulated deficit...................... (16,597) (15,440)
----------- -----------
Total stockholders' equity............ 25,720 25,448
Total liabilities and stockholders'
equity.............................. $ 57,100 $ 54,904
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2.
IXYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
Three Months Ended June 30,
------------------------------
1998 1999
---------- ----------
(Unaudited)
Net Sales................................ $16,269 $17,072
Cost of sales............................ 11,448 11,430
---------- ----------
Gross profit.......................... 4,821 5,642
Operating expenses
Research and development................ 730 1,255
Selling, general and administrative..... 2,300 2,697
Amortization of goodwill and intangibles -- 116
---------- ----------
Total operating expenses.............. 3,030 4,068
---------- ----------
Operating income......................... 1,791 1,574
Other, net............................... 16 (29)
---------- ----------
Income before income tax provision 1,807 1,545
Income tax provision (680) (383)
---------- ----------
Net income............................ $ 1,127 $ 1,162
---------- ----------
Net income available for common
stockholders per share:
Basic................................... $0.27 $0.10
---------- ----------
Diluted................................. $0.09 $0.10
---------- ----------
Shares used in computing per share
amounts:
Basic................................... 4,177 11,966
---------- ----------
Diluted................................. 12,060 11,975
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3.
IXYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
Three Months Ended June 30,
------------------------------
1998 1999
---------- ----------
Net Income.................................. $1,127 $ 1,162
Other comprehensive income (expense),
net of tax:
Foreign currency translation adjustments... 669 (1,093)
Comprehensive income........................ $1,796 $ 69
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4.
IXYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended June 30,
------------------------------
1998 1999
---------- ----------
(Unaudited)
Cash flows from operating activities:
Net income................................. $ 1,127 $ 1,162
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization............ 513 766
Provision for bad debts.................. 334 1,323
Provision for excess and obsolete
inventory............................... 670 310
Losses on foreign currency translation... 542 12
Changes in operating assets and
liabilities:
Accounts receivable.................... (401) (2,257)
Inventories............................ (2,500) 909
Prepaid expenses and other current
assets................................ (422) (103)
Other assets........................... (24) 78
Accounts payable....................... (571) (557)
Accrued expenses and other
liabilities........................... (217) (570)
Pension liabilities.................... 77 --
---------- ----------
Net cash provided by (used in)
operating activities............... (872) 1,073
Cash flows from investing activities:
Purchases of plant and equipment........... (879) (640)
---------- ----------
Cash flows from financing activities:
Proceeds from capital lease obligations
and debt.................................. 627 672
Principal payments on capital lease
obligations and debt...................... (319) (789)
Proceeds from payment of notes
receivable................................ -- 35
---------- ----------
Net cash provided by (used in)
financing activities............... 308 (82)
---------- ----------
Effect of foreign exchange rate
fluctuations on cash and
cash equivalents............................ 138 (1,280)
---------- ----------
Net increase (decrease) in cash
and cash equivalents............... (1,305) (929)
---------- ----------
Cash and cash equivalents at beginning
of year.................................... 10,594 8,480
---------- ----------
Cash and cash equivalents at end of
period..................................... $ 9,289 $ 7,551
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Financial Data (Unaudited):
The unaudited financial statements for the quarters ended June 30, 1998 and
1999 have been prepared on the same basis as the audited financial statements
and, in the opinion of management, include all material adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of financial
position and results of operations in accordance with generally accepted
accounting principles. Although certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission (the "Commission"), IXYS
Corporation, a Delaware corporation (the "Company") believes the disclosures
made are adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto contained in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1999.
Effective September 23, 1998, the Company acquired and merged into Paradigm
Technology, Inc. ("Paradigm"), a company that designs and markets fast SRAM
products. The acquisition was structured as a reverse merger whereby Paradigm
issued approximately 11,513,821 shares of its common stock in exchange for all
outstanding shares of IXYS stock. At the conclusion of the merger, IXYS
stockholders held approximately 96% of the combined company. For financial
accounting purposes, IXYS was the surviving company and the historic financial
information is of IXYS. In the Current Report on Form 8-K, filed with the
Commission on September 23, 1998, pro forma results of the merger are presented
and pro forma statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto.
The Company's balance sheet as of March 31, 1999 was derived from the
Company's audited financial statements, but does not include all disclosures
necessary for the presentation to be in accordance with generally accepted
accounting principles.
2. Foreign Currency Translation:
The local currency is considered to be the functional currency of the
operations of IXYS GmbH. Accordingly, assets and liabilities are translated at
the exchange rate in effect at period-end and revenues and expenses are
translated at average rates during the period. Adjustments resulting from the
translation of the accounts of IXYS GmbH into U.S. dollars are included in
cumulative translation adjustment, a separate component of stockholders' equity.
Foreign currency transaction gains and losses are included as a component of
other income and expense.
3. Earnings Per Share:
Basic EPS is computed by dividing net income by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution from the exercise or conversion of other securities into common stock.
6.
4. Recent Accounting Pronouncements:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to stockholders. SFAS 131 generally supersedes Statement of
Financial Accounting Standards No.14, "Financial Reporting for Segments of
Business Enterprise." Under SFAS 131, operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Generally, financial
information is required to be reported on the basis it is used internally. SFAS
131 is effective for financial statements for periods beginning after December
15, 1997, and restatement of comparative information for earlier years is
required. However, SFAS 131 is not required to be applied to interim financial
statements in the initial year of application. Based upon the criteria of SFAS
131, the Company has a single operating segment. Accordingly, the financial
statements provided herein satisfy the standard for reporting. Geographic
information about revenues, operating income and identifiable assets are
provided in the notes to the financial statements.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, or SFAS 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 establishes new standards of accounting and reporting for
derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the balance sheet, and that the
corresponding gains or losses be reported either in the statement of operations
or as a component of comprehensive income, depending on the type of hedging
relationship that exists. SFAS 133 will be effective for fiscal years beginning
after June 15, 1999. The Company does not currently hold derivative instruments
or engage in hedging activities.
In March 1998, the Accounting Standards Executive Committee, or AcSEC,
released Statement of Position 98-1, or SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires
companies to capitalize certain costs of computer software developed or obtained
for internal use, provided that those costs are not research and development.
SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The
Company is evaluating the requirements of SOP 98-1 and the effects, if any, on
the Company's current policies on accounting for software costs.
5. Comprehensive Income:
The only component of comprehensive income for the three months June 30,
1998 and 1999 was the change in the cumulative translation adjustment.
6. Inventories:
Inventories consist of the following (in thousands):
7.
March 31, June 30,
1999 1999
--------- ---------
Raw materials............................ $ 3,368 $ 3,359
Work in process.......................... 13,654 13,933
Finished goods........................... 9,172 7,535
--------- ---------
26,194 24,827
Less inventory reserve................... (6,027) (6,198)
--------- ---------
$20,167 $18,629
========= =========
7. Computation of Net Income (Loss) Per Share:
Basic and diluted earnings per share are calculated as follows (in
thousands, except per share amounts):
Three Months Ended June 30,
----------------------------
1998 1999
--------- ---------
Basic:
Weighted, average shares outstanding for the period (1)........... 4,177 11,966
--------- ---------
Shares used in computing per share amounts........................ 4,177 11,966
========= =========
Net income available for common stockholders...................... $ 1,127 $ 1,162
Net income available for common stockholders per share............ $ 0.27 $ 0.10
========= =========
Diluted:
Weighted, average shares outstanding for the period (1)........... 4,177 11,966
Net effective dilutive stock options based on the treasury stock
method using average market price................................ 7,883 9
Shares used in computing per share amounts........................ 12,060 11,975
========= =========
Net income available for common stockholders...................... $ 1,127 $ 1,162
Net income per share available for common stockholders............ $ 0.09 $ 0.10
(1) 1998 shares represent shares outstanding prior to the September 1998
merger. See Note 1.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
This Form 10-Q contains predictions, projections and other statements about
the future that are intended to be "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward-
looking statements involve known and unknown risks, uncertainties and other
important factors that could cause the actual results, performance or
achievements of the Company, or industry results, to differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements. These
8.
forward-looking statements speak only as of the date of this Report. The Company
disclaims any obligation or undertaking to disseminate updates or revisions of
any forward-looking statements contained or incorporated herein to reflect any
change in the Company's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based. IN
ASSESSING FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10-Q, READERS ARE
URGED TO READ CAREFULLY ALL SUCH CAUTIONARY STATEMENTS.
Actual results may differ materially from the results discussed in the
forward-looking statements. Important factors affecting the Company's (as
defined below) ability to achieve future revenue growth include whether, and the
extent to which, demand for the Company's products increases and reflects real
end-user demand; whether customer cancellations and delays of outstanding orders
increase; and whether the Company is able to manufacture in a correct mix to
respond to orders on hand and new orders received in the future; whether the
Company is able to achieve its new product development and introduction goals,
including, without limitation, goals for recruiting, retaining, training, and
motivating engineers, particularly design engineers, and goals for conceiving
and introducing timely new products that are well received in the marketplace;
and whether the Company is able to successfully commercialize its new
technologies, which it has been investing in by designing and introducing new
products based on these new technologies.
Other important factors that could cause actual results to differ
materially from those predicted include overall economic conditions, such as the
economic issues affecting Asian or European countries; fluctuations in currency
exchange ratios as the Company sells products in currencies other than the U.S.
dollar; demand for electronic products and semiconductors generally; demand for
the end-user products for which the Company's semiconductors are suited; the
level of utilization of the Company's production capacity; timely availability
of, and changes in the cost of, raw materials, equipment, supplies and services;
unanticipated manufacturing problems; problems in obtaining products from
outside foundries that manufacture for the Company; increases in production and
engineering costs associated with initial manufacture of new products;
technological and product development risks; competitors' actions; and other
risk factors described in the Company's filings with the Commission on Form
10-K.
The impact of these and other factors on the Company's revenues and
operating results in any future period cannot be forecasted with certainty. The
Company's expense levels are based, in part, on its expectations as to future
revenues. Because the Company's sales are generally made pursuant to purchase
orders that are subject to cancellation, modification, quantity reduction or
rescheduling on short notice and without significant penalties, the Company's
backlog as of any particular date may not be indicative of sales for any future
period, and such changes could cause the Company's net sales to fall below
expected levels. If revenue levels are below expectations, operating results are
likely to be materially adversely effected. Net income, if any, and gross
margins may be disproportionately affected by a reduction in net sales because a
proportionately smaller amount of the Company's expenses varies with its
revenues. Nonetheless, the Company anticipates that operating expenses will
fluctuate in absolute dollars and as a percentage of net sales as headcount is
modified to support new product introductions, and due to changes in levels of
production volume and unit shipments.
9.
All forward-looking statements included in this document are made as of the
date hereof, based on the information available to the Company as of the date
hereof, and the Company assumes no obligation to update any forward- looking
statement.
Overview
On September 23, 1998, IXYS Corporation, a Delaware corporation ("IXYS")
merged with Paradigm in a transaction accounted for as a reverse merger. In the
merger, the historic accounting records of IXYS became those of the combined
company, and, accordingly, Paradigm formally changed its name to "IXYS
Corporation" (the combined company of which is referred to in this report as the
"Company" or the "Registrant").
The Company designs, develops and markets power semiconductors used
primarily in controlling energy in motor drives, power conversion (including
uninterruptible power supplies ("UPS") and switch mode power supplies ("SMPS"))
and medical electronics. The Company's power semiconductors convert electricity
at relatively high voltage and current levels to create efficient power as
required by a specific application. The Company's target market includes
segments of the power semiconductor market that require medium to high power
semiconductors, with a particular emphasis on higher power semiconductors, which
the Company considers to be those capable of processing greater than 500 watts
of power. The Company offers a broad line of power semiconductors, including
power MOSFETs, insulated gate bipolar transistors ("IGBTs"), thyristors (silicon
controlled rectifiers or "SCRs") and rectifiers, including fast recovery
epitaxial diodes ("FREDs"). In addition, the Company also designs and markets
high speed, high density static random access memory ("SRAM") semiconductor
devices to meet the needs of advanced telecommunications devices, networks,
workstations, high performance PCs, advanced modems and complex
military/aerospace applications.
Results Of Operations
Net Sales. Net sales for the three months ended June 30, 1999 were $17.1
million, an increase of 4.9% from the $16.3 million reported in the three months
ended June 30, 1998. Unit sales volume for the three months ended June 30, 1999
increased over the same period in the prior year and the effect on revenue was
offset partially by declines in average selling prices. Future revenue will
depend largely upon customer demand, unit shipments and production volumes.
Gross Profit. Gross margin was 33.0% of net sales for the three months
ended June 30, 1999 as compared to 29.6% for the three months ended June 30,
1998. The increase in gross margin for the period ended June 30, 1999 as
compared to the same period in 1998 was due to an increase in manufacturing
yields and an increase in units sold by approximately 7%, offset by a decline in
average selling prices by approximately 2%.
Research and Development. Research and development expenses increased
$526,000 in the three months ended June 30, 1999, compared to the same period in
1998. Research and development expenses increased primarily due to expanded
research efforts to support the Company's overall plan.
10.
Selling, General and Administrative. Selling, general and administrative
expenses increased approximately $400,000 in the three months ended June 30,
1999, compared to the same period in the prior fiscal year. The increase in
selling, general and administrative expenses was primarily related to increased
selling costs on the higher revenues. The Company anticipates that operating
expenses will fluctuate in absolute dollars and as a percentage of net sales as
headcount is modified to support new product introductions, and due to changes
in levels of production volume and unit shipments.
Other Income, Net. Net other income decreased $44,000 during the three
months ended June 30, 1999, compared to the same period in the prior fiscal
year.
Provision for Income Taxes. The income tax provision for the three months
ended June 30, 1999 reflects the Company's expected effective tax rate for
fiscal year 2000.
Liquidity And Capital Resources
The Company has financed its operations to date through the private sale of
equity, lease financing and bank borrowings. As of June 30, 1999, the cash and
cash equivalents were $7.6 million, a decrease of $929,000 from cash and cash
equivalents of $8.5 million at March 31, 1999. The decrease in cash and cash
equivalents was primarily due to usage of cash to fund operations.
Line of credit facilities available to the Company are as follows: A line
of credit with a U.S. bank that as of June 30, 1999 consists of a $5.0 million
commitment amount which is available through August 1999. The line bears
interest at the bank's prime rate (7.75% at June 30, 1999). The line is
collateralized by certain assets and contains certain general and financial
covenants, which include provisions stating that the Company cannot incur
additional debt or pledge assets without the prior approval of such bank. At
June 30, 1999, the Company had drawn $2.1 million against such line of credit.
The accounts receivable at June 30, 1999 were $12.5 million, an increase of
6.3% as compared to March 31, 1999. The inventories at June 30, 1999 were $18.6
million, a decrease of 7.6% as compared to March 31, 1999. Net plant and
equipment at June 30, 1999 were $11 million, a decrease of 3.2% as compared to
March 31, 1999.
The Company evaluates the acquisition of businesses, products or
technologies that complement the Company's business. Any such transactions, if
consummated, may use a portion of the Company's working capital or require the
issuance of equity securities, which may result in further dilution to the
Company's stockholders.
The Company believes that cash generated from operations, if any, and
banking facilities will be sufficient to meet its cash requirements through
fiscal 2000. To the extent that funds generated from operations, together with
bank facilities are insufficient to meet its capital requirements, the Company
will be required to raise additional funds. No assurance can be given that
additional financing will be available on acceptable terms. The lack of such
financing if needed, would have a material adverse effect on the Company's
business, financial condition and results of operations.
11.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to stockholders. SFAS 131 generally supersedes Statement of
Financial Accounting Standards No.14, "Financial Reporting for Segments of
Business Enterprise." Under SFAS 131, operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Generally, financial
information is required to be reported on the basis it is used internally. SFAS
131 is effective for financial statements for periods beginning after December
15, 1997, and restatement of comparative information for earlier years is
required. However, SFAS 131 is not required to be applied to interim financial
statements in the initial year of application. Based upon the criteria of SFAS
131, the Company has a single operating segment. Accordingly, the financial
statements provided herein satisfy the standard for reporting. Geographic
information about revenues, operating income and identifiable assets are
provided in the notes to the financial statements.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, or SFAS 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 establishes new standards of accounting and reporting for
derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the balance sheet, and that the
corresponding gains or losses be reported either in the statement of operations
or as a component of comprehensive income, depending on the type of hedging
relationship that exists. SFAS 133 will be effective for fiscal years beginning
after June 15, 1999. The Company does not currently hold derivative instruments
or engage in hedging activities.
In March 1998, the Accounting Standards Executive Committee, or AcSEC,
released Statement of Position 98-1, or SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires
companies to capitalize certain costs of computer software developed or obtained
for internal use, provided that those costs are not research and development.
SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The
Company is evaluating the requirements of SOP 98-1 and the effects, if any, on
the Company's current policies on accounting for software costs.
Year 2000 Compliance
The Company has reviewed both its internal computer systems and its
products that could be affected by the "Year 2000" issue and has identified
certain minor software applications that will be affected. In the ordinary
course of replacing computer equipment and software, the Company attempts to
obtain replacements that are Year 2000 compliant. Utilizing both internal and
external resources to identify and assess needed Year 2000 remediation, the
Company currently anticipates that its internal Year 2000 identification,
assessment, remediation and testing efforts, will be completed on or about
September 30, 1999, and that such efforts will be
12.
completed prior to any currently anticipated impact on its internal computer
equipment and software.
The Company presently believes, with modification to existing software and
conversion to new software, the "Year 2000" issues relating to internal computer
systems and products will not cause significant operational problems or computer
problems. Furthermore, the cost of implementing these solutions is not
anticipated to be material to the financial position or results of operations.
The plan is currently expected to result in non-recurring expenses over the next
1-1/2 years of approximately $750,000 in the aggregate. However, if such
modifications and conversions are not made, or not completed, the Company does
not expect the "Year 2000" issue to have a material adverse impact on the
operations of the Company as there are inexpensive alternatives available.
Although the Company has completed its internal assessment of the Year 2000
issue and believes that it is substantially compliant, there can be no assurance
that all potential problem areas have been identified and the Year 2000 risks
accurately assessed. Should there be systems that were not included in the
assessment and which are not Year 2000 compliant or should the Company's
assessment prove to be in error in some material respect, the Company may be
unable to conduct business or manufacture its products, which could cause a
material adverse effect on the Company's results of operations.
The Company has initiated formal communications with all of its significant
suppliers during fiscal 1999 and 2000 to determine the extent to which the
Company is vulnerable to those third parties failure to remediate their own
"Year 2000" issues. There can be no guarantee that the systems or products of
other companies or significant suppliers will be converted. A failure to convert
by another company, or a conversion that is incompatible with the Company's
systems may have a material adverse impact on the Company.
The Company's suppliers and customers may be adversely affected by their
respective failure to address the Year 2000 problem. Should any of the
Company's suppliers encounter Year 2000 problems that cause them to delay
manufacturing or shipments of key components, the Company may be forced to delay
or cancel shipments of its products, which would have a material adverse effect
on the Company's results of operations. Additionally, any inability of material
customers to become Year 2000 compliant, which would cause them to delay or
cancel substantial purchase orders or delivery of products, would also have a
material adverse effect on the Company's results of operations. The Company is
currently working with its suppliers to address their Year 2000 compliance in a
timely manner. The Company anticipates completion of this effort by September
30, 1999; however, there can be no assurance that any such effort will be
successful.
Currently, the Company does not have a Year 2000 contingency plan in place
as it has completed its internal assessment and believes that it is
substantially compliant. However, the Company intends to create such a
contingency plan by September 1999 if its communications with its suppliers
indicate such is advisable.
13.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF RISK
There has been no change to the disclosure made in the Company's Report on Form
10-K for the fiscal year ended March 31, 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 12, 1996, the Company and Michael Gulett, Robert McClelland,
Richard A. Veldhouse, Dennis McDonald and Chiang Lam (the "Paradigm Defendants")
were named, along with PaineWebber, Inc., as defendants in a purported class
action (entitled Bulwa et al. v. Paradigm Technology, Inc. et al., Santa Clara
County Superior Court Case No. CV759991) brought on behalf of stockholders who
purchased the Company's stock between November 20, 1995 and March 22, 1996 (the
"Class Period").
The complaint asserted six causes of action against the Paradigm
Defendants: negligent misrepresentation, fraud, breach of fiduciary duty,
violations of California Corporations Code sections 25400 and 25500 ("Sections
25400 and 25500"), violation of Corporations Code section 1507, and violation of
California Civil Code sections 1709 and 1710.
The Paradigm Defendants responded to the complaint by filing a demurrer
which challenged the legal sufficiency of all six causes of action. On December
12, 1996, the Court sustained the demurrer as to all of the causes of action
except for the fourth cause of action for violation of Sections 25400 and 25500
(and as to all causes of action for defendant Michael Gulett). The Court,
however, granted plaintiffs leave to amend the complaint to attempt to cure the
defects which caused the Court to sustain the demurrer. Plaintiffs failed to
amend within the allotted time and independently expressed an intent to
prosecute only the fourth cause of action. On January 8, 1997, the Paradigm
Defendants, with the exception of Michael Gulett (who by virtue of the ruling on
the demurrer has obtained a dismissal with prejudice as to all causes of action
asserted against him), filed an answer to the complaint denying any liability
for the acts and damages alleged by the plaintiffs.
Plaintiffs have since served the Paradigm Defendants with discovery
requests for production of documents and interrogatories, to which the Paradigm
Defendants have responded. Plaintiffs have also subpoenaed documents from
various third parties. The Paradigm Defendants have served the plaintiffs with
an initial set of discovery requests, to which plaintiffs have responded. The
Paradigm Defendants also took the depositions of the named plaintiffs on April
9, 1997. Plaintiffs have noticed six depositions of former Paradigm employees
and others to take place in August 1999.
On January 15, 1997, plaintiffs filed a motion to certify the matter as a
class action. After several hearings and continuances, on February 9, 1998 the
Court certified a class consisting only of California purchasers of the
Company's stock during the Class Period. Following the California Supreme Court
decision in Diamond Multimedia Systems, Inc. v. Superior Court, 19
14.
Cal.4th 1036 (1999), plaintiffs moved to modify the prior class certification
ruling to include also non-California purchasers. The Court granted this motion
on April 28, 1999.
On April 9, 1998, the Court granted plaintiffs' motion to amend their
complaint to incorporate factual allegations derived from the Campbell et. al.
v. Paradigm Technology, Inc., et. al., Case No. CV 766271 suit filed in Santa
Clara County Superior Court. The Campbell complaint itself has since been
dismissed with prejudice. The Campbell complaint alleged that the defendants
misled them and committed fraud by allegedly overstating the Company's back
orders in the fourth quarter of 1995 and inflated reported sales in the fourth
quarter of 1995 and the first quarter of 1996, which allegedly resulted in
distorting the Company's financial condition, which allegedly inflated its stock
price. The Campbell plaintiffs alleged that they purchased the Company's stock
at the allegedly inflated prices and were damaged thereby. Their complaint
identified two allegedly fraudulent sale transactions. The Court overruled the
Paradigm Defendants' demurrer to the amended complaint on August 6, 1998. The
Paradigm Defendants filed an answer to the amended complaint on August 27, 1998.
On December 4, 1998, defendant Dennis McDonald, Paradigm's former Vice
President of Human Resources, filed a motion for summary judgment on the amended
complaint. Following his deposition, and prior to the hearing on the motion,
plaintiffs agreed to dismiss defendant McDonald from the action with prejudice
in exchange for a waiver of costs. Defendant McDonald has since obtained a
judgment of dismissal. There can be no assurance that the Company will be
successful in the defense of this action. If unsuccessful in the defense of any
such claim, the Company's business, operating results and cash flows could be
materially adversely affected.
On May 19, 1998, the law firm that filed the Bulwa, et al. action described
above filed an additional securities class action lawsuit against the Company,
Michael Gulett, Robert McClelland, Richard A. Veldhouse and Chiang Lam, this
time in the United States District Court for the Northern District of
California. The complaint alleged violations of section 10(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Commission Rule 10b-5
and section 20(a) of the Exchange Act. Plaintiff alleged the same class and the
same substantive factual allegations that are contained in the Bulwa, et al.
action as amended. Defendants responded to the complaint on July 27, 1998 by
filing a motion to dismiss the complaint for failure to state claims upon which
relief can be granted and for various pleading inadequacies. In lieu of opposing
the motion, plaintiff filed a first amended complaint. Defendants renewed their
motion to dismiss, and on January 20, 1999 the Court issued an order granting
the motion and dismissing plaintiff's action and entered judgment thereon. On
February 3, 1999, the Court entered an amended judgment clarifying that the
judgment is with prejudice. On March 12, 1999, plaintiff filed a notice of
appeal. Plaintiff has since agreed to dismiss the appeal in exchange for
defendants' agreement not to seek to recover defendants' costs incurred in
responding to the appeal and agreement not to pursue any action against the
plaintiff for having filed the action.
15.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
NONE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 27 Financial Data Schedule.
(b) The Company did not file a Current Report on Form 8-K during this
fiscal period.
16.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IXYS CORPORATION
By: /s/ Arnold Agbayani
-------------------------------------
Arnold Agbayani, Vice President,
Finance and Administration
(Principal Financial Officer)
Date: August 13, 1999
17.
EXHIBIT INDEX
27 Financial Data Schedule.
18.