UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 27, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____ to _______
COMMISSION FILE NUMBER 0-22632
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ASANTE TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 77-0200286
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
821 Fox Lane
San Jose, California 95131
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 435-8388
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
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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 as the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on November
28, 1997 as reported on the Nasdaq National Market, was approximately
$43,738,499. Shares of Common Stock held by officers and directors and their
affiliated entities and related persons have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily conclusive for other purposes.
As of November 28, 1997, the Registrant had 9,148,017 shares of Common Stock
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Registrant's definitive Proxy Statement for the 1998
Annual Meeting of Stockholders to be held on February 24, 1998 is incorporated
by reference in Part III of this Form 10-K to the extent stated herein.
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TABLE OF CONTENTS
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Page of
Report
PART I
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ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 15
ITEM 3. LEGAL PROCEEDINGS 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS 18
ITEM 6. SELECTED FINANCIAL DATA 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING FINANCIAL DISCLOSURE 43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 44
ITEM 11. EXECUTIVE COMPENSATION 44
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 44
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K 45
SIGNATURES 48
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This discussion, other than the historical financial information, may consist of
forward-looking statements that involve risks and uncertainties, including
quarterly and yearly fluctuations in results, the timely availability of new
products, the impact of competitive products and pricing, and the other risks
detailed from time to time in the Company's SEC reports, including this report.
These forward-looking statements speak only as of the date hereof, and should
not be given undue reliance. Actual results may vary materially from those
projected.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
ITEM 1. BUSINESS
Asante Technologies, Inc. ("Asante" or the "Company"), founded in 1988, designs,
manufactures and markets high-performance computer networking products that
address networking requirements at the departmental and workgroup level within
corporations and small businesses. The Company sells its products primarily
through distributors and supports this distribution channel with marketing and
promotional programs and a network of direct sales and service personnel. The
Company focuses much of its efforts in certain vertical markets, namely, the
educational channel and in pre-press, digital graphic communications and related
markets requiring high bandwidth solutions, where the Company can differentiate
the performance and features of its products from those of its competitors.
The majority of the Company's products are designed to function across either
standard Ethernet (10 Megabits per second known as 10 Mbps, 10BASE-T), or Fast
Ethernet (100 Megabits per second, known as 100 Mbps, 100BASE-T) networks.
Ethernet is a type of network topology which determines how packets, or message
units, are handled and sent across the network. Ethernet is the most widely used
communication standard in Local Area Networks ("LAN").
There are five primary trends in computer networking that affect the Company's
business: 1) the adoption of switched Ethernet technology, 2) the adoption of
Fast Ethernet products, 3) the use of "Intranet" software technology in
corporate local area networks, 4) the gains in market share of Microsoft Windows
NT(TM), and 5) the seasonality of certain segments of the networking industry.
The first trend is the growth in commercialization and adoption of Ethernet
switching technology, which enables a dedicated communication between a sending
and receiving computer or device as opposed to traditional shared Ethernet,
where multiple users share communication lines. Initially, switching products
were used primarily within larger companies which were the first to experience
congestion in their traditional network architectures. More recently, adoption
of switching technology has spread to smaller companies. Furthermore, many
companies are deploying switching at all layers of the network: in the local
area network backbone, in server groups, at the workgroup level, and in direct
connections to desktop PCs. This is especially applicable to those companies
which focus in high bandwidth graphics intensive applications. The Company
introduced several new switching products in 1996, delivered two new families of
high performance switching products in 1997 designed to meet the needs of the
most high-bandwidth demanding applications and, in early fiscal 1998, announced
a fourth switching product line designed to meet the needs of those customers
demanding high performance, cost effective solutions. In 1998, the Company will
continue to focus research and development resources on the development of
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additional switching products and plans to bring switches to market based on its
own ASIC technology. Switches with the Company's ASIC technology are designed to
have more features with a lower manufacturing cost.
The second trend is the adoption of Fast Ethernet (100 Mbps) technology. The
users of this technology are in two very different sectors of the market: large
corporations seeking a solution to congestion at the "top" of their networks,
and those using specific vertical applications, such as publishing, pre-press,
imaging and multimedia, which routinely transfer very large files across their
networks. The Company offers a wide range of 100 Mbps Fast Ethernet shared hubs
and cards and switch products which have achieved strong recognition and
critical acclaim.
The Company's Fast Ethernet products are differentiated from those of the
Company's competitors through software utilities that significantly improve the
overall performance of a Fast Ethernet networking solution. In 1996, the Company
introduced NetDoubler(TM), a software enhancement utility which optimizes Fast
Ethernet performance significantly across most network topologies including
standard Ethernet, Fast Ethernet, and token ring networks. NetDoubler(TM)
currently runs on Windows NT(TM), Macintosh(TM) and Power PC(TM), and Unix
operating systems. The Company has entered into technology licensing agreements
with several other companies that offer networking software solutions to enable
NetDoubler(TM) to be offered on both Sun and Silicon Graphics servers. This has
had the effect of increasing the demand for the Company's desktop portion of the
NetDoubler(TM) solution, and in turn, the demand for NetDoubler(TM)-enabled
adapter cards and Fast Ethernet hubs have increased. An adapter card, or "NIC"
as they are often called, is a card that plugs into a computer enabling the
computer to communicate with all other computers on the network.
The third trend affecting the market for local area networking equipment is the
rapid adoption of internet software for internal corporate networks. The
resulting "Intranets" are based on web servers and web browser technology. This
technology is easily deployed and the development tools offer large gains in
programmer productivity. This has caused growth in both the development of
in-house corporate applications based on Intranet technology, and efforts by
standard product software companies to develop products based on this same
technology. Many corporations view Intranet software technology as a
cost-effective alternative to traditional client-server software architectures.
The Company has taken steps to integrate Intranet technology into its new
switches in the form of a built-in, Java(TM)-enabled, HTTP server. The Company
has also developed IntraSpection(TM), discussed below, to capitalize on this
trend.
The fourth trend in the local area networking market is the reported growth in
sales and market share for the Microsoft Windows NT(TM) operating system. The
low installation and maintenance cost, scalability, and compatibility with
desktop versions of Windows have made Windows NT(TM) an effective solution for
servers in corporations.
In response to the third and fourth trends, the Company has developed a
web-based network management software product called IntraSpection(TM) that
allows networks to be managed by any web browser, thus facilitating the use of
Intranet technology and Windows NT(TM) or Windows 95(TM) network management
solutions. By using IntraSpection(TM) for Windows NT(TM) or Windows 95(TM) and
Intranet technology, customers may reduce their network management costs since
Windows NT(TM) and Windows 95(TM) are much lower cost platforms than the Unix
platforms used for most of the major networks. In addition, Intranet software
tools offer higher programmer productivity, thus allowing customers to customize
the IntraSpection(TM) system inexpensively. IntraSpection(TM) also
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allows the customer to manage all of its network resources using only one
system, thus decreasing network management costs.
The fifth trend which effects the local area networking market and the Company
in particular is the seasonality of the Company's business. The first factor
which affects the Company most in the market is caused by the budgeting and
purchasing cycles of certain segments of the Company's customers. The Company
has a strong presence in the educational market. This market is characterized by
its typically seasonal purchasing habits due to the nature of educational
seasons and the ability for school administrators to more easily install network
systems during times when the majority of users (students) are not in session.
Secondly, many schools and other governmental agencies spend based on seasonal
budgets and accept bids only seasonally.
The Company continues to sell Ethernet and Fast Ethernet adapters to customers
who use Apple Macintosh(TM) computers. The Company historically has been heavily
associated with, and therefore had a dependence on, selling products into the
Apple after-market. While the Company currently designs its products to work on
all computer platforms and does not rely on new Apple product introductions, a
large portion of its sales in the near term are expected to be related to Apple
products. Any material decrease in sales of Macintoshes or additional
developments adversely affecting Apple's business could have a material adverse
effect on sales of the Company's client access products, which would materially
and adversely affect the Company's business, financial condition and results of
operations.
The Company is dependent on the release of new products, specifically in the
switch and Fast Ethernet areas. Delays in bringing new products to market would
have a material adverse effect on the Company's financial results and condition.
The Company's success will depend in part on its ability to accurately forecast
its future sales due to the lead time required to order components and assemble
products. If the Company's product sales forecasts are below actual product
demand, there may be delays in fulfilling product orders and consequently, the
Company could lose current and future sales to competitors. Alternatively, if
the Company's product sales forecasts are above actual product demand, this may
result in excess orders of components or assembled products and a build up in
inventory which would adversely affect working capital.
Industry Segment Information
Asante operates in one industry as described above.
Products
Switch Products
Asante's comprehensive line of switches includes multiple families of switches
designed to meet the needs of both its vertical and horizontal market
customers.The IntraStack(TM) 10/100 dual speed switch family is currently
Asante's highest performance product, designed to provide maximum bandwidth for
those customers requiring a solution for high congestion situations. The family
features an integrated HTTP management server with Java(TM)-enabled features, as
well as other advanced functions. The
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IntraStack(TM) family, which uses the Company's patented Goldcard(TM) connector
technology to expand the switching system via a 2.1 Gigabit PCI backplane,
currently includes a suite of 3 units. The IntraStack(TM) 6014DSB base is a
12-port 10/100 auto-sensing management switch offering two additional MII
expansion slots which allow additional 10/100 ports, 10/100 Fiber, or 10 FL
modules to be added. The Intrastack(TM) 6016DSE switch offers an expansion
module with 16 10/100TX ports and is fully manageable from the base module. The
third product in this family is the IntraStack(TM) 6008FXE switch, which offers
8 100Base-FX (fiber) ports and is fully stackable using Asante's Goldcard(TM)
technology with the entire IntraStack(TM) family. The IntraStack(TM) family is
manageable with IntraSpection(TM) software.
The IntraSwitch(TM) switch family currently features two products. The
IntraSwitch(TM) 5324 is a high performance 10 + 100 switch featuring 24
dedicated, 10 Mbps switched ports: one fixed, dual-speed 10/100TX port featuring
NWay autonegotiation to automatically determine 10 or 100 Mbps operation; and
two MII slots for optional 10/100TX, 100Base-FX, or 10Base-FL, expansion
modules. The IntraSwitch(TM) 5212 introduced in the first quarter of fiscal
1998, has 12 dedicated, 10 Mbps switched ports: one fixed, dual-speed 10/100 TX
port featuring NWay autonegotiation; and one MII slot. Both products feature
integrated HTTP management software, RMON, and VLAN, among other features.
The FriendlyNet switch family features cost effective, high performance 10/100
Mbps unmanaged switches for the smaller network and "power users" with high
bandwidth needs. The switches feature NWay autonegotiation to automatically
determine either 10 or 100 Mbps operation. The Company also offers an 8 port
plus 2 10/100 uplink FriendlyNet Switch. In fiscal 1998, the Company will
introduce additional FriendlyNet switches to compliment its existing FriendlyNet
switches, 100 Mbps hubs, and 10 Mbps hubs.
In fiscal 1996, the Company announced their first four full-featured workgroup
switches for small to medium sized networks. The Asante 5216 Switch is a
high-performance 16-port segmentation switch with two 100BASE-TX "fat pipes" for
high-speed connections to servers or backbones. This product helps solve LAN
congestion problems by increasing aggregate bandwidth by up to 16 times for a
total of 360 Mbps. The 5216xp Switch offers the same port configuration as the
5216 switch, but with two additional expansion slots for 100BASE-TX, 100BASE-FX,
or FDDI (single or dual attached station) modules. These modules can be utilized
in any combination or individually as needed. The ReadySwitch 5104 and 5104 FX
are smaller four-port Ethernet switches offering a single Fast Ethernet uplink
for networks with high demand for server access. The 5104 FX includes a
100BASE-FX fiber optic port, providing a long distance backbone connection of up
to two kilometers.
100BASE-T (Fast Ethernet) Systems
In addition to the Company's switches, the Company offers a complete family of
Fast Ethernet systems and adapters to allow customers to connect personal
computers and high performance servers over a corporate intranet. The Company's
award-winning, high performance products offer customers with high bandwidth
needs a complete line of products to fulfill their intranet needs and offers
those customers with existing 10BASE-T Ethernet networks a cost effective
migration path to transition to 100BASE-T networking.
The Asante Fast 100 Hub is a 100BASE-TX hub providing ten times the performance
of 10 Mbps Ethernet and is targeted for bandwidth intensive graphic, multimedia,
and mission-critical applications.
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The 12-port version has a stackable architecture that supports up to 180 ports
and comes in intelligent and non-intelligent configurations. The 6-port version
is non-intelligent and comes in a non-stackable form. Features include
autonegotiation for seamless integration of existing 10BASE-T with new 100BASE-T
systems. The Asante Fast 100 Hub works with all personal computers equipped with
a 100Mbps adapter, and supports Windows 95(TM), Windows NT(TM), Novell
NetWare(TM), Banyan VINES(TM), and other popular network operating systems.
The Asante Fast 10/100 Bridge integrates 100Mbps Fast Ethernet workgroups into
existing 10 Mbps networks by segmenting network traffic through the use of
filtering and forwarding data packets. It is compatible with any 100BASE-TX Fast
Ethernet hub, includes autonegotiation and LEDs for network performance
indication, and supports the network operating systems mentioned above.
The Asante Fast 100 Management Module provides network management of Fast
Ethernet and 10BASE-T networks in order to determine network performance,
traffic bottlenecks, collisions and other vital signs. The Management Module
fully integrates with the Asante Fast 100 Hub shared backplane with a key-sized
expansion card so that it snaps on top of the hub eliminating the need for
external cabling. The module's built-in simple network management protocol
("SNMP") support enables the interconnected hub stack to be managed as a single
logical repeater and controlled from any workstation running AsanteView network
management software or from any SNMP-compatible or Telnet console.
Fast Ethernet Adapter Cards
The Company's Asante Fast 10/100 dual speed adapters provide all-in-one
compatibility to 10BASE-T and 100BASE-TX Ethernet networks for personal
computers utilizing standard PCI bus architecture. The product plugs into the
PCI slot of the computer and automatically configures itself to the system. It
utilizes an "autonegotiating" feature that senses whether the network hub speed
is 10 Mbps or 100 Mbps and sets the adapter speed accordingly. As such, the
product allows the customer to migrate from the existing 10BASE-T network to a
new Fast Ethernet network. The Asante Fast 10/100 has four LED lights to assist
with trouble shooting and to indicate connection speed, link integrity and data
traffic.
10BASE-T Systems and Adapter Cards
Along with the trend of new customers to move to switching among the more
sophisticated sectors of the networking market, the demand for low cost 10 Mbps
Ethernet technology from more price-sensitive customers continued to grow. This
trend is particularly strong in the kindergarten through grade 12 education
market in which the Company has a strong reputation and product name
recognition. The adoption by schools of wide area links to the worldwide
internet has led to the use of low cost 10 Mbps shared technology for their
local area networks. Schools connecting to the internet for the first time find
that they need to install an Ethernet LAN and they have favored low cost 10 Mbps
solutions. The Company continues to hold a competitive position in the market
for 10 Mbps shared hubs, and will continue to pursue cost reduction objectives
for its 10 Mbps product line to maintain competitiveness in this market. The
Company expects that the growth in the 10 Mbps market will not continue at the
current rate indefinitely as pricing for switching technology and 100 Mbps
shared Ethernet technology will gradually make adoption of these standards more
attractive.
The Company offers a broad family of 10BASE-T systems and adapters to meet needs
ranging from the corporate workgroup to the departmental workgroup and small
business user.
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The NetStacker(TM) is a dual-slot, two-segment, intelligent Ethernet
concentrator that gives the user the flexibility of a multi-slot chassis with
the convenience of a stackable hub. Up to three NetStacker(TM) units can be
snapped together to support up to 72 users via 10BASE-T connections. Each
chassis accommodates two multi-port repeater modules for 10BASE-T, 10BASE-2 and
10BASE-F Ethernet connectivity. A two-port Ethernet bridge module may be
installed in any available chassis slot to segment and isolate network traffic.
The NetStacker(TM) is also available with an SNMP-based network management
module and is manageable with IntraSpection(TM) and AsanteViewTM Network
Management software.
The AsanteHub 2072, an expandable, seven-slot, chassis-based, 72-port
intelligent hub, offers departmental network managers enterprise-level features
at a departmental price. It has a seven-slot architecture that allows the
addition of a variety of multi-port repeater modules (10BASE-T, 10BASE-2 and
10BASE-F), a bridge module and an SNMP-based network management module. Network
growth can be accommodated simply, inexpensively and on an as-needed basis by
inserting new modules. A dual segment backplane allows the network manager to
create two completely separate networks within the AsanteHub 2072's chassis to
segment traffic and optimize network efficiency. When combined with AsanteView
network management software, this hub provides centralized management and
diagnosis which can be operated both locally and remotely to configure, control
and set alarms for the hub from a personal computer. The Company also offers
dual redundant power supplies for the AsanteHub 2072 for fault-tolerant
applications.
The 10T Unmanaged hub family includes multiple port versions including 8, 12,
and 24 port versions. In addition, the Company offers a 6-port, BNC unmanaged
hub. These 10T hubs form a family of inexpensive, non-intelligent Ethernet hubs
for connecting personal computers, workstations (including UNIX), network
printers and other network resources to an Ethernet network. These systems are
used for creating small networks or extensions to existing networks. They allow
network managers to use economical unshielded twisted pair (UTP) telephone wire
instead of coaxial cable to set up their LANs, and support all major network
operating systems and hardware configurations.
The FriendlyNet 10T Hub in 5 port and 8 port product configuration also comprise
a family of inexpensive, non-intelligent Ethernet hubs designed to complement
the 10T-Hub/8, /12 and /24 meet the needs of the economy-minded user, small
business, and home network. Their smaller size makes them ideal for small
businesses and personal or home users who have limited workspace.
Adapter Cards for IBM-compatible personal computers. The Company's AsanteNIC(TM)
and EtherPaC(TM) line of 10BASE-T Ethernet client access products consists of
nine different cards, which support either PCI, ISA, EISA or MCA buses. All
cards support Novell NetWare, Windows NT, Windows 95(TM) and other popular
network operating systems and protocols.
Adapter Cards for Macintosh(TM) Computers. The Company sells an Ethernet adapter
card and transceiver product line supporting all Macintosh(TM) platforms and all
Ethernet cabling options. The Company also offers AsantePrint which allows older
printers to be connected to 10 Mbps networks.
Other Client Access Products. Asante offers a family of converters to connect
LocalTalk devices to an Ethernet network. These converters connect from 2 to 8
devices such as printers to an Ethernet network.
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In addition, the Company offers FriendlyNet media adapters to connect PC and
Macintosh(TM) computers or printers with built-in Ethernet support to an
Ethernet network.
Software Products
Software design and implementation is a key component of all Asante products.
Separately, the company markets several cutting edge software products.
Asante currently offers two network management options: IntraSpection(TM) and
AsanteView. IntraSpection(TM) is the Company's Web-based network management
software program, providing users with customized management solutions and
support for every SNMP-based network device on the market. IntraSpection(TM)'s
customized support is available through Asante plug-in Personality Modules that
are sold as additions to the basic IntraSpection(TM) software. Furthermore,
because IntraSpection(TM) allows for programming in HTML and Java(TM) instead of
the customary C++, network managers can quickly create customized management
modules on their own, a capability previously not available in the networking
industry. The basic IntraSpection(TM) software is available at no cost through
the Company's internet site at http://www.asante.com. The Company has a patent
pending on the IntraSpection(TM) software technology.
AsanteView is the Company's proprietary network management software that
operates with the SNMP protocol. Using AsanteView with an AsanteHub 1016,
NetStacker or 2072, a network manager can monitor and control the network.
AsanteView enables the manager to gather network statistics, monitor network
performance, pinpoint bottlenecks and errors and optimize network performance.
The graphical user interface conveys network information at a glance. AsanteView
offers both local and remote capabilities and permits management of up to 12
Asante hubs at the same time from a single management station.
Asante has developed multiple versions of its network acceleration software,
NetDoubler(TM). Providing a high-performance solution for publishing and
pre-press networks when combined with Asante switched and Fast Ethernet
products, NetDoubler(TM) runs on Macintosh(TM) computers and most popular
servers including Windows NT(TM) Macintosh(TM) and UNIX. The Company has a
patent pending for its acceleration software technology.
Technology
The Company is a provider of leading edge products in the Ethernet networking
industry. The Company introduced the first 100 Mbps stackable hub system
products in 1995 and has continued to bring new technology to the market ahead
of competition. In line with its goal to provide its customers with value-added
features which continue to differentiate the Company's products from those of
its competitors, the Company has developed and patented its GoldCard(TM)
connector technology. The Company's Goldcard(TM) connector technology allows
customers to expand the Company's switching via a 2.1 Gbps PCI backplane without
having to use valuable 100BASE-T ports in order to connect the modules in a
stack, giving the Company a true stackable system architecture that is cost
effective for the customer.
Marketing and Distribution
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The Company markets its products in three main channels: first, through a two
tier distribution channel which sells primarily to commercial and corporate
users; second, the Company sells directly to a large number of educational
institutions; and third, through a number of large OEM customers.
Asante's major distributors are leading wholesale distributors of computer
products in North America. To supplement the efforts of these distributors
overseas, the Company has appointed international distributors for specific
territories. All of the Company's distributors are appointed on a non-exclusive
basis.
Asante also sells its client access and network system products directly to
major universities and educational institutions to take advantage of the
significant penetration of the Company's products in these markets. Beginning in
fiscal 1996, the Company expanded its effort to sell more products to OEM
customers. As a result, a significantly increased portion of the Company's
revenue resulted from OEM sales in fiscal 1997, due to certain agreements with
larger OEM customers. The Company will continue to focus resources on obtaining
additional, cost effective agreements with larger OEM customers, although there
can be no assurance that such agreements will be obtained. OEM sales are
expected to constitute a significantly smaller portion of the Company's total
sales in fiscal 1998.
Sales to customers outside the United States accounted for approximately 18%,
23% and 28% of the Company's net sales in fiscal years 1997, 1996, and 1995,
respectively. The decrease in international sales as a percentage of total sales
in fiscal 1997, was due predominately to increased sales of products to OEM
customers in the United States. All sales to international customers are
denominated in U.S. dollars. Accordingly, the Company's operating results are
subject to the risks inherent in international transactions, including changes
in regulatory requirements, exchange rate fluctuations that may make the
Company's products more expensive to non-U.S. purchasers, tariffs or other
barriers.
The Company believes that it has good relationships with its distributors and
intends to continue to introduce new products through its existing distribution
channels. The Company encourages the marketing efforts of its distributors with
cooperative advertising allowances and incentive-based rebates, and promotes its
products and builds brand name recognition by extensive trade advertising,
participation in industry trade shows, and other marketing efforts. As of
September 27, 1997, the Company supported the sales efforts of its distributors
with 55 direct sales and support related employees located throughout the United
States who promote the Company's products within assigned territories, and two
outside sales representatives.
The Company's agreements with its distributors can generally be terminated after
an initial term of one year or on short notice without cause, and do not provide
for minimum purchase commitments or preclude the distributors from offering
products that compete with those offered by the Company.
The Company grants to its distributors limited rights to return unsold
inventories of the Company's products in exchange for new purchases and provides
certain price protection to its distributors. Although the Company provides
reserves for projected returns and price decreases, any product returns or price
decreases in the future that exceed the Company's reserves will adversely affect
the Company's business, financial condition and results of operations. See Item
7: Management's Discussion and Analysis of Financial Condition and Results of
Operations.
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The distribution of products such as those offered by the Company has been
characterized by rapid change, including consolidations and financial
difficulties of distributors and the emergence of alternative distribution
channels. In addition, there are an increasing number of product suppliers
competing for access to these channels. Distributors may, at their option and at
any time, cease marketing the Company's products without prior notice to the
Company. A reduction in the sales effort by any of the Company's major
distributors or the loss of any one of these distributors would have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that future sales by the Company's
distributors will remain at current levels or that the Company will be able to
retain its current distributors on terms that are commercially reasonable to the
Company. Although the Company believes that its major distributors are currently
adequately capitalized, there can be no assurance that in the future one or more
of these distributors will not experience financial difficulties. Such
difficulties could have a material adverse effect on the Company.
In fiscal 1995, the Company changed its limited warranty policy to cover all
products for the life of the product. In fiscal 1997, the Company altered a
portion of its warranty policy limiting coverage on certain of its high-end
switch products to 3 years. The Company has not encountered material warranty
claims, although there can be no assurance that claims will not increase
substantially over time as a result of the change to a lifetime warranty for a
majority of the Company's products. Future warranty claims exceeding the
Company's reserves for warranty expense could have an adverse effect on the
Company's business, financial condition and results of operations.
Company warranties are limited to the Company's obligation to repair or replace
the defective product. The Company attempts to further limit its liability to
end-users through disclaimers of special, consequential and indirect damages and
similar provisions in its end-user warranty. However, no assurance can be given
that such limitations of liability will be legally enforceable.
Backlog
The Company generally ships products shortly after orders are received and
consequently maintains very little backlog. Accordingly, the Company does not
believe that its backlog as of any particular date is indicative of future
sales.
Engineering and Product Development
The markets for the Company's client access and network system products continue
to be characterized by rapidly changing technology, evolving industry standards
and frequent new product introductions. Asante believes that maintaining its
market position in the Macintosh(TM) connectivity market and expanding its
presence in the multiplatform market requires continuing investment to develop
new products, enhance existing products and reduce manufacturing costs.
As of September 27, 1997, the Company had 33 employees engaged in engineering
and product development. During the fiscal years ended September 27, 1997,
September 28, 1996, and September 30, 1995, the Company's engineering and
product development expenses were approximately $7.1 million, $6.2 million and
$4.5 million, respectively.
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<PAGE>
The Company continues to invest significant resources in engineering projects
and will continue to focus additional resources as needed in order to bring to
market additional high technology, high demand products supporting both its
network systems and the Intranet/Internet markets. In particular, in fiscal 1998
and going forward, the Company will focus additional efforts in the areas of
software design, ASIC (Application Specific Integrated Circuit) design, and on
system integration.
The Company's believes its future success will depend upon its ability to
enhance and expand its existing product offerings and to develop in a timely
manner new products that achieve rapid market acceptance. Substantially all of
the Company's products are designed to provide connectivity to Ethernet LANs. If
the Company is unable for technological or other reasons to modify its products
or develop new products to support Fast Ethernet or Switched Ethernet
technology, or if Ethernet's importance declines as a result of alternative
technologies, the Company's business, financial condition and results of
operations would be materially and adversely affected. There can be no assurance
that the Company will be successful in developing and marketing enhanced or new
products in a timely manner, that those products will gain market acceptance, or
that the Company will be able to respond effectively to technological changes or
new industry standards.
Manufacturing and Suppliers
The Company's manufacturing operations consist primarily of managing its
materials and inventories, purchasing certain components, performing limited
final assembly of some products and testing and performing quality control of
certain materials, components, subassemblies and systems. The Company
subcontracts substantially all of the assembly of its products. This includes
Orient Semiconductor Electronics, Ltd. ("OSE"), a semiconductor and printed
circuit board assembler based in Taiwan, and several other subcontractors and
manufacturers based in California, Taiwan and China. The Company believes that
its quality control procedures and the quality standards of its manufacturing
partners have been instrumental in the high performance and reliability of the
Company's products. To date, customer returns of the Company's products due to
poor workmanship have not been material. See Note 3 of Notes to Financial
Statements.
OSE and the Company's other subcontract manufacturers purchase or manufacture
most components, assemble printed circuit boards, and test and package products
for Asante on a purchase order, turnkey basis. In fiscal 1997, the Company
purchased $16.8 million of goods from OSE. The Company does not have a long-term
supply agreement with any of its subcontractors. If any one of these
subcontractors experience financial or operational difficulties that result in a
reduction or interruption in the supply of products to the Company, or otherwise
fail to deliver products to the Company on a timely basis, the Company would be
required to procure sufficient manufacturing supply through alternative sources.
The Company believes that alternative manufacturers are available; however, the
qualification of such alternative sources and the commencement of volume
manufacturing of the Company's products could take a significant period of time.
Accordingly, any reduction or interruption of supply from its existing
subcontractors would materially and adversely affect the Company's business,
financial condition and results of operations. In addition, the use of OSE and
other offshore subcontractors subjects the Company to certain risks of
conducting business internationally, including changes in trade policy and
regulatory requirements, tariffs and other trade barriers and restrictions, and
changes in the political or economic environment in Taiwan.
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<PAGE>
Although the Company generally uses standard parts and components for its
products, certain key components used in the Company's products are available
from only one source and others are available from only a limited number of
sources. Components currently available from only one source include, among
others, custom integrated circuits used in the Company's intelligent hubs, and
certain ASICs used in the Company's 10/100 and 10T switching products. The
Company does not have a long-term supply agreement with any of its suppliers.
The Company believes that certain key components remain in short supply, and
from time to time receives only limited allocations of these products which in
prior years has caused shipping delays of one or more of the Company's products.
If the Company or any of its suppliers experience component shortages in the
future or any of its competitors have long-term supply agreements under which it
is possible for them to obtain greater supplies of such components than the
Company, the Company's business, financial condition and results of operations
could be materially and adversely affected. The Company also relies on OSE and
subcontractors to procure many of the components used in the Company's products.
Procurement and stocking of components and subassemblies is done by these
subcontractors based on the Company's purchase orders.
Competition
The markets for the Company's products are highly competitive, and the Company
believes that such competition will intensify. Competitive factors in the
Company's markets are continuing declines in average selling prices, coupled
with improvements in product features and performance. The Company expects such
trends will continue.
In the mainstream market, the Company competes with Cisco Systems, Bay Networks,
3Com, and many smaller companies. Competition from these and other companies,
including new entrants, is expected to intensify, particularly in the
departmental users market. Many of the Company's competitors in this market are
more established, enjoy significant name recognition and possess far greater
financial, technological and marketing resources than the Company.
The Company believes the principal competitive factors in the departmental
connectivity market are brand name recognition, value for price, breadth of
product line, technical features, ease of product use, reliability, customer
support and the ability to develop and introduce new or enhanced products
rapidly. The Company believes that it has established itself as a supplier of
high quality, reliable products and as a result, currently competes favorably
with respect to these factors. There can be no assurance, however, that the
Company will be able to compete successfully in the future against current or
future competitors, or that it will be able to adapt successfully to changes in
the market for its products. The Company's inability to compete successfully in
any respect or to timely respond to market demands or changes would have a
material adverse effect on the Company's business, financial condition and
results of operations.
In the Macintosh(TM) client access market, Apple develops and markets products
that compete directly with certain of the Company's client access products. The
Company also competes with a number of other companies in this market. Apple
provides Ethernet connectivity in its computers which has adversely affected
sales of the Company's client access products. The Company also relies on an
informal working relationship with Apple in connection with the Company's
product development efforts. Apple is likely to continue to introduce
competitive products, and has significantly greater financial, marketing and
technical resources than the Company. Furthermore, no assurance can be given
that Apple will not pursue a more aggressive strategy with respect to
competitive products, increase the availability of
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<PAGE>
Ethernet on the motherboard of its computers or in other ways attempt to make
the sale of add-on products by third party developers and vendors such as the
Company more difficult. If Apple takes any of such actions, the Company's
business, financial condition and results of operations would be materially and
adversely affected. See Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations.
During fiscal 1997, a larger portion of the Company's sales represented products
sold to OEMs. While the Company has pursued, and will continue to pursue,
additional OEM agreements with larger companies, there can be no assurance that
existing OEM agreements will continue or that new agreements will be obtained.
In addition, since the Company intends to seek additional large product volume
arrangements, the loss of a single large OEM customer or several smaller OEM
customers would have a material adverse effect on the Company's revenues. Unless
the Company signs additional large OEM agreements in the near future, the
Company expects that OEM sales will represent a lower percentage of total
revenue in fiscal 1998.
A significant percentage of the Company's sales in fiscal 1997 were derived from
products designed for use with Macintosh(TM) computers. Sales of these products
as a percentage of total Company revenue, excluding OEM sales, have steadily
declined over the last several years due to Apple's competition in the Company's
adapter card market and Apple's decline in market share. However, the Company
expects that sales of such products will continue to represent a substantial
portion of its net sales for the foreseeable future. There can be no assurance
that unit sales of these products will continue at their present levels or
increase in the future. Any material adverse developments in Apple's business
could have a material adverse effect on sales of the Company's client access
products, which would materially and adversely affect the Company's business,
financial condition and results of operations. See Item 7: Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Proprietary Rights
The Company has received in the past and may receive in the future
communications from third parties asserting intellectual property claims against
the Company. Claims made in the future could include assertions that the
Company's products infringe, or may infringe, the proprietary rights of third
parties or requests for indemnification against such infringement. There can be
no assurance that any claim will not result in litigation, which could involve
significant expense to the Company. If the Company is required or deems it
appropriate to obtain a license relating to one or more products or future
technologies, there can be no assurance that the Company would be able to do so
on commercially reasonable terms, or at all.
The Company relies on a combination of trade secret, copyright and trademark
law, nondisclosure agreements and technical measures to establish and protect
its proprietary rights in its products. Despite these precautions, it may be
possible for unauthorized third parties to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's technology is difficult,
and there can be no assurance that the measures being taken by the Company will
be successful. Moreover, the laws of some foreign countries do not protect the
Company's proprietary rights in its products to the same extent as do the laws
of the United States. See Item 3: Legal Proceedings.
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Employees
As of September 27, 1997, the Company had 190 employees, including 33 in
engineering and product development, 47 in manufacturing operations, 73 in
marketing, sales and support services, and 37 in corporate administration.
The Company's success also depends to a significant extent upon the
contributions of key sales, marketing, engineering, manufacturing, and
administrative employees, and on the Company's ability to attract and retain
highly qualified personnel, who are in great demand. None of the Company's key
employees are subject to a non-competition agreement with the Company. Unless
vacancies are promptly filled, the loss of current key employees or the
Company's inability to attract and retain other qualified employees in the
future could have a material adverse effect on the Company's business, financial
condition and results of operations.
None of the Company's employees are represented by a labor organization, and the
Company is not a party to any collective bargaining agreement. The Company has
never had any employee strike or work stoppage and considers its relations with
its employees to be good.
ITEM 2. PROPERTIES
The Company's headquarters, including its executive offices and corporate
administration, manufacturing, marketing, sales and technical support
facilities, are located in San Jose, California. The Company occupies this
facility under a lease with an original expiration date of September 1997, and
providing for two options to extend the lease for up to an additional two and
five years, respectively. During fiscal 1996, the Company exercised its option
to extend the lease for an additional two years. The current two-year lease
extension option expires on August 31, 1999. During 1997, the Company leased
sales offices in Southern California, Colorado, North Carolina, Utah,
Washington, Taiwan, England and Japan. The Company believes that its existing
facilities are adequate to meet its requirements for the foreseeable future and
that suitable additional or substitute space will be available as needed. See
Note 6 of Notes to Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is subject to legal proceedings and claims in the
ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property rights.
In July and August of 1994, several complaints were filed against the Company
and certain of its current and former officers and directors in the United
States District Court, Northern District of California, alleging violations of
federal securities laws. The lawsuits, which purport to be class actions brought
on behalf of all purchasers of the Company's stock during the period from
December 10, 1993 through July 11, 1994, were consolidated and plaintiffs filed
a consolidated, amended class action complaint on October 21, 1994. In September
1995, the Company entered into an agreement in principle to settle the suit with
the establishment of a settlement fund of $2.6 million. The Company contributed
$520,000, with the remainder funded by the Company's insurance. On November 18,
1996, the Court entered an
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order finally approving the settlement and dismissing the action against all
defendants with prejudice. See Note 7 of Notes to Financial Statements.
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 any
purported claims of the suit and the case is currently in its discovery phase.
The Company intends to defend the action vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, their ages as of November 20, 1997, and
certain information regarding each of them are as follows:
Name Age Position with the Company
---- --- -------------------------
Jeff Yuan-Kai Lin 46 President and Chief Executive Officer
Wilson Wong* 50 Vice President and General Manager
Tommy Leung** 54 Vice President of Engineering
William Leung 56 Vice President of Operations
Robert Sheffield 48 Vice President of Finance, Chief Financial
Officer, and Secretary
Paul Smith 39 Senior Vice President of
Marketing and Sales
- --------
* Wilson Wong resigned as a Vice President and General Manager in August
1997.
- --------
** Tommy Leung passed away on November 24, 1997.
Mr. Lin co-founded the Company in 1988 and currently serves as President, Chief
Executive officer and Chairman of the Board of Directors. Mr. Lin also assumed
the position of Vice President of Engineering, which position he will hold until
a qualified replacement for Mr. Tommy Leung is hired. From 1993 through 1994, he
served as Vice President, General Manager of Network Systems Business. From 1991
to 1993, he served as the Company's Chairman of the Board of Directors and Chief
Operating Officer. From 1988 to 1991, Mr. Lin served as the Company's Vice
President of Operations and Engineering, Chief Financial Officer and Secretary.
Mr. Wong co-founded the Company in 1988. From 1994 to August 1997, he served as
Vice President and General Manager and Co-Chairman of the Board of Directors.
From 1993 to 1994, he served as Vice President and General Manager for the
Company's client access products. From 1988 to 1993, he served
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<PAGE>
as the Company's President and Chief Executive Officer. Mr. Wong resigned his
position as an officer with the Company in August 1997, but continues to serve
as a Director of the Board of Directors.
Prior to his death, Mr. Tommy Leung served as Vice President of Engineering
since November 1996. He joined the Company in March 1994 and served in various
capacities including Director of Client Access Engineering, Vice President of
Client Access Engineering and Vice President of Technology. From 1989 to 1994 he
was Chief Executive Officer of Datatrek Corporation. Mr. Tommy Leung was not
related to Mr. William Leung.
Mr. William Leung joined the Company in August 1995 as Vice President of
Operations. From December 1987 to August 1995, he was President and Chief
Executive Officer of Cache Computers, Inc., a manufacturer of motherboards for
personal computers. Mr. William Leung is not related to Mr. Tommy Leung.
Mr. Sheffield joined the Company in March 1996 and currently serves as Vice
President of Finance, Chief Financial Officer, and Secretary. From 1994 to 1995
he served as Vice President of Business Development for Time Warner
Interactive/Atari Games Corporation. From 1989 to 1994 he served as Vice
President of Finance and Chief Financial Officer of Time Warner
Interactive/Atari Games Corporation.
Mr. Smith joined the Company in May 1995 and currently serves as Senior Vice
President of Marketing and Sales. From May 1995 to March 1997 he served as Vice
President of Marketing. From 1994 to 1995 he was Chairman and Chief Executive
Officer of Holosoft, Inc., a developer of application software for Personal
Digital Assistants. Mr. Smith continues as Chairman of Holosoft. From 1993 to
1994, he was Vice President of Product Development and Manufacturing at Virtual
Microsystems, Inc., a manufacturer of high performance CD-ROM servers and
Internet access devices. From 1988 to 1993 he held senior management positions
including Vice President of Marketing at Proxim, Inc., a manufacturer of
wireless networking devices.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The following table sets forth the high and low sale prices for the Company's
Common Stock as reported on the NASDAQ National Market under the trading symbol
ASNT for the Company's last two fiscal years.
Fiscal 1997 High Low
- --------------------------------------------------------------------
First quarter $7 3/8 $4 3/4
Second Quarter 5 1/2 4 3/16
Third quarter 5 3/8 3 5/8
Fourth quarter 6 9/16 4 7/8
Fiscal 1996 High Low
- --------------------------------------------------------------------
First quarter $14 1/2 $7 7/8
Second Quarter 8 1/8 5 7/8
Third quarter 9 1/4 5 1/8
Fourth quarter 7 1/4 5 1/8
As of November 28, 1997, there were 119 stockholders of record of the Company's
Common Stock. The Company has not paid cash dividends on its Common Stock and
does not plan to pay cash dividends in the foreseeable future.
Factors such as announcements of technological innovations or new products by
the Company, its competitors and other third parties as well as quarterly
variations in the Company's anticipated or actual results of operations and
market conditions in high technology industries generally, may cause the market
price of the Company's Common Stock to fluctuate significantly. The stock market
has on occasion experienced extreme price and volume fluctuations, which have
particularly affected the market prices of many high technology companies and
have often been unrelated to the operating performance of such companies. These
broad market fluctuations may adversely affect the market price of the Company's
Common Stock. In addition, the actual results and related market price of the
Company's stock may not be indicative of current or future performance.
Subsequent to the Company's fiscal year end, the Company issued 4,648 shares of
its restricted common stock to Dr. David Lam as compensation for consulting
services rendered by Dr. Lam's company during fiscal 1997 prior to his becoming
a board member of the Company. Such shares were issued pursuant to a claimed
exemption from registration under section 4(2) of the Securities Act of 1933, as
amended, as a private placement to one individual who acquired such shares with
investment intent.
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<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share data)
<CAPTION>
Statement of Operations Data: Year ended
- ----------------------------------------------------------------------------------------
9/27/97 9/28/96 9/30/95 9/30/94 9/30/93
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $ 83,279 $ 66,990 $ 60,884 $ 79,941 $ 67,283
Income (loss) from operations $ 2,331 $ (1,338) $ (6,324) $ 1,818 $ 4,093
Net income (loss) $ 1,926 $ (457) $ (3,705) $ 1,125 $ 2,101
Net income (loss) per share $ 0.21 $ (0.05) $ (0.45) $ 0.13 $ 0.29
</TABLE>
Balance Sheet Data:
- --------------------------------------------------------------------------------
9/27/97 9/28/96 9/30/95 9/30/94 9/30/93
------- ------- ------- ------- -------
Total assets $40,567 $39,966 $36,767 $40,913 $29,417
Mandatorily redeemable
convertible preferred stock -- -- -- -- $ 1,948
Stockholders' equity $29,874 $26,909 $26,119 $28,389 $ 6,383
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ITEM 7. 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 and yearly fluctuations in results, the timely availability of new
products, the impact of competitive products and pricing, and the other risks
detailed from time to time in the Company's SEC reports, including this report.
These forward-looking statements speak only as of the date thereof, and should
not be given undue reliance. Actual results may vary materially from those
projected.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
Results of Operations
The following table sets forth certain selected financial information expressed
as a percentage of net sales for the fiscal years ended September 27, 1997, and
September 28, 1996, and September 30, 1995, respectively:
1997 1996 1995
----- ----- -----
Net sales 100.0% 100.0% 100.0%
Cost of sales 63.7 60.0 67.2
----- ----- -----
Gross profit 36.3 40.0 32.8
----- ----- -----
Operating expenses:
Sales and marketing 20.8 28.4 29.2
Research and development 8.6 9.3 7.3
General and administrative 4.1 4.3 6.6
----- ----- -----
Total operating expenses 33.5 42.0 43.1
----- ----- -----
Income (loss) from operations 2.8 (2.0) (10.3)
Interest and other income (expense), net 0.8 0.9 0.4
----- ----- -----
Income (loss) before income taxes 3.6 (1.1) (9.9)
Provision (benefit) for income taxes 1.3 (0.4) (3.8)
----- ----- -----
Net income (loss) 2.3% (0.7%) (6.1%)
===== ===== =====
The Company recorded net income for fiscal 1997 of $1.9 million, or $0.21 per
share compared to a net loss of $0.5 million, or ($0.05) per share, in fiscal
1996.
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Net Sales
Net sales increased 24.3% to $83.3 million in fiscal 1997 from $67.0 million in
fiscal 1996. Net sales were $60.9 million in 1995. The increase in net sales
from fiscal 1996 to fiscal 1997 was due primarily to increased shipments of the
Company's Fast Ethernet adapter products and new switched products as well as a
significant increase in OEM sales. This increase was partially offset by reduced
shipments of the Company's 10T (10 Mbps) adapter cards due in part to Apple's
incorporation of Ethernet connectivity into the motherboard of certain of its
Macintosh(TM) and PowerBook computers and competitive pricing pressures.
Sales of the Company's 10/100 dual speed "Fast Cards" and PCI products increased
by $6.8 million to approximately $10.8 million in fiscal 1997 from approximately
$4.0 million in fiscal 1996. This is due primarily to increased incorporation of
the 100 Mbps, or "Fast Ethernet" industry standard, into an increasing number of
client networks as prices decrease and the demand for higher bandwidth
increases. Sales of these 10/100 Mbps adapter cards are expected to increase in
fiscal 1998 as the Company introduces additional 100 Mbps switching products
into its product line. The Company also saw significant growth in the sales of
its switch products, due primarily to the introduction of the several new switch
products during the second half of fiscal 1997. Sales of switch products
increased by approximately $3.0 million to $5.1 million in fiscal 1997 from
approximately $2.1 million in fiscal 1996. In addition, sales of product to OEM
customers increased to approximately 25% of sales in fiscal 1997 compared with
insignificant OEM sales in fiscal 1996. In particular, sales of the Company's
100 Mbps Fast Hubs to OEM customers increased materially during the year,
complementing sales the Company made of an OEM Ethernet/fax modem card sold by
the Company to Apple Computer in fiscal 1997, an agreement which concludes in
early fiscal 1998. OEM sales are expected to constitute a significantly smaller
portion of the Company's total sales in fiscal 1998.
During fiscal 1997, the Company expanded its line of Fast Ethernet (100Base-T,
or 100 Mbps) products and introduced new software technology to complement the
Fast Ethernet product line. The Company continued to focus its efforts on
certain vertical market segments where Fast Ethernet switches and hub systems
excel over standard Ethernet. Pricing continued to be under heavy competitive
pressure, and in response, the Company continued a number of programs including
discount programs, value added reseller programs, selling incentives,
educational specific discounts, and announced several product price reductions
during the year.
The increase in sales from fiscal 1995 to fiscal 1996 was due primarily to new
product introductions of the Company's 10/100 and 100 Mbps adapter card and
network system products including the completion of a full line of 100 Mbps
stackable and non-stackable hubs and to the introduction of the Company's first
10 + 100 Mbps switches.
International sales, primarily to customers in Europe, Canada and Asia Pacific,
accounted for 18.0%, 23.1%, and 28.3% of net sales in fiscal 1997, 1996, and
1995, respectively. In the third quarter of fiscal 1997, the Company established
a sales office in Germany, complementing its other international sales offices
in the United Kingdom, Japan, Taiwan, and Canada. Despite this increased
presence internationally, the Company experienced reductions in sales from its
international offices, mostly in Japan and Asia due in part to the weakening of
foreign currencies against the dollar worldwide and in part to the softness in
demand for Apple Macintosh(TM) related products in Asia. The Company will
continue to
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focus its efforts on increasing sales internationally over the next several
quarters, but cannot be sure that its efforts will be successful.
The Company believes that the competition in the markets in which it competes
has intensified and will continue to intensify as existing and potential
competitors introduce competing products. As such, the Company anticipates that
the selling prices of its products will continue to decline. The Company makes
significant ongoing efforts to develop new products and decrease its
manufacturing costs faster than related declines in selling prices. If the
Company is unable to offset anticipated price declines in its products by
reducing its manufacturing costs and by introducing new products that gain
market acceptance, its business, financial condition and results of operations
will be materially and adversely affected.
Gross Profit
The Company's gross profit as a percentage of net sales decreased to 36.3% in
fiscal 1997 from 40.0% in 1996, and 32.8% in fiscal 1995. This decrease during
fiscal 1997 was due primarily to increased sales of product to OEM customers at
lower margins and was also partially affected during the year by charges against
sales due to various pricing and marketing programs. This gross profit decrease
was partially offset by the Company's ability to achieve higher sales of certain
of its advanced systems products with better margins. The Company's gross profit
percentage in the future will continue to be affected by competitive pricing
pressures, the Company's ability to further reduce the cost of its products, and
the Company's pursuit of certain OEM sales opportunities at lower margins.
The increase in gross profit as a percentage of net sales from 32.8% in fiscal
1995 to 40.0% in fiscal 1996 was attributable primarily to improved management
of production cycles and distribution channel inventory balances. The Company's
gross profit percentage increase was partially offset during the year by charges
against sales due to various pricing and marketing programs.
Sales and Marketing
Sales and marketing expenses decreased by 8.9% to $17.3 million in fiscal 1997,
from $19.0 million in fiscal 1996. The fiscal 1996 expenses increased by 6.9%
from $17.8 million in fiscal 1995. As a percentage of net sales, sales and
marketing expenses were 20.8%, 28.4%, and 29.2% in fiscal 1997, 1996, and 1995,
respectively. During fiscal 1996, the Company increased its direct field staff
organization in order to focus its sales strategy on penetrating the IBM
compatible market and its chosen vertical markets in order to capture market
share. In achieving these goals the Company was able to lower the number of
independent sales firms representing the Company, which served to significantly
reduce spending on outside commissions in fiscal 1997. In addition, by focusing
more on vertical markets and targeted markets, the Company has been able to
reduce its spending on tradeshow, advertising, and collateral related expenses.
The increase in sales and marketing expenses from fiscal 1995 to fiscal 1996 was
primarily a result of the addition of direct field sales personnel during fiscal
1995 and fiscal 1996, and to additional vertical
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<PAGE>
marketing and PC-related sales and marketing programs, offset partially by lower
outside representative commissions in the second half of fiscal 1996.
The Company expects that its sales and marketing expenses will increase slightly
in fiscal 1998 in absolute dollars.
Research and Development
Research and development expenses increased by 15.1% to $7.1 million in fiscal
1997 from $6.2 million in fiscal 1996. Research and development expenses were
$4.5 million in fiscal 1995. As a percentage of net sales, research and
development expenses were 8.6%, 9.3% and 7.3% in fiscal 1997, 1996 and 1995,
respectively. The $0.9 million increase in expenses from 1996 to 1997 resulted
from the Company's commitment to focus additional resources on research and
development in order to bring more Fast Ethernet (100Base-T, or 100 Mbps)
products, switching products, and software products to market. As a result,
salaries and wages increased by $0.3 million, and expenses related to prototype
materials, tooling and set-up charges increased by approximately $0.5 million as
the Company introduced two new lines of switching products.
Research and development expenses increased by $1.7 million from fiscal 1995 to
fiscal 1996 due primarily to the Company's focus on bringing additional key
switching, Fast Ethernet, and software products to market. As a result, the
Company increased expenses relating to salaries and wages to recruit additional
engineering personnel, non-recurring engineering expense charges, as well as
other research related expenses.
The Company expects that spending on research and development will increase in
the future in order to support the development of new products incorporating the
Fast Ethernet standard, switching technology, ASIC technology, and cost
reduction efforts pertaining to current products.
General and Administrative
General and administrative expenses increased 18.9% to $3.5 million in fiscal
1997 from $2.9 million in fiscal 1996. General and administrative expenses were
$4.0 million in fiscal 1995. As a percentage of net sales, general and
administrative expenses were 4.1%, 4.3%, and 6.6% in fiscal years 1997, 1996,
and 1995, respectively. The increase in general and administrative expenses
during fiscal 1997 was primarily due to increased outside service and consulting
related fees and to increased salary and wage related expenses.
The decrease in administrative expenses from fiscal 1995 to fiscal 1996 was
related primarily to the settlement and reduction in related defense litigation
costs associated with the stockholders' class action suit and lower salary and
other wage related expenses due to the Company's effort to control expenses.
The Company expects that general and administrative expenses will increase
slightly in fiscal 1998 in absolute dollars.
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Income Taxes
The Company's effective tax rate for fiscal 1997, 1996, and 1995, was 36.0%,
37.7%, and 38.9%, respectively of revenue. Such rates differ from federal
statutory rates principally due to state taxes and, in 1997, research and
development credits.
Factors Affecting Future Operating Results
The Company operates in a rapidly changing and growing industry, which is
characterized by vigorous competition from both established companies and
start-up companies. The market for the Company's products is extremely
competitive both as to price and capabilities. The Company's success depends in
part on its ability to enhance existing products and introduce new high
technology products. The Company must also bring its products to market at
competitive price levels. Unexpected changes in technological standards,
customer demand and pricing of competitive products could adversely affect the
Company's operating results if the Company is unable to effectively and timely
respond to such changes. The industry is also dependent to a large extent on
proprietary intellectual property rights. From time to time the Company is
subject to legal proceedings and claims in the ordinary course of business,
including claims of alleged infringement of trademarks and other intellectual
property rights. Consequently from time to time the Company will be required to
prosecute or defend against alleged infringements of such rights.
The Company's success also depends to a significant extent upon the
contributions of key sales, marketing, engineering, manufacturing, and
administrative employees, and on the Company's ability to attract and retain
highly qualified personnel, who are in great demand. None of the Company's key
employees are subject to a non-competition agreement with the Company. Unless
vacancies are promptly filled, the loss of current key employees or the
Company's inability to attract and retain other qualified employees in the
future could have a material adverse effect on the Company's business, financial
condition and results of operations.
Successfully addressing these factors is subject to various risks discussed in
this report and other factors.
The Company is subject to various risks associated with international operations
including currency exchange rate fluctuations, changes in costs of labor and
material, reliability of sources of supply and general economic conditions in
foreign countries. Unexpected changes in foreign manufacturing or sources of
supply, fluctuations in monetary exchange rates and changes in the availability,
capability or pricing of foreign suppliers could affect the results of the
Company's operations.
In 1995, a coalition of more than one hundred companies (including Asante)
supplying adapters, hubs, and other networking equipment developed a new
standard for increasing the data transmission speed over Ethernet networks by
ten-fold. This standard (100BASE-T, or "Fast Ethernet") has been adopted widely
by end-user customers because of its ability to increase the efficiency of LANs
and because of its ease of integration into existing 10BASE-T networks. Because
of the importance of this standard, the Company recently focused its research
and development activities on introducing future products incorporating
100BASE-T technology. The Company realizes the importance of bringing more
10BASE-T (10 Mbps) switching and 100BASE-T switching to market in order to
complement its existing
24
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<PAGE>
100BASE-T shared products. In that regard, the Company's future operating
results may be dependent on the market acceptance and the rate of adoption of
this new technology.
The Company commits to expense levels, including investing in advertising and
promotional programs, based in part on expectations as to future net sales
levels. If future net sales levels in a particular quarter do not meet the
Company's expectations or the Company does not bring new products timely to
market, the Company may not be able to reduce or reallocate such expense levels
on a timely basis, which could adversely affect the Company's operating results.
There can be no assurance that the Company will be able to maintain
profitability on a quarterly or annual basis in the future.
The Company's target markets include end-users, value-added resellers (VARs),
systems integrators and OEMs. Due to the relative size of the customers in some
of these markets, particularly the OEM market, sales in any one market could
fluctuate dramatically on a quarter to quarter basis
In summary, the Company's net sales and operating results in any particular
quarter may fluctuate as a result of a number of factors, including competition
in the markets for the Company's products, delays in new product introductions
by the Company, market acceptance of new products incorporating 100BASE-T by the
Company or its competitors, changes in product pricing, material costs or
customer discounts, the size and timing of customer orders, distributor and
end-user purchasing cycles, variations in the mix of product sales,
manufacturing delays or disruptions in sources of supply, and economic
conditions and seasonal purchasing patterns specific to the computer and
networking industries. The Company's future operating results will depend, to a
large extent, on its ability to anticipate and successfully react to these and
other factors
The factors discussed above, as well as other factors which generally affect the
market for stocks of high technology companies, will affect the price of the
Company's stock and could cause such stock prices to fluctuate over relatively
short periods of time.
Liquidity and Capital Resources
During 1997, the Company's operating activities provided cash of $1.7 million
compared to net cash provided of $0.9 million and $3.8 million in fiscal 1996
and 1995, respectively. During fiscal 1997, the increase in cash provided by
operating activities resulted primarily from net income of $1.9 million,
decreases in accounts receivable and the Company's income tax receivable and was
offset by an increase in inventory, and by the decrease in the Company's
accounts payable balances. The increase in cash during 1996 resulted from the
increase in accounts payable and decrease in income tax receivable resulting
from a 1995 loss carryback and was partially offset by the increase in accounts
receivable, inventory, and the reduction in accounts payable to a major
stockholder. Days of sales outstanding decreased to 32 at the end of fiscal 1997
compared to 47 at the end of fiscal 1996 which had the effect of increasing cash
from operations.
Net cash used in investing activities was $2.4 million in fiscal 1997 which was
due primarily to purchases of property and equipment, predominately for
engineering, totaling approximately $2.3 million. The Company's purchasing
activities consisted primarily of investments in computers, related equipment,
and direct research and development related equipment. During fiscal 1997, 1996,
and 1995, the Company's purchases of property and equipment totaled $2.3
million, $1.3 million, and $0.5 million, respectively.
25
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<PAGE>
During fiscal 1997, 1996, and 1995, the Company generated cash from financing
activities of approximately $1.0 million. The proceeds were predominately
generated from the exercise of employee stock options.
At September 27, 1997, the Company had cash, cash equivalents and short-term
investments of $12.9 million as compared to $12.7 million at September 28, 1996.
Working capital was $26.7 million at September 27, 1997, compared to $25.1
million at September 28, 1996. The Company has a bank line of credit that
provides for maximum borrowings of $5.0 million, limited to a certain percentage
of eligible accounts receivable, and bears interest at the bank's base rate. The
Company's ability to borrow under this line is subject to compliance with
covenants related to financial performance and condition. As of September 27,
1997 there were no borrowings under the line of credit, and the Company was in
compliance with all such covenants. The line of credit expires on January 31,
1998.
The Company believes that its current cash and cash equivalents, together with
cash expected to be generated by operations and existing credit facilities, will
be sufficient to fund its operations and meet capital requirements through
fiscal 1998. However, if additional funds are required there can be no assurance
that such funds will be available at all or on terms favorable to the Company
and its stockholders.
26
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
Index to Financial Statements and Financial Statement Schedule
<CAPTION>
Financial Statements:
<S> <C>
Report of Independent Accountants 28
Balance Sheets at September 27, 1997 and September 28, 1996 29
Statements of Operations for the years ended September 27, 1997,
September 28, 1996 and September 30, 1995 30
Statements of Stockholders' Equity for the years ended
September 27, 1997, September 28, 1996 and September 30, 1995 31
Statements of Cash Flows for the years ended September 27, 1997,
September 28, 1996 and September 30, 1995 32
Notes to Financial Statements 33
Quarterly Results of Operations (unaudited) 43
Financial Statement Schedule:
Report of Independent Accountants on Financial Statement Schedule S-1
Schedule II - Valuation and Qualifying Accounts and Reserves S-2
</TABLE>
All other schedules are omitted, because they are not required, are not
applicable, or the information is included in the consolidated financial
statements and notes thereto.
27
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Asante Technologies, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Asante Technologies, Inc. at
September 27, 1997 and September 28, 1996, and the results of its operations and
its cash flows for each of the three years in the period ended September 27,
1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Jose, California
October 24, 1997
28
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<PAGE>
<TABLE>
ASANTE TECHNOLOGIES, INC.
BALANCE SHEETS
(in thousands, except share
and per share amounts)
<CAPTION>
September 27, September 28,
1997 1996
------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $12,931 $12,693
Accounts receivable, net of allowance for doubtful
accounts, rebates and sales returns of $4,722 and $3,174 8,313 10,038
Inventory 12,080 9,851
Deferred income tax 3,606 2,972
Income tax refund receivable -- 1,558
Prepaid expenses and other 490 1,046
------- -------
Total current assets 37,420 38,158
Property and equipment, net 2,768 1,524
Other assets 379 284
------- -------
Total assets $40,567 $39,966
======= =======
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 4,958 $ 7,200
Accrued expenses 4,858 4,175
Payable to stockholder 877 1,682
------- -------
Total current liabilities 10,693 13,057
------- -------
Commitments and contingencies (Notes 6 and 7)
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock, $0.001 par value; 25,000,000 shares authorized;
9,121,601 and 8,859,990 shares issued and outstanding 9 9
Additional paid-in capital 26,352 25,313
Retained earnings 3,513 1,587
------- -------
Total stockholders' equity 29,874 26,909
------- -------
Total liabilities and stockholders' equity $40,567 $39,966
======= =======
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
29
<PAGE>
<TABLE>
ASANTE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<CAPTION>
Year ended
----------------------------------------------------
September 27, September 28, September 30,
1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
Net sales $ 83,279 $ 66,990 $ 60,884
Cost of sales 53,040 40,220 40,936
-------- -------- --------
Gross profit 30,239 26,770 19,948
-------- -------- --------
Operating expenses:
Sales and marketing 17,322 19,007 17,784
Research and development 7,135 6,198 4,451
General and administrative 3,451 2,903 4,037
-------- -------- --------
Total operating expenses 27,908 28,108 26,272
-------- -------- --------
Income (loss) from operations 2,331 (1,338) (6,324)
Interest and other income (expense), net 678 605 257
-------- -------- --------
Income (loss) before income taxes 3,009 (733) (6,067)
Provision (benefit) for income taxes 1,083 (276) (2,362)
-------- -------- --------
Net income (loss) $ 1,926 $ (457) $ (3,705)
======== ======== ========
Net income (loss) per share $ 0.21 $ (0.05) $ (0.45)
======== ======== ========
Weighted average common shares and equivalents 9,103 8,997 8,288
======== ======== ========
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
30
<PAGE>
<TABLE>
ASANTE TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
<CAPTION>
Additional Total
Common Stock Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balances as of September 30, 1994 7,875,481 $ 8 $ 22,632 $ 5,749 $ 28,389
Common Stock issued under stock plans 736,939 1 953 954
Repayment of note receivable 196 196
Amortization of deferred compensation 17 17
Tax benefit from employee stock
transactions 268 268
Net loss (3,705) (3,705)
--------- ------ ---------- ---------- ----------
Balances as of September 30, 1995 8,612,420 9 24,066 2,044 26,119
Common Stock issued under stock plans 247,570 -- 995 995
Amortization of deferred compensation 2 2
Tax benefit from employee stock
transactions 250 250
Net loss (457) (457)
--------- ------ ---------- ---------- ----------
Balances as of September 28, 1996 8,859,990 9 25,313 1,587 26,909
Common Stock issued under stock plans 256,963 -- 996 996
Compensation expense upon issuance
of common stock 4,648 -- 20 20
Tax benefit from employee stock
transactions 23 23
Net income 1,926 1,926
--------- ------ ---------- ---------- ----------
Balances as of September 27, 1997 9,121,601 $ 9 $ 26,352 $ 3,513 $ 29,874
========= ====== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
31
<PAGE>
<TABLE>
ASANTE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Year ended
-------------------------------------------
September 27, September 28, September 30,
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,926 $ (457) $ (3,705)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,062 1,092 1,182
Write-off of purchased technology -- -- 289
Compensation expense upon issuance of common stock 20
Deferred income taxes (634) 719 (753)
Changes in operating assets and liabilities:
Accounts receivable 1,725 (1,534) 6,719
Inventory (2,229) (2,842) 2,492
Income tax refund receivable 1,860 839 (1,879)
Prepaid expenses and other current assets 603 659 1,351
Accounts payable (2,242) 3,983 (1,881)
Accrued expenses and other 435 (651) (384)
Payable to stockholder (805) (865) 348
-------- -------- --------
Net cash provided by operating activities 1,721 943 3,779
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (2,305) (1,252) (473)
Purchases of marketable securities -- -- (985)
Maturities of marketable securities -- 1,700 4,285
Other (142) (6) (71)
-------- -------- --------
Net cash provided by (used in) investing activities (2,447) 442 2,756
-------- -------- --------
Cash flows from financing activities:
Payment on note receivable from stockholder -- -- 196
Proceeds from stock options exercised 996 995 954
Other (32) (58) (54)
-------- -------- --------
Net cash provided by financing activities 964 937 1,096
-------- -------- --------
Net increase in cash and cash equivalents 238 2,322 7,631
Cash and cash equivalents at beginning of year 12,693 10,371 2,740
-------- -------- --------
Cash and cash equivalents at end of year $ 12,931 $ 12,693 $ 10,371
======== ======== ========
Supplemental disclosures of cash flow information:
Interest paid during the year $ 7 $ 11 $ 22
======== ======== ========
Income taxes paid (refunded) during the year $ (143) $ (1,835) $ 759
======== ======== ========
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
32
<PAGE>
ASANTE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. The Company and Summary of Significant Accounting Policies
Asante Technologies, Inc. (the "Company") designs, manufactures and markets a
broad family of 10BASE-T and 100BASE-T ("Fast Ethernet") client access and
network system products. Asante's client access products (which include adapter
cards and media access adapters) connect PCs, Macintoshes, and peripheral
devices (such as printers) to Ethernet networks. The Company's network system
products, which include intelligent and non-intelligent switches, hubs, bridge
modules, and network management software for Macintoshes and PCs, interconnect
users within and between departmental networks.
Management estimates and assumptions
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities disclosure of contingent
assets and liabilities, at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue recognition
Revenue from product sales to customers other than distributors is recognized
upon shipment and reserves are provided for estimated returns. Sales to
distributors are generally subject to agreements allowing certain rights of
return and price protection with respect to unsold merchandise held by the
distributor. Reserves for distributor returns are established based on
historical returns experience at the time the related revenue is recorded.
Reserves for price protection are established based on actual price reduction
programs. Additionally, the Company provides a reserve for incentive rebates to
distributors, warranty obligations and cooperative advertising at the time the
related revenue is recorded.
Sales to historically major distributors/customers whose revenue equals or
exceeds 10% of net sales in any particular fiscal year as a percentage of net
sales were as follows:
1997 1996 1995
---- ---- ----
Distributor/customer A 22% 27% 21%
Distributor/customer B -- -- 17%
Distributor/customer C -- 10% --
Corporate/customer D 22% -- --
33
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<PAGE>
International sales as a percentage of net sales by geographic region were as
follows:
1997 1996 1995
---- ---- ----
United States 82% 77% 72%
Europe 10 11 16
Canada and Asia Pacific 8 12 12
---- ---- ----
100% 100% 100%
==== ==== ====
Cash, cash equivalents and short-term investments
Cash equivalents consist primarily of highly liquid investments in U.S.
government and corporate debt securities with insignificant interest rate risk
and original maturity periods of three months or less at the date of
acquisition. The Company considers all investments with initial maturity periods
of greater than 90 days to be short-term investments. The Company accounts for
short-term investments in accordance with the provisions of Financial Accounting
Standard No. 115, "Accounting for Certain Investments in Debt or Equity
Securities" ("FAS 115"). At September 27, 1997, and September 28, 1996, the
Company did not hold any short-term investments.
Concentration of credit risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash equivalents and accounts receivables.
Accounts receivable are typically unsecured and are derived from worldwide
distributor revenues. The Company performs ongoing credit evaluations of its
customers and maintains reserves for potential credit losses; historically, such
losses have been insignificant and within management's expectations. At
September 27, 1997 and September 28, 1996, four customers accounted for 54% and
41%, respectively, of the accounts receivable balance.
Inventory
Inventory is stated at the lower of standard cost, which approximates actual
cost (on a first-in, first-out basis) or market. Appropriate adjustments of the
inventory values are provided for slow moving and discontinued products based
upon future expected sales and committed inventory purchases.
Property and equipment
Property and equipment are recorded at cost. Depreciation of property and
equipment is based on the straight-line method for financial reporting purposes
over the estimated useful lives of the related assets, generally three to five
years. Equipment under capitalized leases is amortized over its useful life and
included in depreciation expense.
Income taxes
Income taxes are computed using the liability method. Under the liability
method, deferred income tax assets and liabilities are determined based upon the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates and laws.
Research and development costs
Research and development costs are expensed as incurred. Research and
development of new software products and enhancements to existing software
products are expensed as incurred until technological feasibility has been
established. The Company believes its current process for developing software is
34
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<PAGE>
essentially completed concurrently with the establishment of technological
feasibility; accordingly, software costs incurred after the establishment of
technological feasibility have not been material to date and therefore have been
expensed.
Net income (loss) per share
Net income (loss) per share is computed using the weighted 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 using the treasury stock method, except when antidilutive.
<TABLE>
In February 1997, Financial Accounting Standards Board (FASB) issued Statement
of Financial Standards No. 128 ("SFAS 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 twelve month
periods ended September 27, 1997 and September 28, 1996, the Company's earnings
(loss) per share using the treasury stock method would have been as follows:
<CAPTION>
Three Months Ended Twelve Months Ended
----------------------------- ------------------------------
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic income (loss)
per share $0.08 $0.05 $0.21 ($0.05)
Diluted income (loss)
per share $0.08 $0.04 $0.21 ($0.05)
</TABLE>
Reclassification
Certain prior period balances have been reclassified to conform with current
period presentation.
Foreign currency
The Company's transactions with foreign suppliers and purchasers are denominated
in U.S. dollars. As a result, the Company's exposure to foreign currency gains
and losses is minimal.
Fair value of financial instruments
For certain of the Company's financial instruments, including cash, cash
equivalents, trade accounts receivable, receivable from related party, accounts
payable and capitalized lease obligations, the carrying amounts approximate fair
value due to the relatively short maturity of these instruments.
Recently issued accounting pronouncements
In February 1997, the FASB issued SFAS 129, "Disclosure of Information about
Capital Structure", which requires disclosure of certain information related to
the Company's capital structure. SFAS 129 is not anticipated to have a material
impact on the Company's financial position or results of operations.
35
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<PAGE>
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income." SFAS
130 establishes standards for reporting comprehensive income and its components
in a financial statement. Comprehensive income as defined includes all changes
in equity (net assets) during a period from non-owner sources. Examples of items
to be included in comprehensive income, which are excluded from net income,
include foreign currency translation adjustment and unrealized gain/loss on
available for sale securities. The disclosure prescribed by SFAS must be made
beginning with the first quarter of fiscal 1999 and is not anticipated to have a
material impact on the Company's financial position or results of operations.
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The Company
has not yet determined the impact, if any, of adopting this new standard. The
disclosures prescribed by SFAS 131 are effective in fiscal 1999.
Note 2. Balance Sheet Components
1997 1996
-------- --------
(in thousands)
Inventory:
Raw materials and component parts $ 3,065 $ 3,298
Work-in-process 2,220 1,630
Finished goods 6,795 4,923
-------- --------
$ 12,080 $ 9,851
======== ========
Property and equipment:
Computers and R&D equipment $ 7,161 $ 5,112
Furniture and Fixtures 1,456 1,200
-------- --------
8,617 6,312
Accumulated depreciation (5,849) (4,788)
-------- --------
$ 2,768 $ 1,524
======== ========
Accrued expenses:
Payroll-related expenses $ 1,197 $ 1,239
Sales promotion expenses 1,469 1,077
Warranty 572 572
Other 1,620 1,287
-------- --------
$ 4,858 $ 4,175
======== ========
Note 3. Related Party Transactions
The Company has a supply agreement (the "OSE Agreement") with Orient
Semiconductor Electronics, Ltd., ("OSE"). OSE and one of its principal
shareholders own, in aggregate, approximately 14% of the
36
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<PAGE>
Company's Common Stock as of September 27, 1997. Under the OSE Agreement, the
Company purchases from and sells to OSE certain component parts, at cost. The
Company is obligated to purchase goods only to the extent it has signed firm
purchase commitments with OSE. At September 27, 1997 and September 28, 1996, the
Company had firm purchase commitments under the OSE Agreement of approximately
$1.7 million and $3.5 million, respectively.
In connection with the OSE Agreement for fiscal 1997, 1996, and 1995, the
Company sold, at cost, approximately $3.3 million, $5.5 million and $1.8
million, respectively, of component parts to OSE and purchased $16.8 million,
$17.9 million and $16.0 million, respectively, of goods from OSE.
In June 1993, the Company sold 166,666 shares of its common stock to its then
president in consideration for a promissory note in the amount of $500,000. The
note was secured by a pledge of the Common Stock purchased with no interest due.
In 1994, $111,000 was paid on the note and the Company repurchased the 64,583
unvested shares following the resignation of the president. The balance of the
note of approximately $196,000 was paid in July 1995.
Note 4. Income Taxes
The provision for income taxes is comprised of the following (in thousands):
1997 1996 1995
------- ------- -------
Current tax expense (benefit)
Federal $ 1,389 $ (995) $(1,609)
State 328 -- --
------- ------- -------
1,717 (995) (1,609)
------- ------- -------
Deferred tax benefit
Federal (574) 780 (681)
State (60) (61) (72)
------- ------- -------
(634) 719 (753)
------- ------- -------
$ 1,083 $ (276) $(2,362)
======= ======= =======
Deferred tax assets comprise the following (in thousands):
1997 1996
------ ------
Deferred tax assets
Receivable- and sales-related reserves $1,837 $1,235
Inventory-related reserves 453 572
Compensation accruals 322 227
Depreciation -- 43
Other 994 895
------ ------
Total deferred tax assets $3,606 $2,972
====== ======
37
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<PAGE>
The Company was able to carry back tax losses in fiscal 1996 and 1995 which
resulted in federal tax refunds of $1.2 million and $1.6 million, respectively.
The Company has not recorded a valuation allowance against its deferred tax
assets because management believes that it is more likely than not that its
deferred tax assets will be realized. Realization is dependent on generating
sufficient taxable income. The amount of deferred tax assets considered
realizable could be reduced in the near term, resulting in a charge to net
income, if estimates of future taxable income in the carryforward period are
reduced.
A reconciliation of the income tax provisions computed at the federal statutory
rate to the effective rate for the recorded provisions for income taxes is as
follows:
1997 1996 1995
---- ----- -----
Federal income tax statutory rate 34.0% (34.0)% (34.0)%
State taxes, net of federal tax benefit 5.9 (6.1) (6.1)
Research and development credit (8.8) -- --
Other 4.9 2.4 1.2
---- ----- -----
Effective income tax rate 36.0% (37.7)% (38.9)%
==== ===== =====
Note 5. Stockholders' Equity
Preferred Stock
There are 2,000,000 shares of Preferred Stock authorized by the Board of
Directors. No such shares of Preferred Stock were issued or outstanding at
September 27, 1997, or have been outstanding since the Company's public offering
in December 1993.
Stock Based Compensation Plans
As of September 27, 1997, the Company had four stock-based compensation plans
which are described below. The Company applies APB Opinion 25 and related
Interpretations in accounting for its plans and complies with the disclosure
provisions of SFAS 123 "Accounting for Stock-Based Compensation".
The 1990 Stock Option Plan allows for the issuance of options to Company
employees and consultants to purchase a maximum of 4,597,333 shares of common
stock. This amount includes 1,000,000 shares authorized by a vote of
shareholders at the Company's 1997 annual stockholders meeting.
The Directors' Stock Option Plan allows for the issuance of options to directors
of the Company who are not employees of, or consultants to, the Company or any
affiliate of the Company. The Directors' Stock Option Plan allows for the
issuance of options to Non-Employee Directors to purchase a maximum of 300,000
shares of common stock.
The Key Executive Option Plan allows for the issuance of options to "Key"
employees of the Company who are not recognized under the Directors' Stock
Option Plan. The Key Executive Option Plan allows
38
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<PAGE>
for the issuance of options to Key Employees to purchase a maximum of 404,999
shares of common stock.
Individuals owning more than 10% of the Company's stock are not eligible to
participate in the Plans unless the option's price is at least 110% of the fair
market value of the common stock at the date of grant. Incentive stock options
issued to holders of less than 10% of the Company's stock shall be issued at no
less than fair market value per share on the date of grant and with expirations
to not exceed ten years from the grant date. Under the terms of the Plans,
options issued are granted at prices of 100% of the fair market value of the
common stock at the date of grant and with expirations of ten years from the
date of grant. Initial options granted generally become vested over a period of
four years from the date of hire, commencing on the date one year after the date
of grant of the initial option. Unexercised options will terminate three months
after such Optionee's termination of all service with the Company and its
affiliates.
<TABLE>
The number of shares for which options under these three plans were exercisable
was approximately 872,666, 603,918 and 260,247 at September 27, 1997, September
28, 1996, and September 30, 1995, respectively. Activity under the 1990 Stock
Option Plan, Directors Stock Option Plan and the Key Employee Option Plan are
summarized as follows:
<CAPTION>
1997 1996 1995
Weighted Weighted Weighted
Number Average Number Average Number Average
of Price per of Price per of Price per
Shares Share Shares Share Shares Share
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance 1,955,786 $ 5.58 1,532,608 $ 4.77 1,639,880 $ 3.38
Granted 606,296 $ 5.81 1,048,938 $ 6.47 1,404,334 $ 4.39
Exercised (138,776) $ 3.81 (165,983) $ 3.76 (670,319) $ 1.08
Canceled (503,699) $ 5.80 (459,777) $ 5.37 (841,287) $ 4.32
--------- --------- ---------
Ending Balance 1,919,607 $ 5.72 1,955,786 $ 5.58 1,532,608 $ 4.77
========= ========= =========
</TABLE>
Under SFAS No. 123, the fair value of each option grant is estimated on the date
of grant using the Black-Scholes model with the following assumptions used for
grants during fiscal 1997 and 1996: risk free interest rates ranging from 5.29%
to 6.79% respective of grant date; expected average volatility of 60%; an
expected option life of 4 years, and no expected dividends. The weighted average
fair value of stock options granted under the plans for fiscal 1997and 1996, was
$3.02 and $3.35, respectively.
<TABLE>
The following table summarizes information about fixed stock options outstanding
at September 27, 1997:
39
================================================================================
<PAGE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life in Years Price Exercisable Price
- ----------------- --------- ------------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
$0.1050 - $0.1050 1,000 3.50 $0.1050 1,000 $0.1050
$0.1650 - $0.1650 1,000 3.74 $0.1650 1,000 $0.1650
$2.2500 - $3.0000 10,952 5.48 $2.5992 10,952 $2.5992
$3.8750 - $5.6250 1,005,808 7.96 $4.6900 515,290 $4.7086
$5.8750 - $8.0000 860,847 8.63 $6.8265 305,258 $7.1226
$9.0000 - $9.0000 40,000 6.00 $9.0000 39,166 $9.0000
--------- -------
$0.1050 - $9.0000 1,919,607 8.20 $5.7213 872,666 $5.7087
========= =======
</TABLE>
In 1993, the Company adopted the Employee Stock Purchase Plan (the "Purchase
Plan") covering an aggregate of 500,000 shares of common stock. Under the
Purchase Plan, the Board of Directors may authorize participation by eligible
employees, including officers, in periodic offerings following the commencement
of the Purchase Plan. Employees who participate in the Purchase Plan can have up
to 10% of their earnings withheld and used to purchase shares of common stock on
specified dates as determined by the Board. The price of common stock purchased
under the Purchase Plan is equal to 85% of the lower of the fair market value of
the common stock determined by the closing price on the Nasdaq National Market
System, at the commencement date or the ending date of each six month offering
period.
Sales under the Purchase Plan in fiscal 1997, 1996 and 1995 were 118,187, 81,587
and 66,620 shares of common stock, respectively, at an average price of $3.85,
$4.68 and $3.45, respectively. At September 27, 1997, 195,293 shares of common
stock were available for future purchase.
Compensation cost for the Purchase Plan (included in pro forma net income and
net income per share amounts) is recognized for the fair value of the employee's
purchase rights, which was estimated using the Black-Scholes model with the
following assumptions used for grants during fiscal 1997 and 1996: risk free
interest rates ranging from 5.2% to 6.4%, respective of commencement date of the
offering period, expected volatility of 60%, an expected option life of 6 months
for both years, and no expected dividends. The weighted average fair value of
stock purchased under the Purchase Plan for fiscal 1997, and 1996, was $3.85 and
$4.68, respectively.
The Company applies the provisions of APB 25 and related Interpretations in
accounting for compensation expense under the 1990 Stock Option Plan, the
Director's Stock Option Plan, the Key Executive Option Plan and the Employee
Stock Purchase Plan.
Had compensation expense under these plans been determined pursuant to SFAS No.
123, the Company's net income and net income per share for the years ended
September 27, 1997, and September 30, 1996, would have been as follows (in
thousands except per share amounts):
40
================================================================================
<PAGE>
1997 1996
---- ----
Net income:
As reported $1,926 $ (457)
Pro forma $ 891 $(1,165)
Net income per share
As reported $ 0.21 $ (0.05)
Pro forma $ 0.10 $ (0.13)
The pro forma amounts include compensation expense related to fiscal 1997 and
1996 stock option grants and sales of common stock under the Purchase Plan only.
In future years, the annual compensation expense will increase relative to the
fair value of stock options granted in those future years.
Note 6. Debt Obligations, Commitments and Contingencies
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. The Company's ability to borrow under
this line is subject to compliance with covenants related to financial
performance and condition. As of September 27, 1997 there were no borrowings
under the line of credit and the Company was in compliance with all financial
covenants. The line of credit expires on January 31, 1998
The Company has entered into an operating lease for its main facilities which
expires on August 31, 1999. Various other leases for sales offices expire
throughout 1998 and 1999. Rent expense under operating leases aggregated
approximately $912,000, $901,000, and $784,000 for fiscal 1997, 1996, and 1995,
respectively. Certain leases require the Company to pay a portion of facility
operating expenses.
In September 1995, the Company entered into an agreement to sublease a portion
of its headquarters building for a period of two years. The Company collected
approximately $217,000 during fiscal 1997 under this agreement and expects to
collect approximately $183,000 during fiscal 1998.
Following are minimum lease payments under non-cancelable operating leases, net
of sub-lease amounts, for the given fiscal years (in thousands):
1998 $710
1999 873
------
Total minimum lease payments $1,583
======
Note 7. Litigation
41
================================================================================
<PAGE>
From time to time the Company is subject to legal proceedings and claims in the
ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property rights.
In September 1995, the Company entered into an agreement in principle to settle
the securities class action lawsuits initiated against the Company in July 1994.
As part of the agreement, a settlement fund of $2.6 million was established with
the Company contributing $520,000 and the Company's insurance carriers
contributing the balance. The Company's portion was accrued for during fiscal
1995. On November 18, 1996, the Court entered an order finally approving the
settlement and dismissing the action against all defendants with prejudice.
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 certain patents. The Company has filed a response to the
Complaint and some minimal discovery has been taken. The Company intends to
defend the action vigorously. The Company does not believe this suit will have a
material effect on its financial condition or results of operations.
42
================================================================================
<PAGE>
Quarterly Results of Operations (in thousands, unaudited):
Fiscal 1997 Quarter Ended
- --------------------------------------------------------------------------------
9/27/97 6/28/97 3/29/97 12/28/96
------- ------- ------- -------
Net sales $22,010 $22,602 $21,187 $17,480
Gross profit $ 8,123 $ 7,826 $ 7,533 $ 6,757
Net income $ 710 $ 617 $ 448 $ 151
Net income per share $ 0.08 $ 0.07 $ 0.05 $ 0.02
Fiscal 1996 Quarter Ended
- --------------------------------------------------------------------------------
9/28/96 6/29/96 3/30/96 12/30/95
------- ------- ------- -------
Net sales $ 19,576 $ 16,102 $ 14,808 $ 16,504
Gross profit $ 7,622 $ 6,590 $ 5,779 $ 6,779
Net income (loss) $ 402 $ (664) $ (520) $ 325
Net income (loss) per share $ 0.04 $ (0.08) $ (0.06) $ 0.03
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
43
================================================================================
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) to Form 10-K, the information required by
this Item concerning the Company's directors is incorporated by reference to the
information contained in the section captioned "Proposal One - Election of
Directors" in the Company's definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders (the "Proxy Statement") to be filed with the Commission
within 120 days after the end of the Company's fiscal year ended September 27,
1997.
The information required by this Item concerning the executive officers of the
Company is incorporated by reference to the information set forth in the section
titled "Executive Officers of the Company" at the end of Part I of this Form
10-K.
Information with respect to Directors and Officers of the Company required by
Item 405 of Regulation S-K is incorporated herein by reference from information
set forth under the caption "Filing of Reports by Directors and Officers" in the
Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) to Form 10-K, the information required by
this Item is incorporated by reference to the information contained in the
section captioned "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) to Form 10-K, the information required by
this Item is incorporated by reference to the information contained in the
section captioned "Security Ownership" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) to Form 10-K, the information required by
this Item is incorporated by reference to the information contained in the
section captioned "Certain Relationships and Related Transactions" in the Proxy
Statement.
44
================================================================================
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements - See Index to Financial Statements and
Financial Statement Schedule at page 27 of this Form
10-K.
(2) Financial Statement Schedules - See Index to Financial
Statements and Financial Statement Schedule at page 27 of
this Form 10-K.
(3) Exhibits - See Exhibit Index at page 46-47 of this Form
10-K.
b) The Registrant did not file or amend any reports on Form 8-K
during the last quarter of the fiscal year ended September
27, 1997. However, subsequent to the fiscal year ended
September 27, 1997 the Company filed a Form 8-K dated
November 24, 1997 reporting Mr. Tommy Leung's death under
Item 5.
(c) See Exhibit Index at page 46-47 of this Form 10-K.
(d) See Index to Financial Statements and Financial Statements and
Financial Statement Schedule at page 27 of this Form 10-K.
45
================================================================================
<PAGE>
EXHIBIT INDEX
Number Description of Document
------ -----------------------
2.1 Agreement and Plan of Merger between Registrant and Asante
Technologies, Inc., a California corporation, effective
October 12, 1993.(1)
3.1 Certificate of Incorporation of Registrant.(1)
3.1A Certificate of Amendment of Certificate of Incorporation of
Registrant.(1)
3.1B Certificate of Retirement of Stock of Registrant.
3.2 By Laws of Registrant.(1)
4.1 Form of Common Stock certificate.(1)
10.1* 1990 Stock Option Plan and form of Option Agreement.(1)
10.2* 1993 Directors' Stock Option Plan and form of Option
Agreement.(1)
10.3* 1993 Employee Stock Purchase Plan and form of subscription
agreement thereunder.(1)
10.4* Form of Key Executive Stock Plan Agreement.(1)
10.5* Employment Agreement between Registrant and Ralph S. Dormitzer
dated June 2, 1993.(1)
10.5A Option and Note Extension Agreement between Registrant and
Ralph S. Dormitzer dated August 22, 1994.(5)
10.6 Form of Indemnification Agreement entered into between
Registrant and its directors and officers.(1)
10.7 Registration Rights Agreement dated July 10, 1992 between
Registrant and certain holders of Common Stock and Series E
Preferred Stock.(1)
10.8 Lease dated July 16, 1992 for facilities located at 821 Fox
Lane in San Jose, California.(1)
10.9 Loan Agreement between Registrant and Comerica Bank California
for $10,000,000 line of credit dated July 20, 1993, as
amended as of July 20, 1993.(1)
10.9A First Modification dated February 15, 1994, to the Loan and
Security Agreement dated July 20, 1993.(2)
10.9B Third Modification, dated September 30, 1994, to the Loan and
Security Agreement dated July 20, 1993.(5)
10.9C Fourth Modification, dated September 30, 1994, to the Loan and
Security Agreement dated July 20, 1993.(4)
10.9D Sixth Modification Agreement to the Loan and Security
Agreement dated July 10, 1993.(6)
10.9E Seventh Modification Agreement to the Loan and Security
Agreement dated July 20, 1993.(6)
10.10 Manufacturing Payment Agreement dated October 1, 1990 between
Registrant and Orient Semiconductor Electronics, Ltd.(1)
10.11 Distribution Agreement dated November 2, 1989 between
Registrant and Ingram Micro, Inc., as amended.(1)(3)
10.12 Distribution Agreement dated June 19, 1989 between Registrant
and Merisel, Inc. (formerly Macamerica), as amended.(1)(3)
46
================================================================================
<PAGE>
10.13 Distribution Agreement dated August 30, 1990 between
Registrant and TechData Corporation, as amended.(1)(3)
10.14 Volume Purchase Agreement dated April 15, 1992 between
Registrant and National Semiconductor Corporation.(1)(3)
10.15 Sublease agreement dated August 21, 1995 for facilities
located at 821 Fox Lane in San Jose, California, and
amendments pertaining thereto.(1)(3)
10.16 Extension of Sublease Agreement dated June 10, 1997 (3)
10.17 Distribution Agreement dated 09/30/92 between Registrant and
MicroWarehouse
11.1 Calculation of Earnings per Share.
23.1a Consent of Independent Accountants.
23.1b Consent of Independent Accountants on Form S-8.
27.1 Financial Data Schedule.
* The item listed is a compensatory plan.
(1) Previously filed as an Exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-70300).
(2) Previously filed as an Exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1994.
(3) Confidential treatment granted as to certain portions of
these exhibits.
(4) Previously filed as an Exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended April 1, 1995.
(5) Previously filed as an Exhibit to the Registrant's Form
10-K for the fiscal year ended September 30, 1994.
(6) Previously filed as an exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended March 30, 1996.
47
================================================================================
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
December 20, 1997
ASANTE TECHNOLOGIES, INC.
By: /s/ JEFF YUAN-KAI LIN
---------------------------------------
Jeff Yuan-Kai Lin,
President and Chief Executive Officer
By: /s/ ROBERT SHEFFIELD
---------------------------------------
Robert Sheffield
Vice President of Finance,
Chief Financial Officer, and Secretary
48
================================================================================
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeff Yuan-Kai Lin and Robert Sheffield, and each
of them, jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Report on Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
on Form 10-K has been signed by the following persons in the capacities and on
the dates indicated:
<CAPTION>
Signature Title Dates
--------- ----- -----
<S> <C> <C>
/s/ JEFF YUAN-KAI LIN President, and Chief Executive Officer December 22, 1997
- -------------------------- (Principal Executive Officer) and Director
(Jeff Yuan-Kai Lin)
/s/ ROBERT SHEFFIELD Vice President of Finance, and December 22, 1997
- -------------------------- Chief Financial Officer (Principal Financial
(Robert Sheffield) and Accounting Officer)
/s/ MICHAEL KAUFMAN (Director) December 22, 1997
- --------------------------
(Michael Kaufman)
/s/ DAVID LAM (Director) December 22, 1997
- --------------------------
(David Lam)
/s/ EDMOND TSENG (Director) December 22, 1997
- --------------------------
(Edmond Tseng)
/s/ CYRUS TSUI (Director) December 22, 1997
- --------------------------
(Cyrus Tsui)
/s/ WILSON WONG (Director) December 22, 1997
- --------------------------
(Wilson Wong)
</TABLE>
49
================================================================================
<PAGE>
<TABLE>
S-1
ASANTE TECHNOLOGIES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at End of
Description of Period Expenses Deductions Period
----------- --------- -------- ---------- ------
<S> <C> <C> <C> <C>
Year ended September 30, 1995:
Allowance for doubtful accounts, price protection
and distributor rebates $ 1,557 $ 3,566 $(3,340) $ 1,783
Allowance for sales return 1,346 1,055 (1,493) 908
------- ------- ------- -------
$ 2,903 $ 4,621 $(4,833) $ 2,691
======= ======= ======= =======
Year ended September 28, 1996:
Allowance for doubtful accounts, price protection
and distributor rebates $ 1,783 $ 2,406 $(2,032) $ 2,157
Allowance for sales return 908 242 (133) 1,017
------- ------- ------- -------
$ 2,691 $ 2,648 $(2,165) $ 3,174
======= ======= ======= =======
Year ended September 27, 1997:
Allowance for doubtful accounts, price protection
and distributor rebates $ 2,157 $ 3,056 $(1,896) $ 3,317
Allowance for sales return 1,017 754 (366) 1,405
------- ------- ------- -------
$ 3,174 $ 3,810 $(2,262) $ 4,722
======= ======= ======= =======
</TABLE>
<PAGE>
GAMMA BUILDING ASSOCIATES JOINT VENTURE
c/o Lehman Brothers Inc.
Three World Financial Center - 29th floor
New York, New York 10285
June 10, 1997
VIA FACSIMILE AND OVERNIGHT MAIL
Mr. Cesar Simoniak
Facilities Manager
Asante Technologies, Inc.
821 Fox Lane
San Jose, CA 95131
Re: Single Tenant Industrial Space Lease by and
between Gamma Building Associates Joint Venture,
as Landlord and Asante Technologies, Inc., as
Tenant, dated July 16, 1992 (the "Lease")
Dear Mr. Simoniak:
I am in receipt of your letters dated October 15, 1996 and November 20,
1996 regarding the exercise of the option set forth in paragraph 18.1 of the
Lease.
Landlord acknowledges the proper exercise of the option. In accordance
with the terms of paragraph 18.1.2 of the Lease, Tenant has the right to extend
the Lease in accordance with the terms of the option so long as it is not in
default beyond any applicable cure period as of the date the Lease would have
been terminated, but for said exercise.
Provided Tenant is not in default beyond any applicable cure period as
of the date of the end of the original term, the Lease will be extended for an
additional two (2) years (the "Option Period") at the rental rate set forth in
the Lease.
Attached as Exhibit "A" is the excess rent calculation for the Option
Period by and between Megatest (Teradyne Inc.) and Tenant. Pursuant to the
Lease, the
<PAGE>
Landlord is entitled to $3,574.98 per month which represents fifty (50%) percent
of the excess rents collected by Tenant under its sublease with Megatest. This
letter is to formalize the agreement between the Landlord and Tenant relating to
Tenant's obligation to pay the adjusted excess rents effective with the
commencement of the option period on September 1, 1997 and continuing for the
duration of the Option Period, unless the sublease is sooner terminated. The
amounts due from Tenant and shown on Exhibit "A" shall be fixed for the duration
of the Option Period, unless the sublease is sooner terminated. If Asante is in
agreement with the foregoing, please execute and return this letter to me at
your earliest convenience.
Very truly yours,
Gamma Building Associates Joint Venture
By: Commercial Properties 2, L.P.,
Managing Venturer
By: Real Estate Services VII, Inc.
General Partner
By: /s/ Michael T. Marron
-----------------------------------
Michael T. Marron, Vice President
THE FOREGOING IS AGREED TO AND ACCEPTED:
Asante Technologies, Inc.
By: /s/ William C. Leung
---------------------------------
Title: V.P. of Operations 6/24/97
---------------------------
CC: Monica Land
Roger D. Wintle
MICRO WAREHOUSE VENDOR AGREEMENT
This Agreement is entered into as of the date of the last signature below by and
between Micro Warehouse, Inc. of Ohio ("Micro Warehouse"), a Delaware
corporation which is a wholly-owned subsidiary of Micro Warehouse, Inc. of 535
Connecticut Avenue, Norwalk, CT 06854, and Asante Technoloqies ("Vendor"), a
Corporation corporation / partnership / proprietorship with offices at
- -----------
821 Fox Lane, San Jose, CA 95131 (collectively the "Parties").
Vendor grants Micro Warehouse the non-exclusive right to distribute Vendor's
line of products (the "Products") in the following Territory: Worldwide. Vendor
warrants that all Products are new and comply in all respects with all
applicable laws, rules, and regulations.
Payment--Vendor agrees to sell Products to Micro Warehouse at the lowest price
and/or best discount that Vendor makes the Products available to any similar
resellers. Payment terms are net 30 upon receipt of Product; Vendor will make
available to Micro Warehouse all prompt payment discounts that Vendor offers.
Price Changes--Vendor will give Micro Warehouse prompt written notice of any
Product price changes, including special promotions. If Vendor raises the price
of any Product, Vendor will honor the price quoted for all Products on order by
Micro Warehouse prior to the effective date of the change. If Vendor lowers the
price of any Product, Vendor will issue a credit to Micro Warehouse's account
equal to the difference between the actual purchase price paid by Micro
Warehouse and the reduced price for all units of Product in Micro Warehouse's
inventory or on order as of the effective date of the change. Vendor agrees to
keep its account balances with Micro Warehouse current and to notify Micro
Warehouse promptly of discrepancies in any accounts; in no event shall Vendor be
entitled to give notice more than 9 months from the date on which the event
giving rise to any such discrepancy occurred.
Vendor shall notify and provide Micro Warehouse with the opportunity to
participate in all promotions, special pricing, rebate, co-op advertising,
market development fund or like programs made available by Vendor for similar
resellers. In the event that Vendor allocates any Products, Micro Warehouse
shall be treated equitably with respect to other purchasers of the Products and
no less favorably than any of the same, assuming Micro Warehouse's account is
current.
Product Returns
1) Stock Balancinq/Rotation Returns--Once every month, Micro Warehouse
may return to Vendor 20% of the previous quarters purchases any quantity of new,
unopened Product for credit to account. Micro Warehouse may also return to
Vendor, at any time, for credit, any quantity of new, unopened Product affected
by any version, packaging, update or other Product change.
2) Defective Product Returns--Micro Warehouse may return to Vendor any
defective Product which is returned to Micro Warehouse by a Micro Warehouse
customer ("Customer") within 120 days of Customer's purchase date. A defective
Product is one that Customer determines is defective and that Micro Warehouse
authorizes for return from Customer.
All Product returns to Vendor, whether for stock balancing/rotation or
defective Product, will be for credit to Micro Warehouse's account. Vendor will
issue any requisite Return Merchandise Authorizations upon request. In no case
will Micro Warehouse be responsible for restocking fees for Products returned to
Vendor pursuant to this Agreement.
Freight--Micro Warehouse will pay for freight for all Product shipments from
vendor and vendor will pay for all return shipments (except stock
balancing/rotation returns) to Vendor. The Party responsible for freight charges
on any shipment will also assume the risk of loss on those goods once they are
placed within the possession of a common carrier by the sender.
Indemnities--Vendor agrees to defend, indemnify and hold harmless Micro
Warehouse, its corporate parent and affiliated companies, and the employees,
officers, directors and agents of each of them, against any and all claims,
liabilities, damages and costs, including reasonable attorney's fees and
settlement amounts, arising from i) any actual or alleged defect in a Product
supplied by Vendor pursuant to this Agreement; ii) any actual or alleged
infringement of any patent, copyright, trademark or other intellectual property
right by a Product supplied by Vendor pursuant to this Agreement; or iii) a
breach by Vendor of any provision of this Agreement. Vendor's responsibilities
under this Section shall survive termination of this Agreement.
4/95
<PAGE>
Term and Termination--This Agreement will remain in effect until terminated.
Either Party may terminate this Agreement at any time, with or without cause,
upon 60 days written notice. Neither Party shall be responsible to the other for
any costs or damages resulting from termination. Micro Warehouse shall have the
right to return to Vendor any quantity of Product (purchased within the previous
150 days) in its inventory as of the termination date, and receive a cash refund
from Vendor equal to the amount paid by Micro Warehouse for the Products.
General Terms: Nothing in this Agreement shall be deemed to create an agency,
partnership or joint venture between the Parties. This Agreement constitutes the
entire agreement between the Parties and supersedes any prior communications,
representations or agreements of any kind. This Agreement may not be modified
except in a writing signed by both Parties. Inconsistent terms on purchase
orders, invoices or other documents shall have no effect and are expressly
rejected by Micro Warehouse. This Agreement shall be governed in accordance with
the laws of the State of Connecticut without regard to conflicts of laws
principles. Failure to enforce or delay in enforcing any rights under this
Agreement shall not be deemed to be a waiver or modification of such rights.
The paragraphs of this Agreement captioned "Payment" and "Freight" will not
apply when Micro Warehouse purchases Products from a distributor (or any party
other than Vendor). Otherwise all terms of this Agreement will govern whether
Micro Warehouse purchases Products directly from Vendor or from any third party.
Vendor will authorize any such party selling Products to Micro Warehouse to
honor, on Vendor's behalf, all other terms which have been agreed to by Vendor
herein.
Micro Warehouse, Inc. will second source Distribution on any items not available
directly from Asante.
The Parties acknowledge that they have read this Agreement, understand it, and
agree to be bound by its terms.
Micro Warehouse, Inc. of Ohio Vendor: Asante Technologies Inc.
By: By: /s/ Steve Hess
-------------------------------- --------------------------------
Authorized Signature Authorized Signature
STEVE HESS
-------------------------------- --------------------------------
Name (Type or print) Name (Type or print)
CFO
-------------------------------- --------------------------------
Title Title
12/8/95
-------------------------------- --------------------------------
Date Date
4/95
Exhibit 11.1
<TABLE>
Asante Technologies, Inc.
Calculation of Earnings per Share
(in thousands, except per share amounts)
<CAPTION>
Year ended
----------------------------------------------
September 27, September 28, September 30,
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ 1,926 $ (457) $(3,705)
======= ======= =======
Average number of common and common equivalent shares:
Weighted average common shares outstanding 8,945 8,718 8,288
Dilutive common stock equivalents:
Common stock options, using modified treasury stock method 158 279 *
------- ------- -------
Common and common equivalent shares to be used in the
calculation of net income per share 9,103 8,997 8,288
======= ======= =======
Earnings (loss) per share $ 0.21 $ (0.05) $ (0.45)
======= ======= =======
<FN>
* Antidilutive
</FN>
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Asante Technologies, Inc.
Our audits of the financial statements referred to in our report dated October
24, 1997, appearing in this Form 10-K also included an audit of the Financial
Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, the
Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
financial statements.
PRICE WATERHOUSE LLP
San Jose, California
October 24, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-73454) of Asante Technologies, Inc. of our report
dated October 24, 1997, appearing in this Annual report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears in this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
San Jose, California
December 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEETS AND CONDENSED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> SEP-27-1997
<CASH> 12,931
<SECURITIES> 0
<RECEIVABLES> 12,970
<ALLOWANCES> 4,722
<INVENTORY> 12,080
<CURRENT-ASSETS> 37,420
<PP&E> 8,617
<DEPRECIATION> 5,848
<TOTAL-ASSETS> 40,567
<CURRENT-LIABILITIES> 10,706
<BONDS> 0
0
0
<COMMON> 26,361
<OTHER-SE> 3,514
<TOTAL-LIABILITY-AND-EQUITY> 40,580
<SALES> 83,279
<TOTAL-REVENUES> 83,279
<CGS> 53,040
<TOTAL-COSTS> 53,040
<OTHER-EXPENSES> 27,908
<LOSS-PROVISION> 117
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,009
<INCOME-TAX> 1,083
<INCOME-CONTINUING> 1,926
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,926
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
