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 March 30, 2002
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 of (I.R.S. Employer Identification No.)
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 March 30, 2002, the Registrant had 10,024,401 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
March 30, 2002 and September 29, 2001 3
Unaudited Condensed Statements of Operations
Three and six months ended March 30, 2002 and March 31, 2001 4
Unaudited Condensed Statements of Cash Flows
Three and six months ended March 30, 2002 and March 31, 2001 5
Notes to Unaudited Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
2
Item 1. Financial Statements
Asante Technologies, Inc.
Unaudited Condensed Balance Sheets
(in thousands)
March 30, September 29,
2001 2001
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 4,060 $ 5,065
Accounts receivable, net 1,182 1,764
Inventory 1,445 1,848
Prepaid expenses and other current assets 347 400
-------- --------
Total current assets 7,034 9,077
-------- --------
Property and equipment, net 122 117
Other assets 172 172
-------- --------
Total assets $ 7,328 $ 9,366
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,837 $ 2,469
Accrued expenses 3,850 4,117
Payable to stockholder 86 8
-------- --------
Total current liabilities 5,773 6,594
-------- --------
Stockholders' equity:
Common stock 28,417 28,412
Accumulated deficit (26,862) (25,640)
-------- --------
Total stockholders' equity 1,555 2,772
-------- --------
Total liabilities and stockholders' equity $ 7,328 $ 9,366
======== ========
The accompanying notes are an integral part of these
Unaudited Condensed Financial Statements.
3
Asante Technologies, Inc.
Unaudited Condensed Statements of Operations
(in thousands, except per share data)
Three months ended Six months ended
-------------------------- --------------------------
March 30 March 31 March 30 March 31
2002 2001 2002 2001
-------- ------- -------- --------
Net sales $ 3,955 $ 5,016 $ 7,814 $ 11,968
Cost of sales 2,518 3,215 5,067 7,637
-------- ------- -------- --------
Gross profit 1,437 1,801 2,747 4,331
-------- ------- -------- --------
Operating expenses:
Sales and marketing 914 1,331 1,955 2,575
Research and development 629 651 1,319 1,347
General and administrative 342 384 705 760
-------- ------- -------- --------
Total operating expenses 1,885 2,366 3,979 4,682
-------- ------- -------- --------
Loss from operations (448) (565) (1,232) (351)
Interest and other income (expense), net (18) 67 10 85
-------- ------- -------- --------
Loss before income taxes (466) (498) (1,222) (266)
Provision for income taxes -- -- -- --
-------- ------- -------- --------
Net loss $ (466) $ (498) $ (1,222) $ (266)
======== ======= ======== ========
Basic and diluted net loss per share $ (0.05) $ (0.05) $ (0.12) $ (0.03)
======== ======= ======== ========
Shares used in per share
calculation:
Basic 10,017 9,932 10,010 9,923
======== ======= ======== ========
Diluted 10,017 9,932 10,010 9,923
======== ======= ======== ========
The accompanying notes are an integral part of these
Unaudited Condensed Financial Statements.
4
Asante Technologies, Inc.
Unaudited Condensed Statements of Cash Flows
(in thousands)
Six months ended
-----------------------
March 30, March 31,
2002 2001
----------- ----------
Cash flows from operating activities:
Net loss $(1,222) $ (266)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 52 115
Provision for doubtful accounts receivable (62) 48
Changes in operating assets and liabilities:
Accounts receivable 644 1,491
Inventory 403 (474)
Prepaid and other current assets 53 (25)
Accounts payable (632) (451)
Payable to stockholder 78 59
Accrued expenses (267) (630)
------- -------
Net cash used in operating activities (953) (133)
------- -------
Cash flows from investing activities:
Purchases of property and equipment, net (57) (22)
Other assets 0 (12)
------- -------
Net cash used in investing activities (57) (34)
------- -------
Cash flows from financing activities:
Issuance of Common Stock 5 43
------- -------
Net cash provided by financing activities 5 43
------- -------
Net decrease in cash and and cash equivalents (1,005) (124)
Cash and cash equivalents, beginning of period 5,065 6,433
------- -------
Cash and cash equivalents, end of period $ 4,060 $ 6,309
======= =======
The accompanying notes are an integral part of these
Unaudited Condensed 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 29, 2001, included in the Company's 2001 Annual Report on Form
10-K. Certain prior period balances have been reclassified to conform to current
period presentation.
Note 2. Basic and Diluted Net Loss Per Share
The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards Statement No. 128, "Earnings per Share" (SFAS No.
128). Basic net loss per share is computed by dividing net loss available to
common stockholders (numerator) by the weighted-average number of common shares
outstanding (denominator) during the period. Diluted net loss 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 loss per share, the average stock price for the period is used in
determining the number of shares assumed to be purchased from the exercise of
stock options.
6
The following is a reconciliation of the numerators and denominators of the
basic and diluted net loss per share computations for the periods presented
below (in thousands, except per share data):
Three Months Ended Six Months Ended
------------------------ --------------------------
March 30, March 31, March 30, March 31,
2002 2001 2002 2001
--------- --------- ---------- ---------
Net loss $ (466) $ (498) $ (1,222) $ (266)
========= ========= ========== =========
Weighted average common stock outstanding (basic) 10,017 9, 932 10,010 9, 923
Dilutive effect of warrants and options -- -- -- --
--------- --------- ---------- ---------
Weighted average common stock outstanding (diluted) 10,017 9,932 10,010 9,923
========= ========= ========== =========
Net loss per share:
Basic $ ( 0.05) $ (0.05) $ (0.12) (0.03)
========= ========= ========== =========
Diluted $ ( 0.05) $ ( 0.05) $ (0.12) $ (0.03)
========= ========= ========== =========
For the three and six month periods ended March 30, 2002 and March 31, 2001,
options and warrants outstanding were excluded from the calculation since their
effect was antidilutive.
At March 30, 2002 and March 31, 2001, options and warrants outstanding of
1,516,931 and 1,612,259, respectively, were excluded since their effect was
antidilutive.
Note 3. Comprehensive Income (Loss)
The Company had no items of other comprehensive income (loss) during any of the
periods presented, and, accordingly, net loss was equal to comprehensive loss
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):
7
March 30, September 29,
2002 2001
---------- --------------
Raw materials and component parts 154 154
Work-in-process 95 130
Finished goods 1,196 1,564
------ ------
$1,445 $1,848
====== ======
Note 5. Bank Borrowings
In December 2001, the Company renewed its bank line of credit that provides for
maximum borrowings of $3.0 million, and is limited to certain percentages of
eligible accounts receivable. No borrowings have been made under the
line-of-credit agreement. The line of credit is available through December 2002
and is subject to certain covenant requirements. As of March 30, 2002, the
Company was in compliance with the covenants under its line of credit agreement.
Note 6. Income Taxes
The Company has recorded no provision or benefit for federal and state income
taxes for the periods ended March 30, 2002 and March 31, 2001, due primarily to
a valuation allowance being established against the Company's deferred tax
assets, which consists primarily of net operating loss carryforwards and
research and development credits. The Company has recorded a full valuation
allowance against its deferred tax assets as sufficient uncertainty exists
regarding their recoverability.
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
8
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
Appeals, which is now pending. Oral arguments on the appeal were heard December
3, 2001, and a decision was made in March 2002 that Datapoint's patents as
invalid and dismissed the case. Counter claim's to the suit have been
voluntarily withdrawn and the case has been dismissed.
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. Despite a recent federal case which upheld the US. Customs
authority to seize and penalize for improper use of the UL certification mark,
the U.S. Attorney has stated that he would still consider settlement of the
Company's case due to factual differences.
Note 8. Recently Issued Accounting Pronouncements
In June 2001, the FASB Emerging Issues Task Force ("EITF") issued EITF Issue No.
00-25 ("EITF 00-25"), "Vendor Income Statement Characterization of Consideration
Paid to a Reseller of the Vendor's Products." EITF 00-25 establishes the
treatment in the income statement of vendor consideration to resellers of a
vendor's products. EITF 00-25 is effective for the interim and year-end periods
beginning after December 15, 2001. We believe that adoption of the standard will
not have a material impact on our financial statements.
Note 9. Segment Information
The Company determined that it does not have separately reportable operating
segments.
Sales as a percent of total sales by geographic region for the first six months
of each fiscal year are as follows:
9
2002 2001
---- ----
United States 80% 75%
Europe 14% 15%
Other 6% 10%
Substantially all of the Company's assets are located in the United States.
10
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 three and six months ended March 30, 2002, and the Company's Annual
Report on Form 10-K for the fiscal year ended September 29, 2001. 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 for the second quarter of fiscal 2002 were approximately $4.0 million,
a decrease of approximately $1.0 million, or 21%, from net sales of
approximately $5.0 million for the second quarter of fiscal 2001. Sales of the
Company's products continued to be negatively impacted by the continuing
economic slowdown affecting the industry, a further reduction in sales network
adapter products to Apple Computer specific platforms due to Apple's
incorporation of Ethernet onto the motherboard of their new systems, and to
heavy competitive pressures pushing down selling prices on networking products
and impacting unit sales. The factors contributed to an approximately 20%
decrease in sales during the quarter.
Sales were lower across substantially all of the Company's product lines,
however, these decreases were offset partially by increased sales of the
Company's managed IntraCore(TM) switch products and the sales of wireless router
products. Original Equipment Manufacturer ("OEM") sales for the second quarter
of fiscal 2002, were approximately $0.3, compared to negiligible OEM sales
during the second quarter of fiscal 2001. Management anticipates that sales of
the Company's older adapter card and systems products will continue to decrease
as a percentage of total sales, while sales of its IntraCore, router and Gigabit
products are expected to increase as a percentage of total sales in the next
quarter.
Net sales for the first six months of fiscal 2002 decreased by approximately 35%
to $7.8 million compared to $12.0 million for the first half of fiscal 2001.
During the six months ended March 30, 2002, the Company's sales levels were
negatively impacted by the continued economic slow down affecting the industry.
Additionally, the decrease in sales for the six months ended March 30, 2002
compared to March 31, 2001 was due to a decrease in revenues of the Company's
adapter cards, from $2.7 million to $0.8 million, the current economic slowdown,
Apple Computer's incorporation of Ethernet technology into the motherboard of
its newer products, and the reduction of sales of its products to one of the
Company's large customers in fiscal 2001. The Company continues to experience a
decrease in sales of 10/100 shared products due to the
11
transition of many customers to switching technologies, and sharp pricing
declines, and in sales of the Company's legacy print router products due to the
migration of these technologies to newer printer technologies. These decreases
were partially offset by increased sales of the Company's IntraCore managed
switch products and wireless router products.
International sales, primarily to customers in Europe, Canada and Asia Pacific,
accounted for approximately 18% of net sales for the second quarter of fiscal
2002 and were approximately 20% for the first six months of fiscal 2002 compared
to 26% for both the second quarter and first six months of fiscal 2001. The
percentage decrease in international sales for the first six months of fiscal
2002 as compared to fiscal 2001 was due in part to the decreases in sales of the
Company's adapter cards, the discontinuation of one of the Company's primary
distributors in Canada and increased competition internationally due to the
slower economy.
The Company's gross profit as a percentage of net sales increased to 36.3% for
the second quarter of fiscal 2002 as compared to 35.9% for the same period in
fiscal 2001. The Company's gross profit as a percentage of net sales decreased
to 35.2% for the first six months of fiscal 2002 as compared to 36.2% for the
same period in fiscal 2001. The increase in margin for the second quarter of
fiscal 2002, was due primarily to the Company's cost reduction efforts, and a
reduced inventory obsolescence reserve during the quarter. The decrease in
margin for the first six months of fiscal 2002, compared to the first six months
of fiscal 2001, was due primarily to reduced sales levels compared to 2001, and
sales of products to certain of the Company's Asian distributors and OEM
customers at reduced margins.
Sales and marketing expenses of $0.9 million in the second quarter of fiscal
2002, decreased approximately $0.4 million, compared to $1.3 million in the
second quarter of fiscal 2001, and decreased by approximately $0.6 million or
24.1% in the first six months of 2002 compared to the first six months of 2001.
As a percentage of net sales, these expenses were approximately 23.1% and 25.0%
in the second quarter and the first six months of 2002, respectively, compared
with 26.5% and 21.5% in the second quarter and first six months of fiscal 2001,
respectively. The decrease in sales and marketing expenses for the first six
months of fiscal 2002, as compared to fiscal 2001 was due primarily to the
Company's cost reduction efforts, decreases in advertising activities, and a
decrease in doubtful accounts provision and cooperative advertising. The Company
expects that its sales and marketing expenses in absolute dollars will remain
approximately flat for the remainder of fiscal 2002 in comparison to fiscal
2001.
Research and development expenses remained approximately flat at approximately
$629,000 in the second quarter of fiscal 2002, compared to the second quarter of
fiscal 2001, and was approximately $1.3 million for both the first six months of
2002 and 2001. The Company expects that spending on research and development for
the remainder of fiscal 2002 will remain flat.
General and administrative expenses decreased slightly in the second quarter of
fiscal 2002 compared to the second quarter of fiscal 2001, and decreased by
approximately $0.1 million, or 7.2% in the first six months of 2002 compared to
the first six months of 2001. The decrease in general and administrative
expenses in absolute dollars for the first six months of fiscal 2002 is
primarily related to reductions in personnel related costs. The Company expects
that general and
12
administrative expenses in absolute dollars will remain flat for the remainder
of fiscal 2002 in comparison to fiscal 2001.
In response to the lingering economic slowdown, the Company continues to take
cost cutting measures. These actions include the elimination of several regular
positions, a freeze on hiring, elimination of contract labor, postponement of
major development, deferment of pay increases, and a temporary pay reduction.
The Company is investigating further cost reduction actions in the future to
reduce its costs as a percentage of total sales.
The Company has recorded no provision or benefit for federal and state income
taxes for the periods ended March 30, 2002 and March 31, 2001, due primarily to
a valuation allowance being established against the Company's deferred tax
assets which consists primarily of net operating loss carry-forwards and
research and development credits. The Company has recorded a full valuation
allowance against its deferred tax assets as sufficient uncertainty exists
regarding their recoverability.
Liquidity and Capital Resources
Net cash used in operating activities was $1.0 million for the six months ended
March 30, 2002, compared to cash used of $0.1 million for the six months ended
March 31, 2001. During the first six months of fiscal 2002, the net cash used by
operating activities resulted primarily from the Company's net loss, a reduction
in accounts payable of $0.6 million and decreased accrued expenses of $0.3
million. These cash outflows were partially offset by net cash inflows resulting
from decreases in accounts receivables of $0.6 million and inventories of $0.4
million.
Net cash used in investing activities for the six months of fiscal 2002 and
fiscal 2001 was insignificant.
In December 2001, the Company renewed its bank line of credit that provides for
maximum borrowings of $3.0 million, and is limited to certain percentages of
eligible accounts receivable and eligible inventory. The Company has not drawn
on this line of credit. The availability of the line of credit is subject to
certain covenant requirements.
The Company operates in a highly competitive market characterized by rapidly
changing technology, together with competitors and distributors that have
significantly greater financial resources than the Company. The Company intends
to incur significant expenses to develop and promote new products as well as to
support existing product sales. Failure to generate sufficient revenues from new
and existing products, raise additional capital or reduce discretionary
expenditures would have a material adverse effect on the Company's ability to
continue as a going concern and achieve its intended business objectives.
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 the
next twelve months.
13
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. High
employee turnover in the high-tech industry is typical. 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 has, in the past, been
characterized by fierce competition, rapidly changing salary structures, and a
shortage of the workforce in general. Although the current economic slowdown has
reduced the current exposure, these conditions, if returning,, 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. The networking industry and
technology markets in general have been affected by a widespread reduction in
demand for products due to financial problems experienced by many Internet
Service Provider's (ISP's), and the failure of many Internet companies. The
duration, or long-term effect on the Company's operations is difficult to
measure, but the inability to alter its structure, or react properly to this
slowdown could have an adverse effect on the Company's financial position.
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
14
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 (1000BASE-T, or 1000Mbps) 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, adopt, or continue to use 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, education, MTU/MDU providers, 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, fluctuations in channel inventory levels, variations
in the mix of product sales, manufacturing delays or disruptions in sources of
supply, the current economic recession 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 to these and other factors. Failure to
anticipate and
15
successfully react to these and other factors could adversely affect the
Company's business, financial condition and results of operations.
In addition to the above, the Company is also susceptible to 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.
Recent Accounting Pronouncements
In June 2001, the FASB Emerging Issues Task Force ("EITF") issued EITF Issue No.
00-25 ("EITF 00-25"), "Vendor Income Statement Characterization of Consideration
Paid to a Reseller of the Vendor's Products." EITF 00-25 establishes the
treatment in the income statement of vendor consideration to resellers of a
vendor's products. EITF 00-25 is effective for the interim and year end periods
beginning after December 15, 2001 We believe that adoption of the standard will
not have a material impact on our financial statements.
Item 3A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk. As of March 30, 2002, 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.
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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.
Information regarding current litigation is set forth in Note 7 of the Notes to
Unaudited Condensed Financial Statements included in Part I, Item 1 of this
report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders of the Company, held February 21, 2002 in
San Jose, California, the stockholders (i) elected four directors to serve on
the Company's Board of Directors, and (iv) ratified the appointment of
PricewaterhouseCoopers, LLP, as the Company's independent accountants.
The vote for nominated directors was as follows:
Nominee For Against Abstain
------- --- -------- -------
Wilson Wong 9,027,972 0 61,050
Jeff Yuan-Kai Lin 9,030,022 0 59,000
Michael D. Kaufman 9,029,022 0 60,000
Edmond Y. Tseng 9,031,022 0 58,000
The vote for ratification of the appointment of independent auditors was as
follows:
For Against Abstain
--- ------- -------
9,079,432 4,500 5,100
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits:
None
(b.) Reports on Form 8-K:
None
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.
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Date: May 9, 2002 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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