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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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 0-50464
NX NETWORKS, INC.
(Exact name of registrant as specified in charter)
DELAWARE 54-1345159
(State of Incorporation) (IRS Employer Identification No.)
13595 DULLES TECHNOLOGY DRIVE
HERNDON, VIRGINIA 20171
(Address of principal executive offices) (Zip Code)
(703) 742-6000
(Registrant's telephone number, including area code)
Indicate by check number 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
------------ --------------
At November 9, 2000 there were 35,776,016 shares of the registrant's
Common Stock, $.05 par value per share, outstanding.
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<TABLE>
<CAPTION>
NX NETWORKS, INC.
FORM 10-Q
SEPTEMBER 30, 2000
INDEX
PAGE NO.
--------
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PART I -- FINANCIAL INFORMATION (UNAUDITED)
ITEM 1 -- FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations for the nine
and the three months ended September 30, 2000 and 1999 3
Condensed Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET
RISK 17
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS 17
ITEM 2 -- CHANGES IN SECURITIES AND USE OF PROCEEDS 18
ITEMS 3 THROUGH 5 18
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURE 20
</TABLE>
2
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<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NX NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Nine Months ended Three Months Ended
September 30 September 30
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product $18,539 $16,079 $ 5,062 $6,148
Service and other 5,533 5,309 1,637 1,913
------- ------- ------- ------
Total revenues 24,072 21,388 6,699 8,061
Cost of revenues:
Product 12,475 7,512 4,113 2,632
Service and other 3,700 3,638 1,203 1,130
-------- ------- ------- -----
Total cost of revenues 16,175 11,150 5,316 3,762
Gross profit 7,897 10,238 1,383 4,299
Operating expenses:
Sales and marketing (exclusive of stock compensation of $147 in the nine
months ended September 30, 2000) 12,002 4,621 4,299 1,589
Research and development (exclusive of stock compensation of $5,370 and $3,091
in the nine and three months ended September 30, 2000, respectively) 12,862 5,337 5,221 1,979
General and administrative (exclusive of stock compensation of $7,248 and $258
in the nine and three months ended September 30, 2000, respectively and $97 for the
nine months ended September 30, 1999) 6,512 3,485 1,942 1,299
In-process research and development 30,800 -- -- --
Amortization of acquired intangibles 21,483 198 8,208 66
Stock compensation expense 12,765 763 3,349 763
Restructuring charge 427 900 -- --
------- ------ ------ -----
Total operating expenses 96,851 15,304 22,949 5,696
Loss from operations (88,954) (5,066) (21,566) (1,397)
Interest expense (226) (293) (35) (88)
Interest income 485 32 175 10
Other income, net 236 43 16 33
------- ------ ------- ------
Net loss (88,459) (5,284) (21,410) (1,442)
Dividend on preferred stock -- (574) -- (534)
-------- ------ ------- -------
Net loss attributable to common stockholders $(88,459) $(5,858) $(21,410) $(1,976)
========= ======== ========= ========
Basic and diluted loss per common share $ (2.62) $ (0.51) $ (.60) $ (0.17)
========= ======== ========= ========
Weighted average common shares outstanding 33,795 11,513 35,441 11,566
========= ======== ========= ========
See notes to unaudited condensed consolidated financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
NX NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
As of As of
September 30 December 31
2000 1999
--------------------- -------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,463 $ 5,930
Accounts receivable, net 6,814 9,697
Inventories 5,803 4,304
Other current assets 527 531
---------- ----------
Total current assets 20,607 20,462
Property and equipment, net 4,512 4,560
Goodwill and intangibles, net 106,767 70,153
Deposits and other assets 636 78
----------- ----------
TOTAL ASSETS $ 132,522 $ 95,253
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ -- $ 1,059
Accounts payable 9,900 6,703
Accrued liabilities 6,805 4,680
Obligations under capital leases--current portion 512 --
---------- ----------
Total current liabilities 17,217 12,442
---------- ----------
Other liabilities:
Obligations under capital leases--long-term 180 --
Other 150 352
---------- ----------
TOTAL LIABILITIES 17,547 12,794
---------- ----------
Commitments and Contingencies
Stockholders' equity:
Common stock, $.05 par value; 55,000,000 and
36,800,000 shares authorized; 35,575,000 and
29,260,000 shares issued and outstanding,
respectively. 1,779 1,463
Additional paid-in capital 283,102 151,694
Deferred compensation (10,270) --
Accumulated deficit (160,902) (72,443)
Warrants 2,357 2,041
Shareholder note receivable (1,000) --
Accumulated other comprehensive loss (91) (296)
---------- ---------
Total stockholders' equity 114,975 82,459
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 132,522 $ 95,253
========== =========
See notes to unaudited condensed consolidated financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
NXNETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(in thousands)
Nine Months Ended September 30
--------------------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (88,459) $ (5,284)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 23,333 1,453
In-process research and development charge 30,800 --
Stock compensation expense 12,765 942
Changes in assets and liabilities, net of effect of acquisition:
Accounts receivable 2,883 542
Inventories (1,499) 504
Other current assets (20) 290
Deposits and other assets (558) 44
Accounts payable 2,400 896
Accrued liabilities 1,785 72
Other liabilities (201) --
----------- ------------
Net cash used in operating activities (16,771) (541)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition of Aetherworks, net of cash acquired (9,558) --
Purchases of property and equipment (557) (474)
Payment on capital lease (575) --
Note receivable from shareholder (1,000) --
----------- ------------
Net cash used in investing activities (11,690) (474)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on line of credit, net (1,058) (993)
Proceeds from private placement, net of placement cost -- 4,012
Proceeds from stock sale, net of offering costs 25,086 --
Proceeds from exercise of stock options 5,697 198
Proceeds from employee stock purchase plan 65 48
----------- -----------
Net cash provided by financing activities 29,790 3,265
----------- -----------
Effect of foreign currency exchange rate changes on cash and cash
equivalents 205 (40)
----------- -----------
Net increase in cash and cash equivalents 1,533 2,210
Cash and cash equivalents, beginning of period 5,930 2,488
----------- -----------
Cash and cash equivalents, end of period $ 7,463 $ 4,698
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 226 $ 293
=========== ===========
See notes to unaudited condensed consolidated financial statements.
5
</TABLE>
<PAGE>
Nx NETWORKS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
BUSINESS DESCRIPTION
Nx Networks, Inc., ("Nx Networks" or the "Company" ) a Delaware corporation, is
a worldwide provider of internet telephony and data networking solutions. The
Company combines patented, switched, compressed voice and data technology with
advanced packet data networking capabilities to provide networking solutions
that improve network performance and deliver an array of tangible network
services. The Company is headquartered in Herndon, Virginia and conducts
operations out of its locations in the United States, United Kingdom, Hong Kong,
France and Italy. The Company's customers include service providers,
multinational corporations and government agencies.
GOING CONCERN AND OTHER IMPORTANT RISK FACTORS
The Company has reported a net loss in each of the last five years and for the
three and nine months ended September 30, 2000. The Company reported net losses
of $21.4 million for the three months ended September 30, 2000 compared to $2.0
million for the three months ended September 30, 1999. For the nine months ended
September 30, 2000 the Company reported a net loss of $88.5 million inclusive of
IPR&D charges of $30.8 million compared to a net loss of $5.3 million for the
nine months ended September 30, 1999. The Company's ability to generate
operating income is in large part dependent on its success at increasing sales
of its new products and/or controlling costs. The Company's plan to increase
revenues through sales of its new products is continuing to evolve; however, due
to market conditions, competitive pressures, and other factors beyond its
control there can be no assurances that the Company will be able to adequately
increase new product sales in the future.
The success of the Company is also dependent on its ability to generate adequate
cash for operations and capital needs. For the nine months ended September 30,
2000 the Company's operating activities used $16.8 million compared to $541,000
used for the nine months ended September 30, 1999. The cash used by operations
was primarily due to continued losses from operations. At September 30, 2000,
the Company had $7.5 million in cash and cash equivalents. The Company is
relying on existing cash and cash equivalents, together with future sales and
the collection of the related accounts receivable to meet its cash obligations,
while actively seeking to raise additional capital. If the Company is not able
to raise additional capital there is substantial doubt about the Company's
ability to continue as a going concern.
To meet is operating requirements for the balance of 2000 and for fiscal 2001,
the Company will have to generate additional equity or cash through other means,
which may include the sale of assets, including intellectual property and
proprietary technology, the sale of equity, additional borrowings, the sale of
selected operations, or one or more strategic partnerships. Although the Company
believes it has the ability to generate additional equity and cash through such
sales, such sales may be dilutive and there can be no assurances that adequate
funds will be available, or available on terms that are reasonable or acceptable
to the Company. If the Company is unable to generate additional equity and
adequate cash, there will be a material and adverse effect on the business and
financial condition of the Company, to the extent that a sale, liquidation or
restructuring of the Company will be required, in whole or in part.
The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company has been advised by its
independent public accountants that if the Company has not raised sufficient
capital to meet its projected obligations for 2001 prior to the completion of
their audit of the Company's financial statements for the year ending December
31, 2000, their auditors' report on those financial statements will be modified
to reflect this contingency.
The Company's operations are subject to certain risks and uncertainties
including, among others, rapidly changing technology and markets, current and
potential competitors with greater financial, technological, production and
6
<PAGE>
marketing resources, reliance on certain sole source suppliers and third party
contract manufacturers, and dependence on key management personnel. Future
operating results may be affected by a number of other factors including the
timing of new products in the market place, competitive pricing pressures and
economic conditions. As the market for the Company's products is characterized
by rapidly changing technology, the development, introduction and evolution of
competitive products may require a significant investment of financial
resources. While the Company has generally been able to obtain adequate supplies
of components to date, the interruption or termination of the Company's current
manufacturing relationships could have an adverse effect on the Company's
operating results.
MERGERS AND ACQUISITIONS
ACQUISITION OF OPENROUTE:
On December 22, 1999, the Company completed the merger of OpenROUTE Networks
("OpenROUTE") with and into the Company. The transaction has been accounted for
under the purchase method of accounting and the operating results of OpenROUTE
have been included in the accompanying condensed consolidated financial
statements from the date of acquisition.
ACQUISITION OF AETHERWORKS.
On December 31, 1999, the Company entered into an agreement (the "Agreement") to
acquire AetherWorks Corporation ("AetherWorks"), a development stage company
with no revenue since its inception in 1993. The acquisition was effected, on
March 16, 2000, through the merger of AetherWorks with and into a wholly-owned
subsidiary of the Company. The acquisition was accounted for under the purchase
method of accounting for business combinations.
Under the terms of the AetherWorks transaction, the holders of AetherWorks
common stock, warrants, and stock options converted at a rate of 1.38 shares of
Nx Networks common stock, warrants, and stock options. The Company issued
2,622,278 shares of common stock and warrants and options to acquire the
outstanding Aetherworks common stock. The Company's shares were valued at
$22.94, average of closing prices for three days before and after March 16,
2000. The warrants and options issued were valued at approximately $16.2 million
using the Black-Scholes model assuming 130 percent volatility, a risk free
interest rate of 6.32 percent and an exercise period of three years. Pursuant to
the Agreement, the Company settled an $8.0 million obligation of AetherWorks
upon the closing of the acquisition.
Since the closing price of the Company's common stock on the Nasdaq Stock Market
for the 15 trading day period ended October 31, 2000 did not equal or exceed
$22.50 per share, the Company is obligated to issue additional shares of common
stock such that the consideration per share of Aetherworks common stock will
equal $22.50 per share based upon the 15 day average closing price of $2.93;
provided the total number of shares of the Company's common stock issued in the
merger will not exceed 19.9% of the total of the Company's outstanding shares at
March 16, 2000. Accordingly, the Company will issue approximately 3.5 million
additional shares to the former Aetherworks stockholders. The Company is
evaluating whether an adjustment to the options held by the former employees of
Aetherworks that were issued prior to the acquisition should be made independent
of the share issuance described in the preceding sentence or whether such an
adjustment is properly included in the approximately 3.5 million share number
referred to in the preceding sentence. If the Company makes this adjustment
separately, it would be made only to Aetherworks employees who obtained options
for compensation purposes prior to the acquisition of Aetherworks by the Company
and who continue to be employed by the Company. The adjustment could include the
issuance of up to approximately 750,000 new options under the Company's 1999
Long Term Incentive Plan and a reduction in the exercise price of the options
issued to these employees prior to the acquisition of Aetherworks by the
Company.
At closing, the Company also issued to AetherWorks' employees options to acquire
a total of 1.0 million shares of its common stock. The options have an exercise
price of $6.81 per share and generally vest over a two to three year period. The
Company recorded deferred compensation expense of $16.1 million for the
difference between the exercise price and the fair market value of the stock on
the date of grant. This expense will be amortized over the options vesting
period of which approximately $2.9 million and $5.4 million was expensed in the
three and nine months ended September 30, 2000, respectively.
The purchase price of Aetherworks, including transaction costs of $0.3 million
was $89.0 million. A summary of assets and liabilities acquired, at estimated
fair market value at September 30, 2000 was as follows (in thousands):
Current assets $ 99
Property and equipment 1,403
Assembled workforce 300
In-process R&D 30,800
Goodwill 57,590
Current liabilities (1,157)
--------
$ 89,035
7
<PAGE>
The amount allocated to assembled workforce and goodwill is being amortized over
their estimated useful life of 4 years using the straight-line method.
The Company valued in-process research and development ("IPR&D") acquired in the
acquisition at $30.8 million based upon an independent appraisal of the
development project for which technological feasibility had not been established
and no alternative future uses exist. The Company acquired IPR&D project is
targeted at the telecommunications market. This product is being developed
specifically for and is intended to have substantial incremental functionality,
greatly improved speed and wider range of interfaces than the Company's then
current technology.
The value of the IPR&D project identified was determined by estimating the
future cash flows from the project, once commercially feasible, discounting the
net cash flows back to their present value and then applying a percentage of
completion to the calculated value. The percentage of completion for the project
was determined using milestones representing management's estimate of effort,
value added and degree of difficulty of the portion of the project completed as
of March 16, 2000, as compared to the remaining research and development to be
completed to bring the project to technical feasibility. The development process
was grouped into three phases with each phase containing between one and five
milestones. The three phases were: (i) researching the market requirements and
the engineering architecture and feasibility studies; (ii) design and
verification; and (iii) prototyping and testing the product (both internal and
customer testing). Aetherworks project started in 1998; as of March 16, 2000 the
Company estimated that the project was 75% complete.
Development of the technology remains a substantial risk to the Company due to
factors including the remaining effort to achieve technical feasibility, rapidly
changing customer needs and competitive threats from other companies.
Additionally, the value of the other intangible assets acquired may become
impaired. Failure to bring these products to market in a timely manner could
adversely affect future sales and profitability of the combined company.
The unaudited pro forma information presented below reflects the acquisition of
Aetherworks and OpenROUTE as if it had occurred on January 1, 2000 and 1999,
excluding the one time $30.8 million IPR&D charge in connection with the
Aetherworks acquisition. The results are not necessarily indicative of future
operating results or of what would have occurred had the acquisition actually
been consummated on that date (in thousands, except per share data):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
2000 1999 2000 1999
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $ 24,072 $ 31,999 $ 6,699 $ 11,094
Net Loss (61,762) (45,310) (19,799) (16,560)
Net Loss per share $ (1.70) $ (1.50) $ (0.52) $ (0.55)
</TABLE>
2. BASIS OF PRESENTATION:
The accompanying condensed unaudited financial statements included herein have
been prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") for reporting on
Form 10-Q. Accordingly, certain information and footnote disclosures required
for complete financial statements are not included herein. It is recommended
that these condensed financial statements be read in conjunction with the
financial statements and related notes of the Company as reported on the
Company's Form-10K filed with the SEC in March 2000.
8
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In the opinion of management all adjustments, consisting of normal recurring
adjustments, considered necessary for a fair presentation of the condensed
consolidated financial position, results of operations, and cash flows at the
dates and for the periods presented have been included. The results of
operations for the three and nine months ended September 30, 2000 may not be
indicative of the results that may be expected for the year ending December 31,
2000 or any other period within calendar year 2000.
3. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for fiscal years beginning after June 15, 2000. The Company
does not expect this standard to have a material effect on its financial
statements.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial statements." SAB No.
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The Company is required to
adopt the guidance in SAB No. 101 no later than the fourth quarter of fiscal
year 2000, with the guidance being effective January 1, 2000. The Company is
currently assessing, and has not yet determined, the impact of SAB No. 101 on
its financial statements.
4. CASH EQUIVALENTS:
Cash equivalents are primarily bank deposits. These investments are carried at
cost which approximates market value.
5. INVENTORIES:
Inventories consisted of the following:
As of September 30 As of December 31
------------------ -----------------
(in thousands)
2000 1999
---- ----
Raw materials $ 1,459 $ 546
Work-in-process 236 353
Finished goods 4,108 3,405
-------- ----------
Total inventories $ 5,803 $ 4,304
The Company's products are subject to technological change and changes in the
Company's respective competitive markets. Management has provided reserves for
excess and obsolete inventories. It is possible that new product launches could
result in unforeseen changes in inventory requirements for which no reserve has
been provided.
6. REVENUE RECOGNITION POLICY:
The Company recognizes revenue both from sales of products and from service
contracts. Revenue from product sales is recognized based on the type of sales
transaction as follows:
SHIPMENTS TO CREDIT-WORTHY CUSTOMERS WITH NO PORTION OF THE COLLECTION DEPENDENT
ON ANY FUTURE EVENT.
Revenues are recorded at the time of shipment.
9
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SHIPMENTS TO A CUSTOMER WITHOUT ESTABLISHED CREDIT: These transactions are
primarily shipments to customers who are in the process of obtaining financing
and to whom the Company has granted extended payment terms. Revenues are
deferred (not recognized) and no receivable is recorded until a significant
portion of the sales price is received in cash.
SHIPMENTS WHERE A PORTION OF THE REVENUE IS DEPENDENT UPON SOME FUTURE EVENT:
These consist primarily of transactions involving value added resellers ("VAR")
for which the sale is dependent upon the VAR's ability to resell the equipment
to an end user. Under these agreements, revenues are deferred and no receivable
is recorded until a significant portion of the sales price is received in cash.
Also on certain transactions a portion of the payments are contingent upon
installation or customer acceptance. The Company does not recognize revenue on
these transactions until these contingencies have lapsed.
Revenue from service contracts is deferred and recognized ratably over the
period covered by the contract.
7. COMPREHENSIVE LOSS:
Comprehensive income (loss) is the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources. Other comprehensive income (loss) refers to revenue,
expenses, gains and losses that under generally accepted accounting principles
are included in comprehensive income (loss), but excluded from net income
(loss). For the three and nine months ended September 30, 2000 and 1999, the
elements within other comprehensive income, net of tax, consist solely of
foreign currency translation adjustments. Comprehensive loss for the three
months ended September 30, 2000 and 1999, is $21.2 million and $1.4 million
respectively. Comprehensive loss for the nine months ended September 30, 2000
and 1999, is $88.3 million and $5.3 million respectively.
8. SEGMENT INFORMATION:
The Company's two reportable segments are products and services. The Company
evaluates the performance of its segments based on gross profit. The Company
provides enterprise-wide disclosures about revenues by segment, long-lived
assets by geographic area and revenues from major customers.
Revenues consisted of the following:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
------------ ------------
(IN THOUSANDS)
2000 1999 2000 1999
-------- --------- --------- --------
<S> <C> <C> <C> <C>
PRODUCT GROUP
2200 $ 6,219 $ 8,780 $ 1,777 $ 3,954
2500 6,590 5,250 1,115 1,837
3000 788 -- 683 --
S1000 -- 664 -- 23
S10 249 1,173 36 334
Telecom 52 212 -- --
Internet Access 4,297 -- 1,428 --
LAN 344 -- 23 --
-------- -------- -------- ---------
Total product revenues 18,539 16,079 5,062 6,148
Service revenues 5,533 5,309 1,637 1,913
-------- ---------- -------- --------
Total revenues $ 24,072 $ 21,388 $ 6,699 $ 8,061
======== ========== ========= =========
</TABLE>
GEOGRAPHIC INFORMATION
The Company sells its products and services through its locations in the United
States and its foreign affiliates in the United Kingdom, Hong Kong, France and
Italy. Information regarding revenues and long-lived assets attributable to the
United States and to all foreign countries is stated below. The geographic
classification of product and service revenues is based upon the location of the
customer.
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The Company's product and service revenues for the three and nine months ended
September 30, 2000 and 1999 were generated in the following geographic regions:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------- --------------
(in thousands)
2000 1999 2000 1999
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
United States $ 12,610 $ 12,745 $ 3,587 $ 5,462
Europe, Middle East and Africa 6,719 6,371 1,481 1,782
Pacific Rim, Latin America
and South America 4,743 2,272 1,631 817
-------------- -------------- -------------- --------------
Total $ 24,072 $ 21,388 $ 6,699 $ 8,061
============== ============== ============== ==============
</TABLE>
Included in domestic product and service revenues are sales through systems
integrators and distributors to the Federal Government of $750,000 and $214,000
for the nine months ended September 30, 2000 and 1999, respectively. For the
three months ended September 30, 2000 and 1999 these sales were $263,000 and
$25,000, respectively.
The Company's long-lived assets were located as follows:
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
------------------- ------------------
(in thousands)
2000 1999
---- ----
United States $111,148 $ 74,497
United Kingdom 120 201
Italy 11 12
Germany -- 3
Total long-lived assets $ 111,279 $ 74,713
=========== ==========
Approximately $106.7 million and $69.9 million of the Company's long-lived
assets as of September 30, 2000 and December 31, 1999, respectively, relate to
goodwill and intangibles recorded in connection with the Company's acquisitions
in 1999 and 2000.
SIGNIFICANT CUSTOMERS
One customer accounted for greater than 10% of total revenues for the three and
nine months ended September 30, 2000. No customer accounted for greater than 10%
of total revenue for the three and nine months ended September 30, 1999.
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
(in thousands) (in thousands)
2000 1999 2000 1999
------------ ------------- ------------ ---------------
Distributor 1
Product $2,475 * $855 *
Service 64 * 38 *
* Revenue accounted for less than 10% of total revenues for the period.
11
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8. STOCK COMPENSATION EXPENSE:
Based on the termination agreement with the former chief executive officer of
OpenROUTE, the Company issued the former executive 100,000 shares of common
stock and 100,000 options to acquire common stock at $6.00 per share. During the
three months ended March 31, 2000, the Company recognized stock compensation
expense of $5.1 million for the fair value of the shares and options issued.
In connection with the termination of certain employees during the three and
nine months ended September 30, 2000 the Company vested stock options that would
have otherwise been forfeited, resulting in stock compensation expense of
$202,000 and $1.6 million, respectively.
In conjunction with the acquisition of AetherWorks, the Company issued 1.0
million options to acquire common stock at $6.81, to former AetherWorks
employees. The Company recorded compensation charges of $16.1 million related to
the difference between the option exercise price and the market value of the
underlying common stock. The expense will be recognized over the respective
vesting periods of the options. During the three and nine months ended September
30, 2000, the Company recognized compensation expense of $3.1 million and $5.4
million, respectively.
In April 2000, the Company granted options to purchase 200,000 shares of common
stock to members of its Board of Directors. The options were issued below the
market value on the date of the grant. In accordance with APB Opinion No. 25 and
the related interpretations, the Company recorded stock compensation charges of
approximately $864,000 to be recognized over the option vesting period. These
options are vested quarterly over one year. At September 30, 2000 the remaining
deferred compensation related to these grants was $432,000.
In May, 2000, the Company issued warrants to purchase 45,000 shares of common
stock to non-employees for services provided resulting in stock compensation
charges of $316,000 based upon a Black Scholes valuation.
In August 2000, the Company issued warrants to purchase 25,000 shares of common
stock to non-employees for services to be provided over a six month period. The
Company recorded stock compensation charges of $43,000 based upon a Black
Scholes valuation for the vested portion of the options. The Company will
revalue all vested options at each balance sheet date through the remainder of
the vesting period based upon a Black Scholes valuation to calculate total
compensation expense.
9. RESTRUCTURING CHARGE:
In March 2000, the Company implemented and announced a consolidation program to
reduce and economize its work force as part of its acquisition integration
program. The restructuring resulted in an overall reduction of personnel and
related compensation and other associated operating costs of the Company. The
reduction-in-force occurred over approximately a three-month period and
severance payments were generally made in lump sum in June 2000. The
restructuring charges of $427,000 resulted from $327,000 of accrued severance
and benefit costs associated with a reduction-in-force of 13 former OpenROUTE
employees and approximately $100,000 of accrued facility costs resulting from
the consolidation of facilities and premature termination of various office
leases. As of September 30, 2000, severance of $268,000 have been paid, and the
remaining severance payments of $59,000 will occur over the next three months.
As of September 30, 2000, facility costs of $25,000 have been paid and the
remaining severance payments of $75,000 will occur over the next six months.
10. FOREIGN CURRENCY EXCHANGE GAIN:
Generally, assets and liabilities denominated in foreign currencies are
translated into US dollars at current exchange rates. Operating results are
translated into US dollars using the average rates of exchange prevailing during
the period. Gains or losses resulting from translation of assets and liabilities
are included in the accumulated other comprehensive loss account in
stockholders' equity, except for the translation effect of intercompany balances
12
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that are anticipated to be settled in the foreseeable future. The Company had no
foreign exchange gains or losses for the three and nine months ended September
30, 2000 and 1999.
11. BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share amounts are computed using the weighted average
number of common shares. Diluted earnings (loss) per share amounts are computed
using the weighted average number of common shares and common equivalent shares
having a dilutive effect during the periods; however, for the three and nine
months ended September 30, 2000 and 1999, the effect of common stock equivalents
has not been considered as they would have been antidilutive.
12. SHAREHOLDER NOTE RECEIVABLE:
In April 2000, the Company lent $1.0 million to an officer of the Company and
received a promissory note valued at $1.0 million in return. The note, which is
due May 15, 2003, or sooner as described in the note agreement, accrues interest
at 9 percent per annum on the outstanding principal. The note has been reflected
as a decrease to shareholders' equity.
13. LEGAL PROCEEDINGS:
Cabletron Systems, Inc. filed a civil complaint against the Company, AetherWorks
Corporation and OpenRoute Networks, Inc. on June 5, 2000 in the United States
District Court for the District of Massachusetts. In its complaint, Cabletron
alleges that the defendants have infringed Cabletron patents and Cabletron seeks
unspecified monetary damages against the Defendants. The Company and the other
defendants answered the complaint by denying the allegations contained therein.
Discovery has commenced in this action, and is on-going. The Company believes
the claims by Cabletron to be without merit, and it intends to vigorously defend
them.
The Company is involved in various other investigations, lawsuits, claims and
other legal proceedings incidental to the conduct of its business. While it is
not possible to determine the ultimate disposition of each of them, the Company
does not believe that their ultimate disposition will have a material adverse
effect on it.
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NX NETWORKS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by such forward-looking statements. These
factors include, without limitation, those set forth below under the caption
"Certain Factors That May Affect Future Results".
RESULTS OF OPERATIONS
RECENT DEVELOPMENTS. On November 3, 2000, the Company announced the resignation
of its chief executive officer, Steven Francesco. Mr. Francesco had been chief
executive officer of the company since April 1999, and was responsible for the
merger with OpenRoute and the acquisition of Aetherworks. Mr. Francesco will
continue to serve as Chairman of the Board for the next thirty days.
NET LOSS. On March 16, 2000 the Company completed the acquisition of
Aetherworks. The results of operations for the three and nine months ended
September 30, 2000 include the results of Aetherworks from the date of
acquisition. For the three months ended September 30, 2000, the Company had a
net loss of $21.4 million, compared to a net loss of $2.0 million for the three
months ended September 30, 1999. The increase in net loss resulted from
increases in sales and marketing expense of $2.7 million, research and
development (R&D) expense of $3.2 million, general and administrative (G&A)
expense of $0.6 million, amortization of acquired intangibles of $8.1 million
and stock compensation expense of $2.6 million.
For the nine months ended September 30, 2000, the Company had a net loss of
$88.5 million, compared to a net loss of $5.3 million for the nine months ended
September 30, 1999. The increase in net loss resulted from non-cash charges for
in-process R&D expense of $30.8 million, stock compensation expense of $12.8
million, increase in G&A expenses of $3.0 million, R&D expenses of $7.5 million,
sales and marketing expense of $7.4 million and amortization of acquired
intangibles of $21.3 million.
The three and nine month changes in net loss resulted primarily from additional
expense associated with the acquisition of Aetherworks and OpenROUTE. The
Company has instituted an on-going acquisition integration program of expense
reduction to eliminate duplicated functions at the acquired companies.
REVENUES. For the three months ended September 30, 2000, revenues decreased
$1.4 million or 17% to $6.7 million, from $8.1 million for the three months
ended September 30, 1999. For the nine months ended September 30, 2000, revenues
increased $2.7 million, or 13% to $24.1 million, from $21.4 million for the nine
months ended September 30, 1999. For the three months ended September 30, 2000
product revenues decreased $1.1 million or 18% to $5.1 million from $6.2 million
for the three months ended September 30, 1999. The decrease in product revenue
is a result of decrease in sales of the 2200/2500 product lines. For the nine
months ended September 30, 2000 product revenues increased $2.5 million or 15%
to $18.5 million from $16.0 million for the nine months ended September 30,
1999. The increase in product revenues is primarily a result of increase sales
resulting from the merger with OpenROUTE offset in part by a decrease in sales
of the 2200 and 2500 series product lines. For the three months ended September
30, 2000 service revenues decreased $0.3 million or 14% to $1.6 million from
$1.9 million for the three months ended September 30, 1999. For the nine months
ended September 30, 2000 service revenues increased less than 1% when compared
to the nine months ended September 30, 1999.
GROSS PROFIT. For the three months ended September 30, 2000, gross profit
decreased by $2.9 million, or 68%, to $1.4 million, from $4.3 million for the
three months ended September 30, 1999. As a percentage of revenues, gross profit
decreased to 21% for the three months ended September 30, 2000, from 53% for the
three months ended September 30, 1999. For the nine months ended September 30,
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2000 gross profit decreased $2.3 million or 23% to $7.9 million from $10.2
million for the nine months ended September 30, 1999. As a percentage of
revenues, gross profit decreased to 33% for the nine months ended September 30,
2000, from 48% for the nine months ended September 30, 1999.
For the three months ended September 30, 2000 gross profit from product revenues
decreased $2.6 million or 73% to $0.8 million from $3.5 million from the three
months ended September 30, 1999. For the nine months ended September 30, 2000,
gross profit from product revenues decreased $2.5 million or 29% to $6.1 million
from $8.6 million for the nine months ended September 30, 1999.
For the three months ended September 30, 2000 gross profit from service revenues
decreased $0.3 million or 45% to $0.4 million from $0.8 million for the three
months ended September 30, 1999. For the nine months ended September 30, 2000
gross profit from service revenue decreased to $0.2 million or 2% from $1.8
million from $1.6 million for the nine months ended September 30, 1999.
The three and nine month gross profit percentage changes are primarily a result
of a lower-margin product mix, a greater proportion of sales made through
distributors, which generally have higher discounts than direct retail sales,
and competitive pricing pressures. The gross profit in any particular quarter is
dependent upon the mix of products sold and the channels of distribution. As a
result, the gross profit on a quarter to quarter basis can vary within a wide
range. Additionally, cost of sales in the quarter reflects higher provisions for
excess and obsolete inventories due to lower projected sales of existing
products.
SALES AND MARKETING. For the three months ended September 30, 2000 sales and
marketing expenses increased by $2.7 million, or 171%, to $4.3 million from $1.6
million for the three months ended September 30, 1999. The increase includes
wages and salaries of $0.8 million, sales commission expense of $0.3 million,
travel expense of $0.1 million, marketing expense of $1.1 million and bad debt
expense of $0.3 million. Sales and marketing expenses increased $7.4 million, or
160%, to $12.0 million for the nine months ended September 30, 2000 from $4.6
million for the nine months ended September 30, 1999. The increase includes
wages and salaries of $2.1 million, sales commission expense of $1.3 million,
marketing expense of $2.0 million, travel expense of $0.7 million, bad debt
expense of $1.0 million and consulting fees of $0.2. The increases resulted from
hiring of additional sales personnel, advertising expenses, aggressive
participation in trade shows and the production of marketing materials
associated with the new Nx Networks logo, name and products.
RESEARCH AND DEVELOPMENT. For the three months ended September 30, 2000,
research and development expenses increased $3.2 million or 164% to $5.2 million
from $2.0 million for the three months ended September 30, 1999. The increase
represents wages and salaries of $0.9 million due to the merger with OpenROUTE
and the acquisition of Aetherworks, new product materials of $1.4 million,
consulting fees and other engineering expense of $0.2 million, depreciation
expense of $0.2 million, rent expense of $0.2 million, and other expenses such
as telephone, equipment lease and recruiting fees. For the nine months ended
September 30, 2000, research and development expenses increased $7.5 million or
141% to $12.9 million from $5.3 million for the nine months ended September 30,
1999. The increase represents wages and salaries of $2.4 million due to the
merger with OpenROUTE and the acquisition of Aetherworks, new product materials
of $2.5 million, consulting fees and other engineering expense of $0.6 million,
depreciation expense of $0.9 million, travel expense of $0.3 million, rent
expense of $0.4 million, and other expenses such as telephone, equipment lease
and recruiting fees. All of the Company's research and development costs are
expensed to operations as incurred during the periods reported.
GENERAL AND ADMINISTRATIVE. For the three months ended September 30, 2000
general and administrative ("G&A") expenses increased $0.6 million or 49% to
$1.9 million from $1.3 million for the three months ended September 30, 1999.
The increase primarily represents legal and accounting fees of $0.5 million. For
the nine months ended September 30, 2000 G&A expenses increased $3.0 million or
87% to $6.5 million from $3.5 million for the nine months ended September 30,
1999. The increase represents wages and salaries of $0.7 million, legal and
accounting fees of $1.2 million, rent expense of $0.3 million, depreciation
expense of $0.2 million and other general operating expenses of $0.6 million.
The majority of the increases are directly associated with duplicate functions
of the newly merged companies. The Company has of reorganized its G&A functions
to eliminate duplicate expenses.
15
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AMORTIZATION OF ACQUIRED INTANGIBLES. For the three months ended September 30,
2000 amortization expense increased $8.1 million to $8.2 million from $0.1
million for the three months ended September 30, 1999. For the nine months ended
September 30, 2000 amortization expense increase $21.3 million to $21.5 million
from $0.2 million for the nine months ended September 30, 1999. The increase in
amortization expense is associated with the goodwill generated from the
OpenROUTE acquisition in December 1999 and the Aetherworks acquisition in March
2000.
STOCK COMPENSATION. For the three and nine months ended September 30, 2000 the
Company incurred stock compensation expense of $3.3 million and $12.8 million,
respectively. The Company incurred stock compensation expense as a result of
stock issued to and accelerated vesting of stock options to former executives of
OpenROUTE, acceleration of stock options of employees terminated as part of the
restructuring, stock options granted below market value to members of the Board
of Directors, warrants issued as compensation for legal services, and stock
options issued below market to certain employees in connection with the
acquisition of Aetherworks.
IN-PROCESS RESEARCH AND DEVELOPMENT. For the nine months ended September 30,
2000 the Company incurred a one-time charge of $30.8 million associated with the
acquisition of Aetherworks. The Company valued in process research and
development (IRP&D) acquired in the acquisition at $30.8 million based upon an
independent appraisal of the development project for which technological
feasibility had not been established and no alternative future uses exist. This
product is being developed specifically for and is intended to have substantial
incremental functionality, greatly improved speed and wider range of interfaces
than the Company's then current technology.
RESTRUCTURING CHARGE. In March 2000, the Company announced and implemented a
consolidation program to reduce and economize its work force as part of its
acquisition integration program. The restructuring will result in an overall
reduction of personnel and related compensation and other associated operating
costs of the Company. The reduction-in-force occurred over approximately a
three-month period and severance payments were generally made in a lump sum in
June 2000. The restructuring charges of $0.4 million resulted from $0.3 million
of accrued severance and benefit costs associated with a reduction-in-force of
13 former OpenROUTE employees, and $0.1 million of accrued facility costs
resulting from the consolidation of facilities and premature termination of
various office leases. As of September 30, 2000 payments of $0.3 million have
been made related to the restructuring charge.
INTEREST AND OTHER INCOME, NET. For the three months ended September 30, 2000,
the Company had net interest and other income of $156,000 compared to net
interest expense of $45,000 for the three months ended September 30, 1999. For
the nine months ended September 30, 2000 the Company had net interest and other
income of $495,000 compared to net interest expense of $218,000 for the nine
months ended September 30, 1999. The net interest income for the three and nine
months ended September 30, 2000 is a result of the Company's termination of its
loan balances with Coast Business Credit and interest earned on the proceeds
from the secondary stock offering.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had $7.5 million of cash and cash equivalents
and net working capital of $3.4 million, compared to $5.9 million of cash and
cash equivalents and net working capital of $8.7 million at September 30, 1999
and net working capital of $8.0 million at December 31, 1999. For the nine
months ended September 30, 2000, the total cash used by operations was $16.8
million compared to $0.5 million for the nine months ended September 30, 1999.
Non-cash items consisting of depreciation and amortization of $23.3 million,
stock compensation expense of $12.8 million and IPR&D cost of $30.8 million
contributed to the losses of $88.5 million. The cash used by operations was
primarily due to continued losses from operations.
In March 2000, the Company completed an offering of 1.0 million shares of common
stock. The offering generated proceeds of $25.1 million net of issuing costs of
$ 0.9 million. $8.0 million of the proceeds were used to satisfy an AetherWorks
obligation, which was a condition to closing the acquisition. The Company closed
the AetherWorks acquisition on March 16, 2000. The remaining proceeds are being
used for general corporate and working capital purposes.
Capital expenditures during the nine months ended September 30, 2000 and 1999
were $1.1 million and $0.5 million, respectively. These acquisitions were
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primarily equipment used for research and development purposes and computer and
test equipment.
To meet is operating requirements for the balance of 2000 and for fiscal 2001,
the Company will have to generate additional equity or cash through other means,
which may include the sale of assets, including intellectual property and
proprietary technology, the sale of equity, additional borrowings, the sale of
selected operations, or one or more strategic partnerships. Although the Company
believes it has the ability to generate additional equity and cash through such
sales, such sales may be dilutive and there can be no assurances that adequate
funds will be available, or available on terms that are reasonable or acceptable
to the Company. If the Company is unable to generate additional equity and
adequate cash, there will be a material and adverse effect on the business and
financial condition of the Company, to the extent that a sale, liquidation or
restructuring of the Company will be required, in whole or in part. The Company
has implemented cost control measures and is continually evaluating expense
levels to mitigate its liquidity risk.
The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company has been advised by its
independent public accountants that if the Company has not raised sufficient
capital to meet its projected obligations for 2001 prior to the completion of
their audit of the Company's financial statements for the year ending December
31, 2000, their auditors' report on those financial statements will be modified
to reflect this contingency.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is not a party to any market risk sensitive instrument that is
material to the Company, its financial position or results of operations, either
for trading purposes or otherwise.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Cabletron Systems, Inc. filed a civil complaint against the Company, AetherWorks
Corporation and OpenRoute Networks, Inc. on June 5, 2000 in the United States
District Court for the District of Massachusetts. Docket # 00-CV-11105 RWZ is
assigned to this matter. In its complaint, Cabletron alleges that the defendants
have infringed Cabletron patents and Cabletron seeks unspecified monetary
damages against the Defendants. The Company and the other defendants answered
the complaint by denying the allegations contained therein. Discovery has
commenced in this action, and is on-going. The Company believes the claims by
Cabletron to be without merit, and it intends to vigorously defend them.
The Company is involved in various other investigations, lawsuits, claims and
other legal proceedings incidental to the conduct of its business. While it is
not possible to determine the ultimate disposition of each of them, the Company
does not believe that their ultimate disposition will have a material adverse
effect on it.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In March 2000, the Company completed its offering of 1.0 million shares of
common stock. The offering generated proceeds of $25.1 million net of issuing
costs of $ 0.9 million. $8.0 million of the proceeds were used to satisfy an
AetherWorks obligation, which was a condition to closing the acquisition. The
Company closed the AetherWorks acquisition on March 16, 2000. The remaining
proceeds will be used for general corporate and working capital purposes.
In May 2000, Nx Networks issued 45,000 warrants to Gallagher and Associates as
compensation for legal services. All of these warrants are exercisable at $8.00
per share and expire in May 2005. In issuing these warrants, the Company relied
upon the exemption from registration under the Securities Act provided by
Section 4(2) of the Securities Act.
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In August 2000, Nx Networks issued 25,000 warrants to Kier Kleinknecht
compensation for consulting services. All of these warrants are exercisable at
$6.25 per share and expire in August 2005. In issuing these warrants, the
Company relied upon the exemption from registration under the Securities Act
provided by Section 4(2) of the Securities Act.
ITEM 3 IS NOT APPLICABLE.
ITEM 4. MATTERS SUBMITTED TO VOTE OF STOCKHOLDERS.
We held our annual meeting of stockholders on June 22, 2000. The agenda for the
meeting was to discuss and vote upon four proposals:
1. To elect Steven T. Francesco and John Faccibene as directors to serve until
the annual meeting in 2003;
2. To change our name from Netrix Corporation to Nx Networks, Inc.;
3. To amend our 1999 Long-Term Incentive Plan to increase the number of
authorized shares by 2,500,000; and
4. Ratify Arthur Andersen LLP as independent public accountants.
At the meeting, each Proposal was presented to stockholders for approval by
vote.
The results of the votes are as follows:
<TABLE>
<CAPTION>
Proposal Votes For Votes Against Abstain Not voted
<S> <C> <C> <C> <C> <C>
1a- Election of Steven T. Francesco 94.6% 5.4% - -
1b- Election of John Faccibene 94.7% 5.3% - -
2- Change of name 98.9% 0.8% 0.3% -
3- Increase of shares under the 1999
Long Term Incentive Plan 31.5% 15.4% 0.9% 66.0%
4- Approval of accountants 99.6% 0.3% 0.1% -
</TABLE>
ITEM 5 IS NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 Amendment to Certificate of Incorporation dated September 2000 to
change our name from Netrix Corporation to Nx Networks, Inc.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On September 19, 2000, the Company filed a Current Report on Form 8-K to
announce it changed its name from Netrix Corporation to Nx Networks, Inc.
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SIGNATURE
Pursuant to the requirements 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.
NX NETWORKS, INC.
Date: November 14, 2000
By: /S/ JEROME R. SCHIFFERLI
JEROME R. SCHIFFERLI
CHIEF EXECUTIVE OFFICER AND GENERAL COUNSEL
By: /S/ PETER J. KENDRICK
PETER J. KENDRICK
VICE PRESIDENT FINANCE AND ADMINISTRATION AND
CHIEF FINANCIAL OFFICER (PRINCIPAL
FINANCIAL OFFICER)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Amendment to Certificate of Incorporation dated September 2000 to
change our name from Netrix Corporation to Nx Networks, Inc.
27.1 Financial Data Schedule.
