Back to GetFilings.com
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 June 29, 2002
[ ] 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
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 30, 2002 there were 10,024,401 shares of the Registrant's Common
Stock outstanding.
ASANTE TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1: Financial Statements:
Unaudited Condensed Balance Sheets -
June 29, 2002 and September 29, 2001 3
Unaudited Condensed Statements of Operations -
Three and nine months ended June 29, 2002 and June 30, 2001 4
Unaudited Condensed Statements of Cash Flows -
Nine months ended June 29, 2002 and June 30, 2001 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
Item 3: Quantitative and Qualitative Disclosures About
Market Risk 15
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 16
Item 4: Submission of Matters to a Vote of
Security Holders 16
Item 5: Other Information 16
Item 6: Exhibits and Reports on Form 8-K 16
Signature 17
2
PART I. Financial Information
Item 1. Financial Statements
Asante Technologies, Inc.
Unaudited Condensed Balance Sheets
(in thousands)
June 29, September 29,
2002 2001
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 3,440 $ 5,065
Accounts receivable, net 1,185 1,764
Inventory 1,581 1,848
Prepaid expenses and other current assets 233 400
-------- --------
Total current assets 6,439 9,077
Property and equipment, net 105 117
Other assets 172 172
-------- --------
Total assets $ 6,716 $ 9,366
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,781 $ 2,469
Accrued expenses 3,760 4,117
Payable to stockholder 113 8
-------- --------
Total current liabilities 5,654 6,594
-------- --------
Stockholders' equity:
Common stock 28,417 28,412
Accumulated deficit (27,355) (25,640)
-------- --------
Total stockholders' equity 1,062 2,772
-------- --------
Total liabilities and stockholders' equity $ 6,716 $ 9,366
======== ========
The accompanying notes are an integral part of these Unaudited Condensed
Financial Statements.
3
Asante Technologies, Inc.
Unaudited Condensed Statements of Operations
(in thousands, except per share data)
Three months ended Nine months ended
--------------------------- ---------------------------
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Net sales $ 4,052 $ 4,919 $ 11,866 $ 16,887
Cost of sales 2,625 3,221 7,692 10,858
-------- -------- -------- --------
Gross profit 1,427 1,698 4,174 6,029
-------- -------- -------- --------
Operating expenses:
Sales and marketing 973 1,234 2,928 3,809
Research and development 634 703 1,953 2,050
General and administrative 318 359 1,023 1,119
-------- -------- -------- --------
Total operating expenses 1,925 2,296 5,904 6,978
-------- -------- -------- --------
Loss from operations (498) (598) (1,730) (949)
Interest and other income, net 5 41 15 126
-------- -------- -------- --------
Loss before income taxes (493) (557) (1,715) (823)
-------- -------- -------- --------
Net loss $ (493) $ (557) $ (1,715) $ (823)
======== ======== ======== ========
Basic and diluted net loss per share $ (0.05) $ (0.06) $ (0.17) $ (0.08)
======== ======== ======== ========
Weighted average common
shares and equivalents outstanding:
Basic and diluted 10,024 9,969 10,015 9,938
======== ======== ======== ========
The accompanying notes are an integral part of these Unaudited Condensed
Financial Statements.
4
Asante Technologies, Inc.
Unaudited Condensed Statements of Cash Flows
(in thousands)
Nine months ended
-------------------
June 29, June 30,
2002 2001
------- -------
Cash flows from operating activities:
Net loss $(1,715) $ (823)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 72 156
Provision for doubtful accounts receivable (58) 48
Changes in operating assets and liabilities:
Accounts receivable 637 1,161
Inventory 267 228
Prepaid expenses and other current assets 167 (128)
Accounts payable (688) (1,616)
Payable to stockholder 105 (59)
Accrued expenses (357) (721)
------- -------
Net cash used in operating activities (1,570) (1,754)
------- -------
Cash flows from investing activities:
Purchases of property and equipment (60) (34)
Other assets 0 (4)
------- -------
Net cash used by investing activities (60) (38)
------- -------
Cash flows from financing activities:
Issuance of common stock 5 43
------- --------
Net cash provided by financing activities 5 43
------- -------
Net decrease in cash and and cash equivalents (1,625) (1,749)
Cash and cash equivalents, beginning of period 5,065 6,433
------- -------
Cash and cash equivalents, end of period $ 3,440 $ 4,684
======= =======
The accompanying notes are an integral part of these Unaudited Condensed
Financial Statements.
5
ASANTE TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1. Interim Condensed Financial Statements
The unaudited condensed financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America 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 29, 2001, included in
the Company's 2001 Annual Report on Form 10-K. Certain prior period balances
have been reclassified to conform to the 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.
Note 2. Basic and Diluted Net Loss Per Share
Basic net loss per share is computed by dividing net loss available to common
stockholders (numerator) by the weighted-average number of common shares
outstanding (denominator) during the period. Diluted net loss per share gives
effect to all dilutive potential common shares outstanding during the period
including stock options, using the treasury stock method. In computing diluted
net loss per share, the average stock price for the period is used in
determining the number of shares assumed to be purchased from the exercise of
stock options.
The following is a reconciliation of the denominators of the basic and diluted
net loss per share computations for the periods presented (in thousands, except
per share data):
6
Three Months Ended Nine Months Ended
------------------------ ------------------------
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
-------- -------- --------- -------
Net loss $ (493) $ (557) $ (1,715) $ (823)
======== ======== ========= =======
Weighted average common stock outstanding (basic) 10,024 9,969 10,015 9,938
Dilutive effect of warrants and options -- -- -- --
-------- -------- --------- -------
Weighted average common stock outstanding (diluted) 10,024 9,969 10,015 9,938
======== ======== ========= =======
Net loss per share:
Basic $ (0.05) $ (0.06) $ (0.17) $ (0.08)
======== ======== ========= =======
Diluted $ (0.05) $ (0.06) $ (0.17) $ (0.08)
======== ======== ========= =======
For the three months ended June 29, 2002, and June 30, 2001, options and
warrants outstanding of 1,609,845 and 1,632,240, respectively, were excluded
since their effect was antidilutive.
For the nine months ended June 29, 2002, and June 30, 2001, options and warrants
outstanding of 1,534,843 and 1,622,804, 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. 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):
June 29, September 29,
2002 2001
------ ------
Raw materials and component parts $ 150 $ 154
Work-in-process 40 130
Finished goods 1,391 1,564
------ ------
$1,581 $1,848
====== ======
7
Note 5. Bank Borrowings
In December 2001, the Company renewed its bank line of credit that provides for
maximum borrowings of $3.0 million, and is limited to certain percentages of
eligible accounts receivable. No borrowings have been made under the
line-of-credit agreement. The line of credit is available through December 2002
and is subject to certain covenant requirements. As of June 29, 2002, the
Company was in compliance with the covenants under its line of credit agreement.
Note 6. Income Taxes
The Company has recorded no provision or benefit for federal and state income
taxes for the periods ended June 29, 2002 and June 30, 2001, due primarily to a
valuation allowance being established against the Company's net deferred tax
assets, which consist primarily of net operating loss carryforwards and research
and development credits. The Company has recorded a full valuation allowance
against its net deferred tax assets as sufficient uncertainty exists regarding
their recoverability.
Note 7. Litigation
From time to time the Company is subject to legal proceedings and claims in the
ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property rights.
In September 1999, certain inventory having a cost of approximately $400,000 was
seized by the United States Customs for the alleged improper use of
certification marks owned by Underwriters Laboratories Inc. ("UL"). It is the
Company's position that the alleged improper use was simply a mistake or error.
The Company may obtain the return of the inventory through settlement
negotiations with either the United States Customs or United States Attorney's
Office, obtaining permission from UL to use the certification marks, or being
successful in trial proceedings. To contest the seizure, the Company determined
to seek a review with the United States Attorney's Office and filed a claim for
the inventory. It is now incumbent upon the United States Attorney's Office to
file in court seeking forfeiture of the inventory and to allow the Company, as
claimant, to challenge such proceeding. The Company also expects that the United
States Customs may issue a penalty separate from the seizure under 19 U.S.C.
section 1526(f), which provides for a penalty ranging in amount from the retail
value of the seized inventory had the inventory been UL approved, to twice the
retail value. The Company asserts this is a first time offense. For a first time
offense, the United States Customs may mitigate the penalties when challenged
administratively, with such mitigation being as low as 10% of the value of the
inventory. The Company intends to contest any penalty action through
administrative and/or judicial procedures. On April 28, 2000, the Company
submitted a settlement proposal to the United States Attorney's Office offering
settlement of the case. The Company has not yet received a reply to its
settlement proposal. Despite a recent federal case which upheld the US. Customs
authority to seize and penalize for improper use of the UL certification mark,
the U.S. Attorney has stated that he would still consider settlement of the
Company's case due to factual differences.
8
Note 8. Recently Issued Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
SFAS Nos. 4, 44 and 64, Amendment of FAS 13, and Technical Corrections as of
April 2002," which is effective for fiscal years beginning after May 15, 2002.
This Statement rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." This
Statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers." This statement amends SFAS No. 13, "Accounting for Leases," to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
Statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability
under changed conditions. The provisions of SFAS No. 145 relating to the
rescission of SFAS No. 4 shall be applied in fiscal years beginning after May
15, 2002. The provisions in paragraphs 8 and 9(c) of SFAS No. 145 relating to
SFAS No. 13 shall be effective for transactions occurring after May 15, 2002.
All other provisions of SFAS No. 145 shall be effective for financial statements
issued on or after May 15, 2002. The Company believes the adoption of SFAS No.
145 will not have a significant impact on its financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." This Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. The provisions of this
Statement are effective for exit or disposal activities that are initiated after
December 31, 2002. The Company believes that SFAS No. 146 will not have a
material impact on its financial position, results of operations or cash flows.
Note 9. Segment Information
The Company has determined that it does not have separately reportable operating
segments.
Sales as a percent of total sales by geographic region for the first nine months
of each fiscal year are as follows:
2002 2001
---- ----
United States 81% 76%
Europe 13% 14%
Other 6% 10%
Substantially all of the Company's assets are located in the United States of
America.
9
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 filings,
including this report on Form 10-Q for the three and nine months ended June 29,
2002, and the Company's Annual Report on Form 10-K for the fiscal year ended
September 29, 2001. These forward looking statements speak only as of the date
thereof and should not be given undue reliance. Actual results may vary
significantly from those projected.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
RESULTS OF OPERATIONS
Net sales for the third quarter of fiscal 2002 were $4.1 million, a decrease of
$0.8 million, or 17%, from net sales of $4.9 million for the third quarter of
fiscal 2001. Sales of the Company's products continued to be negatively impacted
by the continuing economic slowdown affecting the industry, a continued
reduction in sales of network adapter products to Apple Computer specific
platforms due to Apple's continued incorporation of Ethernet onto the
motherboard of their new systems, and heavy competitive pressures negatively
impacting selling prices of networking products and total revenues.
Sales continued to be negatively affected across substantially all of the
Company's product lines, however, these declines were partially offset by an
increase in sales of the Company's IntraCore(TM) managed products and sales of
original equipment manufacturers (OEM) products. OEM sales for the third quarter
of fiscal 2002 were approximately $0.4 million, compared to OEM sales in the
third quarter of fiscal 2001 of $0.2 million.
Net sales for the first nine months of fiscal 2002 decreased by 30% to $11.9
million compared to $16.9 million for the first nine months of fiscal 2001.
During the first nine months of fiscal 2002, sales continued to be negatively
impacted by the continuing economic slowdown affecting the industry, significant
competitive pressures affecting pricing and margin, and the reduction in sales
of network adapter products to Apple Computer specific platforms due to Apple's
continued incorporation of Ethernet onto the motherboard of their new systems.
The decreases were offset partially by increased sales of the Company's
IntraCore managed products and by an increase in sales of OEM products to major
customers.
International sales, primarily to customers in Europe, Canada and Asia Pacific,
accounted for approximately 16% of net sales for the third quarter of fiscal
2002 and were approximately 19% for the first nine months of fiscal 2002. These
percentages compare to 21% and 24% for the third quarter and first nine months
of fiscal 2001, respectively. The decrease in international sales for the third
quarter of fiscal 2002 as compared to fiscal 2001 was due primarily to the
economic downturn in the international market, the discontinuation of one of the
Company's primary distributors in Canada, and increased pricing pressures from
Asian networking companies.
10
The Company's gross profit as a percentage of net sales increased to 35.2% for
the third quarter of fiscal 2002 as compared to 34.5% for the same period in
fiscal 2001. This increase was due primarily to reduced reserves for inventory
obsolescence. The Company's gross profit as a percentage of net sales decreased
marginally to 35.2% for the first nine months of fiscal 2002 as compared to
35.7% for the same period in fiscal 2001. These decreases were due primarily to
intense competitive pricing pressures caused by the continuing economic
downturn.
Sales and marketing expenses decreased by $0.3 million, or 21%, in the third
quarter of fiscal 2002 compared to the third quarter of fiscal 2001, and
decreased by $0.9 million, or 23%, in the first nine months of fiscal 2002
compared to the first nine months of fiscal 2001. As a percentage of sales,
these expenses were 24% in the third quarter of fiscal 2002 and 25% in the first
nine months of fiscal 2002, compared with 25% and 23% in the third quarter and
first nine months of fiscal 2001, respectively. The lower sales and marketing
expenditures were due primarily to decreases in personnel and related costs,
tradeshow participation, advertising related costs, and reduced reserves for bad
debts. The Company believes that sales and marketing expenses overall will
remain approximately flat for the remainder of fiscal 2002.
Research and development expenses decreased by $0.1 million, or 10%, in the
third quarter of fiscal 2002 compared to the third quarter of fiscal 2001 and
decreased by $0.1 million, or 5% in the first nine months of fiscal 2002
compared to the first nine months of fiscal 2001. The decreases were due
primarily to lower depreciation, prototype and personnel related costs. The
Company expects that future spending on research and development will remain
flat or increase slightly in absolute dollars for the remainder of fiscal 2002.
General and administrative expenses remained approximately flat in the third
quarter of fiscal 2002 compared to the third quarter of fiscal 2001 and
decreased by $0.1 million, or 9%, in the first nine months of fiscal 2002
compared with the first nine months of fiscal 2001. As a percentage of net
sales, these expenses were 8% for the third quarter of fiscal 2002, and 9% for
the first nine months of fiscal 2002, as compared with 7% for both the third
quarter and first nine months of fiscal 2001, respectively. The Company expects
that general and administrative spending will remain constant for the remainder
of fiscal 2002.
Income Taxes
The Company has recorded no provision or benefit for federal and state income
taxes for the periods ended June 29, 2002 and June 30, 2001, due primarily to a
valuation allowance being established against the Company's net deferred tax
assets which consist primarily of net operating loss carry-forwards and research
and development credits. The Company has recorded a full valuation allowance
against its net deferred tax assets as sufficient uncertainty exists regarding
their recoverability.
Liquidity and Capital Resources
Net cash used in operating activities was $1.6 million for the nine months ended
June 29, 2002, compared to cash used of $1.8 million for the nine months ended
June 30, 2001. During the first
11
nine months of fiscal 2002, the net cash used in operating activities resulted
primarily from the Company's net loss, decreased payables of $0.7 million, and
decreased accrued expenses of $0.4 million. These cash outflows were partially
offset by net cash inflows from accounts receivable of $0.6 million and reduced
inventory of $0.3 million.
Net cash used in investing activities and provided by financing activities for
the nine months of fiscal 2002 and fiscal 2001 was insignificant.
In December 2001, the Company renewed its bank line of credit that provides for
maximum borrowings of $3.0 million, and is limited to certain percentages of
eligible accounts receivable and eligible inventory. The Company has not drawn
on this line of credit. As of June 29, 2002, the Company was in compliance with
the covenants under its line of credit agreement.
The Company operates in a highly competitive market characterized by rapidly
changing technology, together with competitors and distributors that have
significantly greater financial resources than the Company. The Company intends
to incur significant expenses to develop and promote new products as well as to
support existing product sales. Failure to generate sufficient revenues from new
and existing products, raise additional capital or reduce discretionary
expenditures would have a material adverse effect on the Company's ability to
continue as a going concern and achieve its intended business objectives.
The Company believes that its current cash and cash equivalents and existing
credit facilities, will be sufficient to fund its operations and meet capital
requirements through the next twelve months.
Factors Affecting Future Operating Results
The Company operates in a rapidly changing 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 technology products. The Company must also
bring its products to market at competitive price levels. Unexpected changes in
technological standards, customer demand and pricing of competitive products
could adversely affect the Company's operating results if the Company is unable
to respond effectively and timely to such changes.
The industry is also dependent to a large extent on proprietary intellectual
property rights. From time to time the Company is subject to legal proceedings
and claims in the ordinary course of business, including claims of alleged
infringement of patents, trademarks and other intellectual property rights.
Consequently, from time to time, the Company will be required to prosecute or
defend against alleged infringements of such rights.
The Company's success also depends to a significant extent upon the
contributions of key sales, marketing, engineering, manufacturing, and
administrative employees, and on the Company's ability to attract and retain
highly qualified personnel, who are in great demand. None of the Company's key
employees are subject to a non-competition agreement with the Company. High
employee turnover in the technology industry is typical. Although the Company
has reduced its
12
workforce during the first nine months of fiscal 2002, 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 and sales structure is particularly subject
to various risks associated with international operations including changes in
costs of labor and material, reliability of sources of supply and general
economic conditions in foreign countries. Unexpected changes in foreign
manufacturing or sources of supply, fluctuations in monetary exchange rates and
changes in the availability, capability or pricing of foreign suppliers could
adversely affect the Company's business, financial condition and results of
operations. The networking industry and technology markets in general 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
structure, or react properly to this slowdown could have an adverse effect on
the Company's financial position.
The 10/100 Mbps and 100 Mbps Ethernet technology (100BASE-T, or "Fast-Ethernet")
has become a standard networking topology in the networking and computer
industries. This 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 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.
13
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.
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 as discussed above. The Company's
future operating results will depend, to a large extent, on its ability to
anticipate and successfully react to these and other factors. Failure to
anticipate and 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 prices
to fluctuate over relatively short periods of time.
Recent Accounting Pronouncements
In July 2002, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." This Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. The provisions of this
Statement are effective for exit or disposal activities that are initiated after
December 2002. The Company believes that SFAS No. 146 will not have a material
impact on its financial position, results of operations or cash flows.
In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44 and
64, Amendment of FAS 13, and Technical Corrections as of April 2002," which is
effective for fiscal years beginning after May 15, 2002. This Statement rescinds
SFAS No. 4, "Reporting Gains and Losses from Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements." This Statement also rescinds SFAS No. 44,
"Accounting for Intangible Assets of Motor Carriers." This statement amends SFAS
No. 13, "Accounting for Leases," to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain
14
lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
provisions of SFAS No. 145 relating to the rescission of SFAS No. 4 shall be
applied in fiscal years beginning after May 15, 2002. The provisions in
paragraphs 8 and 9(c) of SFAS No. 145 relating to SFAS No. 13 shall be effective
for transactions occurring after May 15, 2002. All other provisions of SFAS No.
145 shall be effective for financial statements issued on or after May 15, 2002.
The Company believes the adoption of SFAS No. 145 will not have a significant
impact on its financial statements.
Item 3A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk. As of June 29, 2002, the Company's cash and investment
portfolio did not include fixed-income securities. Due to the short-term nature
of the Company's investment portfolio, an immediate 10% increase or decrease 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.
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.
Information regarding current litigation is set forth in Note 7 of the Notes to
Unaudited Condensed Financial Statements included in Part I, Item 1 of this
report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On June 1, 2002, Jeff Yuan-Kai Lin, a director of the Company, assumed the
position of Chief Operating Officer of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits:
Exhibit 99.1 - CERTIFICATION PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
(b.) Reports on Form 8-K: None
16
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 12, 2002 ASANTE TECHNOLOGIES, INC.
(Registrant)
By: ANTHONY CONTOS
Anthony Contos
Vice President, Finance and Administration
(Authorized Officer and Principal Financial Officer)
17