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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
Commission file number 0-23970
NETWORK PERIPHERALS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0216135
(State or other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1371 McCarthy Boulevard
Milpitas, California 95035
(Address, including zip code of principal executive offices)
(408) 321-7300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the
Act:
Title of class
Common Stock
Indicate by checkmark 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 the filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 24, 1997 was $178,275,477 based upon the closing price
of the Registrant's Common Stock on the Nasdaq National Market System on that
date.
The number of shares of the Registrant's Common Stock outstanding as of February
24, 1997 was 12,086,473.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its annual meeting of
stockholders to be held on April 24, 1997 are incorporated by reference into
Part III of this Annual Report on Form 10-K.
NETWORK PERIPHERALS INC.
FORM 10-K
Table of Contents
PART I Page
Item 1. Business...................................................................................... 3
Item 2. Properties.................................................................................... 11
Item 3. Legal Proceedings............................................................................. 11
Item 4. Submission of Matters to a Vote of Security Holders........................................... 11
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters...................................................................... 12
Item 6. Selected Financial Data....................................................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................ 14
Item 8. Financial Statements and Supplementary Data................................................... 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................................................... 33
PART III
Item 10. Directors and Executive Officers of the Registrant............................................ 34
Item 11. Executive Compensation........................................................................ 34
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 34
Item 13. Certain Relationships and Related Transactions................................................ 34
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 35
Signatures.................................................................................... 36
Supplemental Schedule......................................................................... 37
2
PART I
Item 1. Business
Network Peripherals Inc., ("the Company") was incorporated in California in
March 1989 and reincorporated in Delaware in June 1994. The Company's principal
offices are located at 1371 McCarthy Boulevard, Milpitas, California 95035, and
its telephone number is (408) 321-7300.
Business
The Company designs, develops, manufactures, markets and supports high
performance client/server workgroup networking solutions based on advanced
networking technologies and unique ASIC (application specific integrated
circuits) components designed by the Company. Network Peripherals' solutions are
designed to deliver substantial improvements in network performance to users in
departmental and workgroup networks which must satisfy the bandwidth
requirements of network servers, internetworking traffic and complex software
applications. The products offered by Network Peripherals are designed to
preserve customers' investment in existing network equipment, infrastructure and
in particular Ethernet networks commonly found in workgroups.
The Company introduced its first FDDI network adapter products in 1990 and has
established a leading share of the installed FDDI adapter market. Network
Peripherals introduced its first FDDI concentrator product in 1991 and began
commercial shipments of its first FDDI LAN (local area network) switching
product, the EIFO series, in the first quarter of 1994. In 1995, the Company
announced its Fast Ethernet product line and made initial shipments of its Fast
Ethernet LAN switching products in early 1996.
In March 1996, the Company purchased all of the outstanding shares of NuCom
Systems, Inc., a Taiwan-based networking company focused on Fast Ethernet
switching products. This acquisition enabled the Company to introduce a number
of new Fast Ethernet products during the year and was the principal reason sales
of Fast Ethernet products reached $9.7 million or 18% of net sales in 1996.
Network Peripherals markets its products worldwide through OEMs, VARs,
distributors and system integrators.
Products
The Company's product line currently consists of a full line of NuSwitch(TM)
FD-Series FDDI client/server switching hubs, FE-Series Fast Ethernet switching
hubs, NuCard(TM) FDDI and Fast Ethernet network adapters, NuHub(TM)
concentrators and NuSight(TM) network management applications.
Network Adapter Products
Network Adapter Hardware. The Company's line of NuCard FDDI network adapters
connects high-performance servers or PCs/workstations directly to 100 Mbps FDDI
networks. The Company has been shipping certified FDDI adapters since 1990.
NuCard adapters support both fiber and unshielded twisted pair (UTP) copper
wiring, and are available for all popular platform bus architectures -- EISA,
AT/ISA, SBus, Micro Channel Architecture and PCI. Customized versions have been
developed for resale under OEM arrangements with NCR, Network General, NetFRAME
and Sun Microsystems. The Network General product is a customized version of the
Company's EISA FDDI adapter with enhanced features for use with the Network
General Sniffer Network Analyzer. The product developed for NetFRAME is an FDDI
Network I/O Processor that provides high performance FDDI connectivity for the
NetFRAME line of network super servers. The FDDI adapter and custom software
developed for Sun Microsystems is
3
based on the Company's SBus FDDI adapter and supports Sun Microsystems' SPARC
and UltraSPARC work station and server product lines.
The Company also offers a high-performance 10/100 Fast Ethernet network
interface card for PCI-bus architecture systems. Combining a 32-bit bus master
implementation with tightly integrated software drivers, the FE-560T provides
the optimal connection for servers and/or desktops migrating from Ethernet to
Fast Ethernet.
The Company's NuCard adapters incorporate software drivers for the leading
network operating systems: Novell NetWare, Microsoft NT, and Sun Microsystems
Solaris. The Company provides a standard set of diagnostics, connection
management (CMT) and station management (SMT) software tools. CMT software
continuously monitors network connections for bit errors and network faults,
while SMT software provides network management and gathering of network
performance statistics.
The Company's adapters connect high performance servers or PCs/workstations
directly to 100 Mbps Fast Ethernet and FDDI networks. The Company has developed
an FDDI core engine as part of the FDDI adapter design which implements FDDI
standard functions and is optimized for each standard bus architecture. The
Company's FDDI adapters support fiber and unshielded twisted pair (UTP) copper
wiring.
LAN Switching Products
LAN Switching Products, The LAN Switching products offered by the Company
include product lines consisting of a variety of models and configurations
providing Ethernet to Fast Ethernet LAN switching, Fast Ethernet to Fast
Ethernet LAN switching and Ethernet to FDDI LAN switching products.
The NuSwitch FE-Series of Fast Ethernet switching hubs provides an inexpensive
and reliable method for network administrators to segment current Ethernet LANs
using switched Ethernet, and deliver high-speed connections to multiple servers
using Fast Ethernet uplinks. The Company offers a range of models to meet the
requirements of enhancing existing Ethernet networks and to deliver increased
performance to the multiple LAN segments commonly deployed. The current product
line includes six models of 10Mbps to 100Mbps, Ethernet to Fast Ethernet
switching products. Each model provides the customers with a choice of
configuration and system price designed to meet their existing network
requirements. The models in the FE-Series serving this requirement include: the
FE-101, FE-105, FE-106, FE-210, FE-506 and FE-512. The Company offers the
FE-224C, a model featuring twenty-four 10Mbps Ethernet ports and two 100Mbps
Fast Ethernet ports designed to meet the growing need for increased desktop
performance.
The FE-200 Series of 100/100 two-port switches allows users to bridge Fast
Ethernet networks beyond the typical limitations of Ethernet, extending Fast
Ethernet connections up to two kilometers. The Company's FE-600 and FE-1200
100/100 switching hubs are designed to interconnect multiple high-speed segments
and offer up to 12 100BaseT switched ports per unit. Using a 2Gbps switching
backplane, these Fast Ethernet switching hubs can support full-duplex reception
and transmission over all ports, simultaneously.
High performance at relatively low cost is achieved in both the FD- and
FE-Series through the development of proprietary ASIC-based components and a
distributed switching architecture. Instead of sharing buffer memory, as in
typical shared-memory switching technologies, each NuSwitch Ethernet port has
its own dedicated buffer memory. Competitive switches frequently utilize either
a central processor or central ASIC, which can lead to potential memory
allocation problems that undermine switch performance.
Network Peripherals' NuSwitch FD-Series switching hubs combine FDDI server
uplinks with switched 10Base-T Ethernet segments for client connectivity. The
systems forward data between Ethernet and
4
FDDI ports at rates up to 157,000 packets per second and can filter 400,000
packets per second. Introduced in 1994, the Company's FDDI switching hubs won
LAN Magazine's "Product of the Year" Award in 1995.
The NuSwitch FD-Series offers a number of switch configurations to connect FDDI
networks with switched 10BaseT Ethernet ports for client segment connectivity.
Utilizing a distributed memory switching architecture, the FD-Series forwards
data between Ethernet and FDDI ports at a rate of up to 157,000 packets per
second. The FD-Series is based upon Ethernet and FDDI industry standards,
providing compatibility with other network products including 10BaseT workgroup
hubs and enterprise hubs and routers, thereby preserving the users' investment
in existing network equipment. The FD-Series offers models with up to six FDDI
ports and 12 Ethernet ports with each Ethernet port supporting one network
segment or a single client.
LAN Concentrators. The Company's NuHub FE-5108 provides eight Class II 100BaseT
Fast Ethernet ports, each capable of half- or full-duplex transmission. Each
connected workstation can have access to all connected file servers over the
high-speed connection without changes to the desktop network. NuHub
concentrators have the same form factor and management software as the NuSwitch
switching hub, providing a convenient single-vendor 100Mbps connectivity
solution.
The Company has also designed and currently manufactures a custom FDDI
concentrator module for UB Networks. This product, available in a number of
different configurations, is designed to be integrated in UB Networks'
Access/One enterprise hub.
LAN Network Management Software. The Company believes that network management
software is an important capability for client/server networks that enables
network administrators to manage, maintain and control the operation of the
network remotely. The Company provides standards-based network management
software in all of its products. The Company's LAN switching products and LAN
concentrators are supplied with SNMP software which allows these hubs to be
controlled and statistics to be gathered from an SNMP management station. The
Company introduced in 1996 a new network management application, NuSight 1.0,
that provides a graphical view of the switching product to enable the network
administrator to manage network connections and configuration, gather statistics
to monitor network traffic and plan future growth. NuSight 1.0 is available on
Microsoft Windows 3.1, Windows95 and Windows NT.
The information in the following paragraph contains forward looking statements
describing new products that are expected to be available for shipment to the
Company's customers during 1997. The successful completion and shipment of these
products is subject to a number of uncertainties, including verification testing
to confirm that the products meet the Company's standards for quality,
reliability and interoperability; availability of components; pricing actions by
competitors that may render it unprofitable to introduce the products; market
acceptance of the products; and the emergence or broad acceptance of new
technologies that may render the products obsolete.
In addition to the Fast Ethernet products described above, in 1997 the Company
intends to develop and introduce a number of bridging products designed to
enable customers to interconnect workgoups to enterprise backbone networks,
including Fast Ethernet to FDDI, Fast Ethernet to ATM and FDDI to ATM, and
enhanced versions of FDDI adapters including standard and custom (OEM) products
based on the PCI bus architecture.
5
Marketing, Sales and Support
The Company distributes and sells its product worldwide through OEMs, VARs,
distributors and system integrators. As of December 31, 1996, the Company
employed 71 full-time technically trained marketing, sales and support personnel
located in the United States, the Netherlands, Singapore and Taiwan. These
personnel, in addition to traditional marketing and sales functions, are
responsible for developing relationships with major end-user accounts and with
network operating system software leaders such as Novell, Sun Microsystems and
Microsoft. The Company believes that such relationships are crucial to early
development and deployment of optimal solutions for client/server network
applications.
As a result of the Company's strategy to cultivate business relationships with
influential networking and system vendors, a majority of the Company's
historical and current sales have been to OEMs. While the Company does not
generally obtain long-term purchase commitments from its OEM customers, it does
customarily enter into contracts with OEM customers to establish the terms and
conditions of sales made pursuant to orders from OEMs. Several major networking
vendors have contracted with the Company to have the Company design complex
custom modules for direct integration into their enterprise switches, super
servers and other networking products.
Beginning in 1995 and continuing in 1996, the Company implemented programs
designed to balance its distribution mix by expanding sales through VARs,
distributors and system integrators in both the North American and international
markets. The distribution mix in any particular period can be affected by the
presence or absence of large orders by OEMs, VARs, distributors and system
integrators, and changes in the distribution mix will affect the Company's gross
margins.
Internationally, the Company's products are sold through a variety of
locally-based distributors and resellers specializing in networking solutions,
many of whom also distribute networking products from Bay Networks, 3Com and
Cisco Systems. The Company's products are currently distributed internationally
in Europe, Asia, and the Middle-East. The Company has sales offices in the
Netherlands, Taiwan and Singapore. Sales to customers outside of North America
represented 21% of the Company's net sales in 1996. The geographic regions with
the major portions of export sales in 1996, and the approximate respective
percentages represented by each, were Europe, 8% and Asia, 13%. All payments for
sales outside the United States are made in U.S. dollars.
Sun Microsystems, Tech Data, and UB Networks accounted for 26%, 15%, and 12%,
respectively, of net sales in 1996. In the past, the Company has experienced
fluctuations in the volume of activity with individual OEM customers and
distributors as well as changes in its OEM customer and distributor base, and it
expects such fluctuations and changes to continue in the future. The loss of a
major customer, reductions of a major order or delay in a major shipment could
adversely affect the Company's business and financial performance.
OEM customers typically provide the Company with a rolling forecast with orders
placed two to three months in advance of shipment. Resellers typically provide
the Company with orders placed thirty days or less in advance of shipment. As a
result of these relatively short order cycles, the Company believes backlog may
not be indicative of revenues in future periods.
The information in the following paragraph contains forward looking statements
describing the Company's plans to increase sales through its distribution
channels and the expected mix of product shipments through various channels.
There are a number of uncertainties that could affect the success of those plans
including the timely availability of new products by the Company, reliability,
price and performance characteristics of the components, new and existing
products, the introduction of similar products by competitors, pricing actions
by competitors and the inability of the Company to recruit and retain required
sales and marketing staff with the needed skills.
6
In 1997 the Company plans to increase its spending for marketing and selling
activities, both in North America and internationally. This is a continuation of
a commitment to growth which began in mid-1995 and is the result of efforts by
the Company to increase its sales through distributors, VARs and system
integrators.
Research and Development
The information in this section contains forward-looking statements describing
the Company's product development plans for 1997 and beyond. The successful
development and introduction of new products is subject to a number of
uncertainties, including the ability of the organization to recruit, train and
retain adequate numbers of professional engineers, successful design of
proprietary application specific circuits and computer software, design,
development and verification testing to confirm that the products meet the
Company's standards for quality, reliability and interoperability, availability
of components, pricing actions by competitors that may render it unprofitable to
introduce the products, unanticipated technical obstacles or delays, and the
emergence or wide acceptance of new technologies that could render the products
obsolete.
The Company has developed certain core competencies applicable to multiple
network technologies such as FDDI, Fast Ethernet, ATM and ASIC design and
client/server operating system drivers and software modules. The Company
believes its focus on these core competencies has been, and will continue to be,
a significant factor in its competitive ability to bring emerging network
solutions to the market in a timely manner.
System Architecture Interfaces and Network Protocol Software. Through the
development of its collection of 100 Mbps network adapters, the Company has
gained expertise in hardware and software support for a variety of standard and
proprietary system bus architectures and network operating systems.
Server Bandwidth Optimization. The Company has designed its network operating
system software to address the specific characteristics of each type of adapter
and server architecture. This design provides optimal network bandwidth to high
power servers. As new versions of network operating systems are introduced, the
Company plans to devote development efforts not only to maintain compatibility
with existing versions but also to take advantage of enhanced features and
performance improvements.
Network Bandwidth Switching. The Company has implemented its Distributed Memory
Switching Architecture and ASIC expertise in products based on both FDDI and
Fast Ethernet. The Company's unique ASIC components are manufactured by
semiconductor providers such as LSI Logic, TSMC and ATMEL.
As of December 31, 1996, the Company employed 63 personnel in research and
development. Key members of the Company's research and development team have
been active members of the various network standard committees since 1987,
before Network Peripherals was founded. The Company is a charter member of the
Advanced Network Test Center (ANTC), an FDDI interoperability certification
center, is a member of the ANSI FDDI Standards Committee, is a member of the
Gigabit Ethernet Alliance and is a principal member of the ATM Forum.
The Company has developed products designed for integration in the proprietary
systems of major networking companies including Sun Microsystems, UB Networks,
NetFRAME, NCR, and Network General. The Company believes that its relationships
with these network technology leaders establish credibility with end-user
customers who demand interoperability of their networking devices. The Company
has active development relationships with Novell, Microsoft and Sun Microsystems
for advanced products for NetWare, Windows NT and Solaris, respectively.
7
The Company currently has active engineering programs underway involving:
o Multiple development teams designing unique ASICs for the Company's
next generation of LAN switching products;
o System development teams designing the Fast Ethernet LAN switching
products for delivery in 1997;
o PCI bus architectures to develop proprietary implementations for the
Company's future products that offer a PCI interface;
o Network management and other software required to support the latest
releases of Microsoft, Novell and Sun Microsystems operating systems;
and
o Design of next generation FDDI adapters to support PCI based systems
and the Sun Microsystems Sbus based systems.
Competition
The Company believes that the principal competitive factors in the networking
market include the completeness of product offerings, product quality, price and
performance, adherence to industry standards, the degree of interoperability
with other networking equipment and time to market for new products.
Notwithstanding the Company's belief that it currently competes favorably with
respect to these factors, the computer networking industry is intensely
competitive and is significantly affected by product introductions and market
activities of industry participants. Several competitors have recently
introduced, or announced their intentions to introduce, new products that would
compete with one or more of the Company's products. Many of the Company's
current and potential competitors have significantly broader product offerings
and greater financial, technical, marketing and other resources and larger
installed bases than the Company. Increased competition could result in price
reductions, reduced margins and loss of market share, all of which would
materially and adversely affect the Company's business, operating results and
financial condition. The Company's FDDI network adapters compete on a
product-by-product basis with products offered primarily from Interphase,
SysKonnect, Digital Equipment Corporation and 3Com. The Company's client/server
switching solutions compete with products offered by Cisco, 3Com, Bay Networks
and Cabletron. A number of the Company's competitors have been acquired. These
acquisitions are likely to permit the Company's competitors to devote
significantly greater resources to the development and marketing of new
competitive products and the marketing of existing products to their installed
bases. The Company expects that competition will increase as a result of these
and other industry consolidations and alliances. These competitive pressures
could adversely affect the Company's business and operating results.
Manufacturing
As of December 31, 1996, the Company employed 71 full-time personnel in
manufacturing. The Company uses third party manufacturing subcontractors for
assembly, test and quality control of material, components, subassemblies and
systems, thereby avoiding the significant capital investment required to
establish and maintain manufacturing and assembly facilities and allowing the
Company to concentrate its resources on product design and development. The
Company's manufacturing team is experienced in advanced manufacturing and test
engineering, in ongoing reliability/quality assurance and in managing third
party manufacturing subcontractors. The Company qualifies subcontractors using a
selection program that assesses a potential subcontractor's capacity, quality
standards and manufacturing process.
The Company performs final assembly, testing, packaging and shipping for most of
its products but uses qualified subcontractors that perform some, or all, of
these functions for certain other of its products. To ensure the integrity of
the subcontractors' quality assurance procedures, the Company has developed
detailed test procedures and test specifications for each product. The Company
is currently working towards obtaining an ISO 9001 certification.
8
Certain key components used in the Company's products, such as microprocessors,
ASICs, communications controller chips, FDDI and Ethernet media interface
components and power supplies, are currently available only from single sources
or limited sources. In particular, the Company has designed into its products a
standard FDDI chipset available only from National Semiconductor. The Company
has also developed proprietary ASICs used in its LAN switching products and in
other products, each of which is currently being supplied by a single foundry.
While the Company believes it would be able to obtain alternative sources of
supply for the ASICs at its election, any future difficulty in obtaining any of
these key components or ASICs could result in delays or reductions in product
shipments which, in turn, could have a material adverse effect on the Company's
results of operations. In addition, the Company's strategy to have its products
assembled and, in certain cases, tested by third parties involves certain risks,
including the potential absence of adequate capacity, the unavailability of or
interruptions in access to certain process technologies and reduced control over
delivery schedules, manufacturing yields, quality and costs. In the event that
any significant subcontractor were to become unable or unwilling to continue to
manufacture and/or test the Company's products in required volumes, the Company
would have to identify and qualify acceptable replacements. This process of
qualifying manufacturing subcontractors and other suppliers could be lengthy and
no assurances can be given that any additional sources would become available to
the Company on a timely basis.
Proprietary Rights
The Company's success is dependent upon its proprietary technology. To date, the
Company has relied principally upon patent, copyright, and trade secret laws to
protect its proprietary technology. The Company generally enters into
confidentiality or license agreements with its employees, distributors,
customers and potential customers and limits access to, and distribution of, the
source code to its software and other proprietary information. The Company has
been issued one U.S. patent and has filed three additional U.S. patent
applications covering certain aspects of its technology. The process of
obtaining patents can be expensive, and there can be no assurance that the
patent application will result in the issuance of patents, that any issued
patents will provide the Company with meaningful competitive advantages, or that
challenges will not be issued against the validity or enforceability of any
patent issued to the Company.
The Company has entered into patent license agreements relating to certain
technologies used in FDDI networks. The Company believes that the terms of such
licenses are comparable to those made available to other companies in the
networking industry. In addition, certain technology used in the Company's
products is licensed from third parties, generally on a non-exclusive basis.
These licenses generally require the Company to pay royalties and to fulfill
confidentiality obligations. Termination of such licenses could adversely affect
the Company's business and operating results.
The Company has agreed in certain cases to indemnify its customers for liability
incurred in connection with the infringement of a third party's intellectual
property rights. Although the Company has not received notice from any of its
customers advising the Company of any alleged infringement of a third party's
intellectual property rights, there can be no assurance that such
indemnification of alleged liability will not be required from the Company in
the future.
9
Executive Officers
The executive officers of the Company and their ages are as follows:
Name Age * Position
- ---- ----- --------
Pauline Lo Alker 54 President, Chief Executive Officer, and Director
Truman Cole 54 Vice President of Finance and Chief Financial Officer
Fred Kiremidjian 49 Senior Vice President of World Wide Operations
Bob Lyon 55 Vice President of Human Resources
Donald J. Morrison 39 Senior Vice President of Marketing
Derek Obata 38 Vice President of World Wide Sales
Oliver Szu 40 Vice President and Chief Technology Officer
* As of December 31, 1996.
Mrs. Alker has served as the President, Chief Executive Officer and a Director
of the Company since January 1991. Prior to joining the Company, she served as
President of the Network Computers Division and President of Sales and Marketing
of Acer North American Operations from October 1987 to September 1990. Prior to
Acer, Mrs. Alker co-founded Counterpoint Computers, Inc., a manufacturer of
modular, multiprocessor UNIX systems, where she served as Chairman, President
and Chief Executive Officer until it was acquired by Acer. Prior to Counterpoint
Computers, Mrs. Alker held various marketing and engineering management
positions with Intel and with Four Phase Systems and Amdahl Corporation, all of
which are computer systems manufacturers. From 1980 to 1984, Mrs. Alker was Vice
President of Marketing and subsequently Vice President and General Manager at
Convergent Technologies, Inc., a workstation manufacturer.
Mr. Cole has served as the Vice President of Finance and Chief Financial Officer
of the Company since February 1994. Prior to joining the Company, Mr. Cole
worked as an independent consultant from April 1993 to February 1994, and served
as the Vice President, Chief Administrative Officer and Chief Financial Officer
of Software Publishing Corporation, a desktop software supplier, from April 1990
to March 1993. From August 1988 to January 1990, he served as Vice President,
Controller of Tonka Corporation, a toy manufacturer. Mr. Cole also worked for 16
years for Fairchild Semiconductor Corp., a semiconductor manufacturer, most
recently serving as Director of Finance.
Mr. Kiremidjian has served as an executive officer since joining the Company in
July 1996. Prior to joining the Company, he served as Vice President and General
Manager of Personal Products Business Unit of Xerox Corporation. He has directed
research and development, engineering and manufacturing operations efforts for
leading Silicon Valley companies such as Acer, Convergent Technologies,
Counterpoint Computers, and Fairchild Semiconductor Corp.
Mr. Lyon has served as an executive officer since joining the Company in August
1996. From January 1995 to August 1996, he served as Vice President of Human
Resources and acting General Counsel for Syquest Technologies, a removable
cartridge disk drive manufacturer. Prior to joining Syquest, he served as Vice
President of Human Resources for Anthem Electronics and Vice President of
Administration at Xidex, an Anacomp Company. Additionally, Mr. Lyon served as
Labor Relations Manager and International Human Resources Manager at Intel
Corporation for eight years. He also held several key human resource and
management consulting positions at LLNL and Maxtor.
Mr. Morrison has served as an executive officer since joining the Company in
April 1995. Prior to joining the Company, he was the Vice President of Marketing
at Strategic Mapping, Inc., a software applications start-up company. From
October 1988 to December 1993, he was with The Santa Cruz Operation, holding
various marketing management positions, including Vice President of North
America VAR and Distributor Sales, responsible for U.S. reseller, retail, VAR
and distributor customers and revenues. Before that, Mr.
10
Morrison held marketing management positions with Altos Computer Systems and
Fortune Computer Systems.
Mr. Obata has served as an executive officer since joining the Company in
November 1995. From April 1993 to April 1995, he served as Vice President of
Sales at Ministor Peripherals, a disk drive manufacturer. Before that, he worked
at Conner Peripherals, a disk drive manufacturer, where he held various sales
management positions.
Mr. Szu has served as an executive officer since joining the Company in March
1996, when the Company acquired NuCom Systems, Inc. He was one of the founders
of NuCom Systems, Inc. Prior to founding NuCom in 1994, he was the director of
the Internetworking Department at D-Link Systems, Inc. in Taiwan and served on
the D-Link Board of Directors from 1993 to 1994.
Employees
As of December 31, 1996 the Company employed 236 persons including 63 in
research and development activities, 71 in manufacturing, service, and support,
71 in sales, marketing, customer support and related activities, and 31 in
finance and administration. Additionally, as of December 31, 1996, 11 persons
provided services to the Company as contractors and temporary employees.
Approximately 112 employees were in international locations. None of the
Company's employees are currently represented by a labor union. The Company
considers its relations with its employees to be good. The Company attempts to
maintain competitive compensation benefits, equity participation and work
environment policies to assist in attracting and retaining qualified personnel.
Competition for employees in the Company's industry and geographical area is
intense and there can be no assurance that the Company will be successful in
attracting and retaining such personnel.
Item 2. Properties
The Company's principal executive offices, research and development, and
manufacturing facilities are located in Milpitas, California and consist of
approximately 49,000 square feet under lease that will expire in October 2000.
Additionally, the Company has research and development and manufacturing
facilities in Taiwan of approximately 29,000 square feet. The Company has
domestic sales offices in Georgia, Illinois, Maryland, Massachusetts, New
Jersey, New York, and Texas, and international sales offices in the Netherlands,
Japan, Singapore, and Taiwan. The Company believes that its existing and planned
facilities and equipment are generally adequate to meet its immediate and
foreseeable needs.
Item 3. Legal Proceedings
There are no material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1996.
11
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The Company's Common Stock is traded in the over-the-counter market on the
Nasdaq National Market. As of February 24, 1997, there were approximately 198
stockholders of record. The following table sets forth, for the fiscal periods
indicated, the high and low closing prices for the Common Stock, all as reported
by Nasdaq.
1994 High Low
---- ---- ---
Second Quarter (from June 28, 1994) $ 6.50 $ 6.00
Third Quarter 14.75 6.00
Fourth Quarter 27.00 14.25
1995
----
First Quarter $ 30.50 $ 19.75
Second Quarter 23.13 16.75
Third Quarter 21.75 13.75
Fourth Quarter 16.00 8.88
1996
----
First Quarter $ 14.75 $ 10.25
Second Quarter 18.63 13.00
Third Quarter 16.63 12.25
Fourth Quarter 17.75 14.63
The Company has never paid or declared any cash dividends. It is the present
policy of the Company to retain earnings to finance the growth and development
of the business and, therefore, the Company does not anticipate paying cash
dividends on its Common Stock in the foreseeable future.
12
Item 6. Selected Financial Data
Years Ended December 31,
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Statement of Operations Data: (in thousands, except per share amounts)
Net sales $ 53,080 $ 47,144 $ 33,463 $ 10,687 $ 7,214
Cost of sales 28,590 24,690 17,507 5,633 3,989
-------- -------- -------- -------- --------
Gross profit 24,490 22,454 15,956 5,054 3,225
-------- -------- -------- -------- --------
Operating expenses:
Research and development 8,570 4,811 3,473 1,962 1,549
Marketing and selling 11,849 7,319 4,361 1,865 1,696
General and administrative 3,378 2,226 1,618 870 811
Acquired research and
development in process and
product integration costs 13,732 -- -- -- --
-------- -------- -------- -------- --------
Total operating expenses 37,529 14,356 9,452 4,697 4,056
-------- -------- -------- -------- --------
Income (loss) from operations (13,039) 8,098 6,504 357 (831)
Interest income, net 1,745 2,236 577 20 36
-------- -------- -------- -------- --------
Income (loss) before income taxes (11,294) 10,334 7,081 377 (795)
Provision for income taxes (608) (3,617) (1,416) (19) --
-------- -------- -------- -------- --------
Net income (loss) $(11,902) $ 6,717 $ 5,665 $ 358 $ (795)
======== ======== ======== ======== ========
Net income (loss) per share (1) $ (1.01) $ 0.57 $ 0.62 $ 0.05
======== ======== ======== ========
Weighted average common and
common equivalent shares (1) 11,760 11,736 9,199 7,224
======== ======== ======== ========
December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Balance Sheet Data: (in thousands)
Working capital $54,997 $63,269 $55,720 $ 5,280 $ 3,272
Total assets 71,434 70,111 65,209 8,728 5,338
Long-term obligations, net of
current portion -- -- -- 172 247
Stockholders' equity (deficit) 59,857 65,709 57,758 (3,181) (3,559)
(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation of the method used to determine the number of shares
used to compute per share amounts. Net loss per share for the year ended December 31, 1992 is not considered meaningful and has not
been presented herein.
13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Acquisition
Effective March 21, 1996, the Company purchased all of the outstanding shares of
NuCom Systems, Inc., (the "Acquisition"). (See Note 8 of Notes to Consolidated
Financial Statements). The Acquisition had a significant effect on financial
results in 1996.
As a result of the Acquisition, the Company's operating expenses increased
immediately whereas the increase in sales from products under development at
NuCom occurred gradually, primarily during the last six months of the year.
Additionally, the Company's gross profit was reduced as a result of the
amortization of intangible assets directly related to the Acquisition.
Net Sales
Net sales were $53.1, $47.1 and $33.5 million in 1996, 1995 and 1994,
respectively. The increase in sales in 1996 was primarily attributable to growth
of sales for Fast Ethernet switching products, partially offset by a decline in
sales of products based on FDDI technology. Higher shipments of FDDI adapters
and FDDI LAN switching products caused the growth from 1994 to 1995. Demand for
the Company's adapter products increased to 57% of sales in 1996 from 53% and
51% in the previous two years.
In 1996, sales to distribution channels grew to $22.6 million, from $19.2
million and $12.6 million in 1995 and 1994, respectively. Sales to OEM customers
grew to $30.5 million in 1996, from $27.9 and $20.9 million in the preceding two
years, respectively.
Gross Profit/Margin
The gross margin in 1996 was 46.1%, compared to gross margins in 1995 and 1994
of 47.6% and 47.7%, respectively. The gross margin in 1996 included the
amortization of intangible assets related to the Acquisition. Excluding the
amortization charges, the gross margin was 47.9%, consistent with the prior two
years. Continued changes in the product mix and sales channel mix, variables in
the development, introduction and marketing of new products, fluctuations in
cost of materials and components, as well as competitive factors, may adversely
impact the gross margin in future periods.
Research and Development
Research and development expenses represented 16.2%, 10.2% and 10.4% of net
sales in 1996, 1995 and 1994, respectively. In dollars, the expenditures
increased to $8.6 million in 1996 from $4.8 and $3.5 million in 1995 and 1994,
respectively. The expenses are net of contract funding from other companies of
$556,000, $906,000 and $371,000, for the years of 1996, 1995 and 1994,
respectively. The increase in 1996 reflected the addition of staff, facilities
and equipment resulting from the Acquisition. The sequential increases from 1994
to 1996 included costs for the development of new products and technologies, and
enhancements to an expanding product line.
Marketing and Selling
Marketing and selling expenses represented 22.3%, 15.5% and 13.0% of net sales
in 1996, 1995 and 1994, respectively. In dollars, the expenditures increased to
$11.8 million in 1996 from $7.3 and $4.4 million in 1995 and 1994, respectively.
The increase in expenditures in 1996 reflected the addition of staff, facilities
and equipment resulting from the Acquisition. The sequential increases from 1994
to 1996 included costs
14
associated with pursuing the Company's marketing strategy to penetrate global
markets, including Asia and Europe, and to establish brand-name recognition. The
cost of implementing this strategy includes the addition of personnel and
related overhead costs, and the cost of advertising and promotional campaigns.
General and Administrative
General and administrative expenses represented 6.4%, 4.7% and 4.8% of net sales
in 1996, 1995 and 1994, respectively. In dollars, the expenditures increased to
$3.4 million in 1996 from $2.2 million and $1.6 in 1995 and 1994, respectively.
The increase in expenditures in 1996 reflected the addition of staff, facilities
and equipment resulting from the Acquisition. The increases in dollars from 1994
to 1996 included the costs of additional personnel, increased professional fees
and other overhead costs to support the increased activities of the Company.
Acquired Research and Development In-Process and Product Integration Costs
The Company incurred a one-time charge of $13.7 million for in-process research
and development and product integration costs related to the Acquisition.
Interest Income
Interest income was $1.7 million in 1996, compared to $2.2 million and $577,000
in 1995 and 1994, respectively. The decline in interest income in 1996 was the
result of a reduced level of invested funds following the Acquisition. The
increase in interest income from 1994 to 1995 was attributed to the increased
level of invested funds resulting from proceeds of the Company's public
offerings of Common Stock in 1994.
Income Taxes
The Company's effective tax rates for both 1996 and 1995 were 35% and for 1994
was 20%. The effective tax rate in 1996 excluded the non-recurring charge of
in-process research and development, a non-deductible item for tax purposes. The
effective tax rate applied throughout 1995 and 1996 was less than the combined
federal and state statutory rate due principally to the effects of tax exempt
interest income and tax credits available to the Company. The rate applied in
1994 was effected by operating loss carryforwards from prior years that were
used to offset taxable income.
Liquidity and Capital Resources
Cash provided by operating activities for the three years ended December 31,
1996 totaled $10.2 million, and was primarily attributable to net income,
excluding the non-recurring charge of in-process research and development
resulting from the Acquisition, and increases in current liabilities, offset in
part by increases in accounts receivable and inventories. The increases in
current liabilities, accounts receivable and inventories correspond principally
to increases in the volume of sales activities.
Net cash used in investing activities for the three years ended December 31,
1996 totaled $38.1 million, of which $10.4 million was for the acquisition of
NuCom and the remainder for the purchase of short-term securities and property
and equipment, partially offset by proceeds from the sale of short-term
investments.
Cash provided by financing activities of $47.3 million for the three years ended
December 31, 1996 was principally the result of the sale of Common Stock in the
Company's public offerings in 1994.
At December 31, 1996, the Company's principal sources of liquidity were its
cash, cash equivalents and short-term investments of $45.9 million and its $10
million bank line of credit. As of December 31, 1996, there were no borrowings
outstanding under the line of credit. The Company believes that its existing
cash
15
balances, the bank line of credit and funds provided by operating activities
will be sufficient to meet the Company's capital and operating requirements for
the foreseeable future.
Business Outlook
The following forward-looking statements are made in reliance upon the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
future events described in such statements involve risks and uncertainties,
including:
o the timely development and market acceptance of new products;
o the market demand by customers for the Company's existing products,
including demand by OEM customers for custom products;
o competitive actions, including pricing actions and the introduction of new
competitive products, that may affect the volume of sales of the Company's
products;
o uninterrupted supply of key components, including semiconductor devices
and other materials, some of which may be sourced from a single supplier;
o the ability of the Company to recruit, train and retain key personnel,
including engineers and other technical professionals;
o the development of new technologies rendering existing technologies and
products obsolete; and
o general market conditions.
In evaluating these forward-looking statements, consideration should also be
given to the Business Risks discussed in a subsequent section of this Form 10-K.
The Company believes that any revenue growth in 1997 is likely to be derived
from sales of its Fast Ethernet switching products, which began shipping in
1996. Higher performance versions of the Fast Ethernet switching products are
planned for release throughout 1997. Shipments to the distribution channel, in
North America, Asia, and Europe are expected to increase from 1996 levels as a
result of the continuing marketing and sales efforts. Among other factors, the
expected growth in revenue is dependent upon the market's demand for Fast
Ethernet switching products, the timely release of new products, and the
effectiveness of its marketing strategy.
The Company expects gross margins to increase slightly in 1997 as a result of
lower levels of amortization of intangible assets related to the Acquisition,
lower cost of raw materials and components, and an increase in the relative mix
of products expected to be sold through the distribution channels, offset in
part by general price erosion of existing products. Products sold to the
distribution channel typically have higher prices and thus higher gross margins
than similar products sold to OEM customers.
The Company expects its operating expenses to increase in absolute dollars in
1997, but may decline as a percentage of net sales, depending on the actual
sales achieved during the year. The dollar increase expected in research and
development expense will be the result of increased resources to support new
product development and to acquire or develop new technologies in the LAN
switching field. The dollar increase expected in marketing and selling expense
will reflect the addition of personnel and other expenditures for advertising
and promotional campaigns, and for the continued development of the distribution
channel, including an increase in the number of sales offices in Asia and
Europe. The dollar increase expected in general and administrative expense will
be due to the addition of personnel and information systems to support the
increased activities of the Company.
Business Risks
In addition to the factors addressed in the preceding sections, certain
characteristics and dynamics of the Company's markets, technologies and
operations create risks to the Company's long-term success and to predictable
quarterly results. These risks will also affect the Company's ability to achieve
the results anticipated by the forward-looking statements contained in this
report. The Company's quarterly results have in the past varied, and are
expected in the future to vary significantly as a result of factors such as the
16
timing and shipment of significant orders, new product introductions or
technological advances by the Company and its competitors, market acceptance of
new or enhanced versions of the Company's products, changes in pricing policies
by the Company and its competitors, the mix of distribution channels through
which the Company's products are sold, the mix of products sold, the accuracy of
resellers' forecast of end-user demand, the ability of the Company to obtain
sufficient supplies of sole or limited source components for the Company's
products and general economic conditions. In response to competitive pressures
or new product introductions, the Company may take certain pricing or marketing
actions that could materially and adversely affect the Company's operating
results. In the event of a reduction in the prices of its products, the Company
has committed to providing retroactive price adjustments on inventories held by
its distributors, which could have the effect of reducing margins and operating
results. In addition, changes in the mix of products sold and the mix of
distribution channels through which the Company's products are sold may cause
fluctuations in the Company's gross margins. The Company's expense levels are
based, in part, on its expectations of its future revenue and, as a result, net
income would be disproportionately affected by a reduction in revenue. The
absence of significant Company experience with new products limits the Company's
ability to plan for production, market demand and sales and may adversely affect
operating results if the Company misallocates resources to a new product. Due to
the potential quarterly fluctuation in operating results, the Company believes
that quarter-to-quarter comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indicators of future
performance.
The markets for the Company's products are characterized by rapidly changing
technology, evolving industry standards, frequent new product introductions and
short product life cycles. These changes can adversely affect the business and
operating results of industry participants. The Company's success will depend
upon its ability to enhance its existing products and to develop and introduce,
on a timely and cost-effective basis, new products that keep pace with
technological developments and emerging industry standards and address
increasingly sophisticated customer requirements. The inability to develop and
manufacture new products in a timely manner, the existence of reliability,
quality or availability problems in the products or their component parts, the
failure to obtain reliable subcontractors for volume production and testing of
mature products, or the failure to achieve market acceptance would have a
material adverse effect on the Company's business and operating results.
The markets in which the Company competes are also characterized by intense
competition. Several of the Company's competitors have significantly broader
product offerings and greater financial, technical, marketing and other
resources, and larger installed bases of customers than the Company. These
larger competitors may also be able to obtain higher priority for their products
from distributors and other resellers that carry products of many companies. A
number of the Company's competitors were recently acquired, which is likely to
permit these competitors to devote significantly greater resources to the
development and marketing of competitive products. These competitive pressures
could adversely affect the Company's business and operating results.
The Company's sales are made through OEMs, VARs, distributors and system
integrators. The Company selects its OEMs, VARs, distributors and system
integrators based on a subjective evaluation of a combination of factors,
including potential sales volume, viability and anticipated financial stability,
expertise in the networking industry, potential distribution channel conflicts,
and geographic scope. There can be no assurance that the resellers selected by
the Company will in the future perform favorably with respect to such factors
and, to the extent that they do not, the adverse effect on the Company could be
material. The Company's VAR, distributor and system integrator customers
generally offer products of several different companies, including products
which are competitive with the Company's products. Accordingly, there is a risk
that these resellers may give higher priority to products of other suppliers,
thus reducing their efforts to sell the Company's products.
17
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements.
Financial Statements: Page
Report of Independent Accountants.................................................. 19
Consolidated Balance Sheets at December 31, 1996 and 1995.......................... 20
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1995 and 1994............................................................. 21
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994.......................................... 22
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994............................................................. 23
Notes to Consolidated Financial Statements......................................... 24
Financial Statement Schedule:
For the three years ended December 31, 1996, 1995 and 1994 Schedule II
- Valuation and Qualifying Accounts............................................. 37
Schedules other than those listed above have been omitted since they are either
not required or the information is included in the financial statements included
herewith.
18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Network Peripherals Inc.
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the consolidated financial position of
Network Peripherals Inc. and its subsidiaries at December 31, 1996 and 1995 and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
January 21, 1997
19
NETWORK PERIPHERALS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 31,
1996 1995
------- -------
ASSETS
Current assets:
Cash and cash equivalents $23,523 $27,210
Short-term investments 22,350 24,931
Accounts receivable, net of allowance for doubtful
accounts and returns; 1996, $1,154, and 1995, $738 8,359 5,364
Inventories 8,228 6,420
Deferred income taxes 2,271 2,189
Prepaid expenses and other current assets 1,843 1,557
-----------------
Total current assets 66,574 67,671
Property and equipment, net 3,575 2,280
Deferred income taxes and other assets 443 160
Goodwill 842 --
-----------------
$71,434 $70,111
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,736 $ 956
Accrued liabilities 8,841 3,446
-----------------
Total current liabilities 11,577 4,402
-----------------
Stockholders' equity:
Preferred Stock, $0.001 par value, 2,000,000 shares
authorized; no shares issued or outstanding -- --
Common Stock, $0.001 par value, 20,000,000 shares authorized;
1996, 11,954,000, and 1995, 11,268,000
shares issued and outstanding 12 11
Additional paid-in capital 62,614 56,579
Notes receivable from stockholders -- (14)
Retained earnings (accumulated deficit) (2,769) 9,133
-----------------
Total stockholders' equity 59,857 65,709
-----------------
$ 71,434 $ 70,111
=================
The accompanying notes are an integral part of these financial statements.
20
NETWORK PERIPHERALS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years Ended December 31,
1996 1995 1994
-------- -------- --------
Net sales $ 53,080 $ 47,144 $ 33,463
Cost of sales 28,590 24,690 17,507
----------------------------------------------
Gross profit 24,490 22,454 15,956
----------------------------------------------
Operating expenses:
Research and development 8,570 4,811 3,473
Marketing and selling 11,849 7,319 4,361
General and administrative 3,378 2,226 1,618
Acquired research and development in process
and product integration costs 13,732 -- --
----------------------------------------------
Total operating expenses 37,529 14,356 9,452
----------------------------------------------
Income (loss) from operations (13,039) 8,098 6,504
Interest income 1,745 2,236 577
----------------------------------------------
Income (loss) before income taxes (11,294) 10,334 7,081
Provision for income taxes (608) (3,617) (1,416)
----------------------------------------------
Net income (loss) $(11,902) $ 6,717 $ 5,665
==============================================
Net income (loss) per share $ (1.01) $ 0.57 $ 0.62
Weighted average common and common
equivalent shares 11,760 11,736 9,199
The accompanying notes are an integral part of these financial statements.
21
NETWORK PERIPHERALS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Common Stock
------------------------
Additional Retained
Paid-In Notes Earnings
Shares Amount Capital Receivable (Accumulated Total
Deficit)
---------------------------------------------------------------------------------
Balance at December 31, 1993 2,893 $ 3 $ 82 $ (17) $ (3,249) $ (3,181)
Issuance of Common Stock to
employees for notes
receivable 398 - 63 (63) - -
Repayment of stockholders'
notes receivable - - - 25 - 25
Issuance of Common Stock upon
exercise of stock
options and warrants 130 - 110 - - 110
Issuance of Common Stock
under employee stock
purchase plan 16 - 84 - - 84
Issuance of Common Stock upon
conversion of
Mandatorily Redeemable
Convertible Preferred
Stock 3,719 4 9,073 - - 9,077
Sale of Common Stock to the
public, net of issuance
costs of $1,001 3,910 4 45,782 - - 45,786
Income tax benefit associated
with nonqualified stock
options - - 192 - - 192
Net income - - - - 5,665 5,665
---------------------------------------------------------------------------------
Balance as of December 31, 1994 11,066 11 55,386 (55) 2,416 57,758
Repurchase of Common Stock (15) - - - - -
Repayment of stockholders'
notes receivable - - - 41 - 41
Issuance of Common Stock upon
exercise of stock options 161 - 243 - - 243
Issuance of Common Stock
under employee stock
purchase plan 56 - 354 - - 354
Income tax benefit associated
with nonqualified stock
options - - 596 - - 596
Net income - - - - 6,717 6,717
----------- ------------ ------------- -------------- ------------- -------------
Balance at December 31, 1995 11,268 11 56,579 (14) 9,133 65,709
Repayment of stockholders'
notes receivable - - - 14 - 14
Issuance of Common Stock upon
exercise of stock options 200 - 228 - - 228
Issuance of Common Stock
under employee stock
purchase plan 45 - 385 - - 385
Income tax benefit associated
with nonqualified stock
options - - 28 - - 28
Issuance of Common Stock for
acquisition of NuCom
Systems 441 1 5,341 - - 5,342
Foreign currency translation
adjustment - - 53 - - 53
Net loss - - - - (11,902) (11,902)
Balance at December 31,1996 11,954 $ 12 $ 62,614 $ - $ (2,769) $ 59,857
=================================================================================
The accompanying notes are an integral part of these financial statements.
22
NETWORK PERIPHERALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
Years Ended December 31,
1996 1995 1994
-------- -------- --------
Cash flows from operating activities:
Net income (loss) $(11,902) $ 6,717 $ 5,665
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 2,111 1,309 732
Amoritzation of goodwill, net 665
Acquired research and development in-process 13,032
Deferred income taxes (56) (1,221) (1,012)
Changes in assets and liabilities (net effect of
NuCom acquisition):
Accounts receivable (1,845) (1,061) (2,673)
Inventories (664) 808 (5,242)
Prepaid expenses and other assets 862 (1,185) (249)
Accounts payable 1,439 (3,315) 2,865
Accrued liabilities 1,623 862 1,932
-------- -------- --------
Net cash provided by operating activities 5,265 2,914 2,018
-------- -------- --------
Cash provided by (used in) investing activities:
Cash paid for Acquisition, net of cash acquired (10,401) -- --
Holdback amount from Acquisition 1,115 -- --
Proceeds from the sale or maturity
of short-term investments 2,581 4,351 --
Purchases of short-term investments -- -- (29,282)
Purchases of property and equipment (2,927) (1,761) (1,772)
-------- -------- --------
Net cash provided by (used in) investing
activities (9,632) 2,590 (31,054)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of Common Stock 613 597 47,236
Payments of Common Stock issuance costs -- -- (1,001)
Repayment (issuance) of stockholders' notes
receivable 14 41 (38)
Repayment of capital lease obligation -- -- (178)
-------- -------- --------
Net cash provided by financing activities 627 638 46,019
-------- -------- --------
Foreign currency translation 53 -- --
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (3,687) 6,142 16,983
-------- -------- --------
Cash and cash equivalents at beginning of period 27,210 21,068 4,085
-------- -------- --------
Cash and cash equivalents at end of period $ 23,523 $ 27,210 $ 21,068
======== ======== ========
Supplemental disclosure of cash flow information:
Income taxes paid $ 245 $ 4,852 $ 1,800
Cash paid for interest $ 7 $ 31 $ 47
Noncash transactions:
Income tax benefit associated with nonqualified
stock options $ 28 $ 596 $ 192
Common stock used for acquisition of NuCom $ 5,342 $ -- $ --
The accompanying notes are an integral part of these financial statements
23
NETWORK PERIPHERALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY
Network Peripherals Inc. (the Company), a Delaware corporation, is engaged in
developing and manufacturing high performance client/server workgroup networking
solutions, which it markets primarily to original equipment manufacturers,
value-added resellers, distributors and system integrators. The Company's
solutions are designed to be used in departmental and workgroup networks.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Foreign Currency Translation
The functional currency of the Company's subsidiary in Taiwan is the local
currency. Assets and liabilities of this subsidiary are translated into U.S.
dollars at exchange rates in effect at the balance sheet date. Income and
expense items are translated at average exchange rates for the period.
Accumulated net translation adjustments are recorded in stockholders' equity.
Foreign exchange transaction gains and losses were not material in all periods
presented, and are included in the results of operations.
Cash, Cash Equivalents and Short-Term Investments
Management determines the appropriate classification of debt and equity
securities at the time of purchase and reassesses the classification at each
reporting date.
The Company considers all highly liquid investments with maturity of 90 days or
less to be cash equivalents. All of the Company's short-term investments,
consisting primarily of fixed maturity securities, have been classified as
available for sale. For the years ended December 31, 1996 and 1995, there were
no material unrealized gains or losses. At December 31, 1996 the average
maturity of the short-term investments was approximately seven months.
Substantially all short-term investments are held in the Company's name by major
financial institutions.
Revenue Recognition
Revenue from product sales is recognized upon product shipment provided no
significant obligations remain, and collectability is probable. The Company
provides to certain distributors limited rights of return and price protection
on unsold inventory when specific conditions exist. Provisions for estimated
costs of warranty repairs, returns and allowances, and retroactive price
adjustments are recorded at the time products are shipped. Funding under certain
development contracts is recognized based upon the percentage of completion
method, and in some instances, based upon achievement of specified contract
milestones. Such funding is recognized as an offset to the related development
costs and totaled approximately $556,000, $906,000, and $371,000 in 1996, 1995
and 1994, respectively.
24
NETWORK PERIPHERALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Sales Reserves
The Company provides allowances for accounts receivables deemed uncollectible,
and for sales returns and other credits, including credits for retroactive price
adjustments and for sales transacted within 90 days prior to the period-end. As
of December 31, 1996 and 1995, the Company's allowances for such potential
events totaled $1,154,000 and $738,000, respectively. As a percentage of sales
transacted within 90 days prior to December 31, 1996 and 1995, the allowances
for sales returns and other credits were 7.2% and 5.2%, respectively.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash, cash equivalents, short-term
investments and trade receivables. The Company's cash investment policies limit
investments to those that are short-term and low risk. Concentration of credit
risk with respect to trade receivables is generally limited due to the large
number of customers comprising the Company's customer base, their dispersion
across many different geographies, and the Company's on-going evaluation of its
customers' credit worthiness.
Inventories
Inventories are stated at the lower of cost, using the first-in, first-out
method, or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful life of the asset, typically
three years.
Software Development Costs
The Company's software products are integrated into its hardware products and
are typically available for general release to customers within 30 days after
technological feasibility has been achieved. Accordingly, the production costs
incurred after the establishment of technological feasibility and before general
release to customers are immaterial, thus the Company does not capitalize any
software development costs.
Income Taxes
The Company accounts for income taxes under the liability method, which
recognizes deferred tax assets and liabilities for the expected tax consequences
of temporary differences between the tax basis of assets and liabilities and
their financial statement reported amounts.
Goodwill
Goodwill represents the excess of the purchase price of NuCom Systems Inc.
("NuCom", see Note 8) over the fair value of the identifiable net assets
acquired, and is amortized on a straight-line basis over the expected period of
benefit, which ranges from nine months to five years. Amortization of goodwill
for the year ended December 31, 1996 was included in cost of goods sold.
Periodically, the Company evaluates the goodwill for impairment, and estimates
the future undiscounted cash flows of the acquired business to ensure that the
carrying value has not been impaired.
25
NETWORK PERIPHERALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Employee Benefit Plans
The Company has a stock option plan and an employee stock purchase plan
(described in Note 6), vacation benefits which are accrued as they are earned,
and a 401(k) plan that does not require employer matching contributions. The
Company does not have postretirement or postemployment benefit plans; therefore,
Statements of Financial Accounting Standards No. 87, 106 and 112 regarding
pension, other postretirement and postemployment benefit plans do not affect the
financial statements of the Company.
Net Income Per Share
Net income per share is computed using the weighted average number of common and
common equivalent shares outstanding during the periods presented. Common
equivalent shares consist of Mandatorily Redeemable Convertible Preferred Stock
(using the if converted method) and stock options (using the treasury stock
method). Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin, common and common equivalent shares issued from April 1, 1993 through
the closing of the Company's initial public offering on July 3, 1994 have been
included in the 1994 computation using the treasury stock method as if they were
outstanding for all periods prior to the initial public offering. Furthermore,
in accordance with SEC staff policy, common equivalent shares from Mandatorily
Redeemable Convertible Preferred Stock that converted into Common Stock upon the
closing of the initial public offering are included using the if converted
method.
NOTE 3 -- BALANCE SHEET COMPONENTS (in thousands)
December 31,
Cash, cash equivalent, and short-term 1996 1995
investments: ------- -------
Cash and money market accounts $ 5,411 $ 567
Municipal obligations 18,112 26,643
------- -------
Cash and cash equivalents 23,523 27,210
------- -------
Certificates of deposit -- 7
Municipal obligations 21,238 23,919
Government securities 1,112 --
Preferred stock -- 1,005
------- -------
Short-term investments 22,350 24,931
------- -------
$45,873 $52,141
======= =======
26
NETWORK PERIPHERALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Inventories:
Raw materials $ 4,685 $ 3,629
Work-in-process 2,600 1,894
Finished goods 943 897
------- -------
$ 8,228 $ 6,420
======= =======
Property and equipment:
Computer and equipment $ 7,271 $ 4,085
Furniture and fixtures 817 607
Leasehold improvements 356 346
------- -------
8,444 5,038
Less: accumulated depreciation (4,869) (2,758)
------- -------
$ 3,575 $ 2,280
======= =======
Accrued liabilities:
Salaries and benefits $ 2,699 $ 915
Royalty 1,154 1,484
Warranty 717 681
Taxes payable 1,268 --
Holdback amount from Acquisition 1,115 --
Payments received in advance 605 --
Other 1,283 366
------- -------
$ 8,841 $ 3,446
======= =======
NOTE 4 -- LINE OF CREDIT
In 1996, the Company negotiated a line of credit with a bank to increase
available borrowings from $5 million to $10 million. Interest on borrowings
under the line are at the lower of the bank's prime rate or the London Interbank
Offered Rate plus 2.5%. The expiration date of the agreement is July 31, 1997.
Currently, there are no borrowings under this line of credit.
Borrowings under the line of credit are collateralized by the Company's
receivables, inventory, and other tangible assets. Under the terms of the line,
the Company is required to, among other things, maintain certain levels of
profitability, financial ratios of current assets and liabilities, and debt to
net worth, and maintain minimum tangible net worth. Interest on any borrowings
is payable monthly.
NOTE 5 --COMMITMENTS
The Company leases approximately 49,000 square feet in Milpitas, California
under non-cancelable operating leases that expire in October 2000. As part of
the NuCom acquisition (see Note 8), the Company also assumed certain operating
leases for buildings, approximately 29,000 square feet, under lease which will
expire in 1998. These buildings, including a manufacturing facility, are located
in Taiwan. Rent expense for all Company facilities was $868,000, $529,000, and
$282,000 in 1996, 1995, and 1994, respectively.
27
NETWORK PERIPHERALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Future minimum lease payments as of December 31, 1996 are as follows (in
thousands):
Years ending December 31,
1997 $ 873
1998 731
1999 717
2000 618
--------
$2,939
========
The Company has entered into licensing agreements with third parties to use
certain technologies in the Company's products. Under the terms of the license
agreements, the Company pays a royalty based upon a percentage of the sales
price or units shipped. Royalty expenses incurred are charged to cost of sales
in the period of the related sales and are payable in quarterly installments.
NOTE 6 -- CAPITAL STOCK
Stock Plans
The Company's 1993 Stock Option Plan (the Plan), as amended, provides for the
issuance of Common Stock or the granting of incentive or nonqualified stock
options to qualified employees, directors and consultants up to 3,500,000 shares
of Common Stock. The price of stock issued and options granted under the Plan is
determined by the Company's Board of Directors. Incentive stock options are
granted at not less than the fair market value of the Common Stock at the date
of grant and nonqualified options are granted at not less than 50% of the fair
market value of the Common Stock on the date of grant. Options under the Plan
vest over a period determined by the Board of Directors, which is generally four
years. Options may be exercised in exchange for cash or, in certain cases at the
discretion of the Board of Directors, for promissory notes payable to the
Company. At December 31, 1996, 4,218 shares of Common Stock had been issued
subject to repurchase by the Company; options to purchase 2,089,256 shares of
Common Stock were outstanding, of which 552,602 shares were exercisable at
exercise prices of $0.10 to $20.00 per share; 594,816 shares were available for
future grants; and 2,684,072 shares of Common Stock were authorized but unissued
under the Plan.
A total of 250,000 shares has been reserved for issuance under the Company's
Employee Stock Purchase Plan, which permits eligible employees to purchase
Common Stock at a discount through payroll deductions during concurrent 24-month
offering periods. Each offering period is divided into four consecutive
six-month purchase periods. The price at which the Common Stock is purchased
under the Employee Stock Purchase Plan is equal to 85% of the fair market value
of the Common Stock on the first day of the offering period or the last market
day of the purchase period, whichever is lower. At December 31, 1996, a total of
117,584 shares has been issued at an aggregate purchase price of $839,227 and
132,416 shares remain reserved for future issuance under the Employee Stock
Purchase Plan.
The 1994 Outside Directors Stock Plan, which provides for the automatic granting
of nonqualified stock options to directors of the Company who are not employees
of the Company (Outside Director), has a total of 150,000 shares reserved for
issuance. Prior to an amendment to the Plan, effective September 1996, each
current Outside Director was automatically granted an option to purchase 2,000
shares of Common Stock on the date of each annual meeting of stockholders. Each
new Outside Director elected or appointed after the effective date of the
Outside Directors Plan was automatically granted an option to purchase 10,000
shares of Common Stock on their date of election or appointment. After the
amendment, the Board unanimously approved amending the Outside Directors Plan to
provide for an initial option grant for the purchase of 15,000 shares of Common
Stock with annual grants thereafter on the date of the annual meeting in the
amount of 5,000 shares. The exercise price of the options will be the fair
market value of the
28
NETWORK PERIPHERALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Common Stock on the date of grant, and vest over a period of four years. At
December 31, 1996, options to purchase 12,000 shares of Common Stock were
outstanding, of which 2,499 shares were exercisable at an exercise price of
$20.00 per share; 138,000 shares were available for future grants; and 150,000
shares of Common Stock were authorized but unissued under the Plan.
In July 1996, the Board of Directors adopted the 1996 Nonstatutory Stock Option
Plan, (the "1996 Plan"), which provides for the issuance of Common Stock or
granting of Non-qualified Stock Options to qualified employees and consultants
of up to 1,000,000 shares of Common Stock. The price granted under the 1996 Plan
is at the sole discretion of the Board, provided the price is not less than 50%
of the fair market value of the Common Stock on the date of grant. Options vest
over a period determined by the Board, which is generally four years. At
December 31, 1996, options to purchase 729,111 shares of Common Stock were
outstanding, of which no shares were exercisable; 270,889 shares were available
for future grants; and 1,000,000 shares of Common Stock were authorized but
unissued under the 1996 Plan.
The following table summarizes option activity under the 1993 Stock Option Plan,
the 1994 Outside Directors Plan, and the 1996 Plan:
Options Price Per Share
------- ---------------
Balance at December 31, 1993 1,032,100 $ 0.10 - $ 1.50
Granted 338,800 1.50 - 25.25
Exercised (456,647) 0.10 - 0.35
Canceled (24,828) 0.10 - 5.50
-----------
Balance at December 31,1994 889,425 0.10 - 25.25
Granted 533,900 10.25 - 25.00
Exercised (161,382) 0.10 - 7.25
Canceled (141,817) 0.17 - 25.25
-----------
Balance at December 31, 1995 1,120,126 0.10 - 25.25
Granted 2,905,155 11.63 - 18.63
Exercised (199,698) 0.10 - 10.25
Canceled (995,216) 0.30 - 25.25
-----------
Balance at December 31, 1996 2,830,367 $ 0.10 - $ 20.00
===========
At December 31, 1996, options for the purchase of 555,101 shares of Common Stock
were vested.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date for awards in 1996 and
1995, consistent with the provisions of SFAS No. 123, the Company's net earnings
and earnings per share would have been reduced to the pro forma amounts
indicated below:
1996 1995
---- ----
(in thousands, except per share data)
Net income (loss) - as reported $ (11,902) $ 6,717
Net income (loss) - pro forma $ (14,782) $ 5,791
Earnings (loss) per share - as reported $ (1.01) $ 0.57
Earnings (loss) per share - pro forma $ (1.26) $ 0.49
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: zero dividend
29
NETWORK PERIPHERALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
yield, expected volatility of 69.36%, risk-free interest rate of 5.48%, and all
options are exercised at vesting.
The following table summarizes information about stock options outstanding at
December 31, 1996:
Outstanding Exercisable
--------------------------------------------------- ---------------------------
Weighted Weighted
Exercise Price Average Remaining Average Average
Range Shares Contractual Life Exercise Price Shares Exercise Price
- -------------------- ------------ --------------------- ---------------- ---------- ----------------
$ 0.10 - $ 5.00 307,314 6.08 years 1.10 244,301 0.74
$ 5.01 - $10.00 13,652 7.54 years 6.98 6,235 6.99
$10.01 - $15.00 1,210,751 9.02 years 13.42 113,750 12.45
$15.01 - $20.00 1,298,650 9.42 years 16.62 190,815 16.07
Stock options expire in 10 years from the date they are granted; options vest
over service periods that range from one to four years.
NETWORK PERIPHERALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 -- INCOME TAXES
The following is a geographical breakdown of consolidated income (loss) before
income taxes (in thousands):
Year ended December 31,
1996 1995 1994
-------- -------- --------
Domestic $ (1,626) $ 10,334 $ 7,081
Foreign (9,668) -- --
-------- -------- --------
$(11,294) $ 10,334 $ 7,081
======== ======== ========
The provision for income taxes consists of the following (in thousands):
Year ended December 31,
1996 1995 1994
------- ------- -------
Current tax expense:
Federal $ 174 $ 3,862 $ 1,750
State 54 976 647
Foreign 436 -- --
------- ------- -------
664 4,838 2,397
------- ------- -------
Deferred tax benefit:
Federal (46) (1,058) (790)
State (10) (163) (191)
------- ------- -------
(56) (1,221) (981)
======= ======= =======
$ 608 $ 3,617 $ 1,416
======= ======= =======
Deferred tax assets consist of the following (in thousands):
December 31,
1996 1995
------ ------
Deferred tax assets:
Reserves and accruals not currently deductible $1,286 $1,275
Inventory 572 510
Depreciation 18 44
State taxes and other 413 404
------ ------
Gross deferred tax assets 2,289 2,233
Deferred tax assets valuation allowance -- --
------ ------
Net deferred tax assets $2,289 $2,233
====== ======
Current $2,271 $2,189
Noncurrent 18 44
------ ------
$2,289 $2,233
====== ======
31
NETWORK PERIPHERALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory income tax rate to pre-tax income
(loss) as follows:
Year ended December 31,
1996 1995 1994
---- ---- ----
Federal statutory rate (35.0%) 35.0% 35.0%
State tax, net of federal impact .3 5.1 4.2
Net operating loss carryforward utilized -- -- (5.2)
Research and development tax credits (1.1) (1.2) (5.5)
Tax-exempt interest income (4.5) (6.9) (1.7)
Recognition of deferred tax assets realized
in prior years -- -- (10.3)
Nondeductible acquisition costs 45.6 -- --
Other .1 3.0 3.5
---- ----- ----
5.4% 35.0% 20.0%
==== ===== ====
NOTE 8 - ACQUISITION
Effective March 21,1996, the Company completed its acquisition of NuCom Systems,
Inc., a Taiwan-based company, by purchasing all the outstanding shares of NuCom
in exchange for $11,158,134 in cash, 440,748 shares of Network Peripherals'
common stock valued at $5,341,866, plus product integration costs for an
aggregate purchase price of $17.1 million. The transaction was accounted for
using the purchase method. Accordingly, the purchase price was allocated to the
assets acquired and liabilities assumed based on their estimated fair market
values at the date of acquisition. The research and development in process
represents the estimated current fair market value, using a risk-adjusted income
approach, of specifically identified technologies which had not reached
technological feasibility. The results of operations of NuCom were included with
those of the Company beginning with the quarter ended June 30, 1996. The
allocation of the purchase price was as follows (in thousands):
Research and development, in process $13,032
Other intangible assets 1,716
Cash and cash equivalents 1,357
Current assets 3,138
Non-current assets 613
Property and equipment 479
Current liabilities assumed (3,235)
-------
Total $17,100
=======
The total purchase price is as follows:
Cash payment $11,158
Issuance of Common Stock 5,342
Other expenses 600
-------
Total $17,100
=======
NOTE 9- MARKET DATA
The Company operates in one industry segment. Export sales to customers outside
of North America represented 21%, 25% and 15%, of the Company's net sales for
the years ended December 31, 1996, 1995 and 1994, respectively. As a percentage
of net sales, export sales to Europe and Asia represented 8% and 13%,
respectively, in 1996. In 1995, the sales percentages were 17% and 8% for Europe
and Asia,
32
NETWORK PERIPHERALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
respectively, and in 1994, the sales percentages were 11%, 3%, and 1% for
Europe, Middle East, and Asia, respectively.
The following table summarizes the percentage of sales accounted for by the
Company's significant customers with sales of 10% or more:
Years ended December 31,
1996 1995 1994
---- ---- ----
Customer A 26% 17% 12%
Customer B - 15% -
Customer C 15% 10% -
Customer D 12% - 12%
Customer E - - 15%
Customer F - - 13%
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There is no reportable information under this item.
33
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item regarding directors is included under
"Election of Directors" in the Company's Proxy Statement for the 1997 Annual
Meeting.
Item 11. Executive Compensation.
The information required by this item is included under "Compensation of
Executive Officers" and "Report of the Compensation Committee on Executive
Compensation" in the Company's Proxy Statement for the 1997 Annual Meeting.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is included under "Share Ownership by
Principal Stockholders and Management" and "Election of Directors" in the
Company's Proxy Statement for the 1997 Annual Meeting.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is included under "Compensation Committee
Interlocks and Insider Participation Decisions" in the Company's Proxy Statement
for the 1997 Annual Meeting.
34
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
The information required by subsections (a)1 and (a)2 of this item are included
in the response to Item 8 of Part III of this Annual Report on Form 10-K.
(a) Exhibits
3.1(1) Amended and Restated Certificate of Incorporation.
3.2(1) By-Laws.
4.1(1) Fourth Amended and Restated Investor Rights Agreement dated July 15, 1993.
10.1(1) Form of Indemnity Agreement for directors and officers.
10.2(1) Amended and Restated 1993 Stock Option Plan and forms of agreement thereunder.
10.3(1) 1994 Employee Stock Purchase Plan.
10.4(1) 1994 Outside Directors Stock Option Plan and form of agreement thereunder.
10.6(1) Business Loan Agreement, and collateral agreements, with Silicon Valley Bank dated August 9,
1991, as amended May 5, 1992, April 15, 1993, February 1, 1994
and April 4, 1994 and Warrant dated August 10, 1991.
10.9(1) Facilities Lease dated August 8, 1991 with John Arrillaga, Trustee, or his Trustee, or his
Successor Trustee UTA dated 7/20/77, as amended, and Richard T. Peery, Trustee, or his
Successor Trustee UTA dated 7/20/77, as amended.
10.12(1)(2) OEM Purchase Agreement with Network General Corporation dated March 4, 1991.
10.13(1)(2) Authorized Distributor Agreement with Westcon, Inc. dated March 4, 1993.
10.14(3) Amendment No. 1 to Facilities Lease dated June 1, 1994 with John Arrillaga, Trustee, or his
Successor Trustee UTA dated 7/20/77, as amended, and Richard T.
Peery, Trustee, or his Successor Trustee UTA dated 7/20/77, as
amended.
10.15(3) Facilities Lease dated June 1, 1994 with John Arrillaga, Trustee, or his Successor Trustee
UTA dated 7/20/77, as amended, and Richard T. Peery, Trustee, or his Successor Trustee UTA
dated 7/20/77, as amended.
10.16(4) Salary continuation agreement dated as of March 22, 1995 with Pauline Lo Alker.
10.18(5) Purchase Agreement among Network Peripherals Inc., Network Peripherals, Ltd., NuCom Systems,
Inc., and the shareholders of NuCom, dated January 31, 1996.
10.19(6) Salary continuation agreement dated as of May 1996 with Truman Cole.
10.20(6) Salary continuation agreement dated as of May 1996 with Don Morrison.
10.21 Employment agreement dated January 1997 with Truman Cole.
10.22 Line of Credit Agreement with Sumitomo Bank dated October 2, 1996.
10.23 Agreement with Glenn Penisten dated May 15, 1996.
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
(1) Incorporated by reference to the corresponding Exhibit previously filed
as an Exhibit to the Registrant's Registration Statement on Form S-1.
(File No. 33-78350).
(2) Confidential treatment has been granted as to part of this Exhibit.
(3) Incorporated by reference to the corresponding Exhibit previously filed
as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the
period ended June 30, 1994 (File No. 0-23970).
(4) Incorporated by reference to the corresponding exhibit in the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995 (File No. 0-23970).
(5) Incorporated by reference to the Registrant's report on Form 8-K filed on
March 31, 1996 (File No. 0-23970).
(6) Incorporated by reference to the corresponding exhibit in the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30,
1996 (File No. 0-23970).
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NETWORK PERIPHERALS INC.
By: \s\ TRUMAN COLE
---------------------------
Truman Cole
Vice President, Finance and
Chief Financial Officer
(Authorized Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title
\s\ PAULINE LO ALKER President, Chief Executive Officer and
- --------------------------- Director (Prinicpal Executive Officer)
Pauline Lo Alker
\s\ TRUMAN COLE Vice President, Finance and Chief
- --------------------------- Financial Officer
Truman Cole (Principal Financial Officer)
\s\ ANN S. BOWERS Director
- ---------------------------
Ann S. Bowers
\s\ CHARLES HART Director
- ---------------------------
Charles Hart
\s\ KENNETH LEVY Director
- ---------------------------
Kenneth Levy
\s\ GLENN PENISTEN Chairman of the Board
- ---------------------------
Glenn Penisten
\s\ WILLIAM P. TAI Director
- ---------------------------
William P. Tai
36
NETWORK PERIPHERALS INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
SCHEDULE II
Additions
Balance at Charged to Charged Balance at
Beginning Costs and to Other End
of Year Expenses Accounts Deductions of Year
------- -------- -------- ---------- -------
Year ended December 31, 1994
Allowance for doubtful accounts $ 68 $ - $ 100 $ (3) $ 165
Allowance for sales returns and
other credits 75 - 769 (100) 744
----------------------------------------------------------------------
Total allowances for doubtful accounts
and sales returns 143 - 869 (103) 909
Deferred tax assets valuation allowance 1,484 - - (1,484) -
Year ended December 31, 1995
Allowance for doubtful accounts 165 - 88 (53) 200
Allowance for sales returns and other
credits 744 - 1,664 (1,870) 538
----------------------------------------------------------------------
Total allowances for doubtful accounts
and sales returns 909 - 1,752 (1,923) 738
Year ended December 31, 1996
Allowance for doubtful accounts 200 - 21 (12) 209
Allowance for sales returns and other
credits 538 - 6,743 (6,336) 945
----------------------------------------------------------------------
Total allowances for doubtful accounts
and sales returns $ 738 $ - $ 6,764 $ (6,348) $ 1,154
======================================================================
37