<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1999
-------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-25987
-------------------------------------------------------
MAKER COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 04-3276285
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
73 MOUNT WAYTE AVENUE
FRAMINGHAM, MA 01702
(Address of Principal Executive Offices)
(508) 628-0622
(Registrant's Telephone Number, Including Area Code)
-----------------------------------------------------
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days
YES ____X____ NO ________
As of OCTOBER 31, 1999, there were 18,425,691 shares of $0.01 par value common
stock outstanding.
1
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MAKER COMMUNICATIONS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
INDEX
-----------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Condensed Consolidated Balance Sheets as of September 30, 3
1999 and December 31, 1998
Condensed Consolidated Statements of Operations for the Three 4
and Nine Months ended September 30, 1999 and September 30,
1998
Condensed Consolidated Statements of Cash Flows for the 5
Nine Months ended September 30, 1999 and September 30,
1998
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 8
CONDITION AND RESULTS OF OPERATIONS.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. 20
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. 21
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 21
ITEM 5. OTHER INFORMATION. 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 22
SIGNATURE PAGE 23
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MAKER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 18,123 $ 13,615
Marketable securities 23,487 --
Accounts receivable, net of reserve of
$90 in 1999 and 1998 1,776 932
Inventory 554 296
Prepaid expenses and other current assets 735 106
-------- --------
Total current assets 44,675 14,949
Marketable securities, non-current 14,235 --
Property and equipment, net 1,739 952
Other assets 262 56
-------- --------
Total assets $ 60,911 $ 15,957
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of note payable to a bank $ -- $ 308
Accounts payable 752 412
Accrued expenses 1,999 1,820
Deferred revenue 634 181
-------- --------
Total current liabilities 3,385 2,721
Note payable to a bank, less current portion -- 642
Convertible note payable -- 500
Redeemable preferred stock, at redemption value -- 23,440
Stockholders' equity (deficit):
Junior convertible preferred stock, $.01 par value
Authorized - none and 3,154,000 shares
in 1999 and 1998, respectively
Issued and outstanding - none and 3,154,000
shares in 1999 and 1998, respectively -- 32
Common stock, $.01 par value -
Authorized - 100,000,000 and 17,174,670
shares in 1999 and 1998, respectively
Issued and outstanding - 18,402,333 and
5,882,490 shares in 1999 and 1998, respectively 184 59
Additional paid-in capital 67,529 68
Accumulated deficit (10,187) (11,505)
-------- --------
Total stockholders' equity (deficit) 57,526 (11,346)
-------- --------
Total liabilities and stockholders' equity (deficit) $ 60,911 $ 15,957
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
MAKER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product $ 3,640 $ 1,714 $ 9,424 $ 3,935
Software and maintenance 422 502 1,389 975
-------- -------- -------- --------
Total revenues 4,062 2,216 10,813 4,910
Cost of revenues 1,321 946 3,532 2,277
-------- -------- -------- --------
Gross profit 2,741 1,270 7,281 2,633
Operating expenses:
Research and development 1,511 932 4,220 2,802
Selling and marketing 714 480 1,882 1,471
General and administrative 398 275 1,137 946
Litigation -- 715 -- 1,118
-------- -------- -------- --------
Total operating expenses 2,623 2,402 7,239 6,337
-------- -------- -------- --------
Income (loss) from operations 118 (1,132) 42 (3,704)
Interest income 738 136 1,389 407
Other expenses, net -- (29) (67) (54)
-------- -------- -------- --------
Income (loss) before income taxes 856 (1,025) 1,364 (3,351)
Provision for income taxes 26 -- 46 --
-------- -------- -------- --------
Net income (loss) $ 830 $ (1,025) $ 1,318 $ (3,351)
======== ======== ======== ========
Net income (loss) per share:
Basic $ 0.05 $ (0.18) $ 0.11 $ (0.60)
======== ======== ======== ========
Diluted $ 0.04 $ (0.18) $ 0.07 $ (0.60)
======== ======== ======== ========
Weighted average common
shares outstanding:
Basic 18,395 5,760 12,513 5,568
======== ======== ======== ========
Diluted 20,777 5,760 18,541 5,568
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
MAKER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,318 $ (3,351)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities -
Depreciation and amortization 472 306
Issuance of convertible note payable in settlement of litigation -- 500
Change in operating assets and liabilities -
Accounts receivable (844) (86)
Inventory (258) 86
Prepaid expenses and other current assets (629) 119
Accounts payable 340 81
Accrued expenses 179 558
Deferred revenue 453 41
-------- --------
Net cash provided by (used in) operating activities 1,031 (1,746)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (37,722) --
Purchase of property and equipment (1,259) (426)
(Increase) decrease in other assets (206) 46
-------- --------
Net cash used in investing activities (39,187) (380)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under note payable to a bank 450 689
Payments on note payable to a bank (1,400) (130)
Net proceeds from initial public offering of common stock 45,609 --
Proceeds from private placement of common stock 6,045 --
Net proceeds from issuance of Class B
redeemable convertible preferred stock -- 89
Net proceeds from issuance of Class C
redeemable convertible preferred stock 450 --
Redemption of Class A redeemable preferred stock (8,635) --
Proceeds from exercise of stock options 145 59
-------- --------
Net cash provided by financing activities 42,664 707
-------- --------
Net increase (decrease) in cash and cash equivalents 4,508 (1,419)
Cash and cash equivalents, beginning of period 13,615 10,865
-------- --------
Cash and cash equivalents, end of period $ 18,123 $ 9,446
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest $ 42 $ 49
======== ========
Income taxes $ 72 $ 2
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Conversion of note payable into common stock $ 500 $ --
======== ========
Conversion of Junior preferred stock into common stock $ 32 $ --
======== ========
Conversion of Class B redeemable convertible preferred
stock into common stock $ 10,249 $ --
======== ========
Conversion of Class C redeemable convertible preferred
stock into common stock $ 5,006 $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
MAKER COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by Maker Communications, Inc. (the "Company" or "Maker")
pursuant to the rules and regulations of the Securities and Exchange Commission
regarding interim financial reporting. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete annual financial statements and should be read in
conjunction with the audited financial statements and notes thereto for the year
ended December 31, 1998, in the Company's Prospectus dated May 10, 1999 (the
"Prospectus"), filed as part of a Registration Statement on Form S-1, as amended
(Reg. No. 333-74293). In the opinion of management, the accompanying unaudited
condensed consolidated financial statements have been prepared on the same basis
as the audited financial statements and include all adjustments, consisting only
of normal recurring adjustments, which are necessary for a fair presentation of
the interim periods presented. The operating results for the interim periods
presented are not necessarily indicative of the results to be expected for any
subsequent period.
2. INCOME (LOSS) PER SHARE
Basic income (loss) per share is calculated using the weighted average
number of common shares outstanding. Diluted income (loss) per share is computed
on the basis of the weighted average number of common shares outstanding and the
effect of dilutive securities using the treasury stock method. The following
table sets forth the computation of basic and diluted income (loss) per share,
including a reconciliation of basic and diluted weighted average shares
outstanding (in thousands except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------- -------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) $ 830 $ (1,025) $ 1,318 $(3,351)
======= ======== ======= =======
Basic weighted average common shares outstanding 18,395 5,760 12,513 5,568
Effect of dilutive securities:
Stock options 2,382 -- 2,311 --
Convertible note -- -- 54 --
Convertible preferred stock -- -- 3,663 --
------- -------- ------- -------
Diluted weighted average common shares outstanding 20,777 5,760 18,541 5,568
======= ======== ======= =======
Basic net income (loss) per share $ 0.05 $ (0.18) $ 0.11 $ (0.60)
======= ======== ======= =======
Diluted net income (loss) per share $ 0.04 $ (0.18) $ 0.07 $ (0.60)
======= ======== ======= =======
</TABLE>
For the three and nine month periods ended September 30, 1999, options
to purchase zero and 18,564 weighted shares of common stock, respectively, were
excluded from the computation of diluted net income per share because the
exercise prices of such options were greater than the average fair market
6
<PAGE>
value of the Company's common stock, and therefore would be antidilutive. For
the three and nine month periods ended September 30, 1998, common stock
equivalents were antidilutive and therefore were not used in the computation of
diluted loss per share.
3. INITIAL PUBLIC OFFERING
The Company completed its initial public offering (the "Offering") of
3,852,500 shares of its common stock in May 1999, including 502,500 shares
issued in connection with the exercise of the underwriters' over-allotment
option on the Offering date. These shares were offered to the public at $13 per
share, which net of Offering expenses and the $0.91 per share underwriting
discount, resulted in net proceeds of $45,609,000. In addition, the Company sold
500,000 shares of common stock in a concurrent private placement that was not
underwritten at a price of $12.09 per share, resulting in net proceeds of
$6,045,000. Concurrent with the Offering, all of the Class A Redeemable
Preferred Stock was redeemed resulting in cash payments totaling $8,635,000 and
the Junior Convertible Preferred Stock, Class B Convertible Preferred Stock, and
Class C Convertible Preferred Stock were all converted into 7,708,433 shares of
common stock on the date of the Offering. Proceeds from the Offering were used
to repay bank debt of $1,243,000 in May 1999. For complete information regarding
the Offering, see the Company's Prospectus dated May 10, 1999.
4. CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company classifies short-term, highly liquid investments with
original maturity dates of ninety days or less as cash equivalents and all
investments with original maturity dates greater than ninety days as marketable
securities. Marketable securities with remaining maturities of less than one
year as of the balance sheet date are classified as current.
At September 30, 1999, all of the Company's cash equivalents and
marketable securities were in commercial paper, corporate bonds and government
securities and were classified as held-to-maturity. Held-to-maturity securities
represent those securities for which the Company has the intent and ability to
hold to maturity and are stated at cost, adjusted for amortization of premiums
and discounts.
A summary of held-to-maturity securities, at amortized cost which
approximates market value, by balance sheet caption is as follows (in
thousands):
<TABLE>
<CAPTION>
Weighted Weighted
September 30, Average December 31, Average
1999 Maturity 1998 Maturity
---- -------- ---- --------
<S> <C> <C> <C> <C>
Cash equivalents $13,935 -- $9,051 --
Marketable securities - current 23,487 4 months -- --
Marketable securities - non-current 14,235 21 months -- --
--------- ----------
Total held-to-maturity securities $51,657 $9,051
========= ==========
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the interim
condensed consolidated financial statements and the notes thereto included in
Part I, Item I of this Quarterly Report on Form 10-Q, and the consolidated
financial statements and notes thereto contained in the Company's Prospectus
dated May 10, 1999. The Company's actual results could differ significantly from
those discussed in these forward-looking statements as a result of certain
factors, including those set forth under "Factors Affecting Future Results" and
elsewhere in this Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage of total revenues of certain items in the Company's Condensed
Consolidated Statements of Operations.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product 90% 77% 87% 80%
Software and maintenance 10 23 13 20
---- ---- ---- ----
Total revenues 100 100 100 100
Cost of revenues 33 43 33 46
---- ---- ---- ----
Gross margin 67 57 67 54
Operating expenses:
Research and development 37 42 39 57
Selling and marketing 17 22 17 30
General and administrative 10 12 11 19
Litigation -- 32 -- 23
---- ---- ---- ----
Total operating expenses 64 108 67 129
---- ---- ---- ----
Income (loss) from operations 3 (51) -- (75)
Interest income 18 6 13 8
Other expenses, net -- (1) -- (1)
---- ---- ---- ----
Income (loss) before income taxes 21 (46) 13 (68)
Provision for income taxes (1) -- (1) --
---- ---- ---- ----
Net income (loss) 20% (46)% 12% (68)%
==== ==== ==== ====
</TABLE>
TOTAL REVENUES
Total revenues increased from $2.2 million in the third quarter of 1998
to $4.1 million in the third quarter of 1999 and increased from $4.9 million for
the nine months ended September 30, 1998 to $10.8 million for the same period in
1999. The increase in total revenues for the quarter and nine months ended
September 30, 1999 primarily reflects increased shipments of products to new and
existing customers and
8
<PAGE>
an increase in the number of customers reaching volume production. Revenue from
the licensing of software and development tools primarily coincides with design
wins at new customers and in limited instances at existing customers, therefore
the amount of software revenue may fluctuate from period to period.
COST OF REVENUES
Cost of revenues increased from $946,000 for the three months ended
September 30, 1998 to $1.3 million for the three months ended September 30, 1999
and increased from $2.3 million for the nine months ended September 30, 1998 to
$3.5 million for the same period in 1999. The increase in both the third quarter
and nine months ended September 30, 1999 was primarily due to an increase in
direct product costs which are associated with the increase in product revenues.
The remainder of the increase was due to an increase in personnel and related
overhead costs to support the Company's customers. The gross margin increased
from 57% to 67% for the three months ended September 30, 1998 and 1999,
respectively, and from 54% to 67% for the nine months ended September 30, 1998
and 1999, respectively. The increase in gross margin reflects lower product
costs as a result of the Company meeting volume purchase commitments and the
absorption of fixed costs over higher revenues.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs increased from $932,000 for the three
months ended September 30, 1998 to $1.5 million for the three months ended
September 30, 1999 and increased from $2.8 million for the nine months ended
September 30, 1998 to $4.2 million for the same period in 1999. Approximately
72% and 76% of the increase for the three month and nine month periods,
respectively, was due to an increase in personnel and related costs and the
remainder was primarily due to an increase in recruiting, outside consulting
costs, and hardware and software license fees.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses increased from $480,000 for the third
quarter of 1998 to $714,000 for the third quarter of 1999 and increased from
$1.5 million for the nine months ended September 30, 1998 to $1.9 million for
the same period in 1999. Substantially all of the increase for both the three
and nine month periods ended September 30, 1999 was due to an increase in
personnel and related costs, as well as minor increases in product marketing and
recruiting costs.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased from $275,000 for the
three months ended September 30, 1998 to $398,000 for the three months ended
September 30, 1999 and increased from $946,000 for the nine months ended
September 30, 1998 to $1.1 million for the same period in 1999. Approximately
44% and 48% of the increase for the third quarter and first nine months of 1999
is due to increased insurance and accounting costs. The remainder is primarily
due to increased personnel and related costs incurred in expanding the human
resource, information technology and accounting functions, offset by decreased
outside consulting costs for the nine months ended September 30, 1999.
LITIGATION
In July 1998, the Company settled a lawsuit with LSI Logic Corporation.
Costs associated with the litigation and settlement of the lawsuit were $715,000
and $1.1 million for the three and nine-month periods ended September 30, 1998,
respectively.
INTEREST INCOME
Interest income increased from $136,000 for the third quarter of 1998
to $738,000 for the same period in 1999 and increased from $407,000 for the
nine-month period ended September 30, 1998 to $1.4 million for the same period
in 1999. The increases are the result of higher average balances of cash, cash
9
<PAGE>
equivalents and marketable securities primarily due to the proceeds received
from the Company's initial public offering in May of 1999 and more favorable
interest rates in 1999.
OTHER EXPENSES, NET
Other expenses, net, which consist primarily of interest expense,
decreased from $29,000 for the three months ended September 30, 1998 to $0 for
the three months ended September 30, 1999 and increased from $54,000 for the
nine months ended September 30, 1998 to $67,000 for the same period in 1999. The
increase for the nine-month period ended September 30, 1999 was due to increased
borrowings in Q1 and Q2 of 1999 under the Company's equipment line of credit to
finance the purchase of capital equipment. The decrease for three-month period
ended September 30, 1999 is due to the repayment of the equipment line of credit
in May 1999 with proceeds from the Company's initial public offering.
PROVISION FOR INCOME TAXES
The Company has substantial net operating loss carryforwards available
to reduce future federal and state income taxes, if any. The Company recorded a
provision for income taxes in the amount of $26,000 and $46,000 for the three
and nine month periods ended September 30, 1999 for minimum federal and state
tax liabilities.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and
capital requirements from the sale of preferred stock and equity securities,
borrowings under an equipment line of credit and revenue. At September 30, 1999,
the Company had $41.3 million in working capital and $55.8 million in cash, cash
equivalents and marketable securities. At December 31, 1998, the Company had
$12.2 million in working capital and $13.6 million in cash and cash equivalents.
The Company's operating activities provided cash in the amount of $1.0
million for the nine month period ended September 30, 1999, and used $1.7
million in cash for the same period in 1998. The cash provided by operating
activities for the nine month period ended September 30, 1999 was primarily
attributable to net income for the period and increases in accounts payable and
accrued expenses, partially offset by an increase in accounts receivable,
inventory, prepaid expenses and other current assets.
The Company completed its initial public offering (the "Offering") of
3,852,500 shares of its common stock in May 1999, including 502,500 shares
issued in connection with the exercise of the underwriters' over-allotment
option on the Offering date. These shares were offered to the public at $13 per
share, which net of Offering expenses and the $0.91 per share underwriting
discount, resulted in net proceeds of $45.6 million. In addition, the Company
sold 500,000 shares of common stock in a concurrent private placement that was
not underwritten at a price of $12.09 per share, resulting in net proceeds of
$6.0 million. Concurrent with the Offering, all of the Class A Redeemable
Preferred Stock was redeemed resulting in cash payments totaling $8.6 million.
Proceeds from the Offering were used to repay bank debt of $1.2 million in May
1999. Also, portions of the Offering proceeds were used to purchase $23.5
million in short-term marketable securities and $14.2 million in long-term
marketable securities as of September 30, 1999.
The Company has a $2.5 million revolving line of credit facility and a
$1.0 million equipment line of credit facility with a bank. Borrowings under
both facilities bear interest at the bank's prime rate plus .25% and expire in
February 2000. As of September 30, 1999 the Company had no borrowings under
either facility.
Capital expenditures for the nine months ended September 30, 1999 were
$1.3 million, compared to $426,000 for the same period in 1998. The Company
intends to continue investing in capital expenditures which will include
enhancing and expanding the Company's operational infrastructure, research and
development tools and financial and management information systems. The Company
10
<PAGE>
expects such expenditures to be funded out of the Offering proceeds, working
capital or the Company's bank facilities.
Management believes that the Company's cash, cash equivalents,
short-term marketable securities, and cash generated from operations will be
sufficient to meet the Company's needs for at least the next 12 months.
FACTORS AFFECTING FUTURE RESULTS
MAKER HAS A LIMITED OPERATING HISTORY AND LIMITED PROFITABILITY
Maker was incorporated in 1994 and did not begin shipping products in
volume until 1997. The Company has a limited operating history upon which
investors may evaluate it and its prospects. Although Maker's revenues have
increased in recent years, and revenues for recent quarters have exceeded
revenues for the same quarter for the prior year, Maker achieved profitability
for the first time in the second quarter of 1999. In 1998, the Company incurred
a net loss of $3.8 million for the year. Maker intends to increase its operating
expenses significantly in 1999, particularly in research and development and
sales and marketing. The Company's operating results will be adversely affected
if its revenues do not increase significantly over the same period. Maker may
not be able to maintain profitability on a quarterly or an annual basis.
MAKER EXPERIENCES FLUCTUATIONS IN ITS OPERATING RESULTS DUE TO A NUMBER OF
FREQUENTLY CHANGING BUSINESS CONDITIONS
The Company has experienced fluctuations in its operating results in
the past and expects such fluctuations to occur in the future due to a variety
of factors. These factors include:
- - changes in demand by the end user for Maker's customers' products;
- - timing and amount of orders from Maker's customers, including
cancellations and reschedulings;
- - the gain or loss of significant customers, including as a result of
industry consolidation;
- - changes in the mix of products sold by Maker, including the mix between
processors and development tools and application software;
- - timing of "design wins" with related software application and
development tool revenue, which have much greater average selling
prices than individual communications processors;
- - market acceptance of Maker's current and new products;
- - new product introductions by Maker or its competitors;
- - variability of Maker's customers' product life cycles;
- - erosion of average selling prices due to a number of factors, including
Maker's customers reaching volume production, rapid technological
change, price/performance enhancements and product obsolescence;
- - cancellations, changes or delays of deliveries to Maker by its
suppliers, including the availability and terms of foundry capacity;
- - the cyclical nature of the semiconductor industry;
- - significant increases in expenses associated with the expansion of
operations; and
11
<PAGE>
- - general economic conditions.
Revenue derived from communications processors is dependent upon design
wins, production ramp-up and the timing of orders due to customers' management
of inventory. Revenue from the licensing of application software and development
tools primarily coincides with design wins at new customers and in limited
instances at existing customers. The Company's gross margins are impacted by
changes in the mix of revenue between software and communications processors. As
a result of these factors, the Company's lengthy sales cycle and its dependence
on relatively few customers whose order cycles vary significantly, Maker expects
its revenue and gross margins to fluctuate significantly from period to period.
These and other factors could materially and adversely affect Maker.
Investors should be aware that the Company cannot accurately forecast all of the
above factors. Maker believes that period-to-period comparisons are not
necessarily meaningful and should not be relied upon as indicative of future
operating results.
Maker's operating results in a future quarter or quarters may fall
below the expectations of public market analysts or investors. In such event,
the price of its common stock will likely be materially and adversely affected.
MAKER HAS A COSTLY AND LENGTHY SALES CYCLE WHICH MAY INCREASE ITS EXPOSURE TO
CUSTOMER CANCELLATIONS OR SIMILAR RISKS
Maker's sales cycle typically includes a three to six month evaluation
and test period, a twelve to eighteen month development period by its customers
and an additional three to six month period before a customer commences volume
production of equipment incorporating its products. This lengthy sales cycle
creates risks related to customer decisions to cancel or change product plans,
which could result in the loss of anticipated sales. During the Company's sales
cycle, its engineers assist its customers in implementing Maker solutions into
their product. The Company incurs significant research and development and
selling, general and administrative expenses as part of this process before it
generates the related revenues from such customers. Maker derives revenue from
this process only if its design is selected. Achieving a "design win" with a
communications systems vendor provides no assurance that such communications
systems vendor will ultimately ship products incorporating the Company's
communications processors. It is possible a customer may cancel orders even
after the Company has achieved a design win. The Company could be materially and
adversely affected if customers curtail, reduce or delay orders during its sales
cycle, choose not to use its products or choose not to release products
employing the Company's communications processors.
MAKER'S REVENUES COULD DECREASE IF THERE IS A SLOWDOWN IN THE GROWTH IN DEMAND
FOR COMMUNICATIONS SYSTEMS
Maker derives all of its revenues from the sale of communications
processors, development tools and application software to communications
markets. These markets are characterized by intense competition and rapid
technological change. Although these markets have grown rapidly in the last few
years, they may not continue to grow and a significant slowdown in these markets
may occur.
In addition, a substantial majority of the Company's revenues has been,
and is expected to continue to be, derived from sales of products for
Asynchronous Transfer Mode equipment. Maker has announced new products directed
at communications systems that are based on other technologies. If these other
technologies were to quickly achieve widespread acceptance before Maker's new
products have achieved market acceptance, or if Maker's new products do not
achieve market acceptance, the Company will be materially and adversely
affected.
12
<PAGE>
MAKER'S FUTURE SUCCESS DEPENDS UPON ITS CUSTOMERS' ACCEPTANCE OF ITS PROCESSORS
AS AN ALTERNATIVE TO TRADITIONAL SOLUTIONS
Maker's future prospects depend on the acceptance of programmable
communications processors as an alternative to fixed-function devices and
general purpose processors traditionally used by communications systems vendors.
Maker would be materially and adversely affected if:
- - communications systems vendors do not accept programmable
communications processors;
- - communications systems vendors develop or acquire the technology to
develop such components internally rather than purchase Maker's
products; or
- - Maker is otherwise unable to develop strong relationships with
communications systems vendors.
Maker's future prospects also depend upon acceptance by its customers
of third party sourcing for communications processors as an alternative to
in-house development. Many of the Company's current and potential customers have
substantial technological capabilities and financial resources which enable them
to develop fixed-function components and to program general purpose processors
used in their products. In the future, these customers may continue to use
internally-developed fixed-function components and general purpose processors or
may decide to develop or acquire components, technologies or communications
processors that are similar to, or are substitutes for, Maker's products.
MAKER'S FAILURE TO INTRODUCE NEW PRODUCTS ON A TIMELY BASIS COULD DIMINISH ITS
ABILITY TO ATTRACT AND MAINTAIN CUSTOMERS
The communications systems industry is characterized by rapidly
changing technology, frequent product introductions and evolving industry
standards. The Company's products are based on these continually evolving
industry standards. New standards and protocols could render Maker's existing
products unmarketable or obsolete. The Company may not be able to successfully
design and manufacture new products that comply with these standards and
protocols. Specifically, Maker's future performance depends on a number of
factors, including its ability to:
- - identify target markets and emerging technological trends in these
markets, including new standards and protocols;
- - define new products accurately;
- - develop and maintain competitive products by improving performance and
adding innovative features that differentiate Maker's products from
those of its competitors;
- - bring products to market on a timely basis at competitive prices; and
- - respond effectively to new technological changes or new product
announcements by others.
Maker cannot assure investors that the design and introduction
schedules for any additions and enhancements to its existing and future products
will be met, that these products will achieve market acceptance or that Maker
will be able to sell these products at average selling prices that are favorable
to the Company.
MAKER'S FUTURE SUCCESS IS DEPENDENT ON THE RELEASE AND THE ACCEPTANCE OF ITS NEW
PRODUCTS
Maker announced its newest product, the MXT5100 Edge Stream Processor,
in November 1999. The Company announced the addition of its MXT4400 Traffic
Stream Processor in March 1999 and commenced shipping limited production
quantities in September 1999. Maker cannot assure investors that these new
products will perform as anticipated. Maker's failure to release these products
on schedule or the
13
<PAGE>
failure of these products to meet Maker's customers' expectations would
materially and adversely affect the Company. Maker does not expect to receive
significant revenues from the MXT5100 in 1999, and cannot assure investors that
future revenues will be sufficient to recover the costs associated with its
development.
Products as complex as those developed by the Company frequently
contain errors, defects and bugs when first introduced or as new versions are
released. Delivery of products with production defects or reliability, quality
or compatibility problems could require significant expenditures of capital and
resources and significantly delay or hinder market acceptance of such products.
This could damage the Company's reputation and adversely affect its ability to
retain its existing customers and to attract new customers.
MAKER'S REVENUES AND PROFITS MAY DECREASE IF IT LOSES ANY OF ITS MAJOR CUSTOMERS
Historically, a relatively small number of customers have accounted for
a significant portion of Maker's total revenues in any particular period. The
loss of any such single customer would have a material adverse effect on the
Company. Maker's top three customers in 1998, Ascend, Cisco and Fore, accounted
for 29%, 16% and 13% of revenues, respectively. No other customer accounted for
greater than 10% of revenues in 1998. Maker anticipates that sales of its
products to relatively few customers will continue to account for a significant
portion of its total revenues. The Company has no long-term volume purchase
commitments from any of its significant customers. Each of Maker's customers
could cease purchasing its products with limited notice and with little or no
penalty.
Maker's dependence on few customers increases its exposure to potential
adverse consequences resulting from business combinations or consolidations of
its customers. Specifically, two of Maker's top five customers have completed a
consolidation. This consolidation may result in the cancellation of current
product orders. This industry may experience further consolidation in the future
that may result in product duplication and cancellation of current projects,
which may materially and adversely affect the Company. Furthermore, Lucent, who
is one of Maker's top five customers, is also a competitor of the Company. It is
possible that Lucent could change its purchase patterns because of this
relationship.
Maker's relationships with many of its manufacturers' representatives
have been established within the last couple of years, and the Company is unable
to predict the extent to which some of these representatives will be successful
in marketing and selling its products. Maker cannot assure investors that its
current customers will continue to place orders with the Company, that orders by
existing customers will continue at the levels of previous periods or that Maker
will be able to obtain orders from new customers.
MAKER'S LIMITED RESOURCES MAKE IT MORE SUSCEPTIBLE TO COMPETITIVE PRESSURES IN
THE MARKETPLACE
A number of Maker's competitors are more established, benefit from
greater market recognition and have substantially greater financial,
development, manufacturing and marketing resources than it does. Moreover,
several of the largest electronics and semiconductor suppliers have recently
entered or indicated an intent to enter the communications market for
semiconductor devices.
Intel has announced an intention to expand its presence in the
networking business, and has acquired Level One Communications, one of Maker's
former stockholders. The Company had an agreement with Level One that required
Maker to disclose to Level One's successors, early versions of technology
incorporated into its MXT3010 Cell Processor, MXT3020 Co-Processor and related
software applications. Maker's agreement with Level One did not permit this
technology to be incorporated in a product that competes with the Company.
In addition, many of Maker's existing and potential customers
internally develop processors and other devices that attempt to perform all or a
portion of the functions performed by Maker's products.
Maker's ability to compete successfully in the rapidly evolving area of
high-performance communications processors depends on factors both within and
outside the Company's control, including:
- - performance;
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<PAGE>
- - price;
- - features and functionality;
- - adaptability of products to specific applications;
- - support of product differentiation by Maker's customers;
- - length of development cycle;
- - design wins with major communications systems vendors;
- - support for new communications standards and protocols;
- - reliability;
- - technical service and support; and
- - protection of products by effective utilization of intellectual
property laws.
Maker's failure to compete successfully as to any of these or other
factors could materially and adversely affect the Company. To the extent that
Maker's competitors offer sales representatives more favorable terms or a higher
volume of business, the Company's sales representatives may decline to carry, or
discontinue carrying, Maker's products.
THE LOSS OF ANY OF MAKER'S KEY PERSONNEL OR THE FAILURE TO HIRE ADDITIONAL
PERSONNEL COULD IMPACT MAKER'S ABILITY TO MEET CUSTOMER AND TECHNOLOGICAL
DEMANDS
Maker's success depends to a significant degree upon the continued
contributions of its key management, engineering, sales and marketing and
manufacturing personnel, many of whom would be difficult to replace. The loss of
the services of any of Maker's key personnel, the inability to attract or retain
qualified personnel in the future or delays in hiring required personnel,
particularly engineers and sales personnel, could materially and adversely
affect the Company. In particular, the loss of either of Maker's founders,
William Giudice, President and Chief Executive Officer, or Paul Bergantino, Vice
President and Chief Technology Architect, could reduce its future success. Maker
has neither employment contracts with, nor key person life insurance on, any of
its key personnel.
Competition for highly skilled managerial, engineering, sales and
marketing, finance and manufacturing personnel is intense and there can be no
assurance that Maker will be successful in attracting and retaining such
personnel.
MAKER DEPENDS ON OUTSIDE MANUFACTURERS TO MAKE ITS PRODUCTS
Maker currently outsources all manufacturing, assembly and test of its
communications processors to three outside foundries. In 1998 and 1999,
substantially all of the Company's manufacturing was outsourced to IBM, who is
also a competitor. In addition, each of Maker's processors is manufactured for
the Company by only one supplier. These suppliers may allocate, and in the past
have allocated, capacity to the production of other products while reducing
deliveries to Maker on short notice. There are other significant risks
associated with the Company's reliance on outside foundries, including:
- - the lack of assured semiconductor wafer supply and control over
delivery schedules;
- - the unavailability of, or delays in obtaining access to, key process
technologies;
- - limited control over quality assurance, manufacturing yields and
production costs; and
15
<PAGE>
- - penalties for failure to achieve targeted volume commitments.
Currently, Maker's supplier's quote a lead-time for new orders of
approximately 13 to 15 weeks in advance of expected delivery that requires the
Company to place orders in advance of expected purchase orders from its
customers. As a result, Maker has only a limited ability to react to
fluctuations in demand for its products, which could cause the Company to have
an excess or a shortage of inventory of a particular product. Maker has
experienced delays and may in the future experience delays in receiving supplies
of products, and the Company cannot assure investors that it will be able to
obtain such products within the time frames and in the volumes required at an
affordable cost or at all. Maker's failure to obtain such products on a timely
basis at a favorable cost could materially and adversely affect the Company.
Moreover, any failure of global semiconductor manufacturing capacity to
increase in line with demand could cause foundries to allocate available
capacity to larger customers or customers with long-term supply contracts.
Maker's independent manufacturers' inability to provide adequate foundry
capacity at acceptable prices, or any delay or interruption in supply, could
reduce the Company's product revenues or increase its cost of revenues and could
materially and adversely affect the Company.
In 1999, Maker will begin investigating the potential for assuming
greater manufacturing responsibilities during 2000. These responsibilities may
include contracting for wafer manufacturing and subcontracting for assembly and
test rather than purchasing finished product. The assumption of greater
manufacturing responsibilities involves additional risks, including not only the
risks discussed above but also risks associated with variances in production
yields, obtaining adequate test and assembly capacity at a reasonable cost and
other general risks associated with the manufacture of semiconductors.
MAKER NEEDS TO PROTECT ITS INTELLECTUAL PROPERTY AND AVOID INFRINGEMENT OF THE
INTELLECTUAL PROPERTY OF OTHERS
Maker's success depends in part on its ability to obtain patents and
licenses and to preserve other intellectual property rights covering its
products and development and testing tools. In particular, the rapidly evolving
nature of the semiconductor industry requires that companies continually seek
and maintain patent protection of their technology. To that end, the Company has
obtained several domestic patents and has several foreign patent applications on
file. Maker intends to continue to seek patents on its inventions when
appropriate. The process of seeking patent protection can be time consuming and
expensive. Maker cannot ensure that:
- - patents will issue from currently pending or future applications;
- - its existing patents or any new patents will be sufficient in scope or
strength to provide meaningful protection or any commercial advantage
to the Company;
- - foreign intellectual property laws will protect its intellectual
property rights; or
- - others will not independently develop similar products, duplicate its
products or design around any patents issued to the Company.
Intellectual property rights are uncertain and involve complex legal
and factual questions. Maker may be unknowingly infringing on the proprietary
rights of others and may be liable for that infringement, which could result in
significant liability for the Company. Maker has not been informed that it
infringes any third party intellectual property rights that would prevent its
use and sale of its products. If the Company does infringe the proprietary
rights of others, it could be forced to either seek a license to intellectual
property rights of others or alter its products so that they no longer infringe
the proprietary rights of others. A license could be very expensive to obtain or
may not be available at all. Similarly, changing the Company's products or
processes to avoid infringing the rights of others may be costly or impractical.
16
<PAGE>
If the Company was to become involved in a dispute regarding
intellectual property, whether Maker's or that of another company, it may have
to participate in legal proceedings. These types of proceedings may be costly
and time consuming for the Company, even if it eventually prevails. If Maker
does not prevail, it might be forced to pay significant damages, obtain a
license or stop making a product.
Maker also relies on trade secrets, proprietary know-how and
confidentiality provisions in agreements with employees and consultants to
protect its intellectual property. Other parties may not comply with the terms
of their agreements with the Company, and it may not be able to adequately
enforce its rights against these parties.
RAPID GROWTH COULD STRAIN MAKER'S RESOURCES
Maker has experienced a period of rapid growth and expansion which has
placed, and continues to place, a significant strain on its resources. This
growth, as well as the Company's product development activities, has required
Maker to increase its number of employees, which has resulted in increased
responsibilities for Maker's management. As Maker continues to expand it may
significantly strain its management, manufacturing, financial, systems and other
resources. Maker cannot assure investors that its systems, procedures, controls
and existing space will be adequate to support its operations.
THE PRICE OF MAKER'S COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY
The market for securities of high technology companies in the
semiconductor and communications systems industries has been highly volatile. It
is likely that the price of Maker's common stock will fluctuate widely in the
future. Factors affecting the trading price of Maker's common stock include:
- - responses to quarter-to-quarter variations in operating results;
- - announcements of technological innovations or new products by Maker or
its competitors;
- - general conditions in the communications system market; and
- - changes in earnings estimates by analysts.
CERTAIN FACTORS MAY DELAY OR PREVENT A CHANGE OF CONTROL TRANSACTION
Delaware corporate law contains, and the Company's certificate of
incorporation and by-laws contain, provisions that could have the effect of
delaying, deferring or preventing a change in control of the Company on terms
which investors may deem advantageous. These provisions could limit the price
that investors might be willing to pay in the future for shares of Maker common
stock. These provisions:
- - authorize the issuance of "blank check" preferred stock (preferred
stock which the Company's board of directors can create and issue
without prior stockholder approval) with rights senior to those of
common stock;
- - provide for a board of directors with staggered terms;
- - prohibit stockholder action by less than unanimous written consent; and
- - establish advance notice requirements for proposing matters that can be
acted upon by stockholders at a meeting.
17
<PAGE>
YEAR 2000 COMPLIANCE UPDATE
Maker is aware of the potential for industry wide business disruption
which could occur due to problems related to the "Year 2000 issue." It is the
belief of Maker's management that Maker has a prudent plan in place to address
these issues within the Company and its supply chain. The components of Maker's
plan include: an assessment of internal systems for modification and/or
replacement; communication with external vendors to determine their state of
readiness to maintain an uninterrupted supply of goods and services to Maker; an
evaluation of products sold by Maker to customers as to the ability of the
products to work properly after the turn of the century; an evaluation of
facility related issues; the retention of technical and advisory expertise to
ensure that Maker is taking prudent action steps; and the development of a
contingency plan.
STATE OF READINESS
Maker has developed a comprehensive plan to continue to reduce the
probability of operational difficulties due to Year 2000 related failures. Maker
has completed 100% of the Year 2000 issue identification process and has
completed remediation of any Year 2000 issues that have been identified to-date.
INTERNAL SYSTEMS (IT)
The process Maker is following to achieve Year 2000 compliance for
internal IT systems is as follows:
- - develop an inventory of all IT components (hardware, software)
- - determine the Y2K compliance status of each
- - determine the importance of Y2K compliance for each component
(implications of failure)
- - prioritize non-compliant components based on importance
- - determine method to be used to achieve compliance for each component
(modify, replace, cease use)
- - complete the planned action
- - test the component
The inventory of all IT components in use throughout the Company has
been completed and the initial assessment of Y2K status for all mission critical
components has been completed. As a small company, the systems for business
transactions and accounting are not highly automated. Maker's assessment
indicates that the primary system for performing these functions is Year 2000
compliant. In addition, there are a small number of other business applications
in use in the Company that are less critical. Through a combination of
modification, replacement, and decommissioning Maker has achieved Y2K compliance
on these applications. Maker has also completed an assessment of its IT
infrastructure (servers, networks, phone systems, system software) and has
completed remediation of all Year 2000 issues that have been identified. Maker
intends to continue testing critical components of infrastructure and
applications through December 1999 to gain the highest level of assurance
possible as to their Y2K readiness.
SUPPLIERS/CUSTOMERS
The Company is in the process of communicating with its external
vendors to gain an understanding of their state of readiness to maintain an
uninterrupted supply of goods and services to Maker. The Company has sent
letters to all of its major vendors outlining its approach towards the Year 2000
issue and is asking for their commitment to resolve any issues they may have.
This includes Maker's critical vendors which are defined as one who's inability
to continue to provide goods and services would have a serious adverse impact on
its ability to produce, deliver, and collect payment for its products. Maker
also has asked them to complete a short questionnaire on Year 2000 readiness and
to inform Maker of any known compliance issues. As of this date, all critical
vendors have provided written confirmation of their Y2K readiness.
18
<PAGE>
In addition to vendors, the Company has also investigated the Y2K
readiness of its key customers. Even though Maker's customer base is comprised
of large, established and highly sophisticated companies, Maker is in the
process of surveying those customers, which in the past have individually
accounted for greater than ten percent of the Company's revenue, for written
statements of their Y2K readiness. Maker expects to have this survey completed
by November 30, 1999.
FACILITY RELATED ISSUES
The Company has evaluated and completed an inventory of facilities
related equipment with the potential for Year 2000 related failures. Maker has
determined the Year 2000 readiness of this equipment through communication with
the landlord and testing where appropriate. Maker has also created an inventory
of shipping and receiving equipment and at this time it is not aware of any
equipment which is affected by the Year 2000 issue. It is the Company's
intention to repair or replace non-compliant equipment prior to operating
difficulties. Maker, as in most companies, remains aware of the potential for
imbedded logic within microchips to cause equipment failure. Maker believes that
its action plan provides a prudent approach towards evaluating facilities
equipment, however, it may be impracticable or impossible to test certain items
of equipment for Year 2000 readiness. To the extent such untested equipment is
not Year 2000 ready, it may fail to operate on January 1, 2000, resulting in
possible interruptions of security, heating, elevator, telephone, and other
services.
TECHNICAL AND ADVISORY EXPERTISE
Maker has engaged outside consultants experienced in Year 2000
compliance to assist it in project planning, testing methodologies, and
evaluating its Year 2000 remediation activities.
MAKER'S PRODUCTS
Maker is continuing to test its products to evaluate any potential for
issues related to logic imbedded within microchips. At this time Maker is not
aware of any material issues related to products sold by the Company which would
prevent its customers from continuing their operations or which would impact the
safety of Maker in any way.
COSTS
Maker is evaluating the total cost of Year 2000 compliance. This cost
is not incremental spending and has been budgeted within the normal magnitude of
IT spending. This amount includes the replacement of hardware and applications,
which are outdated and were due for replacement regardless of Year 2000 issues.
CONTINGENCY PLAN
Although Maker believes that it is taking prudent action related to the
identification and resolution of Year 2000 issues its assessment is still in
progress. Maker may never be able to know with certainty whether key vendors are
compliant, especially those outside the United States. Failure of key vendors to
make their computer systems Year 2000 compliant could result in delayed
deliveries of products to the Company. If such delays are extended they could
have a material adverse effect on the Company's business, financial condition,
and results of operations. There are also technical vagaries to logic imbedded
within microchips that may prove impracticable or impossible to test. To the
extent such microchips are not Year 2000 compliant, this could have a material
adverse effect on the Company's business, financial condition, and results of
operations.
The Company continues to evaluate the risks associated with potential
Year 2000 related failures. As it better understands the risks within its
internal business systems, the Company is developing a formal contingency plan
to alleviate the impact of high potential or serious failure. The components of
this plan include inventory levels, alternative suppliers and backup systems.
Until the contingency plan is completed, the Company does not possess the
information necessary to estimate the potential impact of
19
<PAGE>
Year 2000 compliance issues relating to its IT systems, non-IT systems, its
vendors, its customers and other parties.
RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity, and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third party suppliers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity,
or financial condition. The Year 2000 Project is expected to significantly
reduce the Company's level of uncertainty about the Year 2000 problem and, in
particular, about the Year 2000 compliance and readiness of its critical
vendors. The Company believes that, with the implementation of new business
systems and completion of the Project as scheduled, the possibility of
significant interruptions of normal operations should be reduced.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
As of September 30, 1999, the Company did not participate in any
derivative financial instruments or other financial and commodity instruments
for which fair value disclosure would be required under SFAS No. 107. All of the
Company's investments are in money market accounts, short-term, investment-grade
commercial paper, corporate bonds, and government securities, carried on the
Company's books at amortized cost, which approximates fair market value.
Accordingly, the Company has no quantitative information concerning the market
risk of participating in such investments.
20
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) SALES OF UNREGISTERED SECURITIES. In the quarter ended September
30,1999, the Company issued the following securities which have not been
registered under the Securities Act of 1933:
For the quarter ended September 30, 1999, the Company issued an
aggregate of 100 shares of its common stock upon the exercise of
options at an exercise price of $.30 per share. The sale of securities
in this paragraph was deemed to be exempt from the registration
requirements of the Securities Act of 1933 in reliance on Rule 701
promulgated under Section 3(b) of the Securities Act of 1933 as
transactions by an issuer pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. On
September 17, 1999, the Company filed a Registration Statement on Form
S-8.
(d) USE OF PROCEEDS FROM SALES OF REGISTERED SECURITIES. On May 14,
1999, the Company completed an initial public offering of its common stock, $.01
par value. After deducting the underwriting discounts and commissions and other
expenses, the Company received net aggregate proceeds from the Offering of
approximately $45,634,000. In May 1999, the Company used approximately
$1,243,000 of the proceeds to repay the balance outstanding under its bank debt
and used approximately $8,635,000 to redeem the Class A Redeemable Preferred
Stock. The remaining proceeds were invested in cash equivalents and marketable
securities. As of September 30, 1999, the remaining proceeds continued to be
invested in cash equivalents and marketable securities. The balance of the
proceeds will be used for general corporate purposes, including working capital
and purchases of capital equipment. None of the Company's net proceeds of the
Offering were paid directly or indirectly to any director, officer, general
partner of the Company or their associates, persons owning 10 percent or more of
any class of equity securities of the Company, or an affiliate of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 - Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAKER COMMUNICATIONS, INC.
(Registrant)
Date: November 11, 1999 By: /s/ Michael Rubino
----------------- ----------------------------------
Michael Rubino
Vice President, Finance and Operations,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet as of September 30, 1999 and the Condensed
Consolidated Statement of Operations for the nine months ended September 30,
1999 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
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