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 SEPTEMBER 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 November
1, 1999 was 12,002,311
INDEX
PART I FINANCIAL INFORMATION............................................................... 1
ITEM 1. FINANCIAL STATEMENTS................................................................ 1
Condensed Consolidated Balance Sheets................................................... 1
Condensed Consolidated Statements of Operations......................................... 2
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................................................ 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF RISK.................................... 14
PART II OTHER INFORMATION................................................................... 15
ITEM 1. LEGAL PROCEEDINGS................................................................... 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................... 17
SIGNATURES................................................................................... 18
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IXYS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31, September 30,
1999 1999
--------- --------
(Unaudited)
ASSETS
Cash and cash equivalents................ $ 8,480 $ 8,631
Trade accounts receivable................ 11,731 13,778
Inventories.............................. 20,167 19,759
Other current assets..................... -- 295
Deferred income taxes.................... 1,617 1,617
--------- --------
Total current assets.................. 41,995 44,080
Property and equipment, net.............. 11,323 10,973
Goodwill and other intangible assets..... 693 462
Other.................................... 2,050 1,928
Deferred income taxes.................... 1,039 1,039
--------- --------
Total Assets........................... $ 57,100 $ 58,482
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion, capital leases.......... $ 1,102 $ 1,103
Current portion, long term debt.......... 4,369 3,265
Accounts payable......................... 5,161 4,238
Other accrued liabilities................ 6,954 8,437
--------- --------
Total current liabilities.............. 17,586 17,043
--------- --------
Long term capital leases................. 2,195 2,252
Long term debt........................... 6,211 6,596
Pension obligations...................... 5,388 5,380
--------- --------
Total liabilities..................... 31,380 31,271
--------- --------
Common stock............................. 120 120
Additional paid-in capital............... 43,297 43,295
Notes receivable from employees.......... (936) (901)
Cumulative translation adjustment........ (164) (1,440)
Accumulated deficit...................... (16,597) (13,863)
--------- --------
Total stockholders' equity............ 25,720 27,211
Total liabilities and stockholders' $ 57,100 $ 58,482
equity................................ --------- --------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1.
IXYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
Three Months Ended
September 30,
--------------------------------
1998 1999
------- -------
(Unaudited)
Net Sales................................ $16,449 $17,417
Cost of sales............................ 10,629 11,077
------- -------
Gross profit.......................... 5,820 6,340
Operating expenses
Research and development................ 1,366 1,113
Selling, general and administrative..... 2,396 2,626
Acquisition of in-process research and 5,807 --
development............................
Amortization of goodwill and intangibles -- 116
------- -------
Total operating expenses.............. 9,569 3,855
------- -------
Operating income (loss).................. (3,749) 2,485
Other income (expense), net.............. 82 (71)
------- -------
Income (loss) before income tax
provision............................ (3,667) 2,414
Income tax provision..................... 813 843
------- -------
Net income (loss) $(4,480) $ 1,571
------- -------
Net income available for common
stockholders per share:
Basic................................... $(0.94) $0.13
------- -------
Diluted................................. $(0.94) $0.13
------- -------
Shares used in computing per share
amounts:
Basic................................... 4,766 11,973
------- -------
Diluted................................. 4,766 12,379
------- -------
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)
Six Months Ended
September 30,
--------------------------------
1998 1999
------- -------
(Unaudited)
Net Sales................................ $32,717 $34,489
Cost of sales............................ 22,076 22,507
------- -------
Gross profit.......................... 10,641 11,982
Operating expenses
Research and development................ 2,094 2,369
Selling, general and administrative..... 4,693 5,323
Acquisition of In-Process Research and 5,807 --
Development
Amortization of goodwill and intangibles -- 231
------- -------
Total operating expenses.............. 12,594 7,923
------- -------
Operating income (loss).................. (1,953) 4,059
Other, net............................... 99 (99)
------- -------
Income (loss) before income tax provision (1,854) 3,960
Income tax provision 1,493 1,226
------- -------
Net income (loss) $(3,347) $ 2,734
------- -------
Net income available for common
stockholders per share:
Basic................................... $(0.75) $0.23
------- -------
Diluted................................. $(0.75) $0.22
------- -------
Shares used in computing per share
amounts:
Basic................................... 4,472 11,988
------- -------
Diluted................................. 4,472 12,374
------- -------
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
September 30,
-----------------------
1998 1999
------- ------
Net Sales................................. $(4,480) $1,157
Other comprehensive income (expense),
net of tax:
Foreign currency translation adjustments. 204 118
------- ------
Comprehensive income...................... $(4,276) $1,275
------- ------
Six Months Ended
September 30,
-----------------------
1998 1999
------- ------
Net Sales................................ $(3,347) $2,734
Other comprehensive income (expense),
net of tax:
Foreign currency translation adjustments 606 (829)
------- ------
Comprehensive income..................... $(2,741) $1,905
------- ------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4.
IXYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
September 30,
-----------------------------
1998 1999
------- -------
(Unaudited)
Cash flows from operating activities:
Net income.............................. $(3,347) $ 2,734
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization......... 1,079 1,505
Provision for bad debts............... (870) 1,485
Provision for excess and obsolete
inventory............................ 1,483 811
Losses on foreign currency translation 962 11
Acquisition of in-process research
and development...................... 5,807 --
Changes in operating assets and
liabilities
Accounts receivable................. 1,725 (3,543)
Inventories......................... (2,542) (436)
Prepaid expenses and other current
assets............................. 73 (238)
Other assets........................ (25) 64
Accounts payable.................... (1,354) (928)
Accrued expenses and other
liabilities........................ (417) 1,492
Pension liabilities................. (260) 6
------- -------
Net cash provided by (used in)
operating activities............ 2,314 2,963
Cash flows from investing activities:
Acquisition of Paradigm Technology, net
of cash (606) --
Purchases of plant and equipment........ (1,236) (1,006)
------- -------
Net cash provided (used in)
investing activities............ (1,842) (1,006)
Cash flows from financing activities:
Proceeds from capital lease obligations
and debt............................... 991 69
Principal payments on capital lease
obligations and debt................... (225) --
Payment of notes receivable and loans... (305) (612)
Other, net 4 5
------- -------
Net cash provided by (used in)
financing activities............ 465 (538)
------- -------
Effect of foreign exchange rate
fluctuations on cash and
cash equivalents......................... (402) (1,268)
------- -------
Net increase (decrease) in cash
and cash equivalents............ 535 151
------- -------
Cash and cash equivalents at beginning
of year................................. 10,594 8,480
------- -------
Cash and cash equivalents at end of
period.................................. $11,129 $ 8,631
------- -------
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 September 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 September
30, 1998 and 1999 was the change in the cumulative translation adjustment.
6. Inventories:
Inventories consist of the following (in thousands):
7.
March 31, September 30,
1999 1999
------------- -------------
Raw materials............................ $ 3,368 $ 3,612
Work in process.......................... 13,654 11,349
Finished goods........................... 9,172 11,629
------------- -------------
26,194 26,590
Less inventory reserve................... (6,027) (6,831)
------------- -------------
Raw materials............................ $20,167 $19,759
------------- -------------
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
September 30,
----------------------------------
1998 1999
------------- -------------
Basic:
Weighted average shares outstanding for
the period(1)........................... 4,766 11,973
------------- -------------
Shares used in computing per share
amounts................................. 4,766 11,973
------------- -------------
Net income available for common
stockholders............................ $(4,480) $ 1,571
Net income available for common
stockholders per share.................. $ (0.94) $ 0.13
------------- -------------
Diluted (1):
Weighted average shares outstanding for
the period(1)........................... 4,476 11,973
Net effect of dilutive stock options
based on the treasury stock method 405
using average market price..............
Shares used in computing per share
amounts................................. 4,476 12,379
------------- -------------
Net income available for common
stockholders $(4,480) $ 1,571
Net income per share available for
common stockholders $ (0.94) $ 0.13
8.
Six Months Ended
September 30,
----------------------------------
1998 1999
------------- -------------
Basic:
Weighted average shares outstanding for
the period(1)........................... 4,472 11,988
------------- -------------
Shares used in computing per share
amounts................................. 4,472 11,988
------------- -------------
Net income available for common
stockholders............................ $(3,347) $ 2,734
Net income available for common
stockholders per share.................. $ (0.75) $ 0.23
------------- -------------
Diluted
Weighted average shares outstanding for
the period(1)........................... 4,472 11,988
Net effect of dilutive stock options
based on the treasury stock method 386
using average market price..............
Shares used in computing per share
amounts................................. 4,472 12,374
------------- -------------
Net income available for common
stockholders $(3,347) $ 2,734
Net income per share available for
common stockholders $ (0.75) $ 0.22
(1) 1998 shares represents 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
This discussion contains forward-looking statements, which are subject to
certain risks and uncertainties, including without limitation those described in
the Company's Annual Report on Form 10-K, which has been filed with the
Securities and Exchange Commission (the "SEC"). Actual results may differ
materially from the results discussed in the forward-looking 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 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
9.
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.
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.
10.
RESULTS OF OPERATIONS
Net Sales. Net sales for the three months ended September 30, 1999 were
$17.4 million, an increase of 5.9% from the $16.4 million reported in the three
months ended September 30, 1998. For the first six months of fiscal 2000, net
sales of $34.5 million were $1.8 million, or 5.4% higher than for the same
period in fiscal 1999. Average selling prices for the three months ended
September 30, 1999 and for the year to date period increased over the same
periods in the prior year and the effect on revenue was offset partially by
declines in unit sales volume. Future revenue will depend largely upon customer
demand.
Gross Profit. Gross margin was 36.4% of net sales for the three months
ended September 30, 1999 and was relatively unchanged as compared with 35.4% for
the three months ended September 30, 1998. Gross margin was 34.7% of net sales
for the six months ended September 30, 1999 as compared to 32.5% for the six-
month period ended September 30, 1998. The increase in gross margin for the six
month period ended September 30, 1999 as compared to the same period in 1998 was
due to higher average selling prices per unit.
Research and Development. Research and development expenses decreased
$253,000 in the three months ended September 30, 1999, compared to the same
period in 1998. Research and development expenses increased $275,000 in the six
months ended September 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.
Selling, General and Administrative. Selling, general and administrative
expenses increased $230,000 in the three months ended September 30, 1999,
compared to the same period in the prior fiscal year. Selling, general and
administrative expenses increased $630,000 in the six months ended September 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
compliance costs associated with being a publicly traded company, including
compliance with SEC rules and regulations. 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.
Acquisition of in-process research and development. The Company recorded a
one-time charge of $5.8 million in connection with the acquisition of Paradigm
in the period ending September 30, 1998.
Other Income, Net. Net other income decreased $153,000 during the three
months ended September 30, 1999, compared to the same period in fiscal 1999, and
$198,000 during the six months ended September 30,1999, compared to the same
period in fiscal 1999.
Provision for Income Taxes. The income tax provision for the three months
and six months ended September 30, 1999 reflects the Company's expected
effective tax rate for fiscal year 2000.
11.
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 September 30, 1999, cash
and cash equivalents were $8.6 million, an increase of $151,000 from cash and
cash equivalents of $8.4 million at March 31, 1999. The increase in cash and
cash equivalents was primarily due to cash generated from operations.
Line of credit facilities available to the Company are as follows: A line
of credit with a U.S. bank that as of September 30, 1999 consists of a $5.0
million commitment amount which is available through October 1999. The line
bears interest at the bank's prime rate (8.25% at September 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
September 30, 1999, the Company had drawn $2.1 million against such line of
credit.
As of March 31, 1999, the Company had cash deposits with a financial
institution in the amount of $222,000, which is restricted as to use and
represents compensating balances on future discounted acceptances and letters of
credit.
The accounts receivable at September 30, 1999 increased 17% as compared to
March 31, 1999 due to an increase in net sales. The inventories at September
30, 1999 were 2% less than the inventories at March 31, 1999. Net plant and
equipment at September 30, 1999 decreased 3% 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 1999. 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 or, if available, that it 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.
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
12.
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
December 31, 1999, and that such efforts will be 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
13.
six months of approximately $250,000 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. To date, all of the significant suppliers have responded to
the Company that they are Year 2000 compliant. However, 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 has completed its internal assessment and believes that it is
substantially compliant.
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.
14.
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. Plaintiffs have also taken the depositions of three
former employees and the analyst who covered the Company for Smith Barney. 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.
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 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. Following a series of demurrers, the Campbell
plaintiffs have since dismissed with prejudice the Campbell complaint
15.
itself in exchange for defendants' agreement not to seek to recover defendants'
costs incurred in defending against the action and not to pursue any action
against plaintiffs for having filed the action. The Campbell complaint alleged
that the defendants misled the Campbell plaintiffs 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 then agreed to dismiss the appeal in exchange for
defendant's costs incurred in responding to the appeal and agreement not to
pursue any action against the plaintiff for having filed the action. The appeal
was dismissed with prejudice on October 25, 1999.
16.
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.
17.
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: November 12, 1999
18.
EXHIBIT INDEX
27 Financial Data Schedule.
19.