10-Q 1 0001.txt FORM 10-Q 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, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 000-26124 IXYS CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 770140882 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) No.) 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, 2000 was 12,236,348. INDEX PART I. FINANCIAL INFORMATION........................................................................... 3 ITEM 1. FINANCIAL STATEMENTS................................................................. 3 CONDENSED CONSOLIDATED BALANCE SHEETS........................................................... 3 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS................................................. 4 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME....................................... 5 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS................................................. 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................................ 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................................. 10 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF RISK..................................... 13 PART II. OTHER INFORMATION............................................................................... 14 ITEM 1. LEGAL PROCEEDINGS.................................................................... 14 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................................ 15 ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................................................... 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................. 15 ITEM 5. OTHER INFORMATION.................................................................... 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................... 15 SIGNATURES.................................................................................................... 16
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. IXYS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) March 31, June 30, 2000 2000 ---------- ----------- (Unaudited) ASSETS Cash and cash equivalents.................................. $ 9,759 $12,892 Trade accounts receivable, net............................. 16,863 16,512 Inventories, net........................................... 21,477 24,022 Other current assets....................................... 585 751 Deferred income taxes...................................... 1,627 1,627 --------- --------- Total current assets.................................. 50,311 55,804 --------- --------- Property and equipment, net................................ 10,175 10,762 Goodwill and other intangible assets, net.................. 231 2,417 Other...................................................... 1,546 1,634 Deferred income taxes...................................... 782 782 --------- --------- Total assets.......................................... $63,045 $71,399 --------- --------- LIABILITIES AND STOCKHOLDERS' LIABILITIES Current portion, capital leases............................ $ 1,365 $ 1,735 Current portion, long term debt............................ 2,789 2,794 Accounts payable........................................... 5,467 5,167 Other accrued liabilities.................................. 10,345 11,943 --------- --------- Total current liabilities............................. 19,966 21,639 Long term capital leases................................... 1,783 2,114 Long term debt............................................. 5,544 5,484 Pension obligations........................................ 4,855 4,903 --------- --------- Total liabilities..................................... 32,148 34,140 --------- --------- Common stock............................................... 120 120 Additional paid-in capital................................. 43,324 46,286 Notes receivable from employees............................ (861) (861) Cumulative translation adjustment.......................... (1,988) (2,281) Accumulated deficit........................................ (9,698) (6,005) --------- --------- Total stockholders' equity............................ 30,897 37,259 --------- --------- Total liabilities and stockholders' equity............ $63,045 $71,399 ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 IXYS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except per share data)
Three Months Ended June 30, -------------------------------- 1999 2000 ------------- ------------ (Unaudited) Net Sales................................................. $17,072 $23,274 Cost of sales............................................. 11,430 15,053 --------- --------- Gross profit........................................... 5,642 8,221 --------- --------- Operating expenses Research and development................................ 1,255 1,164 Selling, general and administrative..................... 2,697 2,897 Amortization of intangibles............................. 116 135 --------- --------- Total operating expenses............................... 4,068 4,196 --------- --------- Operating income.......................................... 1,574 4,025 Other, net................................................ (29) 1,933 --------- --------- Income before income tax provision........................ 1,545 5,958 Income tax provision...................................... (383) (2,264) --------- --------- Net income............................................. $ 1,162 $ 3,694 ========= ========= Net income available for common stockholders per share: Basic................................................... $ 0.10 $ 0.31 ========= ========= Diluted................................................. $ 0.10 $ 0.30 ========= ========= Shares used in computing per share amounts: Basic................................................... 11,966 11,992 --------- --------- Diluted................................................. 11,975 12,195 --------- ---------
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 IXYS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in thousands) Three Months Ended June 30, ---------------------- 1999 2000 ------- ------ (Unaudited) Net income......................................... $1,162 $3,694 Other comprehensive income, net of tax: Foreign currency translation adjustments.......... (69) (111) --------- --------- Comprehensive income............................... $1,093 $3,583 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 IXYS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Three Months Ended June 30, ---------------------------- 1999 2000 ----------- ---------- (Unaudited) Cash flows from operating activities: Net income........................................................ $ 1,162 $ 3,694 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.................................. 766 819 Provision for bad debts........................................ 1,323 847 Provision for excess and obsolete inventory.................... 310 103 Loss on foreign currency translation........................... 12 (439) Changes in operating assets and liabilities: Accounts receivable............................................ (2,257) (276) Inventories.................................................... 909 (2,289) Prepaid expenses and other current assets...................... (103) (1,028) Other assets................................................... 78 768 Accounts payable............................................... (557) (447) Accrued expenses and other liabilities......................... (1,043) (695) Income tax payable............................................. 473 2,405 Pension liabilities............................................ - 29 ---------- ---------- Net cash provided by operating activities................. 1,073 3,491 ---------- ---------- Cash flows used in investing activities: Acquisition of Directed Energy, Inc., cash acquired............... - 135 Purchase of plant and equipment................................... (640) (1,546) ---------- ---------- Net cash used in investing activities........................ (640) (1,411) ---------- ---------- Cash flows from financing activities: Proceeds from capital lease obligations........................... 672 671 Proceeds from notes payable....................................... 35 - Principal payments on capital lease obligations................... (789) - Repayment of notes payable to bank................................ - (91) Proceeds from exercise of options................................. - 162 ---------- ---------- Net cash provided by financing activities...................... (82) 742 ---------- ---------- Effect of foreign exchange rate fluctuations on cash and cash equivalents...................................................... (1,280) 311 ---------- ---------- Net increase in cash and cash equivalents...................... (929) 3,133 Cash and cash equivalents at beginning of period.................... 8,480 9,759 ---------- ---------- Cash and cash equivalents at end of period.......................... $ 7,551 $12,892 ========== ========== SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING ACTIVITIES Common stock issued for Directed Energy, Inc. net assets.......... $ 2,800
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 IXYS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Condensed Consolidated Financial Statements The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated financial statements include the accounts of IXYS Corporation ("IXYS" or the "Company") and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. All adjustments of a normal recurring nature which, in the opinion of management, are necessary for a fair statement of the results for the interim periods have been made. It is recommended that the interim financial statements be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2000 contained in the Company's Annual Report on Form 10-K. Interim results are not necessarily indicative of the operating results expected for later quarters or the full fiscal year. 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. 4. Reclassifications Certain reclassifications have been made to prior quarter balances to conform to current quarter classifications. 5. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement will require us to recognize all derivatives on the balance sheet at fair value. SFAS No. 133 requires that derivative instruments used to hedge be identified specifically as to assets, liabilities, firm commitments or anticipated transactions and measured as to effectiveness and ineffectiveness when hedging changes in fair value or cash flows. Derivative instruments that do not qualify as either a fair value or cash flow hedge will be valued at fair value with the resultant gain or loss recognized in current earnings. Changes in the effective portion of fair value hedges will be recognized in current earnings along with the change in fair value of the hedged item. Changes in the effective portion of the fair value of cash flow hedges will be recognized in other comprehensive income until realization of the cash flows of the hedged item through current earnings. Any ineffective portion of hedges will be recognized in current earnings. In June 1999, the FASB issued SFAS No. 137, "Deferral of the Effective Date of FASB Statement No. 133," to defer for one year the effective date of implementation of SFAS NO. 133. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000, with earlier application encouraged. We are in the process of evaluating the requirements of SFAS Nos. 133, but do not expect this pronouncement to materially impact our financial position or results of operation. In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. In March 2000, the SEC issued SAB No. 101A to defer for 7 one quarter the effective date of implementation of SAB No. 101 with earlier application encouraged. We are required to adopt SAB 101 in the second quarter of fiscal 2000. We do not expect the adoption of SAB 101 to have a material effect on our financial position or results of operations. In March 2000, the Financial Accounting Standards Board issued interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation -- an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the definition of an employee for purposes of applying Accounting Practice Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and the accounting for an exchange of stock compensation awards in a business combination. This interpretation is effective July 1. 2000, but certain conclusions in the interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. Management believes that the adoption of this interpretation is not expected to have a material effect on the financial position or results of operations of the Company. 6. Comprehensive Income: The only component of comprehensive income for the three months June 30,1999 and 2000 was the change in the cumulative translation adjustment. 7. Inventories Inventories consist of the following (in thousands): March 31, June 30, 2000 2000 ----------- ----------- (Unaudited) Raw materials...................... $ 3,299 $ 4,277 Work in process.................... 13,943 13,910 Finished goods..................... 9,159 10,880 ------------ ----------- 26,401 29,067 Less inventory reserve............. (4,924) (5,045) ------------ ----------- $21,477 $24,022 ============ =========== 8. 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, ------------------------------ 1999 2000 ------------ ------------- (Unaudited) Basic: Weighted, average shares outstanding for the period.......... 11,966 11,992 ------------ ------------- Shares used in computing per share amounts................... 11,966 11,992 ------------ ------------- Net income available for common stockholders................. $ 1,162 $ 3,694 Net income available for common stockholders per share....... $ 0.10 $ 0.31 ------------ ------------- Diluted: Weighted, average shares outstanding for the period.......... 11,966 11,992 Net effective dilutive stock options and warrants based on the treasury stock method using average market price........ 9 203 Shares used in computing per share amounts................... 11,975 12,195 ------------ -------------
8
Three Months Ended June 30, ------------------------------ 1999 2000 ------------ ------------- (Unaudited) Net income available for common stockholders................. $ 1,162 $ 3,694 Net income per share available for common stockholders....... $ 0.10 $ 0.30
9. Acquisition of Directed Energy, Inc. On May 16, 2000, the Company completed the acquisition of Directed Energy, Inc. in a stock-for-stock acquisition. In connection with the acquisition, the Company issued 125,185 shares of the Company's common stock in exchange for all the issued and outstanding capital stock of Directed Energy, Inc. The acquisition was accounted for using the purchase method of accounting, and accordingly, the recognized purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed on the basis of their fair values on the acquisition date of May 16, 2000. The purchase price in excess of the fair value of identified tangible and intangible assets and liabilities assumed in the amount of $2.32 million was allocated to goodwill and is being amortized over its estimated useful life of 10 years. 10. Legal Proceedings. On August 12, 1996, IXYS and Robert McClelland, Richard A. Veldhouse and Chiang Lam (the "Paradigm Defendants") were named (along with others subsequently dismissed from the case) 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 IXYS' stock between November 20, 1995 and March 22, 1996 (the "Class Period"). The complaint asserted violations of California Corporations Code sections 25400 and 25500 ("Sections 25400 and 25500") along with other causes of action that have been dismissed. Plaintiffs have 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 five former employees of IXYS including Defendant Richard Veldhouse, Defendant Robert McClelland, former outside director Defendant Chiang Lam and the analyst who covered IXYS for Smith Barney. Plaintiffs have noticed the depositions of Michael Gulett, IXYS' auditors and another former employee to take place in August and September of 2000. The Paradigm Defendants have served the plaintiffs with an initial set and a supplemental set of discovery requests, to which plaintiffs have responded. The Paradigm Defendants also took the depositions of the named plaintiffs. On February 9, 1998 the Court certified a class consisting only of California purchasers of IXYS' 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. There can be no assurance that IXYS will be successful in the defense of this action. If unsuccessful in the defense of any such claim, IXYS' 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 IXYS, 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 defendants' agreement not to seek to recover defendants' 9 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. Discussions of additional details relating to the above-described legal proceedings may be found in the prior SEC filings and reports of IXYS. On June 22, 2000, International Rectifier Corporation ("IR") filed an action for patent infringement against IXYS in the United States District Court for the Central District of California, alleging that certain IXYS products sold in the United States, "including but not necessarily limited to" four IXYS Power MOSFET parts (IXFX55N50; IXFH21N50; IXFH35N30; and IXTH24N50), infringe one or more of the following IR patents: U.S. Patent Nos. 4,959,699 (Reexamination Certificates issued October 12, 1993 and January 19, 1999); 5,008,725 (Reexamination Certificates issued January 12, 1993); 5,130,767; 4,642,666 (Reexamination Certificate issued October 7, 1998); and 4,705,759 (Reexamination Certificate issued February 14, 1995). IXYS is in the process of evaluating these allegations. IXYS is scheduled to respond to the complaint on August 17, 2000. 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 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. 10 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, 2000 were $23.3 million, an increase of 36.3% from the $17.1 million reported in the three months ended June 30, 1999. Unit sales volume for the three months ended June 30, 2000 increased over the same period in the prior year and the effect on revenue was offset partially by a slight decrease in average selling prices. Future revenue will depend largely upon customer demand, unit shipments and production volumes. Gross Profit. Gross profit was 35.3% of net sales for the three months ended June 30, 2000 as compared to 33.0% for the three months ended June 30, 1999. The increase in gross margin for the period ended June 30, 2000 as compared to the same period in 1999 was due to an increase in manufacturing efficiencies and an increase in units sold by approximately 44%, offset by a decline in average selling prices by approximately 5%. Research and Development. Research and development expenses were $1,164,000 in the three months ended June 30, 2000, compared to $1,255,000 in the same period in 1999. Research and development expenses stayed at approximately the same level to support continuing research efforts. Selling, General and Administrative. Selling, general and administrative expenses increased approximately $200,000 in the three months ended June 30, 2000 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 increased $2.0million during the three months ended June 30, 2000 compared to the same period in the prior fiscal year. The increase in other income was caused primarily by a one-time payment for a technology license received in the three month period ended June 30, 2000, partially reduced by charges for anticipated legal expenses. Provision for Income Taxes. The income tax provision for the three months ended June 30, 2000 reflects the Company's expected effective tax rate for fiscal 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 June 30, 2000, the cash and cash equivalents were $12.9 million, an increase of $3.1 million from cash and cash equivalents of $9.8 million at March 31, 2000. The increase in cash and cash equivalents was primarily due to cash received in payment of a technology license and 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 June 30, 2000 consists of $5.0 million commitment amount which is available through September, 2000. The line bears interest at the bank's prime rate (9.5% at June 30, 2000). 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, 2000, the Company had drawn $2.1 million against such line of credit. The accounts receivable at June 30, 2000 were $16.5 million, a decrease of 2% as compared to March 31, 2000. The inventories at June 30, 2000 were $24.0 million, an increase of 12% as compared to March 31, 2000. Net plant and equipment at June 30, 2000 were $10.8 million, an increase of 6% as compared to March 31, 2000. The Company believes that cash generated from operations, if any, and banking facilities will be sufficient to meet its cash requirements through fiscal 2001. 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 assurances 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. Additionally, the Company evaluates the acquisition of business, 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. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement will require us to recognize all derivatives on the balance sheet at fair value. SFAS No. 133 requires that derivative instruments used to hedge be identified specifically as to assets, liabilities, firm commitments or anticipated transactions and measured as to effectiveness and ineffectiveness when hedging changes in fair value or cash flows. Derivative instruments that do not qualify as either a fair value or cash flow hedge will be valued at fair value with the resultant gain or loss recognized in current earnings. Changes in the effective portion of fair value hedges will be recognized in current earnings along with the change in fair value of the hedged item. Changes in the effective portion of the fair value of cash flow hedges will be recognized in other comprehensive income until realization of the cash flows of the hedged item through current earnings. Any ineffective portion of hedges will be recognized in current earnings. In June 1999, the FASB issued SFAS No. 137, "Deferral of the Effective Date of FASB Statement No. 133," to defer for one year the effective date of implementation of SFAS NO. 133. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000, with earlier application encouraged. We are in the process of evaluating the requirements of SFAS Nos. 133, but do not expect this pronouncement to materially impact our financial position or results of operation. In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. In March 2000, the SEC issued SAB No. 101A to defer for one quarter the effective date of implementation of SAB No. 101 with earlier application encouraged. We are required to adopt SAB 101 in the second quarter of fiscal 2000. We do not expect the adoption of SAB 101 to have a material effect on our financial position or results of operations. In March 2000, the Financial Accounting Standards Board issued interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation -- an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 12 44 clarifies the definition of an employee for purposes of applying Accounting Practice Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and the accounting for an exchange of stock compensation awards in a business combination. This interpretation is effective July 1. 2000, but certain conclusions in the interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. Management believes that the adoption of this interpretation is not expected to have a material effect on the financial position or results of operations of the Company. 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, 2000. 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings. On August 12, 1996, IXYS and Robert McClelland, Richard A. Veldhouse and Chiang Lam (the "Paradigm Defendants") were named (along with others subsequently dismissed from the case) 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 IXYS' stock between November 20, 1995 and March 22, 1996 (the "Class Period"). The complaint asserted violations of California Corporations Code sections 25400 and 25500 ("Sections 25400 and 25500") along with other causes of action that have been dismissed. Plaintiffs have 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 five former employees of IXYS including Defendant Richard Veldhouse, McClelland, former outside director Defendant Chiang Lam and the analyst who covered IXYS for Smith Barney. Plaintiffs have noticed the depositions of Michael Gulett, IXYS' auditors and another former employee to take place in August and September of 2000. The Paradigm Defendants have served the plaintiffs with an initial and supplemental set of discovery requests, to which plaintiffs have responded. The Paradigm Defendants also took the depositions of the named plaintiffs. On February 9, 1998 the Court certified a class consisting only of California purchasers of IXYS' 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. There can be no assurance that IXYS will be successful in the defense of this action. If unsuccessful in the defense of any such claim, IXYS' 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 IXYS, 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 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. The appeal was dismissed with prejudice on October 25, 1999. Discussions of additional details relating to the above-described legal proceedings may be found in the prior SEC filings and reports of IXYS. On June 22, 2000, International Rectifier Corporation ("IR") filed an action for patent infringement against IXYS in the United States District Court for the Central District of California, alleging that certain IXYS products sold in the United States, "including but not necessarily limited to" four IXYS Power MOSFET parts (IXFX55N50; IXFH21N50; IXFH35N30; and IXTH24N50), infringe one or more of the 14 following IR patents: U.S. Patent Nos. 4,959,699 (Reexamination Certificates issued October 12, 1993 and January 19, 1999); 5,008,725 (Reexamination Certificates issued January 12, 1993); 5,130,767; 4,642,666 (Reexamination Certificate issued October 7, 1998); and 4,705,759 (Reexamination Certificate issued February 14, 1995). IXYS is in the process of evaluating these allegations. IXYS is scheduled to respond to the complaint on August 17, 2000. 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. On May 16, 2000, IXYS acquired Directed Energy, Inc. ("DEI") in a stock-for- stock acquisition. In connection with the acquisition of DEI, IXYS issued 125,185 shares of IXYS Common Stock to the former shareholders of DEI in exchange for all of the issued and outstanding capital stock of DEI. The merger was intended to qualify as a tax-free reorganization under the Internal Revenue Code of 1986, as amended, and was to be accounted for as a purchase. DEI is a supplier of innovative high-speed, pulsed-power instruments and components. DEI's standard product line includes high-voltage pulse generators and modulators, laser diode drivers, pulsed current sources, and high-speed/high frequency power MOSFET transistors. DEI's pulsed technology spans many fields, including lasers and electro-optics, electro-acoustics, dielectric testing, component characterization, and basic R&D. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 11 Computation of Per Share Earnings as set forth in Note 7 of the Notes to Condensed Consolidated Financial Statements in Part I of the Form 10-Q 27 Financial Data Schedule (b) The Company did not file a Current Report on Form 8-K during this fiscal period 15 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 Chief Financial Officer (Principal Financial Officer) Date: August 9, 2000 16 Exhibit Index ------------- 11 Computation of Per Share Earnings as set forth in Note 7 of the Notes to Condensed Consolidated Financial Statements in Part I of the Form 10-Q 27 Financial Data Schedule 17