UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 28, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to__________
Commission file number: 0-22632
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, CA 95131
(Address of principal executive offices, including zip code)
Registrant's Telephone No., including area code: (408) 435-8388
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ----
As of December 28, 1996 there were 8,894,742 shares of the Registrant's Common
Stock outstanding.
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ASANTE TECHNOLOGIES, INC.
Table of Contents
PART I. Financial Information Page No.
Item 1: Financial Statements:
Condensed Balance Sheets - December 28, 1996 and
September 28, 1996 3
Condensed Statements of Operations - Three
months ended December 28, 1996
and December 30, 1995 4
Condensed Statements of Cash Flows - Three
months ended December 28, 1996, and
December 30, 1995 5
Notes to Condensed Financial Statements 6-7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II. Other Information
Item 1: Legal Proceedings 11
Item 5: Other Information 11
Item 6: Exhibits and Reports on Form 8-K 11
Signature 12
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PART I. Financial Information
Item 1. Financial Statements
Asante Technologies, Inc.
Unaudited Condensed Balance Sheets
(in thousands)
December 28, September 28,
1996 1996
------------ ------------
Assets
Current assets:
Cash and cash equivalents $13,086 $12,693
Accounts receivable, net 7,814 10,038
Receivable from stockholder 533 400
Inventory, net 7,213 9,851
Other current assets 5,274 5,176
------- -------
Total current assets 33,920 38,158
Property and equipment, net 1,485 1,524
Other assets 363 284
------- -------
Total assets $35,768 $39,966
======= =======
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,927 $ 7,265
Accrued expenses 3,777 4,110
Payable to stockholder 850 1,682
------- -------
Total current liabilities 8,554 13,057
------- -------
Stockholders' equity:
Common stock 25,476 25,322
Retained earnings 1,738 1,587
------- -------
Total stockholders' equity 27,214 26,909
------- -------
Total liabilities and stockholders' equity $35,768 $39,966
======= =======
The accompanying notes are an integral part of these unaudited
Condensed Financial Statements
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Asante Technologies, Inc.
Unaudited Condensed Statements of Operations
(in thousands, except per share data)
Three months ended
----------------------------------
December 28, December 30,
1996 1995
------------- --------------
Net sales $17,480 $16,504
Cost of sales 10,723 9,725
------- -------
Gross profit 6,757 6,779
------- -------
Operating expenses:
Sales and marketing 4,126 4,585
Research and development 1,757 1,266
General and administrative 769 687
------- -------
Total operating expenses 6,652 6,538
------- -------
Income from operations 105 241
Interest & other income, net 138 166
------- -------
Income before income taxes 243 407
Provision for income taxes 92 82
------- -------
Net income $ 151 $ 325
======= =======
Net income per share $ 0.02 $ 0.03
======= =======
Weighted average common
shares and equivalents 8,947 9,453
======= =======
The accompanying notes are an integral part of these unaudited
Condensed Financial Statements
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Asante Technologies, Inc.
Unaudited Condensed Statements of Cash Flows
(in thousands)
Three months ended
--------------------------
December 28, December 30,
1996 1995
----------- -------------
Cash flows from operating activities:
Net income $ 151 $ 325
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 264 280
Changes in operating assets and liabilities:
Accounts receivable 2,224 2,174
Receivable from stockholder (133) (275)
Inventory 2,638 (687)
Other current assets (98) 82
Accounts payable (3,338) (398)
Payable to stockholder (832) 755
Accrued expenses (333) (365)
-------- --------
Net cash provided by operating activities 543 1,891
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (225) (217)
Other assets (79) 25
-------- --------
Net cash provided (used) by investing activities (304) (192)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock 154 207
Other financing activities 0 (14)
-------- --------
Net cash provided by financing activities 154 193
-------- --------
Net increase in cash and and cash equivalents 393 1,892
Cash and cash equivalents, beginning of period 12,693 12,071
-------- --------
Cash and cash equivalents, end of period $ 13,086 $ 13,963
======== ========
Supplemental disclosures of cash flow information:
Cash paid (refunded) during period for:
Interest $ 2 $ 2
======== ========
Income taxes $ 163 ($ 35)
======== ========
The accompanying notes are an integral part of these Unaudited
Condensed Financial Statements
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ASANTE TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
(unaudited)
1. Interim Condensed Financial Statements
The Unaudited Condensed Financial Statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In the
opinion of management, the financial statements reflect all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
statement of the financial position, operating results and cash flows for those
periods presented. These unaudited condensed financial statements should be read
in conjunction with the financial statements and notes thereto for the year
ended September 28, 1996, included in the Company's 1996 Annual Report on Form
10-K.
The results of operations for interim periods are not necessarily indicative of
the results that may be expected for the entire year.
2. Net Income Per Share
Net income (loss) per share is computed using the average number of common and
common equivalent shares outstanding during the period. Common equivalent shares
include common stock issuable upon the exercise of stock options. Common
equivalent shares have been computed using the treasury stock method, except
when antidilutive, and the modified treasury stock method for the three months
ended December 30, 1995 and 1996, respectively.
.
3. Inventory
Inventory is stated at the lower of standard cost, which approximates actual
cost (on a first-in, first-out basis) or market, and consisted of the following
at:
December 28, September 28,
1996 1996
---- ----
(in thousands)
Raw materials and component parts $4,100 $3,298
Work-in-process 764 1,630
Finished goods 2,349 4,923
------ ------
$7,213 $9,851
====== ======
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4. Bank Borrowings
The Company has a bank line of credit that provides for maximum borrowings of $5
million, limited to a certain percentage of eligible accounts receivable, and
bears interest at the bank's base rate. In January 1997, the Company renewed its
line of credit with its bank. Covenants under the line require the Company to
maintain certain minimum levels of liquidity, net worth and financial ratios,
restrict amounts of capital spending, dividends and stock repurchases, and
require the Company to maintain certain levels of quarterly profitability. No
borrowings have been made under the line of credit agreement in fiscal years
1995 and 1996, or for the first quarter of fiscal 1997.
5. Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", for all periods.
Under this method, deferred assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Based on the current estimate of
expected operating results and certain other factors the Company expects its
effective rate to be 38% through fiscal 1997.
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 expected to be
realized 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.
6. Legal Proceedings
On September 13, 1996, a complaint was filed by Datapoint Corporation against
the Company and six other companies individually and as purported
representatives of a defendant class of all manufacturers, vendors and users of
Fast Ethernet-compliant, dual protocol local-area network products, for alleged
infringement of United States letters Patent Nos. 5,077,732 and 5,008,879. The
complaint seeks unspecified damages in excess of $75,000 and permanent
injunctive relief. The Company has filed a response to the complaint denying
liability. To date, no discovery has been taken. The Company intends to defend
the action vigorously.
7
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion, other than the historical financial information, may consist of
forward-looking statements that involve risks and uncertainties, including
quarterly fluctuations in results, the timely availability of new products, the
impact of competitive products and pricing, and the other risks set forth from
time to time in the Company's SEC reports, including this report on Form 10-Q
for the quarter ended December 28, 1996. Actual results may vary significantly.
Results of Operations
Net sales for the first quarter of fiscal 1997 were approximately $17.5 million,
an increase of approximately $1 million, or 6%, from net sales of approximately
$16.5 million for the first quarter of fiscal 1996. The year-over-year increase
was due to a $1.6 million increase in sales of the Company's 100 Mbps (Fast
Ethernet) adapters and hubs, a $.8 million increase in sales of the Company's
switching products, and an increase in OEM sales of 100 Mbps products and 10
Mbps adapter card products of approximately $1.4 million. These increases were
partially offset by a $1.5 million decline in sales of the Company's adapter
card products due to the continuing incorporation of Ethernet connectivity into
the motherboard of high performance products, and by a $1.3 million decline in
sales of certain of the Company's 10 Mbps shared system products due to
competitive pricing pressures and softer than expected sales into the
educational market. In the first quarter of fiscal 1997, OEM sales accounted for
approximately $1.6 million, or 9% of total sales. This compares to approximately
$0.2 million, or 1% of total sales, for the first quarter of fiscal 1996.
Management anticipates that sales products to OEM customers will increase as a
percentage of total sales.
Sales outside the United States accounted for approximately 29% of net sales for
the first quarter of fiscal 1997 compared to 30% for the first quarter of fiscal
1996.
The Company's gross profit as a percentage of net sales decreased to 39% for the
first quarter of fiscal 1997 from 41% in the first quarter of fiscal 1996. The
first quarter margin was adversely affected by approximately $1.4 million
increase in OEM sales at lower margins. The gross profit percentage in the first
quarter of fiscal 1997 was fairly consistent with the immediately preceding
quarter. It is expected that in the near future, margins may decrease slightly
as a percentage of sales as the Company pursues additional OEM opportunities.
Sales and marketing expenses decreased by $0.5 million, or 10%, in the first
quarter of fiscal 1997 compared to the first quarter of fiscal 1996. As a
percentage of net sales, these expenses were 24% in the first quarter of fiscal
1997, compared to 28% in the first quarter of 1996. The decreases in sales and
marketing expenditures were due primarily to decreased outside sales
representative commissions, advertising, trade show, product collateral
expenses, and other related costs offset partially by increases in direct sales
related salary and commission expenses. In early fiscal 1996 the Company
allocated additional resources to increase its direct sales force in order to
focus its efforts on increasing sales. Correspondingly, the Company reduced the
8
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number of outside manufacturing representative agencies promoting the Company's
products resulting in lower overall costs to the Company. The Company believes
that sales and marketing expenses will remain flat or increase slightly in the
second quarter of fiscal 1997.
Research and development expenses increased by $0.5 million, or 39%, in the
first quarter of fiscal 1997 compared to the first quarter of fiscal 1996. As a
percentage of net sales, these expenses were 10% percent in the first quarter of
fiscal 1997, compared with 8% in the first quarter of fiscal 1996. The
year-over-year increase was due to increases in personnel, prototype materials,
and outside consulting services. Higher spending in these areas resulted from
increased product development activities for new Fast Ethernet hubs and switches
and to software related development expenses. The Company expects that future
spending on research and development will increase in absolute dollars for the
remainder of fiscal 1997.
General and administrative expenses increased by $82,000, or 12%, in the first
quarter of 1997 compared to the first quarter of fiscal 1996. As a percentage of
net sales, these expenses were 4% for both the first quarter of fiscal 1997 and
1996. The increases in general and administrative expenses were due primarily to
increased salaries and outside consulting services. The Company expects that
future spending will increase in absolute dollars during the remainder of fiscal
1997.
Based on the current estimate of its expected operating results, and certain
other factors, the Company expects its effective tax rate to be 38% through
fiscal 1997. The Company's estimated rate could be higher based on actual
results for the year including the impact of mix of income, available credits,
and other estimates of the impact of certain future events.
Factors Affecting Future Operating Results
A significant portion of the Company's sales are related to sales of Apple's
Macintosh computers. In January 1997, Apple announced significant operating
losses due to reduced product sales and a management reorganization. A
continuing decline in sales of Macintosh computers over which the Company has no
control may adversely affect sales of the Company's products.
Throughout fiscal 1996 the Company increased its focus on its Fast Ethernet
network products and the IBM PC-compatible market in order to gain market share.
Competition in this market is intense and includes several companies that have
significantly greater resources and broader brand name recognition than the
Company. As such, there can be no assurance the Company will be successful in
penetrating the PC-compatible market.
The Company continues to focus its research and development activities on
introducing additional products supporting the adoption of the 100 Mbps standard
in Ethernet networking (100BASE-T, or "Fast Ethernet"), which enables users to
conduct high speed LAN data transmission. The Company continues to allocate
significant resources on research and development of more switching products
which the Company believes is a large growth market. To complement its
high-speed hardware products the Company continues to develop cutting edge
software products that enhance the performance of the
9
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network systems products. In that regard, the Company's future operating results
are somewhat dependent on the market acceptance and rate of adoption of this
technology, and on the Company's ability to timely bring more switching products
to market.
Liquidity and Capital Resources
At December 28, 1996, the Company had approximately $13 million of cash and cash
equivalents on hand, and working capital of $25 million. In January 1997, the
Company renewed its line of credit with its bank providing for maximum
borrowings of $5 million. Covenants under the line require the Company to
maintain certain minimum levels of liquidity, net worth and financial ratios,
restrict amounts of capital spending, dividends and stock repurchases, and
require the Company to maintain certain levels of quarterly profitability. No
borrowings have been made under the line of credit agreement in fiscal years
1995 and 1996, or for the first quarter of fiscal 1997.
The Company believes that current cash and cash equivalents along with the bank
line of credit are sufficient to fund its operations and meet capital
requirements for fiscal 1997.
10
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PART II. Other Information
Item 1. Legal Proceedings
On September 13, 1996, a complaint was filed by Datapoint Corporation against
the Company and six other companies individually and as purported
representatives of a defendant class of all manufacturers, vendors and users of
Fast Ethernet-compliant, dual protocol local-area network products, for alleged
infringement of United States letters Patent Nos. 5,077,732 and 5,008,879. The
complaint seeks unspecified damages in excess of $75,000 and permanent
injunctive relief. The Company has filed a response to the complaint denying
liability. To date, no discovery has been taken. The Company intends to defend
the action vigorously.
Item 5. Other Information
Director Soo Boon Koh resigned from the Board of Directors and Compensation
Committee effective January 17, 1997, to pursue other interests
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits: 27.1 Financial Data Schedule
(b.) Reports on Form 8-K: None
11
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 10, 1997 ASANTE TECHNOLOGIES, INC.
(Registrant)
By: /s/ ROBERT A. SHEFFIELD
-------------------------------------
Robert A. Sheffield
Vice President, Finance and
Chief Financial Officer
(Authorized Officer and Principal Financial Officer)
12
<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> 3-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> DEC-28-1996
<CASH> 13,086
<SECURITIES> 35
<RECEIVABLES> 11,606
<ALLOWANCES> 3,792
<INVENTORY> 7,213
<CURRENT-ASSETS> 33,920
<PP&E> 6,536
<DEPRECIATION> 5,051
<TOTAL-ASSETS> 35,768
<CURRENT-LIABILITIES> 8,554
<BONDS> 0
<COMMON> 25,476
0
0
<OTHER-SE> 1,738
<TOTAL-LIABILITY-AND-EQUITY> 35,768
<SALES> 17,480
<TOTAL-REVENUES> 17,480
<CGS> 10,723
<TOTAL-COSTS> 10,723
<OTHER-EXPENSES> 6,652
<LOSS-PROVISION> 39
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 243
<INCOME-TAX> 92
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