UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to__________
Commission file number: 0-22632
ASANT<E'> TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0200286
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
821 Fox Lane
San Jose, CA 95131
(Address of principal executive offices, including zip code)
Registrant's Telephone No., including area code: (408) 435-8388
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
As of June 28, 1997 there were 9,034,972 shares of the Registrant's Common
Stock outstanding.
<PAGE>2
ASANT<E'> TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1: Financial Statements:
Unaudited Condensed Balance Sheets -
June 28, 1997 and September 28, 1996 3
Unaudited Condensed Statements of Operations -
Three and nine months ended June 28, 1997
and June 29, 1996 4
Unaudited Condensed Statements of Cash Flows -
Nine months ended June 28, 1997, and
June 29, 1996 5
Notes to Unaudited Condensed Financial Statements 6-8
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 12
Item 6: Exhibits and Reports on Form 8-K 12
Signature 13
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASANT<e'> TECHNOLOGIES, INC.
UNAUDITED CONDENSED BALANCE SHEETS
(in thousands)
June 28, September 28,
1997 1996
Assets
Current assets:
Cash and cash equivalents $13,606 $12,693
Accounts receivable, net 9,527 10,038
Inventory 11,063 9,851
Other current assets 4,662 5,576
-------- -------
Total current assets 38,858 38,158
Property and equipment, net 2,869 1,524
Other assets 313 284
-------- -------
Total assets $42,040 $39,966
======== =======
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $8,887 $8,882
Accrued expenses 4,350 4,175
------ ------
Total current liabilities 13,237 13,057
------ ------
Stockholders' equity:
Common stock 26,000 25,322
Retained earnings 2,803 1,587
------- ------
Total stockholders' equity 28,803 26,909
------- ------
Total liabilities and stockholders'
equity $42,040 $39,966
======= =======
The accompanying notes are an integral part of these Unaudited Condensed
Financial Statements
<PAGE>4
ASANT<e'> TECHNOLOGIES, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three months ended Nine months ended
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
Net sales $22,602 $16,102 $61,269 $47,414
Cost of sales 14,776 9,512 39,153 28,266
------- ------- ------- -------
Gross profit 7,826 6,590 22,116 19,148
------- ------- ------- -------
Operating expenses:
Sales and 4,513 5,108 12,913 14,194
marketing
Research and 1,643 1,528 5,277 4,210
development
General and 932 774 2,513 2,198
administrative
------- ------- ------- -------
Total operating expenses 7,088 7,410 20,703 20,602
------- ------- ------- -------
Income (loss) from 738 (820) 1,413 (1,454)
operations
Interest & other income, 197 156 487 479
net ------- ------- ------- -------
Income (loss) before income 935 (664) 1,900 (975)
taxes
Provision (benefit) for 318 0 684 (116)
income taxes ------- ------- ------- ------
Net income (loss) $617 ($664) $1,216 ($859)
======= ======= ======= =======
Net income (loss) per share $0.07 ($0.08) $0.13 ($0.10)
======= ======= ======= =======
Weighted average common 9,134 8,732 9,134 8,961
shares and equivalents ======= ======= ======= =======
The accompanying notes are an integral part of these Unaudited Condensed
Financial Statements
<PAGE>5
ASANT<e'> TECHNOLOGIES, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Nine months ended
June 28, June 29,
1997 1996
Cash flows from operating activities:
Net income (loss) $1,216 ($859)
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation and amortization 707 820
Changes in operating assets and liabilities:
Accounts receivable 511 376
Inventory (1,212) (1,217)
Other current assets 914 1,844
Accounts payable 5 1,692
Accrued expenses 175 (465)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,316 2,191
------- -------
Cash flows from investing activities:
Purchases of property and equipment (2,052) (882)
Purchases/maturities of marketable - 1,700
securities
Other assets (29) (294)
------- -------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (2,081) 524
------- -------
Cash flows from financing activities:
Net proceeds from issuance of common stock 678 554
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 678 554
------- -------
Net increase in cash and and cash equivalents 913 3,269
Cash and cash equivalents, beginning of period 12,693 10,371
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $13,606 $13,640
======= =======
Supplemental disclosures of cash flow
information:
Interest paid during the year $6 $10
======= =======
Income taxes paid (refunded) during ($575) ($1,835)
the year ======= =======
The accompanying notes are an integral part of these Unaudited Condensed
Financial Statements
<PAGE>6
ASANT<E'> TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. INTERIM CONDENSED FINANCIAL STATEMENTS
The Unaudited Condensed Financial Statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. In the opinion of management, the financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary for the fair statement of the financial position,
operating results and cash flows for those periods presented. These
unaudited condensed financial statements should be read in conjunction with
the financial statements and notes thereto for the year ended September 28,
1996, included in the Company's 1996 Annual Report on Form 10-K.
The results of operations for interim periods are not necessarily
indicative of the results that may be expected for the entire year.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the average number of common
and common equivalent shares outstanding during the period. Common
equivalent shares include common stock issuable upon the exercise of stock
options, except when antidilutive. Common equivalent shares have been
computed using the modified treasury stock method for the three and nine
month periods ended June 28, 1997, and the treasury stock method for the
three and nine months ended June 29, 1996, respectively.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per share". This
statement is effective for the Company's fiscal year ending October 3,
1998. Under the new standard, primary earnings per share is replaced by
basic earnings per share and fully diluted earnings per share is replaced
by diluted earnings per share. If the Company had adopted this Statement
for three and nine month periods ended June 28, 1997 and June 29, 1996, the
Company's earnings (loss) per share using the treasury stock method would
have been as follows:
<PAGE>7
Three Months Ended Nine Months Ended
------------------ -----------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
--------- -------- -------- --------
Basic income (loss)
per share $0.07 ($0.08) $0.14 ($0.10)
Diluted income (loss)
per share $0.07 ($0.08) $0.13 ($0.10)
3. INVENTORY
Inventory is stated at the lower of standard cost, which approximates
actual cost (on a first-in, first-out basis) or market, and consisted of
the following at:
June 28, September 28,
1997 1996
----------------- -----------------
(in thousands)
--------------------
Raw materials and component parts $ 3,105 $3,298
Work-in-process 2,642 1,630
Finished goods 5,316 4,923
--------- ---------
$11,063 $9,851
====== ======
4. BANK BORROWINGS
The Company has a bank line of credit that provides for maximum borrowings
of $5 million, limited to a certain percentage of eligible accounts
receivable, and bears interest at the bank's base rate. This line of
credit expires January 31, 1998. Covenants under the line require the
Company to maintain certain minimum levels of liquidity, net worth and
financial ratios, restrict amounts of capital spending, dividends and stock
repurchases, and require the Company to maintain certain levels of
quarterly profitability. No borrowings have been made under the line of
credit agreement in fiscal years 1995 and 1996, or for the first nine
months of fiscal 1997.
5. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", for
all periods. Under this method, deferred assets and liabilities are
determined based on differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
Based on the current estimate of expected operating results and certain
other factors, the Company expects its effective rate to be 36% through
fiscal 1997.
<PAGE>8
6. LEGAL PROCEEDINGS
On September 13, 1996, a complaint was filed by Datapoint Corporation
against the Company and six other companies individually and as purported
representatives of a defendant class of all manufacturers, vendors and
users of Fast Ethernet-compliant, dual protocol local-area network
products, for alleged infringement of United States letters Patent Nos.
5,077,732 and 5,008,879. The complaint seeks unspecified damages in excess
of $75,000 and permanent injunctive relief. The Company has filed a
response to the complaint denying liability. The case has been
consolidated, for purposes of claim interpretation only, with similar cases
filed against several other defendants, which include, among others, Intel
Corporation, IBM Corporation, Cisco Systems, Bay Networks, and Standard
Microsystems. To date, only minimal discovery has been taken. Plaintiff
has served claim charts purporting to set forth its basis for its claims
that products compliant with an IEEE standard infringe its patents. The
defendants expect to serve claim charts setting forth the basis for their
belief there is no infringement in or around August 1997. A ruling on
various claim interpretations is not expected until early 1998. The
Company intends to defend the action vigorously.
<PAGE>9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion, other than the historical financial information, may
consist of forward-looking statements that involve risks and uncertainties,
including quarterly fluctuations in results, the timely availability of new
products, the impact of competitive products and pricing, and the other
risks set forth from time to time in the Company's SEC reports, including
this report on Form 10-Q for the quarter ended June 28, 1997, and the
Company's Annual Report on Form 10-K for the fiscal year ended September
28, 1996. Actual results may vary significantly.
RESULTS OF OPERATIONS
Net sales for the third quarter of fiscal 1997 were approximately $22.6
million, an increase of approximately $6.5 million, or 40%, from net sales
of approximately $16.1 million for the third quarter of fiscal 1996. Net
sales for the first nine months of fiscal 1997 increased by approximately
29% to $61.3 million compared to $47.4 million in the first nine months of
fiscal 1996. This sales increase was due primarily to increased sales
during the quarter of approximately $1.3 million of the Company's 10/100
"Fast Ethernet" and PCI adapter card products, and approximately $8.0
million in OEM sales including sales to Apple and other subcontract
manufacturers. This increase was partially offset by an approximately $2.3
million decline in sales of other older 10Mbps adapter card products due in
part to the continuing incorporation of Ethernet connectivity into the
motherboard of high performance products, and by a decline in sales dollars
from the Company's 10Mbps managed systems products due to competitive
pricing pressures and softer than expected sales into the educational
market. In the third quarter of fiscal 1997, OEM sales accounted for
approximately $8.4 million, or 37% of total sales. This compares to
approximately $0.4 million, or approximately 3% of total sales, for the
third quarter of fiscal 1996. Management anticipates that sales of 10/100
Fast Ethernet shared and switching products will increase as a percentage
of total sales, and OEM sales will decrease as a percentage of total sales
in the next quarter.
Sales outside the United States accounted for approximately 15% of net
sales for the third quarter of fiscal 1997 and was approximately 19% for
the first nine months of fiscal 1997. This decrease was due in part to the
increase in worldwide OEM sales which are reported in North American sales.
These percentages compare with approximately 20% and 27% for the third
quarter and first nine months of fiscal 1996, respectively. No assurance
can be given that the Company will supply product to its current OEM
customers at current levels. In the event that such OEM customers reduce
their level of purchases, the Company would experience an adverse impact on
its financial position and results of operations.
The Company's gross profit as a percentage of net sales decreased to 35%
for the third quarter of fiscal 1997 from 41% in the third quarter of
fiscal 1996. The third quarter gross margins were affected by the
approximately $8.0 million increase in OEM sales at lower margins. For the
first nine months of fiscal 1997, the gross profit percentage decreased to
approximately 36% from 40% for the first nine months of fiscal 1996 due
primarily to the increased sales of products to OEM customers.
Sales and marketing expenses decreased by approximately $0.6 million, or
12%, in the third quarter of fiscal 1997 compared to the third quarter of
fiscal 1996, and decreased by approximately $1.3 million, or 9%, in the
<PAGE>10
first nine months of fiscal 1997 compared to the first nine months of
fiscal 1996. As a percentage of sales, these expenses were 20% in the
first nine months of fiscal 1997 and 21% in the first nine months of fiscal
1997, compared with 32% and 30% in the third quarter and first nine months
of fiscal 1996, respectively. The decreases in sales and marketing
expenditures were due primarily to decreased advertising, outside
representative commissions, trade show, product collateral expenses,
promotional expenses, and other related costs, partially offset by
increases in marketing and direct sales related salary and commission
expenses. In early 1996, the Company allocated additional resources to
increase its direct sales force in order to focus its efforts on increasing
sales. Correspondingly, the Company reduced the number of outside
manufacturing representative agencies promoting the Company's products
resulting in lower overall costs to the Company. The Company believes that
sales and marketing expenses will remain fairly flat in absolute dollars
for the remainder of fiscal 1997.
Research and development expenses increased by approximately $0.1 million,
or 8%, in the third quarter of fiscal 1997 compared to the third quarter of
fiscal 1996 and increased by approximately $1.1 million in the first nine
months of fiscal 1997 compared with the first nine months of fiscal 1996.
The quarter-to-quarter increase was due to increases in prototype
materials, outside consulting services, and increased depreciation
resulting from increased capital equipment purchases. The higher spending
in these areas focused primarily on increased product development
activities for new 10 Mbps Ethernet switches and hubs, Fast Ethernet (100
Mbps) hubs, switches and software related development. The Company expects
that future spending on research and development will increase in absolute
dollars for the remainder of fiscal 1997.
General and administrative expenses increased by approximately $0.2
million, or 20%, in the third quarter of fiscal 1997 compared to the third
quarter of fiscal 1996 and increased by approximately $0.3 million in the
first nine months of fiscal 1997 compared with the first nine months of
fiscal 1996. As a percentage of net sales, these expenses were 4% for both
the third quarter and first nine months of fiscal 1997, as compared with 5%
for both the third quarter and first nine months of fiscal 1996. The
increase in general and administrative expenses in absolute dollars in
fiscal 1997 is primarily related to higher outside consulting and legal
services. The Company expects that future spending will increase slightly
or remain fairly flat during the remainder of fiscal 1997.
Based on the current estimate of its expected operating results, and
certain other factors, the Company expects its effective tax rate to be 36%
through fiscal 1997.
FACTORS AFFECTING FUTURE OPERATING RESULTS
A significant portion of the Company's sales are related to sales of
Apple's Macintosh computers. In January 1997, Apple announced significant
operating losses due to reduced product sales and a management
reorganization. A continuing decline in sales of Macintosh computers, over
which the Company has no control, may adversely affect sales of the
Company's products.
Beginning in fiscal 1996 and continuing in fiscal 1997, the Company
increased its focus on its Fast Ethernet network products and the IBM PC-
compatible market in order to gain market share. Competition in this market
is intense and includes several companies that have significantly greater
resources and broader brand name recognition than the Company. As such,
there can be no assurance the Company will be successful in penetrating the
PC-compatible market. Nevertheless, the Company has committed itself to
focusing significant efforts in dominating certain vertical markets,
principally the pre-press and graphics intensive markets, and the
<PAGE>11
educational marketplace in an effort to capitalize on its already positive
product and brand recognition. These are areas where Asant<e'> already has
proven strengths.
The Company continues to focus its research and development activities on
introducing additional products supporting the adoption of the 100 Mbps
standard in Ethernet networking (100BASE-T, or "Fast Ethernet"), which
enables users to conduct high speed LAN data transmission. The Company
continues to allocate significant resources on research and development of
additional switching products which the Company believes is a large growth
market. To complement its high-speed hardware products, the Company
continues to develop cutting edge software products that enhance the
performance of the network systems products. In that regard, the Company's
future operating results are somewhat dependent on the market acceptance
and rate of adoption of this technology, and on the Company's ability to
timely bring more switching products to market.
LIQUIDITY AND CAPITAL RESOURCES
At June 28, 1997, the Company had approximately $13.6 million of cash and
cash equivalents, and working capital of approximately $25.6 million. In
January 1997, the Company renewed its line of credit with its bank
providing for maximum borrowings of $5 million with a new expiration date
of January 31, 1998. Covenants under the line require the Company to
maintain certain minimum levels of liquidity, net worth and financial
ratios, restrict amounts of capital spending, dividends and stock
repurchases, and require the Company to maintain certain levels of
quarterly profitability. No borrowings have been made under the line of
credit agreement in fiscal years 1995 and 1996, or for the nine months of
fiscal 1997. The Company is currently in compliance with all such
covenants.
The Company believes that current cash and cash equivalents along with the
bank line of credit are sufficient to fund its operations and meet
anticipated capital requirements for fiscal 1997.
<PAGE>12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 13, 1996, a complaint was filed by Datapoint Corporation
against the Company and six other companies individually and as purported
representatives of a defendant class of all manufacturers, vendors and
users of Fast Ethernet-compliant, dual protocol local-area network
products, for alleged infringement of United States letters Patent Nos.
5,077,732 and 5,008,879. The complaint seeks unspecified damages in excess
of $75,000 and permanent injunctive relief. The Company has filed a
response to the complaint denying liability. The case has been
consolidated, for purposes of claim interpretation only, with similar cases
filed against several other defendants, which include, among others, Intel
Corporation, IBM Corporation, Cisco Systems, Bay Networks, and Standard
Microsystems. To date, only minimal discovery has been taken. Plaintiff
has served claim charts purporting to set forth its basis for its claims
that products compliant with an IEEE standard infringe its patents. The
defendants expect to serve claim charts setting forth the basis for their
belief there is no infringement in or around August 1997. A ruling on
various claim interpretations is not expected until early 1998. The
Company intends to defend the action vigorously.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits:
11.1 Statement re computation of per share earnings.
(b.) Reports on Form 8-K: None
<PAGE>13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 11, 1997 ASANT<E'> TECHNOLOGIES, INC.
(Registrant)
By: ROBERT A. SHEFFIELD
Robert A. Sheffield
Vice President, Finance and
Chief Financial Officer
(Authorized Officer and Principal Financial Officer)
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
(Unaudited)
[CAPTION]
Three Months Ended Nine Months Ended
June 28, 1997 June 28, 1997
Net income for purposes of computing
net income per share $ 617 $ 1,216
====== =======
Weighted average common shares
outstanding 9,034 8,961
Weighted common equivalent shares
from options 100 173
------ -------
Weighted average common shares and
equivalents 9,134 9,134
====== =======
Net income per share $ 0.07 $ 0.13
====== =======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED BALANCE SHEETS AND STATEMENTS UNAUDITED CONDENSED OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-26-1997
<PERIOD-END> JUN-28-1997
<CASH> 13,606
<SECURITIES> 0
<RECEIVABLES> 15,393
<ALLOWANCES> 4,995
<INVENTORY> 11,063
<CURRENT-ASSETS> 38,858
<PP&E> 8,364
<DEPRECIATION> 5,495
<TOTAL-ASSETS> 42,040
<CURRENT-LIABILITIES> 13,237
<BONDS> 0
0
0
<COMMON> 26,000
<OTHER-SE> 2,803
<TOTAL-LIABILITY-AND-EQUITY> 42,040
<SALES> 22,602
<TOTAL-REVENUES> 22,602
<CGS> 14,776
<TOTAL-COSTS> 14,776
<OTHER-EXPENSES> 7,088
<LOSS-PROVISION> 39
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 935
<INCOME-TAX> 318
<INCOME-CONTINUING> 617
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 617
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
