##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



---



FORM 10-Q



---



|                                              |  |                                                                                         
|--------------------------------------------- |  | ----------------------------------------------------------------------------------------
|(Mark One)
[X]                                |  | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
|                                             
|For the quarterly period ended March 31, 2002
|                                             
|OR                                           
|                                             
|[    ]                                        |  | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 000-27221



---



VIXEL CORPORATION
(Exact name of registrant as specified in its charter)

|                                  |  |                    
|--------------------------------- |  | -------------------
|Delaware                          |  | 84-117650          
|(State or other jurisdiction      |  | (I.R.S. Employer   
|of incorporation or organization) |  | Identification No.)

11911 North Creek Parkway South
Bothell, Washington 98011
(425) 806-5509

(Address, including zip code, of Registrants principal executive offices and
telephone number, including area code)



---



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

The number of shares outstanding of the Registrants common stock, $.0015
par value, as of April 26, 2002 was 24,051,010.





---

TABLE OF CONTENTS



|                              |                                                                                               |                                         |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONDENSED BALANCE SHEET                
|                              |                                                                                               | CONDENSED STATEMENT OF OPERATIONS      
|                              |                                                                                               | CONDENSED STATEMENT OF CASH FLOWS      
|                              |                                                                                               | NOTES TO CONDENSED FINANCIAL STATEMENTS
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK                            
|PART II. OTHER INFORMATION   
|                              | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                              | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   
|EXHIBIT INDEX                



---



##### Table of Contents



VIXEL CORPORATION

INDEX TO FORM 10-Q FOR QUARTER ENDED MARCH 31, 2002

|          |                       |                                                                                       |                                                                                                                              |    |   |    |     
|--------- | --------------------- | ------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | -- | - | -- | ----
|          |                       |                                                                                       |                                                                                                                              |    |   |    | Page
|          |                       |                                                                                       |                                                                                                                              |    |   |    |     
|Part I    | FINANCIAL INFORMATION |                                                                                       |                                                                                                                             
|          | Item 1.               | Financial Statements                                                                  |                                                                                                                              |   
|          |                       |                                                                                       | Condensed Balance Sheet as of March 31, 2002 (unaudited) and
December 30, 2001 (unaudited)                                   |    | 3
|          |                       |                                                                                       | Condensed Statement of Operations for the three-month periods ended
March 31, 2002 (unaudited) and April 1, 2001 (unaudited) |    | 4
|          |                       |                                                                                       | Condensed Statement of Cash Flows for the three-month periods ended
March 31, 2002 (unaudited) and April 1, 2001 (unaudited) |    | 5
|          |                       |                                                                                       | Notes to Condensed Financial Statements                                                                                      |    | 6
|          | Item 2.               | Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                                              | 8 
|          | Item 3.               | Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                                              | 21
|Part II   | OTHER INFORMATION     |                                                                                       |                                                                                                                             
|          | Item 1.               | Legal Proceedings                                                                     |                                                                                                                              | 21
|          | Item 2.               | Changes in Securities and Use of Proceeds                                             |                                                                                                                              | 22
|          | Item 6.               | Exhibits and Reports on Form 8-K                                                      |                                                                                                                              | 22
|Signature |                       |                                                                                       |                                                                                                                              |    |   | 23

2



---



##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




VIXEL CORPORATION
CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

|                                     |                                                                                |                                                                                                                          |                                            |       |           |        |              |       |          |        | 
|------------------------------------ | ------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ----- | --------- | ------ | ------------ | ----- | -------- | ------ | 
|                                     |                                                                                |                                                                                                                          |                                            |       | March 31, |        | December 30,
|                                     |                                                                                |                                                                                                                          |                                            |       | 2002      |        | 2001        
|                                     |                                                                                |                                                                                                                          |                                            |       |           |        |             
|Assets                               |                                                                                |                                                                                                                          |                                            |       |           |        |              |      
|                                     | Current assets                                                                 |                                                                                                                          |                                            |       |           |        |              |       |         
|                                     |                                                                                | Cash and cash equivalents                                                                                                |                                            | $     | 4,106     |        |              | $     | 5,036    |       
|                                     |                                                                                | Short-term investments                                                                                                   |                                            |       | 18,337    |        |              |       | 20,942   |       
|                                     |                                                                                | Accounts receivable, net of allowance for doubtful
accounts of $237 and $389, respectively                               |                                            |       | 2,105     |        |              |       | 2,995    |       
|                                     |                                                                                | Inventories                                                                                                              |                                            |       | 1,962     |        |              |       | 2,951    |       
|                                     |                                                                                | Prepaid expenses and other current assets                                                                                |                                            |       | 1,317     |        |              |       | 1,271    |       
|                                     |                                                                                |                                                                                                                          |                                            |       |           |        |              |      
|                                     |                                                                                |                                                                                                                          | Total current assets                       |       |           | 27,827 |              |       |          | 33,195 | 
|                                     | Property and equipment, net of accumulated
depreciation of $10,063 and $10,396 |                                                                                                                          |                                            | 3,646 |           |        |              | 4,299 |         
|                                     | Goodwill and identifiable intangibles, net                                     |                                                                                                                          |                                            | 830   |           |        |              | 948   |         
|                                     | Other assets                                                                   |                                                                                                                          |                                            | 240   |           |        |              | 323   |         
|                                     |                                                                                |                                                                                                                          |                                            |       |           |        |              |      
|                                     |                                                                                |                                                                                                                          | Total assets                               |       | $         | 32,543 |              |       | $        | 38,765 | 
|                                     |                                                                                |                                                                                                                          |                                            |       |           |        |              |      
|Liabilities and stockholders equity |                                                                                |                                                                                                                          |                                            |       |           |        |              |      
|                                     | Current liabilities                                                            |                                                                                                                          |                                            |       |           |        |              |       |         
|                                     |                                                                                | Current portion of long-term debt and capital leases                                                                     |                                            | $     | 1,115     |        |              | $     | 1,340    |       
|                                     |                                                                                | Accounts payable                                                                                                         |                                            |       | 1,825     |        |              |       | 4,046    |       
|                                     |                                                                                | Accrued liabilities                                                                                                      |                                            |       | 4,403     |        |              |       | 4,022    |       
|                                     |                                                                                | Deferred revenue                                                                                                         |                                            |       | 1,179     |        |              |       | 1,147    |       
|                                     |                                                                                |                                                                                                                          |                                            |       |           |        |              |      
|                                     |                                                                                |                                                                                                                          | Total current liabilities                  |       |           | 8,522  |              |       |          | 10,555 | 
|                                     | Long-term debt and capital leases                                              |                                                                                                                          |                                            | 52    |           |        |              | 184   |         
|                                     |                                                                                |                                                                                                                          |                                            |       |           |        |              |      
|                                     |                                                                                |                                                                                                                          | Total liabilities                          |       |           | 8,574  |              |       |          | 10,739 | 
|                                     |                                                                                |                                                                                                                          |                                            |       |           |        |              |      
|                                     | Commitments and contingencies                                                  |                                                                                                                          |                                            |       |           |        |              |       |         
|                                     | Stockholders equity                                                           |                                                                                                                          |                                            |       |           |        |              |       |         
|                                     |                                                                                | Common stock, $.0015 par value; 60,000,000 shares
authorized; 24,272,229 shares issued and
24,050,329 shares outstanding |                                            |       | 36        |        |              |       | 36       |       
|                                     |                                                                                | Additional paid-in capital                                                                                               |                                            |       | 156,922   |        |              |       | 156,922  |       
|                                     |                                                                                | Stock-based compensation                                                                                                 |                                            |       | (485      | )      |              |       | (765     | )     
|                                     |                                                                                | Notes receivable from stockholders                                                                                       |                                            |       | (3,745    | )      |              |       | (3,745   | )     
|                                     |                                                                                | Treasury stock, at cost; 288,566 shares                                                                                  |                                            |       | (348      | )      |              |       | (348     | )     
|                                     |                                                                                | Accumulated deficit                                                                                                      |                                            |       | (128,411  | )      |              |       | (124,074 | )     
|                                     |                                                                                |                                                                                                                          |                                            |       |           |        |              |      
|                                     |                                                                                |                                                                                                                          | Total stockholders equity                 |       |           | 23,969 |              |       |          | 28,026 | 
|                                     |                                                                                |                                                                                                                          |                                            |       |           |        |              |      
|                                     |                                                                                |                                                                                                                          | Total liabilities and stockholders equity |       | $         | 32,543 |              |       | $        | 38,765 | 
|                                     |                                                                                |                                                                                                                          |                                            |       |           |        |              |      

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

3



---



##### Table of Contents






VIXEL CORPORATION
CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

|                                                      |                                                                   |                          |        |                    |       |          |        |       |       | 
|----------------------------------------------------- | ----------------------------------------------------------------- | ------------------------ | ------ | ------------------ | ----- | -------- | ------ | ----- | ----- | 
|                                                      |                                                                   |                          |        | THREE MONTHS ENDED
|                                                      |                                                                   |                          |        |                   
|                                                      |                                                                   |                          |        | March 31,          |       | April 1,
|                                                      |                                                                   |                          |        | 2002               |       | 2001    
|                                                      |                                                                   |                          |        |                    |       |         
|Revenue                                               |                                                                   |                          |        |                    |       |          |        |      
|                                                      | Systems                                                           |                          | $      | 4,720              |       |          | $      | 3,540 |      
|                                                      | Components                                                        |                          |        |                   |       |          |        | 2,514 |      
|                                                      |                                                                   |                          |        |                    |       |          |        |      
|                                                      |                                                                   | Total revenue            |        |                    | 4,720 |          |        |       | 6,054 | 
|Cost of revenue (1)                                   |                                                                   |                          | 2,602  |                    |       |          | 3,839  |      
|                                                      |                                                                   |                          |        |                    |       |          |        |      
|Gross profit                                          |                                                                   |                          | 2,118  |                    |       |          | 2,215  |      
|                                                      |                                                                   |                          |        |                    |       |          |        |      
|Operating expenses                                    |                                                                   |                          |        |                    |       |          |        |      
|                                                      | Research and development (2)                                      |                          |        | 3,580              |       |          |        | 3,993 |      
|                                                      | Selling, general and administrative (3)                           |                          |        | 2,657              |       |          |        | 4,817 |      
|                                                      | Amortization of goodwill (2001 only) and
identifiable intangibles |                          |        | 109                |       |          |        | 247   |      
|                                                      | Amortization of stock-based compensation                          |                          |        | 275                |       |          |        | 516   |      
|                                                      |                                                                   |                          |        |                    |       |          |        |      
|                                                      |                                                                   | Total operating expenses |        |                    | 6,621 |          |        |       | 9,573 | 
|                                                      |                                                                   |                          |        |                    |       |          |        |      
|Loss from operations                                  |                                                                   |                          | (4,503 | )                  |       |          | (7,358 | )    
|Other income, net                                     |                                                                   |                          | 166    |                    |       |          | 568    |      
|                                                      |                                                                   |                          |        |                    |       |          |        |      
|Net loss                                              |                                                                   | $                        | (4,337 | )                  |       | $        | (6,790 | )    
|                                                      |                                                                   |                          |        |                    |       |          |        |      
|Basic and diluted net loss per share                  |                                                                   | $                        | (0.18  | )                  |       | $        | (0.29  | )    
|                                                      |                                                                   |                          |        |                    |       |          |        |      
|Weighted-average shares outstanding
basic and diluted |                                                                   |                          | 23,734 |                    |       |          | 23,264 |      
|                                                      |                                                                   |                          |        |                    |       |          |        |      



---

|(1) |  | Includes amortization of stock-based compensation of $5 and $11 for the three months ended
March 31, 2002 and April 1, 2001, respectively.   
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Excludes amortization of stock-based compensation of $5 and $11 for the three months ended
March 31, 2002 and April 1, 2001, respectively.   
|   
|   
|   
|   
|(3) |  | Excludes amortization of stock-based compensation of $270 and $505 for the three months ended
March 31, 2002 and April 1, 2001, respectively.

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

4



---



##### Table of Contents






VIXEL CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

|                                                         |                                                                            |                                                                   |                                                            |                                           |     |                    |        |          |       |        |        |  
|-------------------------------------------------------- | -------------------------------------------------------------------------- | ----------------------------------------------------------------- | ---------------------------------------------------------- | ----------------------------------------- | --- | ------------------ | ------ | -------- | ----- | ------ | ------ | -
|                                                         |                                                                            |                                                                   |                                                            |                                           |     | THREE MONTHS ENDED
|                                                         |                                                                            |                                                                   |                                                            |                                           |     |                   
|                                                         |                                                                            |                                                                   |                                                            |                                           |     | March 31,          |        | April 1,
|                                                         |                                                                            |                                                                   |                                                            |                                           |     | 2002               |        | 2001    
|                                                         |                                                                            |                                                                   |                                                            |                                           |     |                    |        |         
|Cash flows from operating activities                     |                                                                            |                                                                   |                                                            |                                           |     |                    |        |         
|                                                         | Net loss                                                                   |                                                                   | $                                                          | (4,337                                    | )   |                    | $      | (6,790   | )    
|                                                         | Adjustments to reconcile net loss to net cash used in
operating activities |                                                                   |                                                            |                                           |     |                    |        |          |      
|                                                         |                                                                            | Depreciation                                                      |                                                            |                                           | 860 |                    |        |          | 1,028 |       
|                                                         |                                                                            | Amortization
of goodwill (2001 only) and identifiable intangibles |                                                            |                                           | 118 |                    |        |          | 247   |       
|                                                         |                                                                            | Loss on disposal of property and equipment                        |                                                            |                                           | 25  |                    |        |          |      |       
|                                                         |                                                                            | Stock-based compensation                                          |                                                            |                                           | 280 |                    |        |          | 527   |       
|                                                         |                                                                            | Changes in                                                        |                                                            |                                           |     |                    |        |          | 1,028 |       
|                                                         |                                                                            |                                                                   | Accounts receivable, net                                   |                                           |     | 890                |        |          |       | 4,502  |       
|                                                         |                                                                            |                                                                   | Inventories                                                |                                           |     | 989                |        |          |       | (1,142 | )     
|                                                         |                                                                            |                                                                   | Prepaid expenses and other assets                          |                                           |     |                   |        |          |       | 355    |       
|                                                         |                                                                            |                                                                   | Accounts payable, accrued liabilities and deferred revenue |                                           |     | (1,808             | )      |          |       | 128    |       
|                                                         |                                                                            |                                                                   |                                                            |                                           |     |                    |        |         
|                                                         |                                                                            |                                                                   |                                                            | Net cash used in operating activities     |     |                    | (2,983 | )        |       |        | (1,145 | )
|                                                         |                                                                            |                                                                   |                                                            |                                           |     |                    |        |         
|Cash flows from investing activities                     |                                                                            |                                                                   |                                                            |                                           |     |                    |        |         
|                                                         | Purchase of short-term investments                                         |                                                                   |                                                            | (5,688                                    | )   |                    |        | (8,221   | )    
|                                                         | Maturities of short-term investments                                       |                                                                   |                                                            | 8,293                                     |     |                    |        | 17,573   |      
|                                                         | Purchase of property and equipment                                         |                                                                   |                                                            | (247                                      | )   |                    |        | (530     | )    
|                                                         |                                                                            |                                                                   |                                                            |                                           |     |                    |        |         
|                                                         |                                                                            |                                                                   |                                                            | Net cash provided by investing activities |     |                    | 2,358  |          |       |        | 8,822  |  
|                                                         |                                                                            |                                                                   |                                                            |                                           |     |                    |        |         
|Cash flows from financing activities                     |                                                                            |                                                                   |                                                            |                                           |     |                    |        |         
|                                                         | Proceeds from issuance of short-term debt                                  |                                                                   |                                                            | 319                                       |     |                    |        |         |      
|                                                         | Principal payments on long-term debt and capital leases                    |                                                                   |                                                            | (624                                      | )   |                    |        | (725     | )    
|                                                         | Amortization of debt issuance costs                                        |                                                                   |                                                            |                                          |     |                    |        | 1        |      
|                                                         | Proceeds from exercise of stock options                                    |                                                                   |                                                            |                                          |     |                    |        | 22       |      
|                                                         |                                                                            |                                                                   |                                                            |                                           |     |                    |        |         
|                                                         |                                                                            |                                                                   |                                                            | Net cash used in financing activities     |     |                    | (305   | )        |       |        | (702   | )
|                                                         |                                                                            |                                                                   |                                                            |                                           |     |                    |        |         
|Net (decrease) increase in cash and cash equivalents     |                                                                            |                                                                   | (930                                                       | )                                         |     |                    | 6,975  |         
|Cash and cash equivalents, beginning of period           |                                                                            |                                                                   | 5,036                                                      |                                           |     |                    | 17,066 |         
|                                                         |                                                                            |                                                                   |                                                            |                                           |     |                    |        |         
|Cash and cash equivalents, end of period                 |                                                                            | $                                                                 | 4,106                                                      |                                           |     | $                  | 24,041 |         
|                                                         |                                                                            |                                                                   |                                                            |                                           |     |                    |        |         
|Cash paid for interest                                   |                                                                            | $                                                                 | 29                                                         |                                           |     | $                  | 102    |         
|Equipment purchased under capital leases                 |                                                                            | $                                                                 |                                                           |                                           |     | $                  | 36     |         
|Use of prepaid expense to acquire property and equipment |                                                                            | $                                                                 | 37                                                         |                                           |     | $                  |       |         

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

5



---



##### Table of Contents






VIXEL CORPORATION

Notes to Condensed Financial Statements
(Information for the three months ended
March 31, 2002 and April 1, 2001)
(Unaudited)

NOTE 1. BASIS OF PRESENTATION

The accompanying condensed financial statements as of March 31, 2002 and
for the three-month periods ended March 31, 2002 and April 1, 2001 are
unaudited; however, in the opinion of management, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of operations, financial position and cash
flows for the interim periods. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States of America, have
been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. Results of operations for the three-month
period ended March 31, 2002 are not necessarily indicative of future financial
results.

Investors should read these interim statements in conjunction with
Managements Discussion and Analysis of Financial Condition and Results of
Operations and the financial statements and notes thereto for the fiscal year
ended December 30, 2001 (audited) included in our Annual Report on Form 10-K,
as amended, filed with the Securities and Exchange Commission on April 1, 2002.

NOTE 2. INVENTORIES

Inventories consist of the following (in thousands):

|                                              |  |           |        |              |  |   |        |  
|--------------------------------------------- |  | --------- | ------ | ------------ |  | - | ------ | -
|                                              |  | March 31, |        | December 30,
|                                              |  | 2002      |        | 2001        
|                                              |  |           |        |             
|Raw materials                                 |  | $         | 4,704  |              |  | $ | 4,781  |  
|Finished goods                                |  |           | 1,622  |              |  |   | 2,232  |  
|Less: write-down to expected
realizable value |  |           | (4,364 | )            |  |   | (4,062 | )
|                                              |  |           |        |              |  |   |        |  
|                                              |  | $         | 1,962  |              |  | $ | 2,951  |  
|                                              |  |           |        |              |  |   |        |  

NOTE 3. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

In June 2001, the Financial Accounting Standards Board, or FASB, issued
FAS No. 142, Goodwill and Other Intangible Assets which requires the company
to discontinue amortization of goodwill as of December 31, 2001. We applied FAS
142 during the first quarter of 2002 and ceased amortizing goodwill with a net
book value of $369 as of the beginning of fiscal 2002. The adoption of FAS 142
resulted in reducing our net loss by $82 and reducing our basic and diluted net loss per
share by $.01 for the three months ended March 31, 2002.

6



---



##### Table of Contents



The following table presents net loss and net loss per share for the three
months ended April 1, 2001 on a pro forma basis as if FAS 142 had been adopted
on January 1, 2001 (in thousands, except per share amounts):

|                                                   |  |          |        |  
|-------------------------------------------------- |  | -------- | ------ | -
|                                                   |  | April 1,
|                                                   |  | 2001    
|                                                   |  |         
|Net loss  as reported                             |  | $        | (6,790 | )
|Amortization of goodwill                           |  |          | 82     |  
|                                                   |  |          |        |  
|Net loss  as adjusted                             |  | $        | (6,708 | )
|                                                   |  |          |        |  
|Basic and diluted net loss per share -
as reported |  | $        | (0.29  | )
|                                                   |  |          |        |  
|Basic and diluted net loss per share -
as adjusted |  | $        | (0.29  | )
|                                                   |  |          |        |  

Under the new rules, identifiable intangible assets will continue to be
amortized over their useful lives. Current estimated amortization expense for
the identifiable intangible assets is expected to be $436 and $55 for fiscal
years ending 2002 and 2003, respectively. In conjunction with
the sale of our SAN InSite software and related assets and resources,
the net book value of the identifiable intangible assets relating to
capitalized software costs will be expensed.

Goodwill and other intangible assets as of March 31, 2002 and December 30,
2001 consist of the following (in thousands):

|                     |       |   |                |       |                   |   |       |     |          |   |       |       |  |   |     |     | 
|-------------------- | ----- | - | -------------- | ----- | ----------------- | - | ----- | --- | -------- | - | ----- | ----- |  | - | --- | --- | 
|                     |       |   | March 31, 2002 |       | December 30, 2001
|                     |       |   |                |       |                  
|                     |       |   | Gross          |       |                   |   |       |     | Gross    |   |       |       | 
|                     |       |   | Book           |       | Net Book          |   | Book  |     | Net Book
|                     |       |   | Value          |       | Value             |   | Value |     | Value   
|                     |       |   |                |       |                   |   |       |     |         
|Core Technology      |       | $ | 2,183          |       |                   | $ | 382   |     |          | $ | 2,183 |       |  | $ | 491 |    
|Capitalized Software |       |   | 106            |       |                   |   | 79    |     |          |   | 106   |       |  |   | 88  |    
|Goodwill             |       |   | 3,555          |       |                   |   | 369   |     |          |   | 3,555 |       |  |   | 369 |    
|                     |       |   |                |       |                   |   |       |     |          |   |       |       |  |   |     |    
|                     | Total |   | $              | 5,844 |                   |   | $     | 830 |          |   | $     | 5,844 |  |   | $   | 948 | 
|                     |       |   |                |       |                   |   |       |     |          |   |       |       |  |   |     |    

We are required to perform goodwill impairment tests on an annual basis
and between annual tests in certain circumstances. As of March 31, 2002, no
impairment of goodwill has been recognized. There can be no assurance that
future goodwill impairment tests will not result in a charge to earnings.

NOTE 4. NET LOSS PER SHARE

Basic net loss per share represents the net loss divided by the
weighted-average number of common shares outstanding during the period,
excluding shares of restricted stock subject to repurchase. Diluted net loss
per share represents net loss divided by the weighted-average number of common
shares outstanding including the potentially dilutive impact of common stock
options and warrants and shares of restricted stock subject to repurchase.
Common stock options and warrants are converted using the treasury stock
method. Basic and diluted net loss per share are equal for the periods
presented because the impact of common stock equivalents is anti-dilutive.
Potentially dilutive securities totaling 6,045,392 and 5,004,946 shares for the
quarters ended March 31, 2002 and April 1, 2001, respectively, were excluded
from diluted net loss per share due to their anti-dilutive effect.

7



---



##### Table of Contents



NOTE 5. COMMITMENTS AND CONTINGENCIES

On November 15, 2001, a securities class action was filed in the United
States District Court in the Southern District of New York against two of our
officers and directors and certain underwriters who participated in our initial
public offering in late 1999. The complaint alleges violations under Section
10(b) of the Securities Exchange Act of 1934 and Section 11 of the Securities
Act of 1933 and seeks unspecified damages on behalf of persons who purchased
our stock during the period October 1, 1999 through December 6, 2000. We intend
to defend ourselves vigorously in this matter. Accordingly, we have not
recognized any liability related to this claim.

NOTE 6. SUBSEQUENT EVENTS

On April 15, 2002, we closed a transaction with Fujitsu Software
Technology Corporation, d/b/a Fujitsu Softek, involving the acquisition by
Fujitsu Softek of our storage area network, or SAN, management software
business, including our SAN management software, SAN InSite, associated
intellectual property and key development team resources. Upon closing of the transaction we received $2.5
million and a note for $2.5 million, which is due and payable January 15, 2003. In addition, we have the right to receive up
to an additional $5.0 million from sales of Fujitsu Softek products based on SAN
InSite during the four-year period after the closing. Net of associated costs
and expenses, we anticipate recording a gain on sale from this transaction of
between $4.2 million and $4.5 million in the second quarter of 2002.

Focusing on our InSpeed-based product development and sales, leveraging
our marketing relationship with Vitesse Semiconductor Corporation for our
InSpeed based ASICs and selling our SAN InSite business provided us an
opportunity to reduce our operating costs. Management and the board of
directors approved a restructuring plan to eliminate resources that we believe
are no longer required to execute our strategies. As a result, we expect to
record a restructuring charge during the second quarter of 2002 related to
severance, benefits and excess equipment and facility capacity. We estimate
that this charge will be between $1.7 million and $2.2 million.




|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the unaudited
condensed financial statements in Item 1 of this Quarterly Report and with
Managements Discussion and Analysis of Financial Condition and Results of
Operations contained in our December 30, 2001 Annual Report on Form 10-K, as
amended, filed with the Securities and Exchange Commission on April 1, 2002.

This document contains forward-looking statements that involve risk and
uncertainties. The statements contained in this report that are not purely
historical are forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended. In some cases, you can
identify forward-looking statements by terminology such as may, will,
should, expect, plan, anticipate, believe, estimate, predict,
potential or continue, the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results
may differ materially.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of the
forward-looking statements. We are under no duty to update any of the
forward-looking statements after the date hereof to conform such statements to
actual results or to changes in our expectations.

References to dollar amounts are in thousands unless otherwise specified.

8



---



##### Table of Contents



OVERVIEW

We provide comprehensive Fibre Channel-based technologies and products for
data storage solutions and storage networking applications. Our offering
consists of a variety of switch and hub products that connect computers to data
storage devices in a network configuration and a switch-on-a-chip Application
Specific Integrated Circuit, or ASIC, which can be embedded in a variety of
data storage devices to enhance performance, improve availability, and increase
the reliability of these devices. This new switching technology can be sold in
chip, blade or box form to original equipment manufacturers, or OEMs, for
inclusion in their solutions. Our storage networking interconnect products are
sold primarily as fully integrated switches and hubs through OEMs, integrators
and value-added resellers.

During 2001, we used our expertise in Fibre Channel switching technologies
to develop a switch-on-a-chip ASIC. This ASIC incorporates our InSpeed
technology, which is an advanced switching architecture that results in a
single chip capable of handling multiple Fibre Channel devices. This ASIC can
be embedded into storage enclosure devices such as redundant array of
independent disks, or RAID, enclosures, tape libraries, network-attached
storage environments and next generation storage systems to enhance the
performance and scaling of these solutions as well as improve device
availability and reliability. We are also using this ASIC in Fibre Channel
switches and blades that can be embedded by OEMs in their storage solutions.
As part of our embedded storage switch strategy, we have licensed the
manufacturing and selling of our Fibre Channel switch ASICs. This technology
can also be used to offer high performance, low cost switches for entry level
SANs.

We derive substantially all of our revenue from the sale of Fibre Channel
products, including SAN switches, hubs and embedded storage switch products. We
also license certain technologies and receive royalty revenue and provide
engineering services and receive service revenue. Systems revenue consists of
revenue generated from our Fibre Channel products, embedded storage switch
products, royalties and services. Component revenue consists primarily of
revenue generated from the sale of our transceiver products to OEMs for use in
their products. During the second quarter of 2001, we discontinued the
manufacturing and selling of our transceiver products.

We sell our products primarily to a limited number of customers. Compaq
Computer, Xyratex Technology Ltd., a contract manufacturer for Network
Appliance, and Avid Technology represented 22.1%, 22.0% and 10.8% of revenue,
respectively, for the three months ended March 31, 2002. Sun Microsystems, Avid
Technology and Compaq Computer represented 49.0%, 19.5% and 10.2% of revenue,
respectively, for the three months ended April 1, 2001. No other individual
customer represented more than 10.0% of our total revenue in those periods.
While we are seeking to diversify our customer base and expand the portion of
our revenue that is derived from sales through various distribution channels,
we anticipate that our operating results will continue to depend on volume
sales to a relatively small number of OEMs. We may not be successful in our
efforts to diversify our customer base and the loss of one of our key customers
could significantly reduce our total revenue. During the three months ended
March 31, 2002 and April 1, 2001, 15.0% and 9.7%, respectively, of our total
revenue was derived from sales to distribution channel customers.

Our gross profit as a percentage of total revenue is affected by the mix
of products sold, sales channels and customers to which our products are sold.
Our gross profit as a percentage of total revenue also is affected by
fluctuations in manufacturing volumes and component costs, manufacturing costs
charged by our contract manufacturers, new product introductions, changes in
our product pricing and estimated warranty costs. We expect that average unit
selling prices for our products will decline over time in response to
competitive pricing pressures, increased sales discounts, new product
introductions by us or our competitors, and other factors. We seek to maintain
gross profit as a percentage of total revenue by selling a higher percentage of
higher margin products, reducing the cost of our products through manufacturing
efficiencies, design improvements and cost reductions for components and
leveraging our internal operations infrastructure.

9



---



##### Table of Contents



On April 15, 2002, we closed a transaction with Fujitsu Software
Technology Corporation, d/b/a Fujitsu Softek, involving the acquisition by
Fujitsu Softek of our storage area network, or SAN, management software
business, including our SAN management software, SAN InSite, associated
intellectual property and key development team resources. Upon
closing of the transaction we received $2.5
million and a note for $2.5 million, which is
due and payable January 15, 2003. In addition, we have the right to receive up
to an additional $5.0 million from sales of Fujitsu Softek products based on SAN
InSite during the four-year period after the closing. Net of associated costs
and expenses, we anticipate recording a gain on sale from this
transaction of
between $4.2 million and $4.5 million in the second quarter of 2002.

RESULTS OF OPERATIONS

The following table sets forth the percentage of total revenue represented
by selected items from the unaudited Condensed Statement of Operations. This
table should be read in conjunction with the unaudited Condensed Financial
Statements included elsewhere herein.

|                     |                                                |                          |       |                    |       |          |        |      |       | 
|-------------------- | ---------------------------------------------- | ------------------------ | ----- | ------------------ | ----- | -------- | ------ | ---- | ----- | 
|                     |                                                |                          |       | Three Months Ended
|                     |                                                |                          |       |                   
|                     |                                                |                          |       | March 31,          |       | April 1,
|                     |                                                |                          |       | 2002               |       | 2001    
|                     |                                                |                          |       |                    |       |         
|Revenue              |                                                |                          |       |                    |       |          |        |     
|                     | Systems                                        |                          |       | 100.0              | %     |          |        | 58.5 | %    
|                     | Components                                     |                          |       |                   |       |          |        | 41.5 |      
|                     |                                                |                          |       |                    |       |          |        |     
|                     |                                                | Total revenue            |       |                    | 100.0 |          |        |      | 100.0 | 
|Cost of revenue      |                                                |                          | 55.1  |                    |       |          | 63.4   |     
|                     |                                                |                          |       |                    |       |          |        |     
|Gross profit         |                                                |                          | 44.9  |                    |       |          | 36.6   |     
|                     |                                                |                          |       |                    |       |          |        |     
|Operating expenses   |                                                |                          |       |                    |       |          |        |     
|                     | Research and development                       |                          |       | 75.8               |       |          |        | 66.0 |      
|                     | Selling, general and administrative            |                          |       | 56.3               |       |          |        | 79.6 |      
|                     | Amortization of goodwill and other intangibles |                          |       | 2.3                |       |          |        | 4.1  |      
|                     | Amortization of stock-based compensation       |                          |       | 5.8                |       |          |        | 8.5  |      
|                     |                                                |                          |       |                    |       |          |        |     
|                     |                                                | Total operating expenses |       |                    | 140.2 |          |        |      | 158.2 | 
|                     |                                                |                          |       |                    |       |          |        |     
|Loss from operations |                                                |                          | (95.3 | )                  |       |          | (121.6 | )   
|Other income, net    |                                                |                          | 3.5   |                    |       |          | 9.4    |     
|                     |                                                |                          |       |                    |       |          |        |     
|Net loss             |                                                |                          | (91.8 | )%                 |       |          | (112.2 | )%  
|                     |                                                |                          |       |                    |       |          |        |     

THREE MONTHS ENDED MARCH 31, 2002 COMPARED WITH THREE MONTHS ENDED APRIL 1,
2001

Revenue.Total revenue was $4,720 and $6,054 for the three months ended
March 31, 2002 and April 1, 2001, respectively. Our Systems revenue was
$4,720 and $3,540 for the three months ended March 31, 2002 and April 1, 2001,
respectively. The 33.3% increase in Systems revenue in the first quarter of
2002 compared with the first quarter of 2001 was primarily the result of sales
of embedded storage switch products and engineering service revenue. We did not
recognize any component revenue for the first quarter of fiscal 2002 because
during the second quarter of 2001, we discontinued the manufacture and sale of
our transceiver products.

Gross profit. Cost of revenue includes the cost to acquire finished
products from a third party manufacturer of our products, costs we incur

10



---



##### Table of Contents



related to engineering services we provide, expenses we incur related to
inventory management, product quality testing, customer order fulfillment, and
provisions for warranty expenses and inventory obsolescence. Gross profit was
$2,118 and $2,215 for the three months ended March 31, 2002 and April 1, 2001,
respectively, representing 44.9% and 36.6% of total revenue, respectively. The
increase in gross profit as a percentage of revenue during the first quarter of
2002 as compared with 2001 is primarily due to higher-margin ASIC revenue and a
decrease in warranty expense as a result of the expiration of the warranty
period on certain transceiver products.

Research and development expenses.Research and development expenses
consist primarily of salaries and related expenses for personnel engaged in the
design, development and sustaining engineering of our products, consulting and
outside service fees, costs for prototype and test units and other expenses
related to the design, development, testing and enhancement of our products.
Research and development expenses were $3,580, or 75.8% of total revenue, in
the three months ended March 31, 2002 compared with $3,993, or 66.0% of total
revenue, in the three months ended April 1, 2001. The $413, or 10.3%, decrease
in expenses was primarily attributable to a decrease in recruiting and
consulting expenses as well as a reduction in research and development expenses
resulting from the re-classification of engineering costs related to
engineering service as cost of revenue.

We believe that continued investment in research and development is an
essential element of our strategic objectives to design quality products while
reducing costs. As a result of the sale of SAN InSite software and
the related assets and
resources, we anticipate that the absolute dollars spent on research and
development during fiscal 2002 will be lower than fiscal 2001. However, we
expect research and development expenses to continue to represent a significant
portion of our overall operating expenses.

Selling, general and administrative expenses.Selling, general and
administrative expenses consist primarily of salaries, commissions and related
expenses for personnel engaged in marketing, sales, finance and information
technology support functions, as well as professional fees, allowance for
doubtful accounts receivable, trade shows and other marketing activities.
Selling, general and administrative expenses were $2,657, or 56.3% of total
revenue, in the three months ended March 31, 2002, compared with $4,817, or
79.6% of total revenue, in the three months ended April 1, 2001. The $2,160, or
44.8%, decrease in selling, general and administrative expenses was due to a
reduction in the allowance for doubtful accounts receivable resulting primarily
because of an improvement in our accounts receivable aging and a reduction in
the number of personnel engaged in sales, finance and information technology
support functions combined with reduced levels of related expenses. We
anticipate that selling, general and administrative expenses will continue at a
lower level in 2002 as compared with 2001 as we continue to manage costs,
maximize operating efficiencies and leverage our current infrastructure.

Amortization of goodwill and other intangibles.Amortization of goodwill
and other intangibles for the three months ended March 31, 2002 and April 1,
2001 were $109 and $247, respectively, representing 2.3% and 4.1% of total
revenue, respectively. In accordance with FAS 142 we have ceased amortizing
goodwill, beginning in fiscal year 2002. The first quarter amortization
expense relates to core technology resulting from the acquisition of
Arcxel
Technologies in 1998.

We are required to perform goodwill impairment tests on an annual basis
and between annual tests in certain circumstances. Consistent with the
requirements of FAS 142, we performed an impairment test of goodwill as of
December 31, 2001 and concluded that goodwill was not impaired.

Amortization of stock-based compensation.Total amortization of
stock-based compensation was $280 and $527 for the three months ended March 31,
2002 and April 1, 2001, respectively. Of these amounts, $5 and $11,
respectively, were included in cost of revenue. At March 31, 2002,
unamortized stock-based compensation was approximately $485.

Other income, net.Other income, net consists of interest income,
interest expense and other miscellaneous income or expense. Other income, net
was $166 and $568 for the three months ended March 31, 2002 and April 1, 2001,
respectively.

11



---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations primarily through the
sale of common stock and preferred stock with aggregate proceeds of
approximately $114.8 million. Additionally, we have financed our operations
through capital equipment lease lines, working capital credit facilities, notes
payable and $6.9 million in net cash received from the sale of our laser diode
fabrication facility and gigabit Ethernet product line. Our principal sources
of liquidity at March 31, 2002 consisted of $4.1 million in cash and cash
equivalents and $18.3 million in short-term investments. During April 2002, we
sold our SAN InSite software and related assets and resources and estimate we
will receive cash proceeds, net of expenses, between $4.2 million and $4.5 million. In
addition, we may receive future proceeds of up to an additional $5.0 million
based on the sale by Fujitsu Softek of SAN InSite based products. However, we
cannot be certain we will receive any future payments based on Fujitsu Softek
sales.

Cash utilized by operating activities was $3.0 million for the three
months ended March 31, 2002, and was due primarily to our operating loss, net
of non-cash expenses, offset by a reduction in working capital required to fund
our operations. Cash provided by investing activities was $2.4 million and was
primarily related to maturities of short-term investments, offset by purchases
of short-term investments, and capital expenditures of $247. Cash used in
financing activities was $305 and was primarily due to payments on
our long-term debt and capital
leases.

As of March 31, 2002, we had an accumulated deficit of $128.4 million and
have never been profitable. We reduced our work force during fiscal 2001 and
did so again subsequent to March 31, 2002 through the divestiture of our SAN
InSite business and by further aligning our resources to execute our
strategies. We plan to grow our revenue base and to continue to control our
expenses in order to achieve profitability. However, we cannot be certain that
we will ever realize sufficient revenue to achieve profitability. Even if we do
achieve profitability, we may not be able to sustain or increase profitability.

We believe that our existing cash, cash equivalent and short-term
investment balances will be sufficient to meet our cash requirements at least
through the next twelve to eighteen months. However, we may be required, or
could elect, to seek additional funding prior to that time. Our future capital
requirements will depend on many factors, including our future revenue, the
timing and extent of spending to support product development efforts and sales,
general and administrative activities, the timing of introductions of new
products, and market acceptance of our products. We cannot assure you that
additional equity or debt financing, if required, will be available on
acceptable terms or at all.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued FAS No. 143 Accounting for Obligations
Associated with the Retirement of Long-Lived Assets. The provisions of FAS
143 apply to all entities that incur obligations associated with the retirement
of tangible long-lived assets. FAS 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002 and will become effective
for us commencing with fiscal year 2003. We do not expect this accounting
pronouncement to have a significant impact on our financial position or results
of operations.

In August 2001, the FASB issued FAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. The objectives of FAS 144 are to
address issues relating to the implementation of FAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, and to develop a model for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. Our adoption of FAS 144,
effective December 31, 2001, has not materially impacted our financial
position, results of operations or cash flows.

12



---



##### Table of Contents



FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION

We have incurred significant losses since our inception, we expect future
losses, and we may not become profitable.

We have incurred significant losses since inception, most recently a net
loss of $4.3 million for the three months ended March 31, 2002, and we expect
to incur losses in the future. As of March 31, 2002, we had an accumulated
deficit of $128.4 million. We expect to incur significant product development,
sales and marketing and administrative expenses, and we will need to generate
significant revenue to achieve and maintain profitability. We cannot be certain
that we ever will realize sufficient revenue to achieve profitability and even
if we do achieve profitability, we may not be able to sustain or increase
profitability.

Our operating results are difficult to forecast, may fluctuate on a quarterly
basis and may be adversely affected by many factors, which may result in
volatility in our stock price.

Our revenue and results of operations have varied on a quarterly basis in
the past and may vary significantly in the future due to a number of factors,
many of which may cause our stock price to fluctuate. Some of the factors that
could affect our operating results include:



| |  | the size, terms and fluctuations of customer orders, particularly orders from a limited number of OEMs;                                                                                             
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | changes in general economic conditions and specific economic conditions in the computer storage and networking industries,
including changes in spending levels for information technology products;
| 
| |  | the timing of customer orders, a large percentage of which are generated in the last month of each quarter;                                                                                         
| 
| |  | our ability to attain and maintain sufficient reliability levels for our products;                                                                                                                  
| 
| |  | our ability to develop and market new products;                                                                                                                                                     
| 
| |  | the timing of the introduction or enhancement of products by us, our OEMs and our competitors;                                                                                                      
| 
| |  | decreases in the prices at which we can sell our products;                                                                                                                                          
| 
| |  | the mix of products sold and the mix of distribution channels through which our products are sold; and                                                                                              
| 
| |  | the ability of our contract manufacturer to produce and distribute our products in a timely fashion.                                                                                                

As a result of these and other factors, we believe that period to period
comparisons of our operating results should not be relied upon as an indicator
of our future performance. It is likely that in some future period our
operating results will be below our guidance, your expectations or the
expectations of public market analysts.

Our OEMs have unpredictable order patterns, which may cause our revenue to vary
significantly from period to period.

Our OEMs tend to order sporadically, and their purchases can vary
significantly from quarter to quarter. Our OEMs generally forecast expected
purchases in advance, but frequently do not order as expected and tend to place
purchase orders only shortly before the scheduled delivery date. We plan our
operating expenses based in part on revenue projections derived from our OEMs
forecasts. Because most of our expenses are fixed in the short term or
incurred in advance of anticipated revenue, we may not be able to decrease our
expenses in a timely manner to offset any unexpected shortfall in revenue.
These typical ordering practices cause our backlog to fluctuate significantly.
Moreover, our backlog is not necessarily indicative of actual sales for any
succeeding period, as orders are subject to cancellation or delay by our OEMs
with limited or no penalty.

The loss of one or more key customers could significantly reduce our revenue.

Our success will depend on our continued ability to develop and manage
relationships with significant OEMs, resellers and integrators, as well as on
the sales efforts and success of these customers. Revenue

13



---



##### Table of Contents



from Compaq Computer, Xyratex Technology Ltd., a contract manufacturer for Network
Appliance, and Avid Technology represented 22.1%, 22.0% and 10.8% of revenue,
respectively, for the three months ended March 31, 2002. Although we are
attempting to expand our base of OEMs and resellers, most of our future revenue
may come from a small number of customers.

Our agreements with our customers do not provide any assurance of future
sales to those customers. For example:



| |  | our OEM and reseller agreements are not exclusive and contain no renewal obligation;  
|- |  | --------------------------------------------------------------------------------------
| 
| |  | our OEMs and resellers can stop purchasing and marketing our products at any time; and
| 
| |  | our OEM and reseller agreements do not require minimum purchases.                     

We cannot be certain that we will retain our current OEMs and resellers or
that we will be able to recruit additional or replacement customers. Many of
our OEMs and resellers carry or utilize competing product lines. If we were to
lose one or more OEMs or resellers to a competitor, our business, results of
operations and financial condition could be harmed significantly.

Our success is dependent upon acceptance of our Fibre Channel technology and
the growth of the storage market.

Our products are used exclusively in storage devices and SANs.
Accordingly, widespread adoption of remote storage and SANs is critical to our
future success. These markets are evolving rapidly, and it is difficult to
predict their potential size or future growth rate. Our success in generating
revenue in the markets will depend on, among other things, our ability to:



| |  | demonstrate the benefits of SANs and our SAN switch and hub products and embedded switch products to OEMs, resellers and
end-users;                
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | enhance our existing products and introduce new products on a timely basis to meet changes in customer preferences and
evolving industry standards;
| 
| |  | develop, maintain and build relationships with leading OEMs and resellers; and                                                                     
| 
| |  | accurately predict the direction of industry standards and base our products on those industry standards.                                          

Our failure to do any of these activities would adversely affect our ability to
successfully compete in these markets.

Competing technologies may emerge, and we may fail to adopt new technologies on
a timely basis. Failure to utilize new technologies may decrease the demand
for our products.

Emerging technologies, such as Ethernet IP, SCSI (Small Computer System
Interface) over IP and Infiniband are potential competing alternatives to Fibre
Channel. If we are unable to identify new technologies in a timely manner and
efficiently utilize such new technologies in our product development efforts,
the demand for our current products may decrease significantly and rapidly,
which would harm our business.

We expect that a growing percentage of our future revenue will be derived from
our SAN interconnect switch products, our InSpeed technology-based products,
and royalties from technology development agreements with customers, and our
success will depend on widespread acceptance of these products and technologies
and our ability to manage transition from older product inventories.

Our future revenue growth will depend on the success of our new products
and product launches by customers for which we have developed, or are
developing, products under technology development agreements. In addition, as we introduce new or enhanced products, such as
our InSpeed-based products we will have to manage successfully the transition
from older products in order to minimize disruption in our customers ordering
patterns, avoid excessive levels of older product inventories and ensure that
enough

14



---



##### Table of Contents



supplies of new products can be delivered to meet our customers
demands. To the extent customers defer or cancel orders in expectation of new
product releases, any delay in development or introduction of new products
could cause our operating results to suffer.

Because a significant portion of our revenue is derived from sales of
entry-level hubs, we are dependent on continued widespread market acceptance of
these products.

We currently derive a significant portion of our revenue from sales of our
entry-level hubs. Although we anticipate our revenue from sales of entry-level
hubs to decline, as management of SAN products becomes more important in
larger, more complex SAN implementations, we expect that revenue from our
entry-level hubs will continue to account for a substantial portion of our
total revenue for the foreseeable future. If the market does not continue to
accept our entry-level hubs, or if our revenue from entry-level hubs decreases
more rapidly than we anticipate, our total revenue may not grow or may decline
significantly.

Competition in our markets may lead to reduced prices and sales of our
products, increased losses and reduced market share.

We may not be able to compete successfully in the SAN market. The markets
for SAN interconnect products are highly competitive. Our current competitors
include a number of domestic and international companies, many of which have
substantially greater financial, technical, marketing and distribution
resources than we have. We expect that more companies, including our customers,
may enter the market for SAN interconnect products. We may not be able to
compete successfully against either current or future competitors. Increased
competition could result in significant price erosion, reduced revenue, lower
margins or loss of market share, any of which would have a material adverse
effect on our business, results of operations and financial condition.

For SAN interconnect switch sales, we compete primarily with Brocade
Communications, McDATA, Qlogic Corporation and Gadzoox Networks. For hub
sales, we compete primarily with Emulex Corporation and Gadzoox Networks. Our
competitors continue to introduce improved products with lower prices, and we
will have to do the same to remain competitive. Furthermore, our customers or
larger companies in other related industries may develop or acquire
technologies and apply their significant resources, including their
distribution channels and brand recognition, to capture significant SAN market
share.

Our embedded switches are targeted at a new and evolving market for this
technology. As yet, no Fibre Channel switch providers have introduced similar
technology to our InSpeed range of products. As this market grows we may face
competition from legacy switch providers, or OEMs may choose to develop
competing technology themselves.

Our failure to enhance our existing products and introduce new products on a
timely basis could cause our revenue to fall.

Given the product life cycles in the markets for our products, any delay
or unanticipated difficulty associated with new product introductions or
product enhancements could significantly harm our business, results of
operations and financial condition. We may not be able to develop, manufacture
and market these new products or other product enhancements in a timely manner
or in a manner that will achieve market acceptance. We also may not be able to
develop the underlying core technologies necessary to create new products and
enhancements, or to license these new technologies from third parties. Product
development delays may result from numerous factors, including:



| |  | changing OEM product specifications;                                                   
|- |  | ---------------------------------------------------------------------------------------
| 
| |  | difficulties in hiring and retaining necessary personnel;                              
| 
| |  | difficulties in reallocating engineering resources and overcoming resource limitations;
| 
| |  | difficulties with independent contractors or development partners;                     

15



---



##### Table of Contents





| |  | changing market or competitive product requirements; and
|- |  | --------------------------------------------------------
| 
| |  | unanticipated engineering complexities.                 

The sales cycle for our products is long, and we may incur substantial
non-recoverable expenses and devote significant resources to sales that do not
occur when anticipated or at all.

OEMs and resellers typically conduct significant evaluation, testing,
implementation and acceptance procedures before they begin to market and sell
new solutions that include our products. This evaluation process is lengthy
and may range from six months to one year or more. This process is complex and
may require significant sales, marketing and management efforts on our part.
The complexity increases as we simultaneously qualify our products with
multiple customers. As a result, we may expend significant resources to
develop customer relationships before we recognize any revenue from these
relationships, or we may never realize any revenue from these efforts, or
recognize revenue when anticipated.

Failure to manage our OEM and reseller relationships and expand our
distribution channels could significantly reduce our revenue.

We rely on OEMs and resellers, and Vitesse Semiconductor in the case of
our InSpeed-based ASICs, to distribute and sell our products. Our success
depends substantially on our ability to initiate, manage and expand our
relationships with OEMs, our ability to attract additional resellers and the
sales efforts of these OEMs and resellers. Our failure to manage and expand our
relationships with OEMs and resellers, or their failure to market our products
effectively, could substantially reduce our revenue and seriously harm our
business.

Any failure by us to successfully execute our distribution strategy will
negatively impact our revenue.

Our distribution strategy focuses primarily on developing and expanding
indirect distribution channels through OEMs and resellers. Our failure to
execute this strategy successfully could limit our ability to grow or sustain
revenue. If we fail to develop and cultivate relationships with significant
resellers, or if these resellers are not successful in their sales efforts,
sales of our products may decrease, and our operating results would suffer.
Many of our resellers also sell products that compete with our products. We
cannot assure you that our resellers will market our products effectively or
continue to devote the resources necessary to provide us with effective sales,
marketing and technical support. Our failure to successfully develop or manage
our reseller relationships or their failure to sell our products could reduce
our revenue.

The loss of Suntron, the failure to forecast accurately demand for our products
or to manage successfully our relationship with Suntron would negatively affect
our business.

We rely on Suntron Corporation, formally K*Tec Electronics Corporation, an
outside contract-manufacturing firm, to manufacture, store and ship our
products. We share Suntrons manufacturing and assembly capacity with numerous
companies whose needs may conflict with ours. If Suntron is unable or unwilling
to complete production runs for us in the future, or experiences any
significant delays in completing production runs or shipping our products, the
manufacturing, assembly and sale of our products could be temporarily
suspended. We have in the past experienced delivery problems based on capacity
constraints for production, test and material supply. If our product volume
requirements increase, we may find it necessary to augment our manufacturing
and assembly capacity by engaging new subcontract manufacturers. We may not be
successful in finding qualified manufacturers that meet our needs. An
interruption in supply of our products, or additional costs incurred to qualify
and shift production to an alternative manufacturing and assembly facility,
would significantly harm our business, results of operations and financial
condition.

Suntron is not obligated to supply products for us, except as may be
provided in a particular purchase order that Suntron has accepted. We place
purchase orders with Suntron based on periodic forecasts. While most of the
materials used in our products are standard products, some are proprietary
or sole-source and require extended lead times. Our business will be
adversely affected if we are unable to accurately

16



---



##### Table of Contents



forecast demand for our products and manufacturing capacity or if materials are not available at
Suntron to meet the demand. Lead times for materials and components vary
significantly and depend on the specific supplier, contract terms and demand
for a component at a given time. We also may experience shortages of components
from time to time, which could delay the manufacture of our products.

We plan to regularly introduce new products and product enhancements,
which will require that we coordinate our efforts with Suntron to rapidly
achieve volume production. If we do not effectively manage our relationship
with Suntron, or if Suntron experiences delays, disruptions, capacity
constraints or quality control problems in its manufacturing operations, our
ability to ship products to our customers could be delayed and our competitive
position and reputation could be harmed. Qualifying a new contract manufacturer
and commencing volume production is expensive and time consuming. If we are
required to or if we choose to change contract manufacturers, we may lose
revenue and damage our customer relationships.

We may lose sales if our sole source suppliers fail to meet our needs.

We currently purchase several key components from single sources. We
depend on single sources for our card guides, ASICs and microprocessors. In
addition, we license software from a third party that is incorporated into our
switches and hubs. If we cannot supply products due to a lack of components, or if we
are unable to redesign products with other components in a timely manner, our
business, results of operations and financial condition would be materially
adversely affected.

If we fail to forecast accurately the demand for our products, it will
negatively affect our business.

We use rolling forecasts based on anticipated product orders to determine
our component requirements. Lead times for materials and components that we
order vary significantly and depend on factors such as specific supplier
requirements, contract terms and current market demand for particular
components. As a result, our component requirement forecasts may not be
accurate. If we overestimate our component requirements, we may have excess
inventory, which would increase our costs. If we underestimate our component
requirements, we may have inadequate inventory, which could interrupt our
manufacturing and delay delivery of our products to our customers. Either of
these occurrences would negatively impact our business and operating results.

Undetected software or hardware defects could increase our costs and reduce our
revenue.

Fibre Channel products and management software frequently contain
undetected software or hardware defects when first introduced or as new
versions are released. Our products are complex and problems may be found from
time to time in our existing, new or enhanced products. Our products
incorporate components manufactured by third parties. We have in the past
experienced difficulties with quality and reliability of components obtained
from third parties, and we could experience similar problems in the future. In
addition, our products are integrated with products from other vendors. As a
result, when problems occur, it may be difficult to identify the source of the
problem. These problems may cause us to incur significant warranty and repair
costs, divert the attention of our engineering personnel from our product
development efforts and cause significant customer relations problems.

A component in a discontinued product line experienced an abnormally high
failure rate, which adversely affected our sales and could in the future affect
our operating results.

We observed, and some customers confirmed, that in certain applications
our gigabit interface converters and gigabaud link modules transceivers
manufactured prior to March 1998 that incorporated a third party CD laser
experienced an abnormally high failure rate. As a result of this problem, we
recorded a warranty reserve of $3.6 million in the fourth quarter of fiscal 1998.
Although we have settled claims by customers that purchased the majority of
these products, there is a risk that additional claims could occur and that the
total amount reserved may be inadequate to cover all potential claims. Claims
against us in excess of the amount of our reserves could have a material
adverse effect on our business and financial

17



---



##### Table of Contents



condition. We discontinued the manufacturing and selling of our transceiver products during the second quarter
of 2001.

If we fail to successfully develop and maintain the Vixel brand, our revenue
may not grow and our stock price may fall.

We believe that establishing and maintaining the Vixel brand is a critical
aspect of our efforts to maintain and develop strategic OEM and reseller
relationships, and that the importance of brand recognition will increase due
to the growing number of vendors of SAN interconnect products. If we fail to
promote our brand successfully (or if we incur excessive expenses in an attempt
to promote and maintain the Vixel brand) our business, results of operations
and financial condition may be materially adversely affected. In addition, if
our OEMs, resellers and end users of our products do not perceive our products
to be of high quality, or if we introduce new products or technologies that are
not accepted by the market, the value of the Vixel brand will decline and our
business will suffer.

If we lose key personnel or are unable to hire and integrate qualified
personnel, we may not be successful.

Our success depends to a significant degree upon the continued joint
contributions of our senior management, including James M. McCluney, President
and Chief Executive Officer, Kurtis L. Adams, Chief Financial Officer, Stuart
B. Berman, Chief Technology Officer, and Thomas Hughes, Vice President, Product
Development. The loss of one or more of our senior management personnel could
harm our sales or delay our product development efforts.

We believe our future success will depend in large part upon our ability
to attract and retain highly skilled managerial, technical, sales and
marketing, finance and operations personnel. The loss of services of any of our
key personnel could have a negative impact on our business. Many of our
employees have only recently joined us. If we are unable to integrate new
employees in a timely and cost-effective manner, our operating results may
suffer. We also need to increase the number of technical staff members with
experience in high-speed networking applications and ASIC design as we further
develop our product line. Competition for these highly skilled employees in our
industry is intense. Our failure to attract and retain these key employees
could have a material adverse effect on our business, results of operations and
financial condition.

In addition, employees may leave our company and subsequently compete
against us. Moreover, companies in our industry whose employees accept
positions with competitors frequently claim that their competitors have engaged
in unfair hiring practices. We may be subject to claims of this type in the
future as we seek to hire qualified personnel and some of these claims may
result in material litigation. We could incur substantial costs in defending
ourselves against these claims, regardless of their merits. The loss of the
services of any of our key employees, the inability to attract or retain
qualified personnel in the future or delays in or disputes related to hiring
required personnel could hinder the development and introduction of and
negatively impact our ability to sell our products.

We plan to increase our international sales, which will subject us to
additional business risks.

Our revenue from international sales represented 54.0% of our total
revenue for the three months ended March 31, 2002. We plan to expand our
international sales, especially in Europe and Asia. Our international sales
growth will be limited if we are unable to establish relationships with
international distributors, establish foreign operations, effectively manage
international sales channels and develop relationships with service
organizations. We cannot be certain that we will be able to establish, generate
and build market demand for our products internationally. Our international
operations will be subject to a number of risks, including:



| |  | increased complexity and costs of managing international operations;               
|- |  | -----------------------------------------------------------------------------------
| 
| |  | multiple protectionist, conflicting and changing governmental laws and regulations;

18



---



##### Table of Contents





| |  | longer sales cycles;                                              
|- |  | ------------------------------------------------------------------
| 
| |  | difficulties in collecting accounts receivables;                  
| 
| |  | reduced or limited protection of intellectual property rights; and
| 
| |  | political and economic instability.                               

These factors and others could harm future sales of our products to
international customers, which would negatively impact our business and
operating results. To date, none of our international revenue has been
denominated in foreign currencies. As a result, an increase in the value of the
U.S. dollar relative to foreign currencies could make our products more
expensive and thus less competitive in foreign markets. In the future, a
portion of our international revenue may be denominated in foreign currencies,
including the Euro, which would subject us to risks associated with foreign
currency fluctuations.

Our products are subject to U.S. Department of Commerce export control
restrictions. Neither our customers nor we may export those products without
obtaining an export license. These U.S. export laws also prohibit the export of
our products to a number of countries deemed by the United States to be
hostile. These restrictions may make foreign competitors facing less stringent
controls on their products more competitive in the global market than are our
customers or we. The U.S. government may not approve any pending or future
export license requests. In addition, the list of products and countries for
which export approval is required, and the regulatory policies with respect
thereto, could be revised. The sale of our products could be harmed by our
failure or the failure of our customers to obtain the required government
licenses or by the costs of compliance.

Our products must comply with evolving industry standards and government
regulations, and if we cannot develop products that are compatible with these
evolving standards, our business will suffer.

The market for Fibre Channel products is characterized by the need to
support industry standards as they emerge, evolve and achieve acceptance. To
remain competitive, we must continue to introduce new products and product
enhancements that meet these industry standards. All components of a SAN must
utilize the same standards in order to operate together. Our products comprise
only a part of an entire SAN and we depend on the companies that provide other
components, many of which are significantly larger than we are, to support
industry standards as they evolve. We also depend on our competitors to
support these same industry standards. The failure of these providers or our
competitors to support these industry standards could negatively impact market
acceptance of our products.

In addition, in the United States, our products must comply with various
regulations and standards defined by the Federal Communications Commission and
Underwriters Laboratories. Internationally, products that we develop also will
be required to comply with standards established by authorities in various
countries. Failure to comply with existing or evolving industry standards or
to obtain timely domestic or foreign regulatory approvals or certificates could
materially harm our business.

Our intellectual property protection may prove to be inadequate which could
negatively affect our ability to compete.

We believe that our continued success depends on protecting our
proprietary technology. We currently rely on a combination of patents,
copyrights, trademarks, trade secrets and contractual provisions to establish
and protect our intellectual property rights. In addition, we also enter into
confidentiality or license agreements with our employees, consultants and
corporate partners, and control access to and distribution of our documentation
and other proprietary information. Our failure to protect our intellectual property rights adequately could have a material adverse effect on our
business, results of operations and financial condition. Efforts to protect
our intellectual property could be time consuming and expensive and could have
a material adverse effect on results of operations and financial condition. We
cannot be certain that the steps we take to protect our intellectual property
will adequately protect our proprietary rights, that others will not
independently develop or otherwise acquire equivalent or superior technology or
that we can

19



---



##### Table of Contents



maintain any of our technology as trade secrets. In addition, the
laws of some of the countries in which our products are or may be sold may not
protect our products and intellectual property rights to the same extent as the
laws of the United States, or at all.

Third-party claims of infringement of their intellectual property rights could
adversely affect our business.

In recent years, there has been significant litigation in the United
States involving patents and other intellectual property rights. We
occasionally receive communications from third parties alleging patent
infringement, and there always is the chance that third parties may assert
infringement claims against us. Future patent infringement disputes, with or
without merit, could result in costly litigation, cause product shipment delays
or require us to enter into royalty or licensing agreements. We cannot be
certain that the necessary licenses would be available or that they could be
obtained on commercially reasonable terms. If we fail to obtain these royalty
or licensing agreements in a timely manner and on reasonable terms, our
business, results of operations and financial condition would be materially
adversely affected.

Our stock price has been and may continue to be volatile.

The trading price of our common stock has been and is likely to continue
to be volatile. The market price of our common stock may fluctuate
significantly in response to several factors, including but not limited to the
following, some of which are beyond our control:



| |  | actual or anticipated fluctuations in our operating results;                                                                                                           
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | losses of our key OEMs or reductions in their purchases of our products;                                                                                               
| 
| |  | changes in financial estimates by securities analysts;                                                                                                                 
| 
| |  | changes in market valuations of other technology companies;                                                                                                            
| 
| |  | announcements by us or by our competitors of significant technical innovations, contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
| 
| |  | additions or departures of key personnel; and                                                                                                                          
| 
| |  | future sales of capital stock.                                                                                                                                         

In addition, the stock market has recently experienced extreme volatility
that often has been unrelated to the performance of particular companies. These
market fluctuations may cause our stock price to fall regardless of our
performance.

We may not be able to meet our future capital requirements, limiting our
ability to grow.

We believe that our existing cash, cash equivalents and short-term
investment balances will be sufficient to meet our capital requirements at
least through the next twelve to eighteen months. However, we may need, or
could elect, to seek additional funding prior to that time. If we need to
raise additional funds, we may not be able to do so on favorable terms, or at
all. If we cannot raise funds on acceptable terms, we may not be able to
develop or enhance our products, take advantage of future opportunities or
respond to competitive pressures or unanticipated funding requirements.

We may engage in future acquisitions that may dilute our stockholders and cause
us to incur debt or assume contingent liabilities.

We may review opportunities to buy other businesses or technologies that
would complement our current products, expand the breadth of our markets or
enhance our technical capabilities, or that may otherwise offer growth opportunities. While we have no current agreements
or negotiations underway, we may buy businesses, products or technologies in
the future. If we make any future purchases, we could issue stock that would
dilute existing stockholders percentage ownership, incur substantial debt or
assume contingent liabilities.

20



---



##### Table of Contents



These purchases also may involve numerous risks, including:



| |  | problems assimilating the purchased operations, technologies or products;                     
|- |  | ----------------------------------------------------------------------------------------------
| 
| |  | unanticipated costs associated with the acquisition;                                          
| 
| |  | diversion of managements attention from our core business;                                   
| 
| |  | adverse effects on existing business relationships with suppliers and customers;              
| 
| |  | incorrect estimates made in the accounting for acquisitions;                                  
| 
| |  | risks associated with entering markets in which we have limited, if any, prior experience; and
| 
| |  | potential loss of key employees of purchased organizations.                                   

Our corporate offices and principal product development facility are located in
regions that are subject to earthquakes and other natural disasters.

Our corporate offices in Bothell, Washington and our research facility in
Irvine, California are located near major earthquake faults. We are not
specifically insured for earthquakes, or other such natural disasters. Any
personal injury or damage to the facilities as a result of such occurrences
could have a material adverse effect on our business, results of operations and
financial condition.

Our stockholder rights plan, certificate of incorporation and Delaware law
could adversely affect the performance of our stock.

Our stockholder rights plan and provisions of our certificate of
incorporation and the Delaware General Corporation Law could make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. The stockholder rights plan and these provisions of our
certificate of incorporation and Delaware law are intended to encourage
potential acquirers to negotiate with us and allow our board of directors the
opportunity to consider alternative proposals in the interest of maximizing
stockholder value. However, such provisions may also discourage acquisition
proposals or delay or prevent a change in control, which could harm our stock
price.




ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

We maintain investment portfolio holdings of various issuers, types, and
maturities, the majority of which are commercial paper and government
securities. These securities are generally classified as available for sale
and, consequently, are recorded on the balance sheet at fair value.

Our investment portfolio, with a fair value of $18.3 million as of March
31, 2002, is invested in commercial paper, government securities and corporate
indebtedness that could experience an adverse decline in fair value should an
increase in interest rates occur. In addition, declines in interest rates
could have an adverse impact on interest earnings for our investment portfolio.
We do not currently hedge against this interest rate exposure.

All of our revenue is realized in U.S. dollars and is from customers
primarily headquartered in the United States. Therefore, we do not believe we
currently have any significant direct foreign currency exchange risk.




PART II.  OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

On November 15, 2001, a securities class action was filed in the United
States District Court in the Southern District of New York against two of our
officers and directors and certain underwriters who

21



---



##### Table of Contents



participated in our initial public offering in late 1999. The complaint alleges violations under Section
10(b) of the Securities Exchange Act of 1934 and Section 11 of the Securities
Act of 1933 and seeks unspecified damages on behalf of persons who purchased
our stock during the period October 1, 1999 through December 6, 2000. We intend
to defend ourselves vigorously in this matter.




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Our Registration Statement on Form S-1 (No. 333-81347) for the initial
public offering of our common stock became effective September 30, 1999. The
initial public offering resulted in net proceeds to us of $82.8 million.
Expenses related to the offering totaled approximately $1.4 million. Through
March 31, 2002, the proceeds were applied to repay $12.3 million in debt, $5.8
million in capital lease obligations, $4.5 million was used to purchase
property and equipment and $43.2 million was used for working capital and
general purposes.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

|        |  |                                                                                                                                               
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                               
|NUMBER  |  | DESCRIPTION                                                                                                                                   
|        |  |                                                                                                                                               
|2.1(1)  |  | Asset Purchase Agreement between Registrant and Fujitsu
Software Technology Corporation, dated April 4, 2002 (Exhibit 2.1)                    
|2.2(1)  |  | First Amendment to Asset Purchase Agreement between
Registrant and Fujitsu Software Technology Corporation, dated April
15, 2002 (Exhibit 2.2)
|3.1(2)  |  | Amended and Restated Certificate of Incorporation of Registrant (Exhibit 3.2)                                                                 
|3.2(3)  |  | Certificate of Designation of Series A Junior Participating Preferred Stock (Exhibit 3.1)                                                     
|3.3(2)  |  | Bylaws of the Registrant (Exhibit 3.4)                                                                                                        
|4.1(2)  |  | Specimen Stock Certificate (Exhibit 4.1)                                                                                                      
|4.2(2)  |  | Amended and Restated Investors Rights Agreement dated
February 17, 1998 (Exhibit 4.2)                                                        
|4.3(2)  |  | First Amendment to Amended and Restated Investors Rights
Agreement dated February 17, 1998 (Exhibit 4.3)                                     
|4.4(3)  |  | Rights Agreement dated November 15, 2000, between the
Registrant and Computer Share Trust Company, Inc. (Exhibit 4.1)                         
|4.5(3)  |  | Form of Rights Certificate (Exhibit 4.2)                                                                                                      



---

|(1) |  | Incorporated by reference to designated exhibits to the Registrants
current report on Form 8-K filed with the Securities and Exchange
Commission on April 30, 2002.       
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Incorporated by reference to designated exhibits to the Registrants
Registration Statement on Form S-1 (SEC File No. 333-81347), declared
effective on September 30, 1999.
|   
|   
|   
|   
|(3) |  | Incorporated by reference to designated exhibits to Registrants current
report on Form 8-K filed with the Securities and Exchange Commission on
November 17, 2000.        
|   
|(b) |  | Reports on Form 8-K:                                                                                                                                                       
|   
|   
|   
|   
|    |  | None.                                                                                                                                                                      

22



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                    |  |                                                                                                                                                                                    
|------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                   
|Dated: May 14, 2002 |  | VIXEL CORPORATION
(Registrant)                                                                                                                                                     
|                   
|                    |  | /s/ Kurtis L. Adams
Kurtis L. Adams
Chief Financial Officer, Vice President of
Finance, Secretary and Treasurer
(Authorized Officer and Principal Financial
and Accounting Officer)

23



---



##### Table of Contents






EXHIBIT INDEX

|        |  |                                                                                                                                               
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                               
|NUMBER  |  | DESCRIPTION                                                                                                                                   
|        |  |                                                                                                                                               
|2.1(1)  |  | Asset Purchase Agreement between Registrant and Fujitsu
Software Technology Corporation, dated April 4, 2002 (Exhibit 2.1)                    
|2.2(1)  |  | First Amendment to Asset Purchase Agreement between
Registrant and Fujitsu Software Technology Corporation, dated April
15, 2002 (Exhibit 2.2)
|3.1(2)  |  | Amended and Restated Certificate of Incorporation of Registrant (Exhibit 3.2)                                                                 
|3.2(3)  |  | Certificate of Designation of Series A Junior Participating Preferred Stock (Exhibit 3.1)                                                     
|3.3(2)  |  | Bylaws of the Registrant (Exhibit 3.4)                                                                                                        
|4.1(2)  |  | Specimen Stock Certificate (Exhibit 4.1)                                                                                                      
|4.2(2)  |  | Amended and Restated Investors Rights Agreement dated
February 17, 1998 (Exhibit 4.2)                                                        
|4.3(2)  |  | First Amendment to Amended and Restated Investors Rights
Agreement dated February 17, 1998 (Exhibit 4.3)                                     
|4.4(3)  |  | Rights Agreement dated November 15, 2000, between the
Registrant and Computer Share Trust Company, Inc. (Exhibit 4.1)                         
|4.5(3)  |  | Form of Rights Certificate (Exhibit 4.2)                                                                                                      



---

|(1) |  | Incorporated by reference to designated exhibits to the Registrants
current report on Form 8-K filed with the Securities and Exchange
Commission on April 30, 2002.       
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Incorporated by reference to designated exhibits to the Registrants
Registration Statement on Form S-1 (SEC File No. 333-81347), declared
effective on September 30, 1999.
|   
|   
|   
|   
|(3) |  | Incorporated by reference to designated exhibits to Registrants current
report on Form 8-K filed with the Securities and Exchange Commission on
November 17, 2000.        

24