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 29, 2003
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 __
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes No X
As of March 29, 2003, the Registrant had 10,097,494 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 29, 2003 and September 28, 2002 3
Unaudited Condensed Statements of Operations
Three and six months ended March 29, 2003 and March 30, 2002 4
Unaudited Condensed Statements of Cash Flows
Three and six months ended March 29, 2003 and March 30, 2002 5
Notes to Unaudited Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
Item 4. Controls and Procedures 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 24
Signature 25
PART I. Financial Information
Item 1. Financial Statements
Asante Technologies, Inc.
Unaudited Condensed Balance Sheets
(in thousands)
March 29, September 28,
2003 2002
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 2,464 $ 3,282
Accounts receivable, net 1,277 1,558
Inventory 1,991 1,515
Prepaid expenses and other current assets 145 141
-------- --------
Total current assets 5,877 6,496
Property and equipment, net 75 90
Other assets 170 172
-------- --------
Total assets $ 6,122 $ 6,758
======== ========
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable $ 2,567 $ 2,291
Accrued expenses 3,933 3,834
Payable to stockholder 52 --
-------- --------
Total current liabilities 6,552 6,125
-------- --------
Stockholders' equity (deficit):
Common stock 28,423 28,422
Accumulated deficit (28,853) (27,789)
-------- --------
Total stockholders' equity (deficit) (430) 633
-------- --------
Total liabilities and stockholders' equity (deficit) $ 6,122 $ 6,758
======== ========
The accompanying notes are an integral part of these Unaudited Condensed
Financial Statements.
Asante Technologies, Inc.
Unaudited Condensed Statements of Operations
(in thousands, except per share data)
Three months ended Six months ended
------------------- -------------------
March 29, March 30, March 29, March 30,
2003 2002 2003 2002
-------- -------- -------- --------
Net sales $ 2,564 $ 3,955 $ 6,398 $ 7,814
Cost of sales 1,567 2,518 3,954 5,067
-------- -------- -------- --------
Gross profit 997 1,437 2,444 2,747
-------- -------- -------- --------
Operating expenses:
Sales and marketing 978 914 1,876 1,955
Research and development 498 629 1,053 1,319
General and administrative 243 342 538 705
-------- -------- -------- --------
Total operating expenses 1,719 1,885 3,467 3,979
-------- -------- -------- --------
Loss from operations (722) (448) (1,023) (1,232)
Interest and other income (expense), net (33) (18) (41) 10
-------- -------- -------- --------
Loss before income taxes (755) (466) (1,064) (1,222)
Provision for income taxes -- -- -- --
-------- -------- -------- --------
Net loss ($ 755) ($ 466) ($ 1,064) ($ 1,222)
======== ======== ======== ========
Basic and diluted net loss per share ($ 0.07) ($ 0.05) ($ 0.11) ($ 0.12)
======== ======== ======== ========
Shares used in per share
calculation:
Basic and diluted 10,086 10,017 10,076 10,010
======== ======== ======== ========
The accompanying notes are an integral part of these Unaudited Condensed
Financial Statements.
Asante Technologies, Inc.
Unaudited Condensed Statements of Cash Flows
(in thousands)
Six months ended
------------------
March 29, March 30,
2003 2002
------- -------
Cash flows from operating activities:
Net loss $(1,064) $(1,222)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 32 52
Provision for doubtful accounts receivable 72 (62)
Changes in operating assets and liabilities:
Accounts receivable 209 644
Inventory (476) 403
Prepaid expenses and other current assets (4) 53
Accounts payable 276 (632)
Payable to stockholder 52 78
Accrued expenses 99 (267)
------- -------
Net cash used in operating activities (804) (953)
------- -------
Cash flows from investing activities:
Purchases of property and equipment (17) (57)
Other assets 2 0
------- -------
Net cash used in investing activities (15) (57)
------- -------
Cash flows from financing activities:
Issuance of Common Stock 1 5
------- -------
Net cash provided by financing activities 1 5
------- -------
Net decrease in cash and and cash equivalents (818) (1,005)
Cash and cash equivalents, beginning of period 3,282 5,065
------- -------
Cash and cash equivalents, end of period $ 2,464 $ 4,060
======= =======
The accompanying notes are an integral part of these Unaudited Condensed
Financial Statements.
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 presentation 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 28, 2002, included in the Company's 2002 Annual Report
on Form 10-K. The results of operations for the interim periods are not
necessarily indicative of the results that may be expected for the entire year.
The Company's expectations as to its cash flows, and as to future cash balances,
are subject to a number of assumptions, including assumptions regarding
anticipated revenues, customer purchasing and payment patterns, and improvements
in general economic conditions, many of which are beyond the Company's control.
If revenues do not match projections and if losses exceed the Company's
expectations, the Company will implement additional cost saving initiatives in
order to preserve cash. If the Company experiences a continued decrease in
demand for it's products from the level experienced during fiscal year 2002,
then it would need to reduce expenditures to a greater degree than anticipated,
or raise additional funds if possible.
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, or reduce discretionary expenditures would have a
material adverse effect on the Company's ability to achieve its intended
business objectives.
Note 2. Basic and Diluted Net Loss Per Share
Basic net loss per share is computed by dividing net loss (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.
The following is a reconciliation of the numerators and denominators of the
basic and diluted net loss per share computations for the periods presented (in
thousands, except per share data):
Three Months Ended Six Months Ended
-------------------- -------------------
March 29, March 30, March 29, March 30,
2003 2002 2003 2002
--------- --------- -------- --------
Net loss $ (755) $ (466) $ (1,064) $ (1,222)
========= ========= ======== ========
Weighted average common stock outstanding (basic) 10,086 10,017 10,076 10,010
Effect of dilutive warrants and options -- -- -- --
--------- --------- -------- --------
Weighted average common stock outstanding (diluted) 10,086 10,017 10,076 10,010
========= ========= ======== ========
Net loss per share:
Basic $ (0.07) $ (0.05) $ (0.11) $ (0.12)
========= ========= ======== ========
Diluted $ (0.07) $ (0.05) $ (0.11) $ (0.12)
========= ========= ======== ========
For the three and six month periods ended March 29, 2003 and March 30, 2002,
options and warrants outstanding were excluded from the calculation since their
effect was antidilutive.
At March 29, 2003 and March 30, 2002, options and warrants outstanding of
1,710,726 and 1,516,931, 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):
March 29, September 28,
2003 2002
------ ------
Raw materials and component parts 191 193
Work-in-process 152 54
Finished goods 1,648 1,268
------ ------
$1,991 $1,515
====== ======
Note 5. Warranties
We provide for estimated future warranty costs upon product shipment. The
specific terms and conditions of those warranties vary depending upon the
product sold and country in which we do business. In the case of hardware
manufactured by our sub-contract manufacturers, our warranties generally start
from the delivery date and continue as follows:
Product Warranty Periods
------- ----------------
Managed switches Three to five years
Unmanaged Gigabit Switches, Gigabit Adapters One to five years
Unmanaged switches, hubs, USB hubs, routers, fiber One to five years
Other - Adapters One to five years
AsantePrint and AsanteTalk print routers, Gig cables Limited Lifetime
Longer warranty periods are provided on a limited basis including some
"lifetime" warranties on some of the Company's older legacy products.
From time to time, some of the Company's products may be manufactured to
customer specifications and their acceptance is based on meeting those
specifications. We historically have experienced minimal warranty costs related
to these products. Factors that affect our warranty liability include the number
of shipped units, historical experience and management's judgment regarding
anticipated rates of warranty claims and cost per claim. We assess the adequacy
of our recorded warranty liabilities every quarter and make adjustments to the
liability if necessary.
Changes in our warranty liability, which is included as a component of "Accrued
expenses" on the Condensed Balance Sheets, during the period are as follows (in
thousands):
Balance as of September 28, 2002 $ 469
Provision for warranty liability for sales made
during the period ended March 29, 2003 229
Settlements made during the period ended March 29, 2003 (228)
-------
Balance as of March 29, 2002 $ 470
-------
Note 6. Bank Borrowings
On December 31, 2002, the Company renewed its bank line of credit which provides
for maximum borrowings of $2.0 million, and is limited to a certain percentage
of eligible accounts receivable. No borrowings have been made under the
line-of-credit agreement. The line of credit is available through November 2003
and is subject to certain covenant requirements, including maintaining certain
net tangible worth amounts. As of March 29, 2003, the Company was in compliance
with the covenants under its line of credit agreement.
Note 7. Income Taxes
The Company has recorded no provision or benefit for federal and state income
taxes for the periods ended March 29, 2003 and March 30, 2002, 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 8. 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.
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"). In March
2003, the US Attorney and the Company entered a final settlement for an amount
consisting of $57,000, plus removal of improper marks from the product.
Note 9. Recently Issued Accounting Pronouncements
In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 45 ("FIN45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN 45 requires that a liability be recorded in the guarantor's balance
sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures
about the guarantees that an entity has issued, including a reconciliation of
changes in the entity's product warranty liabilities. The initial recognition
and initial measurement provisions of FIN 45 are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002, irrespective of
the guarantor's fiscal year-end. The disclosure requirements of FIN 45 are
effective for financial statements of interim or annual periods ending after
December 15, 2002. The adoption of FIN 45 did not have a material impact on the
Company's operating results or financial position.
In December 2002, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 148, "Accounting for Stock-Based Compensation, Transition and
Disclosure." SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS No. 148 also requires that disclosures of the pro
forma effect of using the fair value method of accounting for stock-based
employee compensation be displayed more prominently and in a tabular format.
Additionally, SFAS No. 148 requires disclosure of the pro forma effect in
interim financial statements. The Company plans to continue to account for
employee stock options in accordance with Accounting Principles Board Opinion
("APB") No. 25, "Accounting For Stock Issued To Employees." The Company has
complied with the disclosure requirements of SFAS No 148.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective immediately for all new variable interest entities created or acquired
after January 31, 2003. For variable interest entities created or acquired prior
to February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. The company believes
that the adoption of this standard will have no material impact on its financial
statements.
In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue
No. 00-21 provides guidance on how to account for arrangements that involve the
delivery or performance of multiple products, services and/or rights to use
assets. The provisions of EITF Issue No. 00-21 will apply to revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
Company is currently evaluating the effect that the adoption of EITF Issue No.
00-21 will have on its results of operations, financial condition and cash
flows.
In April 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities." SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS 133. In particular, this
Statement clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative and when a derivative
contains a financing component that warrants special reporting in the statement
of cash flows. This Statement is generally effective for contracts entered into
or modified after June 30, 2003 and is not expected to have a material impact on
the Company's financial statements.
Note 10. Segment Information
The Company has determined that it operates in one business segment, networking
and connectivity, and does not have reportable segments.
Sales, as a percentage of net sales, by geographic region for the first six
months of each fiscal year are as follows:
2003 2002
---- ----
United States 81% 80%
Europe 12% 14%
Other 7% 6%
Substantially all of the Company's assets are located in the United States.
Note 11. Stock Based Compensation
On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based
Compensation - Transition and Disclosure," which amends SFAS No. 123. SFAS No.
148 requires more prominent and frequent disclosures about the effects of
stock-based compensation. The Company accounts for its stock-based compensation
plans using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to
Employees." Compensation cost for stock options, if any, is measured by the
excess of the quoted market price of the Company's stock at the date of grant
over the amount an employee must pay to acquire the stock. SFAS No. 123,
"Accounting for Stock-Based Compensation," established accounting and disclosure
requirements using a fair-value based method of accounting for stock-based
employee compensation plans. Had compensation expense for the Plans been
determined consistent with SFAS No. 123, the Company's net loss and basic and
diluted net loss per share would have increased to the following pro forma
amounts (dollars, in thousands, except per share amounts):
Three Months Ended Six Months Ended
-------------------- ----------------------
March 29, March 30, March 29, March 30,
(In thousands, except per share data) 2003 2002 2003 2002
--------- --------- ---------- ---------
Net loss as reported $ (755) $ (466) $ (1,064) $ (1,222)
========= ========= ========== =========
Employee stock-based compensation expense
determined under the fair value method $ 16 $ 49 $ 57 $ 98
--------- --------- ---------- ---------
Pro forma net loss $ (771) $ (515) $ (1,121) $ (1,320)
========= ========= ========== =========
Net loss per share:
As reported
Basic $ (0.07) $ (0.05) $ (0.11) $ (0.12)
========= ========= ========== =========
Diluted $ (0.07) $ (0.05) $ (0.11) $ (0.12)
========= ========= ========== =========
Pro forma
Basic $ (0.08) $ (0.05) $ (0.11) $ (0.13)
========= ========= ========== =========
Diluted $ (0.08) $ ( 0.05) $ (0.11) $ (0.13)
========= ========= ========== =========
Note 12. Guarantees
Officer and Director Indemnifications
As permitted and/or required under Delaware law and to the maximum
extent allowable under that law, the Company has agreements whereby the Company
indemnifies its current and former officers and directors for certain events or
occurrences while the officer or director is, or was serving, at the Company's
request in such capacity. These indemnifications are valid as long as the
director or officer acted in good faith and in a manner that a reasonable person
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The maximum potential amount of future
payments the Company could be required to make under these indemnification
agreements is unlimited; however, the Company has a director and officer
insurance policy that limits the Company's exposure and enables the Company to
recover a portion of any future amounts paid. As a result of the Company's
insurance policy coverage, the Company believes the estimated fair value of
these indemnification obligations is minimal.
Other Indemnifications
As is customary in the Company's industry, the Company's standard
contracts provide remedies to its customers, such as defense, settlement, or
payment of judgment for intellectual property claims related to the use of our
products. From time to time, the Company indemnifies customers against
combinations of loss, expense, or liability arising from various trigger events
related to the sale and the use of our products. In the Company's experience,
claims made under such indemnifications are rare and the associated estimated
fair value of the liability is not material
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 29, 2003, and the Company's Annual
Report on Form 10-K for the fiscal year ended September 28, 2002. 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
Net sales for the second quarter of fiscal 2003 were approximately $2.6 million,
a decrease of approximately $1.4 million, or 35%, from net sales of
approximately $4.0 million for the second quarter of fiscal 2002. Sales of the
Company's products continued to be negatively impacted by the ongoing economic
slowdown affecting the industry, a reduction in revenues in the distribution
channel due to several factors including seasonal lower sales during the second
fiscal quarter, heavy competitive pressures negatively impacting selling prices
of networking products, and delayed spending in the education channel due to
budget cuts causing a reduction in managed systems sales during the quarter. In
addition, sales to Original Equipment Manufacturers ("OEM") for the second
quarter of fiscal 2003 decreased to $0.1 million, from $0.3 million in the year
ago quarter, due to timing of projects at a customer site. Management
anticipates that revenues of the Company's managed systems and Gigabit products
will improve compared to the second quarter, while sales of adapters will remain
flat, or decrease somewhat due to lower selling prices and continued
incorporation of Ethernet onto the motherboard of many newer computers.
Net sales for the first six months of fiscal 2003 decreased by approximately 18%
to $6.4 million compared to $7.8 million for the first half of fiscal 2002.
During the six months ended March 29, 2003, 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 29, 2003
compared to March 30, 2002 was due to several factors including sharp declines
in selling prices due to heavy competitive pressures, a reduction of Mac
specific networking adapters due to Apple's continued incorporation of Ethernet
onto the motherboard of most of their newer computers, delays in educational
purchasing due to budget reductions, and the reduction of sales to one of the
Company's large customers in fiscal 2002.
International sales, primarily to customers in Europe, Canada and Asia Pacific,
accounted for approximately 21% of net sales for the second quarter of fiscal
2003 and represented approximately 19% of net sales for the first six months of
fiscal 2003 compared to 18% and 20%
for the second quarter and first six months of fiscal 2002, respectively. The
slight decrease in international sales in percentage terms for the first six
months of fiscal 2003 as compared to fiscal 2002 was due in part to reduced
revenues of the Company's products in Canada during the quarter and to the
factors described above.
Cost of Sales and Gross Profit
Cost of sales for the quarter ended March 29, 2003 decreased 38% to $1.6
million, compared to $2.5 million reported in the same quarter of fiscal 2002.
The lower cost of sales was due primarily to the decrease in sales for the
second quarter of fiscal 2003. Gross profit for the quarter ended March 29, 2003
declined 30% to $1.0 million compared to $1.4 million for the quarter ended
March 30, 2002. The decrease in gross profit for the quarter is consistent with
the decrease in net sales and cost of sales experienced during the most recently
completed quarter.
For the first six months of fiscal 2003, cost of sales have decreased 22% to
$4.0 million compared to $5.1 million for the same period in fiscal 2002. Gross
profits have declined 11% to $2.4 million for the first six months of fiscal
2003, compared to $2.7 million of gross profit reported during the first half of
fiscal 2002. The decrease in gross profit for the first six months of fiscal
2003 is due primarily to an 18% decline in net sales.
The Company's gross profit as a percentage of net sales increased to 38.9% for
the second quarter of fiscal 2003 as compared to 36.3% for the same period in
fiscal 2002. The Company's gross profit as a percentage of net sales increased
to 38.2% for the first six months of fiscal 2003 as compared to 35.2% for the
same period in fiscal 2002. The increase in margin for the second quarter and
first six months of fiscal 2003, was due primarily to the Company's cost
reduction efforts, and reduced inventory obsolescence reserves. Additionally,
the Company was successful in selling approximately $0.1 million of inventory
written down in previous periods.
Sales and Marketing
Sales and marketing expenses of $1.0 million in the second quarter of fiscal
2003, increased approximately $0.1 million, compared to $0.9 million in the
second quarter of fiscal 2002, and decreased by approximately $0.1 million or
4.0% in the first six months of 2003 compared to the first six months of 2002.
As a percentage of net sales, these expenses were approximately 38.1% and 29.3%
in the second quarter and the first six months of 2003, respectively, compared
with 23.1% and 25.5% in the second quarter and first six months of fiscal 2002,
respectively. The increase in sales expenses for the second quarter of fiscal
2003, compared to the second quarter of fiscal 2002, was due primarily to
increased personnel and commission related expenses. The decrease in sales and
marketing expenses for the first six months of fiscal 2003, as compared to
fiscal 2002 was due primarily to the Company's cost reduction efforts, and
decreases in advertising related expenditures. The Company expects that its
sales and marketing expenses in absolute dollars will decrease slightly for the
remainder of fiscal 2003 in comparison to fiscal 2002.
Research and Development
Research and development expenses of $0.5 million in the second quarter of
fiscal 2003, decreased approximately $0.1 million, compared to $0.6 million in
the second quarter of fiscal
2002, and decreased by $0.3 million in the first six months of fiscal 2003,
compared to the first six months of fiscal 2002. The decreases were due
primarily to reduced personnel related expenditures and overhead reduction
efforts. The Company expects that spending on research and development for the
remainder of fiscal 2003 will remain flat.
General and Administrative
General and administrative expenses decreased by approximately $0.1 million from
$0.2 million in the second quarter of fiscal 2003 compared to $0.3 million in
the second quarter of fiscal 2002, and decreased by approximately $0.2 million,
or 24%, from $0.5 million in the first six months of 2003 compared to $0.7
million in the first six months of 2002. The decrease in general and
administrative expenses in absolute dollars for the first six months of fiscal
2003 is primarily related to reductions in personnel and legal related costs
including a release of settlement reserves related to the Company's settlement
of a customs claims issue (See Note 8: Litigation). The Company expects that
general and administrative expenses in absolute dollars will remain flat, or
decrease slightly for the remainder of fiscal 2003 in comparison to fiscal 2002.
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.
Income Taxes
The Company has recorded no provision or benefit for federal and state income
taxes for the periods ended March 29, 2003 and March 30, 2002, 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
The Company's cash position decreased to $2.4 million as of March 29, 2003 from
$3.3 million as of September 28, 2002. The Company had a net working capital
deficit of $675,000 as of March 29, 2003.
Net cash used in operating activities was $0.8 million for the six months ended
March 29, 2003, compared to cash used in operating activities of $0.9 million
for the six months ended March 30, 2002. During the first six months of fiscal
2003, the net cash used in operating activities resulted primarily from the
Company's net loss of $1.1 million, and increased inventories of $0.5 million.
These cash outflows were partially offset by net cash inflows from reduced
accounts receivable of $0.2 million and increased accounts payables and accrued
expenses amounting to $0.4 million.
Net cash used in investing activities and net cash provided by financing
activities for the first six months of fiscal 2003 and fiscal 2002 was
insignificant.
In December 2002, the Company renewed its bank line of credit that provides for
maximum borrowings of $2.0 million, and is limited to a certain percentage (65%)
of eligible accounts receivable. The Company has not drawn on this line of
credit. The line of credit is available through November 2003 and is subject to
certain covenant requirements, including maintaining certain net tangible worth
amounts. As of March 29, 2003, the Company was in compliance with the covenants
under its line of credit agreement.
The Company has an operating lease for its main facility that expires on August
31, 2004. Future minimum lease payments under this lease at March 29, 2003 are
as follows (in thousands):
Six months ending September 27, 2003 575
Year ending October 2, 2004 909
--------
$ 1,474
========
In the first six months of fiscal 2003, and fiscal years 2002 and 2001, the
Company incurred net losses and negative cash flows from operations and as of
March 29, 2003, the Company had an accumulated deficit of $29 million. Based
upon the Company's operating budget and cash flow projections the Company
expects to continue to experience negative cash flows from operations through
fiscal year 2003. The Company anticipates that its existing cash and its ability
to borrow under its line of credit will be sufficient to meet its working
capital and operating expense requirements at least through September 30, 2003.
However, the Company's inventories have increased substantially in the second
quarter and during the first month of the third quarter, which negatively
impacted the Company's cash position.
The Company's expectations as to its cash flows, and as to future cash balances,
are subject to a number of assumptions, including assumptions regarding
anticipated revenues, customer purchasing and payment patterns, and improvements
in general economic conditions, many of which are beyond the Company's control.
If revenues do not match projections and if losses exceed the Company's
expectations, the Company will implement additional cost saving initiatives in
order to preserve cash. If the Company experiences a continued decrease in
demand for it's products from the level experienced during fiscal year 2002,
then it would need to reduce expenditures to a greater degree than anticipated,
or raise additional funds if possible.
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, or reduce discretionary expenditures would have a
material adverse effect on the Company's ability to achieve its intended
business objectives.
Factors Affecting Future Operating Results
The development and marketing of products requires significant amounts of
capital. A decline in future orders and revenues might require the Company to
seek additional capital to meet it's
working capital needs during or beyond the next twelve months if we are unable
to reduce expenses to the degree necessary to avoid incurring losses. If the
Company needs additional capital resources, it may be required to sell
additional equity or debt securities, secure additional lines of credit or
obtain other third party financing. The timing and amount of such capital
requirements cannot be determined at this time and will depend on a number of
factors, including demand for our existing and new products and changes in
technology in the networking industry. There can be no assurance that additional
financing will be available on satisfactory terms when needed, if at all.
Failure to raise such additional financing, if needed, may result in Company's
inability to achieve our long-term business objectives. To the extent that
additional capital is raised through the sale of additional equity or
convertible debt securities, the issuance of these securities would result in
additional dilution to the Company's shareholders.
The Company operates in a rapidly changing industry, which is characterized by
intense 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 technology products. This requires the
Company to accurately predict future technology trends and preferences. 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 technology industry is typical. Although the Company
has reduced its workforce during fiscal 2002 and in the first two quarters of
fiscal 2003, vacancies in the workforce must be promptly filled, because 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 significant
competition, rapidly changing salary structures, and a need for very specialized
experience. These conditions could affect the Company's ability to retain and
recruit a sufficiently qualified workforce.
The Company's current manufacturing structure is particularly subject to various
risks associated with its use of offshore contract manufacturers including
changes in costs of labor and materials, reliability of sources of supply and
general economic conditions in foreign countries. Unexpected changes in foreign
manufacturing or sources of supply, 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 continue to adjust to 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
strategic markets, 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 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 releases. 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 experienced a
build-up in inventories in the March time frame, and expects a further near term
build-up in inventories which it believes will negatively affect near-term cash
flows.
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
and cash position. 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, Multiple Tenant Unit/Multiple Dwelling Unit
(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. Additionally, the Company's revenues and
results of operations could be adversely affected, if the Company were to lose
certain key distribution partners.
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 downturn and seasonal purchasing patterns specific
to the computer and networking industries. 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
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 technology companies. These factors
could affect the price of the Company's stock and could cause such stock price
to fluctuate over relatively short periods of time.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations are based upon Asante Technologies, Inc. financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Management bases estimates and judgments on historical experience and on various
other factors that are believed to be reasonable under the circumstances; the
results of which form the basis for making judgments about the carrying values
of assets and liabilities. Actual results may differ from these estimates under
different assumptions or conditions. Management believes the following critical
accounting policies, among others, affect its more significant judgments and
estimates used in the preparation of its financial statements.
Revenue Recognition. The Company recognizes revenue net of estimated product
returns, expected payments to resellers for customer programs including
cooperative advertising and marketing development funds, volume rebates, and
special pricing programs. Product returns are provided for at the time revenue
is recognized, based on historical return rates, the product stage relative to
its expected life cycle, and assumptions regarding the rate of sell-through to
end users from our various channels, which is based on historical sell-through
rates. Should these product lives vary significantly from our estimates, or
should a particular selling channel experience a higher than estimated return
rate, or a slower sell-through rate causing inventory build-up, then our
estimated returns, which net against revenue, may need to be revised. Reductions
to revenue for expected and actual payments to resellers for volume rebates and
pricing protection are based on actual expenses incurred during the period and
on estimates for what is due to resellers for estimated credits earned during
the period. If market conditions were to decline, the Company may take action to
increase promotional programs resulting in incremental reductions in revenue at
the time the incentive is offered based on our estimate of inventory in the
channel that is subject to such pricing actions.
Accounts Receivable. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral from our
customers. The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
If the financial condition of our customers should deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
Inventory. The Company maintains reserves for estimated excess and obsolete
inventory based on projected future shipments using historical selling rates,
and taking into account market conditions, inventory on-hand, purchase
commitments, product development plans and life expectancy, and competitive
factors. If markets for the Company's products and corresponding demand were to
decline, then additional reserves may be deemed necessary.
Warranty. The Company provides for the estimated cost of warranties at the time
revenue is recognized. Should actual failure rates and material usage differ
from our estimates, revisions to the warranty obligation may be required.
Recent Accounting Pronouncements
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a liability
be recorded in the guarantor's balance sheet upon issuance of a guarantee. In
addition, FIN 45 requires disclosures about the guarantees that an entity has
issued, including a reconciliation of changes in the entity's product warranty
liabilities. The initial recognition and initial measurement provisions of FIN
45 are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantor's fiscal year-end. The
disclosure requirements of FIN 45 are effective for financial statements of
interim or annual periods ending after December 15, 2002. The adoption of FIN45
did not have a material impact on the Company's operating results or financial
position.
In December 2002, the FASB issued Statement of Financial Accounting Standards
SFAS No. 148, "Accounting for Stock-Based Compensation, Transition and
Disclosure." SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS No. 148 also requires that disclosures of the pro
forma effect of using the fair value method of accounting for stock-based
employee compensation be displayed more prominently and in a tabular format.
Additionally, SFAS No. 148 requires disclosure of the pro forma effect in
interim financial statements. The Company plans to continue to account for
employee stock options in accordance with Accounting Principles Board Opinion
("APB") No. 25, "Accounting For Stock Issued To Employees". The Company has
complied with the disclosure requirements of SFAS No 148.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective immediately for all new variable interest entities created or
acquired after January 31, 2003. For variable interest entities created or
acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for
the first interim or annual period beginning after June 15, 2003. The company
believes that the adoption of this standard will have no material impact on its
financial statements.
In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue
No. 00-21 provides guidance on how to account for arrangements that involve the
delivery or performance of multiple products, services and/or rights to use
assets. The provisions of EITF Issue No. 00-21 will apply to revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
Company is currently evaluating the effect that the adoption of EITF Issue No.
00-21 will have its results of operations, financial condition or cash flows.
In April 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities". SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS 133. In particular, this
Statement clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative and when a derivative
contains a financing component that warrants special reporting in the statement
of cash flows. This Statement is generally effective for contracts entered into
or modified after June 30, 2003 and is not expected to have a material impact on
the Company's financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk. As of March 29, 2003, 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.
Item 4. Controls and Procedures
Within 90 days prior to the date of this Form 10-Q, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Executive Officer along
with the Company's Chief Financial Officer, of the effectiveness of the design
and operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon that evaluation, the Company's President
and Chief Executive Officer along with the Company's Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective in
timely
alerting them to material information relating to the Company required to be
included in this Form 10-Q.
There have been no significant changes in the Company's internal controls or in
other factors, which could significantly affect the internal controls subsequent
to the date the Company carried out its evaluation.
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 8 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 20, 2003 in
San Jose, California, the stockholders (i) elected four directors to serve on
the Company's Board of Directors, and (iv) ratified the Company's appointment of
PricewaterhouseCoopers, LLP to serve as its independent accountants for the
fiscal year ending September 27, 2003.
The vote for nominated directors was as follows:
Nominee For Against Abstain
------- --- ------- -------
Wilson Wong 9,006,169 0 49,812
Jeff Yuan-Kai Lin 8,675,036 0 380,945
Michael D. Kaufman 8,675,036 0 380,945
Edmond Y. Tseng 8,675,036 0 380,945
The vote for ratification of the appointment of PricewaterhouseCoopers, LLP as
the Company's independent auditors for the fiscal year ended September 27, 2003,
was as follows:
For Against Abstain
--- ------- -------
9,047,370 8,511 100
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits:
Exhibit 99.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 99.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
(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.
Date: May 12, 2003 ASANTE TECHNOLOGIES, INC.
(Registrant)
By: /s/ ANTHONY CONTOS
-------------------------------
Anthony Contos
Vice President of Finance and
Administration, and Secretary
(Authorized Officer and
Principal Financial Officer)
CERTIFICATION FOR QUARTERLY REPORTS ON FORM 10-Q
I, Wilson Wong, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Asante' Technologies,
Inc. ("Registrant");
2 Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within this
entity, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Registrant's auditors and the audit committee of
Registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 10, 2003
/s/WILSON WONG
------------------------------------------
Wilson Wong, President and Chief Executive
Officer
CERTIFICATION FOR QUARTERLY REPORTS ON FORM 10-Q
I, Anthony Contos, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Asante' Technologies,
Inc. ("Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within this entity, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Registrant's auditors and the audit committee of
Registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 10, 2003
/s/ ANTHONY CONTOS
---------------------------------------
Anthony Contos, Chief Financial Officer