Exhibit 99.3
RASCOM, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
TOGETHER WITH AUDITORS' REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To RAScom, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheet of RAScom, Inc. and
subsidiary (a Delaware corporation) as of December 31, 1998, and the related
consolidated statements of operations, redeemable preferred stock, stockholders'
deficit and comprehensive loss and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RAScom, Inc. and subsidiary as
of December 31, 1998, and the results of their operations and their cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
Boston, Massachusetts
May 24, 1999
F-1
RASCOM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(In thousands, except share and per share data)
ASSETS
DECEMBER 31, MARCH 31,
1998 1999
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 2,360 $ 709
Accounts receivable, net of reserves of approximately $228 at December 31, 1998
and March 31, 1999 1,068 652
Inventories 1,396 1,089
Prepaid and other current assets 412 218
-------- --------
Total current assets 5,236 2,668
PROPERTY AND EQUIPMENT, NET 1,315 1,323
-------- --------
$ 6,551 $ 3,991
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,595 $ 806
Accrued expenses 2,141 3,553
-------- --------
Total current liabilities 3,736 4,359
LONG-TERM DEBT (Note 4) 5,000 5,000
COMMITMENTS (Note 9)
REDEEMABLE CONVERTIBLE PREFERRED STOCK, AT REDEMPTION VALUE:
Authorized, issued and outstanding--10,696,402 shares (Series A 2,892,744,
Series B 2,847,543, Series C 4,956,115) at December 31, 1998 and March 31, 1999 20,315 20,720
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value-
Authorized--20,000,000 shares
Issued and outstanding--4,455,402 shares at December 31, 1998 and 4,490,132
shares at March 31, 1999 4 4
Additional paid-in capital 299 305
Deferred compensation (221) (221)
Accumulated other comprehensive income 36 (63)
Accumulated deficit (22,618) (26,113)
-------- --------
Total stockholders' deficit (22,500) (26,088)
-------- --------
$ 6,551 $ 3,991
-------- --------
-------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-2
RASCOM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands)
DECEMBER 31, MARCH 31,
1998 1999
(UNAUDITED)
REVENUES $ 6,514 $ 725
COST OF REVENUES 6,294 1,432
-------- --------
Gross profit (loss) 220 (707)
-------- --------
OPERATING EXPENSES:
Selling and marketing 4,966 946
Research and development 3,974 939
General and administrative 1,686 357
-------- --------
Total operating expenses 10,626 2,242
-------- --------
Loss from operations (10,406) (2,949)
OTHER INCOME (EXPENSE):
Interest income and other expense, net 254 (7)
Interest expense (129) (134)
-------- --------
Total other income 125 (141)
-------- --------
NET LOSS $(10,281) $ (3,090)
-------- --------
-------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
RASCOM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF REDEEMABLE PREFERRED STOCK,
STOCKHOLDERS' DEFICIT AND COMPREHENSIVE LOSS
(In thousands, except share data)
REDEEMABLE CONVERTIBLE
PREFERRED STOCK COMMON STOCK
NUMBER OF REDEMPTION NUMBER OF PAR
SHARES AMOUNT SHARES VALUE
BALANCE, DECEMBER 31, 1997 10,696,402 $ 18,798 4,172,978 $ 4
Issuance of common stock upon exercise of stock
options -- -- 282,424 --
Accretion of cumulative preferred stock dividends -- 1,517 -- --
Foreign currency translation adjustment -- -- -- --
Compensation related to the grant of stock options -- -- -- --
Net loss -- -- -- --
---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1998 10,696,402 20,315 4,455,402 4
Issuance of common stock upon exercise of stock
options -- -- 34,730 --
Accretion of cumulative preferred stock dividends -- 405 -- --
Foreign currency translation adjustment -- -- -- --
Net loss -- -- -- --
---------- ---------- ---------- ----------
BALANCE, MARCH 31, 1999 (UNAUDITED) 10,696,402 $ 20,720 4,490,132 $ 4
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
RASCOM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF REDEEMABLE PREFERRED STOCK,
STOCKHOLDERS' DEFICIT AND COMPREHENSIVE LOSS
(In thousands, except share data)
(Continued)
ACCUMULATED TOTAL
ADDITIONAL OTHER STOCKHOLDERS'
PAID-IN DEFERRED COMPREHENSIVE ACCUMULATED EQUITY COMPREHENSIVE
CAPITAL COMPENSATION INCOME DEFICIT (DEFICIT) INCOME
BALANCE, DECEMBER 31, 1997 $ 18 $ -- $ (18) $(10,820) $(10,816) $ --
Issuance of common stock upon
exercise of stock options 39 -- -- -- 39 --
Accretion of cumulative preferred
stock dividends -- -- -- (1,517) (1,517) --
Foreign currency translation
adjustment -- -- 54 -- 54 54
Compensation related to the grant
of stock options 242 (221) -- -- 21 --
Net loss -- -- -- (10,281) (10,281) (10,281)
-------- -------- -------- -------- -------- --------
Comprehensive income--1998 $(10,227)
--------
--------
BALANCE, DECEMBER 31, 1998 299 (221) 36 (22,618) (22,500) --
Issuance of common stock upon
exercise of stock options 6 -- -- -- 6 --
Accretion of cumulative preferred
stock dividends -- -- -- (405) (405) --
Foreign currency translation
adjustment -- -- (99) -- (99) (99)
Net loss -- -- -- (3,090) (3,090) (3,090)
-------- -------- -------- -------- -------- --------
Comprehensive income--Mar. 31, 1999 $ (3,189)
--------
--------
BALANCE, MARCH 31, 1999 (UNAUDITED) $ 305 $ (221) $ (63) $(26,113) $(26,088)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
RASCOM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
DECEMBER 31, MARCH 31,
1998 1999
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,281) $(3,090)
Adjustments to reconcile net income to net cash used in operating activities-
Depreciation and amortization 686 38
Compensation expense associated with stock options 21 --
Changes in assets and liabilities, net of acquisitions-
Accounts receivable 543 416
Inventories (851) 307
Prepaid taxes and other current assets (308) 195
Accounts payable 892 (790)
Accrued expenses 538 1,412
-------- -------
Net cash used in operating activities (8,760) (1,512)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (1,106) (46)
-------- -------
Net cash used in investing activities (1,106) (46)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (398) --
Proceeds from issuance of long-term debt 5,000 --
Proceeds from the exercise of stock options 39 6
-------- -------
Net cash provided by financing activities 4,641 6
-------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 54 (99)
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS (5,171) (1,651)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,531 2,360
-------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,360 $ 709
-------- -------
-------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 29 $ 134
-------- -------
-------- -------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITY:
Accretion of preferred stock $ 1,517 $ 405
-------- -------
-------- -------
Deferred compensation associated with stock option grants $ 242 $ --
-------- -------
-------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
RASCOM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
RAScom, Inc. (the Company) is a leading provider of NT-based remote
access systems for telecommunications networks worldwide. The Company
develops, manufactures, markets and supports a family of servers that
address the complex enhanced services and wireless and wireline
infrastructure needs of network providers. The Company sells to a variety
of customers in the worldwide telecommunications market, including
applications developers, original equipment manufacturers (OEMs), system
integrators and network service providers.
On May 10, 1999, the Company exchanged all of the outstanding shares and
options for 1,099,940 shares of common stock of Excel Switching
Corporation (Excel), a company that develops, manufactures, markets and
supports a family of open, programmable, carrier-class switches. 102,122
of these shares were placed into escrow as security for indemnification
obligations of the Company relating to representations, warranties and
tax matters. The merger will be accounted for as a pooling of interests.
The accompanying consolidated financial statements reflect the
application of certain accounting policies as described below and
elsewhere in the notes to consolidated financial statements.
(a) PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All significant
intercompany transactions have been eliminated.
(b) INTERIM FINANCIAL STATEMENTS
The accompanying supplemental consolidated financial statements as
of March 31, 1999 and for the three months ended March 31, 1999
are unaudited, but in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of results for the interim
periods. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted with
respect to these unaudited financial statements, although the
Company believes that the disclosures included are adequate to
make the information presented not misleading. Results for the
three months ended March 31, 1999 are not necessarily indicative
of the results that may be expected for the year ending December
31, 1999.
F-7
(c) MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes.
The market for telecommunications equipment in which the Company
operates can be characterized as rapidly changing due to several
factors including technological advancements, the introduction of
new products and services by the Company and its competitors, and
the increasing demands placed on equipment in worldwide
telecommunications networks. Significant assets and liabilities
with reported amounts based on estimates include accounts
receivable, inventory and accrued expenses for post-sale support
costs, warranty costs and sales returns and allowances. While the
Company believes its estimates are adequate, actual results could
differ from those estimates.
(d) REVENUE RECOGNITION
Revenue is generally recognized when all significant contractual
obligations have been satisfied and collection of the resulting
receivable is reasonably assured. Revenue from product sales of
hardware and software is recognized at time of delivery and
acceptance, and after consideration of all the terms and
conditions of the customer contract. Revenue from providing
services and post-sale support are recognized at time of
performance. The Company provides for anticipated product returns
and warranty costs at the time of revenue recognition.
(e) SOURCES OF SUPPLY AND THIRD-PARTY MANUFACTURING RELATIONSHIPS
Certain components used in the manufacture of the Company's
products are currently available only from single- or sole-source
suppliers. In addition, the Company relies on a limited number of
third parties to manufacture certain other components and
subassemblies. Shortages resulting from a change in arrangements
with these suppliers and manufacturers could cause delays in
manufacturing and product shipments and possible deferral or
cancellation of customer orders.
(f) RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Research and development costs have been charged to operations as
incurred. The Company believes its current process for developing
software is essentially completed concurrently with the
establishment of technological feasibility. Accordingly, no
software development costs have been capitalized to date.
F-8
(g) CONCENTRATIONS OF CREDIT RISK
Financial instruments that subject the Company to significant
concentrations of credit risk consist primarily of cash, cash
equivalents, and trade accounts receivable. The Company's
investments are in financial instruments of high quality.
Concentration of credit risk with respect to accounts receivable
is limited to customers to whom the Company makes significant
sales. One significant customer accounted for approximately 66% of
accounts receivable at December 31, 1998. To control credit risk,
the Company performs regular credit evaluations of its customers'
financial condition and maintains allowances for potential credit
losses.
(h) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash and cash equivalents,
accounts receivable and accounts payable approximate fair value
due to the short-term nature of these instruments.
(i) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of less than 90 days to be cash equivalents. Cash
equivalents consist of money market accounts at December 31, 1998
and are reported at cost, which approximates market value.
(j) COMPREHENSIVE INCOME
Comprehensive income represents the change in equity of a business
enterprise resulting from transactions and other events and
circumstances from nonowner sources. For 1998, the only difference
between comprehensive income and net income relates to the foreign
currency translation adjustment.
(2) INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or
market. Work-in-process and finished goods consist of materials, labor
and manufacturing overhead. Inventories consist of the following (in
thousands):
DECEMBER 31, MARCH 31,
1998 1999
Raw materials $ 807 $ 822
Work-in-process 261 238
Finished goods 328 29
--------- ---------
$ 1,396 $ 1,089
--------- ---------
--------- ---------
(3) PROPERTY AND EQUIPMENT
The Company provides for depreciation and amortization using the
straight-line method by charges to operations in amounts that allocate
the cost of the assets over their estimated useful lives.
F-9
Property and equipment consists of the following at December 31, 1998 (in
thousands):
ESTIMATED
1998 USEFUL LIVES
Computer and test equipment $ 1,236 2-5 years
Office equipment, furniture and fixtures 981 2-7 years
Leasehold improvements 152 7-40 years
-----------
2,369
Less--Accumulated depreciation and amortization 1,054
-----------
$ 1,315
-----------
-----------
(4) LONG-TERM DEBT
In October 1998, the Company entered into a promissory note with a
customer that provided for an advance of $5 million to the Company. The
note bears interest at the prime rate plus 3% per annum (10.75% at
December 31, 1998). Interest is payable quarterly in arrears. Principal
due under the note is payable in twelve equal quarterly payments
beginning in October 2000. Upon the occurrence of certain events, as
defined, the maturity of principal amounts outstanding under the note may
be accelerated or decelerated.
Future maturities of the remaining long-term obligations are as follows:
1999 $ --
2000 417
2001 1,667
2002 1,667
2003 1,249
----------
$ 5,000
----------
----------
(5) INCOME TAXES
Deferred tax assets or liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities,
as measured by the enacted tax rates expected to be in effect when the
differences reverse. A valuation allowance is recorded if it is more
likely than not that all or a portion of any deferred tax assets will not
be realized.
F-10
The approximate income tax effect of each type of temporary difference
composing the net deferred tax assets at December 31, 1998 is as follows
(in thousands):
Net operating loss carryforwards $ 6,526
Nondeductible accruals 245
Nondeductible reserves 828
Credit carryforwards 126
Valuation allowance (7,725)
----------
Net deferred tax asset $ --
----------
----------
At December 31, 1998, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $17,034. The
net operating loss carryforwards expire through 2018 and are subject to
review and possible adjustment by the Internal Revenue Service (IRS). The
Tax Reform Act of 1986 contains provisions that may limit the net
operating loss carryforwards available to be used in any given year in
the event of significant changes in ownership interest, as defined.
(6) STOCKHOLDERS' EQUITY
(a) COMMON STOCK
The Company has 20,000,000 shares of common stock, par value of
$.001 per share authorized. At December 31, 1998, there were
2,194,597 shares of common stock reserved for future issuance
under the Company's stock plans.
(b) REDEEMABLE CONVERTIBLE PREFERRED STOCK
At December 31, 1998, the Company has authorized, issued and
outstanding 10,696,402 shares of redeemable convertible preferred
stock, of which 2,892,744 shares have been designated Series A
redeemable convertible preferred stock (Series A), 2,847,543
shares have been designated Series B redeemable convertible
preferred stock (Series B) and 4,956,115 shares have been
designated Series C redeemable convertible preferred stock (Series
C) (collectively, the preferred stock). The preferred stock
possesses the following rights and privileges:
VOTING
Preferred stockholders are entitled to a number of votes equal
to the number of shares of common stock into which the
preferred stock are then convertible.
CONVERSION AND REDEMPTION
The preferred stock is convertible into common stock at the
option of the stockholder. Each preferred share is convertible
into common stock on a one-for-one basis, subject to certain
adjustments. The preferred stock will automatically convert
into common stock in the event of a public offering of the
Company's common stock resulting in proceeds of at least
$15,000,000 and a price of at least three times the weighted
average purchase price per share of all preferred stock.
F-11
On or after February 15, 2002, the preferred stockholders have
the right to require the Company to redeem the Series A,
Series B and Series C preferred stock at a price equal to the
higher of (i) the existing fair market value, as defined or
(ii) the original purchase price plus a cumulative dividend
accruing at 8% per annum per share.
DIVIDENDS
Preferred stockholders are entitled to a cumulative dividend
of 8% per annum per share if and when declared by the Board of
Directors. For any other dividends or distributions, preferred
stockholders are entitled to dividends on an as-converted
basis. No dividends have been declared to date.
LIQUIDATION
In the event of voluntary or involuntary liquidation of the
Company, the preferred stockholders have preference in
distribution and the Series A, Series B and Series C
stockholders shall be entitled to receive the greater of (i)
the original purchase price paid for their stock plus any
unpaid cumulative dividends plus any other declared but unpaid
dividends thereon or (ii) the amount they would have received
if all Series A, Series B and Series C preferred stock were
converted to common stock.
(7) STOCK OPTION PLANS
In 1996, the Board of Directors adopted and the stockholders subsequently
approved the Company's 1996 stock option plan (the 1996 Plan), which
provides for the issuance of incentive stock options and nonqualified
stock options to eligible employees, directors and consultants to the
Company. The options can be granted for periods up to ten years and
generally vest ratably over a four-year period with initial vesting
occurring on the first anniversary from the grant date and then monthly
thereafter. At December 31, 1998, 2,650,000 shares were authorized for
issuance under the 1996 Plan.
The option price for stock options granted under the 1996 Plan is
determined by a Compensation Committee consisting of two or more members
of the Company's Board of Directors. The option price for incentive stock
options shall be the fair value at the time the option is granted. In
some instances, options have been granted at exercise prices below the
fair market value on the date of grant. The difference, if any, between
the fair market value of shares of the Company's common stock and the
exercise price of the option is recognized as compensation expense over
the vesting term. During 1998, the Company granted options with exercise
prices less than fair market value. The total difference between fair
market value and the strike prices was approximately $242,000. This
difference will be recognized as compensation expense over the related
option vesting period. During 1998, the Company recognized net
compensation expense of approximately $21,000 related to these options.
F-12
Stock option activity under the option plan for the year ended December
31, 1998 is as follows:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
Outstanding, December 27, 1997 1,677,812 $ .15
Granted 897,250 .24
Exercised (282,424) .14
Forfeited (265,228) .18
---------
Outstanding, December 31, 1998 2,027,410 $ .19
--------- --------
--------- --------
The following table summarizes information about stock options
outstanding at December 31, 1998:
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE EXERCISABLE PRICE
$ .10 428,958 7.53 213,058 $ .10
.18 556,555 8.20 201,576 .18
.20 632,647 9.07 80,662 .20
.22 75,000 9.24 -- .22
.30 334,250 9.64 -- --
--------- -------
2,027,410 495,296 $ .15
--------- ------- --------
--------- ------- --------
Statement of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION, requires the measurement of the fair value
of stock options to be included in the statement of income or disclosed
in the notes to financial statements. The Company has determined that it
will continue to account for stock-based compensation for employees under
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES, and elect the disclosure-only alternative under SFAS No.
123.
Had compensation cost for the Company's option plans been determined
based on the fair value at the grant dates, as prescribed in SFAS No.
123, the Company's net income for the year ended December 31, 1998 would
have been as follows (in thousands):
Net loss-
As reported $ (10,281)
Pro forma (10,312)
F-13
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions used for grants during the year ended December 31, 1998:
Dividend yield 0%
Volatility 0%
Risk-free interest rate 5.5%
Expected option term 7 years
Weighted average fair value per
share of options granted $ 0.30
(8) SEGMENT AND ENTERPRISE-WIDE REPORTING
The Company currently operates in one operating segment as a provider of
NT-based remote access systems. This segment derives its revenues from
the sale and support of a family of products that address the complex
enhanced services and wireless and wireline infrastructure needs of
network providers.
The Company derives substantially all of its revenue from the sale and
support of one group of similar products. Substantially all of the
Company's assets are located within the United States. During 1998, the
Company derived its revenues from the following geographic regions (in
thousands):
1998
United States $ 5,810
Other 704
--------
$ 6,514
--------
--------
During 1998, the Company derived a portion of its revenues from sales to
a single customer that exceeded 10 percent of total revenues, as follows:
1998
Significant customer A 52%
F-14
(9) COMMITMENTS
(a) LEASE OBLIGATION
The Company leases certain equipment and office facilities
under noncancelable operating leases, which expire at various
dates through November 2001. Future minimum lease payments
required under these leases at December 31, 1998 are
approximately as follows (in thousands):
FISCAL YEAR AMOUNT
1999 $ 406
2000 389
2001 320
2002 321
---------
$ 1,436
---------
---------
Total rent expense under these agreements for 1998 and for the
three months ended March 31, 1999 was approximately $294,000.
(b) PURCHASE COMMITMENTS
In the normal course of business, the Company routinely enters
into purchase commitments for the purchase of inventory.
During the quarter ended March 31, 1999, the Company
identified a purchase commitment in excess of the anticipated
inventory usage and recorded a charge of approximately $650
against cost of sales.
(10) EMPLOYEE BENEFIT PLAN
The Company has a qualified 401(k) retirement savings plan covering all
employees. Under this plan, participants may elect to defer a portion of
their compensation, subject to certain limitations. In addition, the
Company, at the discretion of the Board of Directors, may make profit
sharing contributions into the plan. For 1998, the Company did not make
contributions to the plan.
(11) ACCRUED EXPENSES
Accrued expenses at December 31, 1998 consists of the following (in
thousands):
1998
Sales returns and allowances $ 113
Payroll and benefits 590
Post-sales support and warranty 455
Marketing 40
Professional fees 83
Other 860
--------
$ 2,141
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--------
F-15