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
AND EXCHANGE ACT OF 1934
For the quarterly period ended December 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 0-22632
------------------------------
ASANTE TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 77-0200286
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
821 Fox Lane
San Jose, California 95131
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 435-8388
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period as the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days. YES X NO __
As of December 30, 2000, the Registrant had 9,915,129 shares of Common Stock
outstanding.
ASANTE TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE NO.
Item 1. Financial Statements:
Unaudited Condensed Balance Sheets
December 30, 2000 and September 30, 2000 3
Unaudited Condensed Statements of Operations
Three months ended December 30, 2000 and January 1, 2000 4
Unaudited Condensed Statements of Cash Flows
Three months ended December 30, 2000 and January 1, 2000 5
Notes to Unaudited Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
PART I. FINANCIAL INFORMATION - USE attached spreadsheet
ITEM 1. FINANCIAL STATEMENTS
Asante Technologies, Inc.
Condensed Balance Sheets
(in thousands)
(unaudited)
December 30, September 30,
2000 2000
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 6,647 $ 6,433
Accounts receivable, net 2,644 3,233
Inventory 3,160 2,605
Prepaid expenses and other current assets 760 523
=========== ==========
Total current assets 13,211 12,794
Property and equipment, net 208 261
Other assets 176 167
----------- ----------
Total assets $ 13,595 $ 13,222
=========== ==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,974 $ 3,776
Accrued expenses 5,204 5,437
Payable to stockholder 504 330
----------- -----------
Total current liabilities 9,682 9,543
----------- -----------
Stockholders' equity:
Common stock 28,372 28,370
Accumulated deficit (24,459) (24,691)
----------- -----------
Total stockholders' equity 3,913 3,679
----------- -----------
Total liabilities and stockholders' equity $ 13,595 $ 13,222
=========== ==========
The accompanying notes are an integral part of these unaudited
condensed financial statements.
3
ASANTE TECHNOLOGIES, INC. - USE attached spreadsheet
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three months ended,
-----------------------------
December 30, January 1,
2000 2000
---------- ----------
Net sales $ 6,952 $ 9,065
Cost of sales 4,422 5,534
---------- ----------
Gross profit 2,530 3,531
---------- ----------
Operating expenses:
Sales and marketing 1,244 2,063
Research and development 696 833
General and administrative 376 486
---------- ----------
Total operating expenses 2,316 3,382
---------- ----------
Income from operations 214 149
Interest and other income, net 18 40
---------- ----------
Income before income taxes 232 189
Provision for income taxes -- --
---------- ----------
Net income $ 232 $ 189
========== ==========
Basic and diluted net income per share $ 0.02 $ 0.02
========== ==========
Shares used in per share
calculation:
Basic 9,914 9,302
========== ==========
Diluted 9,919 9,482
========== ==========
The accompanying notes are an integral part of these unaudited
condensed financial statements.
4
ASANTE TECHNOLOGIES, INC. - USE attached spreadsheet
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
--------------------------------
December 30, January 1,
2000 2000
---------- ----------
Cash flows from operating activities:
Net income $ 232 $ 189
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 66 187
Provision for doubtful accounts receivable 24 158
Loss due to write-off of idle assets 1
Changes in operating assets and liabilities:
Accounts receivable 565 (332)
Inventory (555) (1,477)
Prepaid expenses and other current assets (237) (39)
Accounts payable 198 458
Accrued expenses (233) 186
Payable to shareholder 174 620
---------- ----------
Net cash provided by (used in) operating activities 234 (49)
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (13) (38)
Other (9) 29
---------- ----------
Net cash used in investing activities (22) (9)
---------- ----------
Cash flows from financing activities:
Issuance of common stock 2 2
Repurchase of common stock -- --
---------- ----------
Net cash provided by financing activities 2 2
---------- ----------
Net increase (decrease) in cash and cash equivalents 214 (56)
Cash and cash equivalents at beginning of quarter 6,433 4,808
---------- ----------
Cash and cash equivalents at end of quarter $ 6,647 $ 4,752
=========== ==========
The accompanying notes are an integral part of these financial statements
5
ASANTE TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1. Interim Condensed Financial Statements
The unaudited condensed financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair statement of the financial position, operating results and cash flows for
those periods presented. These unaudited condensed financial statements should
be read in conjunction with financial statements and notes thereto for the year
ended September 30, 2000, included in the Company's 2000 Annual Report on Form
10-K. Certain prior period balances have been reclassified to conform to the
current period presentation.
Note 2. Basic and Diluted Net Income (Loss) Per Share
The Company computes net income per share in accordance with Statement of
Financial Accounting Standards Statement No. 128, "Earnings per Share" (SFAS No.
128). Basic net income (loss) per share is computed by dividing net income
available to common stockholders (numerator) by the weighted-average number of
common shares outstanding (denominator) during the period. Diluted net income
per share gives effect to all dilutive potential common shares outstanding
during the period including stock options, using the treasury stock method. In
computing diluted net income per share, the average stock price for the period
is used in determining the number of shares assumed to be purchased from the
exercise of stock options.
The following is a reconciliation of the numerators and denominators of the
basic and diluted net income (loss) per share computations for the periods
presented below (in thousands, except per share data):
2000 1999
----------- -----------
Net income (loss) $ 232 $ 189
=========== ===========
Weighted average common stock outstanding (basic) 9,914 9,302
Effect of dilutive warrants and options 5 180
----------- -----------
Weighted average common stock outstanding (diluted) 9,919 9,482
=========== ===========
Net income per share:
Basic $ 0.02 $ 0.02
=========== ============
Diluted $ 0.02 $ 0.02
=========== ============
6
At December 30, 2000, and January 1, 2000, options and warrants outstanding of
1,426,817 and 1,222,958, respectively, were excluded since their effect was
antidilutive.
Note 3. Comprehensive Income
The Company had no items of other comprehensive income during any of the periods
presented, and, accordingly, net income was equal to comprehensive income for
all periods presented.
Note 4. Inventory
Inventory is stated at the lower of standard cost, which approximates actual
cost (on a first-in, first-out basis), or market. Appropriate adjustments of the
inventory values are provided for slow moving and discontinued products based
upon future expected sales and committed inventory purchases. Inventories
consisted of the following (in thousands):
December 30, September 30,
2000 2000
---------- ---------
Raw materials and component parts 526 449
Work-in-process 149 154
Finished goods 2,485 2,002
---------- ---------
$ 3,160 $ 2,605
========== =========
Note 5. Bank Borrowings
In December 2000, the Company renewed its bank line of credit that provides for
maximum borrowings of $5.0 million, primarily limited to a certain percentage of
eligible accounts receivable and eligible inventory. No borrowings have been
made under the line-of-credit agreement.
Note 6. Income Taxes
The Company has recorded no provision for federal and state income taxes for the
periods ended December 30, 2000 and January 1, 2000, due primarily to a
valuation allowance on deferred tax assets established, primarily net operating
loss carryforwards and research and development credits. The Company has
recorded a full valuation allowance on its deferred tax assets as the Company
believes that sufficient uncertainty exists regarding its recoverability.
7
Note 7. Litigation
From time to time the Company is subject to legal proceedings and claims in the
ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property rights.
On September 13, 1996, a complaint was filed by Datapoint Corporation against
the Company and six other companies individually and as purported
representatives of a defendant class of all manufacturers, vendors and users of
Fast Ethernet-compliant, dual protocol local-area network products, for alleged
infringement of United States letters Patent Nos. 5,077,732 and 5,008,879, The
complaint sought unspecified damages in excess of $75,000 and permanent
injunctive relief. The Company filed a response to the complaint denying
liability. The case was consolidated, for purposes of claim interpretation, with
similar cases filed against several other defendants, which include, among
others, Intel Corporation, IBM Corporation, Cisco Systems, Bay Networks, and Sun
Microsystems. On April 16,1998, a Special Master appointed by the court issued a
report agreeing in most material respects with the defendants' interpretation of
the alleged patent claims. Subsequently, by order dated November 23,1998, the
District Court adopted without modification the findings of the Special Master
and the recommendations of the Magistrate Judge regarding claim interpretation
of the patents-in-suit. The Court ordered dismissal of the case, and entered
judgment in favor of all defendants. Plaintiff has filed an appeal of the
judgment to the Federal Circuit Court of Appeal, which is now pending. The
Federal Circuit has entered an Order staying the appeal pending the outcome of
related U. S. Patent and Trademark Office proceedings. Datapoint's recent letter
motion to lift the stay was denied by the Federal Circuit on December 26, 2000
and so the case remains stayed.
In September 1999 certain inventory having a cost of approximately $400,000 was
seized by the United States Customs for the alleged improper use of
certification marks owned by Underwriters Laboratories Inc. ("UL"). It is the
Company's position that the alleged improper use was simply a mistake or error.
The Company may obtain the return of the inventory through settlement
negotiations with either the United States Customs or United States Attorney's
Office, obtaining permission from UL to use the certification marks, or being
successful in trial proceedings. To contest the seizure, the Company determined
to seek a review with the United States Attorney's Office and filed a claim for
the inventory. It is now incumbent upon the United States Attorney's Office to
file in court seeking forfeiture of the inventory and allow the Company, as
claimant, to challenge such proceeding. The Company also expects that the United
States Customs may issue a penalty separate from the seizure under 19 U.S.C.
section 1526(f), which provides for a penalty ranging in amount from the retail
value of the seized inventory had the inventory been UL approved, to twice the
retail value. The Company asserts this is a first time offense. For a first time
offense, the United States Customs may mitigate the penalties when challenged
administratively, with such mitigation being as low as 10% of the value of the
inventory. The Company intends to contest any penalty action through
administrative and/or judicial procedures. On April 28, 2000, the Company
submitted a settlement proposal to the United States Attorney's Office offering
settlement of the case. The Company has not yet received a reply to its
settlement proposal.
8
Note 8. Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The new standard requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives will be reported in the statements of operations or as a deferred
item, depending on the use of the derivatives and whether they qualify for hedge
accounting. The key criterion for hedge accounting is that the derivative must
be highly effective in achieving offsetting changes in fair value or cash flows
of the hedged items during the term of the hedge. The Company adopted SFAS No.
133 at the start of fiscal year 2000. This adoption did not have a material
impact on its financial statements.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition," which outlines the
basic criteria that must be met to recognize revenue and provides guidance for
presentation of revenue and for disclosure related to revenue recognition
policies in financial statements filed with the Securities and Exchange
Commission. The effective date of this pronouncement is the quarter of the
fiscal year beginning after December 31, 2000. We believe that adopting SAB 101
will not have a material impact on our financial position and results of
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion, other than the historical financial information, may consist of
forward-looking statements that involve risks and uncertainties, including
quarterly fluctuations in results, the timely availability of new products, the
impact of competitive products and pricing, and the other risks detailed from
time to time in the Company's SEC reports, including this report on Form 10-Q
for the quarter ended December 30, 2000, and the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 2000. These forward-looking
statements speak only as of the date thereof and should not be given undue
reliance. Actual results may vary materially from those projected.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
Results of Operations
Net sales of $7.0 million for the first quarter of fiscal 2001 was approximately
$2.1 million, or 23.3%, below net sales of $9.1 million for the first quarter of
fiscal 2000.
Sales of the Company's shared hub products were down $1.4 million, from $2.3
million to $0.9 million, due primarily to significantly decreased average
selling prices for the Company's managed and unmanaged hubs and transitions from
older shared technologies to switching and internet connection devices. Sales of
the Company's print router and adapter card products were
9
down $0.9 million, from $3.8 million to $2.9 million, due primarily to
competitive pressures and continuing decline in sales of the Company's older
legacy adapters as Apple Computer continues to incorporate Ethernet into the
motherboard of most of their new computers. These declines were offset partially
by increased sales of the Company's new internet routers of $0.8 million.
Management anticipates that sales of the Company's older adapter card and
systems products will continue to decrease as a percentage of total sales,
although its Universal Serial Bus (USB), internet access and Gigabit products
will increase as a percentage of total sales in the next quarter.
International sales, primarily to customers in Europe, Canada and Asia Pacific,
accounted for approximately 27% of net sales for the first quarter of fiscal
2001, compared to 24% for the first quarter of fiscal 2000, with Europe being
the primary area of the sales reduction in terms of percent of net sales and
absolute dollars.
The Company's gross profit as a percentage of net sales decreased slightly to
36.4% for the first quarter of fiscal 2001 as compared to 39.0% for the same
period in fiscal 2000. The decrease was due primarily to competitive pricing
pressures in the market and to the Company's lower revenue level compared to the
first quarter of fiscal 2000. In addition, freight costs for the first quarter
of fiscal 2001 were higher than the same period in fiscal 2000.
Sales and marketing expenses were $1.2 million for the first quarter of fiscal
2001 (17.9% of net sales) compared to $2.1 million for the same period in fiscal
2000 (22.8% of net sales), a decrease of 39.7%. The decrease in sales and
marketing expenses as compared to the first quarter of fiscal 2000 was due
primarily to decreased bad debt related costs, reduced spending activities
related to advertising related activities, personnel related costs, including
travel, advertising and product collateral related costs, and outside services.
The Company expects that its sales and marketing expenses in absolute dollars
will remain flat, or increase slightly in fiscal 2001 in comparison to fiscal
2000.
Research and development expenses decreased by 16.4% to $0.7 million for the
first quarter of fiscal 2001 from $0.8 million for the first quarter of fiscal
2000. As a percentage of net sales, these expenses were 10.0% for the first
quarter of fiscal 2001 and 9.2% for the first quarter of fiscal 2000. The
decrease in such expenses was primarily due to decreased prototype and fixed
asset depreciation related expenses. The Company expects that spending on
research and development for the remainder of fiscal 2001 will increase slightly
in comparison to fiscal 2000.
General and administrative expenses decreased to $0.4 million for the first
quarter of fiscal 2001 from $0.5 million for the first quarter of fiscal 2000.
As a percentage of net sales, general and administrative expenses were 5.4% for
both the first quarter of fiscal years 2001 and 2000, respectively. The decrease
in general and administrative expenses in absolute dollars for the first quarter
of fiscal 2001 is primarily related to reduced personnel related costs and lower
professional service related expenditures. The Company expects that general and
administrative expenses in absolute dollars will remain flat or increase
marginally for the remainder of fiscal 2001.
10
Income Taxes
The Company has recorded no provision for federal and state income taxes for the
periods ended December 30, 2000 and January 1, 2000, due primarily to a
valuation allowance on deferred tax assets being recorded and the Company's net
operating loss carry forwards were sufficient to offset any significant tax
liability. The Company has recorded a full valuation allowance on its deferred
tax assets as sufficient uncertainty exists regarding its recoverability.
Factors Affecting Future Operating Results
The Company operates in a rapidly changing and growing industry, which is
characterized by vigorous competition from both established companies and
start-up companies. The market for the Company's products is extremely
competitive both as to price and capabilities. The Company's success depends in
part on its ability to enhance existing products and introduce new high
technology products. The Company must also bring its products to market at
competitive price levels. Unexpected changes in technological standards,
customer demand and pricing of competitive products could adversely affect the
Company's operating results if the Company is unable to respond effectively and
timely to such changes. The industry is also dependent to a large extent on
proprietary intellectual property rights. From time to time the Company is
subject to legal proceedings and claims in the ordinary course of business,
including claims of alleged infringement of patents, trademarks and other
intellectual property rights. Consequently, from time to time, the Company will
be required to prosecute or defend against alleged infringements of such rights.
The Company's success also depends to a significant extent upon the
contributions of key sales, marketing, engineering, manufacturing, and
administrative employees, and on the Company's ability to attract and retain
highly qualified personnel, who are in great demand. None of the Company's key
employees are subject to a non-competition agreement with the Company. Unless
vacancies are promptly filled, the loss of current key employees or the
Company's inability to attract and retain other qualified employees in the
future could have a material adverse effect on the Company's business, financial
condition and results of operations. The job market in the San Francisco Bay
Area is characterized by fierce competition, rapidly changing salary structures,
and a shortage of the workforce in general. As of the end of the Company's
fiscal year, unemployment in the Bay Area is approximately only 1.6%. These
conditions could affect the Company's ability to retain and recruit a
sufficiently qualified workforce.
The Company's current manufacturing and sales structure is particularly subject
to various risks associated with international operations including currency
exchange rate fluctuations, changes in costs of labor and material, reliability
of sources of supply and general economic conditions in foreign countries.
Unexpected changes in foreign manufacturing or sources of supply, fluctuations
in monetary exchange rates and changes in the availability, capability or
pricing of foreign suppliers could adversely affect the Company's business,
financial condition and results of operations.
11
The 10/100 Mbps and 100 Mbps Ethernet technology (100BASE-T, or "Fast-Ethernet")
has become a standard networking topology in the networking and computer
industries. This standard has been adopted widely by end-user customers because
of its ability to increase the efficiency of LANs and because of its ease of
integration into existing 10BASE-T networks. Because of the importance of this
standard, the Company has focused its ongoing research and development
activities on introducing future products incorporating 100BASE-T technology.
The Company realizes the importance of bringing more 10/100BASE-T (10 Mbps)
switching and 100BASE-T switching to market in order to complement its existing
100BASE-T shared products. In addition, Gigabit Ethernet technology is
increasingly being adopted in the backbone of large enterprises, and educational
institutions. In that regard, the Company's future operating results may be
dependent on the market acceptance and the rate of adoption of these
technologies, as well as timely product release. There can be no assurance that
the market will accept and adopt this new technology or that the Company can
meet market demand in a timely manner.
The Company's success will depend in part on its ability to accurately forecast
its future sales due to the lead time required to order components and assemble
products. If the Company's product sales forecasts are below actual product
demand, there may be delays in fulfilling product orders; consequently, the
Company could lose current and future sales to competitors. Alternatively, if
the Company's product sales forecasts are above actual product demand, this may
result in excess orders of components or assembled products and a build-up of
inventory that would adversely affect working capital.
The Company commits to expense levels, including manufacturing costs and
advertising and promotional programs, based in part on expectations of future
net sales levels. If future net sales levels in a particular quarter do not meet
the Company's expectations or the Company does not bring new products timely to
market, the Company may not be able to reduce or reallocate such expense levels
on a timely basis, which could adversely affect the Company's operating results.
There can be no assurance that the Company will be able to achieve profitability
on a quarterly or annual basis in the future.
The Company's target markets include end-users, value-added resellers, systems
integrators, retailers, and OEMs. Due to the relative size of the customers in
some of these markets, particularly the OEM market, sales in any one market
could fluctuate dramatically on a quarter to quarter basis. Fluctuations in the
OEM market could materially adversely affect the Company's business, financial
condition and results of operations.
In summary, the Company's net sales and operating results in any particular
quarter may fluctuate as a result of a number of factors, including competition
in the markets for the Company's products, delays in new product introductions
by the Company, market acceptance of new products incorporating 100BASE-T by the
Company or its competitors, changes in product pricing, material costs or
customer discounts, the size and timing of customer orders, distributor and
end-user purchasing cycles, variations in the mix of product sales,
manufacturing delays or disruptions in sources of supply, and economic
conditions and seasonal purchasing patterns specific to the computer and
networking industries as discussed above. The Company's future operating results
will depend, to a large extent, on its ability to anticipate and successfully
react
12
to these and other factors. Failure to anticipate and successfully react
to these and other factors could adversely affect the Company's business,
financial condition and results of operations.
Successfully addressing the factors discussed above is subject to various risks
discussed in this report, as well as other factors that generally affect the
market for stocks of high technology companies. These factors could affect the
price of the Company's stock and could cause such stock prices to fluctuate over
relatively short periods of time.
Liquidity and Capital Resources
Net cash provided by operating activities was $234,000 for the quarter ended
December 30, 2000, compared to cash used of $49,000 for the quarter ended
January 1, 2000. During the first quarter of fiscal 2001, the net cash provided
by operating activities resulted primarily from the Company's net income. During
the quarter, net cash provided by decreases in accounts receivable of $0.6
million was offset by increases in inventory of $0.6 million. Cash was also
provided by increases in accounts payable and amounts payable to shareholder of
$0.2 million and $0.2 million, respectively, and were primarily offset by an
increase in prepaid and other current assets and a decrease in accrued expenses
of $0.2 million, and $0.2 million, respectively.
Net cash used in investing activities in the first quarter of fiscal 2001 and
fiscal 2000 was insignificant.
In December 2000, the Company renewed its bank line of credit that provides for
maximum borrowings of $5.0 million, primarily limited to a certain percentage of
eligible accounts receivable and eligible inventory. The Company has not drawn
on this line of credit.
On September 30, 1999, the Company's stock ceased to be traded on the NASDAQ
National Market System and was moved to the Over-The-Counter (OTC) Bulletin
Board. During the fiscal year 2000, the Company successfully completed a $1.5
million private placement of 500,000 shares of common stock, however the
Company's access to further equity finance could be effected by the level of the
Company's share price and the Company's listing status.
The Company believes that its current cash and cash equivalents, together with
cash expected to be generated by operations and existing credit facilities, will
be sufficient to fund its operations and meet capital requirements through
fiscal 2001. However, the Company has incurred substantial operating losses in
the past and may seek additional financing. If additional funds are required
there can be no assurance that such funds will be available at all or on terms
favorable to the Company and its stockholders.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The new standard requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives will be reported in the statements of operations or as a deferred
item,
13
depending on the use of the derivatives and whether they qualify for hedge
accounting. The key criterion for hedge accounting is that the derivative must
be highly effective in achieving offsetting changes in fair value or cash flows
of the hedged items during the term of the hedge. The Company adopted SFAS No.
133 at the start of fiscal year 2000. This adoption did not have a material
impact on its financial statements.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition," which outlines the
basic criteria that must be met to recognize revenue and provides guidance for
presentation of revenue and for disclosure related to revenue recognition
policies in financial statements filed with the Securities and Exchange
Commission. The effective date of this pronouncement is the quarter of the
fiscal year beginning after December 31, 2000. We believe that adopting SAB 101
will not have a material impact on our financial position and results of
operations.
Item 3A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk. As of December 30, 2000, the Company's cash and investment
portfolio did not include fixed-income securities. Due to the short-term nature
of the Company's investment portfolio, an immediate 10% increase in interest
rates would not have a material effect on the fair market value of the Company's
portfolio. Since the Company has the ability to liquidate this portfolio, it
does not expect its operating results or cash flows to be materially affected to
any significant degree by the effect of a sudden change in market interest rates
on its investment portfolio.
Foreign Currency Exchange Risk. All of the Company's sales are denominated in
U.S. dollars, and as a result the Company has little exposure to foreign
currency exchange risk. The effect of an immediate 10% change in exchange rates
would not have a material impact on the Company's future operating results or
cash flows.
14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time the Company is subject to legal proceedings and claims in the
ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property rights.
On September 13, 1996, a complaint was filed by Datapoint Corporation against
the Company and six other companies individually and as purported
representatives of a defendant class of all manufacturers, vendors and users of
Fast Ethernet-compliant, dual protocol local-area network products, for alleged
infringement of United States letters Patent Nos. 5,077,732 and 5,008,879, The
complaint sought unspecified damages in excess of $75,000 and permanent
injunctive relief. The Company filed a response to the complaint denying
liability. The case was consolidated, for purposes of claim interpretation, with
similar cases filed against several other defendants, which include, among
others, Intel Corporation, IBM Corporation, Cisco Systems, Bay Networks, and Sun
Microsystems. On April 16,1998, a Special Master appointed by the court issued a
report agreeing in most material respects with the defendants' interpretation of
the alleged patent claims. Subsequently, by order dated November 23,1998, the
District Court adopted without modification the findings of the Special Master
and the recommendations of the Magistrate Judge regarding claim interpretation
of the patents-in-suit. The Court ordered dismissal of the case, and entered
judgment in favor of all defendants. Plaintiff has filed an appeal of the
judgment to the Federal Circuit Court of Appeal, which is now pending. The
Federal Circuit has entered an Order staying the appeal pending the outcome of
related U. S. Patent and Trademark Office proceedings. Datapoint's recent letter
motion to lift the stay was denied by the Federal Circuit on December 26, 2000
and so the case remains stayed.
In September 1999 certain inventory having a cost of approximately $400,000 was
seized by the United States Customs for the alleged improper use of
certification marks owned by Underwriters Laboratories Inc. ("UL"). It is the
Company's position that the alleged improper use was simply a mistake or error.
The Company may obtain the return of the inventory through settlement
negotiations with either the United States Customs or United States Attorney's
Office, obtaining permission from UL to use the certification marks, or being
successful in trial proceedings. To contest the seizure, the Company determined
to seek a review with the United States Attorney's Office and filed a claim for
the inventory. It is now incumbent upon the United States Attorney's Office to
file in court seeking forfeiture of the inventory and allow the Company, as
claimant, to challenge such proceeding. The Company also expects that the United
States Customs may issue a penalty separate from the seizure under 19 U.S.C.
section 1526(f), which provides for a penalty ranging in amount from the retail
value of the seized inventory had the inventory been UL approved, to twice the
retail value. The Company asserts this is a first time offense. For a first time
offense, the United States Customs may mitigate the penalties when challenged
administratively, with such mitigation being as low as 10% of the value of the
inventory. The Company intends to contest any penalty action through
administrative and/or judicial procedures. On April 28, 2000, the Company
submitted a settlement proposal to the
15
United States Attorney's Office offering settlement of the case. The Company has
not yet received a reply to its settlement proposal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits:
27.1 Financial Data Schedule
(b.) Reports on Form 8-K: None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 13, 2001 ASANTE TECHNOLOGIES, INC.
(Registrant)
By: /s/ ANTHONY CONTOS
-------------------------------
Anthony Contos
Vice President of Finance and
Administration, and Secretary
(Authorized Officer and Principal Financial Officer)
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