UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1996
[ ] 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
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
821 Fox Lane
San Jose, CA 95131
(Address of principal executive offices, including zip code)
Registrant's Telephone No., 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 that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
As of July 31, 1996 there were 8,757,573 shares of the Registrant's Common Stock
outstanding.
1
ASANTE TECHNOLOGIES, INC.
Table of Contents
PART I. Financial Information Page No.
Item 1: Financial Statements:
Condensed Balance Sheets - June 29, 1996 and
September 30, 1995 3
Condensed Statements of Operations - Three
and nine months ended June 29, 1996
and July 1, 1995 4
Condensed Statements of Cash Flows - Nine
months ended June 29, 1996 and
July 1, 1995 5
Notes to Condensed Financial Statements 6-7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II. Other Information
Item 6: Exhibits and Reports on Form 8-K 11
Signature 12
2
PART I. Financial Information
Item 1. Financial Statements
Asante Technologies, Inc.
Condensed Balance Sheets
(in thousands)
(unaudited)
6/29/96 9/30/95
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Assets
Current assets:
Cash and cash equivalents $13,640 $10,371
Short-term investments -- 1,700
Accounts receivable, net 8,128 8,504
Receivable from stockholder 510 560
Inventory, net 8,226 7,009
Other current assets 5,144 6,938
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Total current assets 35,648 35,082
Property and equipment, net 1,426 1,362
Other assets 582 323
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Total assets $37,656 $36,767
======= =======
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 5,190 $ 3,275
Accrued expenses 4,249 4,712
Payable to stockholder 2,330 2,547
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Total current liabilities 11,769 10,534
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Long-term obligations, less current portion 71 114
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Stockholders' equity:
Common stock 24,631 24,075
Retained earnings 1,185 2,044
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Total stockholders' equity 25,816 26,119
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Total liabilities and stockholders' equity $37,656 $36,767
======= =======
The accompanying notes are an integral part of these condensed financial
statements
3
Asante Technologies, Inc.
Condensed Statements of Operations
(in thousands, except per share data)
(unaudited)
Three months ended Nine months ended
------------------------ ------------------------
6/29/96 7/1/95 6/29/96 7/1/95
------- ------ ------- ------
Net sales $16,102 $14,422 $47,414 $44,101
Cost of sales 9,512 8,738 28,266 30,958
------- ------- ------- -------
Gross profit 6,590 5,684 19,148 13,143
------- ------- ------- -------
Operating expenses:
Sales and marketing 5,108 3,994 14,194 13,378
Research and development 1,528 1,045 4,210 3,333
General and administrative 774 667 2,198 3,262
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Total operating expenses 7,410 5,706 20,602 19,973
------- ------- ------- -------
Loss from operations (820) (22) (1,454) (6,830)
Interest & other income, net 156 130 479 191
------- ------- ------- -------
Income (loss) before income taxes (664) 108 (975) (6,639)
Provision (benefit) for income taxes - - (116) (2,362)
------- ------- ------- -------
Net income (loss) ($664) $108 ($859) ($4,277)
======= ======= ======= =======
Net income (loss) per share ($0.08) $0.01 ($0.10) ($0.52)
======= ======= ======= =======
Weighted average common
shares and equivalents 8,732 8,456 8,961 8,192
======= ======= ======= =======
<FN>
The accompanying notes are an integral part of these condensed financial statements
</FN>
4
Asante Technologies, Inc.
Condensed Statements of Cash Flows
(in thousands)
(unaudited)
Nine months ended
--------------------
6/29/96 7/1/95
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Cash flows from operating activities:
Net loss ($859) ($4,277)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 820 891
Write-off of purchased technology - 289
Net changes in operating assets and liabilities:
Accounts receivable 376 7,019
Receivable from stockholder 50 (147)
Inventory (1,217) 367
Prepaid and other current assets 1,794 (980)
Accounts payable 1,909 (2,148)
Payable to stockholder (217) (220)
Income taxes payable and accrued expenses (428) (276)
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Net cash provided by operating activities 2,228 518
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Cash flows from investing activities:
Purchases of property and equipment (882) (223)
Maturities of marketable securities 1,700 1,700
Other assets (294) (130)
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Net cash provided by investing activities 524 1,347
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Cash flows from financing activities:
Net proceeds from issuance of common stock 554 875
Principal payments under capital lease obligations (37) (45)
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Net cash provided by financing activities 517 830
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Net increase in cash and and cash equivalents 3,269 2,695
Cash and cash equivalents, beginning of period 10,371 6,040
--------- --------
Cash and cash equivalents, end of period $ 13,640 $ 8,735
========= ========
Supplemental disclosures of cash flow information:
Cash paid (refunded) during period for:
Interest $ 10 $ 20
========= ========
Income taxes ($ 1,835) $ 775
========= ========
The accompanying notes are an integral part of these condensed financial
statements
5
ASANTE TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
(unaudited)
1. Interim Condensed Financial Statements
The condensed unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments which in the
opinion of management are necessary to fairly state the Company's financial
position, results of operations, and cash flows for the periods presented. This
report on Form 10-Q should be read in conjunction with the Company's Financial
Statements and Notes thereto included in the Company's 1995 Annual Report on
Form 10-K. The condensed results of operations for the period ended June 29,
1996 are not necessarily indicative of the results to be expected for any
subsequent quarter or for the entire fiscal year ending September 30, 1996. The
September 30, 1995 balance sheet was derived from the audited annual financial
statements of the Company.
2. Net Income (Loss) Per Share
Net income (loss) per share is computed using the average number of common and
common equivalent shares ("weighted average shares") outstanding during the
period. Common equivalent shares include Common Stock and the dilutive effects
of stock options outstanding during the period using the treasury stock method,
except when antidilutive.
3. Inventory
Inventory is stated at the lower of standard cost, which approximates actual
cost (on a first-in, first-out basis) or market, and consisted of the following
at:
6/29/96 9/30/95
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(in thousands)
Raw materials and component parts $3,577 $4,081
Work-in-process 977 485
Finished goods 3,672 2,443
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$8,226 $7,009
====== ======
6
4. Bank Borrowings
The Company has a bank line of credit that provides for maximum borrowings of $5
million, limited to a certain percentage of eligible accounts receivable, and
bears interest at the bank's base rate plus 1/4%. Covenants under the line
require the Company to maintain certain minimum levels of liquidity, net worth
and financial ratios, restrict amounts of capital spending, dividends and stock
repurchases, and require the Company to maintain certain levels of quarterly
profitability. At June 29, 1996, due to the loss reported in the third quarter
of fiscal 1996, the Company was not in compliance with the covenant pertaining
to quarterly profitability. The Company has sought a waiver from its bank for
this non-compliance, which the Company expects to receive. The line of credit
expires February 1, 1997. As of June 29, 1996, there were no borrowings under
the line of credit.
5. Income Tax Benefit
The Company has not recorded an income tax benefit for the quarter ending June
29, 1996 due to the uncertainty of the impact of future operating results on the
Company's accumulated tax benefit. The Company has recorded an income tax
benefit of $0.1 million for the first nine months ended June 29, 1996, which it
believes is recoverable for federal tax purposes based on carryback potential
against taxes paid previously.
7
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 set forth from
time to time in the company's SEC reports, including this report on Form 10-Q
for the quarter ended June 29, 1996. Actual results may vary significantly.
Results of Operations
Net sales for the third quarter of fiscal 1996 were $16.1 million, an increase
of 12% from net sales of $14.4 million for the third quarter of fiscal 1995. Net
sales for the first nine months of fiscal 1996 increased by 7% to $47.4 million
compared to $44.1 million in the first nine months of fiscal 1995. These
increases were due primarily to increased unit sales of the Company's network
systems products in 1996. The increase in the third quarter of 1996 was
partially offset by reduced revenues due to shortages in certain of the
Company's products and by reduced sales for certain of the Company's network
card products. The shortages were a result of production delays at some of the
Company's suppliers. The Company expects these problems to be resolved during
the fourth quarter.
As a percentage of sales, network systems increased to 52% in the third quarter
of 1996 compared to 39% in the third quarter of 1995. This continuing increase
in sales of network systems products and corresponding decline in the sales of
client access products reflects the Company's focus on marketing a greater
number of network system products, Apple Computer's continuing incorporation of
Ethernet connectivity into many of its products, and declining demand for Apple
Computer's products.
The Company reported a loss in the third quarter due to increased sales and
marketing expenses, and, to a lesser extent, increased research and development
expenses. These expenses resulted from the Company's efforts to increase its
market share in the PC-compatible and Fast Ethernet markets and to increase its
sales of all of its products. The Company expects the sales and marketing
expenses to decrease in the future and the research and development expenses to
increase.
Sales outside the United States accounted for approximately 20% of net sales for
the third quarter of fiscal 1996 and 27% for the first nine months of 1996.
These percentages compare to 28% of net sales for the third quarter of fiscal
1995 and 33% for the first nine months of 1995. This decline in sales outside
the U.S., which may continue into future quarters, was due to a diminished
market share in Europe relating to the Company's delay in meeting new CE
certification regulations for its European products in the second quarter.
8
The Company's gross profit as a percentage of net sales increased to 41% in the
third quarter of fiscal 1996 from 39% in the third quarter of fiscal 1995. This
increase was due to a higher proportion of sales of products with higher gross
margins in the third quarter of 1996. For the first nine months of 1996, the
gross profit percentage increased to 40% from 30% in the first nine months of
1995. Gross margin for the first nine months of 1995 was affected by several
factors, including a charge of $1.5 million for reserves for inventory
obsolescence made in the second quarter, sales of certain obsolete products at
low margin, and a $0.6 million higher charge for price protection.
Sales and marketing expenses increased by $1.1 million in the third quarter of
1996 compared to the third quarter of 1995 and increased by $0.8 million in the
first nine months of 1996 compared to the first nine months of 1995. As a
percentage of sales, these expenses were 32% in the third quarter of 1996 and
30% in the first nine months of 1996, compared with 28% and 30% in the third
quarter and first nine months of 1995, respectively. The increased spending in
the third quarter was due primarily to increased advertising, trade show
activities, added direct sales employees, and certain other operating expenses.
The company expects these expenses to decrease slightly in the fourth quarter.
Research and development expenses increased by $0.5 million in the third quarter
of 1996 compared to the third quarter of 1995 and increased by $0.9 million in
the first nine months of 1996 compared to first nine months of 1995. As a
percentage of net sales, these expenses were 9% for both the third quarter and
the first nine months of 1996, compared with 7% and 8% for the third quarter and
first nine months of 1995, respectively. These increases were due to increases
in prototype materials, non-recurring engineering expenses, and outside
consulting. The higher activity in these areas resulted from increased product
development for Fast Ethernet hubs, switches, and related software design. The
company expects that future spending on research and development will increase.
General and administrative expenses increased by $0.1 million, or 16% in the
third quarter of 1996 compared to the third quarter of 1995 and decreased by
$1.1 million, or 33% in the first nine months of 1996 compared to the first nine
months of 1995. As a percentage of net sales, these expenses were 5% for both
the third quarter and first nine months of 1996 as compared with 5% and 7% for
the third quarter and first nine months of 1995, respectively. The decrease in
general and administrative expenses in 1996 is primarily related to lower legal
expenses, offset by slightly higher payroll related expenses. In September 1995,
the Company entered into a settlement agreement concerning the class action
lawsuits. As a result, the level of associated legal proceedings was
substantially reduced in 1996. General and administrative expenses are expected
to remain flat or decrease slightly in the fourth quarter.
9
Factors Affecting Future Operating Results
A significant portion of the Company's revenues are related to sales of Apple's
Macintosh computers. Apple has recently announced significant operating losses
and a management reorganization. Any adverse effect on sales of Macintosh
computers would affect sales of the Company's products.
In fiscal 1995 and the first nine months of 1996, the Company increased its
focus on its Fast Ethernet network products and the IBM PC-compatible market in
order to gain market share. Competition in these markets is intense and includes
several companies that have significantly greater resources, enjoy broader brand
name recognition and market share than the Company. As such, there can be no
assurance the Company will be successful in penetrating the PC-compatible market
or achieve a material portion of the Fast Ethernet market.
The Company has focused its research and development activities on introducing
future products and adopting the new 100 Mbps standard in Ethernet networking
(100BASE-T, or "Fast Ethernet"), which enables users to conduct high speed LAN
data transmission. In addition, the Company is also focusing on the research and
development of more switching products which the Company believes is a large
growth market. In that regard, the Company's future operating results are
somewhat dependent on the market acceptance and rate of adoption of this
technology, and on the Company's ability to bring more switching products into
the market.
Liquidity and Capital Resources
At June 29, 1996, the Company had approximately $13.6 million of cash on hand,
and working capital of $23.9 million.
The Company has a bank line of credit that provides for maximum borrowings of $5
million, limited to a certain percentage of eligible accounts receivable, and
bears interest at the bank's base rate plus 1/4%. The line of credit expires
February 1, 1997. As of June 29, 1996, there were no borrowings under the line
of credit. See note 4 of the Notes to Condensed Financial Statements.
The Company believes that its current cash, bank line of credit, and cash
expected to be generated from operations will be sufficient to fund its
operations and meet capital requirements through fiscal 1996.
10
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits:
27 Financial Data Schedule
(b.) Reports on Form 8-K: None
11
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: August 7, 1996 ASANTE TECHNOLOGIES, INC.
(Registrant)
By: /s/ R. A. Sheffield
------------------------------------
R. A. Sheffield
Vice President, Finance and
Chief Financial Officer
(Authorized Officer and Principal Financial Officer)