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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K



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|  |  |                                                                                                 
|- |  | ------------------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
| 
|  |  | For the Fiscal Year Ended June 30,
    2002                                                     
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
| 
|  |  | For the Transition Period
    from           to                                                 

Commission file number: 0-21432

AUSPEX SYSTEMS, INC.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 93-0963760                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

2800 Scott Boulevard

Santa Clara, California 95050


(Address of principal executive
offices)


Registrants telephone number, including
area code: (408) 566-2000

Web Site (www.auspex.com)


Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $.001 par value


Preferred Share Purchase Rights

(Title of Class)


Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

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.     Yes þ          No o

As of September 13, 2002, 45,854,703 shares
of Common Stock of Registrant were outstanding. The aggregate
market value of the shares held by non-affiliates of the
Registrant (based upon the closing price of the
Registrants Common Stock on September 13, 2002 of
$0.44 per share) was approximately $13,352,999.

DOCUMENTS INCORPORATED BY REFERENCE

Part II and Part III incorporate information by
reference from the definitive proxy statement for the Annual
Meeting of Stockholders scheduled to be held on
November 14, 2002.



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TABLE OF CONTENTS



|                                                               |                                                                                               |                                       |  |  |  |  |  | 
|-------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------- |  |  |  |  |  | 
|PART I                                                        
|                                                               | Item 1. Business                                                                             
|                                                               |                                                                                               | The Company                          
|                                                               | Markets and Customers                                                                        
|                                                               | Products                                                                                     
|                                                               | Technology                                                                                   
|                                                               | Distribution                                                                                 
|                                                               | Customer Service and Support                                                                 
|                                                               | Manufacturing                                                                                
|                                                               | Engineering and Development                                                                  
|                                                               | Competition                                                                                  
|                                                               | Intellectual Property and Licenses                                                           
|                                                               | Employees                                                                                    
|                                                               | Executive Officers of the Company                                                            
|                                                               | Item 2. Properties                                                                           
|                                                               | Item 3. Legal Proceedings                                                                    
|                                                               | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                                       
|                                                               | Item 5. Market for the Registrants Common Stock and Related Stockholder Matters             
|                                                               | Item 6. Selected Financial Data                                                              
|                                                               | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                               | Results of Operations                                                                        
|                                                               | Revenues                                                                                     
|                                                               |                                                                                               | Gross Margin                         
|                                                               |                                                                                               | Operating Expenses                   
|                                                               |                                                                                               | Other Income, Net                    
|                                                               |                                                                                               | Provision for Income Taxes           
|                                                               |                                                                                               | Quarterly Results of Operations      
|                                                               | Critical Accounting Policies, Judgments and Estimates                                        
|                                                               | Liquidity and Capital Resources                                                              
|                                                               | Factors That May Affect Future Results                                                       
|                                                               | Item 7A. Quantitative and Qualitative Disclosure About Market Risks                          
|                                                               | Item 8. Financial Statements and Supplementary Data                                          
|                                                               | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                                                      
|                                                               | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                               | Item 11. Executive Compensation                                                              
|                                                               | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                               | Item 13. Certain Relationships and Related Transactions                                      
|                                                               | Item 14. Controls and Procedures                                                             
|PART IV                                                       
|                                                               | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|                                                               |                                                                                               | 1. Financial Statements              
|                                                               |                                                                                               | 2. Financial Statement Schedules     
|                                                               |                                                                                               | (b) Reports on Form 8-K:             
|SIGNATURES                                                    
|POWER OF ATTORNEY                                             
|SEC FORM OF SECTION 302 CERTIFICATION FOR REPORTS ON FORM 10-K
|SEC FORM OF SECTION 302 CERTIFICATION FOR REPORTS ON FORM 10-K
|REPORT OF INDEPENDENT AUDITORS                                
|REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                      
|                                                               |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS
|EXHIBIT INDEX                                                 
|EXHIBIT 10.47                                                 
|EXHIBIT 21.1                                                  
|EXHIBIT 23.1                                                  



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TABLE OF CONTENTS

|         |  |                                                                                           |  |      |    | 
|-------- |  | ----------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                           |  | Page
|         |  |                                                                                           |  |     
|PART I  
|Item 1.  |  | BUSINESS                                                                                  |  |      | 3  | 
|         |  | The Company                                                                               |  |      | 3  | 
|         |  | Markets and Customers                                                                     |  |      | 3  | 
|         |  | Products                                                                                  |  |      | 4  | 
|         |  | Technology                                                                                |  |      | 4  | 
|         |  | Distribution                                                                              |  |      | 5  | 
|         |  | Customer Service and Support                                                              |  |      | 6  | 
|         |  | Manufacturing                                                                             |  |      | 6  | 
|         |  | Engineering and Development                                                               |  |      | 7  | 
|         |  | Competition                                                                               |  |      | 7  | 
|         |  | Intellectual Property and Licenses                                                        |  |      | 8  | 
|         |  | Employees                                                                                 |  |      | 8  | 
|         |  | Executive Officers of the Company                                                         |  |      | 8  | 
|Item 2.  |  | PROPERTIES                                                                                |  |      | 9  | 
|Item 3.  |  | LEGAL PROCEEDINGS                                                                         |  |      | 9  | 
|Item 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS                                   |  |      | 10 | 
|PART II 
|Item 5.  |  | MARKET FOR THE REGISTRANTS COMMON STOCK AND
    RELATED STOCKHOLDER MATTERS              |  |      | 10 | 
|Item 6.  |  | SELECTED FINANCIAL DATA                                                                   |  |      | 11 | 
|Item 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  |      | 11 | 
|         |  | Results of Operations                                                                     |  |      | 11 | 
|         |  | Revenues                                                                                  |  |      | 12 | 
|         |  | Gross Margin                                                                              |  |      | 14 | 
|         |  | Operating Expenses                                                                        |  |      | 14 | 
|         |  | Other Income, Net                                                                         |  |      | 16 | 
|         |  | Provision for Income Taxes                                                                |  |      | 16 | 
|         |  | Quarterly Results of Operations                                                           |  |      | 16 | 
|         |  | Critical Accounting Policies                                                              |  |      | 17 | 
|         |  | Liquidity and Capital Resources                                                           |  |      | 19 | 
|         |  | Factors That May Affect Future Results                                                    |  |      | 20 | 
|Item 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
    MARKET RISKS                            |  |      | 25 | 
|Item 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                               |  |      | 26 | 
|Item 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURE  |  |      | 26 | 
|PART III
|Item 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                        |  |      | 26 | 
|Item 11. |  | EXECUTIVE COMPENSATION                                                                    |  |      | 27 | 
|Item 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
    AND MANAGEMENT                        |  |      | 27 | 
|Item 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                            |  |      | 27 | 
|Item 14. |  | CONTROLS AND PROCEDURES                                                                   |  |      | 27 | 

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|                                                                    |  |                                                                     |    |      |    | 
|------------------------------------------------------------------- |  | ------------------------------------------------------------------- | -- | ---- | -- | 
|                                                                    |  |                                                                     |    | Page
|                                                                    |  |                                                                     |    |     
|PART IV                                                            
|Item 15.                                                            |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
    REPORTS ON FORM 8-K |    |      | 27 | 
|                                                                    |  | (a) 1.  FINANCIAL STATEMENTS                                        |    |      | 27 | 
|                                                                    |  | 2.  FINANCIAL
    STATEMENT SCHEDULES                               |    |      | 28 | 
|                                                                    |  | 3.  EXHIBITS                                                        |    |      | 28 | 
|                                                                    |  | (b) REPORTS ON FORM 8-K                                             |    |      | 31 | 
|SIGNATURES                                                          |  |                                                                     | 32 |     
|POWER OF ATTORNEY                                                   |  |                                                                     | 32 |     
|SECTION 302 CERTIFICATION                                           |  |                                                                     | 33 |     
|REPORT OF INDEPENDENT
    AUDITORS  KPMG, LLP                      |  |                                                                     | 35 |     
|REPORT OF INDEPENDENT PUBLIC
    ACCOUNTANTS  ARTHUR ANDERSEN, LLP |  |                                                                     | 36 |     
|SUPPLEMENTAL SCHEDULES                                              |  |                                                                     |    |     

INTRODUCTORY STATEMENT

References made in this Annual Report on
Form 10-K to Auspex, the Company,
or the Registrant refer to Auspex Systems, Inc. and
its wholly owned subsidiaries. AUSPEX, the Auspex logo design,
DataGuard, DriveGuard, FMK, FMP, Functional Multi-Processing,
Functional Multi-Processing Kernel, Functional Multi-Processor,
Functional Multiprocessor NS5000 and ServerGuard are registered
trademarks of the Company. Auspex 4Front, Auspex Control Points,
All the Data All the Time, How Information Gets Delivered,
Dont Just Store Data Use it, One World, ClusterGuard,
Continuous Data Access, Data Xcelerator Engines, DataXpress,
DataXpress kernel, FastFlo File System, NetOS, NetServer,
NeTservices, Playground, ServerGuard Global, Server Guard V,
Thrive Carefully, TurboCopy, Web-Attached Storage logos and
XceleRAID, CogniStor, SAN Mutipath Controller Failover, NSc3000,
Network StorageController, and Command Station are trademarks of
the Company.

FORWARD-LOOKING STATEMENTS

THIS DOCUMENT CONTAINS STATEMENTS THAT ARE NOT
HISTORICAL FACTS BUT ARE FORWARD-LOOKING STATEMENTS RELATING TO
SUCH MATTERS AS ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS
PROSPECTS, TECHNOLOGICAL DEVELOPMENTS, NEW PRODUCTS, ENGINEERING
AND DEVELOPMENT ACTIVITIES AND SIMILAR MATTERS. SUCH STATEMENTS
ARE GENERALLY IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS AND
PHRASES, SUCH AS INTENDED, EXPECTS,
ANTICIPATES AND IS (OR ARE) EXPECTED (OR
ANTICIPATED). THESE FORWARD-LOOKING STATEMENTS INCLUDE BUT
ARE NOT LIMITED TO THOSE IDENTIFIED WITH AN ASTERISK (*)
SYMBOL. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS, AND STOCKHOLDERS
OF AUSPEX SHOULD CAREFULLY REVIEW THE CAUTIONARY STATEMENTS SET
FORTH IN THIS FORM 10-K, INCLUDING FACTORS THAT MAY AFFECT
FUTURE RESULTS. AUSPEX MAY FROM TIME TO TIME MAKE ADDITIONAL
WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS, INCLUDING
STATEMENTS CONTAINED IN AUSPEXS FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IN ITS REPORTS TO
STOCKHOLDERS. AUSPEX DOES NOT UNDERTAKE TO UPDATE ANY
FORWARD-LOOKING STATEMENTS THAT MAY BE MADE FROM TIME TO TIME BY
OR ON BEHALF OF AUSPEX.

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PART I




Item 1.     Business






The Company


The Company develops, manufactures, distributes
and supports a line of multi-protocol (NFS(1), CIFS(2) and
FTP(3)) Network Attached Storage (NAS) devices also
referred to as network file servers, network filers, NAS
Gateways and NAS Heads (Network Attached Storage Gateways which
utilize any storage connected to the SAN fabric). Our products
are predominantly based on internally developed software and are
easily portable to standard industry processor boards, which can
be deployed in a variety of packaging.

During fiscal year 2002, the Company introduced
the NSc3000 Network Storage Controller. The Network Storage
Controller changed our market focus by allowing us to enter the
fast growing SAN market. The introduction of the NSc3000 Network
Storage Controller means that our customers are no longer
required to buy disk drives, just a bunch of disk units
(JBOD) frames and redundant array of independent
disks (RAID) controllers from us. Instead our
Network Storage Controller attaches to a SAN or other
manufacturers disk subsystem. This enables our customers
to gain the benefits of file sharing as well as an improved
return on investment (ROI) from their existing
hardware infrastructure.

SANs built on the fiber channel protocol have
become a standard in the industry. The users serviced by this
infrastructure can take advantage of the collaborative benefit
of file sharing in a variety of manners. This includes customer
relationship management; remote education and support; email
infrastructure; and near line archiving applications. By working
with resellers and storage integrators who already have
customers with SAN infrastructure, we open up additional markets
for our products.

The Company also re-entered the high availability
market space with the introduction of ServerGuard V
software. This software provides users with an information
serving storage environment. The software monitors a variety of
functions and adjusts the storage processing environment based
on changing dynamics whether it be the network, power, RAID
controllers, server farms or the Companys processing
platform.

In addition, we rounded out our traditional NAS
product lineup with the NS3010, the Brat and the NS3020. Today
we have a complete product line of traditional Network Storage
platforms, which deliver enterprise performance and can handle
0.5 terabytes to 12 terabytes of capacity.

The Company was formed in 1987 and was
reincorporated into Delaware in 1991.




Markets and Customers

The Company made a number of changes in its
marketing strategy over the past year. While we still maintain a
direct sales force, we are now predominantly focused on
acquiring business through our resellers. In the past, we
focused on the vertical market segments that include
Internet-based content delivery, semiconductor design and build,
energy exploration, software development and CAD/ CAM
infrastructure. In addition to the vertical markets, in fiscal
year 2002 we were able to take a horizontal view of the market
with the



---

(1) NFS refers to the Network File System
protocol, first promulgated by Sun Microsystems, Inc. (Sun
Microsystems), which protocol has been widely adopted by
the workstation market as a de facto standard for network file
transfers.


(2) CIFS refers to the Common Internet File
Service protocol developed by Microsoft Corporation as a
networking protocol for PC clients to access files on a PC file
server in a Local Area Network (LAN) or Wide Area
Network (WAN).


(3) FTP (refers to the File Transfer
Protocol), which is a standard protocol commonly used to
retrieve or store files on network file servers. FTP is
supported on UNIX, Windows, VMS, Macintosh and other popular
desktop computers. Storage devices also referred to as network
file servers, which include specialized software for storing,
serving and managing network data.


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introduction of the NSc3000. Further, the
introduction of ServerGuardV software re-opened the high
availability market to us as well. Using the relationships of
storage integrators and resellers who already have customers
with SAN infrastructure, we are pursuing opportunities in the
financial, communication and entertainment industries. However,
there can be no assurance that our change in marketing strategy
will be successful or that we will be successful in any of the
industries we are currently pursuing.


As of June 30, 2002, approximately 2,700
Auspex NAS Platforms had been installed at over 500 customers
worldwide. Since the introduction of the Network Storage
Controller (NSc3000) in March 2002, we have shipped over
120 controllers, which are connected to storage subsystems
from EMC, IBM, LSI Logic, HDS, Eurologic and others.

Sales of products and services to the following
customers accounted for 10% or more of total revenues in the
periods indicated: during fiscal year 2000, there were no
customers that accounted for 10% or more of total revenues;
during fiscal year 2001  Nissho Electronics, Inc.
16%; during fiscal year 2002  Nissho Electronics,
Inc. 11%. There can be no assurance that sales of products and
services to this customer will not decline, either in absolute
dollar amounts or as a percentage of total revenues, in future
periods and that any such declines will not have a material
adverse effect on the Companys results of operations.




Products

The Company sells NAS Platforms and Network
Storage Controllers. Our NAS Platforms include the NS3010, the
Brat, the NS3020, and the NS3022. Our Network Storage
Controllers include the NSc3000 and NSc3000V. The Companys
products are software-based and are currently deployed on
purpose-built compute platforms utilizing standard industry
components.

Our products are most appropriate for the mid
tier and high end of the storage market where a premium is
placed on high availability (no downtime), the ability to
service thousands of users simultaneously, performance at speeds
of over 20,000 I/ O operations per second, and support for
multiple architectures (most notably Unix and Microsoft).

Our software technology includes our NetOS
operating system and FastFlo File System. The Company has
enhanced the software in the past year as a result of the
NSc3000 introduction. In addition to the standard features of
our software, we offer optional software, which provides
additional levels of availability and enables replication over
local area networks (LANs) or wide area networks
(WANs). These products include NetGuard, which
provides for a virtual network interface and protects against
network disruption and TurboCopy and TurboReplicator, which
enable bi-directional transfer of data between remote NAS
Platforms or data replication to other systems within a SAN.
ServerGuard V software provides high levels of availability
by monitoring a variety of functions on clustered systems. This
includes the network, RAID controllers, host bus adapters, paths
to disk and the servers themselves.

In addition, we continue to support the NS2000,
first introduced in 1999, as well as a number of legacy products
most notably the NS7000 and NS8000. The Company has announced
the end of life on the NS2000, NS7000, NS8000 and the products
that predated those. However, the Company is obligated to
provide maintenance services on these products through at least
fiscal year 2005. In addition, the Company currently is offering
limited upgrade services on these products and rebuilt versions
of some of these products and may continue to do so depending
upon availability of components and other factors.




Technology

Underpinning the NS3000 and NSc3000 product lines
are software technologies that are dedicated to optimizing
performance at each step of the data delivery chain, including:

System Management.System management is accomplished
through a browser interface, Control Point. Key functions of the
file server can be managed locally from the host console or
remotely from any compatible browser. Multiple servers can be
monitored and managed from the same console if desired. Control
Point is implemented entirely in Java, providing for advanced
features beyond the abilities of simple HTML management tools.
Command line equivalents are also available for all Control
Point functions.

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Data Management.The
DataXcelerator Engines are a data transfer facility that use two
data-moving engines, the Block DataXcelerator (BDX)
and the File DataXcelerator (FDX), to provide
acceleration for system backup and data movement. The Block
DataXcelerator provides the capability to stream blocks of data
from disk to tape, tape to disk, or disk to disk. BDX provides
the foundation for extremely rapid image backup. The File
DataXcelerator provides a similar interface that acts at the
level of individual files, streaming file data from file to
file, from file to tape, or from tape to file. FDX provides the
basis for rapid file-by-file backup to direct-attached tape. The
DataXcelerator Engines provide the basis for advanced data
management, allowing data to be easily migrated between file
systems, between disk volumes, or between nodes.

Network Processing.The DataXpress Kernel is a software
kernel that interfaces to the network client and acts as the
manager of all data requests. The DataXpress Kernel does not use
virtual memory. All necessary code is stored in local memory so
that it can be immediately executed when needed. Because the
kernel working set is typically small, processors get the
greatest possible advantage from their built-in instruction
caches, typically finding needed code already cached. Therefore,
DataXpress Kernel avoids disk accesses to retrieve instructions
and may avoid memory accesses.

File System Processing.The file system plays a critical role
in data management. As the demand for disk storage continues to
grow, the file system must scale to handle huge file systems,
very large files, and very large numbers of files, single
directories with thousands of entries and the file semantics and
attributes of both UNIX and Windows NT and Windows 2000
environments. At the same time, the file system must be able to
maintain its internal accounting and recover quickly in the
event of an unexpected power outage or other failure. The
Company licensed the file system technology from EMC and
integrated it with the Companys patented NetOS operating
system. The Companys file system software, FastFLO, uses
journaling technology to ensure the file systems
structural integrity. It also incorporates advanced software for
File Layout Optimization and writes clustering techniques to
minimize file fragmentation and enhance read operations. FastFLO
supports both UNIX and NT/ Windows security and access control
natively in the file system.

In addition, FastFLO includes a very large disk
buffers cache (I/ O cache memory) on the network and
file-processing element, which gives users the flexibility to
configure the amount of memory to meet their application
performance needs.

Storage Processing.The Companys XceleRAID firmware
acts as the interface to storage and provides multiple
high-speed RAID controllers to deliver high availability and
protect data from disk failure. Supported RAID levels include
RAID 0, RAID 1, RAID 5 and RAID 7 (JBOD).
XceleRAID is responsible for virtual partition management on the
storage devices, write acceleration, channel management, disk
and tape control, and data transfers to I/ O cache memory.




Distribution

As the Company moved forward with its Network
Storage Controller strategy, it was necessary to change the way
the Companys products are distributed. In prior years, the
Company relied primarily on a direct sales force in North
America and Europe. During fiscal year 2002, the Company
developed a reseller distribution model using resellers to
support both Europe and North America. The resellers were
recruited based on their experience in the SAN market and their
support of the major SAN providers. In addition, the Company has
been pursuing relationships with major storage and server
manufacturers with the intention of negotiating reseller
agreements.

In Asia, where we had previously relied on only a
few resellers, we also expanded our distribution network. We
established partners in Australia, Taiwan, Korea, China and
Singapore. In Japan we continued our relationship with Nissho
Electronics, Inc, which accounted for all of our Japanese
business. Similarly we maintained a group of sales
representatives, system engineers and support personnel
dispersed around the region to support their selling efforts.

As we exited the fiscal year we had started to
see results from this diversification. We are now engaged in
more opportunities, working with companies such as SUN, Hitachi
Data Systems, LSI Logic and IBM on joint opportunities or
in support of common resellers. The Company believes that these
changes have given us

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an ability to address more opportunities and
diversify from a predominantly specific vertical focus to one
that allows us to compete for Network Storage opportunities.*
However, there can be no assurance that our change in
distribution strategy will be successful or that we will be able
to successfully negotiate any future reseller agreements.





Customer Service and Support

The Companys corporate policies are based
on a commitment to customer satisfaction and product quality.

The Company provides customer training, and
installs, maintains and supports systems sold directly in North
America and Europe. End-user customers purchasing through
indirect channels are generally serviced by the Companys
distributors or Original Equipment Manufacturers
(OEMs). In all cases, however, customers have direct
access to the Companys service and support through a
toll-free telephone hotline available to customers, distributors
and service partners. The Company handles all customer service
call management and software support directly through its
technical support centers, which are available twenty-four
(24) hours a day, three hundred sixty-five (365) days
a year, and are staffed by highly trained and experienced
technical support engineers.

Technical support centers are located in Durham,
North Carolina and Aldermaston, UK. To supplement direct service
and support and to ensure the highest quality service while
containing costs, the Company has entered into a strategic
service agreement with NCR Corporation for on-site hardware
support in the US, Europe, Latin America and Asia and with local
service providers in selected geographic areas. The
Companys contract provides end-users with a warranty for
parts and labor on its products, which generally range from
ninety (90) days to one year. The Companys warranty
policy for product sales other than to end-users depends on the
requirements of the particular distribution channel. The Company
offers customers service agreements of varying duration. Service
revenue is recognized ratably over the contractual period as
service is provided.




Manufacturing

The Companys manufacturing operations,
located in Santa Clara, California, consist of product
assurance, quality control and final product assembly and
testing. The Company relies principally on contract
manufacturers for sub-assembly and testing of the majority of
the hardware platform. The Companys manufacturing strategy
has been to develop close relationships with its suppliers,
exchange critical information, and implement joint quality
training programs. This manufacturing strategy minimizes capital
investment and overhead expenditures and creates flexibility by
providing the capacity for rapid expansion. Although the Company
to date has not experienced any significant production
difficulties resulting from its reliance on these manufacturers,
it is possible that production difficulties, including capacity
constraints and quality control issues, could arise in the
future, which could materially and adversely affect the
Companys results of operations.

The Company increasingly uses standard parts and
components for its products, which improves availability and
reduces overall cost to manufacture and support. Some key
components used in the Companys legacy NAS Platforms
products are only available or purchased from single sources.
These components include disk and tape drives, microprocessors,
connectors, printed circuit boards, cable assemblies, power
supplies and ASICs. The Company generally has agreements with
its sole source suppliers with terms ranging from one to five
years and believes that alternative sources of supply and
assembly for most of its sole-source components could be
obtained within a commercially practicable period.* As a
precaution, the Company carries extra inventory of some of its
sole-source components in order to provide additional time to
develop an alternate supply source or redesign the component.
However, the lack of sufficient quantities of sole or single
source components, or the Companys inability to develop
alternative sources for these items,



---

* See Forward-Looking Statements
on page 1.


6



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##### Table of Contents



could result in delays or reductions in product
shipments which would materially and adversely affect the
Companys results of operations.





Engineering and Development

The market for high-performance network data
servers and SAN/ NAS convergence products is characterized by
rapid technological advances. The Company believes that the
speed of technological advancement in its industry requires it
to invest significant amounts in research and development.* In
order to maintain its competitive position, the Company must
continue to attract and retain software-engineering talent that
enables the Company to enhance existing products, successfully
introduce new products and evaluate potential technology.

During the past fiscal year the Company focused a
majority of its engineering resources on SAN interoperability
and high availability software. This resulted in the launch of
the NSc3000 and its capability to integrate with heterogeneous
SANs simultaneously. It also enabled the announcement of
ServerGuardV software that works with both the NS3000 line and
the NSc3000. In addition, the Company continued to evaluate and
integrate new technologies, including Infiniband for clustering
and inter processor communication, the Common Interface Model
(CIM) for systems management, and NFSV4.

By continuing to introduce new product features,
the Company believes it has maintained a technical leadership
position in the network attached storage market.* However, there
can be no assurance that the Companys products will
continue to be successful commercially. Furthermore, there can
be no assurance that the Company will be able to develop or
introduce other new products in the future in a timely manner,
or that such products will be a commercial success. The Company
intends to continue to invest substantially in product
development.* Current research and development efforts continued
to be focused on delivering enhancement to NetOS operating
system and the FastFlo File system to make it more interoperable
in a SAN environment, improve its performance as measured by I/
O operations per second or NetBench, and improve its ease of use
and implementation. The Company also has activities under way
which enhance the manner in which the storage systems enable
other applications and processes (commonly known as Storage
Resource Management). The Companys engineering and
development expenses during fiscal years 2002, 2001 and 2000
were approximately $15.1 million, $19.3 million and
$30.6 million, respectively.




Competition

Competitive pressures in the Information
Technology (IT) industry have increased significantly due
to the economy and the surplus of equipment in the market caused
by the failure of many Internet-related companies. In response
to these market changes, the Company introduced the NSc3000
software and platform, which we believe allows us to offer
products that are complementary to many SAN solution
providers products as well as enabling a better ROI for
end users from their existing investment in their storage
topology.

The Company principally competes in the mid tier
and enterprise segments of the storage market. The Company
competes with products offered both by manufacturers of
general-purpose computers (e.g., Sun Microsystems,
Hewlett-Packard Company, IBM and SGI) and by specialized
manufacturers of NAS products (e.g., EMC Corp. and Network
Appliance) as well as non-traditional competitors (e.g.
VERITAS). All of these competitors possess substantially greater
financial, technical and marketing resources than the Company,
as well as substantially larger product installed bases.

The Company derives a significant portion of its
revenues from sales of product upgrades and support services to
its installed base. The Company has managed to retain much of
its installed base over the year and has won some significant
new business. However, increased competition in the future for
sales of product upgrades and support services to its installed
base could materially and adversely affect the Companys
revenues and results of operations.





---

* See Forward-Looking Statements
on page 1.


7



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##### Table of Contents



The Companys ability to maintain its
competitive position will depend, in addition to these factors,
upon its success in anticipating industry trends, investing in
product research and development, and effectively managing the
introduction of new products into targeted markets.




Intellectual Property and Licenses

The Company relies on a combination of patent,
copyright, trademark and trade secret laws, employee and
third-party non-disclosure agreements and other intellectual
property protection methods to protect its proprietary hardware,
software and technological expertise. The Company believes,
however, that its continued success will depend principally on
continuing innovation, technological expertise, knowledge of
networking, storage and applications, distribution strength and,
to a lesser extent, on its ability to protect its proprietary
technology. Furthermore, there can be no assurance that the
Companys current or future competitors will not
independently develop technologies that are substantially
equivalent or superior to the Companys technology.

Auspex currently holds fourteen United States
patents for certain fundamental aspects of its FMP data server
architecture and has related foreign patents and foreign patent
applications for proprietary Auspex technologies.

The Companys NetServer host processors and
network processors operate in conjunction with software licensed
to the Company by Sun Microsystems. Although the license is
automatically renewable unless cancelled, there can be no
assurance that the Company will be able to continue such license
renewals with Sun Microsystems on favorable terms, or at all.
The Company also licenses software and hardware from several
other companies and these licenses are also perpetual unless
cancelled or subject to periodic renewal which cannot be
assured. There can be no assurance that these vendors will
continue in business or that the licenses will continue to be
available on favorable terms in the future, or at all.




Employees

As of June 30, 2002, the Company employed
233 people. The recruitment of experienced, highly skilled
individuals is a top priority in an exceptionally competitive
recruiting environment. Equally important in this environment is
the retention of key talent. The Company is reviewing all
employee programs to ensure the retention and continued
development of its employees. Hiring and retaining key employees
in the Silicon Valley employment market has been a challenge.
There can be no assurance that the Company will be successful in
hiring and retaining qualified employees in the future. None of
the Companys employees are represented by a labor union.




Executive Officers of the Company

The following sets forth certain information with
respect to the executive officers of the Company as of
September 13, 2002:

|                   |  |     |    |          |  |                                     
|------------------ |  | --- | -- | -------- |  | ------------------------------------
|Name               |  | Age |    | Position
|                   |  |     |    |         
|Gary J. Sbona      |  |     | 59 |          |  | Chief Executive Officer and Chairman
|Michael S. Worhach |  |     | 52 |          |  | President                           
|Dennis J. Dunnigan |  |     | 46 |          |  | Chief Operating Officer             
|Peter R. Simpson   |  |     | 53 |          |  | Chief Financial Officer             

Mr. Gary J. Sbona joined the Company in
February 2000 as Chairman and Chief Executive Officer.
Mr. Sbona has also served as Chairman and Chief Executive
Officer of: Verity, Inc., a publicly traded software company,
specializing in knowledge retrieval software, since 1997.
Mr. Sbona has served as a Director of Calico Commerce,
Inc., a publicly traded software company, since 2001.
Mr. Sbona has served as Chairman and Chief Executive
Officer of Clarent, Inc., since 2002. Since 1974, Mr. Sbona
has served as the Chairman and Chief Executive Officer of Regent
Pacific Management Corporation, a professional services firm
that is

8



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##### Table of Contents



currently providing our company with management
services. Mr. Sbona has held positions as an officer and/or
director of numerous publicly and privately held companies.


Mr. Michael S. Worhach joined the Company in
August 2000 as President. Mr. Worhach, previously, served
as Division Vice President at Data General, a division of EMC
since 1993. At Data General, Mr. Worhach had responsibility
for Americas Sales and Services and Worldwide Healthcare. From
1974 to 1992, Mr. Worhach was employed by Unisys
Corporation where he held a variety of management positions in
sales and marketing. Mr. Worhach holds a MBA from the
University of Massachusetts, Amherst, and a B.S. from Kings
College, Pennsylvania.

Mr. Dennis J. Dunnigan joined the Company in
February 2000 as Chief Operating Officer. Mr. Dunnigan has
been employed by Regent Pacific Management Corporation, a
professional services company that provides the company with
management services, since 1986. Mr. Dunnigan has held
various positions with numerous publicly and privately held
companies during his employment with Regent Pacific Management
Corporation. Mr. Dunnigan holds a B.S.C. degree in
Accounting from the Santa Clara University.

Mr. Peter R. Simpson joined the Company in
March 2000 as Chief Financial Officer. Mr. Simpson has been
employed since 1989 by Regent Pacific Management Corporation, a
professional services company that is currently providing the
company with management services. Mr. Simpson has held
various positions with numerous publicly and privately held
companies through his employment with Regent Pacific Management
Services. Mr. Simpson holds a MBA degree in Finance from
Golden Gate University, and is a fellow of the Institute of
Chartered Accountants in England and Wales.




Item 2.     Properties

The Company is headquartered in Santa Clara,
California, where it leases approximately 98,000 square feet of
space which houses administrative, finance, sales and marketing,
manufacturing, customer service and product development
activities. The lease for these facilities expires in February
2010. In addition, the lease agreement contains three successive
options to extend the lease term for sixty months each. The
Company leases additional sales and support offices located in
the United States, Canada, the United Kingdom, Germany, Japan,
Singapore, China, and Korea. The Company believes that its
facilities are adequate to meet the Companys current
business requirements.* See also Note 4 of Notes to
Consolidated Financial Statements.




Item 3.     Legal
Proceedings

From time to time, the Company is involved in
legal proceedings incidental to the conduct of its business. The
Company believes that the litigation, individually or in the
aggregate, to which it is currently a party, is not likely to
have a material adverse effect on the Companys results of
operations or financial condition.





---

* See Forward-Looking Statements
on page 1.


9



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##### Table of Contents






Item 4.     Submission
of Matters to a Vote of Security Holders

Not applicable.




PART II

Certain information required by Part II is
omitted from this Annual Report on Form 10-K because the
Registrant will file a definitive proxy statement within one
hundred twenty (120) days after the end of its fiscal year
pursuant to Regulation 14A (the Proxy
Statement) for its Annual Meeting of Stockholders
currently scheduled for November 14, 2002, and the
information included in the Proxy Statement is incorporated
herein by reference.




Item 5.     Market
for the Registrants Common Stock and Related Stockholder
Matters

Our Common Stock is currently listed on The
Nasdaq Small Cap Market under the symbol ASPX.
However, our Common Stock was listed on the Nasdaq National
Market from May 1993 until September 27, 2002. See
Factors That May Affect Future Results  Our
Common Stock was Delisted from the Nasdaq National Market.
The following table sets forth, for the periods indicated, the
range of high and low closing prices on the Nasdaq Composite, as
reported in The Wall Street Journal.

|                       |  |      |         |     |  |   |        | 
|---------------------- |  | ---- | ------- | --- |  | - | ------ | 
|                       |  | High |         | Low
|                       |  |      |         |    
|Fourth Quarter of 2002 |  | $    | 1.23    |     |  | $ | 0.24   | 
|Third Quarter of 2002  |  | $    | 2.19    |     |  | $ | 1.12   | 
|Second Quarter of 2002 |  | $    | 2.77    |     |  | $ | 1.38   | 
|First Quarter of 2002  |  | $    | 6.64    |     |  | $ | 2.33   | 
|Fourth Quarter of 2001 |  | $    | 7.14    |     |  | $ | 2.66   | 
|Third Quarter of 2001  |  | $    | 8.875   |     |  | $ | 3.25   | 
|Second Quarter of 2001 |  | $    | 12.9375 |     |  | $ | 5.50   | 
|First Quarter of 2001  |  | $    | 13.0625 |     |  | $ | 4.3438 | 

The Company believes that a number of factors
including, but not limited to, quarterly fluctuations in results
of operations may cause the market price of its common stock to
fluctuate significantly.* See Managements Discussion
and Analysis  Factors That May Affect Future
Results.

As of September 13, 2002, the approximate
number of common stockholders of record was 552.

The Company has not, to date, paid cash dividends
on its capital stock. The Company does not anticipate paying
cash dividends in the foreseeable future.

Information regarding the securities authorized
for issuance under equity compensations plans of the Company is
incorporated by reference to the information under the heading
Equity Compensation Plans in the Registrants
Proxy Statement.





---

* See Forward-Looking Statements
on page 1.


10



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##### Table of Contents






Item 6.     Selected
Financial Data

|                                                   |         |                                          |         |          |      |          |         |          |   |          |         |        |      |   |         |        |   |   |         |        |     
|-------------------------------------------------- | ------- | ---------------------------------------- | ------- | -------- | ---- | -------- | ------- | -------- | - | -------- | ------- | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | ----
|                                                   |         |                                         
|                                                   |         | Fiscal Year Ended                       
|                                                   |         |                                         
|                                                   |         | June 30,                                 |         | June 30, |      | June 30, |         | June 30, |   | June 30,
|                                                   |         | 2002                                     |         | 2001     |      | 2000     |         | 1999     |   | 1998    
|                                                   |         |                                          |         |          |      |          |         |          |   |         
|                                                   |         |                                         
|                                                   |         | (In thousands, except per share amounts)
|Revenues                                           |         | $                                        | 28,887  |          |      | $        | 51,880  |          |   | $        | 82,199  |        |      | $ | 113,475 |        |   | $ | 168,912 |       
|Income (loss) before income taxes                  |         |                                          | (52,859 | )        |      |          | (43,396 | )        |   |          | (80,063 | )      |      |   | (38,828 | )      |   |   | (26,668 | )     
|Net income (loss)                                  |         |                                          | (50,008 | )        |      |          | (44,291 | )        |   |          | (80,760 | )      |      |   | (39,045 | )      |   |   | (17,334 | )     
|Dividends to preferred stockholders                |         |                                          |        |          |      |          | 5,174   |          |   |          | 2,350   |        |      |   |        |        |   |   |        |       
|Net income (loss) available to common stockholders |         |                                          | (50,008 | )        |      |          | (49,465 | )        |   |          | (83,110 | )      |      |   | (39,045 | )      |   |   | (17,334 | )     
|Net income (loss) per share                        |         |                                          |         |          |      |          |         |          |   |          |         |        |      |   |         |        |   |   |         |       
|                                                   | Basic   |                                          | $       | (1.10    | )(1) |          | $       | (1.18    | ) |          | $       | (2.95  | )(2) |   | $       | (1.50  | ) |   | $       | (0.69  | )(2)
|                                                   | Diluted |                                          | $       | (1.10    | )(1) |          | $       | (1.18    | ) |          | $       | (2.95  | )(2) |   | $       | (1.50  | ) |   | $       | (0.69  | )(2)
|Shares used for net income (loss) per share        |         |                                          |         |          |      |          |         |          |   |          |         |        |      |   |         |        |   |   |         |       
|                                                   | Basic   |                                          |         | 45,496   |      |          |         | 41,872   |   |          |         | 28,126 |      |   |         | 25,978 |   |   |         | 25,268 |     
|                                                   | Diluted |                                          |         | 45,496   |      |          |         | 41,872   |   |          |         | 28,126 |      |   |         | 25,978 |   |   |         | 25,268 |     
|Total assets                                       |         | $                                        | 48,710  |          |      | $        | 105,059 |          |   | $        | 61,998  |        |      | $ | 115,048 |        |   | $ | 147,193 |       
|Long-term obligations                              |         | $                                        | 984     |          |      | $        | 279     |          |   | $        | 954     |        |      | $ | 1,304   |        |   | $ |        |       



---



|    |                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes restructuring costs of
    $6.4 million. Exclusive of these charges, the basic and
    diluted net loss per share for fiscal year 2002 would have been
    $0.96. 
|   
|(2) | Includes restructuring costs of
    $17.6 million. Exclusive of these charges, the basic and
    diluted net loss per share for fiscal year 2000 would have been
    $2.24.




Item 7.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations






Results of Operations


The following table sets forth for the fiscal
years indicated the percentage of total revenues represented by
certain line items in the Companys Statements of
Operations:

|                   |                                           |                      |     |      |    |      |     |     |    |  |     |     |   
|------------------ | ----------------------------------------- | -------------------- | --- | ---- | -- | ---- | --- | --- | -- |  | --- | --- | --
|                   |                                           |                     
|                   |                                           | Years Ended June 30,
|                   |                                           |                     
|                   |                                           | 2002                 |     | 2001 |    | 2000
|                   |                                           |                      |     |      |    |     
|Revenues           |                                           |                      | 100 | %    |    |      | 100 | %   |    |  | 100 | %  
|Cost of revenues   |                                           |                      | 97  |      |    |      | 76  |     |    |  | 77  |    
|                   |                                           |                      |     |      |    |      |     |     |    |  |     |    
|Gross margin       |                                           |                      | 3   |      |    |      | 24  |     |    |  | 23  |    
|                   |                                           |                      |     |      |    |      |     |     |    |  |     |    
|Operating Expenses |                                           |                      |     |      |    |      |     |     |    |  |     |    
|                   | Marketing and sales                       |                      |     | 89   |    |      |     | 62  |    |  |     | 51  |   
|                   | Engineering and development               |                      |     | 52   |    |      |     | 37  |    |  |     | 37  |   
|                   | General and administrative                |                      |     | 28   |    |      |     | 17  |    |  |     | 12  |   
|                   | Restructuring charges                     |                      |     | 22   |    |      |     |    |    |  |     | 21  |   
|                   |                                           |                      |     |      |    |      |     |     |    |  |     |    
|                   | Loss from operations                      |                      |     | (189 | )  |      |     | (92 | )  |  |     | (98 | ) 
|                   | Other income                              |                      |     | 6    |    |      |     | 8   |    |  |     | 2   |   
|                   |                                           |                      |     |      |    |      |     |     |    |  |     |    
|                   | Loss before income taxes                  |                      |     | (183 | )  |      |     | (84 | )  |  |     | (96 | ) 
|                   | (Provision for) benefit from income taxes |                      |     | 10   |    |      |     | (1  | )  |  |     | (1  | ) 
|                   |                                           |                      |     |      |    |      |     |     |    |  |     |    
|                   | Net loss                                  |                      |     | (173 | )% |      |     | (85 | )% |  |     | (97 | )%
|                   |                                           |                      |     |      |    |      |     |     |    |  |     |    

11



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##### Table of Contents






Revenues

Product revenue includes hardware sales and
software license fees. Product revenue is recognized upon
shipment. The installation of the Companys systems is not
considered a significant obligation and acceptance by the
customer is not considered a significant uncertainty. Revenues
from upgrade sales are generally recognized at the time the
equipment is shipped. Provisions for product sales returns and
allowances are recorded in the same period as the related
revenue is recognized. Revenues earned under software license
agreements with end-users is generally recognized when the
software has been shipped and there are no significant
obligations remaining. Revenues earned under software license
agreements is recognized in accordance with Statement of
Position (SOP) No. 97-2. Software revenues are
recognized when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the fee is
fixed or determinable, collectibility is probable and vendor
specific objective evidence exists to allocate a portion of the
total fee to any undelivered elements of the arrangement.

The Company sells its products to end-users
through its direct sales force, as well as through distributors
and resellers. Typically, the Companys arrangements with
distributors contain provisions for price protection and stock
rotation allowances. The Company recognizes revenue on sales to
distributors in accordance with the provisions set forth by the
Financial Accounting Standards Board (FASB)
No. 48, Revenue Recognition When Right of Return
Exists, provided that the requirements of SOP
No. 97-2 have also been met. In accordance with FASB
No. 48, the Company recognizes revenue upon shipment to
distributors provided that a) the price is substantially
fixed and determinable at the time of sale; b) the
distributors obligation to pay the Company is not
contingent upon resale of the products; c) title and risk
of loss passes to the distributor at time of shipment;
d) distributor has economic substance apart from that
provided by the Company; e) the Company has no significant
obligation to the distributor to bring about resale of the
products; and f) future returns can be reasonably estimated.

The Company records a provision for returns and
adjustments based on anticipated adjustments or returns from
distributors. Revenue recognized is recorded net of this
provision. Typical payment terms for sales transactions are
30 days.

The Companys contracts typically do not
contain any specified or unspecified upgrade provisions. Should
the customer need any upgrading, this would be treated as a new
contract requiring a new purchase order from the customer. Since
these upgrade revenues are based on subsequent new contracts,
revenue is recognized at the time of shipment of the upgrade.

Revenue from product sales is recognized upon
shipment, provided that a purchase order has been received or a
contract has been executed, there are no uncertainties regarding
customer acceptance, the fee is fixed and determinable and
collectibility is deemed probable. The Companys typical
sales contracts do not include customer acceptance clauses;
however, if uncertainties regarding customer acceptance exist,
revenue is recognized when such uncertainties are resolved.

When contracts contain multiple elements wherein
vendor specific objective evidence exists for all undelivered
elements, the Company accounts for the undelivered elements in
accordance with the Separate Element Method
prescribed by SOP No. 98-9. Post customer support
(PCS) services to date have consisted of fees for
providing periodic minor software maintenance releases and
technical support for the Companys products. For
undelivered PCS, vendor specific objective evidence is
determined by reference to the price of the PCS products
customers are required to pay for PCS products when those
products are sold separately. PCS revenue is initially recorded
as deferred revenue and revenue is recognized ratably over the
term of the relevant agreement.

Certain sales transactions may include discounts
from the normal published list price. Revenue recognized on such
sales transactions are recorded net of the discounts.

The software portion of the Companys
systems include an operating system that is not incidental to
the overall product or its functionality. The core operating
system software that the customer purchases is pre-installed and
tested at the Companys factory prior to shipment and does
not require significant production, modification, or
customization at the customers site; as such, the system
is functional according to the

12



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##### Table of Contents



Companys internal and customer
specifications at the time of shipment. The Company believes
revenue recognition at the time of shipment is appropriate as
set forth under the provisions of SOP No. 97-2 when:




| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | Persuasive evidence of an agreement exists
    (typically a purchase order)
|
| |  | Delivery has occurred                                                      
|
| |  | The fee is fixed and determinable, and                                     
|
| |  | Collectibility is probable.                                                

Service revenue includes installation,
maintenance and training and is recognized ratably over the
contractual period or as the services are provided.

Installation services typically include
pre-installation planning, pre-installation site survey,
physical installation of the systems, and basic system
implementation. Almost all system sales to end users include
these basic installation services. Since installation services
do not typically require significant customization or
modification at the customers site, the Company does not
consider installation services to be a significant obligation at
the time of shipment of the systems.

In some cases, our support and maintenance
agreements are entered into for terms exceeding 12 months.
The revenue on these agreements is recognized ratably over the
term of the agreement. Long-term deferred revenue reflected on
our balance sheet represents our obligations that exceed
12 months. We expect to recognize the majority of this
revenue within the next 24 months.*

Revenues for fiscal year 2002 of
$28.9 million decreased 44% over fiscal year 2001 revenues
of $51.9 million. Revenues for fiscal year 2001 of
$51.9 million decreased 37% over fiscal year 2000 revenues
of $82.2 million.

The following table sets forth the principal
components of the Companys revenues (in thousands):

|                |                |                      |        |        |  |      |        |        |  |   |        |        | 
|--------------- | -------------- | -------------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                |                |                     
|                |                | Years Ended June 30,
|                |                |                     
|                |                | 2002                 |        | 2001   |  | 2000
|                |                |                      |        |        |  |     
|Product revenue |                | $                    | 10,698 |        |  | $    | 28,090 |        |  | $ | 54,607 |       
|Service revenue |                |                      | 18,189 |        |  |      | 23,790 |        |  |   | 27,592 |       
|                |                |                      |        |        |  |      |        |        |  |   |        |       
|                | Total revenues |                      | $      | 28,887 |  |      | $      | 51,880 |  |   | $      | 82,199 | 
|                |                |                      |        |        |  |      |        |        |  |   |        |       

Product revenue decreased $17.4 million or
62% in fiscal year 2002 as compared to fiscal year 2001, and
decreased $26.5 million, or 49% in fiscal year 2001 as
compared to fiscal year 2000. The fiscal year 2002 decrease is
primarily attributed to the overall economic slowdown, as well
as, continued competitive pressures, which have resulted in the
Company reducing its average selling price per product.
The fiscal year 2001 decrease is primarily due to the
Companys expected transition from the NS2000 product
family to the NS3000 product family. Many customers delayed
their purchases of the Companys products in anticipation
of the new NS3000 product family which was released in the
fourth quarter of fiscal year 2001. Revenue from product
upgrades, which primarily consist of additional processors (or
upgrades of existing processors), memory and disk and tape
drives, decreased to 11% of total revenue in fiscal year 2002,
compared to 19% of total revenue in fiscal year 2001, and 21% of
total revenue in fiscal year 2000. The continuing decrease of
upgrade sales in fiscal years 2002, 2001 and 2000 can be
attributed to the slowdown in customers upgrading of existing
Legacy products.

The Company provides ongoing support and
maintenance to its end-user customers, distributors and OEMs,
generally under annual service agreements. Service revenue as a
percentage of total revenues increased to 63% in fiscal year
2002 as compared to 46% in fiscal year 2001, and from 34% in
fiscal year 2000. The increase in service revenue as a
percentage of total revenues in fiscal 2002 was primarily due to
the decline in product revenues.





---

* See Forward-Looking Statements
on page 1.


13



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##### Table of Contents



The following table sets forth the Companys
revenue by geographic area (in thousands):

|              |                |                      |        |        |  |  |    |     |   |   |        |        |  |  |    |     |   |   |        |        |  |  |    |     |  
|------------- | -------------- | -------------------- | ------ | ------ |  |  | -- | --- | - | - | ------ | ------ |  |  | -- | --- | - | - | ------ | ------ |  |  | -- | --- | -
|              |                |                      |        |        |  |  |    |     |   |  
|              |                | 2002                 |        |        |  |  |    |     |   |  
|              |                |                      |        |        |  |  |    |     |   |  
|              |                |                      |        |        |  |  |    |    
|              |                |                      |        | 2001   |  |  |    |    
|              |                |                      |        |        |  |  |    |    
|              |                |                     
|              |                | Years Ended June 30,
|              |                |                     
|              |                |                      |        |       
|              |                |                      |        | 2000  
|              |                |                      |        |       
|North America |                | $                    | 16,160 |        |  |  | 56 | %   |   | $ | 31,329 |        |  |  | 60 | %   |   | $ | 52,192 |        |  |  | 63 | %  
|Pacific Rim   |                |                      | 7,760  |        |  |  | 27 | %   |   |   | 11,188 |        |  |  | 22 | %   |   |   | 11,443 |        |  |  | 14 | %  
|Europe        |                |                      | 4,967  |        |  |  | 17 | %   |   |   | 9,363  |        |  |  | 18 | %   |   |   | 18,564 |        |  |  | 23 | %  
|              |                |                      |        |        |  |  |    |     |   |   |        |        |  |  |    |     |   |   |        |        |  |  |    |    
|              | Total revenues |                      | $      | 28,887 |  |  |    | 100 | % |   | $      | 51,880 |  |  |    | 100 | % |   | $      | 82,199 |  |  |    | 100 | %
|              |                |                      |        |        |  |  |    |     |   |   |        |        |  |  |    |     |   |   |        |        |  |  |    |    

Revenue from North America decreased
$15.2 million compared to fiscal year 2001, and decreased
$20.9 million in fiscal year 2001 compared to fiscal year
2000. The fiscal year 2002 decrease was primarily due to the
overall economic slowdown, as well as continued competitive
pressures, which have resulted in the Company reducing its
average selling price per product. The fiscal year 2001 decrease
was primarily due to the Companys expected product
transition from the NS2000 product family to the NS3000 product
family. Many customers delayed their purchases of the
Companys products in anticipation of the new NS3000
product family which was released in the fourth quarter of
fiscal year 2001. Also, the Companys North American sales
force experienced a higher than normal attrition rate, which
resulted in lower productivity, in fiscal year 2001.

Revenue from the Pacific Rim decreased
$3.4 million in fiscal year 2002 compared to fiscal year
2001, and decreased $0.3 million in fiscal 2001 as compared
to fiscal year 2000. The decrease in Pacific Rim revenue in
absolute dollars in fiscal years 2002, and 2001 was primarily
due to timing of new product introductions, the reorganization
of a major OEM partner, and weakness in the Japanese
economy.

Revenue from Europe decreased $4.4 million
in fiscal year 2002 as compared to fiscal year 2001, and
decreased $9.2 million in fiscal 2001 as compared to fiscal
year 2000. The decreases in European revenue in absolute dollars
in fiscal years 2002, and 2001, was primarily due to intense
competitive pressures, resulting in market share loss, and the
overall economic slowdown of the last year.

In fiscal year 2002, one customer, Nissho
Electronics, Inc accounted for 11% of total revenues. In the
fiscal year 2001, Nissho Electronics, Inc accounted for 16% of
total revenues. In the fiscal year 2000, no one customer
accounted for 10% or more of total revenues.




Gross Margin

The Companys gross margin was 3%, 24% and
23% in fiscal years 2002, 2001 and 2000, respectively. Costs of
revenues include material costs, manufacturing and service
overhead costs, installation and warranty expenses,
obsolescence, the cost of spare parts and other related costs.
Product gross margin decreased to -17% in fiscal year 2002 from
31% in fiscal year 2001 and 31% in fiscal year 2000. The
decrease in gross margins in fiscal year 2002 compared to fiscal
year 2001 was primarily due to the reduced volume of systems
shipped, which resulted in under utilized capacity and under
absorption of manufacturing overhead. Additionally, in an effort
to reduce the Companys excess inventory of the NS2000
product line, which is at end of life, NS2000 systems were sold
at heavily discounted prices.

Service gross margin was 15% in fiscal year 2002
as compared to 16% in fiscal year 2001 and 6% in fiscal year
2000. The decrease in service gross margin was a result of a
reduction in service revenue.




Operating Expenses

Marketing and sales expenses decreased by
$6.4 million in fiscal year 2002 compared to fiscal year
2001, decreased $9.4 million in fiscal year 2001 compared
to fiscal year 2000, and were 89%, 62% and 51% of total revenues
in fiscal years 2002, 2001 and 2000, respectively. The fiscal
years 2002 and 2001 decreases in absolute dollars reflect steps
the Company has taken to streamline operations and reduce
overall costs, including headcount reductions. The increase as a
percentage of total revenues for the comparison periods is a
result of lower revenues in fiscal years 2002 and 2001.

14



---



##### Table of Contents



Engineering and development expenses decreased by
$4.2 million in fiscal year 2002 compared to fiscal year
2001, and decreased $11.4 million in fiscal year 2001
compared to fiscal year 2000, and represented 52%, 37% and 37%
of total revenues in fiscal years 2002, 2001 and 2000,
respectively. The decrease in engineering and development
expenses in fiscal years 2002 and 2001 reflects the
Companys efforts to streamline and reduce costs, and also
is reflective of the reductions due to restructuring charges
taken in the third quarter of fiscal year 2000 and the second
quarter of FY 2002. The increase in engineering expenses as a
percentage of total revenues in 2002 is a result of lower
revenues.

General and administrative expenses decreased by
$0.8 million in fiscal year 2002 as compared to fiscal year
2001, and decreased $1.3 million in fiscal year 2001
compared to fiscal year 2000. Such expenses represented
approximately 28%, 17% and 12% of total revenues in fiscal years
2002, 2001 and 2000, respectively. General and administrative
expenses decreased in absolute dollars in both fiscal years 2002
and 2001 due to the Companys efforts to reduce costs. The
increase in general and administrative expenses as a percentage
of revenue in fiscal years 2002 and 2001 is a result of lower
revenues.

During the fiscal year ended June 30, 2002,
the Company recorded restructuring charges totaling
$6.4 million which consisted of $2.7 million for
severance and termination benefits, $2.5 million for
payments under non-cancelable operating leases for abandoned
facilities and excess equipment and assets and $1.2 million
for write-offs relating to the disposal of excess equipment and
other assets. These charges reflected steps the Company took to
enhance the financial health of the Company, streamline
operations and reduce overall costs. The major components of the
restructuring were as follows:



| |   |                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company terminated 150 employees, comprised
    of 77 employees from general administration and operations, 56
    employees from sales and marketing, and 17 employees from
    engineering,
|
| |  | The Company consolidated and closed various sales
    and service field offices worldwide, and                                                                                                   
|
| |  | The Company disposed of idle assets and
    terminated or accrued for operating leases for excess assets or
    facilities.                                                                      

The Company substantially completed the employee
severance and benefits portion of the restructuring by January
2002. The principal cash requirements for the restructuring
consist of payments relating to the termination of leases and
severance packages for terminated employees.

The restructuring activities did not disrupt
operations significantly during the fiscal year ended
June 30, 2002. The Company expects the restructuring to
reduce its operating expenses by approximately $24 million
per year.* The Company began to realize these savings during
January 2002.

In the quarter ended March 31, 2000, the
Company also recorded restructuring charges totaling
$17.6 million. These charges reflected steps the Company
took to strengthen its competitiveness in the growing Network
Attached Storage market, streamline operations and reduce
overall costs. The restructuring charges were comprised
primarily of $3.8 million for reduction of personnel and
$13.8 million to retire excess equipment and other assets
related to the restructuring of Company operations. In
connection with the restructuring charges taken in the quarter
ended March 31, 2000, the Company terminated
169 employees and consolidated all of its Santa Clara
headquarters activities into one facility. The Company
substantially completed the implementation of the restructuring
plan at the end of May 2000. These cost reductions are directly
attributable to the restructuring. The steps the Company took in
fiscal year 2000 to reduce costs are as follows:



| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | (1) The termination of 169 employees,                                                                
|
| | (2) The consolidation of our Santa Clara
    headquarters from three buildings into one building, and
|
| | (3) The retirement of idled assets and
    operating leases.                                         

The Company had substantially completed the
restructuring plan by the end of May 2000.





---

* See Forward-Looking Statements
on page 1.


15



---



##### Table of Contents



The remaining cash requirements relating to the
restructurings for fiscal year 2003, 2004, 2005, and 2006 are
expected to be $1.3 million, $495,500, $324,000, and
$42,000, respectively.




Other Income, Net

Other income, net, was $1.7 million,
$4.4 million and $1.3 million in fiscal years 2002,
2001 and 2000, respectively. Other income, net, includes
interest income, interest expense and foreign exchange gains and
losses. Interest income was $1.9 million, $4.4 million
and $1.7 million in fiscal years 2002, 2001 and 2000,
respectively. Interest income decreased in fiscal 2002 due to
declining cash balances and the decline in interest rates over
the past year. The higher level of interest income in fiscal
year 2001 is due to the higher cash balances as a result of the
net proceeds of $85.5 million from a private placement of
the Companys common stock.




Provision for Income Taxes

As of June 30, 2002, the Company had gross
deferred tax assets of approximately $92.0 million.
Management has determined, based on the Companys recent
history of prior operating losses, the ability to carry back net
operating losses to prior periods and its expectations for
future years, that it is more likely than not that the deferred
tax asset is not realizable. No assurances can be given that
sufficient taxable income will be generated in future years for
the utilization of the deferred tax asset. Accordingly, the
Company has provided a valuation allowance for the entire
deferred tax asset as of June 30, 2002.

During the fourth quarter for the year ended
June 30, 2002, we recorded an income tax benefit of
$2.8 million. The recorded tax benefit for the year ended
June 30, 2002, reflects a one-time tax refund, which
resulted from new tax law changes that extended the net tax
operating loss carryback period from two to five years, and
eliminated the limitation on utilization of net operating losses
against alternative minimum taxable income.

As of June 30, 2002, the Company had Net
Operating Losses (NOL) carry forwards of
approximately $205.0 million and $195.0 million for
federal and state tax purposes, respectively. If not utilized,
the federal NOL carry forwards expire by 2022, and the state NOL
carry forwards expire by 2007. The Company also has research
credits of approximately $5.8 million and $3.5 million
for federal and state tax purposes, respectively. If not
utilized, the federal research credits expire through 2022.




Quarterly Results of Operations

The following table sets forth selected unaudited
quarterly financial information for the Companys last
eight quarters. This unaudited information has been prepared on
the same basis as the audited information and in
managements opinion reflects all adjustments (which
include only normal recurring adjustments) necessary for the
fair presentation of the information for the periods presented.
Based on the Companys operating history and factors that
may cause fluctuations in the quarterly results,
quarter-to-quarter comparisons should not be relied upon as
indicators of future performance. Although the Companys
revenues are not generally seasonal in nature, the Company has
experienced decreases in first quarter revenues compared to the
preceding fourth quarter which are believed to result primarily
from the capital asset purchase cycle of the Companys
customers.

The level of the Companys operating
expenses is partially based on its expectations of future
revenues. The Companys results of operations may be
adversely affected if revenues do not materialize in a period as
expected. Since expense levels are usually committed in advance
of revenues and because only a small portion of expenses vary
with revenues, the Companys results of operations may be
impacted significantly by lower revenues. The Companys
revenues were significantly lower in the second half of the
fiscal year 2002, as compared to fiscal year 2001, primarily due
to the overall economic slowdown and intense competitive
pressures. The Companys revenues were significantly lower
in the second half of the fiscal year 2001 versus the first half
due primarily to many customers delaying their purchases of the
NS2000 product in anticipation

16



---



##### Table of Contents



of purchasing a new NS3000 product. The
continuing slowdown in customer upgrading of older Auspex
product also contributed to the reduction in revenue in fiscal
year 2001.


|                                       |                                           |                                          |         |         |   |    |         |        |   |      |         |         |   |   |         |         |   |   |         |         |     
|-------------------------------------- | ----------------------------------------- | ---------------------------------------- | ------- | ------- | - | -- | ------- | ------ | - | ---- | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | ----
|                                       |                                           | Q1                                       |         | Q2      |   | Q3 |         | Q4     |   | Year
|                                       |                                           |                                          |         |         |   |    |         |        |   |     
|                                       |                                           |                                         
|                                       |                                           | (In thousands, except per share amounts)
|2002 Summary by Quarter                |                                           |                                          |         |         |   |    |         |        |   |      |         |         |   |   |         |         |   |   |         |        
|Revenues                               |                                           | $                                        | 8,861   |         |   | $  | 8,841   |        |   | $    | 6,378   |         |   | $ | 4,807   |         |   | $ | 28,887  |        
|Gross margin                           |                                           |                                          | (333    | )       |   |    | 1,200   |        |   |      | 42      |         |   |   | (43     | )       |   |   | 866     |        
|Loss before provision for income taxes |                                           |                                          | (14,510 | )       |   |    | (18,852 | )      |   |      | (10,700 | )       |   |   | (8,797  | )       |   |   | (52,859 | )      
|Net loss                               |                                           |                                          | (14,660 | )       |   |    | (18,952 | )      |   |      | (10,769 | )       |   |   | (5,627  | )       |   |   | (50,008 | )      
|Net loss per share                     |                                           |                                          |         |         |   |    |         |        |   |      |         |         |   |   |         |         |   |   |         |        
|                                       | Basic and Diluted                         |                                          | $       | (.32    | ) |    | $       | (.42   | ) |      | $       | (.24    | ) |   | $       | (.12    | ) |   | $       | (1.10   | )(1)
|2001 Summary by Quarter                |                                           |                                          |         |         |   |    |         |        |   |      |         |         |   |   |         |         |   |   |         |        
|Revenues                               |                                           | $                                        | 16,070  |         |   | $  | 16,425  |        |   | $    | 9,371   |         |   | $ | 10,014  |         |   | $ | 51,880  |        
|Gross margin                           |                                           |                                          | 4,435   |         |   |    | 5,944   | (2)    |   |      | 1,056   |         |   |   | 1,167   |         |   |   | 12,602  |        
|Loss before provision for income taxes |                                           |                                          | (8,563  | )       |   |    | (7,064  | )      |   |      | (13,961 | )       |   |   | (13,808 | )       |   |   | (43,396 | )      
|Net loss                               |                                           |                                          | (8,863  | )       |   |    | (7,319  | )      |   |      | (14,126 | )       |   |   | (13,983 | )       |   |   | (44,291 | )      
|Dividends to preferred stockholders    |                                           |                                          | 5,174   |         |   |    |        |        |   |      |        |         |   |   |        |         |   |   | 5,174   |        
|                                       | Net loss available to common Stockholders |                                          |         | (14,037 | ) |    |         | (7,319 | ) |      |         | (14,126 | ) |   |         | (13,983 | ) |   |         | (49,465 | )   
|Net loss per share                     |                                           |                                          |         |         |   |    |         |        |   |      |         |         |   |   |         |         |   |   |         |        
|                                       | Basic and Diluted                         |                                          | $       | (.44    | ) |    | $       | (.16   | ) |      | $       | (.31    | ) |   | $       | (.31    | ) |   | $       | (1.18   | )   



---



|    |                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes restructuring costs of
    $6.4 million. Exclusive of these charges, the basic and
    diluted net loss per share for fiscal year 2002 would have been
    $0.96.                                                                                                                                                                                    
|   
|(2) | The increase in gross margin as a percentage of
    revenues from the first quarter to the second quarter of fiscal
    year 2001 resulted in part from the use of 18GB hard drives
    obtained at reduced cost in certain of the Companys
    products and from more direct user revenue, which provides
    higher margin relative to distributor revenue.




Critical Accounting Policies, Judgments and
Estimates

The preparation of financial statements requires
the Company, to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of
contingencies and the reported amounts of revenue and expenses
in the financial statements. Material differences may result in
the amount and timing of revenue and expenses if different
judgements or different estimates were utilized. Critical
accounting policies, judgments and estimates which we believe
have the most impact on the Companys financial statements
are:



| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | Revenue Recognition,                                                                
|
| |  | Allowances for Doubtful Accounts, Returns, Price
    Protection, and Stock Rotation,
|
| |  | Inventory Valuation,                                                                
|
| |  | Long Lived Assets,                                                                  
|
| |  | Restructuring Costs, and                                                            
|
| |  | Accounting for Income Taxes.                                                        

17



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##### Table of Contents



Revenue Recognition

The Company recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred or
services have been provided, the sale price is fixed or
determinable and collectibility is reasonably assured. The
Company generally recognizes revenue on system and upgrade sales
on shipment. Service revenue includes installation, maintenance
and training, and is recognized ratably over the contract period
or as the services are provided. Please see Note 2 of the Notes
to Consolidated Financial Statements in Item 15,
Financial Statements, for a more detailed discussion
of our revenue recognition policies.

Allowances for Doubtful Accounts, Returns,
Price Protection, and Stock Rotation

We establish allowances for doubtful accounts,
returns, price protection and stock rotation. We specifically
identified doubtful accounts, returns, and customers with price
protection and stock rotation based on credit profiles of our
customers, current economic trends, contractual terms and
conditions, historical payment, return and discount experience,
and the age of past due receivables. Revenue recognized is
recorded net of these allowances.

Inventory Valuation

Our inventories are stated at the lower of cost
(first-in, first-out basis) or market value. Our industry is
characterized by rapid technological change, short-term customer
commitments and rapid changes in demand, as well as other lower
of cost or market considerations, attributed to the competitive
market. We make provisions for estimated excess and obsolete
inventory based on our regular reviews of inventory quantities
on hand and the latest forecasts of product demand and
production requirements from our customers. If actual market
conditions or our customers product demands are less
favorable than those projected, additional provisions may be
required. Managing the Companys inventory of components
and finished products is a complex task. A number of factors,
including but not limited to, the need to maintain a significant
inventory of certain components which are in short supply or
which must be purchased in bulk to obtain favorable pricing, the
general unpredictability of demand for specific products, the
need to use sole source vendors on critical components, and
customer requests for quick delivery schedules, may result in
the Company maintaining large amounts of inventory. Other
factors, including changes in market demand and technology, may
cause inventory to become obsolete. Any excess or obsolete
inventory could result in price reductions and/or inventory
write-downs.

Long Lived Assets

We review property and equipment for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of property and equipment is measured by
comparing its carrying amount to the projected discounted cash
flows the property and equipment are expected to generate. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying
amount of the property and equipment exceeds its fair market
value. Please see Note 6, Restructuring and Related
Charges of the Notes to Consolidated Financial Statements
in Item 15, Financial Statements for discussion
of our adjustments to the carrying value of property, plant and
equipment associated with our fiscal 2002 restructuring
activities.

Restructuring Costs

The Company records restructuring costs when the
Company commits to an exit plan and significant changes to the
exit plan are likely. As a result of the restructuring plan
implemented in the second fiscal quarter of fiscal 2002 the
Company recorded $2.7 million related to severance and
other costs and $2.5 million for payments under
non-cancelable operating leases for abandoned facilities and
excess equipment and assets and $1.2 million for write-offs
relating to the disposal of excess equipment and other assets.
The Company estimated no sublease income from these abandoned
facilities and assets due to the current economic climate. See
Note 6, Restructuring and Related Charges of
the Notes to Consolidated Financial Statements in Item 15,
Financial Statements, for a more detailed discussion
of fiscal 2002 restructuring activities.

18



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##### Table of Contents



Accounting for Income Taxes

We are required to estimate our income taxes in
each federal, state and international jurisdiction in which we
operate. This involves estimating our actual current tax
exposure and assessing temporary differences resulting from
differing treatment of items, such as reserves and accruals, for
tax and accounting purposes. These differences result in
deferred tax assets and liabilities. Based on our judgement of
the likelihood that our deferred tax assets will be recovered
from future taxable income, we have established a valuation
allowance equal to 100% of our deferred tax assets.




Liquidity and Capital Resources

The Companys cash, cash equivalents and
short-term investments decreased $50.3 million as of
June 30, 2002, compared to June 30, 2001. The Company
used cash of approximately $48.5 million,
$35.6 million and $43.6 million in operating
activities in fiscal years 2002, 2001 and 2000 respectively. The
net cash used in operating activities in fiscal year 2002 was
primarily due to funding the Companys net loss for the
year.

The Companys principal investing activities
consisted of the purchase of property and equipment amounting to
$2.3 million, $3.8 million and $2.7 million in
fiscal years 2002, 2001 and 2000, respectively. These
expenditures were for leasehold improvements, equipment for
engineering and development, manufacturing test equipment,
office equipment and spare parts to support customer service
contracts. The Companys additional investing activities
include the purchasing of short-term investments, which
represents the reinvestment of maturing short-term investments
and the investment of cash and cash equivalents into short term
investments.

The Companys primary financing activities
included proceeds from the sale of its Common Stock pursuant to
employee benefit plans of $1.4 million, $2.6 million
and $7.1 million in fiscal years 2002, 2001 and 2000,
respectively. During fiscal year 2001, the Companys
financing activities also included proceeds from the sale of
common stock, resulting in net proceeds of $85.5 million.
During fiscal year 2000, the Companys financing activities
included proceeds from the sale of $25 million of preferred
stock, in a private placement.

At June 30, 2002, the Companys
principal sources of liquidity included $29.5 million in
cash, cash equivalents and short-term investments. The Company
has $15.0 million available under a secured United States
currency bank line of credit, expiring March 31, 2003, but
the line of credit requires the Company to keep on deposit cash
investments with the Companys lending institution that are
equal to the amount of the line of credit. At June 30,
2002, the Company had no outstanding balance under this line of
credit. There were commitments against the line of credit for
letters of credit totaling approximately $676,000 as of
June 30, 2002. The line of credit is secured by the
Companys cash investments with the Companys lending
institution.

While the Company took a number of steps in the
second fiscal quarter of 2002 to reduce its operating
expenditures and conserve cash, based on its current revenue and
expense levels, the Companys existing cash, cash
equivalents and short-term investments will be insufficient to
meet its working capital and capital expenditure requirements
for the remainder of fiscal 2003, which ends in June 2003. The
report of our independent auditors issued in connection with our
audited financial statements for the fiscal year ended
June 30, 2002 contains a statement expressing substantial
doubt regarding our ability to continue as a going concern.
While we are currently pursuing efforts to substantially
increase revenue in the near future, we can provide no
assurances that these efforts will be successful. If they are
not successful, the Company will have to engage in additional,
significant cost reduction measures in the near term that would
affect our ability to compete in the markets served by the
Company. These reductions may include actions such as reductions
in force, lease renegotiations and facilities closures.
Additionally, while the Company may seek to raise additional
capital, such capital may not be available. The Company will
also explore other potential options, such as a merger or sale,
however, such efforts may not be successful.

19



---



##### Table of Contents



The following is a summary of our minimum
payments under contractual obligations as of June 30, 2002:

|                               |       |                      |       |       |  |      |       |       |  |      |       |            |  |       |       |       |  |  |       |       |  |  |       |       |  |   |        |        | 
|------------------------------ | ----- | -------------------- | ----- | ----- |  | ---- | ----- | ----- |  | ---- | ----- | ---------- |  | ----- | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- |  | - | ------ | ------ | 
|                               |       |                     
|                               |       | Years Ended June 30,
|                               |       |                     
|                               |       | 2003                 |       | 2004  |  | 2005 |       | 2006  |  | 2007 |       | Thereafter |  | Total
|                               |       |                      |       |       |  |      |       |       |  |      |       |            |  |      
|                               |       |                     
|                               |       | (In thousands)      
|Operating Leases               |       | $                    | 4,212 |       |  |      | 2,546 |       |  |      | 2,220 |            |  |       | 1,852 |       |  |  | 1,757 |       |  |  | 4,642 |       |  | $ | 17,299 |       
|Purchase Commitments           |       | $                    | 1,625 |       |  |      |      |       |  |      |      |            |  |       |      |       |  |  |      |       |  |  |      |       |  | $ | 1,625  |       
|Regent Pacific Management Fees |       | $                    | 1,950 |       |  |      |      |       |  |      |      |            |  |       |      |       |  |  |      |       |  |  |      |       |  | $ | 1,950  |       
|                               | Total |                      | $     | 7,787 |  |      |       | 2,546 |  |      |       | 2,220      |  |       |       | 1,852 |  |  |       | 1,757 |  |  |       | 4,642 |  |   | $      | 20,874 | 




Factors That May Affect Future
Results



| |                             
| | ----------------------------
| | Historical and Future Losses

The accompanying consolidated financial
statements have been prepared on a going concern basis, which
means that they were prepared on the assumption that we would
have a continuity of operations, realization of assets, and
liquidation of liabilities and commitments in the normal course
of business. In recent years, the Company has a history of
losses and may continue to incur future losses. We have incurred
net losses of $80.8 million for the year ended
June 30, 2000, $44.3 million for the year ended
June 30, 2001 and $50.0 million for the year ended
June 30, 2002. These losses combined with our current cash
position, raises substantial doubt about our ability to continue
as a going concern. As of August 24, 2002, we had cash,
cash equivalents and short-term investment balances of
$20.8 million. The Company will need to generate
significant revenues to achieve cash breakeven and
profitability. There can be no assurance that we will be
successful in our efforts to reach cash breakeven or
profitability. Even if we achieve profitability, we may be
unable to sustain or increase profitability on a quarterly or
annual basis. If we fail to achieve and sustain both cash
breakeven and profitability, the price of our stock may decline
substantially.



| |                                            
| | -------------------------------------------
| | We may need to Raise Additional
    Capital

Our ability to raise additional capital will
depend on a variety of factors, some of which will not be within
our control, including investor perception of us, our business
and the industry in which we operate, and general economic and
market conditions. No assurance can be given that additional
financing will be available or that, if available, it will be
available on terms acceptable to us or to our stockholders. If
adequate funds are not available to support our short term or
long term capital requirements, we may be required to
significantly limit our operations, which would have a material
adverse effect on our business, financial condition, and results
of operation and jeopardize our ability to continue as a going
concern. In the event we raise additional equity financing to
support our continuing operations, further dilution to our
stockholders will likely result. The unavailability or timing of
revenues and financing may require us to curtail our operations.



| |                                                                  
| | -----------------------------------------------------------------
| | Our Common Stock was Delisted from the
    Nasdaq National Market

Our Common Stock is currently listed on The
Nasdaq Small Cap Market under the symbol ASPX.
However, our Common Stock was listed on the Nasdaq National
Market from May 1993 until September 27, 2002. On
June 7, 2002, we received notice from Nasdaq that our stock
had traded below the $1.00 minimum per share price required for
continued listing on The Nasdaq National Market for thirty (30)
consecutive trading days. Accordingly, we were provided until
September 5, 2002 to regain compliance, which did not
occur. On September 3, 2002 the Company requested that its
stock be transferred to The Nasdaq Small Cap Market. On
September 25, 2002 the Company was informed our application
was approved effective September 30, 2002. To transition to
The Nasdaq Small Cap Market, we must satisfy the continued
inclusion requirements for The Nasdaq Small Cap Market, with the
exception of the requirement that we maintain a minimum
$1.00 bid price. We are now granted an additional grace
period through December 4, 2002 in which to regain
compliance with the $1.00 minimum bid price requirement for
inclusion in The Nasdaq Small Cap Market. We may then be
eligible for an additional 180 calendar day grace period in
which to regain compliance with the $1.00 minimum bid price
requirement for inclusion in The Nasdaq Small Cap Market,
provided we meet the initial listing requirements for The Nasdaq
Smallcap Market at that time. The initial

20



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##### Table of Contents



listing requirements for The Small Cap
Market include stockholders equity of $5 million, or market
cap of $50 million, or net income of $750,000. We may be
eligible to transfer back to The Nasdaq National Market if we
meet the $1.00 minimum bid price requirement for thirty
(30) consecutive trading days and meet all other
maintenance requirements. The delisting of our Common Stock from
The Nasdaq National Market may result in a reduction in some or
all of the following, each of which may have a material adverse
effect on our investors:




| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | the liquidity of our Common Stock;                                                               
|
| |  | the market price of our Common Stock;                                                            
|
| |  | the number of institutional investors that will
    consider investing in our Common Stock;      
|
| |  | the number of investors in general that will
    consider investing in our Common Stock;         
|
| |  | the number of market makers in our Common Stock;                                                 
|
| |  | the availability of information concerning the
    trading prices and volume of our Common Stock;
|
| |  | the number of broker-dealers willing to execute
    trades in shares of our Common Stock; and    
|
| |  | our ability to obtain financing for the
    continuation of our operations.                      



| |                                                                     
| | --------------------------------------------------------------------
| | If Our Common Stock is Delisted from the
    Nasdaq Small Cap Market

If our common stock were delisted from The Nasdaq
Small Cap Market, it could become subject to the SECs
Penny Stock rules. Penny stocks
generally are equity securities with a price of less than
$5.00 per share that are not registered on certain national
securities exchanges or quoted on the Nasdaq system.
Broker-dealers dealing in our common stock would then be subject
to the disclosure rules for transactions involving penny stocks
which require the broker-dealer to determine if purchasing our
common stock is suitable for a particular investor. The
broker-dealer must also obtain the written consent of purchasers
to purchase our common stock. The broker-dealer must also
disclose the best bid and offer prices available for our stock
and the price at which the broker-dealer last purchased or sold
our common stock. These additional burdens imposed upon
broker-dealers may discourage them from effecting transactions
in our common stock, which could make it difficult for investors
to sell their shares and, hence, limit the liquidity of our
common stock.



| |                                                            
| | -----------------------------------------------------------
| | Potential Significant Fluctuations in
    Quarterly Results

The Companys operating results may
fluctuate significantly from quarter to quarter due to a
combination of factors. These factors include the timing of
orders, the timing of new product introductions by the Company
or its competitors, and the mix of distribution channels through
which the Companys products are sold. The Company
generally realizes higher gross margins on sales of systems to
end-users and on single-system sales than on systems sold
through distributors and OEMs and on multiple-system sales. In
addition, given the Companys focus on highly configured
enterprise class systems, the loss or delay in a given quarter
of a relatively limited number of system sales could adversely
affect the Companys revenues.

Historically, the Company often has recognized a
substantial portion of its revenues in the last month of any
given quarter. Because the Companys operating expenses are
based on anticipated revenue levels and because a high
percentage of the Companys expenses are relatively fixed,
a small variation in the timing of the recognition of revenues
could cause significant variations in operating results from
quarter to quarter. In addition, due to the short lead time with
regards to the products time of order to its time of
shipment, the Company has not carried recently any material
backlog from quarter to quarter.



| |                   
| | ------------------
| | Competitive Market

The market for the Companys products is
highly competitive. The Company experiences substantial
competition, principally from Sun Microsystems, Network
Appliance, EMC Corporation, Hewlett-Packard Company, IBM and
SGI, among others. Some companies have introduced proprietary
products to provide

21



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##### Table of Contents



network attached storage. Most of the
Companys competitors are better known and have
substantially greater financial, technological, production and
marketing resources than the Company. While the Company believes
that the price/performance characteristics of its products are
competitive, price competition in the markets for the
Companys products is intense, the Companys
competitors have engaged, and may continue to engage in price
cutting to gain a competitive edge within the market for the
Companys products. The Companys efforts to maintain
the competitiveness of its prices in such an environment has had
and may continue to have an adverse effect on the Companys
business, financial condition and results of operations. Any
material reduction in the price of the Companys products
without corresponding decreases in manufacturing costs and
increases in unit volume would negatively affect gross margins,
which could in turn have a material adverse effect on the
Companys business, financial condition and results of
operations. The Company also derives a significant portion of
its revenues from sales of product upgrades to its installed
base of customers, including additional processors, memory and
disk drives. Increased competition for the Companys
products that results in lower product sales could also
adversely impact the Companys upgrades sales. In addition,
decisions by customers not to increase capacity to their current
systems could adversely impact the Companys revenues and
results of operations. The Companys ability to maintain
its competitive position will depend upon, among other factors,
its success in anticipating industry trends, investing in
product engineering and development, developing new products
with improved price/performance characteristics and effectively
managing the introduction of new products into targeted markets.




| |                                                
| | -----------------------------------------------
| | Management in Transition; Employee
    Turnover

Competition for employees with technical,
management and other skills is intense in the computer industry
and is particularly intense in the San Francisco Bay Area. If
the Company fails to retain the services of key personnel or to
attract additional qualified employees, such failure could have
a material adverse effect on the Companys business,
financial condition and results of operations. The Company has
experienced turnover of several senior members of management.



| |                       
| | ----------------------
| | Software Product Risks

The Company markets optional software products in
addition to its line of network file servers. These software
products include: NeTservicesTM,
DriveGuardTM, FastBackupTM,
ServerGuardTM, ServerGuard GlobalTM,
DataGuardTM, Turbocopy, and TurbocopyReplicator. The
Company also expects to release enhancements and new features
for these products from time to time.* Although the Company
performs extensive testing prior to releasing software products,
such products may contain undetected errors or bugs when first
released. These may not be discovered until the product has been
used by customers in different application environments. Failure
to discover product deficiencies or bugs could delay product
introductions, require design modifications to previously
shipped products, cause unfavorable publicity or negatively
impact system shipments, any of which could result in a
materially adverse effect on the Companys business,
financial condition and results of operations.



| |             
| | ------------
| | New Products

New product introductions by the Company or its
competitors carry the risk that customers could delay or cancel
orders for existing products pending shipment of the new
products. For instance, product transition issues had an adverse
impact on North America, Europe and Pacific Rim revenues in
fiscal year 2001. The Companys strategy is to continue to
introduce new products and upgrades to existing products on an
ongoing basis. There can be no assurance that the Company will
not experience difficulties that delay or prevent the successful
development, introduction or marketing of these products and
enhancements or that these new products and enhancements will
adequately address market requirements, achieve market
acceptance or generate substantial sales. Additionally, delays
in the launch or lack of availability of new products could have
a material adverse effect on the Companys business,
financial condition and results of operations.





---

* See Forward-Looking Statements
on page 1.


22



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##### Table of Contents





| |                                        
| | ---------------------------------------
| | Dependence on Established
    Standards

The rapid emergence of new or alternate
standards, such as Linux, which replace or diminish the market
acceptance of UNIX operating systems, Network File System
(NFS) or Windows NT, on which the Companys products
are currently based, could materially and adversely affect the
Companys results of operations unless the Company is able
to incorporate any such standards in the Companys products
in a timely manner.



| |                                                  
| | -------------------------------------------------
| | Dependence on Certain Customers/
    Distributors

For each of fiscal years 2002, 2001 and 2000,
direct sales of products and services to Intel Corporation
represented approximately 7%, 9% and 7%, respectively, of the
Companys revenues. For each of fiscal years 2002, 2001 and
2000, indirect sales of products and services to Nissho
Electronics, Inc represented approximately 11%, 16% and 6%.
Intel and Nissho are not obligated to purchase any minimum level
of products from the Company. Additional significant reductions
in product sales to Intel and Nissho would materially and
adversely affect the Companys business, financial
condition and results of operations.



| |                                    
| | -----------------------------------
| | Dependence on Certain
    Suppliers

Certain of the Companys products contain
critical components supplied by a single or limited number of
third parties. While the Company has an inventory of these
critical components, any significant or prolonged shortage of
these components or the failure of the third-party suppliers to
maintain or enhance these components could materially and
adversely affect the Companys results of operations.



| |                             
| | ----------------------------
| | Excess or Obsolete Inventory

Managing the Companys inventory of
components and finished products is a complex task. A number of
factors, including but not limited to, the need to maintain a
significant inventory of certain components which are in short
supply or which must be purchased in bulk to obtain favorable
pricing, the general unpredictability of demand for specific
products and customer requests for quick delivery schedules, may
result in the Company maintaining large amounts of inventory.
Other factors, including changes in market demand and
technology, may cause inventory to become obsolete. Any excess
or obsolete inventory could result in price reductions and/or
inventory write-downs, which in turn could adversely affect the
Companys business and results of operations.



| |                                                                        
| | -----------------------------------------------------------------------
| | Risks of International Sales; European and
    Pacific Rim Market Risks

During fiscal years 2002, 2001 and 2000,
approximately 44%, 40%, and 37%, respectively, of the
Companys total revenues were derived from markets outside
of North America. The Company expects that sales to the Pacific
Rim and Europe will continue to represent a significant portion
of its business.* However, there can be no assurance that the
Companys Pacific Rim or European operations will continue
to be successful.

The Companys international business may be
affected by changes in demand resulting from localized economic
and market conditions. For example, the Company experienced a
decrease in revenues from the Pacific Rim during fiscal years
2002, 2001 and 2000 due to further weakness in the Japanese
economy. In addition, the Companys international business
may be affected by fluctuations in currency exchange rates and
currency restrictions. The Company purchases the majority of its
materials and services in U.S. dollars, and most of its
foreign sales are transacted in U.S. dollars. Continued
increases in the value of the U.S. dollar relative to foreign
currencies would make the Companys products sold
internationally less price competitive. The Company has offices
in a number of foreign countries, the operating expenses of
which are also subject to the effects of fluctuations in foreign
exchange rates. Financial exposure may result due to the timing
of transactions and movement of exchange rates. The
Companys international business may further be affected



---

* See Forward-Looking Statements
on page 1.


23



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##### Table of Contents



by risks such as trade restrictions, increases in
tariff and freight rates and difficulties in obtaining necessary
export licenses and meeting appropriate local regulatory
standards. For example, the Company has had to modify its
products in minor respects in Japan to comply with local
electromagnetic emissions standards, and must also comply with
corresponding European Economic Community standards. In
marketing its products to the European Union, the Company also
must face the challenges posed by a fragmented market
complicated by local distribution channels and local cultural
considerations. For international sales, the Company has largely
relied on distributors or OEMs, most of who are entitled to
carry products of the Companys competitors. There can be
no assurance that any of the foregoing risks or issues will not
have a material adverse effect on the Companys business,
financial condition and results of operations.




| |                          
| | -------------------------
| | Stock Market Fluctuations

In recent years, the stock market in general and
the market for technology stocks in particular, including the
Companys Common Stock, have experienced extreme price
fluctuations. The market price of the Companys Common
Stock may be significantly affected by various factors such as
quarterly variations in the Companys operating results,
changes in revenue growth rates for the Company as a whole or
for specific geographic areas or products, changes in earning
estimates by market analysts, the announcements of new products
or product enhancements by the Company or its competitors,
speculation in the press or analyst community, and general
market conditions or market conditions specific to particular
industries. There can be no assurance that the market price of
the Companys Common Stock will not experience significant
fluctuations in the future.



| |                   
| | ------------------
| | Economic Downturns

The Company is subject to the cyclical nature of
the economy, both domestic and international. The current
downturn or any future downturns may reduce the Companys
revenue. Purchases of the Companys products are highly
dependent on the capital spending needs of the Companys
customers, which are historically minimal during an economic
downturn. The economy is highly cyclical and can be
characterized by such things as constant and rapid technological
change, product obsolescence, price erosion, evolving standards,
and fluctuations in product demand. These downturns have been
characterized by diminished product demand, production over
capacity, higher inventory levels and accelerated erosion of
average selling prices. The Company expects continued weakness
in the economy for the foreseeable future. The current slowdown
and any future downturns may reduce the Companys revenue
and harm the Companys results of operations.

The terrorist attacks on September 11, 2001
along the East Coast of the United States may have exacerbated
the current economic downturn. Decreased consumer confidence
resulting in less travel and fewer purchases by the American
consumer may adversely affect the capital spending needs of the
Companys current and potential customers. The possible
escalation of military alternatives as a result of the
aforementioned attacks may also exacerbate or prolong the
current economic downturn. The Company has no clear indication
of the length or scope of the current economic downturn.



| |                                                 
| | ------------------------------------------------
| | Intellectual Property and Proprietary
    Rights

The Company currently relies on a combination of
patent, copyright, trademark and trade secret laws and
contractual provisions to protect its proprietary rights in its
hardware and software products. The Company currently holds
fourteen United States patents and has filed applications for
additional patents. The Company also has filed applications for
counterpart patents in foreign countries, including Japan. There
can be no assurance that the Companys present or future
competitors will not independently develop technologies that are
substantially equivalent or superior to the Companys
technology. Further, there can be no assurance that the
Companys patent applications will result in issued
patents, or that the Companys issued patents will be
upheld if challenged. Additionally, there can be no assurance
that third parties will not assert intellectual property
infringement claims against the Company in the future with
respect to current or future projects or that any such
assertions may not require the Company to refrain from the sale
of its products, enter into royalty arrangements or undertake
costly litigation.

24



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##### Table of Contents



The Companys adherence to industry
standards with respect to its products limits the Companys
opportunities to provide proprietary features, which may be
protected. In addition, the laws of various countries in which
the Companys products may be sold may not protect the
Companys products and intellectual property rights to the
same extent as the laws of the United States.



| |                              
| | -----------------------------
| | Power Shortages and Blackouts

In the event of an acute power shortage,
California has, on some occasions, implemented, and may in the
future continue to implement, rolling blackouts throughout
California. The Company has emergency back-up generators which
keep its business systems in operation but the Company does not
have sufficient back-up generating capacity or alternate sources
of power to keep its headquarters in full operation in the event
of a blackout. If blackouts interrupt the Companys power
supply, it would be temporarily unable to continue full
operations at its headquarters. Any such interruption could
damage the Companys reputation, harm its ability to retain
existing customers and to obtain new customers, and could result
in lost revenue, any of which could substantially harm the
Companys business and results of operations.




Item 7A.     Quantitative
and Qualitative Disclosure About Market Risks



| |                   
| | ------------------
| | Interest Rate Risk

The Companys exposure to market risk for
changes in interest rates relate primarily to the Companys
investment portfolio. The Company does not use derivative
financial instruments in its investment portfolio. The Company
invests in high-quality credit issuers and, by policy, limits
the amount of credit exposure to any one issuer. As stated in
its policy, the Company ensures the safety and preservation of
its invested principal funds by limiting default risk, market
risk and reinvestment risk.

The Company mitigates default risk by investing
in safe and high-quality credit securities and by constantly
positioning its portfolio to respond appropriately to a
significant reduction in a credit rating of any investment
issuer, guarantor or depository. The portfolio includes only
marketable securities with active secondary or resale markets to
ensure portfolio liquidity.

The table below presents principal amounts and
related weighted average interest rates by year of maturity for
the Companys investment portfolio.

|                                            |                        |                      |   |        |   |      |  |       |   |      |  |            |  |       |  |   |  |  |  |   |  |  |  |   |  |  |   |        |  
|------------------------------------------- | ---------------------- | -------------------- | - | ------ | - | ---- |  | ----- | - | ---- |  | ---------- |  | ----- |  | - |  |  |  | - |  |  |  | - |  |  | - | ------ | -
|                                            |                        |                     
|                                            |                        | Years Ended June 30,
|                                            |                        |                     
|                                            |                        | 2003                 |   | 2004   |   | 2005 |  | 2006  |   | 2007 |  | Thereafter |  | Total
|                                            |                        |                      |   |        |   |      |  |       |   |      |  |            |  |      
|                                            |                        |                     
|                                            |                        | (In thousands)      
|Cash equivalents and short-term investments |                        |                      |   |        |   |      |  |       |   |      |  |            |  |       |  |   |  |  |  |   |  |  |  |   |  |  |   |       
|                                            | Fixed rate investments |                      | $ | 22,401 |   |      |  | 4,130 |   |      |  |           |  |       |  |  |  |  |  |  |  |  |  |  |  |  | $ | 26,531 |  
|                                            | Average interest rate  |                      |   | 2.32   | % |      |  | 3.08  | % |      |  |           |  |       |  |  |  |  |  |  |  |  |  |  |  |  |   | 2.83   | %



| |                                   
| | ----------------------------------
| | Foreign Currency Exchange
    Risk

The Company transacts business in various foreign
countries. Its primary foreign currency cash flows are in
certain European and Asian countries. During fiscal years 2002,
2001 and 2000, the Company employed a foreign currency-hedging
program utilizing foreign currency forward exchange contracts to
hedge local currency cash flows for payroll and other operating
expenditures in these countries. Under this program, increases
or decreases in the Companys local currency operating
expenses and other cash outflows, as translated into
U.S. dollars, are partially offset by realized gains and
losses on the hedging instruments. The goal of this hedging
program is to economically guarantee or lock in the exchange
rates on the Companys foreign currency cash outflows
rather than to eliminate the possibility of short-term earnings
volatility. As of June 30, 2002, the Companys foreign
currency forward exchange contracts were comprised of
$2.9 million in British Pounds, $2.4 million in Euros,
and $7.0 million in Singapore Dollars.

25



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##### Table of Contents





| |                         
| | ------------------------
| | Foreign Exchange Hedging

From time to time the Company enters into foreign
exchange rate contracts to reduce its exposure to foreign
currency rate changes on intercompany foreign currency
denominated balance sheet positions. The Company does not enter
into these contracts for speculative purposes. The objective of
these contracts is to partially offset the impact of foreign
currency exchange rate movements on the Companys operating
results. Gains and losses on these contracts are recognized in
operations in the period in which gains and losses on the
underlying transactions occur. In the event of termination or
extinguishments of a contract, associated gains and losses are
recognized in operations in the period in which the contract is
terminated.




Item 8.     Financial
Statements and Supplementary Data

The financial statements required by this item
are incorporated by reference from Part IV
Item 15(a) 1 and 2 hereof. The selected quarterly
supplementary data is included as part of Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations.




Item 9.     Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure

On June 11, 2002, the Board of Directors of
the Company, upon recommendation of its Audit Committee,
dismissed Arthur Andersen LLP (Arthur Andersen) as
the Companys independent auditors effective as of
June 11, 2002.

Arthur Andersens reports on the financial
statements for the two most recent fiscal years have contained
no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or
accounting principle. During the Companys two most recent
fiscal years, and through June 11, 2002, the Company has
had no disagreements, as defined in Instruction 4 of
Item 304 of Regulation S-K, with Arthur Andersen on
any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if
not resolved to the satisfaction of Arthur Andersen, would have
caused them to make reference thereto in their reports on the
Companys financial statements for such years, and there
were no reportable events, as defined in Item 304(a)(1)(v)
of Regulation S-K.

The Company has provided Arthur Andersen a copy
of the above statements, and has received from Arthur Andersen a
letter dated June 19, 2002, addressed to the Securities and
Exchange Commission stating its agreement with such statements.

Effective as of June 20, 2002, the Board of
Directors of the Company, upon recommendation of its Audit
Committee, appointed KPMG LLP (KPMG) as the
Companys independent auditors.

During the Companys two most recent fiscal
years, and through June 20, 2002, the Company has not
consulted with KPMG regarding the application of accounting
principles to a specific transaction, either completed or
proposed, or the type of audit opinion that might be rendered on
the Companys consolidated financial statements, or any
other matters or reportable events set forth in
Item 304(a)(2)(i) or (ii) of Regulation S-K.




PART III

Certain information required by Part III is
omitted from this Annual Report on Form 10-K because the
Registrant will file a definitive proxy statement within one
hundred twenty (120) days after the end of its fiscal year
pursuant to Regulation 14A (the Proxy
Statement) for its Annual Meeting of Stockholders
currently scheduled for November 14, 2002, and the
information included in the Proxy Statement is incorporated
herein by reference.




Item 10.     Directors
and Executive Officers of the Registrant

Information regarding the directors of the
Company is incorporated by reference to the information under
the heading Election of Directors in the
Registrants Proxy Statement.

26



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##### Table of Contents



Information regarding the executive officers of
the Company is incorporated by reference to the section of
Part I of this Annual Report on Form 10-K entitled
Item 1  Business  Executive
Officers of the Company.

Information regarding compliance with
Section 16 of the Securities Exchange Act of 1934, as
amended, is incorporated by reference to the information under
the heading Section 16(a) Beneficial Ownership
Reporting Compliance in the Registrants Proxy
Statement.




Item 11.     Executive
Compensation

Information regarding the compensation of
executive officers and directors of the Company is incorporated
by reference to the information under the heading
Executive Compensation and Certain
Transactions with Management in the Registrants
Proxy Statement.




Item 12.     Security
Ownership of Certain Beneficial Owners and
Management

Incorporated by reference to the information
under the heading Security Ownership of Certain Beneficial
Owners and Management in the Registrants Proxy
Statement.




Item 13.     Certain
Relationships and Related Transactions

Incorporated by reference to the information
under the caption Certain Transactions with
Management in the Registrants Proxy Statement.




Item 14.     Controls
and Procedures

Not Applicable.




PART IV




Item 15.     Exhibits,
Financial Statement Schedules and Reports on
Form 8-K

(a) The following documents are filed as a
part of this Annual Report on Form 10-K.

The following consolidated financial statements
of Auspex Systems, Inc. are filed as part of this Annual Report
on Form 10-K.




1.     Financial
Statements

|                                                                                                        |  |      |    | 
|------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                        |  | Page
|                                                                                                        |  |     
|Report of KPMG LLP, Independent Auditors                                                                |  |      | 35 | 
|Report of Arthur Andersen LLP, Independent Public
    Accountants                                       |  |      | 36 | 
|Consolidated Statements of Operations for the
    years ended June 30, 2002, 2001 and 2000              |  |      | 37 | 
|Consolidated Statements of Comprehensive Income
    (Loss) for years ended June 30, 2002, 2001 and 2000 |  |      | 38 | 
|Consolidated Balance Sheets as of June 30,
    2002 and 2001                                            |  |      | 39 | 
|Consolidated Statements of Stockholders
    Equity for the years ended June 30, 2002, 2001 and 2000    |  |      | 40 | 
|Consolidated Statements of Cash Flows for the
    years ended June 30, 2002, 2001 and 2000              |  |      | 41 | 
|Notes to Consolidated Financial Statements                                                              |  |      | 42 | 

27



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##### Table of Contents






2.     Financial
Statement Schedules

The following consolidated financial statement
schedules for each of the three years in the period ending
June 30, 2002, 2001 and 2000 are submitted herewith:

|                                                                 |  |      |    | 
|---------------------------------------------------------------- |  | ---- | -- | 
|                                                                 |  | Page
|                                                                 |  |     
|Schedule II  Valuation and
    Qualifying Accounts and Reserves |  |      | 58 | 

(All other schedules are omitted because they are
not applicable or the required information is shown in the
Financial Statements or notes thereto.)

3.     Exhibits

The following exhibits are included in this
Annual Report on Form 10-K (numbered in accordance with
Item 601 of Regulation S-K):

|        |    |             |  |                                                                                                                                                                                           
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1(1)       |  | Certificate of Incorporation of Registrant.                                                                                                                                               
|        | 3  | .2(19)      |  | Certificate of Amendment to Certificate of
    Incorporation, dated August 29, 2000.                                                                                                      
|        | 3  | .3(19)      |  | By-laws of Registrant as amended to date.                                                                                                                                                 
|        | 4  | .1(2)       |  | Preferred Shares Rights Agreement between the
    Registrant and The First National Bank of Boston as Rights Agent
    dated April 19, 1995.                                              
|        | 4  | .2(3)       |  | Registration Rights Agreement, dated as of
    January 18, 2000, between Registrant and the investors
    named therein.                                                                  
|        | 4  | .3(3)       |  | Certificate of Designations, Preferences and
    Rights of Series B Convertible Preferred Stock as filed
    with the Secretary of State of the State of Delaware on
    January 18, 2000.
|        | 10 | .1(1)(4)    |  | 1988 Stock Option Plan and forms of Incentive
    Stock Option Agreements and Nonstatutory Stock Option
    Agreements, as amended to date.                                               
|        | 10 | .2(4)(7)    |  | 1993 Directors Stock Option Plan, as
    amended to date.                                                                                                                                
|        | 10 | .3(4)(5)    |  | 1993 Employee Stock Purchase Plan and forms of
    Option Agreements, as amended to date.                                                                                                 
|        | 10 | .4(4)(7)    |  | 1997 Stock Plan, as amended to date.                                                                                                                                                      
|        | 10 | .5(4)       |  | 1998 Non-Statutory Stock Plan and form of Stock
    Option Agreement, as amended to date.                                                                                                 
|        | 10 | .6(4)(7)    |  | Stock Option Agreement, dated August 1,
    2000, between Registrant and Michael S. Worhach.                                                                                              
|        | 10 | .7(4)(6)    |  | Employee Stock Option agreement, as amended,
    dated April 18, 2000 between Registrant and Gary J. Sbona.                                                                               
|        | 10 | .8(7)       |  | Employee Stock Option Agreement, dated
    July 3, 2000, between Registrant and Paul Loucas.                                                                                              
|        | 10 | .9(3)       |  | Form of Warrant to Purchase Common Stock, dated
    January 18, 2000, issued to certain investors.                                                                                        
|        | 10 | .10(17)     |  | Share Purchase Agreement, dated as of
    September 19, 2000, between Registrant and the purchasers
    referred to therein.                                                              
|        | 10 | .11(17)     |  | Amendment, dated October 11, 2000, to Share
    Purchase Agreement, dated as of September 27, 2000.                                                                                       
|        | 10 | .12(3)      |  | Securities Purchase Agreement, dated as of
    January 18, 2000, between Registrant and the investors
    listed on the Schedule of Buyers attached thereto.                              
|        | 10 | .13(17)     |  | Letter Agreement, dated September 27, 2000,
    between Halpern Capital Advisors and Registrant.                                                                                          
|        | 10 | .14(17)     |  | Warrant Purchase Agreement, dated
    October 17, 2000, between Baruch and Shoshana Halpern
    and Registrant.                                                                           
|        | 10 | .15(17)     |  | Form of Common Stock Purchase Warrant, dated
    October 17, 2000, issued to Baruch and Shoshana Halpern.                                                                                 

28



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|        |    |             |  |                                                                                                                                                                                                                                                                            
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .16(4)(6)   |  | Retainer Agreement between Company and Regent
    Pacific Management Corporation, effective February 15, 2000.                                                                                                                                                             
|        | 10 | .17(18)     |  | Amendment, dated October 17, 2000, to
    Retainer Agreement between Company and Regent Pacific Management
    Corporation, dated as of February 15, 2000.                                                                                                                 
|        | 10 | .18(21)     |  | Second Amendment, dated November 20, 2001,
    to Retainer Agreement between Auspex Systems, Inc. and Regent
    Pacific Management Corporation, dated as of February 15,
    2000, as amended on October 17, 2000.                                                        
|        | 10 | .19(1)(4)   |  | 401(k) Plan, as amended to date.                                                                                                                                                                                                                                           
|        | 10 | .20(1)(4)   |  | Summary of Executive Bonus Program.                                                                                                                                                                                                                                        
|        | 10 | .21(1)(4)   |  | Form of Directors and Officers
    Indemnification Agreement with all of its Directors and Officers.                                                                                                                                                                     
|        | 10 | .22(1)(8)   |  | OEM Agreement, dated March 9, 1993, between
    the Registrant and Fuji Xerox Company, Ltd.                                                                                                                                                                                
|        | 10 | .23(1)(8)   |  | Distributor Agreement, dated June 6, 1990,
    between the Registrant and Nissho Electronics Corporation.                                                                                                                                                                  
|        | 10 | .24(8)      |  | Distributor Agreement, dated June 6, 1990,
    between the Registrant and Nissho Electronics Corporation, as
    amended on July 29, 1997.                                                                                                                                 
|        | 10 | .25(18)     |  | Authorized Distributor Agreement, dated
    December 5, 2000, between Registrant and Bell
    Microproducts, Inc.                                                                                                                                                          
|        | 10 | .26(18)     |  | Authorized Reseller Agreement, dated
    December 29, 2000, effective December 27, 2000,
    between Registrant and Insight Direct USA, Inc.                                                                                                                               
|        | 10 | .27(1)      |  | U.S. OEM Discount Agreement between the
    Registrant and Sun Microsystems, Inc., effective as of
    August 18, 1988, as amended by Addendum dated
    September 8, 1988 and Addendum dated September 14,
    1989.                                                      
|        | 10 | .28(1)      |  | Source Code License between the Registrant and
    Sun Microsystems, Inc., dated August 31, 1988, as amended
    on April 30, 1991, February 11, 1992 and
    March 18, 1992.                                                                                              
|        | 10 | .29(1)      |  | NFS Software Agreement between the Registrant and
    Sun Microsystems, Inc., dated September 29, 1988.                                                                                                                                                                    
|        | 10 | .30(9)(10)  |  | Software Agreement between the Registrant and
    AT&T Information Systems Inc., dated June 2, 1988, as
    amended by Supplement Number 1, Supplement Number 2, dated
    August 5, 1988, and Supplement Number 3, dated
    August 10, 1990, as amended on June 28, 1993.
|        | 10 | .31(9)(10)  |  | Sublicensing Agreement between the Registrant and
    AT&T Information Systems Inc., dated August 30, 1988,
    as amended on June 28, 1993.                                                                                                                               
|        | 10 | .32(1)      |  | Software Agreement between the Registrant and
    UNIX System Laboratories, Inc., dated April 29, 1992.                                                                                                                                                                    
|        | 10 | .33(1)      |  | License Agreement with the Regents of the
    University of California, dated June 9, 1988, as amended by
    Addendum dated October 21, 1988.                                                                                                                             
|        | 10 | .34(11)(12) |  | Intel Corporation Purchase Agreement between
    Intel Corporation and the Registrant, dated March 22, 1994.                                                                                                                                                               
|        | 10 | .35(13)     |  | Warranty and Service Provider Agreement between
    the Registrant and AT&T Global Information Systems, dated
    April 15, 1994.                                                                                                                                          
|        | 10 | .36(13)     |  | SunSoft Technology License and Distribution
    Agreement between the Registrant and SunSoft, Inc., dated
    December 17, 1993.                                                                                                                                           
|        | 10 | .37(13)     |  | Amendment No. 2 to Lease Agreement between
    the Registrant and WHC-SIX Real Estate, dated February 28,
    1996.                                                                                                                                                        
|        | 10 | .38(13)     |  | Interactive SPARC Software and Sublicensing
    Agreement between Auspex Systems, Inc. and Interactive systems
    Corporation, dated November 15, 1991.                                                                                                                   

29



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                         
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .39(14)     |  | Lease Agreement by and Between South Bay/ San
    Tomas Associates and Auspex Systems, Inc., dated
    January 14, 1997, for 2800 Scott Boulevard, Santa Clara
    facility.                                                                                                                                                            
|        | 10 | .40(14)     |  | Lease Agreement by and Between South Bay/ San
    Tomas Associates and Auspex Systems, Inc., dated
    January 14, 1997, for 2300, 2320, 2330 Central Expressway,
    Santa Clara facility.                                                                                                                                             
|        | 10 | .41(15)     |  | Software Support Agreement between the Registrant
    and AT&T dated July 10, 1997.                                                                                                                                                                                                                                                     
|        | 10 | .42(15)     |  | Software Licensing Agreement between the
    Registrant and AT&T Corporation dated June 3, 1997, as
    amended on September 14, 1998.                                                                                                                                                                                                  
|        | 10 | .43(15)     |  | Source License Agreement between the Registrant
    and Programmed Logic Corp. Dated July 1, 1998; Bundled
    Hardware OEM Binary License Agreement between the Registrant and
    Programmed Logic Corp. dated July 1, 1998; Read-Only
    License Agreement between the Registrant and Programmed Logic
    Corp. dated July 1, 1998.
|        | 10 | .44(15)     |  | Master Value Added Distribution Agreement between
    the Registrant and Fuji Xerox Co. Ltd. Dated May 21, 1997.                                                                                                                                                                                                                        
|        | 10 | .45(19)     |  | Line of Credit Agreement, dated March 31,
    2001, between the Company and Wells Fargo Bank.                                                                                                                                                                                                                                           
|        | 10 | .46(20)     |  | Re-seller Agreement with Net Brains, Inc., dated
    September 9, 2001.                                                                                                                                                                                                                                                                 
|        | 10 | .47         |  | Re-seller Agreement, dated June 7, 2002,
    between the Company and Hitachi Data Systems, Asia Pacific.                                                                                                                                                                                                                                
|        | 21 | .1          |  | Subsidiaries of Registrant.                                                                                                                                                                                                                                                                                                             
|        | 23 | .1          |  | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                                                    
|        | 24 | .1          |  | Power of Attorney (See Page 32).                                                                                                                                                                                                                                                                                                        



---



|    |                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to exhibits filed in
    response to Item 16(a), Exhibits, of the
    Registrants Registration Statement on Form S-1, as
    amended (File No. 33-60052), which was declared effective
    on May 11, 1993.   
|   
|(2) | Incorporated by reference to Exhibit 1 filed
    in connection with the Registrants Form 8-A, which
    was filed on April 20, 1995.                                                                                                      
|   
|(3) | Incorporated by reference to exhibits filed in
    response to Item 7(c), Exhibits, of the
    Registrants Current Report on Form 8-K (File
    No. 0-21432), which was filed on January 19, 2000.                                      
|   
|(4) | Designates management contract or compensatory
    plan arrangements required to be filed as an exhibit of this
    Annual Report on Form 10-K pursuant to Item 15(c).                                                                     
|   
|(5) | Incorporated by reference to exhibits filed in
    connection with the Registrants Proxy Statement for the
    1999 Annual Meeting of Stockholders, which was filed on
    October 8, 1999.                                               
|   
|(6) | Incorporated by reference to exhibits filed in
    response to Item 6(a), Exhibits, filed in
    connection with Registrants Form 10-Q for the quarter
    ended March 31, 2000 (File No. 0-21432), which was
    filed on May 11, 2000.
|   
|(7) | Incorporated by reference to exhibits filed in
    response to Item 8, Exhibits, of the
    Registrants Registration Statement on Form S-8 (File
    No. 333-54900), which was filed February 2, 2001.                                  
|   
|(8) | Confidential treatment granted by order effective
    May 11, 1993.                                                                                                                                                                        
|   
|(9) | Incorporated by reference to identically numbered
    exhibits filed in connection with Registrants
    Form 10-K for the fiscal year ended June 25, 1993
    (File No. 33-60052).                                                        



|     |                                                                                                                                                                                                
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Confidential treatment granted by order effective
    January 14, 1994.                                                                                                                        
|    
|(11) | Incorporated by reference to Exhibit 10.1
    filed in connection with Registrants Form 10-Q for
    the quarter ended March 31, 1994 (File No. 0-21432),
    which was filed on May 16, 1994.
|    
|(12) | Confidential treatment granted by order effective
    July 7, 1994.                                                                                                                            

30



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##### Table of Contents





|     |                                                                                                                                                                                                                                                                                    
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(13) | Incorporated by reference to exhibits filed in
    connection with the Registrants Form 10-K for the
    fiscal year ended June 30, 1994 (File No. 0-21432),
    which was filed on September 28, 1994 and confidential
    treatment granted by order effective December 5, 1994.
|    
|(14) | Incorporated by reference to exhibits filed in
    connection with Registrants Form 10-K for the fiscal
    year ended June 30, 1997 (File No. 0-21432), which was
    filed on September 24, 1997.                                                                               
|    
|(15) | Incorporated by reference to exhibits filed in
    connection with Registrants Form 10-K for the fiscal
    year ended June 30, 1999 (File No. 0-21432), which was
    filed on September 27, 1999.                                                                               
|    
|(16) | Incorporated by reference to exhibits in
    connection with Registrants Form 10-Q for the quarter
    ended December 31, 1999, which was filed on
    February 10, 2000.                                                                                                         
|    
|(17) | Incorporated by reference to exhibits in
    connection with Registrants Form 10-Q for the quarter
    ended September 31, 2000 (File No. 0-21432), which was
    filed on November 14, 2000.                                                                                     
|    
|(18) | Incorporated by reference to exhibits in
    connection with Registrants Form 10-Q for the quarter
    ended December 31, 2000 (File No. 0-21432), which was
    filed on February 14, 2001.                                                                                      
|    
|(19) | Incorporated by reference to exhibits in
    connection with Registrants Form 10-Q for the quarter
    ended March 31, 2001 (File No. 0-21432), which was
    filed on May 15, 2001.                                                                                              
|    
|(20) | Incorporated by reference to exhibits in
    connection with Registrants Form 10-Q for the quarter
    ended September 31, 2001 (File No. 0-21432), which was
    filed on November 14, 2001.                                                                                     
|    
|(21) | Incorporated by reference to exhibits in
    connection with Registrants Form 10-Q for the quarter
    ended December 31, 2001 (File No. 0-21432), which was
    filed on February 14, 2002.                                                                                      




(b) Reports on Form 8-K:



| |                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Registrant filed a Current Report on
    Form 8-K, filed June 17, 2002, which reported under
    Item 4. Changes in Registrants Certifying
    Accountant.   
|
| | The Registrant filed a Current Report on
    Form 8-K/ A, filed June 21, 2002, which reported under
    Item 4. Changes in Registrants Certifying
    Accountant.
|
| | The Registrant filed a Current Report on
    Form 8-K, filed June 26, 2002, which reported under
    Item 4. Changes in Registrants Certifying
    Accountant.   

31



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##### Table of Contents






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 to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                     
| | --------------------
| | AUSPEX SYSTEMS, INC.



| |     |                  
| | --- | -----------------
| | By: | /s/ GARY J. SBONA

| |                        
| | -----------------------
| |                        
| | Gary J. Sbona          
| | Chief Executive Officer

Date: September 26, 2002




POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
Gary J. Sbona and Peter R. Simpson, jointly and
severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any
amendments to this Annual 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
these attorneys-in-fact, or his or her 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 has been signed below by the
following persons in the capacities and on the dates indicated.

|                                           |  |                                                                                        |  |                    |  | 
|------------------------------------------ |  | -------------------------------------------------------------------------------------- |  | ------------------ |  | 
|                                           |  |                                                                                        |  |                   
|Signature                                  |  | Title                                                                                  |  | Date              
|                                           |  |                                                                                        |  |                   
|                                          
|/s/ GARY J. SBONA(Gary J. Sbona)           |  | Chief Executive Officer
    and Director
    (Principal Executive Officer)             |  | September 26, 2002
|                                          
|/s/ PETER R. SIMPSON(Peter R. Simpson)     |  | Chief Financial Officer
    (Principal Financial and
    Principal Accounting Officer) |  | September 26, 2002
|                                          
|/s/ KARL C. POWELL(Karl C. Powell)         |  | Director                                                                               |  | September 26, 2002
|                                          
|/s/ JOHN E. MCNULTY(John E. McNulty)       |  | Director                                                                               |  | September 26, 2002
|                                          
|/s/ RICHARD E. CHAPMAN(Richard E. Chapman) |  | Director                                                                               |  | September 26, 2002

32



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##### Table of Contents






SEC FORM OF SECTION 302 CERTIFICATION FOR
REPORTS ON FORM 10-K

Certifications

I, Gary J. Sbona, certify that:



| |                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Auspex Systems, Inc.;                                                                                                                                                                                                                                                                        
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report; and
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report.                           



| |                        
| | -----------------------
| | /s/ GARY J. SBONA      
| |                        
| | Gary J. Sbona          
| | Chief Executive Officer

Date: September 26, 2002

33



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##### Table of Contents






SEC FORM OF SECTION 302 CERTIFICATION FOR
REPORTS ON FORM 10-K

Certifications

I, Peter R. Simpson, certify that:



| |                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Auspex Systems, Inc.;                                                                                                                                                                                                                                                                        
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report; and
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report.                           



| |                        
| | -----------------------
| | /s/ PETER R. SIMPSON   
| |                        
| | Peter R. Simpson       
| | Chief Financial Officer

Date: September 26, 2002

34



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##### Table of Contents






REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders

Auspex Systems, Inc.:


We have audited the accompanying consolidated
balance sheet of Auspex Systems, Inc. and subsidiaries as of
June 30, 2002, and the related consolidated statements of
operations, comprehensive income (loss), stockholders
equity and cash flows for the year then ended. In connection
with our audit of the consolidated financial statements, we have
also audited the related financial statement schedule listed in
Item 15(a)2. These consolidated financial statements and
the financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements and the
financial statement schedule based on our audits. The
accompanying consolidated balance sheet of Auspex Systems, Inc.
and subsidiaries as of June 30, 2001 and the related
consolidated statements of operations, comprehensive income
(loss), stockholders equity and cash flow and the
financial statement schedule for each of the years in the
two-year period ended June 30, 2001 were audited by other
auditors who have ceased operations. Those auditors expressed an
unqualified opinion on those consolidated financial statements
and financial statement schedules in their report dated
July 24, 2001.

We conducted our audit in accordance with
auditing standards generally accepted in the United States of
America. 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 consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Auspex Systems, Inc. and
subsidiaries as of June 30, 2002, and the results of their
operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion the related
financial statement schedule, when considered in relation to the
consolidated financial statements taken as a whole presents
fairly, in all material respects, the information set forth
therein.

The accompanying consolidated financial
statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered
recurring losses from operations and has an accumulated deficit
of $188.7 million as of June 30, 2002. These matters
raise substantial doubt about the Companys ability to
continue as a going concern. Managements plans in regard
to these matters are described in Note 1. The accompanying
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.



| |             
| | ------------
| | /s/ KPMG LLP

Mountain View, California

August 7, 2002


35



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##### Table of Contents



The Company is including in this Annual Report
on Form 10K, pursuant to guidance stated in SEC FRR 62, the
prior years Independent Public Accountants Opinion, from the
prior auditors Arthur Andersen, LLP. This report was previously
issued by Arthur Andersen, LLP, for filing with our form 10K,
for fiscal year ended 2001, and has not been reissued by Arthur
Andersen, LLP. This opinion refers to previous financial
statements, which are not included in this current filing
(balance sheet for the fiscal year ended 2000 and statements
referred to for fiscal year ended 1999.)




REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To Auspex Systems, Inc.:

We have audited the accompanying consolidated
balance sheets of Auspex Systems, Inc. (a Delaware corporation)
and subsidiaries as of June 30, 2001 and 2000, and the
related consolidated statements of operations, comprehensive
income (loss), stockholders equity and cash flows for each
of the three years in the period ended June 30, 2001. These
financial statements and the schedule referred to below are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
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 audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Auspex Systems, Inc. and
subsidiaries as of June 30, 2001 and 2000, and the results
of their operations and their cash flows for each of the three
years in the period ended June 30, 2001 in conformity with
accounting principles generally accepted in the United States.

Our audits were made for the purpose of forming
an opinion on the basic financial statements taken as a whole.
The schedule listed under Item 14(a)2 is presented for
purposes of complying with the Securities and Exchange
Commissions rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial
statements, and in our opinion, fairly states in all material
respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as
a whole.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

San Jose, California

July 24, 2001


36



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##### Table of Contents



AUSPEX SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                  |                                           |                          |         |          |        |          |         |         |        |  |         |         |         | 
|------------------------------------------------- | ----------------------------------------- | ------------------------ | ------- | -------- | ------ | -------- | ------- | ------- | ------ |  | ------- | ------- | ------- | 
|                                                  |                                           |                         
|                                                  |                                           | Years Ended             
|                                                  |                                           |                         
|                                                  |                                           | June 30,                 |         | June 30, |        | June 30,
|                                                  |                                           | 2002                     |         | 2001     |        | 2000    
|                                                  |                                           |                          |         |          |        |         
|                                                  |                                           |                         
|                                                  |                                           | (In thousands, except   
|                                                  |                                           | per share amounts)      
|Revenues                                          |                                           |                          |         |          |        |          |         |         |        |  |         |        
|                                                  | Product revenue                           |                          | $       | 10,698   |        |          | $       | 28,090  |        |  | $       | 54,607  |        
|                                                  | Service revenue                           |                          |         | 18,189   |        |          |         | 23,790  |        |  |         | 27,592  |        
|                                                  |                                           |                          |         |          |        |          |         |         |        |  |         |        
|                                                  |                                           | Total revenues           |         |          | 28,887 |          |         |         | 51,880 |  |         |         | 82,199  | 
|                                                  |                                           |                          |         |          |        |          |         |         |        |  |         |        
|Cost of Revenues                                  |                                           |                          |         |          |        |          |         |         |        |  |         |        
|                                                  | Cost of product revenue                   |                          |         | 12,565   |        |          |         | 19,406  |        |  |         | 37,657  |        
|                                                  | Cost of service revenue                   |                          |         | 15,456   |        |          |         | 19,872  |        |  |         | 25,805  |        
|                                                  |                                           |                          |         |          |        |          |         |         |        |  |         |        
|                                                  |                                           | Total cost of revenues   |         |          | 28,021 |          |         |         | 39,278 |  |         |         | 63,462  | 
|                                                  |                                           |                          |         |          |        |          |         |         |        |  |         |        
|                                                  | Gross margin                              |                          |         | 866      |        |          |         | 12,602  |        |  |         | 18,737  |        
|                                                  |                                           |                          |         |          |        |          |         |         |        |  |         |        
|Operating Expenses                                |                                           |                          |         |          |        |          |         |         |        |  |         |        
|                                                  | Marketing and sales                       |                          |         | 25,818   |        |          |         | 32,182  |        |  |         | 41,619  |        
|                                                  | Engineering and development               |                          |         | 15,053   |        |          |         | 19,255  |        |  |         | 30,616  |        
|                                                  | General and administrative                |                          |         | 8,122    |        |          |         | 8,926   |        |  |         | 10,184  |        
|                                                  | Restructuring and related charges         |                          |         | 6,402    |        |          |         |        |        |  |         | 17,642  |        
|                                                  |                                           |                          |         |          |        |          |         |         |        |  |         |        
|                                                  |                                           | Total operating expenses |         |          | 55,395 |          |         |         | 60,363 |  |         |         | 100,061 | 
|                                                  |                                           |                          |         |          |        |          |         |         |        |  |         |        
|Loss from operations                              |                                           |                          | (54,529 | )        |        |          | (47,761 | )       |        |  | (81,324 | )      
|                                                  |                                           |                          |         |          |        |          |         |         |        |  |         |        
|Other Income, Net                                 |                                           |                          |         |          |        |          |         |         |        |  |         |        
|                                                  | Interest income                           |                          |         | 1,888    |        |          |         | 4,359   |        |  |         | 1,708   |        
|                                                  | Interest expense                          |                          |         | (134     | )      |          |         | (169    | )      |  |         | (112    | )      
|                                                  | Other income (expense)                    |                          |         | (84      | )      |          |         | 175     |        |  |         | (335    | )      
|                                                  |                                           |                          |         |          |        |          |         |         |        |  |         |        
|                                                  |                                           | Total other income, net  |         |          | 1,670  |          |         |         | 4,365  |  |         |         | 1,261   | 
|                                                  |                                           |                          |         |          |        |          |         |         |        |  |         |        
|                                                  | Loss before provision for income taxes    |                          |         | (52,859  | )      |          |         | (43,396 | )      |  |         | (80,063 | )      
|Provision for (benefit from) income taxes         |                                           |                          | (2,851  | )        |        |          | 895     |         |        |  | 697     |        
|                                                  |                                           |                          |         |          |        |          |         |         |        |  |         |        
|Net loss                                          |                                           |                          | (50,008 | )        |        |          | (44,291 | )       |        |  | (80,760 | )      
|                                                  |                                           |                          |         |          |        |          |         |         |        |  |         |        
|Accretion and dividends to preferred stockholders |                                           |                          |        |          |        |          | 5,174   |         |        |  | 2,350   |        
|                                                  | Net loss available to common stockholders |                          | $       | (50,008  | )      |          | $       | (49,465 | )      |  | $       | (83,110 | )      
|                                                  |                                           |                          |         |          |        |          |         |         |        |  |         |        
|Net loss per share                                |                                           |                          |         |          |        |          |         |         |        |  |         |        
|                                                  | Basic and Diluted                         |                          | $       | (1.10    | )      |          | $       | (1.18   | )      |  | $       | (2.95   | )      
|                                                  |                                           |                          |         |          |        |          |         |         |        |  |         |        
|Number of shares used in per share computations   |                                           |                          |         |          |        |          |         |         |        |  |         |        
|                                                  | Basic and Diluted                         |                          |         | 45,496   |        |          |         | 41,872  |        |  |         | 28,126  |        
|                                                  |                                           |                          |         |          |        |          |         |         |        |  |         |        

The accompanying notes are an integral part of
these consolidated financial statements.

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AUSPEX SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)

|                                   |                                                                           |                |         |          |   |          |         |     |  |   |         |     | 
|---------------------------------- | ------------------------------------------------------------------------- | -------------- | ------- | -------- | - | -------- | ------- | --- |  | - | ------- | --- | 
|                                   |                                                                           |               
|                                   |                                                                           | Years Ended   
|                                   |                                                                           |               
|                                   |                                                                           | June 30,       |         | June 30, |   | June 30,
|                                   |                                                                           | 2002           |         | 2001     |   | 2000    
|                                   |                                                                           |                |         |          |   |         
|                                   |                                                                           |               
|                                   |                                                                           | (In thousands)
|Net loss                           |                                                                           | $              | (50,008 | )        |   | $        | (44,291 | )   |  | $ | (80,760 | )  
|Other comprehensive income (loss): |                                                                           |                |         |          |   |          |         |     |  |   |         |    
|                                   | Unrealized holding gains on available-for-sale
    securities, net of tax |                |         | 78       |   |          |         | 70  |  |   |         | 32  | 
|                                   | Foreign currency translation adjustment, net of
    tax                   |                |         | (678     | ) |          |         | 120 |  |   |         | 254 | 
|                                   |                                                                           |                |         |          |   |          |         |     |  |   |         |    
|Comprehensive loss                 |                                                                           | $              | (50,608 | )        |   | $        | (44,101 | )   |  | $ | (80,474 | )  
|                                   |                                                                           |                |         |          |   |          |         |     |  |   |         |    

The accompanying notes are an integral part of
these consolidated financial statements.

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##### Table of Contents



AUSPEX SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

|                                         |                                                                                                                                              |                                   |        |          |        |   |         |          |        | 
|---------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ------ | -------- | ------ | - | ------- | -------- | ------ | 
|                                         |                                                                                                                                              | June 30,                          |        | June 30,
|                                         |                                                                                                                                              | 2002                              |        | 2001    
|                                         |                                                                                                                                              |                                   |        |         
|                                         |                                                                                                                                              |                                  
|                                         |                                                                                                                                              | (In thousands, except            
|                                         |                                                                                                                                              | share and per share              
|                                         |                                                                                                                                              | amounts)                         
|ASSETS                                  
|Current Assets                           |                                                                                                                                              |                                   |        |          |        |   |         |         
|                                         | Cash and cash equivalents                                                                                                                    |                                   | $      | 9,240    |        |   | $       | 30,499   |       
|                                         | Short-term investments                                                                                                                       |                                   |        | 20,301   |        |   |         | 49,294   |       
|                                         | Accounts receivable, net of allowances of $1,294
    and $1,830, respectively                                                                |                                   |        | 4,292    |        |   |         | 6,404    |       
|                                         | Inventories                                                                                                                                  |                                   |        | 2,714    |        |   |         | 2,667    |       
|                                         | Prepaid expenses and other current assets                                                                                                    |                                   |        | 3,006    |        |   |         | 3,130    |       
|                                         |                                                                                                                                              |                                   |        |          |        |   |         |         
|                                         |                                                                                                                                              | Total current assets              |        |          | 39,553 |   |         |          | 91,994 | 
|                                         |                                                                                                                                              |                                   |        |          |        |   |         |         
|Property and Equipment                   |                                                                                                                                              |                                   |        |          |        |   |         |         
|                                         | Computer and manufacturing equipment                                                                                                         |                                   |        | 19,632   |        |   |         | 30,138   |       
|                                         | System spares                                                                                                                                |                                   |        | 9,854    |        |   |         | 18,473   |       
|                                         | Furniture and fixtures                                                                                                                       |                                   |        | 998      |        |   |         | 1,208    |       
|                                         | Leasehold improvements                                                                                                                       |                                   |        | 5,625    |        |   |         | 5,900    |       
|                                         |                                                                                                                                              |                                   |        |          |        |   |         |         
|                                         |                                                                                                                                              |                                   | 36,109 |          |        |   | 55,719  |         
|                                         | Less  accumulated depreciation and
    amortization                                                                                         |                                   |        | (27,339  | )      |   |         | (42,777  | )     
|                                         |                                                                                                                                              |                                   |        |          |        |   |         |         
|                                         |                                                                                                                                              | Total property and equipment, net |        |          | 8,770  |   |         |          | 12,942 | 
|                                         |                                                                                                                                              |                                   |        |          |        |   |         |         
|Other Assets                             |                                                                                                                                              |                                   | 387    |          |        |   | 123     |         
|                                         |                                                                                                                                              |                                   |        |          |        |   |         |         
|                                         |                                                                                                                                              | $                                 | 48,710 |          |        | $ | 105,059 |         
|                                         |                                                                                                                                              |                                   |        |          |        |   |         |         
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current Liabilities                      |                                                                                                                                              |                                   |        |          |        |   |         |         
|                                         | Accounts payable                                                                                                                             |                                   | $      | 5,364    |        |   | $       | 8,685    |       
|                                         | Accrued liabilities                                                                                                                          |                                   |        | 11,502   |        |   |         | 13,412   |       
|                                         | Deferred revenue                                                                                                                             |                                   |        | 5,130    |        |   |         | 7,838    |       
|                                         |                                                                                                                                              |                                   |        |          |        |   |         |         
|                                         |                                                                                                                                              | Total current liabilities         |        |          | 21,996 |   |         |          | 29,935 | 
|                                         |                                                                                                                                              |                                   |        |          |        |   |         |         
|Long-Term Liabilities                    |                                                                                                                                              |                                   |        |          |        |   |         |         
|                                         | Accrued Liabilities                                                                                                                          |                                   |        | 862      |        |   |         |         |       
|                                         | Deferred revenue                                                                                                                             |                                   |        | 122      |        |   |         | 279      |       
|                                         |                                                                                                                                              |                                   |        |          |        |   |         |         
|                                         |                                                                                                                                              | Total liabilities                 |        |          | 22,980 |   |         |          | 30,214 | 
|                                         |                                                                                                                                              |                                   |        |          |        |   |         |         
|Stockholders Equity                     |                                                                                                                                              |                                   |        |          |        |   |         |         
|                                         | Preferred stock, $.001 par value 
    5,000,000 shares authorized; no shares issued and outstanding                                         |                                   |        |         |        |   |         |         |       
|                                         | Common stock, $.001 par value 
    120,000,000 shares authorized; 45,608,836 and 45,192,119 shares
    issued and outstanding, respectively |                                   |        | 46       |        |   |         | 45       |       
|                                         | Additional paid-in capital                                                                                                                   |                                   |        | 215,144  |        |   |         | 213,652  |       
|                                         | Accumulated deficit                                                                                                                          |                                   |        | (188,701 | )      |   |         | (138,693 | )     
|                                         | Unrealized gain from available-for-sale securities                                                                                           |                                   |        | 137      |        |   |         | 59       |       
|                                         | Cumulative translation adjustment                                                                                                            |                                   |        | (896     | )      |   |         | (218     | )     
|                                         |                                                                                                                                              |                                   |        |          |        |   |         |         
|                                         |                                                                                                                                              | Total stockholders equity        |        |          | 25,730 |   |         |          | 74,845 | 
|                                         |                                                                                                                                              |                                   |        |          |        |   |         |         
|                                         |                                                                                                                                              | $                                 | 48,710 |          |        | $ | 105,059 |         
|                                         |                                                                                                                                              |                                   |        |          |        |   |         |         

The accompanying notes are an integral part of
these consolidated financial statements.

39



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##### Table of Contents



AUSPEX SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

FOR THE THREE YEARS ENDED JUNE 30,
2002


|                                                   |  |                                      |            |                 |  |            |    |             |  |            |         |             |  |             |   |            |  |       |         |   |  |   |          |   |  |   |     |   |  |   |      |   |  |   |         |  
|-------------------------------------------------- |  | ------------------------------------ | ---------- | --------------- |  | ---------- | -- | ----------- |  | ---------- | ------- | ----------- |  | ----------- | - | ---------- |  | ----- | ------- | - |  | - | -------- | - |  | - | --- | - |  | - | ---- | - |  | - | ------- | -
|                                                   |  |                                      |            |                 |  |            |    |             |  |            |         |             |  | Unrealized  |   |            |  |      
|                                                   |  |                                      |            |                 |  |            |    |             |  |            |         |             |  | Gain (Loss) |   |            |  |      
|                                                   |  |                                      |            |                 |  |            |    |             |  | From       |         |             |  |            
|                                                   |  | Common Stock                         |            | Preferred Stock |  | Additional |    |             |  | Available- |         | Cumulative  |  |            
|                                                   |  |                                      |            |                 |  | Paid-in    |    | Accumulated |  | For-Sale   |         | Translation |  |            
|                                                   |  | Shares                               |            | Amount          |  | Shares     |    | Amount      |  | Capital    |         | Deficit     |  | Securities  |   | Adjustment |  | Total
|                                                   |  |                                      |            |                 |  |            |    |             |  |            |         |             |  |             |   |            |  |      
|                                                   |  |                                     
|                                                   |  | (In thousands, except share amounts)
|BALANCE, JUNE 30, 1999                             |  |                                      | 26,734,762 |                 |  | $          | 27 |             |  |            |        |             |  | $           |  |            |  | $     | 85,903  |   |  | $ | (6,118   | ) |  | $ | (43 | ) |  | $ | (592 | ) |  | $ | 79,177  |  
|Issuance of common stock to employees              |  |                                      | 2,104,725  |                 |  |            | 2  |             |  |            |        |             |  |             |  |            |  |       | 7,096   |   |  |   |         |   |  |   |    |   |  |   |     |   |  |   | 7,098   |  
|Issuance of preferred stock                        |  |                                      |           |                 |  |            |   |             |  |            | 25,000  |             |  |             |  |            |  |       | 24,843  |   |  |   |         |   |  |   |    |   |  |   |     |   |  |   | 24,843  |  
|Conversion of preferred stock into common stock    |  |                                      | 998,299    |                 |  |            | 1  |             |  |            | (6,250  | )           |  |             |  |            |  |       | (1      | ) |  |   |         |   |  |   |    |   |  |   |     |   |  |   |        |  
|Issuance of common stock dividends                 |  |                                      | 103,018    |                 |  |            |   |             |  |            |        |             |  |             |  |            |  |       | 698     |   |  |   | (698     | ) |  |   |    |   |  |   |     |   |  |   |        |  
|Accretion of fair value of warrants                |  |                                      |           |                 |  |            |   |             |  |            |        |             |  |             |  |            |  |       | 1,109   |   |  |   | (1,109   | ) |  |   |    |   |  |   |     |   |  |   |        |  
|Accretion of preferred stock discount              |  |                                      |           |                 |  |            |   |             |  |            |        |             |  |             |  |            |  |       | 543     |   |  |   | (543     | ) |  |   |    |   |  |   |     |   |  |   |        |  
|Unrealized gain on available-for-sale securities   |  |                                      |           |                 |  |            |   |             |  |            |        |             |  |             |  |            |  |       |        |   |  |   |         |   |  |   | 32  |   |  |   |     |   |  |   | 32      |  
|Translation adjustment                             |  |                                      |           |                 |  |            |   |             |  |            |        |             |  |             |  |            |  |       |        |   |  |   |         |   |  |   |    |   |  |   | 254  |   |  |   | 254     |  
|Net loss                                           |  |                                      |           |                 |  |            |   |             |  |            |        |             |  |             |  |            |  |       |        |   |  |   | (80,760  | ) |  |   |    |   |  |   |     |   |  |   | (80,760 | )
|                                                   |  |                                      |            |                 |  |            |    |             |  |            |         |             |  |             |   |            |  |       |         |   |  |   |          |   |  |   |     |   |  |   |      |   |  |   |         |  
|BALANCE, JUNE 30, 2000                             |  |                                      | 29,940,804 |                 |  |            | 30 |             |  |            | 18,750  |             |  |             |  |            |  |       | 120,191 |   |  |   | (89,228  | ) |  |   | (11 | ) |  |   | (338 | ) |  |   | 30,644  |  
|Issuance of common stock to employees              |  |                                      | 535,581    |                 |  |            | 1  |             |  |            |        |             |  |             |  |            |  |       | 2,576   |   |  |   |         |   |  |   |    |   |  |   |     |   |  |   | 2,577   |  
|Issuance of common stock through private placement |  |                                      | 11,320,953 |                 |  |            | 11 |             |  |            |        |             |  |             |  |            |  |       | 85,534  |   |  |   |         |   |  |   |    |   |  |   |     |   |  |   | 85,534  |  
|Conversion of preferred stock into common stock    |  |                                      | 3,360,588  |                 |  |            | 3  |             |  |            | (18,750 | )           |  |             |  |            |  |       | (3      | ) |  |   |         |   |  |   |    |   |  |   |     |   |  |   |        |  
|Issuance of common stock dividends                 |  |                                      | 34,193     |                 |  |            |   |             |  |            |        |             |  |             |  |            |  |       | 216     |   |  |   | (216     | ) |  |   |    |   |  |   |     |   |  |   |        |  
|Accretion of fair value of warrants                |  |                                      |           |                 |  |            |   |             |  |            |        |             |  |             |  |            |  |       | 3,331   |   |  |   | (3,331   | ) |  |   |    |   |  |   |     |   |  |   |        |  
|Accretion of preferred stock discount              |  |                                      |           |                 |  |            |   |             |  |            |        |             |  |             |  |            |  |       | 1,627   |   |  |   | (1,627   | ) |  |   |    |   |  |   |     |   |  |   |        |  
|Issuance of warrants for consulting services       |  |                                      |           |                 |  |            |   |             |  |            |        |             |  |             |  |            |  |       | 180     |   |  |   |         |   |  |   |    |   |  |   |     |   |  |   | 180     |  
|Unrealized gain on available-for-sale securities   |  |                                      |           |                 |  |            |   |             |  |            |        |             |  |             |  |            |  |       |        |   |  |   |         |   |  |   | 70  |   |  |   |     |   |  |   | 70      |  
|Translation adjustment                             |  |                                      |           |                 |  |            |   |             |  |            |        |             |  |             |  |            |  |       |        |   |  |   |         |   |  |   |    |   |  |   | 120  |   |  |   | 120     |  
|Net loss                                           |  |                                      |           |                 |  |            |   |             |  |            |        |             |  |             |  |            |  |       |        |   |  |   | (44,291  | ) |  |   |    |   |  |   |     |   |  |   | (44,291 | )
|                                                   |  |                                      |            |                 |  |            |    |             |  |            |         |             |  |             |   |            |  |       |         |   |  |   |          |   |  |   |     |   |  |   |      |   |  |   |         |  
|BALANCE, JUNE 30, 2001                             |  |                                      | 45,192,119 |                 |  |            | 45 |             |  |            |        |             |  |             |  |            |  |       | 213,652 |   |  |   | (138,693 | ) |  |   | 59  |   |  |   | (218 | ) |  |   | 74,845  |  
|Issuance of common stock to employees              |  |                                      | 416,717    |                 |  |            | 1  |             |  |            |        |             |  |             |  |            |  |       | 1,410   |   |  |   |         |   |  |   |    |   |  |   |     |   |  |   | 1,411   |  
|Issuance of stock options for consulting services  |  |                                      |           |                 |  |            |   |             |  |            |        |             |  |             |  |            |  |       | 82      |   |  |   |         |   |  |   |    |   |  |   |     |   |  |   | 82      |  
|Unrealized gain on available-for-sale securities   |  |                                      |           |                 |  |            |   |             |  |            |        |             |  |             |  |            |  |       |        |   |  |   |         |   |  |   | 78  |   |  |   |     |   |  |   | 78      |  
|Translation adjustment                             |  |                                      |           |                 |  |            |   |             |  |            |        |             |  |             |  |            |  |       |        |   |  |   |         |   |  |   |    |   |  |   | (678 | ) |  |   | (678    | )
|Net loss                                           |  |                                      |           |                 |  |            |   |             |  |            |        |             |  |             |  |            |  |       |        |   |  |   | (50,008  | ) |  |   |    |   |  |   |     |   |  |   | (50,008 | )
|                                                   |  |                                      |            |                 |  |            |    |             |  |            |         |             |  |             |   |            |  |       |         |   |  |   |          |   |  |   |     |   |  |   |      |   |  |   |         |  
|BALANCE, JUNE 30, 2002                             |  |                                      | 45,608,836 |                 |  | $          | 46 |             |  |            |        |             |  | $           |  |            |  | $     | 215,144 |   |  | $ | (188,701 | ) |  | $ | 137 |   |  | $ | (896 | ) |  | $ | 25,730  |  
|                                                   |  |                                      |            |                 |  |            |    |             |  |            |         |             |  |             |   |            |  |       |         |   |  |   |          |   |  |   |     |   |  |   |      |   |  |   |         |  

The accompanying notes are an integral part of
these consolidated financial statements.

40



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##### Table of Contents



AUSPEX SYSTEMS, INC.






CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                         |                                                                                 |                                                                  |                                           |          |         |          |        |         |         |        |        |         |         |        |  
|-------------------------------------------------------- | ------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------------- | -------- | ------- | -------- | ------ | ------- | ------- | ------ | ------ | ------- | ------- | ------ | -
|                                                         |                                                                                 |                                                                 
|                                                         |                                                                                 | Years Ended                                                     
|                                                         |                                                                                 |                                                                 
|                                                         |                                                                                 | June 30,                                                         |                                           | June 30, |         | June 30,
|                                                         |                                                                                 | 2002                                                             |                                           | 2001     |         | 2000    
|                                                         |                                                                                 |                                                                  |                                           |          |         |         
|                                                         |                                                                                 |                                                                 
|                                                         |                                                                                 | (In thousands)                                                  
|Cash Flows from Operating Activities                     |                                                                                 |                                                                  |                                           |          |         |          |        |         |         |        |        |        
|                                                         | Net loss                                                                        |                                                                  | $                                         | (50,008  | )       |          | $      | (44,291 | )       |        | $      | (80,760 | )      
|                                                         | Adjustments to reconcile net loss to net cash
    used in operating activities  |                                                                  |                                           |          |         |          |        |         |         |        |        |         |        
|                                                         |                                                                                 | Depreciation and amortization                                    |                                           |          | 6,450   |          |        |         | 7,068   |        |        |         | 9,081   |       
|                                                         |                                                                                 | Restructuring and related charges, net of tax                    |                                           |          | 6,402   |          |        |         |        |        |        |         | 17,642  |       
|                                                         |                                                                                 | Provision to inventory reserves                                  |                                           |          | 2,403   |          |        |         | 2,733   |        |        |         | 8,602   |       
|                                                         |                                                                                 | Non-cash consulting expense                                      |                                           |          | 82      |          |        |         | 180     |        |        |         |        |       
|                                                         |                                                                                 | Changes in assets and liabilities:                               |                                           |          |         |          |        |         |         |        |        |         |         |       
|                                                         |                                                                                 |                                                                  | Accounts receivable                       |          |         | 2,112    |        |         |         | 324    |        |         |         | 13,646 |  
|                                                         |                                                                                 |                                                                  | Inventories                               |          |         | (3,576   | )      |         |         | (1,455 | )      |         |         | (4,851 | )
|                                                         |                                                                                 |                                                                  | Income tax receivable                     |          |         |         |        |         |         |       |        |         |         | 4,865  |  
|                                                         |                                                                                 |                                                                  | Prepaid expenses and other current assets |          |         | 124      |        |         |         | 985    |        |         |         | 939    |  
|                                                         |                                                                                 |                                                                  | Accounts payable                          |          |         | (3,321   | )      |         |         | 632    |        |         |         | (5,263 | )
|                                                         |                                                                                 |                                                                  | Accrued liabilities                       |          |         | (6,291   | )      |         |         | (1,028 | )      |         |         | (5,735 | )
|                                                         |                                                                                 |                                                                  | Deferred revenue                          |          |         | (2,865   | )      |         |         | (744   | )      |         |         | (1,719 | )
|                                                         |                                                                                 |                                                                  |                                           |          |         |          |        |         |         |        |        |        
|                                                         |                                                                                 | Net cash used in operating activities                            |                                           |          | (48,488 | )        |        |         | (35,596 | )      |        |         | (43,553 | )     
|                                                         |                                                                                 |                                                                  |                                           |          |         |          |        |         |         |        |        |        
|Cash Flows from Investing Activities                     |                                                                                 |                                                                  |                                           |          |         |          |        |         |         |        |        |        
|                                                         | Purchases of available-for-sale short-term
    investments                      |                                                                  |                                           | (14,147  | )       |          |        | (61,567 | )       |        |        | (4,791  | )      
|                                                         | Proceeds from sales/maturities of
    available-for-sale short-term investments |                                                                  |                                           | 43,218   |         |          |        | 18,014  |         |        |        | 15,197  |        
|                                                         | Purchase of property and equipment                                              |                                                                  |                                           | (2,311   | )       |          |        | (3,801  | )       |        |        | (2,682  | )      
|                                                         | Change in other assets                                                          |                                                                  |                                           | (264     | )       |          |        | 1,592   |         |        |        | 657     |        
|                                                         |                                                                                 |                                                                  |                                           |          |         |          |        |         |         |        |        |        
|                                                         |                                                                                 | Net cash (used in) provided by investing
    activities          |                                           |          | 26,496  |          |        |         | (45,762 | )      |        |         | 8,381   |       
|                                                         |                                                                                 |                                                                  |                                           |          |         |          |        |         |         |        |        |        
|Cash Flows from Financing Activities                     |                                                                                 |                                                                  |                                           |          |         |          |        |         |         |        |        |        
|                                                         |                                                                                 | Proceeds from sale of common stock to employees                  |                                           |          | 1,411   |          |        |         | 2,577   |        |        |         | 7,098   |       
|                                                         |                                                                                 | Proceeds from sale of common stock through
    private placement |                                           |          |        |          |        |         | 85,545  |        |        |         |        |       
|                                                         |                                                                                 | Proceeds from sale of preferred stock                            |                                           |          |        |          |        |         |        |        |        |         | 24,843  |       
|                                                         |                                                                                 |                                                                  |                                           |          |         |          |        |         |         |        |        |        
|                                                         |                                                                                 |                                                                  | Net cash provided by financing activities |          |         | 1,411    |        |         |         | 88,122 |        |         |         | 31,941 |  
|                                                         |                                                                                 |                                                                  |                                           |          |         |          |        |         |         |        |        |        
|Effect of Exchange Rate Changes on Cash                  |                                                                                 |                                                                  | (678                                      | )        |         |          | 120    |         |         |        | 254    |        
|                                                         |                                                                                 |                                                                  |                                           |          |         |          |        |         |         |        |        |        
|Net Increase (Decrease) in Cash and Cash
    Equivalents |                                                                                 |                                                                  | (21,259                                   | )        |         |          | 6,884  |         |         |        | (2,977 | )      
|Cash and Cash Equivalents, Beginning of Year             |                                                                                 |                                                                  | 30,499                                    |          |         |          | 23,615 |         |         |        | 26,592 |        
|                                                         |                                                                                 |                                                                  |                                           |          |         |          |        |         |         |        |        |        
|Cash and Cash Equivalents, End of Year                   |                                                                                 | $                                                                | 9,240                                     |          |         | $        | 30,499 |         |         | $      | 23,615 |        
|                                                         |                                                                                 |                                                                  |                                           |          |         |          |        |         |         |        |        |        

The accompanying notes are an integral part of
these consolidated financial statements.

41



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##### Table of Contents



AUSPEX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

June 30, 2002


1.     Organization
and Basis for Presentation

Auspex Systems, Inc. (the Company)
was incorporated in 1987 in California and reincorporated in
Delaware in 1991. The Company develops, manufactures, markets,
sells and supports a line of high-performance UNIX/ Windows NT
multi-protocol network file/data servers for the technical
workstation market. The Companys markets are principally
in North America, Pacific Rim and Europe and include customers
in the technical and commercial computing market. See
Note 10 for information on revenues and long-lived assets
by geographic area.

Prior to the first quarter of fiscal year 2000,
the Companys fiscal year ended on the last day of the
quarter within the year ended June 30. Beginning fiscal
year 2000, the Company is operating and reporting on a
52-53 week fiscal year. Accordingly, the Companys
fiscal year 2000 ended on July 1, 2000, fiscal year 2001
ended on June 30, 2001, and fiscal year 2002 ended on
June 29, 2002. The Companys fiscal quarters end on
the Saturday of the thirteenth week of the quarter. For
presentation purposes, the financial statements reflect the
calendar month-end date. The change in reporting periods did not
have a material effect on the accompanying consolidated
financial statements.

The accompanying consolidated financial
statements have been prepared on a going concern basis, which
contemplates continuity of operations, realization of assets,
and liquidation of liabilities and commitments in the normal
course of business. The Company has incurred significant losses,
including a net loss of $50.0 million for the twelve-month
period ended June 30, 2002. As of June 30, 2002, the
Company had an accumulated deficit of $188.7 million. These
matters raise substantial doubt about the Companys ability
to continue as a going concern. As of August 24, 2002, the
Company has cash, cash equivalents and short-term investment
balances of approximately $20.8 million. Management is
currently pursuing opportunities to substantially increase
revenue in the near future. There can be no assurance that these
efforts will be successful. The accompanying consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

2.     Summary of
Significant Accounting Policies

Principles of
Consolidation.The consolidated
financial statements include the accounts of the Company and its
wholly owned subsidiaries after elimination of intercompany
accounts and transactions.

Estimates in the Preparation of Consolidated
Financial Statements.The preparation
of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities
at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Foreign Currency
Translations.The functional currency
of the Companys foreign subsidiaries is the local
currency. Accordingly, gains and losses resulting from the
translation of the subsidiaries financial statements are
reported as a separate component of stockholders equity.

Revenue Recognition.The Company generally recognizes revenue on system sales to end
users upon shipment. Revenues from upgrade sales are generally
recognized at the time the equipment is shipped. Provisions for
product sales returns and allowances are recorded in the same
period as the related revenue.

The Company sells its products to end users
through its direct sales force, as well as through distributors
and resellers. Typically, the Companys arrangements with
distributors contain provisions for price protection and stock
rotation allowances. The Company recognizes revenue on sales to
distributors in accordance with the provisions set forth by
Financial Accounting Standards Board (FASB)
No. 48, Revenue Recognition When Right of Return
Exists, provided that the requirements of Statement of
Position (SOP) No. 97-2

42



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##### Table of Contents



AUSPEX SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

have also been met. In accordance with FASB
No. 48, the Company recognizes revenue upon shipment to
distributors provided that a) the price is substantially fixed
and determinable at the time of sale; b) the distributors
obligation to pay the Company is not contingent upon resale of
the products; c) title and risk of loss passes to the
distributor at time of shipment; d) distributor has
economic substance apart from that provided by the Company;
e) the Company has no significant obligation to the
distributor to bring about resale of the products; and
f) future returns can be reasonably estimated.

The Company records a provision for returns and
adjustments based on anticipated adjustments or returns from
distributors. Revenue recognized is recorded net of this
provision.

The Company applies the provisions of SOP
No. 97-2 Software Revenue Recognition, as
amended by SOP No. 98-9, Modification of SOP
No. 97-2, Software Revenue Recognition, With Respect to
Certain Transactions. Accordingly, revenue from product
sales is recognized upon shipment, provided that a purchase
order has been received or a contract has been executed, there
are no uncertainties regarding customer acceptance, the fee is
fixed and determinable and collectibility is deemed probable.
The Companys typical sales contracts do not include
customer acceptance clauses; however, if uncertainties regarding
customer acceptance exist, revenue is recognized when such
uncertainties are resolved.

When contracts contain multiple elements wherein
vendor specific objective evidence exists for all undelivered
elements, the Company accounts for the undelivered elements in
accordance with the Separate Element Method
prescribed by SOP No. 98-9. Post-contract customer support
(PCS) services to date have consisted of fees for
providing periodic minor software maintenance releases and
technical support for the Companys products. For
undelivered PCS, vendor-specific objective evidence is
determined by reference to the price of the PCS customers are
required to pay when the PCS is sold separately. PCS revenue is
initially recorded as deferred revenue and revenue is recognized
ratably over the term of the relevant agreement.

Certain sales transactions may include discounts
from the normal published list price. Revenue recognized on such
sales transactions are recorded net of the discounts. Typical
payment terms for sales transactions is 30 days.

Service revenue includes installation,
maintenance and training, and is recognized ratably over the
contractual period or as the services are provided.

Installation services typically include
pre-installation planning, pre-installation site survey,
physical installation of the systems, and basic system
implementation. Almost all system sales to end users includes
these basic installation services but historically there are no
installation services provided on sales to distributors (the
distributor performs the installation services). The basic
installation services do not in any way change the functionality
of the systems at the customer site. The Companys sales
cycle is typically several months, and during that time the
Companys sales and service professionals participate in
extensive pre-sales activities to identify and define specific
customer requirements and configurations. As such, the Company
believes that once configured and tested at the Companys
factory, the Companys systems and software conform to
customer specifications prior to delivery at the customers
site. Since installation services do not typically require
significant customization or modification at the customers
site, the Company does not consider installation services to be
a significant obligation at the time of shipment of the systems.

Should the customer require additional services
such as data migration, on-site system administration training,
special testing, file system layout, planning and execution,
these services are sold separately. The Company evaluates the
impact of additional service requirements on revenue recognition
on a case-by-case basis. If the Company determines that such
additional services are changing the functionality of the
systems or involve modification/customization of the products,
the Company defers the system and software revenue until such
services have been performed.

43



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AUSPEX SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Income Taxes.Income
taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax basis and operating loss
and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. A valuation
allowance is recorded to reduce deferred tax assets to an amount
whose realization is more likely than not. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.

Cash, Cash Equivalents and Short-Term
Investments.For purposes of the
statement of cash flows, all cash equivalents consist of
investments in money market deposits, commercial paper, and US
Agency bonds with original maturities of three months or less.
Substantially all short-term investments consist of corporate
bonds, commercial paper, certificate of deposits, and
US Agency bonds, which the Company intends to hold between
three and twelve months.

The Company classifies its investments in debt
and equity securities as available-for-sale in accordance with
Statement of Financial Accounting Standards (SFAS)
No. 115, Accounting for Certain Investments in Debt
and Equity Securities. Securities classified as
available-for-sale are reported at fair market value with the
related unrealized gains and losses, reported as a separate
component of stockholders equity. Realized gains and
losses and declines in value judged to be other than temporary
are included in other income, net in the consolidated statements
of operations.

At June 30, 2002, the Companys
available-for-sale securities had contractual maturities that
expire at various dates through May 2003. The fair value of
available-for-sale securities was determined based on quoted
market prices at the reporting date for those securities.

44



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AUSPEX SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At June 30, 2002 and 2001, the amortized
cost basis, aggregate fair value and gross unrealized holding
gains (losses) by major security type are as follows (in
thousands):

|                              |                         |                                |   |            |        |                |   |        |        |  |   |    |     | 
|----------------------------- | ----------------------- | ------------------------------ | - | ---------- | ------ | -------------- | - | ------ | ------ |  | - | -- | --- | 
|                              |                         | Amortized                      |   | Aggregate  |        | Unrealized    
|                              |                         | Cost                           |   | Fair Value |        | Gains (Losses)
|                              |                         |                                |   |            |        |               
|June 30, 2002                 |                         |                                |   |            |        |                |   |        |        |  |   |   
|Available-for-Sale Securities |                         |                                |   |            |        |                |   |        |        |  |   |   
|                              | Corporate Bonds         |                                | $ | 10,080     |        |                | $ | 10,176 |        |  | $ | 96 |    
|                              | Re-purchase Agreements  |                                |   | 5,090      |        |                |   | 5,090  |        |  |   |   |    
|                              | US Agency (Govt)       |                                |   | 7,059      |        |                |   | 7,098  |        |  |   | 39 |    
|                              | Commercial Paper        |                                |   | 3,025      |        |                |   | 3,027  |        |  |   | 2  |    
|                              | Municipals              |                                |   | 1,000      |        |                |   | 1,000  |        |  |   |   |    
|                              | Money Market            |                                |   | 140        |        |                |   | 140    |        |  |   |   |    
|                              |                         |                                |   |            |        |                |   |        |        |  |   |   
|                              |                         | Total Investment in Securities |   | $          | 26,394 |                |   | $      | 26,531 |  |   | $  | 137 | 
|                              |                         |                                |   |            |        |                |   |        |        |  |   |   
|June 30, 2001                 |                         |                                |   |            |        |                |   |        |        |  |   |   
|Available-for-Sale Securities |                         |                                |   |            |        |                |   |        |        |  |   |   
|                              | US Agency (Govt)       |                                | $ | 17,520     |        |                | $ | 17,554 |        |  | $ | 34 |    
|                              | Auction Rate Securities |                                |   | 7,300      |        |                |   | 7,300  |        |  |   |   |    
|                              | Corporate Bonds         |                                |   | 22,336     |        |                |   | 22,348 |        |  |   | 12 |    
|                              | Money Market            |                                |   | 5,951      |        |                |   | 5,951  |        |  |   |   |    
|                              | Re-purchase Agreements  |                                |   | 5,390      |        |                |   | 5,390  |        |  |   |   |    
|                              | Municipals              |                                |   | 1,000      |        |                |   | 1,000  |        |  |   |   |    
|                              | Commercial paper        |                                |   | 16,876     |        |                |   | 16,889 |        |  |   | 13 |    
|                              |                         |                                |   |            |        |                |   |        |        |  |   |   
|                              |                         | Total Investment in Securities |   | $          | 76,373 |                |   | $      | 76,432 |  |   | $  | 59  | 
|                              |                         |                                |   |            |        |                |   |        |        |  |   |   

In fiscal years 2002 and 2001, there were no
significant gains or losses realized on the Companys cash
equivalents or short-term investments.

Supplemental Statement of Cash Flows
Disclosures.Cash paid for interest
during fiscal years 2002, 2001 and 2000 was approximately
$131,000, $26,000 and $13,000, respectively. Cash paid for
income taxes during fiscal years 2002, 2001 and 2000 was
approximately $335,000, $739,000, and $379,000, respectively.
Net inventory capitalized into property and equipment was
approximately $1,126,000 , $1,151,000 and $2,059,000 for fiscal
years 2002, 2001 and 2000, respectively. Preferred stock
conversion to common stock was approximately $3,000 for fiscal
year 2001.

Concentrations of Credit
Risk.Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of cash investments and accounts receivable.
The Companys cash investment policy limits the amount of
credit exposure to any one issuer and restricts purchase of
these investments from issuers evaluated as creditworthy.
Concentrations of credit risk in trade receivables is limited as
a result of the large number of customers comprising the
Companys customer base and their dispersion across many
different industries and geographies.

Fair Value of Financial
Instruments.The fair value of our
cash, cash equivalents, accounts receivable and accounts payable
approximate their carrying values due to the short maturity or
variable-rate structure of those instruments.

45



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AUSPEX SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Inventories.Inventories are stated at the lower of cost (first-in,
first-out) or market, and include material, labor and
manufacturing overhead costs. Inventories consisted of the
following (in thousands):

|                    |  |          |       |          |  |   |       | 
|------------------- |  | -------- | ----- | -------- |  | - | ----- | 
|                    |  | June 30, |       | June 30,
|                    |  | 2002     |       | 2001    
|                    |  |          |       |         
|Purchased materials |  | $        | 725   |          |  | $ | 442   | 
|Systems in process  |  |          | 1,924 |          |  |   | 2,193 | 
|Finished goods      |  |          | 65    |          |  |   | 32    | 
|                    |  |          |       |          |  |   |       | 
|                    |  | $        | 2,714 |          |  | $ | 2,667 | 
|                    |  |          |       |          |  |   |       | 

Inventories contained components and assemblies
in excess of the Companys current estimated requirements,
which were fully reserved at June 30, 2002 and 2001.

Inventory capitalized into property and equipment
consists primarily of replacement parts (systems
spares) and internal-use systems. Systems spares consist
of a pool of replacement parts utilized by our customer service
organization as part of the support and maintenance programs.
These replacement parts include items such as printed circuit
boards, disk drives and other field replaceable units.
Internal-use systems are utilized by our engineering and
development groups for testing and verification of our products.
These internal use systems are classified as computer and
manufacturing equipment. These items are accounted for as
property and equipment by transferring the net carrying value
from the inventory accounts into property and equipment
accounts. These items, once transferred, are no longer available
for resale.

Certain of the Companys products contain
critical components supplied by a single or a limited number of
third parties. The Company has an inventory of these critical
components so as to ensure an available supply of products for
its customers. Any significant shortage of these components or
the failure of the third party suppliers to maintain or enhance
these components could materially and adversely affect the
Companys results of operations.

Property and
Equipment.Property and equipment are
stated at cost. Depreciation and amortization are computed using
the straight-line method over the following estimated useful
lives:

|                                     |  |                                                   
|------------------------------------ |  | --------------------------------------------------
|Computer and manufacturing equipment |  | 1.5 to 5 years                                    
|System spares                        |  | 2 to 3 years                                      
|Furniture and fixtures               |  | 3 years                                           
|Leasehold improvements               |  | Shorter of the lease term or estimated useful life

Impairment of Long-Lived
Assets.The Company evaluates the
carrying value of its long-lived assets under the provisions of
Statement of Financial Accounting Standards (SFAS)
No. 121, Accounting for the Impairment of Long-Lived
Assets and Assets to be Disposed Of. SFAS No. 121
requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and
the undiscounted future cash flows estimated to be generated by
those assets are less than the assets carrying amount.

Software Development
Costs.The Company accounts for
software development costs in compliance with Statement of
Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed. Capitalization of software
development costs begins upon the determination of technological
feasibility. The determination of technological feasibility and
the ongoing assessment of the recoverability of these costs
require considerable judgment by management with respect to
certain external factors, including anticipated future gross
product revenues, estimated economic life and changes in
hardware and software technology.

46



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AUSPEX SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Amortization of capitalized software development
costs begins when the products are available for general release
to customers and is computed on an individual product basis and
is the greater of the amount computed on a units-sold basis or
straight-line basis over the estimated economic life of the
product. Capitalized software development costs were fully
amortized as of June 30, 1999.

Technological feasibility is defined when the
Company has performed/completed the following:



| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | When the Product has a Detail Program Design
    technological feasibility is defined where the following has
    occurred:



| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The product design and the detail program have
    been completed, and all the necessary skills, hardware, and
    software technology are available to produce the product,                                                           
|
| |  | The Company has verified by documenting and
    comparing detail product design and product specifications, that
    the detail design is complete and compatible with the product
    design, and                                     
|
| |  | The Company has determined that there are no
    uncertainties concerning development issues of a high risk
    nature, such as novel and unique functions and technological
    innovations, or such uncertainties have been resolved.



| |                                        
| | ---------------------------------------
| | When there is no Detail Program Design:



| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | The Company has a finished product design and a
    working model of the software, and                              
|
| |  | The Company has verified, by testing, that the
    product design and the working model are complete and compatible.



| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | Also, since the Companys software is used
    as an integral part of the Companys product (hardware),
    the Company does not capitalize until both:



| |   |                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------
| |  | Technological feasibility has been established
    for the software, and                                
|
| |  | All research and development activities for the
    other components of the product have been completed.

During fiscal years 2002, 2001 and 2000, no costs
were capitalized because, soon after the software achieved
technological feasibility, the product was available for general
release to customers.

Accrued Liabilities.Accrued liabilities consisted of the following (in thousands):

|                            |  |          |        |          |  |   |        | 
|--------------------------- |  | -------- | ------ | -------- |  | - | ------ | 
|                            |  | June 30, |        | June 30,
|                            |  | 2002     |        | 2001    
|                            |  |          |        |         
|Payroll, bonus and vacation |  | $        | 3,457  |          |  | $ | 3,796  | 
|Restructuring               |  |          | 2,128  |          |  |   | 1,347  | 
|Other                       |  |          | 6,779  |          |  |   | 8,269  | 
|                            |  |          |        |          |  |   |        | 
|                            |  | $        | 12,364 |          |  | $ | 13,412 | 
|                            |  |          |        |          |  |   |        | 

Net Loss Per Share.Basic net loss per share is computed based only on the weighted
average number of common shares outstanding during the period
and does not give effect to the dilutive effect of common
equivalent shares, such as stock options and conversion of
preferred stock. Diluted net loss per share is computed based on
the weighted average number of common shares plus dilutive
potential common shares calculated in accordance with the
treasury stock method.

47



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##### Table of Contents



AUSPEX SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                           |                                                                         |                     |         |         |   |      |         |         |   |   |         |         |  
|-------------------------- | ----------------------------------------------------------------------- | ------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                           |                                                                         |                    
|                           |                                                                         | Year Ended June 30,
|                           |                                                                         |                    
|                           |                                                                         | 2002                |         | 2001    |   | 2000
|                           |                                                                         |                     |         |         |   |     
|Net loss                   |                                                                         | $                   | (50,008 | )       |   | $    | (44,291 | )       |   | $ | (80,760 | )      
|                           |                                                                         |                     |         |         |   |      |         |         |   |   |         |        
|Basic Loss Per Share       |                                                                         |                     |         |         |   |      |         |         |   |   |         |        
|                           | Net loss available to common stockholders                               |                     | $       | (50,008 | ) |      | $       | (49,465 | ) |   | $       | (83,110 | )
|                           | Weighted average common shares outstanding                              |                     |         | 45,496  |   |      |         | 41,872  |   |   |         | 28,126  |  
|                           |                                                                         |                     |         |         |   |      |         |         |   |   |         |        
|                           | Basic net loss per share                                                |                     | $       | (1.10   | ) |      | $       | (1.18   | ) |   | $       | (2.95   | )
|                           |                                                                         |                     |         |         |   |      |         |         |   |   |         |        
|Diluted Net Loss Per Share |                                                                         |                     |         |         |   |      |         |         |   |   |         |        
|                           | Net loss available to common stockholders                               |                     | $       | (50,008 | ) |      | $       | (49,465 | ) |   | $       | (83,110 | )
|                           |                                                                         |                     |         |         |   |      |         |         |   |   |         |        
|                           | Weighted average common shares outstanding                              |                     |         | 45,496  |   |      |         | 41,872  |   |   |         | 28,126  |  
|                           | Dilutive potential common shares from stock
    options                 |                     |         |        |   |      |         |        |   |   |         |        |  
|                           |                                                                         |                     |         |         |   |      |         |         |   |   |         |        
|                           | Weighted average common shares and dilutive
    potential common shares |                     |         | 45,496  |   |      |         | 41,872  |   |   |         | 28,126  |  
|                           |                                                                         |                     |         |         |   |      |         |         |   |   |         |        
|                           | Diluted net loss per share                                              |                     | $       | (1.10   | ) |      | $       | (1.18   | ) |   | $       | (2.95   | )
|                           |                                                                         |                     |         |         |   |      |         |         |   |   |         |        

All weighted average stock options and warrants
outstanding during fiscal years 2002, 2001 and 2000, of
approximately 17,282,211, 13,073,564 and 7,844,658 shares
respectively, were excluded from the computation of diluted loss
per share since their inclusion would have been anti-dilutive
due to the net loss available to common stockholders.

Employee Stock
Plans.In accordance with the
provisions of SFAS No. 123,Accounting for Stock-Based
Compensation, the Company applies Accounting Principles
Board (APB) Opinion No. 25,Accounting for
Stock Issued to Employees and related interpretations to
account for its employee stock option and stock purchase plans,
and accordingly, does not recognize compensation expense when
the exercise price equals the fair market value of the
Companys stock on the date of grant. Note 7 of the
Notes to the Consolidated Financial Statements contains a
summary of the pro forma effects to reported net loss and net
loss per share as if the Company had elected to recognize
compensation expense based on the fair value of the options
granted at grant date as prescribed by SFAS No. 123.

Comprehensive
Income.The Company adopted SFAS
No. 130, Reporting Comprehensive Income, in the
first quarter of fiscal year 1999. SFAS No. 130 establishes
standards for disclosure and financial statement display for
reporting total comprehensive income and its individual
components. Comprehensive income as defined includes all changes
in equity during a period from non-owner sources. The
Companys comprehensive loss includes unrealized holding
gains (losses) on available-for-sale securities and foreign
currency translation adjustments, for which the tax effects were
not significant.

Segments.In June
1997, the Financial Accounting Standards Board issued SFAS
No. 131, Disclosure about Segments of an Enterprise
and Related Information. SFAS No. 131 changes the way
companies report selected segment information in annual
financial statements and also requires companies to report
selected segment information in interim financial reports to
stockholders. The Company operates in one reportable segment.
SFAS No. 131 has been implemented by the Company. Note 10
to the Consolidated Financial Statements contains a summary
table of industry segment, geographic and customer information.

New Accounting
Pronouncements.In April 2002, the
Financial Accounting Standards Board (FASB) issued
Statement Financial Accounting Standards (SFAS)
No. 145, Rescission of FASB Statements No. 44,
and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, which updates, clarifies and simplifies
existing accounting pronouncements. FASB No. 4, which
required all gains and losses from the extinguishment of debt to
be aggregated and, if material, classified as an extraordinary

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AUSPEX SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

item, net of related tax effect was rescinded,
and as a result, FASB 64, which amended FASB 4, was
rescinded as it was no longer necessary. FASB 145 amended
FASB 13 to eliminate an inconsistency between the required
accounting for sale-leaseback transaction and the required
accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. We do
not expect the adoption of SFAS 145 to have a material
impact on our financial position or results of operations.

In June 2002, the FASB issued SFAS 146,
Accounting for Costs Associated with Exit or Disposal
Activities, which addresses financial accounting and reporting
for costs associated with an exit or disposal activity. SFAS 146
nullifies Emerging Issues Task Force (EITF)
Issue 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring).
SFAS 146 requires that a liability be recognized for those
costs only when the liability is incurred, that is, when it
meets the definition of a liability in the FASBs
conceptual framework. In contrast, under EITF Issue 94-3, a
company recognized a liability for an exit cost when it
committed to an exit plan. SFAS 146 also established fair
value as the objective for initial measurement of liabilities
related to exit or disposal activities. We are required to adopt
the provisions of SFAS 146 as of January 1, 2003. We do not
expect the adoption of SFAS 146 to have a material impact
on our financial position or results of operations.

In August 2001, the FASB, issued SFAS,
No. 143, Accounting for Obligations Associated with
the Retirement of Long-Lived Assets. SFAS No. 143
addresses financial accounting and reporting for the retirement
obligation of an asset. This statement states that companies
should recognize the asset retirement cost, at their fair value,
as part of the cost of the asset and classify the accrued amount
as a liability in the condensed consolidated balance sheet. The
asset retirement liability is then accreted to the ultimate
payout as interest expense. The initial measurement of the
liability would be subsequently updated for revised estimates of
the discounted cash outflows. The Statement will be effective
for fiscal years beginning after June 15, 2002, which for
the Company will be its fiscal year beginning July 1, 2002.
The Company has not yet determined the effect SFAS No. 143
will have on its consolidated financial position, results of
operations, or cash flows.

In August 2001, the FASB issued SFAS,
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of
long-lived assets. This statement establishes a single
accounting model, based on the framework established in
Statement 121, for long-lived assets to be disposed of by sale.
This Statement will be effective for fiscal years beginning
after December 15, 2001, which for the Company will be its
fiscal year beginning July 1, 2002. Auspex has not yet
determined the effect SFAS No. 144 will have on its
consolidated financial position, results of operations, or cash
flows.

3.     Line of
Credit

In March 2001, the Company entered into a
revolving line of credit agreement with a bank under which it
can borrow up to $15,000,000. This agreement replaced the line
of credit agreement entered into on December 1999. The line of
credit bears interest either at a fluctuating rate per annum
equal to the Prime Rate in effect from time to time, or at a
fixed rate per annum determined by the bank to be a rate of
1.5 percentage points above the LIBOR rate in effect on the
first day of the applicable term. The line of credit expires on
March 31, 2003. At June 30, 2002 there were no
borrowings outstanding under the line of credit agreement. As of
June 30, 2002, there were commitments against the line of
credit for letters of credit totaling approximately $676,000.
The line of credit requires the Company to keep on deposit cash
investments with the Companys lending institution that is
equal to the amount of the line of credit.

4.     Commitments
and Contingencies

Facilities and equipment are leased under various
operating leases. Rent expense was approximately $5,221,300,
$3,960,000, and $6,300,000 for fiscal years 2002, 2001 and 2000,
respectively. During 1997, the Company entered into lease
agreements for four buildings in Santa Clara, California. The
leases for these

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AUSPEX SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

facilities commenced in March 1998 and expire in
February 2010. During fiscal year 2000, the Company renegotiated
the existing lease agreements for the facilities in Santa Clara
and consolidated from four buildings into one building, and was
released from all remaining lease obligations related to the
vacated buildings.

As of June 30, 2002, future minimum gross
lease payments under non-cancelable leases were as follows (in
thousands):

|                      |                              |           |       |        | 
|--------------------- | ---------------------------- | --------- | ----- | ------ | 
|                      |                              | Operating
|Years Ending June 30, |                              | Leases   
|                      |                              |          
|2003                  |                              | $         | 4,212 |       
|2004                  |                              |           | 2,546 |       
|2005                  |                              |           | 2,220 |       
|2006                  |                              |           | 1,852 |       
|2007                  |                              |           | 1,757 |       
|Thereafter            |                              |           | 4,642 |       
|                      |                              |           |       |       
|                      | Total minimum lease payments |           | $     | 17,229 | 
|                      |                              |           |       |       

5.     Related Party
Transactions

On February 15, 2000, Mr. Gary J.
Sbona replaced Mr. Bruce N. Moore as the
Companys Chief Executive Officer and Chairman of the Board
of Directors, and the Company entered into an agreement with
Regent Pacific Management Corporation, (Regent
Pacific) a management firm of which Mr. Sbona is the
Chief Executive Officer. Pursuant to the agreement, Regent
Pacific will provide management services to the Company,
including the services of Mr. Sbona as Chief Executive
Officer, one of a five person Regent Pacific management team.
The agreement has a 26-month term and may be cancelled by the
Company after expiration of the initial 20-month period, with a
minimum compensation to Regent Pacific of $6,500,000 for that
initial period. The Company relies on Regent Pacific Management
Corporation for the management of Auspex and the loss of these
services could adversely affect the Companys business.

On November 20, 2001, the Company and Regent
Pacific, amended the original retainer agreement to extend the
expiration of Regent Pacifics services through
June 30, 2003, including a non-cancelable period which
extends through December 31, 2002. In addition, the Company
has granted options to purchase 712,500 shares of Common
Stock to Mr. Sbona during fiscal 2002. Mr. Dunnigan
has been granted options to purchase 427,500 shares of
Common Stock. Mr. Simpson and Mr. Garvey have been
granted options to purchase 308,750 shares of Common Stock,
each. Mr. Service has been granted options to purchase
47,500 shares of Common Stock. These options vest and
becomes fully exercisable upon a Change of Control or if the
Retainer Agreement is terminated without cause.

As part of the agreement with Regent Pacific, in
February 2000, the Company granted Mr. Sbona
2,400,000 stock options which became fully vested over one
year and expire after five years. As part of the extension of
the agreement with Regent Pacific, in October 2000, the Company
granted Mr. Sbona an additional 750,000 stock options
which became fully vested over one year and expire after ten
years.

The Company and Kindred Healthcare have entered
into an agreement in which the Company has sold $207,000 worth
of data storage equipment to Kindred Healthcare for its internal
needs. Mr. Richard Chapman, a Director of the Company,
serves as Chief Administrative and Information Officer, as well
as, Senior Vice President, of Kindred Healthcare.

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##### Table of Contents



AUSPEX SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

6.     Restructuring
and Related Charges

During the fiscal year ended June 30, 2002,
the Company recorded restructuring charges totaling
$6.4 million which consisted of $2.7 million for
severance and termination benefits, $2.5 million for
payments under non-cancelable operating leases for abandoned
facilities and excess equipment and assets and $1.2 million
for write-offs relating to the disposal of excess equipment and
other assets. These charges reflected steps the Company took to
enhance the financial health of the Company, streamline
operations and reduce overall costs. The major components of the
restructuring were as follows:



| |   |                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company terminated 150 employees,
    comprised of 77 employees from general administration and
    operations, 56 employees from sales and marketing, and
    17 employees from engineering,
|
| |  | The Company consolidated and closed various sales
    and service field offices worldwide, and                                                                                                   
|
| |  | The Company disposed of idle assets and
    terminated and accrued for operating leases for excess assets
    and facilities.                                                                    

The Company substantially completed the employee
severance and benefits portion of the restructuring by January
2002. The principal cash requirements for the restructuring
consist of payments relating to the termination of leases and
severance packages for terminated employees.

The restructuring activities did not disrupt
operations significantly during the fiscal year ended
June 30, 2002. The Company expects the restructuring to
reduce its operating expenses by approximately $24 million
per year.* The Company began to realize these savings during
January 2002.

In the quarter ended March 31, 2000, the
Company recorded restructuring charges totaling approximately
$17,642,000. These charges reflect steps the Company took to
strengthen its competitiveness in the growing Network Attached
Storage market, streamline operations and reduce overall costs.
The restructuring charges are comprised primarily of $3,800,000
for reduction of personnel and $13,842,000 to retire excess
equipment and other assets related to the restructuring of
company operations. In connection with the restructuring charges
taken in the quarter ended March 31, 2000, the Company
terminated 169 employees and consolidated all of its Santa
Clara headquarters activities into one facility. The Company
substantially completed the implementation of the restructuring
plan at the end of May 2000. Therefore the Company decided to
restructure in the following manner:



| |   |                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company terminated 169 employees,
    comprised of 62 employees from general administration and
    operations, 55 employees from sales and marketing, and
    52 employees from engineering,
|
| |  | The Company consolidated its Santa Clara
    headquarters, which had previously consisted of three buildings,
    into one building, and                                                         
|
| |  | The Company retired idled assets and operational
    leases.                                                                                                                                     

The principal cash requirements for the
restructuring consist of payments relating to the termination of
leases and severance packages for terminated employees.

The restructuring activities disrupted operations
to a significant degree during the fiscal quarter ended
March 31, 2000. Due to the considerable time and manpower
required to plan and execute the restructuring, employees were
forced to divert a substantial amount of their attention from
their normal duties. As originally expected, the Company began
to realize a reduction in its operating expenses as a result of
the restructuring during the fourth fiscal quarter of 2000 and
fully realized such savings at the rate of $40 million per
year during fiscal year 2001.





---

* See Forward-Looking Statements
on page 1.


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AUSPEX SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In the fiscal quarter ending March 31, 2000,
the Company recorded $13.8 million in write-offs relating
to the retirement of excess equipment and other assets. These
write-offs are comprised of two components:



| |                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Property and equipment of
    $9.6 million. This write-off was for idled assets due to
    the reduction of both facilities and headcount. The impaired
    assets were leasehold improvements on the facilities vacated,
    excess office furniture and excess computer hardware.         
|
| | (2) Operation asset lease write-off of
    $4.2 million. This write-off was for idled assets due to
    the reduction of both facilities and headcount. The impaired
    assets were leasehold improvements on the facilities vacated,
    excess office furniture and excess computer hardware.

In both cases, for the purposes of the
write-offs, the assets were given the value most likely to be
realized. None of the written-off assets remained in use after
each restructuring.

In the third quarter of fiscal year 2000, the
reduction of headcount and consolidation of facilities resulting
from the restructuring generated many idle assets. These idle
assets were either owned or were subject to an operating lease.
The impaired assets were leasehold improvements on the
facilities vacated, excess office furniture and excess computer
hardware associated with the reduced headcount and facilities.

The remaining cash requirements relating to the
restructuring for fiscal year 2003, 2004, 2005, and 2006 are
expected to be $1.3 million, $495,500, $324,000, and
$42,000, respectively.

The following table summarizes the Companys
restructuring activity for the fiscal years ended 2002, 2001 and
2000, respectively, (in thousands):

|                                |  |           |        |            |  |           |       |       |  |   |         |   |  |   |         |  
|------------------------------- |  | --------- | ------ | ---------- |  | --------- | ----- | ----- |  | - | ------- | - |  | - | ------- | -
|                                |  |           |        |            |  | Excess    |       |      
|                                |  | Severance |        |            |  | Equipment |       |      
|                                |  | and       |        | Excess     |  | and Other |       |      
|                                |  | Benefits  |        | Facilities |  | Assets    |       | Total
|                                |  |           |        |            |  |           |       |      
|Reserve balances, June 30, 1999 |  | $         |       |            |  | $         | 314   |       |  | $ | 138     |   |  | $ | 452     |  
|                                |  |           |        |            |  |           |       |       |  |   |         |   |  |   |         |  
|Restructuring amounts           |  |           | 3,800  |            |  |           |      |       |  |   | 13,842  |   |  |   | 17,642  |  
|Cash Charges                    |  |           | (3,511 | )          |  |           | (314  | )     |  |   |        |   |  |   | (3,825  | )
|Non-cash charges                |  |           |       |            |  |           |      |       |  |   | (10,012 | ) |  |   | (10,012 | )
|                                |  |           |        |            |  |           |       |       |  |   |         |   |  |   |         |  
|Reserve balances, June 30, 2000 |  |           | 289    |            |  |           |      |       |  |   | 3,968   |   |  |   | 4,257   |  
|                                |  |           |        |            |  |           |       |       |  |   |         |   |  |   |         |  
|Reclassifications               |  |           | 597    |            |  |           |      |       |  |   | (597    | ) |  |   |        |  
|Cash Charges                    |  |           | (788   | )          |  |           |      |       |  |   | (2,122  | ) |  |   | (2,910  | )
|                                |  |           |        |            |  |           |       |       |  |   |         |   |  |   |         |  
|Reserve balances, June 30, 2001 |  |           | 98     |            |  |           |      |       |  |   | 1,249   |   |  |   | 1,347   |  
|                                |  |           |        |            |  |           |       |       |  |   |         |   |  |   |         |  
|Restructuring amounts           |  |           | 2,744  |            |  |           | 1,796 |       |  |   | 1,862   |   |  |   | 6,402   |  
|Non-cash charges                |  |           |       |            |  |           |      |       |  |   | (1,159  | ) |  |   | (1,159  | )
|Cash Charges                    |  |           | (2,842 | )          |  |           | (333  | )     |  |   | (1,287  | ) |  |   | (4,462  | )
|                                |  |           |        |            |  |           |       |       |  |   |         |   |  |   |         |  
|Reserve balances, June 30, 2002 |  | $         |       |            |  | $         | 1,463 |       |  | $ | 665     |   |  | $ | 2,128   |  
|                                |  |           |        |            |  |           |       |       |  |   |         |   |  |   |         |  

7.     Stock Option
and Stock Purchase Plans

The Company has four stock option plans, the 1988
Employee Stock Option Plan (1988 Plan), the 1997
Stock Plan (1997 Plan), the 1998 Non-Statutory Stock
Option Plan (1998 Plan) and the Directors
Stock Option Plan (Directors Plan), and an
employee stock purchase plan (1993 Employee Stock Purchase
Plan). The Company accounts for these plans under APB
Opinion No. 25, under which no compensation cost has been
recognized for any employees.

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AUSPEX SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Had compensation cost for these plans been
determined consistent with SFAS No. 123, the Companys
net loss and basic and diluted net loss per share would have
been adjusted to the following pro forma amounts (in thousands,
except per share data):

|                                           |             |      |   |         |   |      |   |         |   |  |   |         |  
|------------------------------------------ | ----------- | ---- | - | ------- | - | ---- | - | ------- | - |  | - | ------- | -
|                                           |             | 2002 |   | 2001    |   | 2000
|                                           |             |      |   |         |   |     
|Net loss available to common shareholders: |             |      |   |         |   |      |   |         |   |  |   |        
|                                           | As reported |      | $ | (50,008 | ) |      | $ | (49,465 | ) |  | $ | (83,110 | )
|                                           | Pro forma   |      | $ | (58,940 | ) |      | $ | (86,226 | ) |  | $ | (92,859 | )
|Basic and Diluted net loss per share:      |             |      |   |         |   |      |   |         |   |  |   |        
|                                           | As reported |      | $ | (1.10   | ) |      | $ | (1.18   | ) |  | $ | (2.95   | )
|                                           | Pro forma   |      | $ | (1.30   | ) |      | $ | (2.06   | ) |  | $ | (3.30   | )

The fair value of each option grant is estimated
on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions used for
grants in 2002, 2001 and 2000, respectively: risk-free interest
rates of 2.3%, 5.1% and 5.8%, respectively; expected volatility
of 105%, 130% and 144%, respectively; no expected dividends, and
an expected life of 0.55, 0.52 and 0.53 years beyond the
vest date for each years vesting increment of an option.

In August 1998, the Company offered its employees
the ability to reprice stock options granted prior to
June 30, 1998 to the current fair market value. As a
result, the Company repriced 3,739,857 options at prices ranging
from $2.75 to $18.25 per share at the then current fair market
value of $2.75 per share. Employees who submitted their option
grants for repricing agreed to forgo exercising their vested
options for six months.

The Company may sell up to 2,100,000 shares of
stock to its regular full-time employees under the 1993 Employee
Stock Purchase Plan. The Company has sold 295,795, 197,744 and
152,859 shares in 2002, 2001 and 2000, respectively, and has
sold 1,937,839 shares through June 30, 2002. The Company
sells shares at 85% of the lower of the stocks closing
market price on the subscription or purchase date of the
six-month offering period. The weighted-average fair value of
shares sold in 2002, 2001 and 2000, respectively, was $2.87,
$5.25 and $6.49, respectively.

The Company could grant options for up to
10,000,000 shares under the 1988 Plan which expired in April
1998. The Company has 188,948 options outstanding at
June 30, 2002, which expired April 1998. The option
exercise price is not less than 100% of the fair value of the
shares on the date of grant, except that non-statutory options
may be granted at 85% of such fair value. The 1988 Plan options
are fully vested after five years and expire after ten years.
For options granted after November 20, 1997, options are
generally fully vested after four years and expire after ten
years.

Stockholders approved the 1997 Plan in April 1998
and amended it in August 2000. The Company may grant options for
up to 9,250,000 shares under the 1997 Plan. The Company has
8,911,485 options outstanding at June 30, 2002, under the
1997 Plan. The option exercise price is not less than 100% of
the fair value of the shares on the date of grant, except that
non-statutory options may be granted at 85% of such fair value.
The 1997 Plan options are generally fully vested after two years
and expire after ten years.

The Board of Directors approved the 1998 Plan in
August 1998. The Company may grant options for up to 3,000,000
shares under the 1998 Plan. The Company has 2,483,223 options
outstanding at June 30, 2002, under the 1998 plan. The
options exercise price is not less than 100% of the fair value
of the shares on the date of grant. The 1998 Plan options are
generally fully vested after two years and expire after ten
years.

Stockholders approved the Directors Plan in
March 1993 and amended it in August and November 2000. The
Company may grant options for up to 825,000 shares under the
Directors Plan. The Company has 75,000 options outstanding
at June 30, 2002 under the Directors Plan. The option
exercise price equals the closing price of the stock on the day
of the grant. Options are automatically granted to each outside
member of

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AUSPEX SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the Board of Directors on the first business day
of the fiscal year. The options are generally fully vested after
two years and expire after ten years.

A summary of the status of the Companys
stock option plans at June 30, 2002, 2001 and 2000
incorporating changes during the years then ended is presented
in the table below (share amounts in thousands):

|                                       |  |               |        |               |  |               |      |          |  |        |        |          |  |   |      |  |  |  |        |   |  |   |      | 
|-------------------------------------- |  | ------------- | ------ | ------------- |  | ------------- | ---- | -------- |  | ------ | ------ | -------- |  | - | ---- |  |  |  | ------ | - |  | - | ---- | 
|                                       |  |               |        |               |  |              
|                                       |  | 2002          |        | 2001          |  | 2000         
|                                       |  | Weighted-Avg. |        | Weighted-Avg. |  | Weighted-Avg.
|                                       |  |               |        |               |  |              
|                                       |  |               |        | Exercise      |  |               |      | Exercise |  |        |        | Exercise
|                                       |  | Shares        |        | Price         |  | Shares        |      | Price    |  | Shares |        | Price   
|                                       |  |               |        |               |  |               |      |          |  |        |        |         
|Outstanding at beginning of year       |  |               | 10,902 |               |  | $             | 7.80 |          |  |        | 6,239  |          |  | $ | 7.52 |  |  |  | 4,857  |   |  | $ | 4.68 | 
|Granted                                |  |               | 6,651  |               |  | $             | 1.61 |          |  |        | 6,250  |          |  | $ | 7.83 |  |  |  | 6,083  |   |  | $ | 7.74 | 
|Exercised                              |  |               | (121   | )             |  | $             | 4.65 |          |  |        | (338   | )        |  | $ | 4.55 |  |  |  | (1,952 | ) |  | $ | 3.13 | 
|Cancelled                              |  |               | (2,377 | )             |  | $             | 6.98 |          |  |        | (1,249 | )        |  | $ | 7.39 |  |  |  | (2,749 | ) |  | $ | 6.20 | 
|                                       |  |               |        |               |  |               |      |          |  |        |        |          |  |   |      |  |  |  |        |   |  |   |      | 
|Outstanding at end of year             |  |               | 15,055 |               |  | $             | 5.22 |          |  |        | 10,902 |          |  | $ | 7.80 |  |  |  | 6,239  |   |  | $ | 7.52 | 
|                                       |  |               |        |               |  |               |      |          |  |        |        |          |  |   |      |  |  |  |        |   |  |   |      | 
|Exercisable end of year                |  |               | 10,499 |               |  | $             | 6.11 |          |  |        | 7,525  |          |  | $ | 7.96 |  |  |  | 1,605  |   |  | $ | 7.26 | 
|                                       |  |               |        |               |  |               |      |          |  |        |        |          |  |   |      |  |  |  |        |   |  |   |      | 
|Weighted fair value per option granted |  |               |        |               |  | $             | 0.75 |          |  |        |        |          |  | $ | 5.11 |  |  |  |        |   |  | $ | 4.75 | 

|                         |  |                     |        |                     |  |                  |      |        |  |                  |      |  |  |  |        |  |  |   |      | 
|------------------------ |  | ------------------- | ------ | ------------------- |  | ---------------- | ---- | ------ |  | ---------------- | ---- |  |  |  | ------ |  |  | - | ---- | 
|                         |  |                    
|                         |  | June 30, 2002      
|                         |  |                    
|                         |  |                     |        |                    
|                         |  | Options Outstanding |        | Options Exercisable
|                         |  |                     |        |                    
|                         |  |                     |        | Weighted-Average    |  | Weighted-Average |      |        |  | Weighted-Average
|Range of Exercise Prices |  | Number              |        | Remaining Years     |  | Exercise Price   |      | Number |  | Exercise Price  
|                         |  |                     |        |                     |  |                  |      |        |  |                 
|$0.55 - $6.25            |  |                     | 7,398  |                     |  |                  | 9.19 |        |  | $                | 1.90 |  |  |  | 3,856  |  |  | $ | 1.96 | 
|$6.28 - $7.34            |  |                     | 2,420  |                     |  |                  | 8.06 |        |  | $                | 6.89 |  |  |  | 1,666  |  |  | $ | 6.73 | 
|$7.50 - $9.44            |  |                     | 4,084  |                     |  |                  | 4.90 |        |  | $                | 8.91 |  |  |  | 3,987  |  |  | $ | 8.94 | 
|$9.69 - $12.38           |  |                     | 1,153  |                     |  |                  | 8.18 |        |  | $                | 9.96 |  |  |  | 990    |  |  | $ | 9.87 | 
|                         |  |                     |        |                     |  |                  |      |        |  |                  |      |  |  |  |        |  |  |   |      | 
|$0.55 - $12.38           |  |                     | 15,055 |                     |  |                  | 7.77 |        |  | $                | 5.22 |  |  |  | 10,499 |  |  | $ | 6.11 | 
|                         |  |                     |        |                     |  |                  |      |        |  |                  |      |  |  |  |        |  |  |   |      | 

Stockholder Rights Plan.During 1995, the Company established a
stock purchase rights plan (the Rights Plan), under
which stockholders may be entitled to purchase stock in the
Company, or in an acquirer of the Company at a discounted price
in the event of certain efforts to acquire control of the
Company. The rights expire on the earliest of
(a) April 19, 2005, (b) exchange or redemption of
the rights pursuant to the Rights Plan, or (c) consummation
of a merger or consolidation.



|   |                
|-- | ---------------
|8. | Preferred Stock

On January 18, 2000, the Company sold
$25 million of its Series B Convertible Preferred
Stock to four institutional investors in a private placement.
The Series B Convertible Preferred Stock is non-voting,
carries a 7% per annum cumulative dividend, which may be paid in
cash or Common Stock, and is convertible into the Companys
Common Stock at an 8% discount. In connection with the sale, the
Company issued four-year warrants to purchase an aggregate of
1,605,136 shares of the Companys Common Stock at a price
of $8.5663 per share. During the years ended June 30, 2001
and 2000, the Company recorded $5,174,000 and $2,350,000,
respectively, in dividends to holders of the Series B
Convertible Preferred Stock as a result of the 7% dividend, the
8% conversion discount and the warrants. Each share of Preferred
Stock has a liquidation value of $1,000.

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##### Table of Contents



AUSPEX SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The components of the $2,350,000 charge taken for
fiscal year 2000 are as follows: $698,000 for Common Stock
issued as preferred stock dividends, $1,109,000 for the fair
market value of the warrants issued based on the Black-Scholes
model, and $543,000 for the charge relating to the beneficial
conversion feature.

On September 15, 2000 all Series B
Preferred Stock was converted into Common Stock, and as a result
of this redemption all prorated accounting charges related to
the dividends, warrants and Beneficial Conversion Feature have
been fully recognized during the first quarter of fiscal year
2001.

The components of the $5,174,000 charge taken for
fiscal year 2001 are as follows: $216,000 for Common Stock
issued as preferred stock dividends, $3,331,000 for the fair
market value of the warrants issued based on the Black-Scholes
model, and $1,627,000 for the charge relating to the beneficial
conversion feature.



|   |             
|-- | ------------
|9. | Income Taxes

The provision for (benefit from) income taxes is
based upon the income (loss) before income taxes as follows
(in thousands):

|         |       |                      |         |         |   |      |         |         |   |   |         |         |  
|-------- | ----- | -------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|         |       |                     
|         |       | Years Ended June 30,
|         |       |                     
|         |       | 2002                 |         | 2001    |   | 2000
|         |       |                      |         |         |   |     
|Domestic |       | $                    | (47,076 | )       |   | $    | (38,916 | )       |   | $ | (80,481 | )      
|Foreign  |       | $                    | (5,783  | )       |   | $    | (4,480  | )       |   | $ | 418     |        
|         |       |                      |         |         |   |      |         |         |   |   |         |        
|         | Total |                      | $       | (52,859 | ) |      | $       | (43,396 | ) |   | $       | (80,063 | )
|         |       |                      |         |         |   |      |         |         |   |   |         |        

The provision for (benefit from) income taxes
consisted of the following (in thousands):

|                                 |         |                      |        |        |   |      |     |     |  |   |     |     | 
|-------------------------------- | ------- | -------------------- | ------ | ------ | - | ---- | --- | --- |  | - | --- | --- | 
|                                 |         |                     
|                                 |         | Years Ended June 30,
|                                 |         |                     
|                                 |         | 2002                 |        | 2001   |   | 2000
|                                 |         |                      |        |        |   |     
|Current:                         |         |                      |        |        |   |      |     |     |  |   |     |    
|                                 | Federal |                      | $      | (2,851 | ) |      | $   |    |  |   | $   |    | 
|                                 | State   |                      |        |       |   |      |     | 50  |  |   |     | 80  | 
|                                 | Foreign |                      |        |       |   |      |     | 845 |  |   |     | 617 | 
|                                 |         |                      |        |        |   |      |     |     |  |   |     |    
|                                 |         |                      | (2,851 | )      |   |      | 895 |     |  |   | 697 |    
|                                 |         |                      |        |        |   |      |     |     |  |   |     |    
|Deferred:                        |         |                      |        |        |   |      |     |     |  |   |     |    
|                                 | Federal |                      |        |       |   |      |     |    |  |   |     |    | 
|                                 | State   |                      |        |       |   |      |     |    |  |   |     |    | 
|                                 |         |                      |        |        |   |      |     |     |  |   |     |    
|                                 |         |                      |       |        |   |      |    |     |  |   |    |    
|                                 |         |                      |        |        |   |      |     |     |  |   |     |    
|Net tax provision (benefit from) |         | $                    | (2,851 | )      |   | $    | 895 |     |  | $ | 697 |    
|                                 |         |                      |        |        |   |      |     |     |  |   |     |    

55



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AUSPEX SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The provision for (benefit from) income taxes is
reconciled with the Federal statutory rate as follows:

|                                                 |                                            |                      |         |        |   |      |         |        |    |   |         |        |   
|------------------------------------------------ | ------------------------------------------ | -------------------- | ------- | ------ | - | ---- | ------- | ------ | -- | - | ------- | ------ | --
|                                                 |                                            |                     
|                                                 |                                            | Years Ended June 30,
|                                                 |                                            |                     
|                                                 |                                            | 2002                 |         | 2001   |   | 2000
|                                                 |                                            |                      |         |        |   |     
|Benefit computed at Federal statutory @ 35% rate |                                            | $                    | (18,501 | )      |   | $    | (15,189 | )      |    | $ | (28,022 | )     
|                                                 | Net increase in valuation allowance        |                      |         | 16,992 |   |      |         | 18,804 |    |   |         | 42,205 |   
|                                                 | State taxes, net of Federal tax benefit    |                      |         | (2,173 | ) |      |         | (1,833 | )  |   |         | (3,585 | ) 
|                                                 | Research and development and other credits |                      |         |       |   |      |         | (1,732 | )  |   |         | (1,163 | ) 
|                                                 | Foreign taxes and other                    |                      |         | 831    |   |      |         | 845    |    |   |         | (8,738 | ) 
|                                                 |                                            |                      |         |        |   |      |         |        |    |   |         |       
|                                                 | Net tax provision                          |                      | $       | (2,851 | ) |      | $       | 895    |    |   | $       | 697    |   
|                                                 |                                            |                      |         |        |   |      |         |        |    |   |         |       
|                                                 | Net effective tax rate                     |                      |         | 5      | % |      |         | (2     | )% |   |         | (1     | )%
|                                                 |                                            |                      |         |        |   |      |         |        |    |   |         |       

The components of the net deferred tax asset are
as follows:

|                                                                           |  |          |         |          |  |   |         |  
|-------------------------------------------------------------------------- |  | -------- | ------- | -------- |  | - | ------- | -
|                                                                           |  | June 30, |         | June 30,
|                                                                           |  | 2002     |         | 2001    
|                                                                           |  |          |         |         
|Net operating losses                                                       |  | $        | 75,509  |          |  | $ | 57,999  |  
|Depreciation and asset basis differences                                   |  |          | 2,017   |          |  |   | 2,561   |  
|Inventory reserve                                                          |  |          | 2,103   |          |  |   | 1,908   |  
|Other reserves and accruals, not currently
    deductible for tax purposes |  |          | 1,830   |          |  |   | 2,493   |  
|Restructuring reserve                                                      |  |          | 837     |          |  |   | 530     |  
|Tax Credits and other                                                      |  |          | 9,295   |          |  |   | 9,108   |  
|                                                                           |  |          |         |          |  |   |         |  
|Gross deferred tax asset                                                   |  | $        | 91,591  |          |  | $ | 74,599  |  
|Less: valuation allowance                                                  |  |          | (91,591 | )        |  |   | (74,599 | )
|                                                                           |  |          |         |          |  |   |         |  
|Net deferred tax asset                                                     |  | $        |        |          |  | $ |        |  
|                                                                           |  |          |         |          |  |   |         |  

As of June 30, 2002, the Company had gross
deferred tax assets of approximately $92 million. Due to
the uncertainty surrounding the realization of the future tax
attributes in future tax returns, the Company has recorded a
valuation allowance against its net deferred tax assets.

As of June 30, 2002, the Company had NOL
carryforwards of approximately $205.0 million and
$195.0 million for federal and state tax purposes,
respectively. If not utilized, the federal NOL carryforwards
expire by 2022 and the state NOL carryforwards will expire by
2007. The Company also has research credits of approximately
$5.8 million and $3.5 million for federal and state
tax purposes, respectively. If not utilized, the federal
research credits begin to expire through 2022.

During the fourth quarter for the year ended
June 30, 2002, we recorded an income tax benefit of
$2.8 million. The recorded tax benefit for the year ended
June 30, 2002, reflects a one-time tax refund, which
resulted from new tax changes that extended the net tax
operating loss carryback period from two to five years, and
eliminated the limitation on utilization of net operating losses
against alternative minimum taxable income.



|    |                                                          
|--- | ---------------------------------------------------------
|10. | Industry Segment, Geographic and Customer
    Information

The Company, which operates in one reportable
industry segment, develops, manufactures, distributes and
supports a line of multi-protocol high performance network file
servers and high availability enterprise data management
software solution for storing, serving and managing multiple
terabytes of network data for the technical network market.

56



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AUSPEX SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Revenues and long-lived assets by geography (net
of accumulated depreciation) consisted of the following as of,
and for the years ended, June 30, (in thousands):

|              |       |         |        |            |  |         |       |            |  |         |        |            |  |   |        |        |  |   |        |        |  |   |        |        | 
|------------- | ----- | ------- | ------ | ---------- |  | ------- | ----- | ---------- |  | ------- | ------ | ---------- |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|              |       |         |        |            |  |        
|              |       | 2002    |        | 2001       |  | 2000   
|              |       |         |        |            |  |        
|              |       |         |        | Long-Lived |  |         |       | Long-Lived |  |         |        | Long-Lived
|              |       | Revenue |        | Assets     |  | Revenue |       | Assets     |  | Revenue |        | Assets    
|              |       |         |        |            |  |         |       |            |  |         |        |           
|North America |       | $       | 16,160 |            |  | $       | 8,131 |            |  | $       | 31,329 |            |  | $ | 12,020 |        |  | $ | 52,192 |        |  | $ | 14,189 |       
|Europe        |       |         | 7,760  |            |  |         | 293   |            |  |         | 9,364  |            |  |   | 515    |        |  |   | 18,564 |        |  |   | 493    |       
|Pacific Rim   |       |         | 4,967  |            |  |         | 346   |            |  |         | 11,188 |            |  |   | 408    |        |  |   | 11,443 |        |  |   | 377    |       
|              |       |         |        |            |  |         |       |            |  |         |        |            |  |   |        |        |  |   |        |        |  |   |        |       
|              | Total |         | $      | 28,887     |  |         | $     | 8,770      |  |         | $      | 51,880     |  |   | $      | 12,942 |  |   | $      | 82,199 |  |   | $      | 15,059 | 
|              |       |         |        |            |  |         |       |            |  |         |        |            |  |   |        |        |  |   |        |        |  |   |        |       

In the fiscal year 2002, one customer accounted
for 11% of revenues. In fiscal year 2001, this same customer
accounted for 16% of total revenues. In fiscal year 2000, no one
customer accounted for 10% or more of total revenues.

11.     Retirement
Plan

The Company has a deferred compensation plan for
all employees. Under the plan, which qualifies under
Section 401(k) of the Internal Revenue Code of 1986, as
amended, eligible employees may contribute from 1% to 15% of
their pretax compensation, up to the annual limits imposed by
the Internal Revenue Service. The Company contribution to the
plan is 50% of up to $3,000 in employee contribution for a
maximum company contribution of $1,500.

CONSENT OF KPMG LLP

To the Board of Directors

Auspex Systems, Inc.:


We hereby consent to the incorporation by
reference into the Companys previously filed Registration
Statements on Form S-8 (Nos. 33-67100, 33-76640, 333-00886,
333-56305, 333-71115, 333-56307, 333-94545 and 333-54900) and
Registration Statements and on Form S-3 (Nos. 333-40452,
333-48210 and 333-30672) of our report dated August 7,
2002, with respect to the consolidated balance sheet of Auspex
Systems, Inc. as of June 30, 2002, and the related
consolidated statements of operations, comprehensive income
(loss), stockholders equity and cash flows for the year
then ended, and the related financial statement schedule, which
report appears in the June 30, 2002 annual report on
Form 10-K of Auspex Systems, Inc.

Our report dated August 7, 2002 contains an
explanatory paragraph that states that the Company has suffered
recurring losses from operations and has an accumulated deficit
of $188.7 million as of June 30, 2002, which raise
substantial doubt about its ability to continue as a going
concern. The consolidated financial statements and financial
statement schedule do not include any adjustments that might
result from the outcome of that uncertainty.



| |             
| | ------------
| | /s/ KPMG LLP

Mountain View, California

September 26, 2002


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##### Table of Contents



AUSPEX SYSTEMS, INC.

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

|                                |                          |                |   |           |  |           |   |            |  |            |   |     |   |  |   |         |   |  |   |       | 
|------------------------------- | ------------------------ | -------------- | - | --------- |  | --------- | - | ---------- |  | ---------- | - | --- | - |  | - | ------- | - |  | - | ----- | 
|                                |                          |                |   | Additions |  | Additions |   |            |  |           
|                                |                          | Balance at     |   | Charged   |  | Charged   |   |            |  | Balance at
|                                |                          | Beginning      |   | to        |  | Against   |   |            |  | End       
|Description                     |                          | of Period      |   | Expense   |  | Revenues  |   | Deductions |  | of Period 
|                                |                          |                |   |           |  |           |   |            |  |           
|                                |                          |               
|                                |                          | (In thousands)
|Accounts Receivable Allowances: |                          |                |   |           |  |           |   |            |  |            |   |     |   |  |   |         |   |  |   |      
|                                | Year ended June 30, 2000 |                | $ | 1,407     |  |           | $ |           |  |            | $ | 703 |   |  | $ | (390    | ) |  | $ | 1,720 | 
|                                | Year ended June 30, 2001 |                |   | 1,720     |  |           |   |           |  |            |   | 63  |   |  |   | 47      |   |  |   | 1,830 | 
|                                | Year ended June 30, 2002 |                |   | 1,830     |  |           |   |           |  |            |   | (63 | ) |  |   | (473    | ) |  |   | 1,294 | 
|Inventory Reserves:             |                          |                |   |           |  |           |   |            |  |            |   |     |   |  |   |         |   |  |   |      
|                                | Year ended June 30, 2000 |                |   | 8,463     |  |           |   | 8,602      |  |            |   |    |   |  |   | (12,301 | ) |  |   | 4,764 | 
|                                | Year ended June 30, 2001 |                |   | 4,764     |  |           |   | 2,733      |  |            |   |    |   |  |   | (2,353  | ) |  |   | 5,144 | 
|                                | Year ended June 30, 2002 |                |   | 5,144     |  |           |   | 2,403      |  |            |   |    |   |  |   | (1,880  | ) |  |   | 5,667 | 
|Restructuring Reserve:          |                          |                |   |           |  |           |   |            |  |            |   |     |   |  |   |         |   |  |   |      
|                                | Year ended June 30, 2000 |                |   | 452       |  |           |   | 17,642     |  |            |   |    |   |  |   | (13,837 | ) |  |   | 4,257 | 
|                                | Year ended June 30, 2001 |                |   | 4,257     |  |           |   |           |  |            |   |    |   |  |   | (2,910  | ) |  |   | 1,347 | 
|                                | Year ended June 30, 2002 |                | $ | 1,347     |  |           | $ | 6,402      |  |            | $ |    |   |  | $ | (5,621  | ) |  | $ | 2,128 | 

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##### Table of Contents






EXHIBIT INDEX

|        |             |             |  |                                                                                                                                                                                                                   
|------- | ----------- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |             |            
|Number  |             | Description
|        |             |            
|        | 3.1(1)      |             |  | Certificate of Incorporation of Registrant.                                                                                                                                                                       
|        | 3.2(19)     |             |  | Certificate of Amendment to Certificate of
    Incorporation, dated August 29, 2000.                                                                                                                              
|        | 3.3(19)     |             |  | By-laws of Registrant as amended to date.                                                                                                                                                                         
|        | 4.1(2)      |             |  | Preferred Shares Rights Agreement between the
    Registrant and The First National Bank of Boston as Rights Agent
    dated April 19, 1995.                                                                      
|        | 4.2(3)      |             |  | Registration Rights Agreement, dated as of
    January 18, 2000, between Registrant and the investors
    named therein.                                                                                          
|        | 4.3(3)      |             |  | Certificate of Designations, Preferences and
    Rights of Series B Convertible Preferred Stock as filed
    with the Secretary of State of the State of Delaware on
    January 18, 2000.                        
|        | 10.1(1)(4)  |             |  | 1988 Stock Option Plan and forms of Incentive
    Stock Option Agreements and Nonstatutory Stock Option
    Agreements, as amended to date.                                                                       
|        | 10.2(4)(7)  |             |  | 1993 Directors Stock Option Plan, as
    amended to date.                                                                                                                                                        
|        | 10.3(4)(5)  |             |  | 1993 Employee Stock Purchase Plan and forms of
    Option Agreements, as amended to date.                                                                                                                         
|        | 10.4(4)(7)  |             |  | 1997 Stock Plan, as amended to date.                                                                                                                                                                              
|        | 10.5(4)     |             |  | 1998 Non-Statutory Stock Plan and form of Stock
    Option Agreement, as amended to date.                                                                                                                         
|        | 10.6(4)(7)  |             |  | Stock Option Agreement, dated August 1,
    2000, between Registrant and Michael S. Worhach.                                                                                                                      
|        | 10.7(4)(6)  |             |  | Employee Stock Option agreement, as amended,
    dated April 18, 2000 between Registrant and Gary J.
    Sbona.                                                                                                   
|        | 10.8(7)     |             |  | Employee Stock Option Agreement, dated
    July 3, 2000, between Registrant and Paul Loucas.                                                                                                                      
|        | 10.9(3)     |             |  | Form of Warrant to Purchase Common Stock, dated
    January 18, 2000, issued to certain investors.                                                                                                                
|        | 10.10(17)   |             |  | Share Purchase Agreement, dated as of
    September 19, 2000, between Registrant and the purchasers
    referred to therein.                                                                                      
|        | 10.11(17)   |             |  | Amendment, dated October 11, 2000, to Share
    Purchase Agreement, dated as of September 27, 2000.                                                                                                               
|        | 10.12(3)    |             |  | Securities Purchase Agreement, dated as of
    January 18, 2000, between Registrant and the investors
    listed on the Schedule of Buyers attached thereto.                                                      
|        | 10.13(17)   |             |  | Letter Agreement, dated September 27, 2000,
    between Halpern Capital Advisors and Registrant.                                                                                                                  
|        | 10.14(17)   |             |  | Warrant Purchase Agreement, dated
    October 17, 2000, between Baruch and Shoshana Halpern
    and Registrant.                                                                                                   
|        | 10.15(17)   |             |  | Form of Common Stock Purchase Warrant, dated
    October 17, 2000, issued to Baruch and Shoshana Halpern.                                                                                                         
|        | 10.16(4)(6) |             |  | Retainer Agreement between Company and Regent
    Pacific Management Corporation, effective February 15, 2000.                                                                                                    
|        | 10.17(18)   |             |  | Amendment, dated October 17, 2000, to
    Retainer Agreement between Company and Regent Pacific Management
    Corporation, dated as of February 15, 2000.                                                        
|        | 10.18(21)   |             |  | Second Amendment, dated November 20, 2001,
    to Retainer Agreement between Auspex Systems, Inc and Regent
    Pacific Management Corporation, dated as of February 15,
    2000, as amended on October 17, 2000.
|        | 10.19(1)(4) |             |  | 401(k) Plan, as amended to date.                                                                                                                                                                                  
|        | 10.20(1)(4) |             |  | Summary of Executive Bonus Program.                                                                                                                                                                               
|        | 10.21(1)(4) |             |  | Form of Directors and Officers
    Indemnification Agreement with all of its Directors and Officers.                                                                                                            

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|        |               |             |  |                                                                                                                                                                                                                                                                                                                                         
|------- | ------------- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |               |            
|Number  |               | Description
|        |               |            
|        | 10.22(1)(8)   |             |  | OEM Agreement, dated March 9, 1993, between
    the Registrant and Fuji Xerox Company, Ltd.                                                                                                                                                                                                                                             
|        | 10.23(1)(8)   |             |  | Distributor Agreement, dated June 6, 1990,
    between the Registrant and Nissho Electronics Corporation.                                                                                                                                                                                                                               
|        | 10.24(8)      |             |  | Distributor Agreement, dated June 6, 1990,
    between the Registrant and Nissho Electronics Corporation, as
    amended on July 29, 1997.                                                                                                                                                                                              
|        | 10.25(18)     |             |  | Authorized Distributor Agreement, dated
    December 5, 2000, between Registrant and Bell
    Microproducts, Inc.                                                                                                                                                                                                                       
|        | 10.26(18)     |             |  | Authorized Reseller Agreement, dated
    December 29, 2000, effective December 27, 2000,
    between Registrant and Insight Direct USA, Inc.                                                                                                                                                                                            
|        | 10.27(1)      |             |  | U.S. OEM Discount Agreement between the
    Registrant and Sun Microsystems, Inc., effective as of
    August 18, 1988, as amended by Addendum dated
    September 8, 1988 and Addendum dated September 14,
    1989.                                                                                                                   
|        | 10.28(1)      |             |  | Source Code License between the Registrant and
    Sun Microsystems, Inc., dated August 31, 1988, as amended
    on April 30, 1991, February 11, 1992 and
    March 18, 1992.                                                                                                                                                           
|        | 10.29(1)      |             |  | NFS Software Agreement between the
    Registrant and Sun Microsystems, Inc., dated September 29,
    1988.                                                                                                                                                                                                                             
|        | 10.30(9)(10)  |             |  | Software Agreement between the Registrant and
    AT&T Information Systems Inc., dated June 2, 1988, as
    amended by Supplement Number 1, Supplement Number 2,
    dated August 5, 1988, and Supplement Number 3, dated
    August 10, 1990, as amended on June 28, 1993.                                                             
|        | 10.31(9)(10)  |             |  | Sublicensing Agreement between the Registrant and
    AT&T Information Systems Inc., dated August 30, 1988,
    as amended on June 28, 1993.                                                                                                                                                                                            
|        | 10.32(1)      |             |  | Software Agreement between the Registrant and
    UNIX System Laboratories, Inc., dated April 29, 1992.                                                                                                                                                                                                                                 
|        | 10.33(1)      |             |  | License Agreement with the Regents of the
    University of California, dated June 9, 1988, as amended by
    Addendum dated October 21, 1988.                                                                                                                                                                                          
|        | 10.34(11)(12) |             |  | Intel Corporation Purchase Agreement between
    Intel Corporation and the Registrant, dated March 22, 1994.                                                                                                                                                                                                                            
|        | 10.35(13)     |             |  | Warranty and Service Provider Agreement between
    the Registrant and AT&T Global Information
    Systems,dated April 15, 1994.                                                                                                                                                                                                        
|        | 10.36(13)     |             |  | SunSoft Technology License and Distribution
    Agreement between the Registrant and SunSoft, Inc., dated
    December 17, 1993.                                                                                                                                                                                                        
|        | 10.37(13)     |             |  | Amendment No. 2 to Lease Agreement between
    the Registrant and WHC-SIX Real Estate, dated February 28,
    1996.                                                                                                                                                                                                                     
|        | 10.38(13)     |             |  | Interactive SPARC Software and Sublicensing
    Agreement between Auspex Systems, Inc. and Interactive systems
    Corporation, dated November 15, 1991.                                                                                                                                                                                
|        | 10.39(14)     |             |  | Lease Agreement by and Between South Bay/San
    Tomas Associates and Auspex Systems, Inc., dated
    January 14, 1997, for 2800 Scott Boulevard, Santa Clara
    facility.                                                                                                                                                             
|        | 10.40(14)     |             |  | Lease Agreement by and Between South Bay/ San
    Tomas Associates and Auspex Systems, Inc., dated
    January 14, 1997, for 2300, 2320, 2330 Central
    Expressway, Santa Clara facility.                                                                                                                                             
|        | 10.41(15)     |             |  | Software Support Agreement between the Registrant
    and AT&T dated July 10, 1997.                                                                                                                                                                                                                                                     
|        | 10.42(15)     |             |  | Software Licensing Agreement between the
    Registrant and AT&T Corporation dated June 3, 1997, as
    amended on September 14, 1998.                                                                                                                                                                                                  
|        | 10.43(15)     |             |  | Source License Agreement between the Registrant
    and Programmed Logic Corp. Dated July 1, 1998; Bundled
    Hardware OEM Binary License Agreement between the
    Registrant and Programmed Logic Corp. dated July 1, 1998;
    Read-Only License Agreement between the Registrant and
    Programmed Logic Corp. dated July 1, 1998.

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|        |           |             |  |                                                                                                                 
|------- | --------- | ----------- |  | ----------------------------------------------------------------------------------------------------------------
|Exhibit |           |            
|Number  |           | Description
|        |           |            
|        | 10.44(15) |             |  | Master Value Added Distribution Agreement between
    the Registrant and Fuji Xerox Co. Ltd. Dated May 21, 1997.
|        | 10.45(19) |             |  | Line of Credit Agreement, dated March 31,
    2001, between the Company and Wells Fargo Bank.                   
|        | 10.46(20) |             |  | Re-seller Agreement with Net Brains, Inc., dated
    September 9, 2001                                          
|        | 10.47     |             |  | Re-seller Agreement, dated June 7, 2002,
    between the Company and Hitachi Data Systems, Asia Pacific         
|        | 21.1      |             |  | Subsidiaries of Registrant.                                                                                     
|        | 23.1      |             |  | Consent of KPMG LLP.                                                                                            
|        | 24.1      |             |  | Power of Attorney (See Page 32).                                                                                



---



|    |                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to exhibits filed in
    response to Item 16(a), Exhibits, of the
    Registrants Registration Statement on Form S-1, as
    amended (File No. 33-60052), which was declared effective
    on May 11, 1993.   
|   
|(2) | Incorporated by reference to Exhibit 1 filed
    in connection with the Registrants Form 8-A, which
    was filed on April 20, 1995.                                                                                                      
|   
|(3) | Incorporated by reference to exhibits filed in
    response to Item 7(c), Exhibits, of the
    Registrants Current Report on Form 8-K (File No.
    0-21432), which was filed on January 19, 2000.                                      
|   
|(4) | Designates management contract or compensatory
    plan arrangements required to be filed as an exhibit of this
    Annual Report on Form 10-K pursuant to Item 14(c).                                                                     
|   
|(5) | Incorporated by reference to exhibits filed in
    connection with the Registrants Proxy Statement for the
    1999 Annual Meeting of Stockholders, which was filed on
    October 8, 1999.                                               
|   
|(6) | Incorporated by reference to exhibits filed in
    response to Item 6(a), Exhibits, filed in
    connection with Registrants Form 10-Q for the quarter
    ended March 31, 2000 (File No. 0-21432), which was
    filed on May 11, 2000.
|   
|(7) | Incorporated by reference to exhibits filed in
    response to Item 8, Exhibits, of the
    Registrants Registration Statement on Form S-8 (File
    No. 333-54900), which was filed February 2, 2001.                                  
|   
|(8) | Confidential treatment granted by order effective
    May 11, 1993.                                                                                                                                                                        
|   
|(9) | Incorporated by reference to identically numbered
    exhibits filed in connection with Registrants
    Form 10-K for the fiscal year ended June 25, 1993
    (File No. 33-60052).                                                        



|     |                                                                                                                                                                                                                                                                                    
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Confidential treatment granted by order effective
    January 14, 1994.                                                                                                                                                                                                            
|    
|(11) | Incorporated by reference to Exhibit 10.1
    filed in connection with Registrants Form 10-Q for
    the quarter ended March 31, 1994 (File No. 0-21432),
    which was filed on May 16, 1994.                                                                                    
|    
|(12) | Confidential treatment granted by order effective
    July 7, 1994.                                                                                                                                                                                                                
|    
|(13) | Incorporated by reference to exhibits filed in
    connection with the Registrants Form 10-K for the
    fiscal year ended June 30, 1994 (File No. 0-21432),
    which was filed on September 28, 1994 and confidential
    treatment granted by order effective December 5, 1994.
|    
|(14) | Incorporated by reference to exhibits filed in
    connection with Registrants Form 10-K for the fiscal
    year ended June 30, 1997 (File No. 0-21432), which was
    filed on September 24, 1997.                                                                               
|    
|(15) | Incorporated by reference to exhibits filed in
    connection with Registrants Form 10-K for the fiscal
    year ended June 30, 1999 (File No. 0-21432), which was
    filed on September 27, 1999.                                                                               
|    
|(16) | Incorporated by reference to exhibits in
    connection with Registrants Form 10-Q for the quarter
    ended December 31, 1999, which was filed on
    February 10, 2000.                                                                                                         
|    
|(17) | Incorporated by reference to exhibits in
    connection with Registrants Form 10-Q for the quarter
    ended September 31, 2000 (File No. 0-21432), which was
    filed on November 14, 2000.                                                                                     

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##### Table of Contents





|     |                                                                                                                                                                                               
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(18) | Incorporated by reference to exhibits in
    connection with Registrants Form 10-Q for the quarter
    ended December 31, 2000 (File No. 0-21432), which was
    filed on February 14, 2001. 
|    
|(19) | Incorporated by reference to exhibits in
    connection with Registrants Form 10-Q for the quarter
    ended March 31, 2001 (File No. 0-21432), which was
    filed on May 15, 2001.         
|    
|(20) | Incorporated by reference to exhibits in
    connection with Registrants Form 10-Q for the quarter
    ended September 31, 2001 (File No. 0-21432), which was
    filed on November 14, 2001.
|    
|(21) | Incorporated by reference to exhibits in
    connection with Registrants Form 10-Q for the quarter
    ended December 31, 2001 (File No. 0-21432), which was
    filed on February 14, 2002. 

(b) Reports on Form 8-K:



| |                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Registrant filed a Current Report on
    Form 8-K, filed June 17, 2002, which reported under
    Item 4. Changes in Registrants Certifying
    Accountant.  
|
| | The Registrant filed a Current Report on
    Form 8-K/A, filed June 21, 2002, which reported under
    Item 4. Changes in Registrants Certifying
    Accountant.
|
| | The Registrant filed a Current Report on
    Form 8-K, filed June 26, 2002, which reported under
    Item 4. Changes in Registrants Certifying
    Accountant.  

62