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 September 30, 2000
OR
[ ] TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number 0-23970
NETWORK PERIPHERALS INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0216135
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2859 Bayview Drive
Fremont, California 94538
(Address, including zip code, of principal executive offices)
(510) 897-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of the Registrant's Common Stock, $0.001 par value,
outstanding as of November 8, 2000 was 13,365,853.
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NETWORK PERIPHERALS INC.
FORM 10-Q
<CAPTION>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
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<S> <C> <C>
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets
as of September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-20
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
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2
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PART I - FINANCIAL INFORMATION
<TABLE>
ITEM 1. FINANCIAL STATEMENTS
NETWORK PERIPHERALS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(in thousands, except share data)
<CAPTION>
September 30, December 31,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 57,412 $ 4,730
Short-term investments 68,110 4,985
Accounts receivable, net of allowance for doubtful accounts
and returns of $329 and $364 606 428
Receivable from sale of assets -- 720
Inventories 11,417 3,830
Prepaid expenses and other current assets 1,142 815
--------- ---------
Total current assets 138,687 15,508
Property and equipment, net 5,719 4,984
Other assets 308 360
--------- ---------
$ 144,714 $ 20,852
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,654 $ 1,534
Accrued liabilities 2,564 1,409
--------- ---------
Total current liabilities 6,218 2,943
--------- ---------
Stockholders' equity:
Preferred stock, $0.001 par value, 2,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock, $0.001 par value, 60,000,000 shares authorized;
14,278,000 and 12,749,000 shares issued and outstanding 16 13
Additional paid-in capital 233,496 65,955
Accumulated deficit (61,686) (48,059)
Unrealized gain on investments 25 --
--------- ---------
171,851 17,909
Treasury stock, 1,822,000 shares of common stock, at cost (33,355) --
--------- ---------
Total stockholders' equity 138,496 17,909
--------- ---------
$ 144,714 $ 20,852
========= =========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
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3
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<TABLE>
NETWORK PERIPHERALS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(in thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 1,429 $ 2,271 $ 5,073 $ 9,447
Cost of sales 1,592 2,112 5,593 8,184
-------- -------- -------- --------
Gross profit (loss) (163) 159 (520) 1,263
-------- -------- -------- --------
Operating expenses:
Research and development 2,561 2,425 7,650 5,755
Marketing and selling 2,476 1,511 7,065 4,417
General and administrative 1,266 881 3,297 2,535
Restructuring expense 600 -- 600 --
Gain on sale of assets -- -- -- (1,055)
-------- -------- -------- --------
Total operating expenses 6,903 4,817 18,612 11,652
-------- -------- -------- --------
Loss from operations (7,066) (4,658) (19,132) (10,389)
Interest income 2,267 215 5,505 734
-------- -------- -------- --------
Loss before income taxes (4,799) (4,443) (13,627) (9,655)
Income taxes -- -- -- --
-------- -------- -------- --------
Net loss $ (4,799) $ (4,443) $(13,627) $ (9,655)
======== ======== ======== ========
Net loss per share:
Basic and diluted $ (0.33) $ (0.35) $ (0.94) $ (0.77)
======== ======== ======== ========
Weighted average common shares:
Basic and diluted 14,674 12,681 14,528 12,539
======== ======== ======== ========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
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4
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<TABLE>
NETWORK PERIPHERALS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
<CAPTION>
Nine Months Ended
September 30,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (13,627) $ (9,655)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,777 1,367
Gain on sale of assets -- (1,055)
Changes in assets and liabilities:
Accounts receivable (178) 1,628
Inventories (7,587) 391
Prepaid expenses and other assets (275) 30
Accounts payable 2,120 (1,383)
Accrued liabilities 1,155 (152)
--------- ---------
Net cash used in operating activities (16,615) (8,829)
--------- ---------
Cash flows from investing activities:
Purchases of short-term investments (63,100) --
Purchases of property and equipment (2,512) (1,614)
Proceeds from sale of assets, net of expenses 720 684
Proceeds from sales of short-term investments -- 6,985
--------- ---------
Net cash provided by (used in) investing activities (64,892) 6,055
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of offering costs 167,544 1,664
Repurchase of common stock (33,355) --
--------- ---------
Net cash provided by financing activities 134,189 1,664
--------- ---------
Net increase (decrease) in cash and cash equivalents 52,682 (1,110)
Cash and cash equivalents, beginning of period 4,730 5,537
--------- ---------
Cash and cash equivalents, end of period $ 57,412 $ 4,427
========= =========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Income taxes $ 32 $ 51
========= =========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
</TABLE>
5
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NETWORK PERIPHERALS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of Network Peripherals Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not contain all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, the accompanying unaudited condensed consolidated financial
statements reflect all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the
Company's financial condition as of September 30, 2000 and December 31,
1999, the results of its operations for the three-month and the
nine-month periods ended September 30, 2000 and 1999, and its cash
flows for the nine-month periods ended September 30, 2000 and 1999.
These financial statements should be read in conjunction with the
audited consolidated financial statements of the Company as of December
31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999, including notes thereto, included in the Company's
Annual Report on Form 10-K (Commission File No. 0-23970).
Operating results for the three-month and the nine-month periods ended
September 30, 2000 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000 or for any other
future period.
2. NET LOSS PER SHARE
Basic earnings per share are computed as net earnings divided by the
weighted-average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could
occur from common shares issuable through stock-based compensation
including stock options, restricted stock awards, warrants, and other
convertible securities using the treasury stock method. For the three
and the nine months ended September 30, 2000 and 1999, the Company
incurred net losses, such that the inclusion of potential common shares
would result in an antidilutive per share amount. Accordingly, no
adjustment is made to the basic net loss per share to arrive at the
diluted net loss per share.
<TABLE>
3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS (in thousands)
<CAPTION>
December 31,
September 30, 2000 1999
----------------------------------------- ----------
Unrealized
Amortized Holding Fair Market Fair Market
Cost Gain(Loss) Value Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents:
Cash and money market funds $ 14,427 $ -- $ 14,427 $ 2,442
Corporate debt securities 42,996 (11) 42,985 2,288
--------- --------- --------- ---------
57,423 (11) 57,412 4,730
--------- --------- --------- ---------
Short-term investments:
Corporate debt securities 44,443 20 44,463 --
U.S. government agencies' securities 23,631 16 23,647 4,985
--------- --------- --------- ---------
68,074 36 68,110 4,985
--------- --------- --------- ---------
Total $ 125,497 $ 25 $ 125,522 $ 9,715
========= ========= ========= =========
<FN>
The amortized cost at December 31, 1999 approximated fair market value.
</FN>
</TABLE>
6
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NETWORK PERIPHERALS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
4. BALANCE SHEET COMPONENTS (in thousands)
<CAPTION>
September 30, December 31,
2000 1999
-------- --------
<S> <C> <C>
Inventories:
Raw materials $ 3,548 $ 2,285
Work-in-process 5,472 401
Finished goods 2,397 1,144
-------- --------
$ 11,417 $ 3,830
======== ========
Property and equipment:
Computers and equipment $ 10,319 $ 8,106
Furniture and fixtures 802 750
Leasehold improvements 626 528
-------- --------
11,747 9,384
Accumulated depreciation (6,028) (4,400)
-------- --------
$ 5,719 $ 4,984
======== ========
Accrued liabilities:
Salaries and benefits $ 744 $ 592
Restructuring expense 600 --
Research and development expenses 533 49
Warranty 375 375
Co-op advertising and market development funds 261 250
Other 51 143
-------- --------
$ 2,564 $ 1,409
======== ========
</TABLE>
5. FOLLOW-ON PUBLIC OFFERING
In March 2000, the Company completed a follow-on public offering of
2,875,000 shares of its Common Stock at a price of $60.875 per share,
resulting in net proceeds to the Company of approximately $165 million,
after deducting offering costs.
6. TREASURY STOCK
The Company's Board of Directors has approved a common stock repurchase
program, pursuant to which the Company may repurchase up to five
million shares of its common stock in the open market. As of September
30, 2000, the Company has repurchased 1,822,000 shares of its common
stock with a total purchase price of approximately $33 million.
7. RESTRUCTURING EXPENSE
In August 2000, the Company's management approved and announced a plan
to divest its manufacturing facility in Taiwan. According to the
divestiture plan, a total of 57 employees will be terminated: 52 in the
manufacturing function and five in the accounting and administrative
function. As of September 30, 2000, the Company recorded a
restructuring expense of $600,000, which included an estimated $550,000
of severance payments and $50,000 of facility related charges. The
Company expects to complete the divestiture no later than the end of
the first quarter of 2001.
7
<PAGE>
NETWORK PERIPHERALS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In July 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133."
SFAS No. 137 deferred the effective date of SFAS No. 133 until fiscal
years beginning after June 15, 2000. The Company will adopt SFAS No.
133 during its year ending December 31, 2001. To date, the Company has
not engaged in derivative or hedging activities. The Company does not
expect that the adoption of SFAS No. 133 will have a material impact on
its results of operations or financial condition.
In December 1999, the Securities and Exchange Commissions issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the Staff's views
in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company does not expect the
adoption of SAB 101 to have a material effect on its results of
operations or financial condition. The Company is required to adopt SAB
101 in the fourth quarter of 2000.
In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions involving Stock Compensation." FIN
44 clarifies the application of APB Opinion No. 25 regarding (a) the
definition of employee for purposes of applying APB Opinion No. 25, (b)
the criteria for determining whether a stock option plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award,
and (d) the accounting for an exchange of stock compensation awards in
a business combination. FIN 44 is effective July 1, 2000, but certain
conclusions cover specific events that occur after either December 15,
1998, or January 12, 2000. The adoption of certain provisions of FIN 44
prior to July 1, 2000 did not have a material impact on the Company's
financial condition or results of operations. Management believes that
the adoption of the remaining provisions of FIN 44 will not have a
material effect on the Company's results of operations or financial
condition.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following forward-looking statements are made in reliance upon the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
future events described in such statements involve risks and uncertainties,
including:
o the timely development and market acceptance of our new products;
o our ability to develop and deliver products free from undetected hardware
and software errors;
o the market demand by customers for our existing products;
o competitive actions, including pricing actions and the introduction of new
competitive products, that may affect the volume of sales of our products;
o uninterrupted supply of key components, including semiconductor devices and
other materials, some of which may be sourced from a single supplier;
o uninterrupted service by contract manufacturers;
o our ability to recruit, train and retain key personnel, including engineers
and other technical professionals;
o the development of new technologies rendering our existing technologies and
products obsolete;
o the economies of countries where our products are distributed; and
o general market conditions.
In evaluating these forward-looking statements, consideration should also be
given to the Business Risks discussed in a subsequent section of this interim
report.
OVERVIEW
We were incorporated in California in March 1989 and were reincorporated in
Delaware in 1994. Our initial business focus was on networking products based on
fiber distributed data interface, or FDDI, technology, and we obtained a
significant share of the market for FDDI adapter products in the early 1990s.
Because the market for FDDI-based products declined significantly beginning in
1995, we developed a new line of Layer 2 Fast Ethernet switching products that
we first shipped in early 1996. By 1998, the market for our FDDI-based products
and our Layer 2 Fast Ethernet products (together, our "legacy products")
declined substantially, and we committed nearly all of our resources to the
development of a new line of Layer 3 Gigabit Ethernet switches (collectively
"NuWave products") founded on our NuWaveArchitecture, which combines our
advanced design and our proprietary application specific integrated circuits, or
ASICs. Accordingly, a substantial portion of our operating expenses has been
incurred for the design and development of our custom ASICs, the development of
network management software and the testing of prototype designs. We commenced
limited commercial shipments of our first NuWave product in December 1999 and
volume shipments of all NuWave products during the first quarter of 2000. We
anticipate that substantially all of our revenues in future periods will be
derived from sales of NuWave products and that sales of our legacy products will
decline to immaterial levels by the end of 2000.
Cost of revenue is comprised principally of payments to our materials suppliers
and contract manufacturers, final assembly costs, costs associated with
manufacturing and quality functions, inventory management costs and certain
other product costs. We expect our gross profit to be affected by many factors,
including:
o declines in the average selling price of our products;
o fluctuations in demand for our products;
o the volume of products sold;
o the mix of products sold;
o the mix of sales channels through which our products are sold; and
o new product introductions both by us and our competitors.
Generally, we realize higher margins on sales to the reseller channel than on
sales to OEMs. Any change in the mix between the channels or the loss of a major
customer could adversely affect our gross margin, operating
9
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results and financial condition. We experienced significant erosion in the
average selling prices of our legacy products. The average selling prices of our
NuWave products have decreased from their levels at introduction, and we
anticipate that they will decline in the future. Therefore, to improve our gross
margins, we must develop and introduce new products and enhancements on a timely
basis. We must also continually reduce our costs of production. As our average
selling prices decline, we must also increase our unit sales volume to maintain
or increase our revenue.
In transitioning from our legacy business to our NuWave business, we have
incurred significant losses in the past three years primarily reflecting
declining revenues of legacy products in conjunction with substantial
investments in research and development to bring NuWave products to market.
Although we expect revenues to increase to the extent that we broaden the
customer base for our NuWave family of products, we cannot assure you that such
revenues will exceed production costs and operating expenses in the same
periods.
RESULTS OF OPERATIONS
Net Sales
Net sales for the three months ended September 30, 2000 (the "quarter") were
$1.4 million, compared to $2.3 million for the three months ended September 30,
1999 (the "comparable quarter"). Net sales for the nine months ended September
30, 2000 (the "nine-month period") were $5.1 million, compared to $9.4 million
for the nine months ended September 30, 1999 (the "comparable period"). The
decrease in net sales was primarily attributed to the winding down of the legacy
business throughout 1999 and 2000, as the demand for our legacy products
experienced rapid decline. Such decrease was partially offset by volume
shipments of NuWave products in 2000.
As previously disclosed in our quarterly report on Form 10-Q for the quarter
ended June 30, 2000 (the "second quarter"), net sales for the second quarter
were negatively affected by the software instability problem related to our
NuWave products revealed during the second quarter. The software instability
problem caused delay in shipments and product acceptance testing and reduced
orders from customers in the second quarter and also negatively impacted our
customer demand through the quarter. This software instability problem was
subsequently resolved, and net sales for the quarter, although substantially
lower than originally estimated, improved from the second quarter.
We believe that the software instability issue we experienced during the second
quarter has been resolved. However, software and hardware errors may occur from
time to time in new or enhanced products after commencement of commercial
shipments. These potential problems may adversely affect our future operating
results by causing us to incur significant warranty and repair costs, diverting
the attention of our engineering personnel from our product development efforts
and causing delay or loss of market acceptance of our products.
Sales to OEM customers accounted for 58% and 56% of net sales for the quarter
and for the nine-month period, which increased from 55% and 53% of net sales for
the comparable quarter and the comparable period, respectively. The increase in
sales to OEM customers relative to the reseller channel was attributable to our
initial focus on developing and expanding our OEM customer base for our NuWave
products in 2000. However, we expect to have a more balanced mix of revenues
from OEM customers and resellers in the future periods.
Gross Profit (Loss)
We sustained a negative gross margin for the quarter and the nine-month period,
compared to 7% and 13% gross margin for the comparable quarter and the
comparable period, respectively, primarily due to the low sales volume for the
quarter and the nine-month period as explained above. We expect gross margin in
the future periods to improve from the quarter as sales volumes increase.
10
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Research and Development
Research and development expenses were $2.6 million for the quarter, compared to
$2.4 million for the comparable quarter. For the nine-month period and the
comparable period, research and development expenses were $7.6 million and $5.8
million, respectively. The increase in research and development expenses was
primarily due to the hiring of additional engineers and increased spending in
professional fees and prototype expenses related to enhancing existing products
based on the NuWaveArchitecture, reducing costs and developing new products and
technologies. We expect that research and development expenses will continue to
increase in the future periods, as we believe continued investment in research
and development activities is essential to achieve our strategic objectives.
Marketing and Selling
Marketing and selling expenses were $2.5 million for the quarter, compared to
$1.5 million for the comparable quarter. For the nine-month period and the
comparable period, marketing and selling expenses were $7.1 million and $4.4
million, respectively. The increase in marketing and selling expenses was
primarily due to new hires and increased spending in advertising, trade shows
and other marketing activities in conjunction with the launch of NuWave
products. We expect marketing and selling expenses to increase in the future
periods, as we intensify sales and marketing campaigns and continue to expand
our field sales and technical support staff to penetrate the reseller market and
seek additional OEM customers.
General and Administrative
General and administrative expenses were $1.3 million for the quarter, compared
to $881,000 for the comparable quarter. For the nine-month period and the
comparable period, general and administrative expenses were $3.3 million and
$2.5 million, respectively. The increase in general and administrative expenses
was primarily attributed to increased professional fees incurred for recruiting
activities, investor relations and information technology related services. We
expect general and administrative expenses to increase in the future periods, as
we strengthen our finance and information system infrastructure in anticipation
of growth in our business. In addition, we expect to incur higher insurance
expenses in the renewal period starting the fourth quarter of 2000 as a result
of an overall tightening of the liability insurance market.
Restructuring Expense
In August 2000, we approved and announced a plan to divest our manufacturing
facility in Taiwan. Solectron, our contract manufacturer, will manufacture all
of our products after the divestiture. The objective of this divestiture is to
reduce manufacturing overhead and improve gross margins by utilizing Solectron's
advantages in materials procurement and production capacity. According to the
divestiture plan, we expect to terminate 57 employees in total, of which 52 are
in the manufacturing function and five are in the accounting and administrative
function. As of September 30, 2000, we recorded a restructuring expense of
$600,000, which included an estimated $550,000 of severance payments and $50,000
of facility related charges. We expect to complete the divestiture no later than
the end of the first quarter of 2001.
Gain on Sale of Assets
In connection with the sale of our research and development facilities in
Hsin-chu, Taiwan, in June 1999, we recorded a gain of $1,055,000, net of
payments of broker fees and severance of $216,000. We divested this facility to
reduce our investment in legacy products and to focus our resources on the
commercialization of NuWave products.
Interest Income
Interest income for the quarter and the comparable quarter were $2.3 million and
$215,000, compared to $5.5 million and $734,000 for the nine-month and the
comparable periods, respectively. The increase in return on investments was
primarily due to an increase in the aggregate balance of cash, cash equivalents
and short-term
11
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investments, of which approximately $165 million was received in March 2000 from
our follow-on public offering.
Income Taxes
We did not record a tax benefit associated with the net loss incurred, as the
realization of deferred tax assets is deemed uncertain based on evidence
currently available. Accordingly, a full valuation allowance against deferred
tax assets has been provided.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
and Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. In July 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS No.
137 deferred the effective date of SFAS No. 133 until fiscal years beginning
after June 15, 2000. We will adopt SFAS No. 133 during the year ending December
31, 2001. To date, we have not engaged in derivative or hedging activities. We
do not expect that the adoption of SFAS No. 133 will have a material impact on
our results of operations or financial condition.
In December 1999, the Securities and Exchange Commissions issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the Staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. We do not expect the adoption of SAB 101 to have a material effect
on our results of operations or financial condition. We are required to adopt
SAB 101 in the fourth quarter of 2000.
In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions involving Stock Compensation." FIN 44
clarifies the application of APB Opinion No. 25 regarding (a) the definition of
employee for purposes of applying APB Opinion No. 25, (b) the criteria for
determining whether a stock option plan qualifies as a noncompensatory plan, (c)
the accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain conclusions cover specific events that occur after either December
15, 1998, or January 12, 2000. The adoption of certain provisions of FIN No. 44
prior to July 1, 2000 did not have a material impact on our results of
operations or financial condition. We believe that the adoption of the remaining
provisions of FIN 44 will not have a material effect on our results of
operations or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
The aggregate balance of cash, cash equivalents and short-term investments was
$125.5 million at September 30, 2000, compared to $9.7 million at December 31,
1999. The increase of $116 million was primarily due to the net proceeds of $165
million received from our follow-on public offering of 2,875,000 shares of
common stock completed in March 2000, partially offset by cash used in financing
our operations, capital expenditures and the common stock repurchase program.
Net cash used in operating activities for the nine-month period was $16.6
million, which was primarily attributed to our net loss and increase in
inventories of $7.6 million, partially offset by depreciation and amortization
of $1.8 million and increases in accounts payable and accrued liabilities of
$3.2 million in total. We expect negative cash flows from operations to continue
until we realize operating income. Our capital expenditures totaled $2.5 million
for the nine-month period primarily related to purchases of test equipment and
related software for research and development activities. We expect to incur
capital expenditures of approximately $500,000 in the fourth quarter of 2000,
including leasehold improvements for our new research and development facilities
described below.
12
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Our Board of Directors has approved a common stock repurchase program, pursuant
to which we are authorized to repurchase up to five million shares of our common
stock. As of September 30, 2000, we have repurchased 1,822,000 shares of our
common stock with a total purchase price of approximately $33 million. The
common stock repurchase program may take up to one year to complete, and we
expect to use our capital resources in such repurchase.
In March 2000, we entered into a lease agreement for a 24,000 square feet
facility in Long Island, New York, replacing the existing research and
development facilities. The lease agreement, which has a seven-year term,
requires payments of approximately $430,000 in total, including base rent and
utilities, in its first year and a 4% annual increase thereafter. Leasehold
improvements for the facility are estimated to be approximately $500,000. We
expect to complete the relocation into this new facility by the end of November
2000.
As discussed above, we expect to pay approximately $600,000 for severance and
facility related charges in connection with the divestiture of the manufacturing
facility in Taiwan, which is expected to complete no later than the end of the
first quarter of 2001. In addition, we plan to sell the related manufacturing
and computer equipment, which have a total net book value of approximately $1.4
million, when the manufacturing activities start to wind down in the latter part
of the fourth quarter of 2000. We currently cannot estimate the potential gain
or loss on the sale of these assets.
Our principal sources of liquidity are our cash, cash equivalents and short-term
investments that are expected to be used for general corporate purposes,
including expansion of operations and capital expenditures. We may also use
these capital resources to acquire or invest in businesses, technologies,
products or services that are complementary to our business. From time to time
we have discussed potential strategic acquisitions and investments in third
parties. We currently have no agreements or commitments regarding any
acquisitions or investments. In addition to our cash, cash equivalents and
short-term investments, we also have a $5 million revolving bank line of credit,
which expires on June 1, 2001, and is renewable on an annual basis. Borrowings
under the line of credit bear interest at the bank's prime rate. There were no
borrowings under the line of credit as of September 30, 2000.
We believe that our current balance of cash, cash equivalents and short-term
investments will be sufficient to satisfy our working capital and capital
expenditure requirements for at least the next 12 months.
BUSINESS RISKS
If any of the following risks actually occurs, our business, financial condition
or operating results could be materially adversely affected. The risks set forth
below are not the only risks facing us. Additional risks and uncertainties not
presently known to us, or that we currently see as immaterial, may also harm our
business.
We have a history of losses, expect future losses and cannot assure you that we
will achieve profitability.
We have experienced net losses in each of the last four fiscal years, and we
cannot be certain that we will realize sufficient revenue to achieve
profitability. We expect that we will continue to incur significant sales and
marketing and product development costs associated with our NuWave products.
Consequently, we will need to generate significantly higher revenue to achieve
and sustain profitability. To date, due in large part to software instability
problem identified in the second quarter of 2000, sales of our NuWave products
have not increased in accordance with our expectations. If we do not increase
sales of our NuWave products, we will continue to experience losses
indefinitely. In addition, we have discontinued production of the Layer 2 Fast
Ethernet and FDDI products that accounted for our historical revenues. We intend
to complete end-of-life sales of these products by the end of 2000. We cannot
assure you that we will be able to sell all inventories relating to these
products. If we are required to write-off any unsold inventory, our operating
results could be adversely affected.
Substantially all of our future revenue depends on the commercial success of
products based on our NuWaveArchitecture, and if these products do not achieve
market acceptance, our business will be seriously harmed.
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Substantially all of our future revenue depends on the commercial success of
products based on our NuWaveArchitecture. If these products fail to meet the
needs of our target customers, or if they do not compare favorably in price and
performance to competing solutions, our revenue will not grow. We cannot assure
you that these products will achieve market acceptance. We have made only
limited sales of these products, and it is possible that they may not satisfy
our customers' requirements. Failure of products based on our NuWaveArchitecture
to satisfy our customers' requirements could further delay or prevent their
adoption. If our target customers do not widely adopt, purchase and successfully
deploy our new products, our revenue will not grow significantly, or possibly at
all, and our business, financial condition and results of operations will be
seriously harmed.
If our products contain undetected software or hardware errors, we could incur
significant unexpected expenses and lost sales.
Complex LAN equipment frequently contains undetected software or hardware errors
when first introduced or as new versions are released. We have experienced these
errors in the past, including the software instability issue that adversely
affected our operating results in the second quarter of 2000 and our competitive
position in the marketplace, and we expect that errors will be found from time
to time in new or enhanced products after commencement of commercial shipments.
The software instability issue resulted in delayed shipments and lost sales, and
any future problems of this nature may materially adversely affect our business
by causing us to incur significant warranty and repair costs, diverting the
attention of our engineering personnel from our product development efforts,
causing significant customer relations problems or causing shipment delays as
the errors are corrected.
A number of factors could cause our quarterly and annual financial results to be
worse than expected, which could result in a decline in our stock price.
To support anticipated sales of our NuWaveArchitecture products, we plan to
increase our operating expenses to expand our sales and marketing activities,
broaden our customer support capabilities, develop new distribution channels and
fund increased levels of research and development. We base our operating
expenses on anticipated revenue trends, and a high percentage of our expenses
are fixed in the short term. Consequently, any delay or failure in generating
revenue could cause our quarterly and annual operating results to be below the
expectations of public market analysts or investors, which could cause the price
of our common stock to decline.
We may fail or experience a delay in generating revenue for a number of reasons.
Our customer agreements typically provide that the customer may delay scheduled
delivery dates and cancel orders within specified time frames without
significant penalty. Accordingly, we may incur significant expenses without
meeting corresponding anticipated revenue levels for a given period. In
addition, the timing of product releases, purchase orders and product
availability could result in significant product shipments scheduled for the end
of a quarter. Failure to ship these products by the end of a quarter may
adversely affect our operating results.
Our periodic revenue and operating results have varied significantly in the past
and may vary significantly in the future due to a number of factors, including:
o quality and reliability issues with our NuWaveArchitecture products such as
the software instability problem that adversely affected our operating
results in the second quarter of 2000;
o market acceptance of and demand for our NuWaveArchitecture products;
o decreased average selling prices of our products;
o unexpected product returns or the cancellation or rescheduling of
significant orders;
o our ability to develop, introduce, ship and support new products and
product enhancements and manage product transitions;
o announcements and new product introductions by our competitors;
o our ability to achieve cost reductions;
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o our ability to obtain sufficient supplies of components for our products
for which we rely on sole or limited source suppliers;
o increased prices of the components we purchase;
o our ability to attain and maintain production volumes and quality levels
for our products;
o the mix of products sold and the mix of distribution channels through which
they are sold; and
o costs relating to possible acquisitions and integration of technologies or
businesses.
Due to the foregoing factors, we believe that period-to-period comparisons of
our operating results should not be relied upon as an indicator of our future
performance.
Intense competition in the market for LAN equipment could prevent us from
increasing revenue or achieving or sustaining profitability.
The market for local area network, or LAN, equipment is intensely competitive.
Our principal competitors include Alcatel, Bay Networks, Cabletron Systems,
Cisco Systems, Ericsson, Extreme Networks, Foundry Networks, Lucent
Technologies, Nortel Networks, Siemens, and 3Com. Many of our current and
potential competitors have substantially greater financial, technical, sales,
marketing and other resources, as well as greater name recognition and larger
installed customer bases, than we do. These competitors have developed or could
in the future develop new technologies that compete with our products or even
render our products obsolete. We believe that this market will consolidate over
time and that this consolidation could adversely affect our ability to compete
effectively. A number of companies developing technologies similar to ours have
been acquired by our larger competitors. These acquisitions are likely to permit
our competitors to devote significantly greater resources to the development and
marketing of new competitive products and the marketing of existing products to
their installed bases. We expect that competition will increase as a result of
these and other industry consolidations and alliances.
To remain competitive, we believe we must, among other things, invest
significant resources in developing new products with superior performance at
competitive prices, enhance our NuWaveArchitecture products and maintain
customer satisfaction. If we fail to do so, our products may not compete
favorably, and our revenue and future profitability could suffer.
The average selling prices of our products may decrease rapidly, which may
reduce gross margins or revenue if we are unable to reduce our cost of goods
sold.
The enterprise LAN equipment industry has experienced rapid erosion of average
selling prices due to a number of factors, including competitive pricing
pressures and rapid technological change. We may experience substantial
period-to-period fluctuations in future operating results due to the erosion of
our average selling prices. We anticipate that the average selling prices of our
products will decrease in the future in response to competitive pricing
pressures, increased sales discounts, new product introductions by us or our
competitors or other factors. Therefore, to maintain our gross margins, we must
develop and introduce on a timely basis new products and product enhancements
and continually reduce our product costs. As the average selling prices for our
products are expected to decline, we will need to reduce our product costs,
particularly the cost of our ASICs. To reduce the cost of ASICs we intend to
integrate chips and reduce die sizes. However, we cannot be certain when or if
such price reductions will occur. Our failure to achieve cost reductions would
cause our revenue and gross margins to decline, which would harm affect our
operating results.
We must develop and expand our OEM relationships and other indirect distribution
channels to increase revenue and improve our operating results.
Our distribution strategy focuses primarily on developing and expanding indirect
distribution channels through original equipment manufacturers, or OEMs and
resellers, as well as expanding our field sales organization. If we fail to
develop and cultivate relationships with OEMs and resellers, or if these parties
are not successful in their sales efforts, sales of our products may fail to
increase and may even decrease. Our ability to generate increased revenue
depends significantly upon the ability and willingness of our OEM and reseller
customers to promote products that incorporate our technology. If our OEM and
reseller customers do not successfully market the solutions that incorporate our
products, then sales of our products will be adversely affected. The
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ability and willingness of OEM and reseller customers to promote our products is
based upon a number of factors beyond our control. In addition, some of our
current and potential OEM and reseller customers could offer products that would
compete with or replace our products. The resulting lost sales of our products
to any such customers, in addition to the increased competition presented by the
products offered by our OEM and reseller customers, could harm our business,
financial condition and operating results.
Although we have secured a limited number of OEM customers for our
NuWaveArchitecture products, nearly all of these customers are still at the
early stages of initial commercial shipments. If our OEM customers are unable to
or otherwise do not ship systems that are based on our products, or if their
shipped systems are not commercially successful, our business, operating results
or financial condition could suffer.
In order to support for our indirect distribution channels, we plan to expand
our field sales and support staff. We cannot assure you that this internal
expansion will be successfully completed, that the cost of this expansion will
not exceed the revenue generated or that our expanded sales and support staff
will be able to compete successfully against the significantly more extensive
and well-funded sales and marketing operations of many of our current or
potential competitors. Our inability to effectively establish our distribution
channels or manage the expansion of our sales and support staff could limit our
ability to grow and increase revenue.
Our market is subject to rapid technological change, and we must continually
introduce new products that achieve broad market acceptance to compete
effectively.
The LAN equipment market is characterized by rapid technological change,
frequent new product introductions, changes in customer requirements and
evolving industry standards. If we do not address these changes by regularly
introducing new products, our product line will become obsolete. Developments in
routers and routing software could also significantly reduce demand for our
products. Alternative technologies could achieve widespread market acceptance
and displace the Ethernet technology on which our product lines and architecture
are based. We cannot assure you that our technological approach will achieve
broad market acceptance or that other technologies or devices will not supplant
our approach.
When we announce new products or product enhancements that have the potential to
replace or shorten the life cycle of our existing products, customers may defer
purchasing our existing products. These actions could harm our operating results
by unexpectedly decreasing sales, increasing our inventory levels of older
products and exposing us to greater risk of product obsolescence. The market for
enterprise LAN switching products is evolving, and we believe our ability to
compete successfully in this market is dependent upon the continued
compatibility and interoperability of our products with products offered by
other vendors. In particular, the networking industry has been characterized by
the successive introduction of new technologies and standards that have
dramatically reduced the price and increased the performance of enterprise LAN
equipment. To remain competitive, we need to introduce products in a timely
manner that incorporate or are compatible with these new technologies as they
emerge. We may experience delays in product development in the future, and any
delay in product introduction could adversely affect our ability to compete and
cause our operating results to be below our expectations or the expectations of
public market analysts or investors.
Because we expect to depend on a small number of OEM and distribution channel
customers for a significant portion of our revenue in any period, the loss of
any of these customers or any cancellation or delay of a large purchase by any
of these customers could significantly reduce our revenue.
We anticipate that, although our largest customers may vary from
period-to-period, a small number of key OEM and reseller customers will account
for a significant portion of our revenues in each fiscal period. We cannot
assure you that we will be able to obtain new OEM and reseller customers or
maintain relations with existing OEM and reseller customers. The loss of any key
customers, or a significant reduction in sales to those customers, could
significantly reduce our revenue below anticipated levels. Because our expense
levels are based on our expectations as to future revenue and to a large extent
are fixed in the short term, a substantial reduction or delay in sales of our
products to, or the loss of any significant OEM, reseller or other customer, or
unexpected returns from resellers could harm our business, operating results and
financial condition.
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While we expect that our financial performance in any given period will depend
on orders from a small number of OEMs, resellers and other significant
customers, we do not have contracts with customers binding them to minimum
purchase quantities, except as set forth in a particular purchase orders. For
example:
o our customers can stop purchasing, and our OEMs and resellers can stop
marketing our products, at any time;
o our reseller agreements generally are not exclusive and are for one year
terms, with no obligation of the resellers to renew the agreements; and
o our OEM and reseller agreements provide for discounts based on expected or
actual volumes of products purchased or resold by the reseller in a given
period.
The sales cycle for our products is long, and we may incur substantial
non-recoverable expenses or devote significant resources to sales that do not
occur when anticipated.
Our sales cycle, particularly to OEMs, typically involves a lengthy
qualification process during which we generally invest significant resources to
address customer specifications. Because of the length of the sales cycle, we
may experience delays between increasing expenses for research and development
and sales and marketing efforts and the generation of higher revenue, if any,
from such expenditures. If sales forecasted from a specific customer for a
particular quarter are not realized in that quarter, we may be unable to
compensate for the shortfall, which could harm our operating results. The
purchase of our products or of solutions that incorporate our products typically
involves significant internal procedures associated with the evaluation,
testing, implementation and acceptance of new technologies. This evaluation
process frequently results in a lengthy sales process, typically ranging from
three months to longer than a year, and subjects each sale to a number of
significant risks, including budgetary constraints and internal acceptance
reviews. The length of our sales cycle also may vary substantially from customer
to customer.
We purchase several key components for our products from single or limited
sources and could lose sales if these sources fail to meet our needs.
We currently purchase several key components used in the manufacture of our
products from single or limited sources and depend upon supply from these
sources to meet our needs. We may encounter shortages and delays in obtaining
components in the future that materially adversely affect our ability to meet
customer orders. In particular, NEC Corporation is the sole manufacturer of the
ASICs that form the core of our NuWaveArchitecture products. We do not have a
long-term supply contract with NEC that obligates them to continue to supply
components to us, and it is possible that they could allocate their resources to
their other customers in the future, which could materially disrupt our ability
to manufacture our products and meet customer demands. Qualifying an alternative
manufacturer of our ASICs would be time consuming, costly and disruptive. In
addition, we acquire certain microprocessors and other integrated circuits as
well as a custom designed power supply from sole source suppliers. While we
believe we could qualify alternative suppliers for these products, any delays
caused by supply disruptions could result in increased component prices that
could adversely affect our gross margins. We also use certain components
including memory components and printed circuit boards that we acquire from
limited sources that create risks similar to those created by our sole source
supply arrangements.
We use a rolling 12-month forecast based on anticipated product orders to
determine our material requirements. Lead times for materials and components we
order vary significantly and depend on factors such as the specific supplier,
contract terms and market demand for a component at a given time. If orders do
not match forecasts, we may have excess or inadequate inventory of certain
materials and components, which could materially adversely affect our operating
results and financial condition. From time to time we have experienced shortages
and allocations of certain components, resulting in delays in filling orders. In
the future we may again experience these shortages, particularly with respect to
the supply of semiconductors.
We plan to close our manufacturing facility in Taiwan and depend on contract
manufacturers for all of our manufacturing requirements.
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We currently manufacture all of our products at our facility in Taiwan. During
the third quarter of 2000, we developed a plan to transition all of our
manufacturing requirements to our contract manufacturer, Solectron Corporation,
and subsequently close our facility in Taiwan. The transition is expected to
take place in the fourth quarter of 2000 and complete no later than the end of
the first quarter of 2000. As a result of this transition, we may experience,
among others, the following problems, any of which could materially adversely
affect our business and operating results:
o delays in product shipments;
o reduced control over quality and quantity of products; and
o interruption in the supply of products caused by, among other factors, the
loss of a contract manufacturer.
If we lose key personnel or are unable to hire additional qualified personnel as
necessary, we may not be able to successfully manage our business or achieve our
objectives.
Our success depends to a significant degree upon the continued contributions of
our key management, engineering, sales and marketing, finance and manufacturing
personnel, many of whom would be difficult to replace. We do not have key person
insurance covering any of our personnel. We believe our future success will also
depend in large part upon our ability to attract and retain highly skilled
managerial, engineering, sales and marketing, finance and manufacturing
personnel. Competition for these personnel is intense, and we have had
difficulty of hiring employees, particularly software engineers, in the
timeframe we desire. There can be no assurance that we will be successful in
attracting and retaining the personnel we require. The loss of the services of
any of our key personnel, the inability to attract or retain qualified personnel
in the future, or delays in hiring required personnel, particularly engineers
and sales personnel, could make it difficult for us to manage our business and
meet key objectives. In addition, companies in the networking industry whose
employees accept positions with competitors frequently claim that competitors
have engaged in unfair hiring practices. We could incur substantial costs in
defending ourselves against any such claims, regardless of the merits of such
claims.
If our products do not comply with evolving industry standards and complex
government regulations, they may not achieve market acceptance, which may
prevent us from increasing our revenue or achieving profitability.
The market for LAN equipment is characterized by the need to support industry
standards as they emerge, evolve and achieve acceptance. We will not be
competitive unless we continually introduce new products and product
enhancements that meet these emerging standards. We may not be able to
effectively address the compatibility and interoperability issues that arise as
a result of technological changes and evolving industry standards. In addition,
in the United States, our products must comply with various regulations and
standards defined by the Federal Communications Commission, or FCC, and
Underwriters Laboratories. Internationally, products that we develop may be
required to comply with standards established by telecommunications authorities
in various countries as well as with recommendations of the International
Telecommunication Union. If we do not comply with existing or evolving industry
standards or if we fail to obtain timely domestic or foreign regulatory
approvals or certificates, we may experience delays in product shipments or be
unable to sell our products where these standards or regulations apply, which
could prevent us from increasing our revenue or achieving profitability.
We need to expand our sales and support organizations to increase market
acceptance of our products.
Our products and services require a sophisticated sales effort targeted at
several levels within a prospective customer's organization. We have recently
expanded our sales force and plan to hire additional sales personnel. Unless we
expand our sales force we will not be able to increase revenue. However,
competition for qualified sales personnel is intense, and we might not be able
to hire an adequate number of sales personnel.
We currently have a small customer service and support organization and will
need to increase our staff to support new customers and the expanding needs of
existing customers. The design and installation of networking products can be
complex. Accordingly, we need highly trained customer service and support
personnel. Hiring customer service and support
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personnel is very competitive in our industry due to the limited number of
people available with the necessary technical skills and understanding of our
products.
Our ability to increase our revenue depends on successfully expanding our
international sales.
Our ability to grow will depend in part on our ability to increase sales of our
NuWaveArchitecture products to international customers, particularly in Asia. We
anticipate that sales to international customers will constitute a significant
portion of our future sales. There are a number of risks arising from our
international business, including:
o longer accounts receivable collection cycles;
o difficulties in managing operations across disparate geographic areas;
o difficulties associated with enforcing agreements under foreign legal
systems;
o import or export licensing requirements;
o potential adverse tax consequences; and
o unexpected changes in regulatory requirements.
Our international sales are denominated in U.S. dollars. As a result, an
increase in the value of the U.S. dollar relative to foreign currencies could
make our products less competitive in international markets.
We may engage in future acquisitions that dilute the ownership interests of our
stockholders, cause us to incur debt and assume contingent liabilities.
As part of our business strategy, we expect to review acquisition prospects that
would complement our current product offerings, augment our market coverage,
enhance our technical capabilities or otherwise offer growth opportunities.
While we have no current agreements or negotiations underway with respect to any
material acquisitions, we may acquire businesses, products or technologies in
the future. In the event of any future acquisitions, we could:
o issue equity securities which would dilute stockholders' percentage
ownership;
o incur substantial debt; or
o assume contingent liabilities.
Such actions by us could harm our operating results and cause the price of our
common stock to decline. We cannot assure you that we will be able to
successfully integrate any businesses, products, technologies or personnel that
we might acquire in the future, and our failure to do so could harm our
business, operating results and financial condition.
Problems arising from the use of our products together with other vendors'
products could disrupt our business and harm our financial condition.
Our products must successfully interoperate with products from other vendors. As
a result, when problems occur in a network, it may be difficult to identify the
source of the problem. The occurrence of hardware and software errors, whether
caused by our products or another vendor's products, could result in the delay
or loss of market acceptance of our products, and any necessary revisions may
require us to incur significant expenses. The occurrence of any such problems
would likely have a material adverse effect on our business, operating results
and financial condition.
We may be subject to intellectual property infringement claims that are costly
to defend and may adversely affect our business and ability to compete.
Our industry is characterized by the existence of a large number of patents and
frequent claims and related litigation regarding patent and other intellectual
property rights. In particular, many leading network companies have extensive
patent portfolios with respect to networking technology, while we do not own any
patents nor do we have any patent applications pending that relate to our
NuWaveArchitecture products. We may not have
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taken actions that adequately protect our intellectual property rights. From
time to time, third parties, including leading companies, have asserted against
others and may assert against us exclusive patent, copyright, trademark and
other intellectual property rights to technologies and related standards that
are important to us. Third parties may assert claims or initiate litigation
against us or our manufacturers, suppliers or customers alleging infringement of
their proprietary rights with respect to our existing or future products. Any of
these claims, with or without merit, could be time-consuming, result in costly
litigation and diversion of technical and management personnel, or require us to
develop non-infringing technology or enter into royalty or license agreements.
These royalty or license agreements, if required, may not be available on
acceptable terms, if at all. If there is a successful claim of infringement or
if we fail to develop non-infringing technology or license the proprietary
rights on a timely basis, our business could be harmed.
If we fail to protect our intellectual property, or if others use our
proprietary technology without authorization, our competitive position may
suffer.
Our success and ability to compete are substantially dependent upon our
internally developed technology and know-how. We rely on a combination of
copyright, trademark and trade secret laws and restrictions on disclosure to
protect our intellectual property rights. We also enter into confidentiality or
license agreements with our employees, consultants and corporate partners, and
control access to and distribution of our software, documentation and other
proprietary information. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no changes in financial market risk as originally discussed in
the Company's Annual Report on Form 10-K for the year ended December 31, 1999.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Description of Document
3.1 (1) Amended and Restated Certificate of
Incorporation.
3.2 (1) By-Laws.
3.3 (2) Certificate of Amendment of the Certificate
of Incorporation.
10.54 Employment Agreement with James Regel dated
September 12, 2000.
27 Financial Data Schedule.
(1) Incorporated by reference to the
corresponding exhibit in the Registrant's
Registration Statement on Form S-1.
(2) Incorporated by reference to the
corresponding exhibit in the Registrant's
Quarterly Report on Form 10-Q for the period
ended June 30, 2000.
(b) Reports on Form 8-K
None
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NETWORK PERIPHERALS INC.
Date: November 13, 2000 By: \s\ James Regel
-----------------------------------
James Regel
President and Chief Executive Officer
(Principal Financial and
Accounting Officer)
