UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 4, 1998
[ ] 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
ASANT<E'> TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0200286
(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 4, 1998 there were 9,221,968 shares of the Registrant's Common
Stock outstanding.
2
ASANT<E'> TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1: Financial Statements:
Unaudited Condensed Balance Sheets -
July 4, 1998 and September 27, 1997 3
Unaudited Condensed Statements of Operations -
Three and nine months ended July 4, 1998
and June 28, 1997 4
Unaudited Condensed Statements of Cash Flows -
Nine months ended July 4, 1998, and
June 28, 1997 5
Notes to Unaudited Condensed Financial Statements 6-9
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-14
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 15
Item 4: Submission of Matters to a Vote of
Security Holders 15
Item 5: Other Information 15
Item 6: Exhibits and Reports on Form 8-K 16
Signature 17
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASANT<E'> TECHNOLOGIES, INC.
UNAUDITED CONDENSED BALANCE SHEETS
(in thousands)
July 4, September 27,
1998 1997
Assets
Current assets:
Cash and cash equivalents $ 9,293 $12,931
Accounts receivable, net 4,652 8,313
Inventory 9,174 12,080
Prepaid expenses and other current assets 2,271 4,096
------- -------
Total current assets 25,390 37,420
Property and equipment, net 2,103 2,768
Other assets 347 379
------- -------
Total assets $27,840 $40,567
======= =======
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 7,105 $ 5,835
Accrued expenses 4,971 4,858
------- -------
Total current liabilities 12,076 10,693
------- -------
Stockholders' equity:
Common stock 26,698 26,361
Retained earnings (accumulated deficit) (10,934) 3,513
------- -------
Total stockholders' equity 15,764 29,874
------- -------
Total liabilities and stockholders' equity $27,840 $40,567
======= =======
The accompanying notes are an integral part of these Unaudited Condensed
Financial Statements
4
ASANT<E'> TECHNOLOGIES, INC.
Unaudited Condensed Statements of Operations
(in thousands, except per share data)
Three months ended Nine months ended
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
Net sales $ 9,314 $22,602 $36,917 $61,269
Cost of sales 8,274 14,776 26,129 39,153
------ ------- ------- -------
Gross profit 1,040 7,826 10,788 22,116
------- ------- ------- -------
Operating expenses:
Sales and marketing 4,590 4,513 14,250 12,913
Research and development 1,566 1,643 5,289 5,277
General and administrative 1,115 932 3,032 2,513
Restructuring Charge 400 - 400 -
------- ------- ------- -------
Total operating expenses 7,671 7,088 22,971 20,703
------- ------- ------- -------
Income (loss) from operations (6,631) 738 (12,183) 1,413
Interest & other income, net 145 197 448 487
------- ------- ------- -------
Income (loss) before income taxes (6,486) 935 (11,735) 1,900
Provision (benefit) for income taxes 2,624 318 2,712 684
------- ------- ------- -------
Net income (loss) $(9,110) $ 617 $(14,447) $ 1,216
======= ======= ======== =======
Basic earnings (loss) per share $(0.99) $0.07 $(1.57) $0.14
======= ======= ======== =======
Diluted earnings (loss) per share $(0.99) $0.07 $(1.57) $0.13
======= ======= ======== =======
Weighted average common shares
and equivalents:
Basic 9,222 9,034 9,186 8,961
======= ======= ======== =======
Diluted 9,222 9,067 9,186 9,073
======= ======= ======== =======
5
ASANT<E'> TECHNOLOGIES, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Nine months ended
July 4, June 28,
1998 1997
Cash flows from operating activities:
Net income (loss) $(14,447) $ 1,216
Adjustments to reconcile net income
(loss) to Net cash provided by operating
activities:
Depreciation and amortization 1,109 707
Restructuring charge 400 -
Changes in operating assets and liabilities:
Accounts receivable 3,661 511
Inventory 2,906 (1,212)
Prepaid expenses and other current
assets 1,825 914
Accounts payable 1,270 5
Accrued expenses (287) 175
------- -------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (3,563) 2,316
------- -------
Cash flows from investing activities:
Purchases of property and equipment (444) (2,052)
Other assets 32 (29)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (412) (2,081)
------- -------
Cash flows from financing activities:
Net proceeds from issuance of common stock 337 678
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 337 678
------- -------
Net increase (decrease) in cash and cash
equivalents (3,638) 913
Cash and cash equivalents, beginning of
period 12,931 12,693
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,293 $13,606
======= =======
The accompanying notes are an integral part of these Unaudited Condensed
Financial Statements
6
ASANT<E'> TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
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. 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 the financial statements and notes thereto for
the year ended September 27, 1997, included in the Company's 1997 Annual
Report on Form 10-K. Certain prior period balances have been
reclassified to conform with current period presentation.
The results of operations for interim periods are not necessarily
indicative of the results that may be expected for the entire year.
2. EARNINGS PER SHARE
The Company adopted SFAS 128, "Earnings per Share", during the quarter
ended December 27, 1997, and retroactively restated all prior periods.
Basic earnings per share is computed using the weighted average number
of common shares outstanding during the period. Diluted earnings per
share is computed using the weighted average number of common and common
equivalent shares outstanding during the period.
Following is a reconciliation of the numerators and denominators of the
Basic and Diluted EPS computations for the periods presented below (in
thousands, except per share data):
Three Months Ended Nine Months Ended
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
Net income (loss) ($9,110) $ 617 ($14,447) $ 1,216
======= ======= ======== =======
Weighted average common
stock outstanding (basic) 9,222 9,034 9,186 8,961
Effect of dilutive warrants
and options - 33 - 112
------- ------- -------- -------
Weighted average common
stock outstanding
(diluted) 9,222 9,067 9,186 9,073
======= ======= ======== =======
Earnings (loss) per share:
Basic ($0.99) $0.07 ($1.57) $0.14
======= ======= ======== =======
Diluted ($0.99) $0.07 $(1.57) $0.13
======= ======= ======== =======
7
Options to purchase 1,735,000 shares of common stock at a weighted
average exercise price of $5.42 per share were outstanding at July 4,
1998 but were not included in the computation of diluted EPS due to the
Company's net loss from operations for the three and nine months ended
July 4, 1998. Options to purchase approximately 1,969,035 shares of
common stock at a weighted average price of $5.70 per share were
outstanding at June 28, 1997 but were not included in the computation of
diluted EPS for the three months ended June 28, 1997 because the
options' exercise price was greater than the average market price of
common stock during the period.
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:
July 4, September 27,
1998 1997
----------------- -----------------
(in thousands)
Raw materials and component parts $3,852 $3,065
Work-in-process 1,109 2,220
Finished goods 4,213 6,795
------ -------
$9,174 $12,080
====== =======
4. BANK BORROWINGS
In March 1998, the Company renewed its line of credit with the bank The
Company's bank line of credit 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. 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. No borrowings were
made under the line of credit agreement in fiscal year 1997 through July
4, 1998. As of July 4, 1998, the Company was not in compliance with
certain covenants. Therefore, the line of credit may no longer be
available.
5. INCOME TAXES
At July 4, 1998, the Company recorded a full valuation allowance against
its net deferred tax assets of $2.6 million as it believes that it is
not more likely than not it will be able to realize these deferred
tax assets. Realization is dependent on generating sufficient taxable
income in future periods to recover the net deferred assets.
8
6. RESTRUCTURING AND OTHER COSTS
During the quarter ended July 4, 1998, the Company recorded a $400,000
reserve principally for severance and related termination costs
associated with a company-wide restructuring plan. The reduction in
force consisted of a reduction of 40 employees, primarily from the sales
and marketing departments.
The Company's action plan includes deployment of newly released
proprietary ASIC-based switches, development of retail channels, changes
in the Company's financial model, and realignment of cost structures,
designed to better position the Company going forward which the Company
believes will leverage its strengths. In implementing this plan, the
Company found it necessary to realign its workforce to more effectively
focus on these channels and to bring expenses in line with the Company's
new targeted revenue and margin structure.
During the quarter ended July 4, 1998, the Company also recorded a
charge of $550,000 for inventory write-downs related to discontinuation
of certain product lines, and a $575,000 charge related to fixed asset
write-downs and idle facilities. These charges were recorded in the
cost of sales, and general and administrative expenses, respectively.
At July 4, 1998, the entire restructuring charge for severance of
$400,000 remained unpaid. A significant portion of this amount is
anticipated to be paid during the quarter ended September 1998.
7. LEGAL PROCEEDINGS
From time to time the Company is subject to legal proceedings and claims
in the ordinary course of business, including claims of alleged
infringement of trademarks and other intellectual property rights.
On September 13, 1996, a complaint was filed by Datapoint Corporation
against the Company and six other companies individually and as
purported representatives of a defendant class of all manufacturers,
vendors and users of Fast Ethernet-compliant, dual protocol local-area
network products, for alleged infringement of United States letters
Patent Nos. 5,077,732 and 5,008,879. The complaint seeks unspecified
damages in excess of $75,000 and permanent injunctive relief. The
Company has filed a response to the complaint denying liability. The
case has been consolidated, for purposes of claim interpretation only,
with similar cases filed against several other defendants, which
include, among others, Intel Corporation, IBM Corporation, Cisco
Systems, Bay Networks, and Sun Microsystems. Plaintiff has served claim
charts purporting to set forth its basis for its claims that products
compliant with an IEEE standard infringe its patents. On April 16,
1998, the Special Master appointed by the court issued a report
agreeing, in most material respects, with the defendants' interpretation
of the alleged patent claims. If, after a comment period, the court
adopts the Special Master's analysis, defendants will argue that
products compliant with the IEEE standard do not infringe Datapoint's
patents.
9
8. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income." SFAS 130 establishes standards for reporting
comprehensive income and its components in a financial statement.
Comprehensive income, as defined, includes all changes in equity (net
assets) during a period from non-owner sources. Examples of items to be
included in comprehensive income, which are excluded from net income,
include foreign currency translation adjustments and unrealized
gains/losses on available for sale securities. During the three and
nine months ended July 4, 1998 and June 28, 1997, the Company had no
changes in equity from non-owner sources.
9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
a new model for accounting for derivatives and hedging activities and
supercedes and amends a number of existing accounting standards. SFAS
133 requires that all derivatives be recognized in the balance sheet at
their fair market value, and the corresponding derivative gains or
losses be either reported in the statement of operations or as a
deferred item depending on the type of hedge relationship that exists
with respect to such derivative. Adopting the provisions of SFAS 133
are not expected to have a material effect on the Company's financial
statements. The standard is effective for the Company in fiscal 2000.
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, including new switch 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 July 4, 1998, and the Company's Annual Report
on Form 10-K for the fiscal year ended September 27, 1997. Actual
results may vary significantly.
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 third quarter of fiscal 1998 were $9.3
million, a decrease of $13.3 million, or 59%, from net sales of $22.6
million for the third quarter of fiscal 1997. Net sales for the first
nine months of fiscal 1998 decreased by $24.4 million, or 40% to $36.9
million compared to $61.3 million in the first nine months of fiscal
1997. This sales decrease was due primarily to decreased sales during
the quarter to OEM/ODM customers, a general slow-down in the computer,
semiconductor and network industries in general, lower than expected
sales of several of the Company's product lines including the Company's
10/100 adapter cards, several of the Company's switch products, and
lower than expected sales to educational customers and sales to one of
the Company's primary distributors. A portion of the lower product
sales described above was attributable to delays in shipments of the
Company's new proprietary ASIC based switches, and to delays in shipping
a large portion of the Company's 10/100 adapter cards. A significant
portion of the lower than expected sales to educational customers in the
third quarter is attributable to a further delay of the government's E-
Rate network system funding program which has now been delayed through
the end of 1998. The Company believes that sales of the Company's 10
Mbps (10 Base-T, or 10 Megabit) adapter card products will continue to
be flat or decline slowly as the industry continues to incorporate this
connectivity into the motherboard of newer computer systems. In the
third quarter of fiscal 1998, OEM sales accounted for $0.4 million, or
4% of total sales compared to $8.4 million, or 37% of total sales in the
third quarter of fiscal 1997.
Sales outside the United States accounted for 22% of net sales for the
third quarter of fiscal 1998 and was 24% for the first nine months of
fiscal 1998. These percentages compare with 15% and 19% for the third
quarter and first nine months of fiscal 1997, respectively. This
increase in foreign sales as a percent of total sales was due primarily
to the decrease in OEM sales during the second and third quarters of
fiscal 1998, which are reported with domestic sales.
The Company's gross profit as a percentage of net sales (gross margin)
decreased to 11% for the third quarter of fiscal 1998 from 35% in the
third quarter of fiscal 1997. The gross margin was adversely affected
by significant market pricing declines experienced by the Company and
the computer and networking industries; by the Company's reduced sales
levels, and by one time charges for product line write-offs amounting to
$550,000 related to the Company's third quarter restructuring.
Excluding product line write-offs, the margin for the third quarter of
fiscal 1998 was 17%. For the first nine months of 1998, the gross
11
margin decreased to 29% from 36% for the first nine months of fiscal
1997, due primarily to the decreased sales levels in the second and
third quarters of fiscal 1998.
Sales and marketing expenses increased by $0.1 million, or 2%, in the
third quarter of fiscal 1998 compared to the third quarter of fiscal
1997, and increased by $1.3 million, or 10%, in the first nine months of
fiscal 1998 compared to the first nine months of fiscal 1997. As a
percentage of sales, these expenses were 49% in the third quarter of
fiscal 1998 and 39% in the first nine months of fiscal 1998, compared
with 20% and 21% in the third quarter and first nine months of fiscal
1997, respectively. The increases in sales and marketing expenditures
were due primarily to increased advertising, tradeshow, product
collateral expenses, promotional expenses, and other related costs,
offset by reduced sales personnel related expenditures. Due to the
Company's restructuring efforts, the Company believes that sales and
marketing expenses will decrease in absolute dollars for the remainder
of fiscal 1998.
Research and development expenses decreased by $0.1 million, or 5%, in
the third quarter of fiscal 1998 compared to the third quarter of fiscal
1997 and remained flat in the first nine months of fiscal 1998 compared
with the first nine months of fiscal 1997. The quarter-to-quarter
decrease was due to decreases in non-recurring engineering, outside
service, consulting, and prototype expenses offset partially by
increased personnel and fixed asset related expenses. The Company
expects that research and development spending will remain flat or
decrease in absolute dollars for the remainder of fiscal 1998.
General and administrative expenses increased by $0.2 million, or 20%,
in the third quarter of fiscal 1998 compared to the third quarter of
fiscal 1997 and increased by $0.5 million in the first nine months of
fiscal 1998 compared with the first nine months of fiscal 1997. As a
percentage of net sales, these expenses were 12% for the third quarter
of fiscal 1998, and was 8% for the first nine months of fiscal 1998, as
compared with 4% for both the third quarter and first nine months of
fiscal 1997. The increase in general and administrative expenses in
absolute dollars in fiscal 1998 is primarily related to higher outside
consulting and legal services. Due to the Company's restructuring
efforts, the Company expects that general and administrative spending
will decrease during the remainder of fiscal 1998.
At July 4, 1998, the Company recorded a full valuation allowance against
its net deferred tax assets of $2.6 million as it believes that it is
not more likely than not it will be able to realize these deferred tax
assets. Realization is dependent on generating sufficient taxable income
in future periods to recover the net deferred assets.
The Company's management continually reviews methods to reduce its
expense base in response to decreased revenue streams refocuses its
efforts as necessary. As a result, the Company restructured its
operations during the quarter ended July 4, 1998. This restructuring of
operations was necessary to reestablish the strategic direction of the
Company and better align its operating expenses with anticipated
revenues and to reestablish the strategic direction of the Company.
Although the Company expects to realize the immediate benefit of a
reduced cost structure and expects other benefits from the restructuring
of operations, there is not assurance that losses will not occur in the
future.
In the third quarter of fiscal 1998, the Company recorded a $0.4 million
restructuring charge in connection with a strategic redirection of the
Company's business to a lower cost model with a new focus on the retail
marketplace. This restructuring charge is predominately related to
12
severance costs as well as other personnel related realignment costs
associated with the restructuring. As of July 4, 1998, management had
not paid amounts related to this restructuring reserve.
The Company's action plan includes deployment of newly released
proprietary ASIC-based switches, development of retail channels, changes
in the Company's financial model, and realignment of cost structures,
designed to better position the Company going forward and which the
Company believes will leverage its strengths. The Company plans to
expand its market share in the SOHO (Small office / Home office) market
by adding a retail channel in addition to strengthening its mail order
channel. The Company's products, including its FriendlyNet family of
products are scheduled to appear at several major retailers, including
Comp USA, Micro Center, Fry's Electronics, and a number of regional and
independent resellers. The Company expects to ship product to these
retailers nationwide in the fourth quarter of fiscal 1998.
During the quarter ended July 4, 1998, the Company also recorded a charge of
$550,000 for inventory write-downs related to discontinuation of certain
product lines of several of the Company's adapter card and transceiver
products, and a $575,000 charge related to fixed asset write-downs and
idle facilities. These charges were recorded in the cost of sales,
and general and administrative expenses, respectively.
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 effectively and timely respond 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 is dependent upon information systems for all phases of its
operations including production, distribution and accounting. Since
some of the Company's older programs recognize only the last two digits
of the year in any date (e.g., "98" for "1998"), some software may fail
to operate in 1999 or 2000 if the software is not reprogrammed or
replaced (the "Year 2000 Problem"). The Company believes that its
suppliers, distributors, and customers also have Year 2000 problems
which could affect the Company. The Company has developed a plan to
determine the impact of the Year 2000 Problem on its internal
operations. The Company currently anticipates that there will be
minimal, or no impact on its current operating systems, products and
believes any costs to upgrade any current non year 2000 compliant
applications will not be material to the Company's financial statements
or results of operations. The Company also believes that there would
not be a material impact to its operations and financial results from
the failure of any of its service providers, vendors, or distributors to
address the Year 2000 Problem. However, it is not possible at present
to quantify the overall cost associated with delays in product receipts,
13
shipments, or their effect on the Company's financial position,
liquidity, or results of operations from problems arising from any of
these outside parties. To date, the Company has not prepared a
contingency plan, in the event one of several of its significant service
providers is adversely effected as a result of the Year 2000 Problem.
The Company's success also depends to a significant extent upon the
contributions of key sales, marketing, engineering, manufacturing, and
administrative employees, and on the Company's ability to attract and
retain highly qualified personnel, who are in great demand. None of the
Company's key employees are subject to a non-competition agreement with
the Company. Unless vacancies are promptly filled, the loss of current
key employees or the Company's inability to attract and retain other
qualified employees in the future could have a material adverse effect
on the Company's business, financial condition and results of
operations.
The Company is 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 adoption of 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 10BASE-T (10 Mbps)
switching and 100BASE-T switching to market in order to complement its
existing 100BASE-T shared products. In that regard, the Company's
future operating results may be dependent on the market acceptance and
the rate of adoption of this new technology, and on timely product
release. There can be no assurance that the market will accept and
adopt this new technology or that the Company can meet market demand in
a timely manner.
The Company commits to expense levels, including manufacturing costs,
investing in advertising and promotional programs, based in part on
expectations as to 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
(VARs), systems integrators, retailers, and OEMs. Due to the relative
size of the customers in some of these markets, particularly the OEM
market, sales in any one market could fluctuate dramatically on a
quarter to quarter basis. Fluctuations in the OEM market could
materially adversely affect the Company's business, financial condition
and results of operations.
14
In summary, the Company's net sales and operating results in any
particular quarter may fluctuate as a result of a number of factors,
including competition in the markets for the Company's products, delays
in new product introductions by the Company, market acceptance of new
products incorporating 100BASE-T by the Company or its competitors,
changes in product pricing, material costs or customer discounts, the
size and timing of customer orders, distributor and end-user purchasing
cycles, variations in the mix of product sales, manufacturing delays or
disruptions in sources of supply, and economic conditions and seasonal
purchasing patterns specific to the computer and networking industries
as disclosed in the Company's Annual Report on Form 10K. 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.
Successfully addressing the factors discussed above is subject to
various risks discussed in this report, as well as other factors which
generally affect the market for stocks of high technology companies.
These factors could affect the price of the Company's stock and could
cause such stock prices to fluctuate over relatively short periods of
time.
LIQUIDITY AND CAPITAL RESOURCES
At July 4, 1998, the Company had approximately $9.3 million of cash and
cash equivalents, and working capital of approximately $13.3 million.
In March 1998, the Company renewed its line of credit with the bank.
Covenants under the Company's line of credit 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. No borrowings have been made under the line of
credit agreement in fiscal year 1997 through July 4, 1998. As of July
4, 1998, the Company was not in compliance with certain covenants.
Therefore, the line of credit may no longer be available.
The Company believes that current cash and cash equivalents are
sufficient to fund its operations and meet anticipated capital
requirements for the remainder of fiscal 1998.
15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time the Company is subject to legal proceedings and claims
in the ordinary course of business, including claims of alleged
infringement of trademarks and other intellectual property rights.
On September 13, 1996, a complaint was filed by Datapoint Corporation
against the Company and six other companies individually and as
purported representatives of a defendant class of all manufacturers,
vendors and users of Fast Ethernet-compliant, dual protocol local-area
network products, for alleged infringement of United States letters
Patent Nos. 5,077,732 and 5,008,879. The complaint seeks unspecified
damages in excess of $75,000 and permanent injunctive relief. The
Company has filed a response to the complaint denying liability. The
case has been consolidated, for purposes of claim interpretation only,
with similar cases filed against several other defendants, which
include, among others, Intel Corporation, IBM Corporation, Cisco
Systems, Bay Networks, and Sun Microsystems. Plaintiff has served claim
charts purporting to set forth its basis for its claims that products
compliant with an IEEE standard infringe its patents. On April 16,
1998, the Special Master appointed by the court issued a report
agreeing, in most material respects, with the defendants' interpretation
of the alleged patent claims. If, after a comment period, the court
adopts the Special Master's analysis, defendants will argue that
products compliant with the IEEE standard do not infringe Datapoint's
patents.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On June 30, 1998, the Company's Vice President of Finance and CFO, Mr.
Robert Sheffield, resigned from the Company to pursue other
opportunities.
On July 6, 1998, Mr. Rajiv Matthew joined the Company as the Company's
Vice President of Finance and Administration. In this position, Mr.
Matthew will have primary responsibility for the Company's financial
activities.
On July 9, 1998, Mr. Maciej Kranz resigned from his position as Vice
President of Marketing with the Company. His responsibilities will be
assumed by Mr. Ron Volkmar.
On July 10, 1998, Mr. Yen Chang resigned his position with the Company.
His responsibilities will be assumed by Mr. Jeff Lin, the Company's
President and Chief Executive Officer.
16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits:
27.1 Financial Data Schedule
(b.) Reports on Form 8-K: None
17
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 18, 1998 ASANT<E'> TECHNOLOGIES, INC.
(Registrant)
By: RAJIV MATTHEW
Rajiv Matthew
Vice President, Finance and Administration
(Authorized Officer and Principal Financial Officer)