<PAGE> 1
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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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ___________
Commission file number 0-25740
ACT NETWORKS, INC.
(Exact name of registrant as specified in its charter)
--------------------
Delaware 77-0152144
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
188 Camino Ruiz, Camarillo, California 93012
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (805) 388-2474
----------
Former name, former address and former three months, if changed since last
report: Not Applicable
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the registrant's Common Stock, as of
November 6, 1998, was 9,392,189.
DOCUMENTS INCORPORATED BY REFERENCE
None
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1998 and June 30, 1998............................ 3
Condensed Consolidated Statements of Operations
for the Three Month Periods Ended
September 30, 1998 and 1997..................................... 4
Condensed Consolidated Statements
of Cash Flows for the Three Month Periods Ended
September 30, 1998 and 1997..................................... 5
Notes to Condensed Consolidated Financial Statements............ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................... 9
PART II. Other Information
Item 1 Legal Proceedings..................................................... 14
Item 2 Changes in Securities and Use of Proceeds............................. 14
Item 3 Defaults upon Senior Securities....................................... 14
Item 4 Submission of Matters to a Vote of Security Holders................... 14
Item 5 Other Information; Risk Factors....................................... 14
Item 6. Exhibits and Reports on Form 8-K...................................... 20
Signature..................................................................... 24
Exhibit Index................................................................. 25
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ACT NETWORKS, INC.
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 32,370 $ 35,018
Short-term investments 12,421 11,607
Accounts receivable, less allowances of $1,959
in September and $2,030 in June 19,657 17,226
Inventory 6,305 8,829
Prepaids and other current assets 1,619 1,786
--------- ---------
Total current assets 72,372 74,466
Plant, equipment and other improvements:
Machinery and equipment 6,572 6,288
Furniture and fixtures 990 992
Computer software 1,943 1,822
Leasehold improvements 673 672
--------- ---------
10,178 9,774
Accumulated depreciation and amortization 6,614 6,031
--------- ---------
3,564 3,743
Goodwill and other intangibles 2,288 2,574
Other assets 55 55
--------- ---------
Total assets $ 78,279 $ 80,838
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 2,895 $ 4,538
Accrued payroll and related benefits 1,346 1,743
Restructuring cost 1,357 750
Other accrued liabilities 1,010 1,225
Income taxes payable
Deferred income taxes 56 65
--------- ---------
Total current liabilities 6,664 8,321
Long-term debt
Stockholders' equity:
Common stock and additional paid-in capital 101,377 101,067
Treasury stock, at cost 214 shares (2,402) (2,402)
Accumulated deficit (27,360) (26,148)
--------- ---------
Total stockholders' equity 71,615 72,517
--------- ---------
Total liabilities and stockholders' equity $ 78,279 $ 80,838
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
ACT NETWORKS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
September 30,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales $ 13,936 $ 13,021
Expenses:
Cost of goods sold 6,005 5,699
Research and development 3,323 3,822
Sales and marketing 3,459 3,590
General and administrative 1,881 2,095
In-process research and development -- 6,750
Impairment and restructuring 607 --
-------- --------
15,275 21,956
-------- --------
Loss from operations (1,339) (8,935)
Other:
Interest and other income, net 551 468
-------- --------
Loss before income taxes (788) (8,467)
Provision for income taxes 178 479
-------- --------
Net loss $ (966) $ (8,946)
======== ========
Loss per share
Basic $ (0.10) $ (0.97)
Diluted $ (0.10) $ (0.97)
======== ========
Shares used in per share calculation
Basic 9,300 9,235
Diluted 9,300 9,235
======== ========
</TABLE>
See accompanying notes
4
<PAGE> 5
ACT NETWORKS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months ended
September 30,
------------------------
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (966) $ (8,946)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 753 773
Non-cash charges for warrants and stock
options 43 --
Provision for allowances on accounts
receivable (71) 75
Impairment and restructuring charges 607 --
Write-off of in-process research and
development -- 6,750
Changes in operating assets and liabilities: -- --
Accounts receivable (2,360) (3,384)
Inventory 2,524 (2,451)
Prepaid expenses and deposits 168 (507)
Accounts payable, accrued expenses and
income taxes payable (2,265) 1,847
-------- --------
Net cash used in operations (1,567) (5,843)
INVESTING ACTIVITIES
Purchase of marketable securities (4,038) (7,135)
Sale and maturities of marketable securities 3,130 5,829
Purchase of plant, equipment and other fixed
assets (404) (819)
Acquisition of Sourcecom assets -- (8,600)
Other assets 117 17
-------- --------
Net cash used in investing activities (1,195) (10,708)
FINANCING ACTIVITIES
Stock warrants and options 267 139
Purchase of treasury stock -- (1,304)
-------- --------
Net cash provided by (used in) financing 267 (1,165)
activities
Net impact of foreign exchange rate changes on
cash (153) --
Net decrease in cash (2,648) (17,716)
Cash and cash equivalents at beginning of the
period 35,018 50,948
-------- --------
Cash and cash equivalents at end of the period $ 32,370 $ 33,232
======== ========
</TABLE>
See accompanying notes
5
<PAGE> 6
ACT NETWORKS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended September 30, 1998
are not necessarily indicative of the results that may be expected for the full
fiscal year or for any future period. For further information, refer to the
financial statements and footnotes thereto included in the Company's most recent
annual report on Form 10-K.
The balance sheet at June 30, 1998 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
2. INVENTORIES
The components of inventory consist of the following (in thousands):
September 30, 1998 June 30, 1998
------------------ -------------
Purchased parts.................... $ 2,602 $ 3,643
Sub-assemblies; finished goods..... 3,703 5,186
-------- --------
$ 6,305 $ 8,829
======== ========
3. NET LOSS PER SHARE
During the year ended June 30, 1998, the Company adopted SFAS No. 128, "Earnings
Per Share" which required a change in the method used to compute earnings per
share. Under this new standard, primary and fully diluted earnings per share
were replaced with basic and diluted earnings per share. Basic earnings per
share amounts exclude the dilutive effect of potential common shares. For ACT
Networks, Inc., diluted earnings per share amounts under the new standard are
the same as primary earnings per share amounts previously presented. As required
by SFAS No. 128, all prior period amounts have been restated to conform to the
new presentation.
"Basic earnings per share" is based upon the weighted average number of common
shares outstanding. "Diluted earnings per share" is based upon the weighted
average number of common shares and dilutive potential common shares
outstanding. Potential common shares are outstanding stock options under the
Company's stock option plans, which are included under the treasury stock
method, when dilutive.
6
<PAGE> 7
ACT NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. NET LOSS PER SHARE (CONTINUED)
The following table sets forth the computation for basic and diluted earnings
per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months ended
September 30,
----------------------
1998 1997
------- -------
<S> <C> <C>
Numerator for basic and diluted loss
per share - net loss ......................... $ (966) $(8,946)
======= =======
Denominator:
Denominator for basic loss per share -
weighted-average shares .................. 9,300 9,235
Effect of dilutive securities - employee
stock options............................. -- --
------- -------
Denominator for diluted loss per share -
adjusted weighted-average shares ............ 9,300 9,235
======= =======
Basic loss per share ........................... $ (0.10) $ (0.97)
Diluted loss per share ......................... $ (0.10) $ (0.97)
======= =======
</TABLE>
4. COMPREHENSIVE INCOME
In July, 1998, the Company adopted Statement 130, Reporting Comprehensive
Income. Statement 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this Statement
had no impact on the Company's net income or stockholders' equity. Statement 130
requires unrealized gains or losses on the Company's available-for-sale
securities and foreign currency translation adjustments, which prior to adoption
were reported separately in stockholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of Statement 130.
During the first quarter of 1998 and 1997, total comprehensive loss amounted to
approximately $(1,119,000) and $(8,953,000), respectively, when foreign
translation adjustments are included.
5. RESTRUCTURING CHARGES
In July 1998, the Company announced a major restructuring program designed to
streamline operations and focus on key markets. As part of the restructuring
program, the Company is concentrating its resources on the NetPerformer and
ServiceXchange product lines. In connection with the restructuring, the Company
is significantly reducing its workforce, eliminating its business unit matrix
structure in favor of a functional organization and de-emphasizing engineering,
sales and marketing efforts for non-strategic products.
Included in the Company's September 30, 1998 net loss were certain restructuring
charges of $607,000, primarily as a result of severance-related expenses.
7
<PAGE> 8
ACT NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. INCOME TAXES
The provision for income taxes for the three months ended September 30, 1998
totaled approximately $178,000. The provision for income taxes for the three
months ended September 30, 1997 was approximately $479,000. The provision for
income taxes differs from the federal statutory rate due primarily to foreign
income taxes related to the Company's Canadian subsidiary and to net operating
losses not benefited.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Report may contain forward-looking statements that involve a number
of risks and uncertainties including, without limitation, those set forth in the
"Risk Factors" section under "Other Information". The Company's actual results
may differ materially from any future performance discussed in the
forward-looking statements and this Management's Discussion and Analysis of
Financial Condition and Results of Operations. The Company undertakes no
obligation to update the information, including the forward-looking statements,
if any, in this Report.
GENERAL
ACT develops, manufactures and markets wide area network (WAN) access
products, which support a broad range of integrated voice and data network
applications. Service providers and enterprise customers use the Company's
products to build multimedia networks that are bandwidth efficient,
cost-effective and easy to manage. The Company's products incorporate advanced
voice and data compression algorithms, enhanced switching and traffic management
capabilities, and state-of-the-art hardware and software integration
technologies.
The Company is migrating toward two principal product families,
NetPerformer and ServiceXchange, which share a common technology foundation but
are targeted at different market segments. NetPerformer is a family of Frame
Relay access devices targeted at enterprise customers who need to integrate and
transport voice, fax, LAN and SNA data over private or public Frame Relay
networks. The ServiceXchange family, currently in development, is intended to
address the needs of service providers who are especially focused on
transporting large volumes of voice traffic cost-effectively over Frame Relay,
ATM or IP backbones. Within each family, both chassis-based and stand-alone
configurations will be offered to serve specific customer requirements for
price, performance, density and feature set.
The Company's future results will be dependent upon a variety of factors
including, without limitation, the Company's ability to develop and release new
products in a timely manner and within anticipated budgets. While the Company
anticipates the release of new products in fiscal 1999, there can be no
assurance that such products will be released when anticipated or that such
products will achieve market acceptance.
The Company anticipates that, in general, the average sales price for
its products will decrease over time due to competition and other factors. The
Company is currently focusing on developing OEM or similar relationships with
third parties, which may result in significant pricing discounts and lower gross
margins. In addition, the Company has from time to time introduced new products,
which are less expensive alternatives to the Company's older products. In such
instances, the Company must sell more units to maintain the same level of
aggregate net sales. Price erosion of existing products, significant discounting
and the Company's introduction of less expensive networking alternatives could
adversely affect the Company's margins and results of operations.
Sales to customers outside of North America accounted for approximately
64% of the Company's net sales for the fiscal year ended June 30, 1998 and
approximately 58% for the three months ended September 30, 1998. The Company
expects that international sales will continue to account for a significant
portion of the Company's net sales in future periods. In addition, the Company
believes that a significant portion of its sales to customers inside North
America represent sales of products which are used or resold in markets outside
of North America. International sales are subject to certain inherent risks,
including unexpected changes in regulatory requirements and tariffs, problems
and delays in collecting accounts receivable and economic downturns in foreign
markets. A significant number of the Company's products are sold or installed in
countries, including several in South America and Asia, where political or
economic issues have adversely affected, and may in the future adversely affect,
the purchasing decision of the customer. In addition, fluctuations in currency
exchange rates have caused, and may in the future cause, the Company's products
to become relatively more expensive to customers in a particular country,
leading to a reduction in sales or profitability in that country. The Company
believes that recent events in Asia and South America will continue to adversely
impact the Company's net sales in these regions in the near term.
A small number of customers have historically accounted for a
substantial portion of the Company's net sales. In particular, Worldcom and
Impsat accounted for approximately 13.0% and 12.1%, respectively, of the
Company's net sales during the three months ended September 30, 1998. During the
fiscal year ended June 30, 1998, the Company's five largest customers
collectively accounted for 35% of net sales and approximately 33% of net sales
during the quarter ended September 30, 1998. Any reduction, delay or change in
orders from significant customers could have a material adverse effect on the
Company's business.
9
<PAGE> 10
ACQUISITIONS
In November 1995, the Company acquired all the outstanding shares of Presticom,
a developer of multiprotocol Frame Relay access devises. In December 1996, the
Company acquired all the outstanding shares of DeltaComm Corporation, a
developer of bandwidth-efficient modems with expertise in the satellite
communications industry. In March 1997, the Company acquired the DynaStar family
of products from Dynatech Communications, Inc. The DynaStar product line is a
family of compact, flexible, integrated multi-service access switch connectivity
products that support extensive multiprotocol WAN connections including TCP/IP,
PPP, Frame Relay, X.25 and ATM. In August 1997, the Company acquired out of
bankruptcy certain assets of Sourcecom, Inc., a developer of high performance
broadband access devises. In connection with these acquisitions, the Company
expensed a portion of the purchase prices as in-process research and
development. In the quarter ended September 30, 1997, the Company expensed
approximately $6.7 million as in-process research and development. The products
and technologies acquired in the Dynatech Communications, Inc. and DeltaComm
Corporation acquisitions are being either de-emphasized or discontinued.
RESTRUCTURING PROGRAM
In July 1998, the Company announced a major restructuring program designed to
streamline operations and focus on key markets. As part of the restructuring
program, the Company is concentrating its resources on the Netperformer and
ServiceXchange product lines. In connection with the restructuring, the Company
is significantly reducing its workforce, eliminating its business unit matrix
structure in favor of a functional organization and de-emphasizing engineering,
sales and marketing efforts for non-strategic products.
Included in the Company's net loss for the quarter ended September 30, 1998 were
certain restructuring charges of $607,000 primarily as a result of severance
related expenses.
RESULTS OF OPERATIONS
The following table sets forth, for the quarters indicated, the
percentage of net sales represented by each item in the Company's statement of
operations.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------
1998 1997
----- -----
<S> <C> <C>
Net sales ..................................... 100.0% 100.0%
Cost of goods sold ............................ 43.1 43.8
----- -----
Gross profit .................................. 56.9 56.2
Operating expenses:
Research and development ................... 23.8 29.3
Sales and marketing ........................ 24.8 27.6
General and administrative ................. 13.5 16.1
Impairment and restructuring ............... 4.4 --
Acquired in-process research and development -- 51.8
----- -----
Total operating expenses ...................... 66.5 124.8
Loss from operations .......................... (9.6) (68.6)
Net interest and other income ................. 4.0 3.6
----- -----
Loss before taxes ............................. (5.6) (65.0)
Provision for income taxes .................... 1.3 3.7
----- -----
Net loss ...................................... (6.9) (68.7)
===== =====
</TABLE>
Net sales
The Company classifies its sales as either international or domestic.
International sales are, in general, shipments to locations outside North
America, regardless of the end-user's or the customer's location. Domestic sales
are, in general, shipments to locations within North America, even if the
end-user or customer is located outside North America. As the Company sells
primarily through resellers, the Company does not know with certainty the
location of the end-user. The Company believes that a majority of sales that it
classifies as domestic are ultimately shipped by the initial purchasers to
end-users outside North America.
10
<PAGE> 11
The Company also classifies its sales by customer type. In general, the
end-users of the Company's products are either enterprise customers who acquire
the Company's products for use in their own network or service providers who use
the Company's products to provide telecommunications services to third parties.
Service providers include alternate service providers (such as wholesale
long-distance carriers and call-back operators), value added network services
providers, competitive local exchange carriers, incumbent local exchange
carriers, competitive access providers, Internet Service Providers and
Interexchange Carriers. The Company's NetPerformer products may be used by both
enterprise customers and service providers. The Company's ServiceXchange
products are designed primarily for the service provider market. As the Company
does not intend to actively promote many of its former products which have,
historically, accounted for a majority of the Company's net sales, the Company's
net sales may be adversely impacted in the near term. The Company has in the
past encountered, and may in the future encounter, decreased sales as a result
of product transitions.
Net sales increased 7.0% to $13.9 million for the quarter ended
September 30, 1998 from $13.0 million for the quarter ended September 30, 1997.
This increase was primarily as a result of increased domestic sales of the
Company's Dynastar products to service providers. Net sales to the Asia Pacific
region decreased substantially from the first quarter of the previous year which
was more than offset by the increase in domestic sales. The following table sets
forth, for the quarters indicated the percentage of total net sales in these
categories.
September 30, 1998 September 30, 1997
------------------ ------------------
Domestic Sales 41.9% 19.6%
International Sales 58.1 80.4
----- -----
100.0% 100.0%
===== =====
Sales to Enterprise
Customers 51.7% 71.9%
Sales to Service Providers 48.3 28.1
----- -----
100.0% 100.0%
===== =====
Gross Profit
Gross profit represents net sales less the cost of goods sold, which
includes cost of materials, manufacturing overhead costs and direct labor
expenses. The Company's gross profit was $7.9 million, or 56.9% of net sales,
for the quarter ended September, 1998 as compared to $7.3 million, or 56.2% of
net sales, for the quarter ended September 30, 1997. This increase in gross
profit was primarily attributable to increased sales of the Company's Dynastar
products which generally have higher gross margins than the Company's other
products. Management anticipates downward pressure on gross profit as a
percentage of sales, particularly as the Company pursues OEM opportunities that
typically produce lower gross margins.
Operating Expenses
RESEARCH AND DEVELOPMENT. Research and development expense decreased to
$3.3 million, or 23.8% of net sales, for the three months ended September 30,
1998 as compared to $3.8 million, or 29.3% of net sales, for the three months
ended September 30, 1997 and $4.7 million, or 34.4% of net sales, for the three
months ended June 30, 1998. As discussed above in "Restructuring Program,"
management is reducing its workforce as the Company de-emphasizes engineering
efforts for non-strategic products. In particular, the Company is in the process
of narrowing its product focus to emphasize the Netperformer and ServiceXchange
product lines and anticipates additional decreases in research and development
expenses as a percentage of sales. However, the development of new products and
features involves a number of risks and uncertainties, and there can be no
assurance that the Company's research and development expenses will decrease
either in actual dollars or as a percentage of sales in future periods.
SALES AND MARKETING. Sales and marketing expense decreased to $3.5
million, or 24.8% of net sales, for the three months ended September 30, 1998 as
compared to $3.6 million, or 27.6% of net sales, for the three months ended
September 30, 1997. As discussed above in "Restructuring Program," management is
reducing its workforce as the Company de-emphasizes sales and marketing efforts
for non-strategic products and adopts a functional organizational structure.
While the actual amount expended will depend upon a variety of factors, the
Company anticipates decreasing sales and marketing expenses as a percentage of
net sales in the near term due to its restructuring program. However, there can
be no assurance that anticipated increases in net sales or decreases in expense
in dollars will occur.
11
<PAGE> 12
GENERAL AND ADMINISTRATIVE. General and administrative expense decreased
to $1.9 million, or 13.5% of net sales, for the three months ended September 30,
1998 as compared to $2.1 million, or 16.1% of net sales, for the three months
ended September 30, 1997. Amortization expense relating to acquisitions was
approximately $92,000 and $181,000 in the three month periods ended September
30, 1998 and September 30, 1997, respectively.
As part of the restructuring program, the Company intends to combine,
eliminate or scale back certain facilities which management expects will further
reduce general and administrative expense beginning in the second quarter of
fiscal 1999. The Company may record additional charges in fiscal 1999 related to
employee termination and other costs associated with de-emphasizing certain
product lines and consolidating facilities.
Net interest and other income (expense)
Net interest income was $551,000 for the three months ended September
30, 1998 compared to net interest income of $468,000 for the three months ended
September 30, 1999.
Income Taxes
The provision for income taxes for the three months ended September 30,
1998 totaled approximately $178,000. In general, the provision for income taxes
may differ from the federal statutory rate due to foreign income taxes related
to the Company's Canadian subsidiary, the effect of federal and state
alternative minimum taxes, and net operating losses incurred for the period that
are not benefited. For the first quarter of fiscal 1999, the difference between
the federal statutory rate and the effective tax rate primarily relates to
foreign income taxes and operating losses not benefited.
Inflation/Accounting Pronouncements
Although management cannot accurately anticipate the effect of inflation
on its operations, to date inflation has not had a material effect on product
sales or results of operations. Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS
131), was issued in June 1997. The adoption of this statement is not expected to
have a material impact on the Company's consolidated results of operations,
financial position or cash flows.
Year 2000
The Year 2000 issue is the result of computer programs that were written
using two digits rather than four to define the applicable year; accordingly,
computer programs that have time-sensitive software or firmware may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculation causing disruptions of operations including,
among other things, an inability to process transactions, send invoices or
engage in similar normal activities.
The Company's internal information systems require a Unix operating
system version upgrade to become Year 2000 compliant. The upgrade is expected to
be completed in fiscal 1999. The Company is performing internal testing of its
products and expects to complete such testing during the second quarter of
fiscal 1999. Based on its testing to date, the Company believes that its
products are Year 2000 compliant. The Company has not had, and has no present
intention to have, its products tested by an independent lab. The Company does
not expect that the costs to complete the testing program related to the Year
2000 will have a material impact on operations or financial results. The Company
has not conducted a comprehensive survey of customers or suppliers to assess the
potential impact, if any, of Year 2000 noncompliance on the part of third
parties; however, the Company believes that there are two predominant sources of
third party risk for the Company with respect to the Year 2000 issue. The
Company depends on turnkey manufacturers of components for its manufacturing
process and disruption of operations at such a supplier, whether due to Year
2000 noncompliance or not, could negatively impact the Company's shipment
schedule. The Company also has a number of large customers who are either
end-users or resellers. The Company's top five customers generated 33% of net
sales in the first quarter of fiscal 1999. Year 2000 noncompliance at such
customers' sites could negatively impact sales to such customers by disrupting
the networks of such customers or their customers, in the case of resellers. In
the event that the Company's internal system or systems of significant outside
vendors are not converted or modified in a timely manner to make them Year 2000
compliant, there could be a material adverse effect upon the business and
financial results of the Company. The Company does not have a contingency plan
in place to address such an event and does not presently intend to create one.
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily from the sale of stock
and sales of the Company's products. For the three months ended September 30,
1998, the Company's operating activities used cash of approximately $1.6 million
primarily as a result of the Company's net loss for the period and increase in
accounts receivable. At September 30, 1998, the Company had approximately $65.7
million in working capital, including $44.8 million in cash, cash equivalents
and short-term investments.
Capital expenditures relating primarily to the purchase of computer
equipment, test equipment, computer software and leasehold improvements amounted
to approximately $400,000 for the three months ended September 30, 1998. The
Company currently has no material commitments for capital expenditures. However,
the Company anticipates spending between $1.5 million and $2.0 million during
the next twelve months to acquire test equipment, computer equipment, office
furniture, leasehold improvements and tooling.
The Company believes that available cash, cash equivalents and
investments, together with internally generated cash flow, will be adequate to
satisfy its capital requirements for at least the next twelve months.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS. None.
ITEM 5. OTHER INFORMATION.
RISK FACTORS
This report may contain forward-looking statements that involve a number of
risks and uncertainties. Certain results that could cause actual results to
differ are discussed below. The Company's actual results may differ materially
from any future performance discussed in forward-looking statements. The
following risks should be considered carefully, in addition to the other
information contained in this Report, before trading in the shares of the
Company's Common Stock.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company has experienced and may
in the future experience significant fluctuations in net sales and operating
results as a result of a number of factors including, without limitation, the
volume and timing of orders from, and shipments to, major customers; market
acceptance of the Company's products; the ability of the Company's customers,
particularly international customers, to obtain financing for the purchase of
the Company's products; economic issues in international markets; changes in the
Company's strategies; changes in pricing policies or price reductions by the
Company or its competitors; variations in the Company's sales channels or the
mix of product sales; the timing of new product announcements and product
introductions by the Company or its competitors; product obsolescence resulting
from new product introductions or changes in customer demand; the availability
and cost of supplies; the financial stability of major customers; expenses
associated with the acquisition of technologies or businesses; changes in
regulatory requirements; the development of public telecommunications
infrastructures, particularly in international markets; and currency
fluctuations. While the Company regularly engages in price discounting,
significant discounts in a particular quarter could adversely affect the results
of operations for such quarter. In addition, significant and continuing
discounts due to competition or other factors could adversely affect the
Company's business, operating results and financial condition. The Company has
generally not experienced seasonality in its net sales, although the Company has
from time to time experienced decreased net sales to customers in Europe in the
third calendar quarter of each year and has experienced some decreases in net
sales in other international markets during certain periods during the year. Due
to all of the foregoing factors, in certain quarters the Company's operating
results have been, and it is likely that in some future periods the Company's
operating results will be, below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock has been and
in the future could be materially adversely affected. For example, on several
occasions over the last few years, the Company's net sales decreased when
compared to the preceding quarter and, as a result, the Company's results of
operations and, in certain instances, the price of the Company's Common Stock
were adversely affected. In addition, in July 1998 the Company commenced a
restructuring program which adversely impacted the Company's operating results
and which will continue to adversely impact the Company's operating results in
the near term. Quarterly results are not necessarily indicative of future
performance for any particular period, and there can be no assurance that the
Company will attain growth in net sales or profitability on a quarterly or
annual basis. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The Company's sales are primarily through resellers and are typically
characterized by several large orders and a large number of small orders.
Resellers typically do not stock a supply of the Company's products and place
orders with the Company only after they have received orders from their
customers. In addition, the Company's backlog at the beginning of a quarter is
generally insufficient to achieve expected net sales for the quarter. While it
is difficult for the Company to accurately forecast the timing and quantity of
orders on a quarter to quarter basis, the Company may increase expenses with the
expectation of future sales. The failure of the Company to accurately forecast
the timing and volume of orders for a quarter would adversely affect the results
of operations for such quarter and, potentially, for future periods.
Fluctuations in quarterly results may result in significant volatility in the
market price of the Company's Common Stock. In addition, sales of networking
products fluctuate from time to time based on numerous factors, including
capital spending levels and general economic and market conditions. Future
declines in networking product sales, as a result of general economic conditions
or for any other reason, could have a material adverse effect on the Company's
business, operating results and financial condition.
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LIMITED HISTORY OF OPERATIONS AND PROFITABILITY. The Company was organized in
May 1987 and commenced shipments of its first product in October 1988. While the
Company first achieved profitability in the fourth calendar quarter of 1990, it
incurred losses in periods subsequent to that time. There can be no assurance
that the Company will be profitable in future periods. In the past, the Company
has expanded its level of operations, resulting in increased fixed costs and
operating expenses, with the expectation of increased sales and gross profits.
The Company's operating results and net income were adversely impacted as net
sales and gross profits did not increase sufficiently to offset such increased
expenses. While the Company commenced a restructuring program in July 1998 to
decrease expenses, there can be no assurance that expenses have been, or will
be, decreased sufficiently to result in profitability, that the Company will not
increase expenses with the anticipation of increased sales in the future, or
that the Company will maintain or increase net sales or gross profits. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON KEY PERSONNEL; NEW MANAGEMENT. The Company's success is dependent
in large part on its executive officers, senior management and sales and
technical personnel. Since July 1998, the Company has undergone numerous changes
in all levels of the organization as a result of a restructuring and other
factors. In particular, the Company has a new Chief Executive Officer, Vice
President of Marketing, Vice President of Sales and Vice President of
Engineering, and is actively recruiting a Chief Financial Officer. The failure
of new management and other personnel to fully integrate into the Company's
operations and to execute the Company's strategy, and the failure of the Company
to retain such management and other personnel, could have a material adverse
effect on the Company's business. The Company's success will be dependent on its
continued ability to attract, retain and motivate highly skilled employees, who
are in great demand. There can be no assurance that the Company will be able to
do so.
RESTRUCTURING. In July 1998, the Company commenced a restructuring program to
streamline its operations and focus its efforts on the Netperformer and
ServiceXchange products. The Company discontinued or de-emphasized certain
nonstrategic operations or product lines and effected numerous personnel
changes. As a result of these and other factors, the Company incurred
significant losses in the quarters ended June 30, 1998 and September 30, 1998.
The Company may incur additional expenses related to the restructuring in fiscal
1999. As such, the restructuring program will adversely impact the Company's
results of operations in the near term. There can be no assurance that the
restructuring will positively impact the Company in the long term.
TECHNOLOGICAL CHANGE, CHANGING MARKETS AND NEW PRODUCTS. The market for the
Company's products is characterized by rapid technological advances, evolving
industry standards, frequent new product introductions and enhancements, and
significant price competition. The introduction of products involving superior
or alternative technologies, the emergence of new industry standards,
governmental regulations, changes in a market's pricing structure and other
factors could render the Company's existing products, as well as products under
development, obsolete and unmarketable in one or more markets which could
adversely affect the Company's business, operating results and financial
condition. The Company has experienced instances where one or more of those
factors resulted in a significant decrease in sales of the Company's products in
particular markets or resulted in new products becoming obsolete or
unmarketable. The Company's success will depend, in part, on the viability of
the Company's products in its markets and the ability of the Company to develop
effective distribution channels to address these markets. There can be no
assurance that the Company's products will be widely accepted. Failure of the
Company's products to achieve market acceptance could have a material adverse
effect on the Company's business, operating results and financial condition.
The Company believes its future success will depend, in part, upon its
ability to expand and enhance the features of its existing products and to
develop or acquire and introduce new products designed to meet changing customer
needs on a cost-effective and timely basis. In particular, the completion of the
development and successful commercial release of the ServiceXchange family of
products is critical to the Company's strategies. Failure by the Company to
respond on a timely basis to technological developments, changes in industry
standards or customer requirements, or any significant delay in product
development or introduction (particularly the ServiceXchange products), could
have a material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that the Company will respond
effectively to technological changes or new product announcements by others or
that the Company will be able to successfully develop and market new products or
product enhancements and that any new product or product enhancement will gain
market acceptance.
Inherent in the product development process are a number of risks. The
development of new, technologically advanced products and product enhancements
is a complex and uncertain process requiring high levels of innovation, as well
as the accurate anticipation of technological and market trends. The Company
budgets research and development expenditures based on planned product
introductions and enhancements; however, actual expenditures may significantly
differ from budgeted expenditures. There can be no assurance that the Company
will successfully identify, develop or introduce new products or product
enhancements. Products such as those offered by the Company may contain
undetected or unresolved software errors when they are first introduced or as
new versions are released. There can be no assurance that, despite extensive
testing by the Company, software errors will not be found in new products or
upgrades after commencement of commercial shipments, resulting in delay in or
loss of market acceptance. Future delays in the introduction or shipment of new
or enhanced products, the inability of such products to
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<PAGE> 16
gain market acceptance or problems associated with new product transitions could
adversely affect the Company's operating results, particularly on a quarterly
basis. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
SUBSTANTIAL COMPETITION. The market for the Company's products is highly
competitive. The Company competes directly domestically and internationally with
a variety of companies offering fast packet access and/or gateway products
including Cisco Systems, Inc., Lucent Technologies, Inc., Ascend Communications,
Northern Telecom, Inc., Memotec Communications, Inc., Motorola Information
Systems Group, Sync Research, Inc. and other companies. The Company expects
substantial additional competition from existing competitors and from a number
of other companies which may enter the Company's existing or future markets.
Many of the Company's current and potential competitors have substantially
greater name recognition and financial, marketing, technical and other resources
than the Company. Many of these companies sell directly to end-users, which the
Company believes may provide a competitive edge over the Company when marketing
either similar products or alternative networking solutions. In addition, many
of these companies offer a more comprehensive networking solutions to their
customers than the Company. Consolidations in the industry could enhance the
capabilities of the Company's competitors. There can be no assurance that the
Company will be able successfully to compete against either current or potential
competitors or that competition will not have a material adverse effect on the
Company's business, operation results and financial condition.
INTEGRATION OF ACQUISITIONS. The Company has, and may in the future, acquire
complementary technologies and businesses. Acquisitions by the Company may
result in potentially dilutive issuances of equity securities, the incurrence of
additional debt, the creation and amortization of goodwill and the incurrence of
acquisition related expenses, all of which could adversely affect the Company's
results of operations. In addition, acquisitions involve numerous risks,
including difficulties in the assimilation of the operations, technologies and
products of the acquired businesses; the diversion of management's attention
from other business concerns; risks associated with the Company's entering
markets in which it has no or limited direct prior experience; and the potential
loss of key employees of the acquired company. The Company has engaged in
several acquisitions in the last two years which have resulted in increased
expenses without a commensurate increase in net sales. These acquisitions have
also adversely impacted the Company's results of operations due to in-process
research and development expenses, the write down of tangible and intangible
assets and other factors. In the event the Company engages in additional
acquisitions, no assurances can be given as to the effect thereof on the
Company's business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CUSTOMER CONCENTRATION. A small number of customers have historically accounted
for a substantial portion of the Company's net sales. During the fiscal year
ended June 30, 1998, and the three months ended September 30, 1998, the
Company's five largest customers collectively accounted for 35% and 33%,
respectively, of net sales. In many instances, the Company's major customers in
any given period have ordered significantly less products in future periods. The
Company believes that this has been due, in part, to customers who make large,
one-time purchases to set up their communications infrastructure, after which
such customers do not require further significant purchases. In addition, the
Company believes this may be due to a variety of other factors, including,
without limitation, the economic conditions in various countries, particularly
those in Asia and South America. Therefore, the Company expects that its major
customers will fluctuate from period to period. There can be no assurance that a
major customer will not reduce or delay the amount of products ordered from the
Company or significantly change the terms upon which the Company and such
customer do business. Any such reduction, delay or change could have a material
adverse effect on the Company's business.
MANAGEMENT OF GROWTH. The Company has from time to time experienced growth in
its operations, both internally and as a result of acquisitions. The Company's
growth has placed, and will continue to place, strain on the Company's
managerial, operational and financial resources, systems and controls. This is
particularly true with respect to sales in international markets since each
specific international market has its own unique regulatory, financial,
technical, customer and other characteristics which often require the Company to
devote significant resources to sell products in that country. In addition, the
Company engages from time to time in customer development activities for
customers which require the allocation of significant resources. The Company's
future operating results will depend on its ability to attract, hire and retain
skilled employees, and to expand and improve the Company's operational, product
development, management information and financial systems and controls. The
Company continues to upgrade its management information and product development
systems. The Company's failure to manage growth effectively, successfully
upgrade its systems or to hire, retain and integrate necessary qualified
personnel could adversely affect the Company's business, operating results and
financial condition.
INTERNATIONAL SALES, TARIFF AND REGULATORY MATTERS. Sales of the Company's
products to customers outside of North America accounted for approximately 64%
and 58% of the Company's net sales for the fiscal year ended June 30, 1998, and
the three months ended September 30, 1998, respectively. In addition, the
Company believes that a majority of its sales to customers inside North America
represent sales of products which are used or resold in markets outside of North
America. The Company expects that international sales will continue to account
for a significant portion of the Company's net sales in future periods.
International sales are subject to certain inherent risks, including unexpected
changes in regulatory requirements and tariffs, difficulties in staffing and
managing foreign operations, potentially adverse tax consequences and problems
in collecting accounts receivable. A significant number of the Company's
products are sold or installed in countries, including several in South America
and Asia,
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<PAGE> 17
where political or economic issues have adversely effected, and may in the
future adversely affect, the purchasing decision of customers. The Company
believes that recent events in Asia and Latin America have adversely impacted,
and will continue to adversely impact, the Company's net sales in these regions
in the near term. Although the Company's sales are currently denominated in U.S.
dollars, fluctuations in currency exchange rates have in the past caused, and
could in the future cause, the Company's products to become relatively more
expensive to customers in a particular country, leading to a reduction in sales
or profitability in that country and potentially leading to an extension of
payment terms. Furthermore, future international activity may result in foreign
currency denominated sales and, in such event, gains and losses on the
conversion to U.S. dollars of accounts receivable and accounts payable arising
from international operations may contribute to fluctuations in the Company's
results of operations. The financial stability of foreign markets could also
affect the Company's international sales. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Rates for telecommunications services are governed by tariffs of
licensed carriers that are subject to regulatory approval. Future changes in
these tariffs could have a material adverse effect on the Company's business.
For example, should tariffs for public switched digital services increase in the
future relative to tariffs for private leased services, the cost-effectiveness
of certain of the Company's products would be reduced, and its business and
results of operations could be adversely affected. In addition, the Company's
products must meet standards and receive certification for connection with the
public telecommunications networks of a country prior to their sale in such
country. In the United States, for example, the Company's products must comply
with certain regulations promulgated by the Federal Communications Commission.
The Company's products must also be certified by domestic telecommunications
carriers. In foreign countries, the Company's products are subject to a wide
variety of governmental review and certification requirements. From time to
time, foreign governments have altered certification or regulatory requirements
which has adversely impacted the Company's ability to sell products in such
markets. Any future inability to obtain on a timely basis or retain domestic
certificate or foreign regulatory approvals could have a material adverse effect
on the Company's business, operating results and financial condition.
RELIANCE ON THIRD PARTY SUPPLIERS. The Company relies on third party suppliers
who supply the components used in the Company's products. The unavailability of
certain components from current suppliers, especially components custom designed
for the Company, could result in delays in the shipment of the Company's
products as well as additional expenses associated with obtaining and qualifying
a new supplier. In addition, certain key components used in the Company's
products are available only from single sources and the Company does not have
long term contracts ensuring the supply of such components. As the Company
typically maintains less than 90 days supply of such components, there can be no
assurance that components will be available to meet the Company's future
requirements at favorable prices, if at all. The Company's inability to obtain
components in a timely manner would materially and adversely affect the
Company's business and financial condition. In addition, any significant
increase in component prices could also adversely affect the Company's results
of operations. The Company resells Frame Relay switches purchased from Ascend.
Although the Company believes similar products can be purchased from other
sources, the process of qualifying replacement suppliers, generating the
supporting documentation, performing system level integration, obtaining
standards-compliant approval for its products, and retraining sales and
marketing channels would require a significant amount of time and expense. The
Company's ability to offer an integrated, cost-effective networking solution is
based, in part, on its ability to sell such products as part of its present
line. The Company's inability to source these products at satisfactory quality
and quantity levels and with the appropriate lead time would adversely affect
the Company's business and operations.
RELIANCE ON INDIRECT DISTRIBUTION. The Company markets and sells products
domestically and internationally primarily through resellers, such as
distributors, value-added resellers and system integrators. The number of
qualified resellers in certain countries is limited. Resellers typically are not
effective at selling the Company's products until they have been trained and
have successfully completed several sales. The Company's performance depends in
part on attracting, retaining and motivating such resellers. Certain of the
Company's resellers also act as resellers for competitors of the Company and
could devote greater effort and resources to marketing competitive products. The
Company's resellers are generally provided discounts and, occasionally, are
entitled to special pricing or distribution arrangements, the effect of which is
to decrease the Company's gross margins. While the Company has contractual
relationships with many of its resellers, these agreements do not require the
resellers to purchase the Company's products and can generally be terminated on
short notice by the reseller. Resellers in many countries have title to the
governmental authorizations and certifications necessary to market the Company's
products in such country, and there is no assurance that, in the event a
reseller ceased marketing the Company's products, the reseller would transfer
such authorization or certification to the Company or that the expense and delay
associated with obtaining a new authorization or certification would not
adversely affect the Company's business and operations in such country. There
can be no assurance that resellers will continue to market the Company's
products or devote the resources necessary to provide effective sales and
marketing support to the Company. In addition, the Company is dependent on the
continued viability and financial stability of its resellers, many of which are
small organizations with limited capital. The loss of any key reseller could
adversely affect the Company's business.
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DEPENDENCE ON PROPRIETARY TECHNOLOGY. The Company's future success will depend
in part on its proprietary technology. In addition, certain technology licensed
from third parties is incorporated in the Company's products. In particular, the
Company licenses certain of its voice compression algorithms, the right to
commercialize its SkyFrame products, components of its network management system
software and other software and technology embedded in the hardware incorporated
into the Company's products pursuant to nonexclusive license agreements. The
failure of the Company to retain such licenses or obtain new licenses as
improvements in such technology are developed and new technology is introduced
could adversely affect the Company's business. The Company does not currently
hold any patents. The Company relies principally on copyright, trade secret and
contract law to protect its proprietary technology. There can be no assurance
that such measures are adequate to protect the Company's proprietary technology.
The Company has substantial international operations and the laws of foreign
countries treat the protection of proprietary rights differently from, and may
not protect the Company's proprietary rights to the same extent as do, laws in
the United States. Since patent applications in the United States are not
publicly disclosed until the patent is issued, applications may have been filed
which, if issued as patents, would relate to the Company's products. In
addition, the Company has never conducted a comprehensive patent search relating
to the technology used in its products. Accordingly, there can be no assurance
that third parties will not assert infringement claims against the Company in
the future or that such claims will not be successful. The Company could incur
substantial costs in defending itself and its customers against any such claims,
regardless of the merits of such claims. Parties making such claims may be able
to obtain injunctive or other equitable relief which could effectively block the
Company's ability to sell its products in the United States and abroad, and
could result in an award of substantial damages. In the event of a successful
claim of infringement, the Company, its customers and end-users may be required
to obtain one or more licenses from third parties. The Company has in the past,
and may in the future, pay significant sums to obtain licenses from third
parties to avoid the costs and uncertainties associated with defending a
potential claim. There can be no assurance that the Company or its customers
could obtain necessary licenses from third parties at a reasonable cost or at
all. The defense of any lawsuit could result in time consuming and expensive
litigation, damages, license fees, royalty payments and restrictions on the
Company's ability to sell its products, any of which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
YEAR 2000. The Year 2000 issue is the result of computer programs that were
written using two digits rather than four to define the applicable year;
accordingly, computer programs that have time-sensitive software or firmware may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculation causing disruptions of
operations including, among other things, an inability to process transactions,
send invoices or engage in similar normal activities.
The Company's internal information systems require a Unix operating
system version upgrade to become Year 2000 compliant. The upgrade is expected to
be completed in fiscal 1999. The Company is performing internal testing of its
products and expects to complete such testing during the second quarter of
fiscal 1999. Based on its testing to date, the Company believes that its
products are Year 2000 compliant. The Company has not had, and has no present
intention to have, its products tested by an independent lab. The Company does
not expect that the costs to complete the testing program related to the Year
2000 will have a material impact on operations or financial results. The Company
has not conducted a comprehensive survey of customers or suppliers to assess the
potential impact, if any, of Year 2000 noncompliance on the part of third
parties; however, the Company believes that there are two predominant sources of
third party risk for the Company with respect to the Year 2000 issue. The
Company depends on turnkey manufacturers of components for its manufacturing
process and disruption of operations at such a supplier, whether due to Year
2000 noncompliance or not, could negatively impact the Company's shipment
schedule. The Company also has a number of large customers who are either
end-users or resellers. The Company's top five customers generated 33% of net
sales in the first quarter of fiscal 1999. Year 2000 noncompliance at such
customers' sites could negatively impact sales to such customers by disrupting
the networks of such customers or their customers, in the case of resellers. In
the event that the Company's internal system or systems of significant outside
vendors are not converted or modified in a timely manner to make them Year 2000
compliant, there could be a material adverse effect upon the business and
financial results of the Company. The Company does not have a contingency plan
in place to address such an event and does not presently intend to create one.
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VOLATILITY OF STOCK PRICE. The trading price of the Company's Common Stock has
undergone significant fluctuations and is expected to continue to be subject to
significant fluctuations in response to variations in quarterly operating
results, the gain or loss of significant contracts, changes in management,
announcements of technological innovations or new products by the Company or its
competitors, legislative or regulatory changes, general trends in the industry
and other events or factors. In addition, the stock market has experienced
extreme price and volume fluctuations which have particularly affected the
market price for many high technology companies and which have often been
unrelated to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company anticipates
that available cash, together with amounts available under its credit facilities
and cash flow from operations, will be adequate to satisfy its capital
requirements through at least the next 12 months. The Company's future capital
requirements will depend on many factors including, but not limited to, the cost
of acquisitions of businesses, products and technologies, the levels at which
the Company maintains inventory, the market acceptance of the Company's
products, the levels of promotion and advertising required to launch such
products and attain a competitive position in the marketplace, and the extent to
which the Company invests in new technology and improvements to its existing
technology. To the extent that existing resources and future earnings are
insufficient to fund the Company's activities, the Company may need to raise
additional funds through public or private financings including equity
financings. If additional funds are raised through the issuance of equity
securities, the percentage ownership of then current stockholders of the Company
will be reduced and such equity securities may have rights, preferences or
privileges senior to those of the holders of the Company's Common Stock. No
assurance can be given that additional financing will be available or that, if
available, it can be obtained on terms favorable to the Company and its
stockholders. The Company's lack of authorized Preferred Stock could hinder the
Company's ability to obtain financing. If adequate funds are not available, the
Company may be required to delay, scale back or eliminate some or all of its
research and development, to curtail its operations significantly or to obtain
funds through arrangements with strategic partners or others that may require
the Company to relinquish rights to certain of its technologies or potential
markets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS. The Company's Certificate of
Incorporation provides for a Board of Directors with staggered terms, which may
discourage or prevent certain types of transactions involving an actual or
potential change in control of the Company, including transactions in which the
stockholders might otherwise receive a premium for their shares over then
current market prices. Certain provisions of Delaware law applicable to the
Company, including Section 203 of the Delaware General Corporation Law, could
have the effect of delaying, deferring or preventing a change of control of the
Company. It is possible that the staggered board and Section 203 of the Delaware
General Corporation Law may have the effect of delaying, deferring or preventing
a change of control of the Company, may discourage bids for the Company's Common
Stock at a premium over the market price of the Common Stock and may adversely
affect the market price of the Common Stock.
LACK OF DIVIDENDS. The Company has never paid cash dividends on shares of its
capital stock. The Company currently intends to retain any future earnings in
its business and does not anticipate paying any cash dividends in the future.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS:
EXHIBIT NO.
3.1 Certificate of Incorporation of the Company. Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1, Registration No. 33-90394
3.2 Bylaws of the Company. Incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-1, Registration No.
33-90394
4.1 Specimen certificate representing shares of Common Stock of the
Company. Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
4.2 Form of Warrant of the Company. Incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
10.1 Standard Industrial/Commercial Multi-Tenant Lease-Modified Net
dated May 23, 1994 by and between Herman Bennett and the Company.
Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
10.2 Master Lease Agreement dated January 11, 1994 by and between the
Company and Leasetec Corporation, as amended and supplemented.
Incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
10.3 Loan and Security Agreement dated March 23, 1993, as amended,
between Silicon Valley Bank and the Company and related agreements
and documents. Incorporated by reference to Exhibit 10.3 to the
Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.4 Loan and Security Agreement (Exim) dated May 11, 1994, as amended,
between Silicon Valley Bank and the Company and related agreements
and documents. Incorporated by reference to Exhibit 10.4 to the
Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.5 Executive Employment Agreement dated December 23, 1992, by and
between the Company and Martin Shum. Incorporated by reference to
Exhibit 10.5 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
10.6 Form of Indemnification Agreement. Incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
10.7 1987 Stock Option Plan (the "1987 Plan"). Incorporated by reference
to Exhibit 10.7 to the Company's Registration Statement on Form
S-1, Registration No. 33-90394.
10.8 Form of Amended Notice of Grant of Stock Option with respect to
holders of installment incentive stock options granted under the
1987 Plan. Incorporated by reference to Exhibit 10.8 to the
Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.9 Form of 1987 Installment Incentive Stock Option Agreement,
Immediately Exercisable Stock Option Agreement and Immediately
Exercisable Non-Qualified Stock Option Agreement generally used in
connection with the 1987 Plan. Incorporated by reference to Exhibit
10.9 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
10.10 Form of 1987 Stock Purchase Agreement generally used in connection
with the 1987 Plan. Incorporated by reference to Exhibit 10.10 to
the Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.11 1993 Stock Option Plan as amended (the "1993 Plan"). Incorporated
by reference to Exhibit 10.11 to the Company's Registration
Statement on Form S-1, Registration No. 33-90394.
20
<PAGE> 21
10.12 Form of Notice of Grant of Stock Option generally used in
connection with the 1993 Plan. Incorporated by reference to Exhibit
10.12 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
10.13 Form of 1993 Stock Option Agreement generally used in connection
with the 1993 Plan. Incorporated by reference to Exhibit 10.13 to
the Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.14 Form of 1993 Stock Purchase Agreement generally used in connection
with the 1993 Plan. Incorporated by reference to Exhibit 10.14 to
the Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.15* Cooperation and Supply Agreement dated as of November 19, 1993 by
and between StrataCom, Inc. and the Company. Incorporated by
reference to Exhibit 10.15 to the Company's Registration Statement
on Form S-1, Registration No. 33-90394.
10.16 Technical Information Escrow Agreement dated July 18, 1994 by and
between StrataCom, Inc., the Indianapolis Vault Company and the
Company. Incorporated by reference to Exhibit 10.16 to the
Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.17 Memorandum of Agreement dated January 19, 1995 by and between the
Company, Promon International, Inc. and Pacific Technology Fund.
Incorporated by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
10.18 Shareholder Rights Agreement dated as of April 23, 1992, as amended
by Amendment No. 1 to Shareholder Rights Agreement dated as of
August 11, 1992, Amendment No. 2 to Shareholder Rights Agreement
dated as of October 19, 1992, Amendment No. 3 to Shareholder Rights
Agreement dated as of December 18, 1992, Amendment No. 4 to
Shareholder Rights Agreement dated as of March 15, 1993, Amendment
No. 5 to Shareholder Rights Agreement dated as of November 16,
1993, and Amendment No. 6 to Shareholder Rights Agreement dated as
of December 15, 1994. Incorporated by reference to Exhibit 10.18 to
the Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.19 Virtual DAMA Agreement dated December 31, 1993, by and between the
Company and Promon Technical Services, Inc., as amended.
Incorporated by reference to Exhibit 10.19 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
10.20 1995 Stock Option/Stock Issuance Plan (the "1995 Plan").
Incorporated by reference to Exhibit 99.1 to the Company's
Registration Statement on Form S-8, Registration No. 33-80007.
10.22 Form of Stock Option Agreement generally used in connection with
the Discretionary Option Grant Program of the 1995 Plan.
Incorporated by reference to Exhibit 99.3 to the Company's
Registration Statement on Form S-8, Registration No. 33-80007.
10.21 Form of Addendum to Stock Option Agreement (Limited Stock
Appreciation Right). Incorporated by reference to Exhibit 99.4 to
the Company's Registration Statement on Form S-8, Registration No.
33-80007.
10.24 Form of Addendum to Stock Option Agreement (Involuntary Termination
Following Change of Control). Incorporated by reference to Exhibit
99.5 to the Company's Registration Statement on Form S-8,
Registration No. 33-80007.
10.25 Form of Addendum to Stock Option Agreement (Special Tax Elections).
Incorporated by reference to Exhibit 99.6 to the Company's
Registration Statement on Form S-8, Registration No. 33-80007.
10.26 Form of Automatic Stock Option Agreement. Incorporated by reference
to Exhibit 99.9 to the Company's Registration Statement on Form
S-8, Registration No. 33-80007.
10.27 Form of Stock Issuance Agreement generally used in connection with
the Discretionary Option Grant Program of the 1995 Plan.
Incorporated by reference to Exhibit 99.10 to the Company's
Registration Statement on Form S-8, Registration No. 33-80007.
10.28 Form of Addendum to Stock Issuance Agreement (Involuntary
Termination Following Change of Control). Incorporated by reference
to Exhibit 99.11 to the Company's Registration Statement on Form
S-8, Registration No. 33-80007.
21
<PAGE> 22
10.29 Form of Addendum to Stock Issuance Agreement (Special Tax
Elections). Incorporated by reference to Exhibit 99.12 to the
Company's Registration Statement on Form S-8, Registration No.
33-80007.
10.30 Employee Stock Purchase Plan. Incorporated by reference to Exhibit
99.13 to the Company's Registration Statement on Form S-8,
Registration No. 33-80007.
10.31 The Share Purchase Agreement By and Among the Company, Canada Inc.
and Certain Presticom Stockholders, dated as of November 24, 1995.
Incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K, dated November 30, 1995.
10.32 License Agreement dated May 8, 1996, by and between the Company and
SkyData, Inc. Incorporated by reference to Exhibit 10.32 to the
Company's Registration Statement on Form S-3, Registration No.
333-04183.
10.33 1997 Non-Executive Officer Stock Option/Stock Issuance Plan.
Incorporated by reference to Exhibit 10.28 to the Company's
Quarterly Report for the period ended March 31, 1997.
10.34 Form of Notice of Grant of Stock Option generally used in
connection with 1997 Plan. Incorporated by reference to Exhibit
10.29 to the Company's Quarterly Report for the period ended March
31, 1997.
10.35 Form of Stock Option Agreement generally used in connection with
1997 Plan Incorporated by reference to Exhibit 10.30 to the
Company's Quarterly Report for the period ended March 31, 1997.
10.36 Form of Addendum to Stock Option Agreement. Incorporated by
reference to Exhibit 10.31 to the Company's Quarterly Report for
the period ended March 31, 1997.
10.37 The Asset Purchase Agreement by and between the Company and
Sourcecom, Inc. dated as of July 16, 1997. Incorporated by
reference to Exhibit 2.2 to the Company's Current Report on Form
8-K dated August 11, 1997.
10.38 1997 Stock Incentive Plan. Incorporated by reference to Exhibit
99.1 to the Company's Registration Statement on Form S-8,
Registration No. 333-44087.
10.39 Form of Notice of Grant of Stock Option - Installment Option.
Incorporated by reference to Exhibit 99.2 to the Company's
Registration Statement on Form S-8, Registration No. 333-44087.
10.40 Form of Stock Option Agreement - Installment Option. Incorporated
by reference to Exhibit 99.3 to the Company's Registration
Statement on Form S-8, Registration No. 333-44087.
10.41 Notice of Grant of Stock Option - Immediately Exercisable Option.
Incorporated by reference to Exhibit 99.4 to the Company's
Registration Statement on Form S-8, Registration No. 333-44087.
10.42 Stock Option Agreement - Immediately Exercisable Option.
Incorporated by reference to Exhibit 99.5 to the Company's
Registration Statement on Form S-8, Registration No. 333-44087.
10.43 Form of Addendum to Stock Option Agreement (Limited Stock
Appreciation Rights). Incorporated by reference to Exhibit 99.6 to
the Company's Registration Statement on Form S-8, Registration No.
333-44087.
10.44 Form of Addendum to Stock Option Agreement (Involuntary Termination
following Change in Control). Incorporated by reference to Exhibit
99.7 to the Company's Registration Statement on Form S-8,
Registration No. 333-44087.
10.45 Stock Purchase Agreement. Incorporated by reference to Exhibit 99.8
to the Company's Registration Statement on Form S-8, Registration
No. 333-44087.
10.46 Addendum to Stock Purchase Agreement (Involuntary Termination
following Change in Control). Incorporated by reference to Exhibit
99.9 to the Company's Registration Statement on Form S-8,
Registration No. 333-44087.
10.47 Automatic Notice of Initial Grant. Incorporated by reference to
Exhibit 99.10 to the Company's Registration Statement on Form S-8,
Registration No. 333-44087.
10.48 Automatic Notice of Annual Grant. Incorporated by reference to
Exhibit 99.11 to the Company's Registration Statement on Form S-8,
Registration No. 333-44087.
22
<PAGE> 23
10.49 Automatic Stock Option Agreement. Incorporated by reference to
Exhibit 99.12 to the Company's Registration Statement on Form S-8,
Registration No. 333-44087.
23.1 List of Subsidiaries of the Company. Incorporated by reference to
Exhibit 23.1 to the Company's Annual Report on form 10K for the
period ended June 30, 1998.
27.1 Financial Data Schedule.
- ---------------
* The Company has received confidential treatment for portions of this document
previously filed with the Commission.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter ended September
30, 1998.
23
<PAGE> 24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report on Form 10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: November 13, 1998 ACT NETWORKS, INC.
/s/ ANDRE DE FUSCO
------------------------
Andre de Fusco
President and Chief
Executive Officer
(Duly Authorized Officer)
/s/ GREG GUTIERREZ
-------------------------
Greg Gutierrez
Controller
(Chief Accounting Officer)
24
<PAGE> 25
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Certificate of Incorporation of the Company. Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1, Registration No. 33-90394
3.2 Bylaws of the Company. Incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-1, Registration No.
33-90394
4.1 Specimen certificate representing shares of Common Stock of the
Company. Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
4.2 Form of Warrant of the Company. Incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
10.1 Standard Industrial/Commercial Multi-Tenant Lease-Modified Net
dated May 23, 1994 by and between Herman Bennett and the Company.
Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
10.2 Master Lease Agreement dated January 11, 1994 by and between the
Company and Leasetec Corporation, as amended and supplemented.
Incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
10.3 Loan and Security Agreement dated March 23, 1993, as amended,
between Silicon Valley Bank and the Company and related agreements
and documents. Incorporated by reference to Exhibit 10.3 to the
Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.4 Loan and Security Agreement (Exim) dated May 11, 1994, as amended,
between Silicon Valley Bank and the Company and related agreements
and documents. Incorporated by reference to Exhibit 10.4 to the
Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.5 Executive Employment Agreement dated December 23, 1992, by and
between the Company and Martin Shum. Incorporated by reference to
Exhibit 10.5 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
10.6 Form of Indemnification Agreement. Incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
10.7 1987 Stock Option Plan (the "1987 Plan"). Incorporated by reference
to Exhibit 10.7 to the Company's Registration Statement on Form
S-1, Registration No. 33-90394.
10.8 Form of Amended Notice of Grant of Stock Option with respect to
holders of installment incentive stock options granted under the
1987 Plan. Incorporated by reference to Exhibit 10.8 to the
Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.9 Form of 1987 Installment Incentive Stock Option Agreement,
Immediately Exercisable Stock Option Agreement and Immediately
Exercisable Non-Qualified Stock Option Agreement generally used in
connection with the 1987 Plan. Incorporated by reference to Exhibit
10.9 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
10.10 Form of 1987 Stock Purchase Agreement generally used in connection
with the 1987 Plan. Incorporated by reference to Exhibit 10.10 to
the Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.11 1993 Stock Option Plan as amended (the "1993 Plan"). Incorporated
by reference to Exhibit 10.11 to the Company's Registration
Statement on Form S-1, Registration No. 33-90394.
<PAGE> 26
10.12 Form of Notice of Grant of Stock Option generally used in
connection with the 1993 Plan. Incorporated by reference to Exhibit
10.12 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
10.13 Form of 1993 Stock Option Agreement generally used in connection
with the 1993 Plan. Incorporated by reference to Exhibit 10.13 to
the Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.14 Form of 1993 Stock Purchase Agreement generally used in connection
with the 1993 Plan. Incorporated by reference to Exhibit 10.14 to
the Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.15* Cooperation and Supply Agreement dated as of November 19, 1993 by
and between StrataCom, Inc. and the Company. Incorporated by
reference to Exhibit 10.15 to the Company's Registration Statement
on Form S-1, Registration No. 33-90394.
10.16 Technical Information Escrow Agreement dated July 18, 1994 by and
between StrataCom, Inc., the Indianapolis Vault Company and the
Company. Incorporated by reference to Exhibit 10.16 to the
Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.17 Memorandum of Agreement dated January 19, 1995 by and between the
Company, Promon International, Inc. and Pacific Technology Fund.
Incorporated by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
10.18 Shareholder Rights Agreement dated as of April 23, 1992, as amended
by Amendment No. 1 to Shareholder Rights Agreement dated as of
August 11, 1992, Amendment No. 2 to Shareholder Rights Agreement
dated as of October 19, 1992, Amendment No. 3 to Shareholder Rights
Agreement dated as of December 18, 1992, Amendment No. 4 to
Shareholder Rights Agreement dated as of March 15, 1993, Amendment
No. 5 to Shareholder Rights Agreement dated as of November 16,
1993, and Amendment No. 6 to Shareholder Rights Agreement dated as
of December 15, 1994. Incorporated by reference to Exhibit 10.18 to
the Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.19 Virtual DAMA Agreement dated December 31, 1993, by and between the
Company and Promon Technical Services, Inc., as amended.
Incorporated by reference to Exhibit 10.19 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
10.20 1995 Stock Option/Stock Issuance Plan (the "1995 Plan").
Incorporated by reference to Exhibit 99.1 to the Company's
Registration Statement on Form S-8, Registration No. 33-80007.
10.22 Form of Stock Option Agreement generally used in connection with
the Discretionary Option Grant Program of the 1995 Plan.
Incorporated by reference to Exhibit 99.3 to the Company's
Registration Statement on Form S-8, Registration No. 33-80007.
10.21 Form of Addendum to Stock Option Agreement (Limited Stock
Appreciation Right). Incorporated by reference to Exhibit 99.4 to
the Company's Registration Statement on Form S-8, Registration No.
33-80007.
10.24 Form of Addendum to Stock Option Agreement (Involuntary Termination
Following Change of Control). Incorporated by reference to Exhibit
99.5 to the Company's Registration Statement on Form S-8,
Registration No. 33-80007.
10.25 Form of Addendum to Stock Option Agreement (Special Tax Elections).
Incorporated by reference to Exhibit 99.6 to the Company's
Registration Statement on Form S-8, Registration No. 33-80007.
10.26 Form of Automatic Stock Option Agreement. Incorporated by reference
to Exhibit 99.9 to the Company's Registration Statement on Form
S-8, Registration No. 33-80007.
10.27 Form of Stock Issuance Agreement generally used in connection with
the Discretionary Option Grant Program of the 1995 Plan.
Incorporated by reference to Exhibit 99.10 to the Company's
Registration Statement on Form S-8, Registration No. 33-80007.
10.28 Form of Addendum to Stock Issuance Agreement (Involuntary
Termination Following Change of Control). Incorporated by reference
to Exhibit 99.11 to the Company's Registration Statement on Form
S-8, Registration No. 33-80007.
<PAGE> 27
10.29 Form of Addendum to Stock Issuance Agreement (Special Tax
Elections). Incorporated by reference to Exhibit 99.12 to the
Company's Registration Statement on Form S-8, Registration No.
33-80007.
10.30 Employee Stock Purchase Plan. Incorporated by reference to Exhibit
99.13 to the Company's Registration Statement on Form S-8,
Registration No. 33-80007.
10.31 The Share Purchase Agreement By and Among the Company, Canada Inc.
and Certain Presticom Stockholders, dated as of November 24, 1995.
Incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K, dated November 30, 1995.
10.32 License Agreement dated May 8, 1996, by and between the Company and
SkyData, Inc. Incorporated by reference to Exhibit 10.32 to the
Company's Registration Statement on Form S-3, Registration No.
333-04183.
10.33 1997 Non-Executive Officer Stock Option/Stock Issuance Plan.
Incorporated by reference to Exhibit 10.28 to the Company's
Quarterly Report for the period ended March 31, 1997.
10.34 Form of Notice of Grant of Stock Option generally used in
connection with 1997 Plan. Incorporated by reference to Exhibit
10.29 to the Company's Quarterly Report for the period ended March
31, 1997.
10.35 Form of Stock Option Agreement generally used in connection with
1997 Plan Incorporated by reference to Exhibit 10.30 to the
Company's Quarterly Report for the period ended March 31, 1997.
10.36 Form of Addendum to Stock Option Agreement. Incorporated by
reference to Exhibit 10.31 to the Company's Quarterly Report for
the period ended March 31, 1997.
10.37 The Asset Purchase Agreement by and between the Company and
Sourcecom, Inc. dated as of July 16, 1997. Incorporated by
reference to Exhibit 2.2 to the Company's Current Report on Form
8-K dated August 11, 1997.
10.38 1997 Stock Incentive Plan. Incorporated by reference to Exhibit
99.1 to the Company's Registration Statement on Form S-8,
Registration No. 333-44087.
10.39 Form of Notice of Grant of Stock Option - Installment Option.
Incorporated by reference to Exhibit 99.2 to the Company's
Registration Statement on Form S-8, Registration No. 333-44087.
10.40 Form of Stock Option Agreement - Installment Option. Incorporated
by reference to Exhibit 99.3 to the Company's Registration
Statement on Form S-8, Registration No. 333-44087.
10.41 Notice of Grant of Stock Option - Immediately Exercisable Option.
Incorporated by reference to Exhibit 99.4 to the Company's
Registration Statement on Form S-8, Registration No. 333-44087.
10.42 Stock Option Agreement - Immediately Exercisable Option.
Incorporated by reference to Exhibit 99.5 to the Company's
Registration Statement on Form S-8, Registration No. 333-44087.
10.43 Form of Addendum to Stock Option Agreement (Limited Stock
Appreciation Rights). Incorporated by reference to Exhibit 99.6 to
the Company's Registration Statement on Form S-8, Registration No.
333-44087.
10.44 Form of Addendum to Stock Option Agreement (Involuntary Termination
following Change in Control). Incorporated by reference to Exhibit
99.7 to the Company's Registration Statement on Form S-8,
Registration No. 333-44087.
10.45 Stock Purchase Agreement. Incorporated by reference to Exhibit 99.8
to the Company's Registration Statement on Form S-8, Registration
No. 333-44087.
10.46 Addendum to Stock Purchase Agreement (Involuntary Termination
following Change in Control). Incorporated by reference to Exhibit
99.9 to the Company's Registration Statement on Form S-8,
Registration No. 333-44087.
10.47 Automatic Notice of Initial Grant. Incorporated by reference to
Exhibit 99.10 to the Company's Registration Statement on Form S-8,
Registration No. 333-44087.
10.48 Automatic Notice of Annual Grant. Incorporated by reference to
Exhibit 99.11 to the Company's Registration Statement on Form S-8,
Registration No. 333-44087.
<PAGE> 28
10.49 Automatic Stock Option Agreement. Incorporated by reference to
Exhibit 99.12 to the Company's Registration Statement on Form S-8,
Registration No. 333-44087.
23.1 List of Subsidiaries of the Company. Incorporated by reference to
Exhibit 23.1 to the Company's Annual Report on form 10K for the
period ended June 30, 1998.
27.1 Financial Data Schedule.
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