UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 27, 2003
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____ to _______
COMMISSION FILE NUMBER 0-22632
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ASANTE TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 77-0200286
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
821 Fox Lane
San Jose, California 95131
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 435-8388
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period as the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days. YES _X_ NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on February
12, 2004, as reported on the OTC (Over-the-Counter) Bulletin Board, was
approximately $499,426. Shares of Common Stock held by officers and directors
and their affiliated entities and related persons have been excluded in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily conclusive for other purposes.
Indicated by check mark whether the Registrant is an accelerated filler (as
defined in Exchange Act Rule 12b-21). Yes____ No_X__
As of February 12, 2004, the Registrant had 10,163,302 shares of Common Stock
outstanding.
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TABLE OF CONTENTS
Page of
Report
PART I....................................................................................2
ITEM 1. BUSINESS..........................................................2
ITEM 2. PROPERTIES.......................................................13
ITEM 3. LEGAL PROCEEDINGS................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............14
PART II..................................................................................15
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS..............................................15
ITEM 6. SELECTED FINANCIAL DATA..........................................16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..............................17
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.............................................................29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..............................52
ITEM 9A. CONTROLS AND PROCEDURES..........................................52
PART III.................................................................................54
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............54
ITEM 11. EXECUTIVE COMPENSATION...........................................61
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.......................65
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................67
PART IV..................................................................................68
ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES...........................68
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.........................................................68
SIGNATURES...............................................................................71
i
Explanatory Note
On January 5, 2004, the Company filed an amendment to its Annual Report on Form
10-K (the "Form 10-K/A") for the fiscal year ended September 28, 2002 with the
Securities and Exchange Commission (the "SEC"). The Form 10-K/A includes
restated financial statements of Asante Technologies, Inc. as of September 28,
2002 and September 29, 2001 and for each of the three fiscal years in the period
ended September 28, 2002. For additional information regarding the restatement,
the reader should refer to the Form 10-K/A filed with the SEC.
Asante, FriendlyNET, IntraCore, IntraStack, IntraSwitch, NetStacker, AsanteTalk,
AsantePrint, FriendlyStack, AsanteFAST, GigaNix, and OpenView are registered
trademarks of Asante Technologies, Inc. Other product and brand names may be
trademarks or registered trademarks of their respective owners.
This discussion, other than the historical financial information, may consist of
forward-looking statements that involve risks and uncertainties, including
quarterly and yearly fluctuations in results, the timely availability of new
products, the impact of competitive products and pricing, and the other risks
detailed from time to time in the Company's SEC reports, including this report.
These forward-looking statements speak only as of the date hereof and should not
be given undue reliance. Actual results may vary materially from those
projected.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
Some of the statements contained in this Annual Report on Form 10-K are
forward-looking statements, including but not limited to those specifically
identified as such, that involve risks and uncertainties. The statements
contained in the Report on Form 10-K that are not purely historical are forward
looking statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act, including, without limitation, statements
regarding our expectations, beliefs, intentions or strategies regarding the
future. All forward looking statements included in this Report on Form 10-K are
based on information available to us on the date hereof and we assume no
obligation to update any such forward-looking statements. These statements
involve known and unknown risks, uncertainties and other factors, which may
cause our actual results to differ materially from those implied by the
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," plans"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue"
or the negative of these terms or other comparable terminology. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Moreover, neither any other person nor we assume responsibility
for the accuracy and completeness of such statements. Important factors that may
cause actual results to differ from expectations include those discussed in
"Factors Affecting Future Operating Results" beginning on page 23 in this
document.
PART I
ITEM 1. BUSINESS
Recent Acquisition Information
On June 13, 2003, the Company entered into an Agreement and Plan of Merger with
Oblique, Inc. ("Oblique") (the "Merger Agreement"), pursuant to which Asante
would be merged with and into Oblique, with Oblique being the surviving
corporation (the "Merger"). The Merger was conditioned upon, among other things,
approval by holders of Asante capital stock. The foregoing description of the
Merger does not purport to be complete and is qualified in its entirety by
reference to the complete text of the Merger Agreement, a copy of which was
filed with the SEC in June.
On June 13, 2003, Asante issued a press release, which was filed on June 23,
2003, with the Securities and Exchange Commission, announcing the execution of
the Merger Agreement.
On September 13, 2003, the Company terminated its Merger Agreement with Oblique,
Inc., and entered into a Letter of Intent with Acorn Campus, a venture capital
company. The offer by Acorn Campus was superior to the offer from Oblique, and
contained proven financing. However, without apparent cause, or reason, Acorn
sent a letter to Management on November 18, 2003, informing the Company of its
intent to withdraw its offer. Management is reviewing its alternatives,
including pursuing legal action against Acorn Campus for breach of contract.
Subsequent to the Company's fiscal year end, on December 18, 2003, the Company
signed a Letter of Intent with UNETEK, for the private investment of funds with
the Company for approximately $3.0 million. Additionally, on December 23, 2003,
the Company entered into a new, non-binding, Letter of Intent to merge with
Oblique, Inc. The Merger is conditioned upon, among other things, an expedited
due diligence period, and several other factors, including an expedited process
to arrive at a Definitive Merger Agreement with certain minimum acceptable terms
including a bridge funding of approximately $1.0 million. The Company plans on
proceeding with only one of these transactions, however, and the Board of
Directors is currently evaluating each of these proposals.
Overview
Founded in 1988, Asante Technologies, Inc. ("Asante" or the "Company") is a
leading provider of network solutions for small and medium-sized enterprises
(SME) and home offices (SOHO). The Company believes that it has been one of the
largest third-party providers of networking solutions for the Apple Macintosh
platform.
2
Asante's products are designed primarily for Ethernet local area networks (LAN).
Over the years, the speed of Ethernet has increased by 100X to 1000 Mbps. The
Company's key products are designed to function at speeds of 10/100/1000 Mbps to
maintain backwards compatibility with earlier Ethernet standards plus the newer
Gigabit Ethernet standard.
Another key technology, wireless LAN, is playing a larger role in connecting
computers and peripherals in the home and small businesses. Through 1993, the
most pervasive standard was the 11 Mbps 802.11b standard established by the IEEE
committee. As new wireless standards for higher speeds, security and management
become ratified, the Company expects customers to migrate some network
connections from Ethernet to variations of wireless 802.11.
In Fiscal 2003, the high-tech industry's networking sector continued to face a
significant slowdown in sales. This market-wide reduction in demand caused
prices to drop significantly as certain manufacturers attempted to reduce their
inventory levels at the expense of margins. Since the Company sells to many of
the same distributors and resellers, this price erosion has significantly
impacted the Company's business.
As the industry outlook improves, Asante anticipates many new business
opportunities that will leverage the Company's historical strengths. These
include:
o Increasing demand for digital content (including information, graphics,
photos, video, music and voice)
o Dramatic growth in storage and communications requirements as projects
move from CDs (with a capacity of 550-700 MB) to DVDs (4700-8500 MB)
o Continued growth in broadband Internet access
o Emerging use of Ethernet in new technologies in the office (printers,
storage) and home (consumer electronics, including game consoles and
personal video recorders)
As these technologies evolve, Asante's strategy is to capitalize on these trends
with a comprehensive product and service portfolio. The combination of
innovative technologies, strategic sales channels, and major account
partnerships provide the optimal environment for Asante's plans in the growing
SOHO and SME markets.
Innovative Technologies
In fiscal 2003, Asante began to see the return on its long-term investment in
multi-service networks to support converged, high-speed data, voice and video
networks. Major accounts began taking delivery on the company's Gigabit Ethernet
switches, adapters and routers. During the year, the Company's IntraCore and
FriendlyNET products received over a dozen favorable reviews by industry
analysts and publications.
3
Industry analysts anticipate a resurgence in the market for Ethernet and
wireless networking products. In January 2004, the Dell `Oro Group's Ethernet
Switch Market forecasted a 7% increase in the Ethernet switch market for 2004
and single-digit revenue growth through 2008 as the economy improves and IT
managers demand cost-effective new products.
The widespread availability of 802.11 wireless adapters, access points, routers
and notebook computers were the driving forces in this market. In-Stat/MDR
estimated a $1.7B market in 2003, up 140% from 2002. As Asante builds momentum
in this segment, analysts caution, "rapid price erosion is still a critical
factor in revenue growth within this market." Dell `Oro expects the wireless LAN
market in 2004 will grow to $2.2B. The Enterprise Wireless LAN segment is a
driving force, with a 20% CAGR and $1B revenues forecasted in 2008.
The proliferation of broadband technologies, combined with the availability of
affordable, feature-rich networking products, has influenced both commercial and
residential real estate and building developers to incorporate networking and
broadband infrastructure equipment at the developmental stage of new
construction. The Company's technology development group spends substantial
resources integrating many advanced features into its products to differentiate
its products and to offer features similar to those of larger networking
corporations. The Company pioneered integration of Internet technology into its
network products. The Company continues to incorporate these technologies into
its managed switches and Internet access products.
The market for Internet gateways continues to grow rapidly as home and small
business users migrate to broadband Internet. Factors driving this market
include home networking, awareness and digital content. In-Stat/MDR forecasted
an overall annual growth rate of 15.5% with units topping 880 million in 2007
for all Internet access devices.
Based on its technological expertise, the Company is well positioned to take
advantage of growing markets for all-in-one products to answer the needs of the
converged network for homes and small businesses. Additionally, the Company's
products are differentiated through its strong software expertise.
Strategic Sales Channels
Through expansion of its international distribution channels and a major
corporate effort to meet the needs of emerging Internet consumers, Asante
expects to grow its sales through strategic partners and businesses that sell
products and services on the Internet, while continuing to service traditional
retail channels that provide revenue and profit opportunities. In fiscal 2003,
the Company expanded its Value Added Reseller (VAR) program aimed at attracting
additional resellers to carry the Company's products--focusing on the Company's
IntraCore products and SOHO products by adding service to the more significant
VARs while ensuring that this new level of VARs can offer the service and
technical support that many of the Company's end user customers need. The
Company anticipates adding more IntraCore VARs specializing in the Company's key
focus markets: education, MTU/MDU, digital design and Internet Service Providers
(ISPs).
4
Strategic Partnerships
In fiscal 2003, the Company successfully continued its process of seeking
strategic partnerships designed to place the Company in a leadership position in
several areas. The Company continued its relationship with Apple Computer, Inc.,
National Semiconductor, Broadcom, SwitchCore and other technology partners.
Asante expects to continue its technology innovations with new networking
products being added to the Company's sales channels.
In addition, the Company is focusing its efforts on certain strategic business
and technical relationships to increase its strength and presence in the market
and to continue to introduce cutting-edge technologies.
Products
Asante offers a range of products from simple, personal connectivity to
sophisticated, enterprise-grade network management. The FriendlyNET brand is
targeted at consumers, home businesses and small business users. Each product is
optimized to deliver outstanding value with minimal complexities. The
FriendlyNET family includes network adapters, routers, hubs and switches for
Fast Ethernet (10/100 Mbps) and Gigabit Ethernet (1000 Mbps). The IntraCore
family consists of enterprise-grade Gigabit Ethernet switches that support Layer
2, Layer 3 and Layer 4 switching and routing.
Gigabit Ethernet Switches
During FY 2003, Asante focused on delivering a comprehensive Gigabit Ethernet
solution for a wide range of its customers. Anchored by the Company's flagship
IntraCore 35516 Series of Layer 2/3/4 switches, Asante completed its aggressive
plans to deliver a complete product offering.
At the core, the Company designed and shipped a powerful Layer 2/3/4 switch that
delivers advanced routing and quality of service (QoS) features to swiftly move
data, voice and video at speeds up to 1000 Mbps. Multi-layer packet
classification and advanced routing algorithms deliver information quickly and
efficiently. By segmenting a large network into multiple subnets, broadcast
traffic can be contained while limiting the security footprint. Customers
looking for campus-wide deployment found the IntraCore platform secure,
cost-effective and complete.
Beyond the core, the Company's IntraCore 35160 Series of Layer 2 switches are
the workhorse in numerous corporations and campuses. Replacing the lower-density
IC35120 with the 16-port IC35160, Asante provided a powerful switch family that
allowed Information Technology (IT) managers to drive Gigabit technologies to
workgroups, servers and some desktops. The integrated simple network management
protocol (SNMP) combined with web and Telnet services provide a wide range of
administration and oversight capabilities. Key features include
5
jumbo frame support to efficiently move large amounts of data, virtual LAN
(VLAN) support plus redundant power supply option.
For more cost-sensitive users with smaller networks, the Company's unmanaged
FriendlyNET GX5 Series switches are a good complement to the managed IntraCore
switches. The eight models in this family span the spectrum from 2 ports to 24
ports of Gigabit Ethernet. Asante's GigaNIX adapters for computers using the
Windows, Macintosh and Linux operating systems provide the necessary interface
to existing servers and desktop computers. In a move to make high-end features
more accessible to value-oriented users, future GX5 models will offer simplified
configuration using any standard web browser.
Wireless Internet Gateways and Adapters
With the rapid acceptance of wireless networking in home and small businesses,
Asante has introduced a number of products to seamlessly integrate wireless
networks with wired networks. The Company's AeroLAN adapters conform to standard
IEEE 802.11 standards for wireless networking. Earlier products used the 802.11b
standard with bandwidth up to 11 Mbps; later models introduced in late 2003 were
compatible with 802.11b and the newer 802.11g (54 Mbps) standards.
The Company anticipates expanding its wireless product portfolio with
enterprise-grade wireless LAN access points and switches. Some of the Company's
current IntraCore switches may be upgraded to provide 802.1X RADIUS
authentication, an enhanced security for wireless clients.
Internet Gateway Products (Routers)
The Company's FriendlyNET routers are designed for SOHO users who share a single
broadband connection among others in the same home or small office. Asante has
several routers, ranging from low-cost, entry-level to more sophisticated units
with virtual private network (VPN) and wireless capabilities.
Additional products with support for IEEE 802.11 wireless standards are planned
for release during 2004.
Personal Connectivity Products
In addition to Fast Ethernet and Gigabit Ethernet, the Company also offers
personal connectivity products that utilize the Universal Serial Bus (USB)
specification. Moving data at speeds ranging from 12 Mbps to 480 Mbps, these
desktop devices frequently connect a mouse, keyboard, video camera, digital
camera or memory card reader to a single desktop.
Asante offers USB 2.0-compliant hubs, adapters and digital memory card readers
for Windows and Macintosh users.
6
Technology
The Company's core strengths are attributed to its early dominance in the
Ethernet local area networking industry. By engineering custom chips, firmware,
software, and systems, Asante was able to bring feature-rich products to market
sooner than others.
The Company differentiates its products with advanced features, enhanced
usability, personalized technical support and an established sales channel. By
seeking technical and manufacturing partners, Asante is able to focus on product
design and development. In the coming year, the Company expects to grow its
IntraCore line with higher-density Gigabit Ethernet switches, security routers,
and enterprise-class wireless solutions.
Marketing and Distribution
The Company markets its products in three main channels: first, through a two
tier distribution channel which sells primarily to commercial and corporate
users; second, the Company sells to a significant number of educational
institutions; and third, through a number of Original Equipment Manufacturer
(OEM) customers and several large corporate customers.
Asante's major distributors are leading wholesale distributors of computer
products in North America. To supplement the efforts of these distributors
overseas, the Company has appointed international distributors for specific
territories. All of the Company's distributors are generally appointed on a
non-exclusive basis, however, the Company has appointed a master distributor in
China on an exclusive basis in order to build the Company's channel in China.
Fulfillment of products to e-commerce customers are typically handled through
the Company's distribution channel, or directly from the Company to customers
within the United States.
From time to time, the Company pursues OEM opportunities which it believes make
sense based on the Company's current business plan. These relationships may
typically cause fluctuations in the Company's business based on the Company's
ability to locate, or maintain various OEM opportunities and the ability of the
Company to offer cutting edge, cost effective technology of interest to its OEM
customers. The Company will continue to focus resources on obtaining additional,
cost effective agreements with larger OEM customers, although there can be no
assurance that such agreements will be obtained. OEM sales were fairly flat in
fiscal 2003, compared to fiscal 2002.
International sales, primarily to customers in Europe, Canada and Asia Pacific,
accounted for approximately 18%, 20%, and 23% of the Company's net sales in
fiscal years 2003, 2002, and 2001, respectively. From fiscal 2002 to fiscal
2003, the Company experienced reduced sales in all three geographic regions due
to the economic downturn affecting a large portion of the world economy. Of
these decreases the greatest impact was in Europe where sales declined
approximately 34% due to factors similar to those encountered domestically.
Sales in Asia Pacific decreased slightly in fiscal 2003, compared to the prior
year due primarily to competition from Asian competitors and softness in demand
in Macintosh related products.
7
The Company intends to continue to introduce new products through its existing
distribution channels. The Company encourages the marketing efforts of its
distributors with cooperative advertising allowances and incentive-based rebates
and promotes its products and builds brand name recognition by trade
advertising, participation in industry trade shows, and other marketing efforts.
As of September 27, 2003, the Company supported the sales efforts of its
distributors with 14 direct sales and support related employees located
throughout the United States who promote the Company's products within assigned
territories and with 9 outside sales representatives.
The Company's agreements with its distributors can generally be terminated after
an initial term of one year or on short notice without cause and do not provide
for minimum purchase commitments or preclude the distributors from offering
products that compete with those offered by the Company.
The Company grants to its distributors limited rights to return unsold
inventories of the Company's products in exchange for new purchases and provides
certain price protection to its distributors. Although the Company provides
reserves for projected returns and price decreases, any product returns or price
decreases in the future that exceed the Company's reserves will adversely affect
the Company's business, financial condition and results of operations. See Item
7: Management's Discussion and Analysis of Financial Condition and Results of
Operations.
The distribution of products such as those offered by the Company has been
characterized by rapid change, including consolidations and financial
difficulties of some distributors and the emergence of alternative distribution
channels. In addition, there are an increasing number of product suppliers
competing for access to these channels. Distributors may, at their option and at
any time, cease marketing the Company's products without prior notice to the
Company. In fiscal 2002, the Company terminated its relationship with Tech Data
domestically on terms mutually agreed to by both parties. Although the Company
has increased its business with its other distributors, it does not believe it
has completely offset the loss of revenues from the cessation of business with
the aforementioned distributor, however the Company has taken steps to increase
its channels which it believes has benefited the Company during fiscal 2002 and
2003. A reduction in the sales effort by any of the Company's other major
distributors or the loss of any one of these distributors would have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that future sales by the Company's
distributors will remain at current levels or that the Company will be able to
retain its current distributors on terms that are commercially reasonable to the
Company. Although the Company believes, that its major distributors are
currently adequately capitalized, there can be no assurance that in the future
one or more of these distributors will not experience financial difficulties.
Such difficulties could have a material adverse effect on the Company.
8
Although some prior products contained lifetime, or limited lifetime warranties,
most new products contain limited warranties ranging from one year to five
years. The lifetime and limited lifetime warranties exclude from coverage the
fan and power supply included with the Company's products, due to the shorter
life expectancy of these parts. The Company has not encountered material
warranty claims, although there can be no assurance that claims will not
increase substantially over time as a result of the change to a limited warranty
for a majority of the Company's products. Future warranty claims exceeding the
Company's reserves for warranty expense could have an adverse effect on the
Company's business, financial condition and results of operations. The Company
plans on reviewing its warranty policy as it brings new products to market to
offer its customers competitive policies while reducing its exposure to adverse
warranty claims.
Company warranties are limited to the Company's obligation to repair or replace
the defective product. The Company attempts to further limit its liability to
end-users through disclaimers of special, consequential and indirect damages and
similar provisions in its end-user warranty. However, no assurance can be given
that such limitations of liability will be legally enforceable.
Backlog
The Company generally ships products shortly after orders are received and
consequently maintains very little backlog. Accordingly, the Company does not
believe that its backlog as of any particular date is indicative of future
sales.
Engineering and Product Development
The markets for the Company's products continue to be characterized by rapidly
changing technology, evolving industry standards and frequent new product
introductions. Asante believes that maintaining its market position in the Apple
Macintosh connectivity market and expanding its presence in the multi-platform
market requires continuing investment to develop new products, enhance existing
products and reduce manufacturing costs.
As of September 27, 2003, the Company had 8 employees engaged in engineering and
product development. During the fiscal years 2003, 2002, and 2001, the Company's
engineering and product development expenses were approximately $2.1 million,
$2.6 million, and $2.8 million, respectively.
The Company continues to invest significant resources in engineering in order to
develop and bring to market additional high technology, high demand products
supporting both its network systems and the Intranet/Internet markets. In
particular, beginning in fiscal 2003 and going forward, the Company intends to
focus additional efforts in the areas of embedded software design, development
of additional Layer 2-7 switches and other LAN-edge devices, WAN router
products, wireless, security, and one system integration. The Company will also
continue product development efforts to expand its Gigabit product offerings.
9
The Company believes its future success will depend upon its ability to enhance
and expand its existing product offerings and to develop in a timely manner new
products that achieve rapid market acceptance. Substantially all of the
Company's products are designed to provide connectivity to Ethernet LANs. If the
Company is unable, for technological or other reasons, to modify its products or
develop new products to support Fast Ethernet or Switched Ethernet technology,
or if Ethernet's importance declines as a result of alternative technologies,
the Company's business, financial condition and results of operations would be
materially and adversely affected. There can be no assurance that the Company
will be successful in developing and marketing enhanced or new products in a
timely manner, that those products will gain market acceptance, or that the
Company will be able to respond effectively to technological changes or new
industry standards.
Manufacturing and Suppliers
The Company's manufacturing operations consist primarily of managing its
materials and inventories, purchasing certain components, performing limited
final assembly of some products, and testing and performing quality control of
certain materials, components, subassemblies and systems. The Company
subcontracts substantially all of the assembly of its products. The
subcontractors include Orient Semiconductor Electronics, Ltd. ("OSE"), an
assembler of semiconductor and printed circuit boards based in Taiwan, Delta
Networks, Edimax and Cameo Communications, as well as other manufacturers based
in California, Taiwan and China. Both OSE and Delta are stockholders of Asante.
The Company believes that its quality control procedures and the quality
standards of its manufacturing partners have been instrumental in the high
performance and reliability of the Company's products. To date, customer returns
of the Company's products due to quality issues have not been material.
OSE and the Company's other subcontract manufacturers purchase or manufacture
most components, assemble printed circuit boards and test and package products
for Asante on a purchase order, turnkey basis. In fiscal 2003, the Company
purchased $0.1 million of goods from OSE and purchased $2.7 million of goods
from Delta Networks, Inc. (See Note 5 of Notes to Financial Statements). The
Company does not have a long-term supply agreement with any of its
subcontractors. If any one of these subcontractors experiences financial or
operational difficulties that result in a reduction or interruption in the
supply of products to the Company or otherwise fails to deliver products to the
Company on a timely basis, the Company would be required to procure sufficient
manufacturing services from alternative sources. The Company believes that
alternative manufacturers are available; however, the qualification of such
alternative sources and the commencement of volume manufacturing of the
Company's products could take a significant period of time. Accordingly, any
reduction or interruption of supply from its existing subcontractors would
materially and adversely affect the Company's business, financial condition and
results of operations. In addition, the use of OSE, Delta and other offshore
subcontractors subjects the Company to certain risks of conducting business
internationally, including changes in trade policy and regulatory requirements,
tariffs and other trade barriers and restrictions, and changes in the political
or economic environment in Taiwan and other countries where the Company's
subcontractors are located.
10
Although the Company generally uses standard parts and components for its
products, certain key components used in the Company's products are available
from only one source, and others are available from only a limited number of
sources. Components currently available from only one source include, among
others, custom integrated circuits used in the Company's intelligent hubs and
certain ASICs used in the Company's Gigabit switching products, as well as
ASIC's used in several of the Company's other products including its Print
Router products. The Company does not have a long-term supply agreement with any
of its suppliers. The Company believes that certain key components remain in
short supply and from time to time receives only limited allocations of these
products, which in prior years has caused shipping delays of one or more of the
Company's products. If the Company or any of its suppliers experience component
shortages in the future or any of its competitors have long-term supply
agreements under which it is possible for them to obtain greater supplies of
such components than the Company, the Company's business, financial condition
and results of operations could be materially and adversely affected. The
Company also relies on many of its subcontractors to procure many of the
components used in the Company's products. These subcontractors procure and
stock components and subassemblies based on the Company's purchase orders.
Competition
The markets for the Company's products are highly competitive, and the Company
believes that such competition will remain vigorous. Competitive trends in the
Company's markets are continuing declines in average selling prices, coupled
with improvements in product features and performance. The Company expects such
trends to continue. The current slowdown in the economy has served to magnify
the effects of the competitive pressures in the industry.
The Company competes with Cisco Systems, Nortel, 3Com, Intel, Netgear, Linksys,
and many smaller companies. Competition from these and other companies,
including new entrants, is expected to intensify, particularly in the SOHO,
workgroup, and departmental user markets. Many of the Company's competitors in
these markets are more established, enjoy significant name recognition and
possess far greater financial, technological and marketing resources than the
Company.
The Company believes the principal competitive factors in the departmental
connectivity market are brand name recognition, value for price, breadth of
product line, technical features, ease of product use, reliability, customer
support and the ability to develop and introduce new or enhanced products
rapidly. The Company believes that it has established itself as a supplier of
high quality, reliable products and, as a result, currently competes favorably
with respect to these factors. There can be no assurance, however, that the
Company will be able to compete successfully in the future against current or
future competitors, or that it will be able to adapt successfully to changes in
the market for its products. The Company's inability to compete successfully in
any respect or to respond timely to market demands or changes would have a
material adverse effect on the Company's business, financial condition and
results of operations.
11
In the Macintosh client access market, Apple(R) develops and markets products
that compete directly with certain of the Company's client access products. The
Company also competes with a number of other companies in this market. Apple(R)
provides Ethernet connectivity in its computers which has adversely affected
sales of the Company's client access products. The Company also relies on an
informal working relationship with Apple(R) in connection with the Company's
product development efforts. Apple(R) is likely to continue to introduce
competitive products and has significantly greater financial, marketing and
technical resources than the Company. Furthermore, no assurance can be given
that Apple(R) will not pursue a more aggressive strategy with respect to
competitive products, or in other ways attempt to make the sale of add-on
products by third party developers and vendors such as the Company more
difficult. If Apple(R) takes any of such actions, the Company's business,
financial condition and results of operations would be materially and adversely
affected. See Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The Company's sales to OEMs represented 8% and 9% of its total revenue in fiscal
2003 and fiscal 2002 respectively. While the Company has pursued and will
continue to pursue additional OEM agreements with larger companies, there can be
no assurance that existing OEM agreements will continue or that new agreements
will be obtained. In addition, since the Company intends to seek additional high
volume product arrangements, the acquisition or loss of a single large OEM
customer or several smaller OEM customers would have a material effect on the
Company's revenues. Unless the Company signs additional large OEM agreements in
the near future, the Company expects that OEM sales will remain fairly flat as a
percentage of total revenue in fiscal 2004.
A significant percentage of the Company's sales in fiscal 2003 and fiscal 2002
were derived from products designed for use with Macintosh G series Computers,
Power PC, and iMAC computers. Sales of these products as a percentage of total
Company revenue, excluding OEM sales, have steadily declined over the last
several years due to Apple(R)'s competition in the Company's adapter card market
and incorporation of Ethernet into the motherboard of a large portion of its
products, and Apple(R)'s decline in market share. However, the Company expects
that sales of such products will continue to represent a substantial portion of
its net sales for the foreseeable future. There can be no assurance that unit
sales of these products will continue at their present levels or increase in the
future. Any material adverse developments in Apple(R)'s business could have a
material adverse effect on sales of the Company's client access products, which
would materially and adversely affect the Company's business, financial
condition and results of operations. See Item 7: Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Proprietary Rights
The Company is currently evaluating several domestic and foreign patent
applications relating to its software and systems technology. The Company is
currently filing renewals on several of its existing patents.
12
The Company has received in the past and may receive in the future
communications from third parties asserting intellectual property claims against
the Company. Claims made in the future could include assertions that the
Company's products infringe, or may infringe on the proprietary rights of third
parties or requests for indemnification against such infringement. There can be
no assurance that any claim will not result in litigation, which could involve
significant expense to the Company. If the Company is required or deems it
appropriate to obtain a license relating to one or more products or future
technologies, there can be no assurance that the Company would be able to do so
on commercially reasonable terms, or at all.
The Company relies on a combination of patents, trade secrets, copyright and
trademark law, nondisclosure agreements and technical measures to establish and
protect its proprietary rights in its products. Despite these precautions, it
may be possible for unauthorized third parties to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's technology is difficult,
and there can be no assurance that the measures being taken by the Company will
be successful. Moreover, the laws of some foreign countries do not protect the
Company's proprietary rights in its products to the same extent as do the laws
of the United States. See Item 3: Legal Proceedings.
Employees
As of September 27, 2003, the Company had 45 employees, including 8 in
engineering and product development, 9 in manufacturing operations, 18 in
marketing, sales and support services, and 10 in corporate administration. The
number reflects a decrease in all areas. In 2003, the Company reduced
approximately 29% of its regular and contractor headcount as part of its cost
reduction efforts.
The Company's success depends to a significant extent upon the contributions of
key sales, marketing, engineering, manufacturing, and administrative employees,
and on the Company's ability to attract and retain highly qualified personnel,
who are in great demand. None of the Company's key employees are subject to a
non-competition agreement with the Company. Unless vacancies are promptly
filled, the loss of current key employees or the Company's inability to attract
and retain other qualified employees in the future could have a material adverse
effect on the Company's business, financial condition and results of operations.
None of the Company's employees are represented by a labor organization, and the
Company is not a party to any collective bargaining agreement. The Company has
never had any employee strike or work stoppage and considers its relations with
its employees to be good.
ITEM 2. PROPERTIES
The Company's headquarters, including its executive offices and corporate
administration, manufacturing, marketing, sales and technical support
facilities, are located in San Jose, California. The Company occupies a 44,700
square foot facility under a lease that expires on August 31, 2004, with an
option to extend for an additional five years. In fiscal 2002, the
13
Company closed its leased sales office in Oregon and moved its inside sales
activities into its San Jose location. The Company currently has a leased sales
office in Utah with an original lease expiration of January 2004. The Company
has recently signed a one-year lease extension on its Utah facility. The Company
believes that its existing facilities are more than adequate to meet its
requirements for the foreseeable future and believes that suitable additional or
substitute space will be available as needed. See Note 9 of Notes to Financial
Statements.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is subject to legal proceedings and claims in the
ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property rights.
In September 1999, certain inventory having a cost of approximately $400,000 was
seized by the United States Customs for the alleged improper use of
certification marks owned by Underwriters Laboratories Inc. ("UL"). In March
2003, the US Attorney and the Company entered into a final settlement under
which the seized inventory was returned to the Company and the Company was
obligated to pay $57,000 and remove improper marks from the product.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2003.
14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock traded on the NASDAQ National Market System under the
trading symbol ASNT until September 30, 1999 at which time the Company's Common
Stock commenced trading on the Over-the-Counter (OTC) Bulletin Board under the
trading symbol ASNT.OB. Due to the restatement of fiscal 2002 and prior
financial statements, the Company was late in filing its fiscal 2003 10-K, and
therefore had been trading under the trading symbol ASNT.PK. Upon filing its
fiscal 2003 10-K, the Company expects its trading symbol to be ASNT.OB going
forward and for the foreseeable future.
The following table sets forth the high and low bid prices for the Company's
Common Stock for each quarter during the last two fiscal years. The quotations
set forth below reflect inter-dealer prices, without retail mark-up, mark-downs,
or commissions and may not represent actual transactions.
Fiscal 2003 High Low
---------------------------------------------------------------------
First quarter $ 2/16 $ 1/16
Second quarter $ 2/16 $ 1/16
Third quarter $ 5/16 $ 2/16
Fourth quarter $ 7/16 $ 4/16
Fiscal 2002 High Low
---------------------------------------------------------------------
First quarter $ 7/16 $ 3/16
Second quarter $ 3/8 $ 2/8
Third quarter $ 5/16 $ 3/16
Fourth quarter $ 3/16 $ 1/16
As of November 22, 2003, there were 98 stockholders of record of the Company's
Common Stock. This number does not include shares held in street name. The
Company has not paid cash dividends on its Common Stock and does not plan to pay
cash dividends in the foreseeable future.
Factors such as announcements of technological innovations or new products by
the Company, its competitors and other third parties, as well as quarterly
variations in the Company's anticipated or actual results of operations and
market conditions in high technology industries generally may cause the market
price of the Company's Common Stock to fluctuate significantly. The stock market
has on occasion experienced extreme price and volume fluctuations, which have
particularly affected the market prices of many high technology
15
companies and have often been unrelated to the operating performance of such
companies. These broad market fluctuations may adversely affect the market price
of the Company's Common Stock. In addition, the market price of the Company's
Common Stock may not be indicative of current or future performance.
Asante Equity Compensation Plan Information
As of September 27, 2003
Plan Category Number of securities to Weighted-average Number of securities
be issued upon exercise exercise price of remaining available for
of outstanding options, outstanding options, future issuance under
warrants and rights warrants and rights equity compensation
plans (excluding
securities reflected in
column (a))
(a) (b) (c)
Equity compensation plans 54,400 (1) 0.4722 (1) 945,600 (1)
approved by security holders 195,000 (2) 1.0320 (2) 50,474 (2)
185,000 (3) 2.8242 (3) 0 (3)
1,036,793 (5) 1.2846 (5) 0 (5)
Equity compensation plans 20,150 (4) 0.8125 (4) 129,850 (4)
not approved by security
holders
Total 1,491,343 1,125,924
---------------------
(1) the 2001 Stock Option Plan
(2) the Key Executive Option Plan
(3) the 1993 Directors' Stock Option Plan
(4) the 2000 Non-Statutory Stock Option Plan
(5) the 1990 Stock Option Plan
ITEM 6. SELECTED FINANCIAL DATA
On January 5, 2004, the Company filed an amendment to its Form 10-K (the "Form
10-K/A") for the fiscal year ended September 28, 2002 with the SEC. The Form
10-K/A includes restated
16
financial statements of Asante Technologies, Inc. as of September 28, 2002 and
September 29, 2001 and for each of the three fiscal years in the period ended
September 28, 2002. The Five Year Financial Summary in this Item 6 includes the
effects of such restatement on fiscal 2002 and prior periods.
The selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of the Company and the notes to the
financial statements included elsewhere in this Annual Report on Form 10-K
(In thousands, except per share data) Year ended
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Statement of Operations:
Net sales $ 12,008 $ 15,237 $ 21,732 $ 29,001 $ 39,555
Loss from operations $ (2,170) $ (2,219) $ (2,087) $ (517) $(10,638)
Net loss $ (2,245) $ (2,208) $ (1,859) $ (325) $(10,936)
Basic and diluted net loss per share $ (0.22) $ (0.22) $ (0.19) $ (0.03) $ (1.18)
Balance Sheet Data:
Working Capital $ 1,610 $ 3,811 $ 5,982 $ 7,660 $ 5,877
Total assets $ 4,662 $ 8,021 $ 10,711 $ 14,674 $ 15,332
Stockholders' equity $ 1,833 $ 4,073 $ 6,271 $ 8,088 $ 6,808
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion, other than the historical financial information, may consist of
forward-looking statements that involve risks and uncertainties, including
quarterly and yearly fluctuations in results, the timely availability of new
products, including switch products, the impact of competitive products and
pricing, and the other risks detailed from time to time in the Company's SEC
reports, including this report. These forward-looking statements speak only as
of the date hereof and should not be given undue reliance. Actual results may
vary materially from those projected.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
17
Recent Developments
On January 5, 2004, the Company filed an amendment to its Annual Report on Form
10-K (the "Form 10-K/A") for the fiscal year ended September 28, 2002 with the
SEC. The Form 10-K/A includes restated financial statements of Asante
Technologies, Inc. as of September 28, 2002 and September 29, 2001 and for each
of the three fiscal years in the period ended September 28, 2002. For additional
information regarding the restatement the reader should refer to the Form 10-K/A
previously filed with the SEC.
Throughout the following Management's Discussion and Analysis of Financial
Condition and Results of Operations, all referenced amounts reflect the balances
and amounts on a restated basis.
Results of Operations
The following table sets forth certain selected financial information expressed
as a percentage of net sales for the fiscal years ended September 27, 2003,
September 28, 2002, and September 29, 2001, respectively:
2003 2002 2001
----- ----- -----
Net sales 100.0% 100.0% 100.0%
Cost of sales 64.5 64.0 65.2
Gross profit 35.5 36.0 34.8
Operating expenses:
Sales and marketing 26.2 25.5 23.2
Research and development 17.4 16.7 12.7
General and administrative 9.7 8.4 8.5
----- ----- -----
Total operating expenses 53.3 50.6 44.4
----- ----- -----
Loss from operations (17.8) (14.6) (9.6)
Interest and other income (expense), net (0.6) 0.1 1.0
----- ----- -----
Loss before income taxes (18.4) (14.5) (8.6)
Provision (benefit) for income taxes -- -- --
Net loss (18.4)% (14.5)% (8.6)%
===== ===== =====
Net Sales
Net sales decreased 21.2% to $12.0 million in fiscal 2003, from $15.2 million in
fiscal 2002. Net sales were $21.7 million in fiscal 2001. The decrease in net
sales in fiscal 2003 compared to fiscal 2002, was due to several factors
including the continued economic downturn in the high tech industry and network
industry, heavy competitive pressures particularly for unmanaged products,
continued incorporation of Ethernet onto the motherboard of Apple's newer
computers and to a reduction in revenues in some previously stronger sales
channels in which the Company sells many of its products. During fiscal 2003,
sales of unmanaged products decreased across most existing product lines, except
for unmanaged Gigabit switch sales, which increased to $1.5
18
million from $0.8 million. In addition, a significant portion of the Company's
OEM sales were of unmanaged Gigabit products.
The decrease in net sales in fiscal 2002 compared to fiscal 2001 was due to
several factors including the economic downturn in the high tech industry.
Additionally, heavy competitive pressures for unmanaged 10/100 products
including cable/DSL routers and, to some extent, the continued incorporation of
Ethernet onto the motherboard of Apple's newer computers negatively affected the
Company's results. This continued incorporation of Ethernet onto the
motherboard, has caused a reduction in revenues and volume of product sold for
Apple specific applications. Mac(R) specific products are expected to comprise a
much smaller portion of the Company's revenues going forward. During fiscal
2002, the Company experienced a decrease in sales across most product lines,
except for Gigabit switch products, which increased both due to the recent
transition of some customers to Gigabit product and to sales of Gigabit product
to OEM and major customer accounts.
In fiscal 2003, 2002, and 2001, one customer, a US based distributor, accounted
for 33%, 40%, and 43%, respectively, of the Company's total sales.
International sales, primarily to customers in Europe, Canada and Asia Pacific,
accounted for 18%, 20%, and 23% of net sales in fiscal 2003, 2002, and 2001,
respectively. The reduction in international sales during fiscal 2003, compared
to fiscal 2002, was due primarily to financial issues related to one of the
Company's primary distributors in Germany and decreased sales in Canada.
International revenue as a percentage of net sales declined during fiscal 2002,
compared to fiscal 2001, due partially to the elimination of Merisel as a major
distributor in the US and Canada. The Company continues to believe there is
potential demand in certain of the Company's foreign target markets, including
broadband, digital media, and medical equipment providers. To that end, the
Company has focused its sales efforts in these areas to strengthen its channels.
However, there cannot be any assurance that its efforts will be successful.
The Company believes that the economic downturn beginning just prior to fiscal
2001, will continue during fiscal 2004, and that any improvement will be minor.
The Company's declines in revenues have been offset partially by increased sales
of the Company's managed and unmanaged Gigabit switches. The Company believes
that the competition in the markets in which it competes has intensified and
will continue to intensify as existing and potential competitors introduce
competing products. Consequently, the Company anticipates that the selling
prices of its existing products will continue to decline and that sales of older
systems products and adapter cards as a percentage of total sales will continue
to decline in fiscal 2004. The Company has continued to focus on introducing
newer managed systems products such as its new IntraCore 35516 Layer 3/4+ and
35160 Layer 2/4 switches, which it believes should help offset the declines in
revenues of its older systems products. The Company will continue to focus on
those markets in which it believes it can increase its revenues and will
continue to seek to increase its OEM revenues, compared to fiscal 2002.
19
Cost of Sales and Gross Profit
Cost of sales in fiscal 2003 decreased by 20% to $7.7 million compared to $9.7
million in fiscal 2002 and $14.2 million in fiscal 2001. The decreasing cost of
sales generally reflect the decreased sales revenue.
The Company's gross profit as a percentage of net sales decreased marginally to
35.5% in fiscal 2003, from 36.0%, in fiscal 2002. The decrease in fiscal 2003,
compared to fiscal 2002 was due primarily to steep pricing declines of broadband
and wireless products during the year, which the Company was not completely
successful offsetting by reducing manufacturing costs. During fiscal 2003, sales
prices continued to be affected by heavy competitive pricing pressures and
reduced volumes for many of the Company's products. The Company has brought to
market and plans to continue to bring to market lower cost replacement products
and is focusing its product development efforts on introducing additional
unmanaged Gigabit products and managed IntraCore products to help offset those
products which are under the most significant margin pressure. The Company will
continue to take additional measures going forward to maintain its
competitiveness in the market place.
The increase in gross margin in fiscal 2002 compared to fiscal 2001, was
primarily due to reduced write downs of inventories due to tighter inventory
controls and successful cost reductions of a large portion of the Company's
products. During fiscal 2002, sales prices continued to be affected by heavy
competitive pricing pressures.
The Company will continue in its efforts to develop new products and decrease
its manufacturing costs faster than related declines in selling prices. If the
Company is unable to offset anticipated price declines in its products by
reducing its manufacturing costs and by introducing new products that gain
market acceptance, its business, financial condition and results of operations
will be materially and adversely affected.
Sales and Marketing
Sales and marketing expenses were $3.1 million in fiscal 2003 compared to $3.9
million in fiscal 2002, or a decrease of 20%. Fiscal 2002 sales and marketing
expenses decreased $1.2 million, or 23%, compared to $5.0 million in fiscal
2001. As a percentage of net sales, sales and marketing expenses were 26.2%,
25.5%, and 23.2%, in fiscal 2003, 2002, and 2001, respectively. The reduced
fiscal 2003 expenditures in absolute dollars and increase as of percentage of
sales reflect reduced sales levels during fiscal 2003 and reduced expenditures
for outside representative commissions, personnel related costs, co-operative
advertising, and trade advertising activities. The reduced fiscal 2002
expenditures as compared to fiscal 2001 primarily reflect reduced sales levels
and related sales based activity expenditures.
The Company expects that its sales and marketing expenses will remain at current
levels, or increase slightly in fiscal 2004 in absolute dollars. As a percent of
total sales, the Company believes these expenditures should decrease slightly
compared to fiscal 2003.
20
Research and Development
Research and development expenses decreased by 19% to $2.1 million in fiscal
2003, from $2.6 million in fiscal 2002. Research and development expenses were
$2.8 million in fiscal 2001. As a percentage of net sales, research and
development expenses were 17.7%, 16.7%, and 12.7%, in fiscal 2003, 2002, and
2001, respectively. The decrease in research and development expenses in
absolute dollars in fiscal 2003 compared to fiscal 2002 was due primarily to
decreases in personnel related expenditures as a result of salary and headcount
reductions implemented by the Company. The increase in research and development
expenses as a percentage of sales was due to the decline in revenue. The
decrease in research and development expenses from fiscal 2001 to fiscal 2002
was due to decreases in personnel related expenditures as a result of salary
reductions and lower depreciation expense during fiscal 2002.
The Company expects that spending on research and development in fiscal 2004
will remain fairly flat or decrease slightly in comparison to fiscal 2003 in
absolute dollars, while the Company continues to leverage the engineering
expertise of its strategic partners.
General and Administrative
General and administrative expenses decreased to $1.2 million in fiscal 2003
from $1.3 million in fiscal 2002. General and administrative expenses were $1.8
million in fiscal 2001. As a percentage of net sales, general and administrative
expenses were 9.7%, 8.4%, and 8.5% in fiscal years 2003, 2002, and 2001,
respectively. The decrease in general and administrative expenses in absolute
dollars in fiscal 2003 is primarily related to reduced personnel related
expenditures. The increase in general and administrative expenses as of
percentage of sales was due to the decline in revenue. The decrease in general
and administrative expenses in absolute dollars in fiscal 2002 compared to
fiscal 2001, was primarily related to reduced personnel related expenditures.
The Company expects that general and administrative expenses will remain
constant or decrease somewhat in fiscal 2004 in absolute dollars.
Off-Balance Sheet Arrangements
During fiscal year 2003 the Company did not engage in any off-balance sheet
arrangements as defined in Item 303 (a) (4) of the SEC's Regulation S-K.
Income Taxes
The Company recorded no provision or benefit for federal and state income taxes
for fiscal 2003, 2002, or 2001 due principally to the fact that the Company
incurred losses and a full valuation allowance was recorded against net
operating losses and other tax credits generated in those
21
years. The Company has recorded a full valuation allowance on its deferred tax
assets as it is more likely than not that these assets will not be realized.
Liquidity and Capital Resources
During fiscal 2003, the Company's operating activities used cash of $1.5
million. During fiscal 2002, the Company's operating activities used cash of
$1.7 million. During fiscal 2001, the Company's operating activities used cash
of $1.4 million.
During fiscal 2003, net cash used in operations resulted primarily from the
Company's net operating loss of $2.2 million and decreases in accounts payable
and accrued expenses of $1.0 million and $0.2 million, respectively. These uses
were offset primarily by decreases in accounts receivable and inventory of $1.1
million and $0.6 million, respectively.
During fiscal 2002, net cash used in operations resulted primarily from the
Company's net operating loss of $2.2 million, and a combined decrease in both
accounts payable and accrued expenses of $0.4 million. These uses were partially
offset by decreases of $0.3 million in each of accounts receivable, inventory,
and prepaid expenses. Days of sales outstanding in accounts receivable, net, was
53 at the end of fiscal 2003.
Net cash used in investing activities, including purchases of property and
equipment, in fiscal 2003, fiscal 2002 and fiscal 2001 was insignificant.
In fiscal 2003, fiscal 2002 and fiscal 2001, net cash provided by financing
activities was insignificant.
At September 27, 2003, the Company had cash and cash equivalents of $1.7 million
compared to $3.3 million at September 28, 2002, which represents a 48% decline.
Working capital was $1.6 million at September 27, 2003, compared to $3.8 million
at September 28, 2002.
The Company has a bank line of credit that provides for maximum borrowings of up
to $2.0 million and is limited to a certain percentage (60%) of eligible
accounts receivable. The Company has not drawn on this line of credit. The line
of credit is subject to certain covenant requirements, including maintaining
certain net tangible worth amounts. The line of credit agreement was set to
expire in November 2003. However, the parties entered into an amendment to
extend the line of credit term to January 31, 2004 during which time the Company
negotiated a renewal of the line of credit with the bank. On February 11, 2004,
the line of credit was renewed with a new maturity date of January 30, 2005. As
of February 11, 2004, approximately $500,000 was available on this line of
credit and the Company was in compliance with the covenants of the line of
credit agreement.
On September 30, 1999, the Company's stock ceased to be traded on the NASDAQ
National Market System and was moved to the Over-The-Counter (OTC) Bulletin
Board. During fiscal 2000, the Company successfully completed a $1.5 million
private placement of 500,000 shares
22
of common stock, however the Company's access to further equity financing could
be affected by the level of the Company's share price and the Company's listing
status.
The Company has an operating lease for its main facility that expires on August
31, 2004. Future minimum lease payments under all leases at September 27, 2003
are as follows (in thousands):
Year
----
2004 821
2005 9
-----
$ 830
The Company operates in a highly competitive market characterized by rapidly
changing technology, together with competitors and distributors that have
significantly greater financial resources than Asante.
For the fiscal year ended September 27, 2003, the Company recorded a loss from
operations of $2.2. million and cash used in operating activities was $1.5
million. In the fiscal years 2002 and 2001, the Company also incurred
substantial losses and negative cash flows from operations. As of September 27,
2003, the Company had an accumulated deficit of $26.6 million. Based upon the
Company's operating budget and cash flow projections the Company expects to
continue to experience negative cash flows from operations through fiscal year
2004.
The Company is currently pursuing additional equity financing and has renewed
its line of credit agreement through January 30, 2005. The Company is also
considering other corporate transactions as a means of providing additional
financing. Failure to raise additional capital, secure other sources of
financing or enter into a corporate transaction in the near-term would have a
material adverse effect on the Company's ability to achieve its intended
business objectives and raises substantial doubt about its ability to continue
as a going concern.
Factors Affecting Future Operating Results
The Company operates in a rapidly changing industry, which is characterized by
intense competition from both established companies and start-up companies. The
market for the Company's products is extremely competitive both as to price and
capabilities. The Company's success depends in part on its ability to enhance
existing products and introduce new technology products. This requires the
Company to accurately predict future technology trends and preferences. The
Company must also bring its products to market at competitive price levels.
Unexpected changes in technological standards, customer demand and pricing of
competitive products could adversely affect the Company's operating results if
the Company is unable to respond effectively and timely to such changes.
23
The industry is also dependent to a large extent on proprietary intellectual
property rights. From time to time the Company is subject to legal proceedings
and claims in the ordinary course of business, including claims of alleged
infringement of patents, trademarks and other intellectual property rights.
Consequently, from time to time, the Company will be required to prosecute or
defend against alleged infringements of such rights.
The Company's success also depends to a significant extent upon the
contributions of key sales, marketing, engineering, manufacturing, and
administrative employees, and on the Company's ability to attract and retain
highly qualified personnel, who are in great demand. None of the Company's key
employees are subject to a non-competition agreement with the Company. High
employee turnover in the technology industry is typical. Although the Company
has reduced its workforce during fiscal 2002 and fiscal 2003, vacancies in the
workforce must be promptly filled, because the loss of current key employees or
the Company's inability to attract and retain other qualified employees in the
future could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's current manufacturing and sales structure is particularly subject
to various risks associated with international operations including changes in
costs of labor and materials, reliability of sources of supply and general
economic conditions in foreign countries. Unexpected changes in foreign
manufacturing or sources of supply, and changes in the availability, capability
or pricing of foreign suppliers could adversely affect the Company's business,
financial condition and results of operations. The networking industry and
technology markets in general continue to adjust to a widespread reduction in
demand for products due to financial problems experienced by many Internet
Service Provider's (ISP's), and the failure of many Internet companies. The
duration, or long-term effect on the Company's operations is difficult to
measure, but the inability to alter its strategic markets, or react properly to
this slowdown could have an adverse effect on the Company's financial position.
The 10/100 Mbps and 100 Mbps Ethernet technology (100BASE-T, or "Fast-Ethernet")
has become a standard networking topology in the networking and computer
industries. This standard has been adopted widely by end-user customers because
of its ability to increase the efficiency of LANs and because of its ease of
integration into existing 10BASE-T networks. Over the years, the speed of
Ethernet has increased by 100X to 1000 Mbps. The company's key products are
designed to function at speeds of 10/100/1000 Mbps to maintain backwards
compatibility with earlier Ethernet standards plus the newer Gigabit Ethernet
standard. In addition, Gigabit (1000BASE-T, or 1000Mbps) Ethernet technology is
increasingly being adopted in the backbone of large enterprises and educational
institutions. In that regard, the Company's future operating results may be
dependent on the market acceptance and the rate of adoption of these
technologies, as well as timely product releases. There can be no assurance that
the market will accept, adopt, or continue to use this new technology or that
the Company can meet market demand in a timely manner.
The Company's success will depend in part on its ability to accurately forecast
its future sales due to the lead time required to order components and assemble
products. If the Company's
24
product sales forecasts are below actual product demand, there may be delays in
fulfilling product orders; consequently, the Company could lose current and
future sales to competitors. Alternatively, if the Company's product sales
forecasts are above actual product demand, this may result in excess orders of
components or assembled products and a build-up of inventory that would
adversely affect working capital.
The Company commits to expense levels, including manufacturing costs and
advertising and promotional programs, based in part on expectations of future
net sales levels. If future net sales levels in a particular quarter do not meet
the Company's expectations or the Company does not bring new products timely to
market, the Company may not be able to reduce or reallocate such expense levels
on a timely basis, which could adversely affect the Company's operating results
and cash position. There can be no assurance that the Company will be able to
achieve profitability on a quarterly or annual basis in the future.
The Company's target markets include end-users, value-added resellers, systems
integrators, retailers, education, Multiple Tenant Unit/Multiple Dwelling Unit
(MTU/MDU) providers, and OEMs. Due to the relative size of the customers in some
of these markets, particularly the OEM market, sales in any one market could
fluctuate dramatically on a quarter to quarter basis. Fluctuations in the OEM
market could materially adversely affect the Company's business, financial
condition and results of operations. Additionally, the Company's revenues and
results of operations could be adversely affected if the Company were to lose
certain key distribution partners.
The Company has incurred net losses during its last three fiscal years and has
an accumulated deficit at September 27, 2003 of $26.6 million. These recurring
losses and accumulated deficit raise substantial doubts about the Company's
ability to continue as a going concern. The Company is currently pursuing
additional equity financing and has renewed its line of credit agreement that
expired January 31, 2004. The Company is also considering other corporate
transactions as a means of providing additional financing. The Company believes
it must be current with its filings with the Securities and Exchange Commission
at the earliest opportunity to complete such a transaction. Failure to raise
additional capital, secure other sources of financing or enter into a corporate
transaction would have a material adverse effect on the Company's ability to
achieve its intended business objectives and sustain its desired levels of
operation.
In summary, the Company's net sales and operating results in any particular
quarter may fluctuate as a result of a number of factors, including competition
in the markets for the Company's products, delays in new product introductions
by the Company, market acceptance of new products by the Company or its
competitors, changes in product pricing, material costs or customer discounts,
the size and timing of customer orders, distributor and end-user purchasing
cycles, fluctuations in channel inventory levels, variations in the mix of
product sales, manufacturing delays or disruptions in sources of supply, the
current economic downturn and seasonal purchasing patterns specific to the
computer and networking industries. The Company's future operating results will
depend, to a large extent, on its ability to anticipate and
25
successfully react to these and other factors. Failure to anticipate and
successfully react to these and other factors could adversely affect the
Company's business, financial condition and results of operations.
In addition to the above, the Company is also susceptible to other factors that
generally affect the market for stocks of technology companies. These factors
could affect the price of the Company's stock and could cause such stock prices
to fluctuate over relatively short periods of time.
Due to the time required to determine the restated balances included in the
Company's recent Amended Annual Report on Form 10-K (Form 10-K/A) for the fiscal
year ended September 28, 2002 which included a restatement of each of the three
fiscal years then ended, the Company recently filed its Form 10-Q for the period
ended June 28, 2003 on January 28, 2004. The Company believes that once it files
this report on Form 10-K and its Form 10-Q for the quarter ended December 27,
2003, it will be current in its SEC filings and in compliance with the OTCBB
listing requirements. However, the Company has no assurances this would occur
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations are based upon Asante Technologies, Inc. financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Management bases estimates and judgments on historical experience and on various
other factors that are believed to be reasonable under the circumstances; the
results of which form the basis for making judgments about the carrying values
of assets and liabilities. Actual results may differ from these estimates under
different assumptions or conditions. Management believes the following critical
accounting policies, among others, affect its more significant judgments and
estimates used in the preparation of its financial statements.
Revenue Recognition. The Company recognizes revenue net of estimated product
returns, expected payments to resellers for customer programs including
cooperative advertising and marketing development funds, volume rebates, and
special pricing programs. Product returns are provided for at the time revenue
is recognized, based on historical return rates, at what stage the product is in
its expected life cycle, and assumptions regarding the rate of sell-through to
end users from our various channels, which again, is based on historical
sell-through rates. Should these product lives vary significantly from our
estimates, or should a particular selling channel experience a higher than
estimated return rate, or a slower sell-through rate causing inventory build-up,
then our estimated returns, which net against revenue, may need to be revised.
Reductions to revenue for expected and actual payments to resellers for
cooperative advertising and marketing development funds, volume rebates and
pricing protection are based on actual expenses incurred during the period and
on estimates for what is due to resellers for estimated credits earned during
the period. If market conditions were to decline, the Company may take
26
action to increase promotional programs resulting in incremental reductions in
revenue at the time the incentive is offered based on our estimate of inventory
in the channel that is subject to such pricing actions.
Accounts Receivable. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral from its
customers. The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
If the financial condition of our customers should deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
Inventory. The Company records write-downs for estimated excess and obsolete
inventory based on projected future shipments using historical selling rates,
and taking into account market conditions, inventory on-hand, purchase
commitments, product development plans and life expectancy, and competitive
factors. If markets for the Company's products and corresponding demand were to
decline, then additional write-downs may be deemed necessary.
Warranty. The Company provides for the estimated cost of warranties at the time
revenue is recognized. Should actual failure rates and material usage differ
from our estimates, revisions to the warranty obligation may be required.
Recent Accounting Pronouncements
In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue
No. 00-21 provides guidance on how to account for arrangements that involve the
delivery or performance of multiple products, services and/or rights to use
assets. The provisions of EITF Issue No. 00-21 will apply to revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
Company is currently evaluating the effect that the adoption of EITF Issue No.
00-21 will have on its results of operations, financial condition and cash
flows.
In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
FIN 45 requires certain guarantees to be recorded at fair value and requires a
guarantor to make disclosures, even when the likelihood of making any payments
under the guarantee is remote. For those guarantees and indemnifications that do
not fall within initial recognition and measurement requirements of FIN 45, the
Company must continue to monitor the conditions that are subject to the
guarantees and indemnifications, as required under existing generally accepted
accounting principles, to identify if a loss has been incurred. If the Company
determines that it is probable that a loss has been incurred, any such estimable
loss would be recognized. The initial recognition and measurement requirements
do not apply to the Company's product warranties or to the provisions contained
in the majority of the Company's software license agreements that indemnify
licensees of the Company's software from damages and costs resulting from claims
alleging that the Company's software infringes the intellectual property rights
of a third party. The Company has adopted the provisions of FIN 45 for the
fiscal year ended September 27, 2003.
27
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective immediately for all new variable interest entities created or acquired
after January 31, 2003. For variable interest entities created or acquired prior
to February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. However, in October
2003, the FASB deferred the effective date of FIN 46 to the end of the first
interim or annual period ending after December 15, 2003 for those arrangements
entered into prior to February 1, 2003. In December 2003, the FASB further
deferred the effective date of FIN 46 to the end of the first interim or annual
reporting period ending after March 15, 2004 for those non-special purpose
entity arrangements created prior to February 1, 2003. The Company believes that
the adoption of this standard will have no material impact on its financial
statements.
In April 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities." SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS 133. In particular, this
Statement clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative and when a derivative
contains a financing component that warrants special reporting in the statement
of cash flows. This Statement is generally effective for contracts entered into
or modified after June 30, 2003 and is not expected to have a material impact on
the Company's financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." The Statement
improves the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity. The new Statement requires that
those instruments be classified as liabilities in statements of financial
position. This statement is effective for interim periods beginning after June
15, 2003. The Company does not expect that the adoption of SFAS 150 will have a
material effect on its financial position.
In December 2003, the Financial Accounting Standard Board issued SFAS No. 132
(Revised 2003), Employers' Disclosures about Pensions and Other Postretirement
Benefits. This Statement amends Statements No. 87, Employers' Accounting for
Pensions, No. 88, Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits, and No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions. However,
the Statement does not change the recognition and measurement requirements of
those Statements. This Statement retains the disclosure requirements contained
in SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits, which it replaces and requires additional disclosure. Additional new
disclosure includes actual mix of plan assets by category, a description of
investment strategies and policies used, a
28
narrative description of the basis for determining the overall expected
long-term rate of return on asset assumption and aggregate expected
contributions. The Company does not expect that the adoption of SFAS 132 will
have a material affect on its financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. As of September 27, 2003, the Company's cash and investment
portfolio did not include fixed-income securities. Due to the short-term nature
of the Company's investment portfolio, an immediate 10% increase or decrease in
interest rates would not have a material effect on the fair market value of the
Company's portfolio. Since the Company has the ability to liquidate this
portfolio, it does not expect its operating results or cash flows to be
materially affected to any significant degree by the effect of a sudden change
in market interest rates on its investment portfolio.
Foreign Currency Exchange Risk. All of the Company's sales are denominated in
U.S. dollars, and as a result the Company has little exposure to foreign
currency exchange risk. The effect of an immediate 10% increase or decrease in
exchange rates would not have a material impact on the Company's future
operating results or cash flows.
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Financial Statement Schedule
Financial Statements:
Report of Independent Registered Public Accounting Firm 31
Report of Independent Accountants 32
Balance Sheets at September 27, 2003 and September 28, 2002 33
Statements of Operations for the years ended September 27, 2003,
September 28, 2002 and September 29, 2001 34
Statements of Stockholders' Equity for the years ended
September 27, 2003, September 28, 2002, and September 29, 2001 35
Statements of Cash Flows for the years ended September 27, 2003,
September 28, 2002 and September 29, 2001 36
Notes to Financial Statements 37
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts 63
All other schedules are omitted because they are not required, are not
applicable or the information is included in the financial statements and notes
thereto.
30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
January 26, 2004, except for Note 7,
which is as of February 11, 2004
The Board of Directors and Stockholders of
Asante Technologies, Inc.
We have audited the accompanying balance sheet of Asante Technologies, Inc. at
September 27, 2003, and the related statements of operations, stockholders'
equity, and cash flows for the fiscal year then ended. Our audit also included
the accompanying financial statement schedule for the fiscal year ended
September 27, 2003. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements audited by us present fairly, in all
material respects, the financial position of Asante Technologies, Inc. at
September 27, 2003, and the results of its operations and its cash flows for the
fiscal year then ended in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, based on our
audit, the financial statement schedule referred to in the first paragraph of
our report, presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related financial statements.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
has suffered recurring operating losses and negative cash flows from operations,
and has an accumulated deficit that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
ODENBERG, ULLAKKO, MURANISHI & CO. LLP
San Francisco, California
31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Asante Technologies, Inc.
In our opinion, the financial statements listed in the accompanying index under
Item 8 present fairly, in all material respects, the financial position of
Asante Technologies, Inc. at September 28, 2002, and the results of its
operations and its cash flows for each of the two years in the period ended
September 28, 2002 in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion, the financial
statement schedule listed in the accompanying index under Item 8 presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
has suffered recurring losses and negative cash flows from operations, and has
an accumulated deficit which raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP
San Jose, California
November 1, 2002, except for Note 10,
as to which the date is March 13, 2003,
Note 7, as to which the date is November 30, 2003
and Note 1, as to which the date is
December 30, 2003
32
ASANTE TECHNOLOGIES, INC
BALANCE SHEETS
(In thousands, except share and per share amounts)
September 27, September 28,
2003 2002
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 1,723 $ 3,282
Accounts receivable, net of allowance for doubtful accounts,
rebates and sales returns of $1,196 and $1,770 in 2003
and 2002, respectively 1,759 2,821
Inventory 930 1,515
Prepaid expenses and other current assets 27 141
-------- --------
Total current assets 4,439 7,759
Property and equipment, net 51 90
Other assets 172 172
-------- --------
Total assets $ 4,662 $ 8,021
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,050 $ 2,016
Accrued expenses 1,779 1,932
-------- --------
Total current liabilities 2,829 3,948
-------- --------
Commitments (Note 9)
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized;
no shares issued or outstanding in 2003 and 2002 -- --
Common stock, $0.001 par value; 25,000,000 shares authorized;
10,149,521 and 10,066,020 shares issued and outstanding in
2003 and 2002, respectively 10 10
Additional paid-in capital 28,417 28,412
Accumulated deficit (26,594) (24,349)
-------- --------
Total stockholders' equity 1,833 4,073
-------- --------
Total liabilities and stockholders' equity $ 4,662 $ 8,021
======== ========
The accompanying notes are an integral part of these financial statements.
33
ASANTE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Fiscal Year Ended
----------------------------------------------------------
September 27, September 28, September 29,
2003 2002 2001
-------- -------- --------
Net sales $ 12,008 $ 15,237 $ 21,732
Cost of sales 7,757 9,750 14,177
-------- -------- --------
Gross profit 4,251 5,487 7,555
-------- -------- --------
Operating expenses:
Sales and marketing 3,154 3,873 5,040
Research and development 2,099 2,552 2,756
General and administrative 1,168 1,281 1,846
-------- -------- --------
Total operating expenses 6,421 7,706 9,642
-------- -------- --------
Loss from operations (2,170) (2,219) (2,087)
Interest and other income (expense), net (75) 11 228
-------- -------- --------
Net loss $ (2,245) $ (2,208) $ (1,859)
======== ======== ========
Basic and diluted loss per share $ (0.22) $ (0.22) $ (0.19)
======== ======== ========
Shares used in per share calculation
Basic and diluted 10,138 10,024 9,948
======== ======== ========
The accompanying notes are an integral part of these financial statements
34
ASANTE TECHNOLOGIES, INC
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
Common Stock Additional
-------------------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
---------- ---------- ---------- ---------- ----------
Balances as of September 30, 2000, 9,912,463 $ 10 $ 28,360 $ (20,282) $ 8,088
Common stock issued under stock plans 90,718 -- 42 -- 42
Net loss -- -- -- (1,859) (1,859)
---------- ---------- ---------- ---------- ----------
Balances as of September 29, 2001 10,003,181 10 28,402 (22,141) 6,271
Common stock issued under stock plans 62,839 -- 10 -- 10
Net loss -- -- -- (2,208) (2,208)
---------- ---------- ---------- ---------- ----------
Balances as of September 28, 2002 10,066,020 10 28,412 (24,349) 4,073
Common stock issued under stock plans 83,501 -- 5 -- 5
Net loss -- -- -- (2,245) (2,245)
---------- ---------- ---------- ---------- ----------
Balances as of September 27, 2003 10,149,521 $ 10 $ 28,417 $ (26,594) $ 1,833
========== ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
35
ASANTE TECHNOLOGIES, INC
STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year ended
----------------------------------------------
September 27, September 28, September 29,
2003 2002 2001
------- ------- -------
Cash flows from operating activities:
Net loss $(2,245) $(2,208) $(1,859)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 56 88 184
Provision for doubtful accounts receivable,
rebates and sales returns 1,257 939 1,010
Changes in operating assets and liabilities:
Accounts receivable (196) (651) 696
Inventory 585 333 627
Prepaid expenses and other current assets 114 259 123
Accounts payable (968) (171) (1,178)
Accrued expenses (152) (313) (646)
Payable to stockholder -- (8) (322)
------- ------- -------
Net cash used in operating activities (1,547) (1,732) (1,365)
------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment (17) (61) (40)
Other -- -- (5)
------- ------- -------
Net cash used in investing activities (17) (61) (45)
------- ------- -------
Cash flows from financing activities:
Issuance of common stock 5 10 42
------- ------- -------
Net cash provided by financing activities 5 10 42
------- ------- -------
Net decrease in cash and cash equivalents (1,559) (1,783) (1,368)
Cash and cash equivalents at beginning of fiscal year 3,282 5,065 6,433
------- ------- -------
Cash and cash equivalents at end of fiscal year $ 1,723 $ 3,282 $ 5,065
======= ======= =======
The accompanying notes are an integral part of these financial statements.
36
ASANTE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. The Company and Summary of Significant Accounting Policies
Asante Technologies, Inc. (the "Company" or "Asante") designs, manufactures and
markets a broad family of 10BASE-T, 100BASE-T ("Fast Ethernet") and 1000BASE-T
(Gigabit Ethernet) network and connectivity products. Asante's client access
products (which include adapter cards and media access adapters) connect PCs,
Macintoshes, iMAC's and peripheral devices (such as printers) to Ethernet
networks. The Company's network system products, which include intelligent and
non-intelligent switches, hubs, bridge modules, internet access devices
(routers), and network management software for Macintoshes and PCs, interconnect
users within and between departmental networks.
The Company operates in a highly competitive market characterized by rapidly
changing technology, together with competitors and distributors that have
significantly greater financial resources than Asante.
For the fiscal year ended September 27, 2003, the Company incurred a loss from
operations of $2.2 million and cash used in operating activities was $1.5
million. In fiscal years 2002 and 2001, the Company also incurred substantial
operating losses and negative cash flows from operations. As of September 27,
2003, the Company had an accumulated deficit of $26.6 million. Based upon the
Company's operating budget and cash flow projections, the Company expects to
continue to experience negative cash flows from operations through fiscal year
2004.
At September 27, 2003, the Company had cash and cash equivalents of $1.7 million
compared to $3.3 million at September 28, 2002, which represents a 48% decline.
Working capital was $1.6 million at September 27, 2003, compared to $3.8 million
at September 28, 2002. On February 11, 2004, the Company renewed its bank line
of credit agreement which provides for borrowings of up to $2.0 million. The
renewed line of credit expires on January 30, 2005. However, borrowings under
the line of credit are subject to compliance with certain financial covenants
and are limited to a specified percentage of eligible accounts receivable.
The recurring losses, accumulated deficit and expect continued negative cash
flows from operations raise substantial doubt about the Company's ability to
continue as a going concern.
On December 18, 2003, the Company signed a Letter of Intent with UNETEK, for the
private investment of funds with the Company for approximately $3.0 million.
Additionally, on December 23, 2003, the Company entered into a non-binding
Letter of Intent to merge with Oblique, Inc. The merger is conditioned upon,
among other things, an expedited due diligence period, and several other
factors, including an expedited process to arrive at a Definitive Merger
37
Agreement with certain minimum acceptable terms including a bridge funding of
approximately $1.0 million. The Company plans on proceeding with only one of
these transactions, however, and the Board of Directors is currently evaluating
each of these proposals.
Should the Company be unable to complete the merger or to obtain the $3 million
private investment of funds in the Company, it will need to raise additional
capital, secure other sources of financing or enter into a corporate transaction
in order to finance its operations through fiscal 2004. If required, the Company
may not be able to complete any of these alternative transactions on acceptable
terms, or at all.
Management estimates and assumptions
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the use of estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. The most significant assumptions are employed in estimates
used in determining accruals for sales rebates and returns, legal contingencies
and the valuation of deferred income tax assets and liabilities, as well as in
estimates used in applying the revenue recognition policy. Actual results could
differ from estimated results.
Revenue recognition
Revenue from product sales to customers is recognized, including freight charges
billed to customers, when a definite arrangement exists, the product has been
shipped to the customer, acceptance terms, if any, have been fulfilled, no
significant contractual obligations remain outstanding, the price is fixed or
determinable, and collection is considered probable. Reserves are provided for
estimated returns at the time the related revenue is recorded. Sales to
distributors are generally subject to agreements allowing certain rights of
return and price protection with respect to unsold merchandise held by the
distributor. Reserves for distributor returns are established based on
historical returns experience at the time the related revenue is recorded.
Reserves for price protection are established based on actual price reduction
programs. Additionally, the Company provides reserves for incentive rebates to
distributors, warranty obligations and cooperative advertising at the time the
related revenue is recorded.
Cash and cash equivalents
Cash equivalents consist primarily of highly liquid investments in U.S.
government and corporate debt securities with insignificant interest rate risk
and original maturity periods of three months or less at the date of
acquisition.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash equivalents and accounts receivable.
Accounts receivable are typically unsecured and are derived from worldwide
distributor and customer revenues. The Company performs ongoing credit
evaluations of its customers and maintains reserves for potential credit losses;
historically, such losses have been within management's expectations. At
38
September 27, 2003 and September 28, 2002 four customers accounted for 59% and
66%, respectively, of the accounts receivable balance. In fiscal 2003, 2002 and
2001 one customer accounted for 33%, 40% and 46%, respectively, of the Company's
sales.
Inventory
Inventory is stated at the lower of standard cost, which approximates actual
cost (on a first-in, first-out basis), or market. Appropriate adjustments of the
inventory values are provided for slow moving and discontinued products based
upon future expected sales and committed inventory purchases.
Property and equipment
Property and equipment are recorded at cost. Depreciation of property and
equipment is based on the straight-line method for financial reporting purposes
over the estimated useful lives of the related assets, generally three to five
years.
Long-lived assets
The Company periodically evaluates the recoverability of its long-lived assets
based upon undiscounted cash flows and recognizes impairment from the carrying
value of long-lived assets, if any, based on the fair value of such assets.
Income taxes
Income taxes are computed using the liability method. Under the liability
method, deferred income tax assets and liabilities are determined based upon the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates and laws. A
valuation allowance is provided against deferred tax assets when it is
considered more likely than not they will not be realizable.
Research and development costs
Research and development costs are expensed as incurred. Research and
development of new software products and enhancements to existing software
products are expensed as incurred until technological feasibility has been
established. The Company believes its current process for developing software is
essentially completed concurrently with the establishment of technological
feasibility. Software costs incurred after the establishment of technological
feasibility have not been material to date and therefore have been expensed.
Stock-based compensation
The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations thereof, including
Financial Accounting Standards Board (FASB) interpretation No. 44, in accounting
for its employee stock options and stock purchase plan. Pro forma information
regarding net income (loss) and net income (loss) per share is disclosed as
required by Statement of Financial Accounting Standards Statement No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123).
The Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS 123 and Emerging Issues Task Force Issue No. 96-18
"Accounting for Equity Instruments
39
that are Issued to Other than Employees for Acquiring or in Conjunction with
Selling Goods or Services."
Fair value of financial instruments
The carrying amounts for certain of the Company's cash equivalents, accounts
receivable and accounts payable approximate fair value due to the relatively
short maturity of these instruments.
Comprehensive income (loss)
The Company had no items of other comprehensive income (loss) during any of the
periods presented, and accordingly comprehensive income (loss) is equal to net
income (loss) for all periods presented.
Reclassifications
Certain previously reported amounts in the fiscal 2002 and 2001 statements of
operations have been reclassified to conform to current period presentation.
Segment information
In accordance with the provisions of SFAS No. 131, the Company has determined
that it operates in one business segment, networking and connectivity, and does
not have separately reportable segments.
Sales as a percentage of net sales by geographic region were as follows:
2003 2002 2001
---- ---- ----
United States 82% 80% 76%
Europe 12 14 14
Other 6 6 10
--- --- ---
100% 100% 100%
=== === ===
Substantially all of the Company's assets are located in the United States.
Recently issued accounting pronouncements
In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue
No. 00-21 provides guidance on how to account for arrangements that involve the
delivery or performance of multiple products, services and/or rights to use
assets. The provisions of EITF Issue No. 00-21 will apply to revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
Company is currently evaluating the effect that the adoption of EITF Issue No.
00-21 will have on its results of operations, financial condition and cash
flows.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Other" ("FIN 45"). FIN 45 requires certain guarantees to be
recorded at fair value and requires a
40
guarantor to make disclosures, even when the likelihood of making any payments
under the guarantee is remote. For those guarantees and indemnifications that do
not fall within initial recognition and measurement requirements of FIN 45, the
Company must continue to monitor the conditions that are subject to the
guarantees and indemnifications, as required under existing generally accepted
accounting principles, to identify if a loss has been incurred. If the Company
determines that it is probable that a loss has been incurred, any such estimable
loss would be recognized. The initial recognition and measurement requirements
do not apply to the Company's product warranties or to the provisions contained
in the majority of the Company's software license agreements that indemnify
licensees of the Company's software from damages and costs resulting from claims
alleging that the Company's software infringes the intellectual property rights
of a third party. The Company has adopted the provisions of FIN45 for the fiscal
year ended September 27, 2003.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective immediately for all new variable interest entities created or acquired
after January 31, 2003. For variable interest entities created or acquired prior
to February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. However, in October
2003, the FASB deferred the effective date of FIN 46 to the end of the first
interim or annual period ending after December 15, 2003 for those arrangements
entered into prior to February 1, 2003. In December 2003, the FASB further
deferred the effective date of FIN 46 to the end of the first interim or annual
reporting period ending after March 15, 2004 for those non-special purpose
entity arrangements created prior to February 1, 2003. The Company believes that
the adoption of this standard will have no material impact on its financial
statements.
In April 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities." SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS 133. In particular, this
Statement clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative and when a derivative
contains a financing component that warrants special reporting in the statement
of cash flows. This Statement is generally effective for contracts entered into
or modified after June 30, 2003 and is not expected to have a material impact on
the Company's financial statements.
In May 2003, the FASB has issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." The Statement
improves the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity. The new Statement requires that
those instruments be classified as liabilities in statements of financial
position. This statement is effective for interim periods beginning after
41
June 15, 2003. The Company does not expect that the adoption of SFAS 150 will
have a material effect on its financial positions.
In December 2003, the Financial Accounting Standard Board issued SFAS No. 132
(Revised 2003), Employers' Disclosures about Pensions and Other Postretirement
Benefits. This Statement amends Statements No. 87, Employers' Accounting for
Pensions, No. 88, Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits, and No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions. However,
the Statement does not change the recognition and measurement requirements of
those Statements. This Statement retains the disclosure requirements contained
in SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits, which it replaces and requires additional disclosure. Additional new
disclosure includes actual mix of plan assets by category, a description of
investment strategies and policies used, a narrative description of the basis
for determining the overall expected long-term rate of return on asset
assumption and aggregate expected contributions. The Company does not expect
that the adoption of SFAS 132 will have a material affect on its financial
statements.
Note 2. Basic and Diluted Net Loss Per Share
The Company computes net loss per share in accordance with SFAS No. 128
"Earnings per Share" (SFAS No. 128). Basic net loss per share is computed by
dividing net loss available to common stockholders (numerator) by the
weighted-average number of common shares outstanding (denominator) during the
period. Diluted net loss per share gives effect to all dilutive potential common
shares outstanding during the period including stock options, using the treasury
stock method. In computing diluted net loss per share, the average stock price
for the period is used in determining the number of shares assumed to be
re-purchased from the exercise of stock options.
The following is a reconciliation of the numerators and denominators of the
basic and diluted net loss per share computations for the periods presented
below (in thousands, except per share data):
2003 2002 2001
---------- ---------- -------
Net loss $ (2,243) $ (2,208) $(1,859)
========== ========== =======
Weighted average common stock outstanding (basic) 10,150 10,024 9,948
Dilutive effect of options -- -- --
---------- ---------- -------
Weighted average common stock outstanding (diluted) 10,150 10,024 9,948
========== ========== =======
Net loss per share:
Basic $ (0.22) $ (0.22) $ (0.19)
========== ========== =======
Diluted $ (0.22) $ (0.22) $ (0.19)
========== ========== =======
42
Diluted net loss per share for the fiscal years ended September 27, 2003,
September 28, 2002 and September 29, 2001 excludes all dilutive potential common
shares as their effect is antidilutive. At September 27, 2003, September 28,
2002 and September 29, 2001, 1,491,343, 1,719,520 and 1,613,058 of outstanding
options respectively, were excluded since their effect was antidilutive.
Note 3 Balance Sheet Components
2003 2002
------- -------
(in thousands)
Inventory:
Raw materials and component parts $ 39 $ 193
Work-in-process 23 54
Finished goods 868 1,268
------- -------
$ 930 $ 1,515
======= =======
Property and equipment:
Computers and R&D equipment $ 2,222 $ 2,205
Furniture and fixtures 508 508
------- -------
2,730 2,713
Accumulated depreciation (2,679) (2,623)
------- -------
$ 51 $ 90
======= =======
Accrued expenses:
Payroll-related expenses $ 339 $ 574
Sales promotion expenses 395 314
Legal and professional fees 327 373
Warranty 430 430
Other 288 241
------- -------
$ 1,779 $ 1,932
======= =======
Note 4. Warranties
We provide for estimated future warranty costs upon product shipment. The
specific terms and conditions of those warranties vary depending upon the
product sold and country in which we do business. In the case of hardware
manufactured by our sub-contract manufacturers, our warranties generally start
from the delivery date and continue as follows:
Product Warranty Periods
------- ----------------
Managed switches Three to five years
Unmanaged Gigabit Switches, Gigabit Adapters One to five years
Unmanaged switches, hubs, USB hubs, routers, fiber One to five years
Other - Adapters One to five years
AsantePrint and AsanteTalk print routers, Gig cables Limited Lifetime
43
Longer warranty periods are provided on a limited basis including some
"lifetime" warranties on some of the Company's older legacy products.
From time to time, some of the Company's products may be manufactured to
customer specifications and their acceptance is based on meeting those
specifications. We historically have experienced minimal warranty costs related
to these products. Factors that affect our warranty liability include the number
of shipped units, historical experience and management's judgment regarding
anticipated rates of warranty claims and cost per claim. We assess the adequacy
of our recorded warranty liabilities every quarter and make adjustments to the
liability if necessary.
Changes in the Company's warranty liability, which is included as a component of
"Accrued expenses" on the Balance Sheets, during the fiscal year ended September
27, 2003 are as follows (in thousands):
Balance as of September 28, 2002 $ 430
Provision for warranty liability for sales during the fiscal year 305
Settlements made during the fiscal year (305)
-----
Balance as of September 27, 2003 $ 430
-----
Note 5. Related Party Transactions
The Company has a supply agreement (the "OSE Agreement") with Orient
Semiconductor Electronics, Ltd., ("OSE"). OSE and one of its principal
shareholders own, in aggregate, approximately 11.8% of the Company's Common
Stock as of September 27, 2003. Under the OSE Agreement, the Company purchases
from and sells at cost to OSE certain component parts. The Company is obligated
to purchase goods only to the extent it has signed firm purchase commitments
with OSE. At September 27, 2003, the Company's firm purchase commitments under
the OSE Agreement were insignificant.
For fiscal 2003, 2002, and 2001, the Company sold, at cost, approximately
$7,000, $37,000, and $100,000, respectively, of component parts to OSE and
purchased $100,000, $500,000, and $1.3 million, respectively, of goods from OSE.
On March 16, 2000, the Company signed a Stock Purchase Agreement with Delta
Networks Inc., and Delta International Holdings Ltd. The Company issued 500,000
shares at $3.00 per share, amounting to $500,000 from Delta Networks, and
$1,000,000 from Delta International Holdings Ltd. During fiscal years 2003, 2002
and 2001, the Company purchased approximately $2.7 million, $3.2 million and
$4.8 million respectively, of goods from Delta and sold component parts totaling
approximately $14,000, $10,000 and $80,000, respectively, at cost to Delta. At
September 27, 2003, the Company had approximately $100,000 in accounts payable
to Delta and approximately $9,000 in receivables from Delta, and at September
28, 2002 the Company had
44
approximately $700,000 in accounts payable to Delta and approximately $29,000 in
receivables from Delta.
Note 6. Income Taxes
There was no provision or benefit for income taxes made in fiscal years 2003,
2002, or 2001 as the Company incurred losses and provided a full valuation
allowance against its deferred tax assets.
Deferred tax assets, net, comprise the following at September 27, 2003 and
September 28, 2002 (in thousands):
2003 2002
-------- --------
Deferred tax assets:
Net operating losses $ 7,936 $ 5,141
Research and development credits 2,928 2,942
Inventory-related reserves 1,820 2,370
Receivable and sales-related reserves 510 687
Compensation accruals 100 100
Depreciation 98 103
Other reserves and accruals 128 91
-------- --------
Total deferred tax assets 13,520 11,434
Valuation allowance (13,520) (11,434)
-------- --------
$ -- $ --
======== ========
The Company believes that sufficient uncertainty exists regarding the
realizability of the deferred tax assets such that a full valuation allowance
was provided as of September 27, 2003 and September 28, 2002.
At September 27, 2003, the Company had federal and state net operating loss
carryforwards of approximately $16.5 million and $11.1 million, respectively,
available to offset future taxable income which expire beginning in 2018 and
2003, respectively. In addition, as of September 27, 2003, the Company had
approximately $1.9 million and approximately $1.3 million of federal and state
research and development credits, respectively. The federal credits will expire
beginning in 2012 if not utilized. The state tax credits will be carried forward
until utilized.
Under Internal Revenue Code Section 382 and 383, the future utilization of net
operating losses and tax credits may be limited in certain circumstances where
there is a significant ownership change. Events which may cause changes include,
but are not limited to, a cumulative ownership change of more than 50% over a
three year period.
45
A reconciliation between the Company's income tax provision and the amount
computed by applying the statutory federal rate to income before taxes follows
(in thousands):
` 2003 2002 2001
------- ------- -------
Tax (benefit) at U.S. statutory rate $ (763) $ (751) $ (632)
State taxes, net of federal benefits (131) (106) (90)
Other 44 192 6
Valuation allowance 850 1,051 716
------- ------- -------
$ -- $ -- $ --
======= ======= =======
Note 7 Bank Borrowings
The Company has a bank line of credit that provides for maximum borrowings of up
to $2.0 million and is limited to a certain percentage (60%) of eligible
accounts receivable. The line of credit is subject to certain covenant
requirements, including maintaining certain net tangible worth amounts. The line
of credit agreement was set to expire in November 2003. However, the parties
entered into an amendment to extend the line of credit term to January 31, 2004
during which time the Company negotiated a renewal of its line of credit with
the bank. On February 11, 2004, the line of credit was renewed for a term of one
year with a maturity date of January 30, 2005. As of February 11, 2004,
approximately $500,000 was available on this line of credit and the Company was
in compliance with the covenants of the agreement.
Note 8. Stockholders' Equity
Preferred Stock
There are 2,000,000 shares of Preferred Stock authorized by the Board of
Directors none of which have been issued.
Stock Based Compensation Plans
As of September 27, 2003, the Company had granted options under five stock-based
compensation plans that are described below.
The 2001 Stock Option Plan allows for issuance of options to Company employees
and consultants to purchase a maximum of 1,000,000 shares of common stock plus
7% of the outstanding common shares as of the last day of the immediately
preceding year beginning in fiscal year 2002. This plan replaces the Company's
1990 Stock Option Plan (the 1990 Plan) which allowed for the issuance of options
to Company employees and consultants to purchase a maximum of 4,597,333 shares
of common stock. The 1990 Plan expired in May 2000, and was temporarily replaced
by the 2000 Non-Statutory Stock Option Plan which allows for issuance of options
to Company employees and consultants to purchase a maximum of 120,000 shares of
common stock.
46
The Directors' Stock Option Plan allows for the issuance of options to directors
of the Company who are not employees of, or consultants to, the Company or any
affiliate of the Company. The Directors' Stock Option Plan allows for the
issuance of options to Non-Employee Directors to purchase a maximum of 300,000
shares of common stock. The Directors Plan expired in October 30, 2003, and the
Company is in the process of drafting a replacement plan.
The Key Executive Option Plan allows for the issuance of options to key
employees of the Company who are not recognized under the Directors' Stock
Option Plan. The Key Executive Option Plan allows for the issuance of options to
Key Employees to purchase a maximum of 404,999 shares of common stock. The Key
Executive Option Plan expired in July 2003. The Company is currently in the
process of drafting a replacement plan.
Individuals owning more than 10% of the Company's stock are not eligible to
participate in the above Plans unless the exercise price of the option is at
least 110% of the fair market value of the common stock at the date of grant.
Incentive stock options issued to holders of less than 10% of the Company's
stock must be issued at exercise prices no less than the fair market value of
the Company's common stock per share on the date of grant and with expirations
not to exceed ten years from the grant date. Under the terms of the Plans,
options are granted at 100% of the fair market value of the common stock at the
date of grant with an expiration date of ten years from the date of grant.
Initial option grants generally become vested over a period of four years from
the date of hire, commencing on the date one year after the date of grant of the
initial option. Unexercised options terminate three months after an Optionee's
termination of all service with the Company and its affiliates. It is expected
that the replacement plans will have terms similar to those of the expired
plans. Currently, the Company may not issue new options from those plans which
expired.
Activity under the 1990 Stock Option Plan, 2000 Nonstatutory Stock Option Plan,
2001 Stock Option Plan, Directors' Stock Option Plan and the Key Executive
Option Plan are summarized as follows:
2003 2002 2001
--------------------------- --------------------------- ---------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Price per of Price per of Price per
Shares Share Shares Share Shares Share
--------- -------- --------- -------- --------- --------
Beginning Balance 1,719,520 $ 1.58 1,613,058 $ 1.82 1,576,971 $ 1.91
Granted 29,000 $ 0.10 230,726 $ 0.17 125,500 $ 0.81
Exercised (3,592) $ 0.19 -- -- (2,516) $ 0.87
Canceled (253,585) $ 2.48 (124,264) $ 2.22 (86,897) $ 1.74
--------- --------- ---------
Ending Balance 1,491,343 $ 1.41 1,719,520 $ 1.58 1,613,058 $ 1.82
========= ========= =========
47
The following table summarizes information about stock options outstanding at
September 27, 2003:
Options Outstanding Options Exercisable
----------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life in Years Price Exercisable Price
--------------- ----------- ------------- ----- ----------- -----
$0.0800 - $0.2800 194,581 8.26 $0.20 72,040 $0.21
$0.6400 - $0.8125 46,650 7.33 $0.79 25,900 $0.79
$0.8750 - $0.8750 197,100 5.87 $0.88 195,433 $0.88
$0.9000 - $1.000 83,900 6.10 $0.94 81,500 $0.94
$1.0320 - $1.0320 600,000 5.85 $1.03 600,000 $1.03
$1.6250 - $2.3750 155,437 5.93 $1.98 137,378 $1.98
$2.5000 - $4.6250 149,150 2.72 $3.15 149,150 $3.14
$5.0000 - $6.3125 57,325 2.90 $5.69 57,325 $5.69
$6.5000 - $6.5000 1,000 2.79 $6.50 1,000 $6.50
$6.8750 - $6.8750 6,200 3.08 $6.88 6,200 $6.88
--------- ---------
$0.0800 - $6.8750 1,491,343 5.79 $1.41 1,325,926 $1.52
========= =========
Under SFAS No. 123, the fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model with the following
assumptions used for grants during fiscal 2003, 2002, and 2001, risk free
interest rates ranging at the date of grant from 2.90% to 6.79%; expected
average volatility of 85%, 120%, and 119%, respectively; an expected option term
of four years, and no expected dividends. The weighted average fair value of
stock options granted under the plans for fiscal 2003, 2002, and 2001 was $0.16,
$0.17, and $0.69, respectively.
In 1993, the Company adopted the Employee Stock Purchase Plan (the "Purchase
Plan") covering an aggregate of 500,000 shares of common stock. During fiscal
2000 the Stockholders approved an amendment increasing the number of shares
available for issuance under the Purchase Plan by 500,000 shares. Under the
Purchase Plan, the Board of Directors may authorize participation by eligible
employees, including officers, in periodic offerings following the commencement
of the Purchase Plan. Employees who participate in the Purchase Plan can have up
to 10% of their earnings withheld and used to purchase shares of common stock on
specified dates as determined by the Board. The price of common stock purchased
under the Purchase Plan is equal to 85% of the lower of the fair market value of
the common stock determined by the closing price on the Nasdaq National Market
System, at the commencement date or the ending date of each six month offering
period.
Sales under the Purchase Plan in fiscal 2003, 2002, and 2001 were 79,909,
62,839, and 88,202 shares of common stock, respectively, at an average price of
$0.07, $0.15, and $0.64, respectively. On September 27, 2003, 264,102 shares of
common stock were available for future purchase.
48
The fair value of the employee's purchase rights under SFAS No. 123, was
estimated using the Black-Scholes model with the following assumptions used for
grants during fiscal 2003, 2002, and 2001: risk free interest rates ranging from
2.90% to 6.73%, respectively, expected volatility of 85%, 120%, and 119%,
respectively, an expected option term of six months for all years, and no
expected dividends. The weighted average fair value of stock purchased under the
Purchase Plan for fiscal 2003, 2002, and 2001, was $0.43, $0.15, and $0.72,
respectively.
If compensation expense under these plans had been recorded in the Company's
financial statements pursuant to SFAS No. 123, the Company's net loss and net
loss per share for fiscal 2003, 2002, and 2001 would have been as follows (in
thousands, except per share amounts):
2003 2002 2001
----------- ----------- ----------
Net loss:
As reported $ (2,243) $ (2,208) $ (1,859)
Pro forma $ (2,324) $ (2,397) $ (2,084)
Net loss per share
As reported
Basic and diluted $ (0.22) $ (0.22) $ (0.19)
Pro forma
Basic and diluted $ (0.23) $ (0.24) $ (0.21)
Such pro forma disclosures may not be representative of future compensation cost
because options vest over several years and additional grants are made each
year.
Note 9. Commitments
The Company has an operating lease for its main facility that expires on August
31, 2004. Other leases for sales offices expire through 2005. Rent expense under
such operating leases aggregated approximately $720,000, $714,000, and $692,000,
for fiscal 2003, 2002, and 2001, respectively. Certain leases require the
Company to pay a portion of facility operating expenses.
Future minimum lease payments under these leases at September 27, 2003 are as
follows (in thousands):
Year
----
2004 821
2005 9
--------
$ 830
As of September 27, 2003, none of the Company's existing facilities are being
subleased.
49
Note 10. Litigation
From time to time the Company is subject to legal proceedings and claims in the
ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property rights. The Company does not believe
that any of these legal proceedings or claims are likely to have a material
adverse effect on the Company's results of operations, financial condition or
cash flows.
In September 1999, certain inventory having a cost of approximately $400,000 was
seized by the United States Customs for the alleged improper use of
certification marks owned by Underwriters Laboratories Inc. ("UL"). In March
2003, the US Attorney and the Company entered into a final settlement under
which the seized inventory was returned to the Company and the Company was
obligated to pay $57,000, and remove improper marks from the product.
Note 11. Subsequent Event
On December 18, 2003, the Company signed a Letter of Intent with UNETEK, for the
private investment of funds with the Company for approximately $3.0 million.
Additionally, on December 23, 2003, the Company entered into a new, non-binding,
Letter of Intent to merge with Oblique, Inc. The Merger was conditioned upon,
among other things, an expedited due diligence period, and several other
factors, including an expedited process to arrive at a Definitive Merger
Agreement with certain minimum acceptable terms including a bridge funding of
approximately $1.0 million. The Company plans on proceeding with only one of
these transactions, however, and the Board of Directors is currently evaluating
each of these proposals.
50
Unaudited Quarterly Results Of Operations (In Thousands Except Net Loss Per
Share):
Fiscal 2003 Quarter Ended
--------------------------------------------------------------------------------
September 27 June 28 March 29 December 28
------------ ------- -------- -----------
Net sales $ 2,933 $ 2,677 $ 2,564 $ 3,834
Gross profit $ 897 $ 910 $ 997 $ 1,447
Net loss $ (579) $ (600) $ (755) $ (309)
Net loss per share $ (0.06) $ (0.06) $ (0.07) $ (0.03)
Fiscal 2002 Quarter Ended
--------------------------------------------------------------------------------
September 27 June 28 March 29 December 28
------------ ------- -------- -----------
Net sales $ 3,371 $ 4,002 $ 3,904 $ 3,959
Gross profit $ 1,291 $ 1,426 $ 1,452 $ 1,317
Net loss $ (42) $ (413) $ (627) $(1,126)
Net loss per share $ (0.00) $ (0.04) $ (0.06) $ (0.11)
51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As previously reported on Form 8-K filed with the SEC on August 5, 2003, on July
28, 2003, the Company dismissed PricewaterhouseCoopers LLP ("PWC") as its
independent accountants subject to completion of services related to the
restatement of the Company's financial statements as of September 28, 2002 and
September 29, 2001 and for each of the three fiscal years in the period ended
September 28, 2002. The Company's amended Form 10-K for fiscal year 2002
reflecting the restatement was filed with the SEC on January 5, 2004. The
Company's Audit Committee participated in and approved the decision to change
independent accountants.
The reports of PricewaterhouseCoopers LLP on the financial statements for the
past two fiscal years contained no adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principle.
In connection with its audits for the two most recent fiscal years and through
July 28, 2003, there have been no disagreements with PricewaterhouseCoopers LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
The Company engaged Odenberg, Ullakko, Muranishi & Co. LLP ("OUMC") as its new
independent accountants as of July 28, 2003. During the two most recent fiscal
years and through July 28, 2003, the Company has not consulted with OUMC
regarding either (i) the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit opinion that
might be rendered on the Company's financial statements, and neither a written
report was provided to the Company or oral advice was provided that the Company
concluded was an important factor considered by it in reaching a decision as to
the accounting, auditing or financial reporting issue; or (ii) any matter that
was either the subject of a disagreement, as that term is defined in Item
204(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of
Regulation S-K, or a reportable event, as that term is defined in Item
304(a)(1)(v) of Regulation S-K.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures. Based on their evaluation of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, (the "Exchange
Act")) as of the end of the period covered by this Annual Report on Form 10-K,
the Company's principal executive officer and principal financial officer have
concluded that the Company's disclosure controls and procedures, as modified by
the changes discussed in subparagraph (b) below, are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods
52
specified in Securities and Exchange Commission rules and forms, and include
controls and procedures designed to ensure that information required to be
disclosed by the Company in such reports is accumulated and communicated to the
Company's management, including the principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding
disclosure.
(b) Changes to internal controls over financial reporting. During fiscal years
1998 and 1999, the Company reported reserves offsetting accounts receivable for
customers' product returns, price protection and other customer sales price
rebates, as well as accruals for market development funds and other related
obligations due to reseller customers that were relatively large compared to the
sales activities with those customers. The Company undertook an investigation of
this issue in 2003 and determined that a portion of such reserves and accruals
were overstated at October 2, 1999 and in earlier periods and were misstated in
periods subsequent to October 2, 1999. As a result of the foregoing, the Company
has restated its financial statements for each of the three fiscal years in the
period ended September 28, 2002.
In connection with their audits of the restatement of previously issued
financial statements, the Company's prior independent auditors identified a
"material weakness" (as defined under standards established by the AICPA)
relating to the Company's initial recording and management's review and
oversight of certain accounting estimates. In response to the above and the
Company's investigation, the Company, under the direction of the Audit
Committee, has directed management to dedicate resources and take steps to
strengthen control processes and procedures in order to identify and prevent a
recurrence of the circumstances that resulted in the need to restate prior
period financial statements.
53
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company, their ages as of January
30, 2004, and certain information regarding each of them are as follows:
Name Age Position with the Company Director Since
---- --- ------------------------- --------------
Wilson Wong 56 Chairman, President and Chief Executive
Officer 1988
Jeff Lin 53 Chief Operating Officer and Director 1988
Edmond Y. Tseng 56 Director 1989
Michael D. Kaufman* Director 1995
Rusty Callihan 54 Vice President of Sales
Anthony Contos 40 Vice President of Finance and Administration
Steven Dix 44 General Manager and Senior Vice President Sales
and Marketing
Jim Hsia 41 Vice President of Product Marketing and Business
Development
Chiu K. Fung 56 Vice President of Operations
----------------------------------------
*On August 15, 2003, Michael Kaufman informed management of his resignation from
the Board of Directors. Mr. Kaufman's reasons for resigning from the Board were
not related to the Company's restatement, or the Company's then ongoing merger
activity.
Mr. Wong co-founded the Company in 1988, and has served as President, Chief
Executive Officer and Chairman of the Board of Directors since January 1, 1999.
Mr. Wong also continues to serve as Vice President of Engineering. Prior to his
return to the Company as Vice President of Engineering on September 10, 1998,
Mr. Wong was Chief Executive Officer of Pixo Arts Corporation. From 1994 to
August 1997, he served as Vice President and General Manager for the Company.
From 1993 to 1994, he served as Vice President and General Manager for the
Company's Client Access products. From 1988 to 1993, he served as the Company's
President and Chief Executive Officer.
Mr. Lin co-founded the Company in 1988, and has been a director of the Company
since 1988. He rejoined the Company as an executive officer in June 2002. Mr.
Lin is also a General Partner of Proton Management Consulting located in San
Jose, a venture management company. Prior to that, Mr. Lin served as Chairman
and Chief Executive Officer of United Optical Networks International, a supplier
of fiber optic components, and as Chairman of FITGlobal, an online transaction
company. Prior to that, Mr. Lin was President and Chief Executive Officer of
Lite-On Communications Corporation, which is an internetworking company located
in Taiwan. Lite-on Communications is a subsidiary of Lite-On Group, which is one
of Asante's OEM suppliers in Asia. Mr. Lin co-founded Asante Technologies, Inc.
(the "Company") in 1988, and served as
54
President, Chief Executive Officer and Chairman of the Board of Directors from
July 1994 until December 31, 1998. Since his resignation as President and
Chairman of the Board of Directors, Mr. Lin has served as a Director of the
Company. Mr. Lin also held the position of Vice President of Engineering from
November 1997 until August 1998. From June 1993 through July 1994, he served as
Vice President, General Manager of Network Systems Business for the Company.
From 1991 to 1993, he served as the Company's Chairman of the Board of Directors
and Chief Operating Officer. From 1988 to 1991, Mr. Lin served as the Company's
Vice President of Operations and Engineering, Chief Financial Officer and
Secretary.
Mr. Tseng has served as President and Chief Executive Officer of OSE, Inc., a
semiconductor products company which serves as the exclusive North American
sales representative for Orient Semiconductor Electronics, Ltd., since January
1990. Orient Semiconductor Electronics, Ltd. is one of Asantes OEM suppliers in
Asia. See "Security Ownership of Directors, Officers and Certain Beneficial
Owners" and "Certain Relationships and Related Transactions." Prior to that
time, Mr. Tseng was the Director of Engineering at Condata, Inc., an electronics
products and engineering consulting company.
Mr. Rusty Callihan rejoined the Company in August 1999 and currently serves as
Vice President of Sales. Mr. Callihan initially joined the Company in October
1990 and served in various sales positions until July 1996. Prior to rejoining
the Company Mr. Callihan was the Vice President of Sales for UMAX Corporation
from June 1997 to July 1998. He also held senior sales management positions with
RasterOps Corporation and Apple Computer Inc.
Mr. Anthony Contos joined the Company in June 1994, and has served as Vice
President of Finance and Administration, and corporate Secretary since August
1999. From October 1997 to August 1999 he served as the Company's Corporate
Controller/Director of Finance. Prior to joining the Company Mr. Contos was a
financial consultant for Electronic Arts, Inc. where he was responsible for the
international consolidation activities. Prior to that he was a financial and
operations analyst with Ross Stores.
Mr. Steven Dix rejoined the company in October 2003 and currently serves as
Senior Vice President and General Manager. Mr. Dix initially joined the company
in 1993 and served as Director of Int'l Sales and Marketing until 1994. Prior to
rejoining the company Mr. Dix was the VP of Sales and Marketing for NETGEAR,
Inc. from Feb 1996 until March 2003. He has held senior sales management
positions with Borland, SysKonnect and Farallon Computing
Mr. Jim Hsia joined the Company in September 1999 and served as Vice President
of Marketing for the Company. Mr. Hsia now serves as Vice President of Product
Marketing and Business Development. From February 1996 to September 1999 Mr.
Hsia was the Vice President of Marketing at ZNYX Corporation. Prior to that he
held various marketing positions at National Semiconductor, Eagle Technology (a
business unit of Artisoft), Accton Technology and 3Com Corporation.
55
Mr. Chiu K. Fung (C.K.) joined the Company in October 2000, and has served as
Vice President of Operations since October 2001. Before that Mr. Fung held the
position of Senior Director of Operations with the Company. From June 1998 to
June 2000, Mr. Fung served as Monitor Service Manager for Nakamichi America
Corporation where he was responsible for management of service and repair
operations. From December 1995 to March 1998, Mr. Fung served as Technical
Director at Orient Power Holding Ltd. where he was responsible for management of
their audio business unit. Prior to that, Mr. Fung held other management
positions in operations.
There are no family relationships among the directors and executive officers of
the Company.
Board Meetings and Committees
The Board of Directors of the Company held a total of eight meetings and acted
by written consent two times during the fiscal year ended September 27, 2003.
During fiscal 2003, no director attended fewer than 75% of the meetings of the
Board of Directors and its committees upon which such director served. The Board
of Directors has an Audit Committee and a Compensation Committee. The Board of
Directors has no nominating committee or any committee performing similar
functions.
The information contained in the following sections entitled "Audit Committee"
and "Audit Committee Report" shall not be deemed to be "soliciting material" or
to be "filed" with the Securities and Exchange Commission, nor shall such
information be incorporated by reference into any future filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, except to the extent that the Company specifically incorporates such
information by reference into such filing.
Audit Committee
The Audit Committee of the Board of Directors, which consisted of Mr. Lin, Mr.
Kaufman (who resigned in August, 2003) and Mr. Tseng, met three times during the
last fiscal year of the Company. The Company's Common Stock trades on the OTC
(Over-the-Counter) Bulletin Board, and, accordingly, the Company is not subject
to the rules of the Nasdaq Stock Market. During the last fiscal year, the Audit
Committee did not consist solely of members who are independent directors within
the meaning of Rule 4200(a)(14) of the Market Place Rules of the Nasdaq Stock
Market. The Board of Directors has adopted a written charter for the Audit
Committee, the functions of the Audit Committee include, among others:
recommending to the Board of Directors the retention of independent public
accountants, subject to stockholder approval; reviewing and approving the
planned scope, proposed fee arrangements and results of the Company's annual
audit; reviewing and evaluating the Company's accounting principles and its
system of internal accounting controls; and reviewing the independence of the
Company's independent accountants.
56
Audit Committee Report for the Fiscal Year ended September 27, 2003
The Audit Committee has reviewed and discussed the audited financial statements
of the Company for the fiscal year ended September 27, 2003 with the Company's
management. The Audit Committee has discussed with Odenberg, Ullakko, Muranishi
& Co. LLP, the Company's independent public accountants, the matters required to
be discussed by Statement on Auditing Standards No. 61, Communication with Audit
Committees.
The Audit Committee has also received the written disclosures and the letter
from Odenberg, Ullakko, Muranishi & Co. LLP required by Independence Standards
Board Standard No. 1, Independence Discussion with Audit Committees and the
Audit Committee has discussed the independence of Odenberg, Ullakko, Muranishi &
Co. LLP with that firm. The Audit Committee reviewed non-audit services provided
by its independent accountants for the last fiscal year, and determined that
those services did not impair the accountants' independence. The Audit Committee
is also responsible for handling disagreements with the Company's independent
accountants or the termination of their engagement.
Based on the Audit Committee's review and discussions noted above, the Audit
Committee recommended to the Board of directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended September 27, 2003 for filing with the Securities and
Exchange Commission. In addition, the Audit Committee reviewed and recommended
to the Board that Odenberg, Ullakko, Muranishi & Co. be retained by the Company
for the fiscal year ending October 4, 2004.
Submitted by The Audit Committee
Jeff Yuan-Kai Lin
Edmond Y. Tseng
Compensation Committee
The Compensation Committee of the Board of Directors, which during the fiscal
year ended September 27, 2003, consisted of Mr. Kaufman (who resigned in August
2003) and Mr. Tseng, met four times during the year. The Compensation Committee
reviews and approves the Company's executive compensation policy, including the
salaries and target bonuses of the Company's executive officers. In addition,
the Compensation Committee administers the Company's stock plans, which includes
recommending or approving the grant of options to new and existing employees
(including officers and employee directors).
Compensation Committee Interlocks and Insider Participation
For the fiscal year ended September 27, 2003, the Compensation Committee
consisted of Mr. Kaufman (who resigned in August 2003) and Mr. Tseng, neither of
who is an officer of the Company.
57
Mr. Tseng is the President and Chief Executive Officer and Dr. Duh is a director
of OSE, Inc., a semiconductor products company which serves as the exclusive
North American sales representative for Orient Semiconductor Electronics, Ltd.
("OSE"). The Company subcontracts the manufacturing of a substantial portion of
its products through OSE. Under the Company's arrangement with OSE, the Company
purchases certain components from third party vendors and sells these components
to OSE at cost. OSE purchases or manufactures other components, assembles
printed circuit boards, and tests and packages products for the Company on a
purchase order basis. The Company is obligated to purchase products only to the
extent it has signed firm purchase commitments with OSE. During fiscal 2001,
2002 and 2003, the Company's purchases from OSE totaled $1.3 million, $0.5
million and $0.1 million, respectively. The Company's arrangement with OSE
provides for payment terms of 45 days from date of receipt of product. The
Company sells certain component parts to OSE with payment terms similar to those
granted to the Company. OSE and its affiliates are significant stockholders of
the Company. A portion of the purchases from OSE included payments to OSE, Inc.
See "Security Ownership of Directors, Officers and Certain Beneficial Owners."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In fiscal 2003, the Compensation Committee ("Committee") consisted of Mr.
Kaufman (who resigned in August 2003) and Mr. Tseng, neither of whom is or has
been an employee of the Company. The Committee is responsible for reviewing the
compensation and benefits for the Company's executive officers, as well as
supervising and making recommendations to the Board on compensation matters
generally. The Committee also administers the Company's stock option and
purchase plans and makes grants to executive officers under the Company's Key
Executive Stock Plan and 2001 Stock Option Plan.
The Committee held four meetings during fiscal 2003. The following report is
submitted on behalf of the Compensation Committee.
Compensation Policies
The Company operates in the high technology industry, characterized by rapid
changes and extreme competition. The Board's compensation philosophy is to
provide cash and equity incentives to the Company's executive officers and other
employees to attract highly qualified personnel in order to maintain the
Company's competitive position. The Board's compensation program goals are to:
attract, retain and motivate qualified executive officers and employees who
contribute to the Company's long-term success; align the compensation of
executive officers with the Company's business objectives and performance; and
align incentives for executive officers with the interests of stockholders in
maximizing value.
58
Compensation Components
The compensation for executive officers generally consists of salary, annual
incentives and stock option awards.
Base Salary. The salaries of each of the executive officers of the Company are
generally based on salary levels of similarly sized companies, primarily those
located in Silicon Valley. The Committee reviews generally available surveys and
other published compensation data. The compensation of the executive officers,
including the Chief Executive Officer, are generally reviewed annually by the
Committee and/or the Board and adjusted on the basis of performance, the
Company's results for the previous year and competitive conditions. Due to the
Company's recurring operating losses and beginning in April 2001, the
Compensation Committee recommended and the Company implemented a temporary
salary reduction program which effects all salaries over certain minimum levels.
Such salary reduction program affects primarily executive officer compensation
and was implemented as part of the Company's cost cutting efforts.
Bonuses. The Company's intention is to develop bonus compensation plans designed
to reward the Company's executive officers based on the Company's financial
performance. There is no bonus plan in place for officers at this time.
The Company has a profit sharing plan approved by the Board of Director's during
fiscal 2001. However, there were no bonuses earned under the profit sharing plan
during fiscal year 2003. This plan covers all active, full-time employees of the
Company who have been with the Company for a certain minimum period of the
applicable fiscal year. Cash payments under the plan shall be made subsequent to
the Company's applicable fiscal year and be based on yearly net income.
Equity-Based Compensation. The Company enables all eligible employees, including
executive officers other than Mr. Wong, to purchase the Company's Common Stock
at a discount by participating in the Company's 1993 Employee Stock Purchase
Plan. In addition, the Company periodically grants to its executive officers
stock options under the 2001 Stock Plan, and the Key Executive Plan, and grants
to other employees stock options under the 2001 Stock Plan, in order to provide
additional incentive for such persons. The Committee believes that such
incentive promotes the long-term interests of the Company's stockholders.
Options generally vest over a four-year period to encourage option holders to
continue employment with the Company. In granting options, the Committee takes
into account each individual's level of responsibility within the Company and
such individual's expected future contribution, as well as the number of shares
and outstanding options already held by the individual. The Board has adopted a
stock option grant policy, pursuant to which employees (including officers
except for Mr. Wong) may receive annual stock option grants, generally on their
review date with the Company, in amounts based on certain criteria including
continuous time with the Company, current salary, responsibilities, and job
performance. Employees may also be entitled to receive additional
59
option grants where the employee's job has significantly changed through growth
or promotion. The exercise price of all options is the market price on the date
of grant.
Compensation of Chief Executive Officer
The process of determining the compensation for the Company's Chief Executive
Officer and the factors taken into consideration in such determination are
generally the same as the process and factors used in determining the
compensation of all of the executive officers of the Company. In fiscal 2003,
the Company decreased the pay rates of most employee's, including the
compensation of Mr Wong, as part of the Company's salary reduction program.
Tax Deductibility of Executive Compensation
Section 162(m) of the Code limits the federal income tax deductibility of
compensation paid to the Company's Chief Executive Officer and to each of the
other four most highly compensated executive officers. The Company may deduct
such compensation only to the extent that during any fiscal year the
compensation paid to any such individual does not exceed $1,000,000, unless
compensation is performance-based and meets certain specified conditions
(including stockholder approval). Based on the Company's current compensation
plans and policies, the Committee does not anticipate, for the foreseeable
future, that the Company will lose any significant tax deduction for executive
compensation.
This report presented herein was approved by a motion of the Board of Directors.
FOR THE COMPENSATION COMMITTEE
Edmond Tseng
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's executive officers and directors, and persons who own more than 10% of
the Company's Common Stock, to file reports of ownership on Form 3 and changes
in ownership on Form 4 or 5 with the Securities and Exchange Commission (the
"SEC"). Such executive officers, directors and 10% stockholders are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
forms they file. Based solely upon its review of copies of such forms received
by it, or on written representations from certain reporting persons that no
other filings were required for such persons, the Company believes that, during
the fiscal year ended September 27, 2003, its executive officers, directors and
10% stockholders complied with all applicable Section 16(a) filing requirements.
60
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation received by the Named Officers
for services rendered to the Company in all capacities for fiscal years ended
September 29, 2001, September 28, 2002; and September 27, 2003:
Long-Term
Annual Compensation Compensation Awards
------------------------------------- -------------------
Number
Name and Principal Position Restricted of Shares
--------------------------- Other Annual Stock Underlying LTIP All Other
Year Salary Bonus Compensation Awards Options Payouts Compensation (1)
---- ------ ----- ------------- ------ ------- ------- ----------------
($)
Wilson Wong 2003 84,000 - - - -- - 609
President and Chief Executive 2002 114,108 - - - -- - 920
Officer 2001 162,662 - - - -- - 789
Chairman of the Board
Jeff Lin (2) 2003 84,000 - - - -- - 326
Chief Operating Officer 2002 49,002 - - - -- - 132
Rusty Callihan 2003 87,519 - - - -- - 5,335
Vice President of Sales 2002 162,473 - - - 2,500 - 759
2001 170,845 - - - 1,000 - 551
Anthony Contos 2003 115,696 - - - - - 214
Vice President Finance & 2002 127,669 - - - 5,000 - 222
Administration and Secretary 2001 136,412 - - - 2,573 - 248
Jim Hsia 2003 114,216 - - - - - 208
Vice President of Marketing 2002 131,721 - - - 2,500 - 256
2001 142,059 - - - 1,000 - 261
-----------------------------------
(1) Amount consists of premiums paid by the Company for life insurance,
including compensation relating to over $50,000 Life Insurance and
Executive Life.
(2) Mr. Jeff Lin rejoined the Company as an officer on June 1, 2002.
Stock Based Compensation Plans
As of September 27, 2003, the Company had granted options under five stock-based
compensation plans that are described below.
61
The 2001 Stock Option Plan allows for issuance of options to the Company
employees and consultants to purchase a maximum of 1,000,000 shares of common
stock plus 7% of the outstanding common shares as of the last day of the
immediately preceding year beginning in fiscal year 2002.
The 2000 Non-Statutory Stock Option Plan which allows for issuance of options to
the Company employees and consultants to purchase a maximum of 120,000 shares of
common stock.
The Directors' Stock Option Plan is described under the section "Compensation of
Directors"
The Key Executive Option Plan allows for the issuance of options to key
employees of the Company who are not recognized under the Directors' Stock
Option Plan. The Key Executive Option Plan allows for the issuance of options to
Key Employees to purchase a maximum of 404,999 shares of common stock. The Key
Executive Option Plan expired in July 2003. The Company is currently in the
process of redrafting a new plan to replace it.
In 1993, the Company adopted the Employee Stock Purchase Plan (the "Purchase
Plan") covering an aggregate of 500,000 shares of common stock. During fiscal
2000 the Stockholders approved an amendment increasing the number of shares
available for issuance under the Purchase Plan by 500,000 shares. Under the
Purchase Plan, the Board of Directors may authorize participation by eligible
employees, including officers, in periodic offerings following the commencement
of the Purchase Plan. Employees who participate in the Purchase Plan can have up
to 10% of their earnings withheld and used to purchase shares of common stock on
specified dates as determined by the Board. The price of common stock purchased
under the Purchase Plan is equal to 85% of the lower of the fair market value of
the common stock determined by the closing price on the Nasdaq National Market
System, at the commencement date or the ending date of each six month offering
period. Sales under the Purchase Plan in fiscal 2003, 2002, and 2001 were
79,909, 62,839, and 88,202 shares of common stock, respectively, at an average
price of $0.07, $0.15, and $0.64, respectively. On September 27, 2003, 264,102
shares of common stock were available for future purchase.
Option Grants in Last Fiscal Year
The following table sets forth certain information with respect to stock options
granted to each of the Named Officers during the fiscal year ended September 27,
2003. In accordance with the rules of the Securities and Exchange Commission,
also shown below is the potential realizable value over the term of the option
(the period from the grant date to the expiration date) based on assumed rates
of stock appreciation of 5% and 10%, compounded annually. These amounts are
based on certain assumed rates of appreciation and do not represent the
Company's estimate of future stock price. Actual gains, if any, on stock option
exercises will be dependent on the future performance of the Common Stock.
62
Option Grants in Last Fiscal Year
Individual Grants
Potential Realizable
Value at Assumed
Annual Rates of
Number of Stock Price
Shares % of Total Options Appreciation
Underlying Granted to Exercise for Option Term (3)
Options Granted Employees in Price -------------------
Name (1) Fiscal Year (2) Per Share Expiration Date 5% 10%
---- --- --------------- --------- --------------- -- ---
Rusty Callihan 2,500 1.51% 0.120 5/1/12 $189 $478
Anthony Contos 5,000 3.02% 0.120 5/1/12 $377 $956
Jim Hsia 2,500 1.51% 0.120 5/1/12 $189 $478
Chiu K. Fung 10,000 6.03% 0.280 11/2/11 1,761 4,463
3,000 1.81% 0.120 5/1/12 226. 574
Jeff Lin 10,000 6.03% 0.2800 11/2/11 $1,761 $4,463
------------------------
(1) All options were granted under either the Company's 2001 Stock Option Plan
or the Company's Key Executive Stock Plan and have exercise prices equal to
the fair market value on the grant date. All options vest and become
exercisable over a four-year period, generally at the rate of 25% on the
first anniversary of the date of grant and 1/48 per month thereafter,
subject to the option holder's continued employment with the Company. Under
the foregoing plans, the Board retains discretion to modify the terms,
including the prices, of outstanding options
(2) Based on options to purchase an aggregate of 79,909 shares granted in
fiscal 2003.
(3) Potential gains are net of exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation
only, based on the Securities and Exchange Commission rules. Actual gains,
if any, on stock option exercises are dependent on the future performance
of the Common Stock, overall market conditions and the option holders'
continued employment through the vesting period. The amounts reflected in
this table may not necessarily be achieved.
Option Exercises and Holdings
The following table provides information with respect to option exercises in
fiscal 2002, by the Named Officers and the value of such officers' unexercised
options at September 27, 2003:
63
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
Number of Shares
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Fiscal Year-End Fiscal Year-End (1)
------------------------------- ---------------------------
Shares
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
Wilson Wong -- -- 600,000 - $ 0 $ 0
Jeff Lin 15,000 5,000 $ 750 $ 750
Anthony Contos -- -- 72,922 6,031 $ 581 $1,355
Jim Hsia 52,888 2,962 $ 269 $ 656
Rusty Callihan -- -- 60,083 3,417 $ 269 $ 656
Chiu K. Fung -- -- 13,250 9,750 $ 983 $ 1,448
----------------------
(1) Market value of unexercised options is based on the price of the last
reported sale of the Company's Common Stock on the OTC (Over-the-Counter)
Bulletin Board of $0.43 per share on September 26, 2003 (the last trading
day for fiscal 2003), minus the exercise price. Does not include options
that had an exercise price greater than $0.43.
Compensation of Directors
Directors who are employees of the Company receive no fees for services provided
as members of the Board of Directors, but are reimbursed for out-of-pocket
expenses incurred in connection with attendance at meetings of the Board of
Directors and its committees.
Directors who are not employees of the Company receive a fee of $1,000 for each
meeting attended and are also reimbursed for out-of-pocket expenses incurred in
connection with their attendance at meetings of the Board of Directors and its
committees.
Non-employee Directors are also entitled to participate in the Company's 1993
Directors' Stock Option Plan (the "Directors' Plan"). The Directors' Plan, which
was adopted by the Board of Directors in September 1993, and approved by the
stockholders in October 1993, authorizes a total of 300,000 shares of Common
Stock for issuance pursuant to options granted under the Directors' Plan. The
Directors' Plan provides for an automatic grant of 40,000 shares of Common Stock
to each non-employee Director on the date on which such individual first becomes
a director. As approved by stockholders at the 1996 Annual Shareholder's
Meeting, an amendment to the Directors' Plan also provides that each
non-employee Director will be granted additional options for the purchase of
10,000 shares of Common Stock at the Board meeting immediately following the
annual anniversary date of the non-employee Director's commencement of service
on the Board of Directors.
64
Initial options granted under this plan have terms of ten years and typically
the shares underlying the option vest over four years at the rate of 25% on the
one year anniversary date, with the remaining shares vesting monthly in equal
increments over the remaining three years. Subsequent options granted under this
plan have a term of ten years and typically vest over the four years at the rate
of 25% annually from the anniversary date. The exercise price of each option
granted equals 100% of the fair market value of the Common Stock on the grant
date, based on the closing price of the Common Stock as reported on the OTC
(Over-the-Counter) Bulletin Board. Options granted under the Directors' Plan
must be exercised within three months following the end of the optionee's tenure
as a director of the Company, or within six months after the termination of a
director's tenure due to death or disability; options not so exercised are then
cancelled and may be reissued pursuant to the 1993 Directors' Stock Option Plan.
The Directors' Plan is designed to work automatically, without administration;
to the extent administration is necessary, however, such services are provided
by those who administer the Company's stock plans. The Directors' Plan has been
structured so that options granted to non-employee Directors will qualify as
transactions exempt from Section 16(b) of the Securities Exchange Act of 1934,
as amended, pursuant to Rule 16b-3 promulgated thereunder. The Director's Plan
expired on October 30, 2003 and the Company is in the process of redrafting a
new plan to replace it.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of December 31,
2003, by (i) each beneficial owner of more than 5% of the Company's Common
Stock, (ii) the Company's Chief Executive Officer and each of the four other
most highly compensated executive officers during the fiscal year ended
September 27, 2003, (collectively, the "Named Officers"), (iii) each director of
the Company and (iv) all directors and executive officers of the Company as a
group. Except as otherwise indicated, each person has sole voting and investment
power with respect to all shares shown as beneficially owned, subject to
community property laws where applicable.
65
Shares Percentage
Beneficially Beneficially
Beneficial Owner Owned Owned
------------------ -------- ------
Jeff Yuan-Kai Lin (1) 1,173,000 11.6%
Wilson Wong (2) 1,774.250 17.5%
Dr. Eugene C.Y. Duh (3) 1,199,504 11.8%
OSE, Ltd.(4)(5) 25,293 0.02%
MK GVD Fund(6) 500,000 4.9%
Michael D. Kaufman(6) 8,333 0.1%
Delta International Holding, Ltd(7) 333,333 3.3%
Delta Networks, Inc.(7) 166,667 1.6%
Edmond Tseng(8)(9) 98,333 1.0%
Rusty Callihan(10) 60,083 *
Anthony Contos (11) 72,922 *
Jim Hsia(12) 58,299 *
Chiu K. Fung(13) 13,250 *
All directors and executive officers as a group 5,483.267 54.0%
(9 persons)
*Represents less than one percent of the outstanding Common Stock.
-----------------------
(1) The address for Mr. Lin is 821 Fox Lane, San Jose, California 95131.
Includes 15,000 shares issuable under stock options exercisable within 60
days of December 31, 2003.
(2) The address for Mr. Wong is 821 Fox Lane, San Jose, California 95131.
Includes 587,498 shares issuable under stock options exercisable within 60
days of December 31, 2003.
(3) The address for Dr. Duh is Orient Semiconductor Electronics, Ltd., No. 12-2
Nei Huang S. Rd., NEPZ Kaohsiung 81120, Taiwan, ROC.
(4) Dr. Duh is a Director of OSE Ltd. As such, Dr. Duh may be deemed to be a
beneficial owner of these shares.
(5) Dr. Duh is a Director and Mr. Tseng is President of OSE, Inc. As such, Dr.
Duh, Mr. Tseng, and OSE Ltd. may be deemed to be beneficial owners of these
shares.
(6) The address for MK GVD Fund and Mr. Kaufman is 2471 E. Bayshore Road, Suite
520, Palo Alto, California 94303. Mr. Kaufman and Gregory Lahann are
general partners of MK GVD Management. Each of these individuals shares
voting and investment power with respect to the shares held by MK GVD Fund,
and therefore may be deemed to be beneficial owners of such shares.
(7) Delta International Holding, Ltd, and Delta Networks, Inc. are related
parties, and therefore may be deemed to be beneficial owners of such
shares.
(8) The address for Edmond Tseng is Orient Semiconductor, Inc., 2221 Old
Oakland Rd, San Jose, CA 95131.
(9) Includes 55,000 shares issuable under stock options exercisable within 60
days of December 31, 2003.
(10) All shares indicated are issuable under stock options exercisable within 60
days of December 31, 2003.
(11) All shares indicated are issuable under stock options exercisable within 60
days of December 31, 2003.
(12) Includes 52,888 shares issuable under stock options exercisable within 60
days of December 31, 2003.
(13) All shares indicated are issuable under stock options exercisable within 60
days of December 31, 2003.
66
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Delta Electronics Group of Companies includes Delta Networks, Inc. and Delta
International Holdings, Ltd. who owns 166,667 and 333,333, respectively, of the
Company's common stock, which together represents approximately 5.0% of the
common stock of the Company. The Company subcontracts the manufacturing of a
substantial portion of its products through Delta Networks, Inc. ("Delta").
Under the Company's arrangement with Delta, the Company purchases certain
components from third party vendors and sells these components to Delta at cost.
Delta purchases or manufactures other components, assembles printed circuit
boards, and tests and packages products for the Company on a purchase order
basis. The Company is obligated to purchase products only to the extent it has
signed firm purchase commitments with Delta. During fiscal 2002 and 2003, the
Company's purchases from Delta totaled $3.2 million and $2.7 million,
respectively. The Company's arrangement with Delta provides for payment terms of
90 days from date of receipt of product. The Company sells certain component
parts to Delta with payment terms similar to those granted to the Company. Delta
and its affiliates own in aggregate approximately 5% of the Company. See
"Security Ownership of Certain Beneficial Owners and Management"
67
PART IV
ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES
Pursuant to SEC Release No. 33-8183 (as amended by release No. 33-8183A), the
disclosure requirements of this Item are not effective until the Annual Report
on Form 10-K for the Company's first fiscal year ending after December 15, 2003.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements - See Index to Financial Statements and
Financial Statement Schedule at page 30 of this Form 10-K.
(2) Financial Statement Schedule - See Index to Financial
Statements and Financial Statement Schedule at page 30 of this
Form 10-K.
(3) Exhibits - See Exhibit Index at page 69 of this Form 10-K.
(b) The Registrant filed or amended the following reports on Form 8-K
during the last quarter of the fiscal year ended September 27,
2003:
(1) On August 5, 2003 the Company filed a Form 8-K reporting an
Item 4 event relating to the change of its certifying
accountants.
(2) On August 14, 2003 the Company filed a Form 8-K reporting an
Item 9 event regarding the Company's intention to restate its
historical financial statements from fiscal year 2002 and
prior.
(3) On September 17, 2003 the Company filed a Form 8-K reporting
an Item 5 event regarding its termination of the Merger
Agreement with Oblique, Inc. and the signing of a Letter of
Intent to merge with Acorn Campus.
(c) See Exhibit Index at page 69 of this Form 10-K.
(d) See Index to Financial Statements and Financial Statement Schedule
at page 30 of this Form 10-K.
68
EXHIBIT INDEX
Number Description of Document
------ -----------------------
2.1 Agreement and Plan of Merger between Registrant and Asante
Technologies, Inc., a California corporation, effective October 12,
1993.(1)
3.1 Certificate of Incorporation of Registrant. (1)
3.1A Certificate of Amendment of Certificate of Incorporation of Registrant.
(1)
3.1B Certificate of Retirement of Stock of Registrant.
3.2 By Laws of Registrant. (1)
4.1 Form of Common Stock certificate.(1)
10.1* 1990 Stock Option Plan and form of Option Agreement.(1) 10.2* 1993
Directors' Stock Option Plan and form of Option Agreement.(1)
10.3* 1993 Employee Stock Purchase Plan and form of subscription agreement
thereunder.(1)
10.4* Form of Key Executive Stock Plan Agreement.(1)
10.5 Form of Indemnification Agreement entered into between Registrant and
its directors and officers.(1)
10.6 Registration Rights Agreement dated July 10, 1992 between Registrant
and certain holders of Common Stock and Series E Preferred Stock.(1)
10.7 Lease dated July 16, 1992 for facilities located at 821 Fox Lane in San
Jose, California.(1)
10.8 Manufacturing Payment Agreement dated October 1, 1990 between
Registrant and Orient Semiconductor Electronics, Ltd.(1)
10.9 Distribution Agreement dated November 2, 1989 between Registrant and
Ingram Micro, Inc., as amended.(1)(2)
10.10 Distribution Agreement dated June 19, 1989 between Registrant and
Merisel, Inc. (formerly Macamerica), as amended.(1)(2)
10.11 Distribution Agreement dated August 30, 1990 between Registrant and
TechData Corporation, as amended.(1)(2)
10.12 Volume Purchase Agreement dated April 15, 1992 between Registrant and
National Semiconductor Corporation.(1)(2)
10.13 Sublease agreement dated August 21, 1995 for facilities located at 821
Fox Lane in San Jose, California, and amendments pertaining
thereto.(1)(2)
10.14 Extension of Sublease Agreement dated June 10, 1997.(2)
10.15 Distribution Agreement dated September 30, 1992 between Registrant and
MicroWarehouse.(4)
23.1 Consent of Odenberg, Ullakko, Muranishi & Co. LLP
69
23.2 Consent of PricewaterhouseCoopers LLP
31.1 Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Certification by CEO pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
32.2 Certification by CFO pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
* The item listed is a compensatory plan.
(1) Previously filed as an Exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-70300).
(2) Confidential treatment granted as to certain portions of these
exhibits.
(3) Previously filed as an Exhibit to the Registrant's Form 10-K
for the fiscal year ended September 30, 1994.
(4) Previously filed as an exhibit to the Registrant's Annual
Report on Form 10-K for the fiscal year ended October 3, 1998.
70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
March 5, 2004
ASANTE TECHNOLOGIES, INC.
By: /s/Wilson Wong
-----------------------------------
Wilson Wong,
President and Chief Executive Officer
By: /s/Robert Pendergrass
Robert Pendergrass
Interim Chief Financial Officer
and Secretary
71
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Wilson Wong and Robert Pendergrass, and each of
them, jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Report on Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
on Form 10-K has been signed by the following persons in the capacities and on
the dates indicated:
Signature Title Dates
---------------------------------------- ------------------------------------------------- -------------------------
/s/ Wilson Wong President and Chief Executive Officer March 5, 2004
---------------------------- (Principal Executive Officer) and Director
(Wilson Wong)
/s/ Robert Pendergrass Acting Chief Financial Officer, President of March 5, 2004
---------------------------- Finance and Administration (principal
(Robert Pendergrass) Finance and Accounting Officer)
/s/ Edmond Tseng Director March 5, 2004
----------------------------
(Edmond Tseng)
/s/ Jeff Yuan Kai Lin Director March 5, 2004
----------------------------
(Jeff Yuan Kai Lin)
72
SCHEDULE II
ASANTE TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
----------- --------- -------- ---------- ------
Year ended September 29, 2001
Allowance for doubtful accounts,
price protection and distributor rebates $ 2,043 $ 974 $(1,111) $ 1,906
Allowance for sales returns 568 36 (172) 432
------- ------- ------- -------
$ 2,611 $ 1,010 $(1,283) $ 2,338
======= ======= ======= =======
--------------------------------------------------------------------------------------------------------
Year ended September 28, 2002:
Allowance for doubtful accounts,
price protection and distributor rebates $ 1,906 $ 864 $(1,334) $ 1,436
Allowance for sales returns 432 75 (173) 334
------- ------- ------- -------
$ 2,338 $ 939 $(1,507) $ 1,770
======= ======= ======= =======
--------------------------------------------------------------------------------------------------------
Year ended September 27, 2003:
Allowance for doubtful accounts,
price protection and distributor rebates $ 1,436 $ 1,029 $(1,486) $ 979
Allowance for sales returns 334 228 (345) 217
------- ------- ------- -------
$ 1,770 $ 1,257 $(1,831) $ 1,196
======= ======= ======= =======
72