##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q



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|                                              |  |                                                                                         
|--------------------------------------------- |  | ----------------------------------------------------------------------------------------
|(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 30, 2003
|                                              |  |                                                                                         
|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                                                       |  | 84-1176506                          
|(State or other jurisdiction
of incorporation or organization) |  | (I.R.S. Employer
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)



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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period 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 o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act).Yes o No x

The number of shares outstanding of the Registrants common stock, $.0015
par value, as of April 25, 2003 was 23,278,496.





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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. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                            
|                              | ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES                                                   
|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                
|EXHIBIT 99.1                 



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##### Table of Contents



VIXEL CORPORATION

INDEX TO FORM 10-Q FOR QUARTER ENDED MARCH 30, 2003

|                              |                                                                                               |                                                                                                       |    |      |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | -- | ---- |  | 
|                              |                                                                                               |                                                                                                       |    | Page
|                              |                                                                                               |                                                                                                       |    |     
|Part I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements (unaudited)                                                      |                                                                                                       | 3 
|                              |                                                                                               | Condensed Balance Sheet as of March 30, 2003 and
December 29, 2002                                    |    | 3   
|                              |                                                                                               | Condensed Statement of Operations for the three month
periods ended March 30, 2003 and March 31, 2002 |    | 4   
|                              |                                                                                               | Condensed Statement of Cash Flows for the three month
periods March 30, 2003 and March 31, 2002       |    | 5   
|                              |                                                                                               | Notes to Condensed Financial Statements                                                               |    | 6   
|                              | Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                       | 9 
|                              | Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                       | 22
|                              | Item 4. Disclosure Controls and Procedures                                                    |                                                                                                       | 22
|Part II. OTHER INFORMATION    |                                                                                               | 22                                                                                                   
|                              | Item 1.
Legal Proceedings                                                                     |                                                                                                       | 22
|                              | Item 2. Changes in Securities and Use of Proceeds                                             |                                                                                                       | 23
|                              | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                       | 23
|Signatures                    |                                                                                               | 25                                                                                                   
|Certifications                |                                                                                               | 26-27                                                                                                

2



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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




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

|                                                                                                                                                                                          |                                                                                                                                                                                                               |                                            |                                      |          |        |           |   |              |        |  |  | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | -------- | ------ | --------- | - | ------------ | ------ |  |  | 
|                                                                                                                                                                                          |                                                                                                                                                                                                               |                                            |                                      |          |        | March 30, |   | December 29,
|                                                                                                                                                                                          |                                                                                                                                                                                                               |                                            |                                      |          |        | 2003      |   | 2002        
|                                                                                                                                                                                          |                                                                                                                                                                                                               |                                            |                                      |          |        |           |   |             
|                                                                                                                                                                                          |                                                                                                                                                                                                               |                                            |                                      | ASSETS   |        |           |   |              |        |  |  | 
|Current assets                                                                                                                                                                            |                                                                                                                                                                                                               |                                            |                                      |          |        |           |   |             
|                                                                                                                                                                                          | Cash and cash equivalents                                                                                                                                                                                     |                                            | $                                    | 10,628   |        |           | $ | 4,347        |       
|                                                                                                                                                                                          | Investments                                                                                                                                                                                                   |                                            |                                      | 13,747   |        |           |   | 12,054       |       
|                                                                                                                                                                                          | Accounts receivable, net of allowance for doubtful
accounts of $155 and $186, respectively                                                                                                                    |                                            |                                      | 2,982    |        |           |   | 2,782        |       
|                                                                                                                                                                                          | Inventories                                                                                                                                                                                                   |                                            |                                      | 1,501    |        |           |   | 1,503        |       
|                                                                                                                                                                                          | Note receivable                                                                                                                                                                                               |                                            |                                      |         |        |           |   | 2,500        |       
|                                                                                                                                                                                          | Prepaid expenses and other current assets                                                                                                                                                                     |                                            |                                      | 1,129    |        |           |   | 1,488        |       
|                                                                                                                                                                                          |                                                                                                                                                                                                               |                                            |                                      |          |        |           |   |             
|                                                                                                                                                                                          |                                                                                                                                                                                                               | Total current assets                       |                                      |          | 29,987 |           |   |              | 24,674 | 
|                                                                                                                                                                                          | Property and equipment, net                                                                                                                                                                                   |                                            |                                      | 2,205    |        |           |   | 2,243        |       
|                                                                                                                                                                                          | Goodwill and other intangibles, net                                                                                                                                                                           |                                            |                                      | 369      |        |           |   | 423          |       
|                                                                                                                                                                                          | Other assets                                                                                                                                                                                                  |                                            |                                      | 142      |        |           |   | 145          |       
|                                                                                                                                                                                          |                                                                                                                                                                                                               |                                            |                                      |          |        |           |   |             
|                                                                                                                                                                                          |                                                                                                                                                                                                               | Total assets                               |                                      | $        | 32,703 |           |   | $            | 27,485 | 
|                                                                                                                                                                                          |                                                                                                                                                                                                               |                                            |                                      |          |        |           |   |             
|                                                                                                                                                                                          |                                                                                                                                                                                                               |                                            | LIABILITIES AND STOCKHOLDERS EQUITY |          |        |           |   |              |        |  | 
|Current liabilities                                                                                                                                                                       |                                                                                                                                                                                                               |                                            |                                      |          |        |           |   |             
|                                                                                                                                                                                          | Current portion of capital leases                                                                                                                                                                             |                                            | $                                    | 50       |        |           | $ | 178          |       
|                                                                                                                                                                                          | Accounts payable                                                                                                                                                                                              |                                            |                                      | 2,306    |        |           |   | 2,900        |       
|                                                                                                                                                                                          | Accrued liabilities                                                                                                                                                                                           |                                            |                                      | 4,420    |        |           |   | 3,507        |       
|                                                                                                                                                                                          | Deferred revenue                                                                                                                                                                                              |                                            |                                      | 220      |        |           |   | 735          |       
|                                                                                                                                                                                          | Accrued restructuring costs, current portion                                                                                                                                                                  |                                            |                                      | 291      |        |           |   | 307          |       
|                                                                                                                                                                                          |                                                                                                                                                                                                               |                                            |                                      |          |        |           |   |             
|                                                                                                                                                                                          |                                                                                                                                                                                                               | Total current liabilities                  |                                      |          | 7,287  |           |   |              | 7,627  | 
|                                                                                                                                                                                          | Capital leases, net of current portion                                                                                                                                                                        |                                            |                                      | 31       |        |           |   | 44           |       
|                                                                                                                                                                                          | Accrued restructuring costs, net of current portion                                                                                                                                                           |                                            |                                      | 249      |        |           |   | 306          |       
|                                                                                                                                                                                          |                                                                                                                                                                                                               |                                            |                                      |          |        |           |   |             
|                                                                                                                                                                                          |                                                                                                                                                                                                               | Total liabilities                          |                                      |          | 7,567  |           |   |              | 7,977  | 
|                                                                                                                                                                                          |                                                                                                                                                                                                               |                                            |                                      |          |        |           |   |             
|Commitments and contingencies                                                                                                                                                             |                                                                                                                                                                                                               |                                            |                                      |          |        |           |   |             
|Series B convertible preferred stock, $0.001 par
value, 4,400,000 shares designated, 3,809,524 and
no shares issued and outstanding at March 30, 2003
and December 29, 2002, respectively |                                                                                                                                                                                                               |                                            | 3,525                                |          |        |           |  |             
|Stockholders equity                                                                                                                                                                      |                                                                                                                                                                                                               |                                            |                                      |          |        |           |   |             
|                                                                                                                                                                                          | Common stock, $0.0015 par value; 60,000,000 shares
authorized; 25,126,626 and 25,115,782 shares
issued and 23,231,200 and 24,579,516 shares
outstanding at March 30, 2003 and December 29,
2002, respectively |                                            |                                      | 38       |        |           |   | 38           |       
|                                                                                                                                                                                          | Additional paid-in capital                                                                                                                                                                                    |                                            |                                      | 162,664  |        |           |   | 157,925      |       
|                                                                                                                                                                                          | Stock-based compensation                                                                                                                                                                                      |                                            |                                      | (1       | )      |           |   | (117         | )     
|                                                                                                                                                                                          | Notes receivable from stockholders                                                                                                                                                                            |                                            |                                      | (200     | )      |           |   | (3,745       | )     
|                                                                                                                                                                                          | Treasury stock, at cost; 1,895,426 and 536,266
shares at March 30, 2003 and December 29, 2002,
respectively                                                                                                   |                                            |                                      | (4,188   | )      |           |   | (831         | )     
|                                                                                                                                                                                          | Accumulated deficit                                                                                                                                                                                           |                                            |                                      | (136,702 | )      |           |   | (133,762     | )     
|                                                                                                                                                                                          |                                                                                                                                                                                                               |                                            |                                      |          |        |           |   |             
|                                                                                                                                                                                          |                                                                                                                                                                                                               | Total stockholders equity                 |                                      |          | 21,611 |           |   |              | 19,508 | 
|                                                                                                                                                                                          |                                                                                                                                                                                                               |                                            |                                      |          |        |           |   |             
|                                                                                                                                                                                          |                                                                                                                                                                                                               | Total liabilities and stockholders equity |                                      | $        | 32,703 |           |   | $            | 27,485 | 
|                                                                                                                                                                                          |                                                                                                                                                                                                               |                                            |                                      |          |        |           |   |             

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

3



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

|                                           |                                          |                          |        |                          |       |                |        |       |       | 
|------------------------------------------ | ---------------------------------------- | ------------------------ | ------ | ------------------------ | ----- | -------------- | ------ | ----- | ----- | 
|                                           |                                          |                          |        | Three-month Period Ended
|                                           |                                          |                          |        |                         
|                                           |                                          |                          |        | March 30, 2003           |       | March 31, 2002
|                                           |                                          |                          |        |                          |       |               
|Revenue                                    |                                          | $                        | 5,506  |                          |       | $              | 4,720  |      
|Cost of revenue (1)                        |                                          |                          | 2,783  |                          |       |                | 2,602  |      
|                                           |                                          |                          |        |                          |       |                |        |      
|Gross profit                               |                                          |                          | 2,723  |                          |       |                | 2,118  |      
|                                           |                                          |                          |        |                          |       |                |        |      
|Operating expenses:                        |                                          |                          |        |                          |       |                |        |      
|                                           | Research and development (2)             |                          |        | 2,550                    |       |                |        | 3,580 |      
|                                           | Selling, general and administrative (3)  |                          |        | 2,905                    |       |                |        | 2,657 |      
|                                           | Amortization of intangible assets        |                          |        | 54                       |       |                |        | 109   |      
|                                           | Amortization of stock-based compensation |                          |        | 115                      |       |                |        | 275   |      
|                                           |                                          |                          |        |                          |       |                |        |      
|                                           |                                          |                          | 5,624  |                          |       |                | 6,621  |      
|                                           | Loss on sale of assets                   |                          |        | 5                        |       |                |        | 25    |      
|                                           |                                          |                          |        |                          |       |                |        |      
|                                           |                                          | Total operating expenses |        |                          | 5,629 |                |        |       | 6,646 | 
|                                           |                                          |                          |        |                          |       |                |        |      
|Loss from operations                       |                                          |                          | (2,906 | )                        |       |                | (4,528 | )    
|                                           | Other income, net                        |                          |        | 95                       |       |                |        | 191   |      
|                                           |                                          |                          |        |                          |       |                |        |      
|Net loss                                   |                                          | $                        | (2,811 | )                        |       | $              | (4,337 | )    
|                                           |                                          |                          |        |                          |       |                |        |      
|Net loss applicable to common stockholders |                                          | $                        | (2,940 | )                        |       | $              | (4,337 | )    
|                                           |                                          |                          |        |                          |       |                |        |      
|Basic and diluted net loss per share       |                                          | $                        | (0.12  | )                        |       | $              | (0.18  | )    
|                                           |                                          |                          |        |                          |       |                |        |      
|Weighted-average shares outstanding        |                                          |                          | 23,682 |                          |       |                | 23,734 |      
|                                           |                                          |                          |        |                          |       |                |        |      



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|(1) |  | Includes amortization of stock-based compensation of $1 and $5 for the
three-month periods ended March 30, 2003 and March 31, 2002, respectively.    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Excludes amortization of stock-based compensation of $1 and $5 for the
three-month periods ended March 30, 2003 and March 31, 2002, respectively.    
|   
|(3) |  | Excludes amortization of stock-based compensation of $114 and $270 for
the three-month periods ended March 30, 2003 and March 31, 2002,
respectively.

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

4



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

|                                                                      |                                                                                                                 |                                                                        |                                          |                                                     |     |                          |        |                |      |        |        |  
|--------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ---------------------------------------- | --------------------------------------------------- | --- | ------------------------ | ------ | -------------- | ---- | ------ | ------ | -
|                                                                      |                                                                                                                 |                                                                        |                                          |                                                     |     | Three-month Period Ended
|                                                                      |                                                                                                                 |                                                                        |                                          |                                                     |     |                         
|                                                                      |                                                                                                                 |                                                                        |                                          |                                                     |     | March 30, 2003           |        | March 31, 2002
|                                                                      |                                                                                                                 |                                                                        |                                          |                                                     |     |                          |        |               
|Cash flows from operating activities                                  |                                                                                                                 |                                                                        |                                          |                                                     |     |                          |        |               
|                                                                      | Net loss                                                                                                        |                                                                        | $                                        | (2,811                                              | )   |                          | $      | (4,337         | )   
|                                                                      | Adjustments to reconcile net loss to net cash used in operating activities                                      |                                                                        |                                          |                                                     |     |                          |        |                |     
|                                                                      |                                                                                                                 | Depreciation                                                           |                                          |                                                     | 547 |                          |        |                | 860  |       
|                                                                      |                                                                                                                 | Amortization of other intangibles                                      |                                          |                                                     | 54  |                          |        |                | 109  |       
|                                                                      |                                                                                                                 | Stock-based compensation                                               |                                          |                                                     | 500 |                          |        |                | 280  |       
|                                                                      |                                                                                                                 | Loss on disposal of assets                                             |                                          |                                                     | 5   |                          |        |                | 25   |       
|                                                                      |                                                                                                                 | Provisions for doubtful accounts, inventory obsolescence, and warranty |                                          |                                                     | 164 |                          |        |                | (467 | )     
|                                                                      |                                                                                                                 | Changes in:                                                            |                                          |                                                     |     |                          |        |                |      |       
|                                                                      |                                                                                                                 |                                                                        | Accounts receivable                      |                                                     |     | (170                     | )      |                |      | 1,044  |       
|                                                                      |                                                                                                                 |                                                                        | Inventories                              |                                                     |     | (32                      | )      |                |      | 1,217  |       
|                                                                      |                                                                                                                 |                                                                        | Prepaid expenses and other assets        |                                                     |     | 362                      |        |                |      |       |       
|                                                                      |                                                                                                                 |                                                                        | Accounts payable and accrued liabilities |                                                     |     | 159                      |        |                |      | (1,746 | )     
|                                                                      |                                                                                                                 |                                                                        | Deferred revenue                         |                                                     |     | (515                     | )      |                |      | 32     |       
|                                                                      |                                                                                                                 |                                                                        | Accrued restructuring costs              |                                                     |     | (73                      | )      |                |      |       |       
|                                                                      |                                                                                                                 |                                                                        |                                          |                                                     |     |                          |        |               
|                                                                      |                                                                                                                 |                                                                        |                                          | Net cash used in operating activities               |     |                          | (1,810 | )              |      |        | (2,983 | )
|                                                                      |                                                                                                                 |                                                                        |                                          |                                                     |     |                          |        |               
|Cash flows from investing activities                                  |                                                                                                                 |                                                                        |                                          |                                                     |     |                          |        |               
|                                                                      | Purchase of short-term investments                                                                              |                                                                        |                                          | (7,537                                              | )   |                          |        | (5,688         | )   
|                                                                      | Maturities of investments                                                                                       |                                                                        |                                          | 5,844                                               |     |                          |        | 8,293          |     
|                                                                      | Collection of note receivable                                                                                   |                                                                        |                                          | 2,500                                               |     |                          |        |               |     
|                                                                      | Purchases of property and equipment                                                                             |                                                                        |                                          | (518                                                | )   |                          |        | (247           | )   
|                                                                      | Proceeds from sales of assets                                                                                   |                                                                        |                                          | 4                                                   |     |                          |        |               |     
|                                                                      |                                                                                                                 |                                                                        |                                          |                                                     |     |                          |        |               
|                                                                      |                                                                                                                 |                                                                        |                                          | Net cash provided by investing activities           |     |                          | 293    |                |      |        | 2,358  |  
|                                                                      |                                                                                                                 |                                                                        |                                          |                                                     |     |                          |        |               
|Cash flows from financing activities                                  |                                                                                                                 |                                                                        |                                          |                                                     |     |                          |        |               
|                                                                      | Proceeds from the sale of Series B Convertible Preferred Stock and
common stock warrants, net of offering costs |                                                                        |                                          | 7,750                                               |     |                          |        |               |     
|                                                                      | Receipts of payment on stockholder notes receivable                                                             |                                                                        |                                          | 188                                                 |     |                          |        |               |     
|                                                                      | Proceeds from issuance of short-term debt                                                                       |                                                                        |                                          |                                                    |     |                          |        | 319            |     
|                                                                      | Principal payments on long-term debt and capital lease obligations                                              |                                                                        |                                          | (141                                                | )   |                          |        | (624           | )   
|                                                                      | Proceeds from exercise of stock options                                                                         |                                                                        |                                          | 1                                                   |     |                          |        |               |     
|                                                                      |                                                                                                                 |                                                                        |                                          |                                                     |     |                          |        |               
|                                                                      |                                                                                                                 |                                                                        |                                          | Net cash provided by (used in) financing activities |     |                          | 7,798  |                |      |        | (305   | )
|                                                                      |                                                                                                                 |                                                                        |                                          |                                                     |     |                          |        |               
|Net increase (decrease) in cash and cash equivalents                  |                                                                                                                 |                                                                        | 6,281                                    |                                                     |     |                          | (930   | )             
|Cash and cash equivalents, beginning of period                        |                                                                                                                 |                                                                        | 4,347                                    |                                                     |     |                          | 5,036  |               
|                                                                      |                                                                                                                 |                                                                        |                                          |                                                     |     |                          |        |               
|Cash and cash equivalents, end of period                              |                                                                                                                 | $                                                                      | 10,628                                   |                                                     |     | $                        | 4,106  |               
|                                                                      |                                                                                                                 |                                                                        |                                          |                                                     |     |                          |        |               
|Cash paid for interest                                                |                                                                                                                 | $                                                                      | 3                                        |                                                     |     | $                        | 29     |               
|Use of prepaid expense in satisfaction of capital lease obligations   |                                                                                                                 | $                                                                      |                                         |                                                     |     | $                        | 37     |               
|Treasury stock acquired in satisfaction of officer notes receivable   |                                                                                                                 | $                                                                      | 3,357                                    |                                                     |     | $                        |       |               
|Accretion of preferred stock                                          |                                                                                                                 | $                                                                      | 73                                       |                                                     |     | $                        |       |               
|Accumulation of cumulative preferred stock dividend                   |                                                                                                                 | $                                                                      | 56                                       |                                                     |     | $                        |       |               
|Beneficial conversion feature on Series B Convertible Preferred Stock |                                                                                                                 | $                                                                      | 3,246                                    |                                                     |     | $                        |       |               

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

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VIXEL CORPORATION




NOTES TO CONDENSED FINANCIAL STATEMENTS
(Information for the three-month periods ended
March 30, 2003 and March 31, 2002)
(Unaudited)

NOTE 1. BASIS OF PRESENTATION

The accompanying condensed financial statements as of March 30, 2003 and
for the three-month periods ended March 30, 2003 and March 31, 2002 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 and cash flows for
the interim periods are not necessarily indicative of future financial results.

You should read these interim financial statements in conjunction with
Managements Discussion and Analysis of Financial Condition and Results of
Operations and the audited financial statements and notes thereto for the
fiscal year ended December 29, 2002 included in our Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 28, 2002.

The preparation of condensed financial statements in accordance with
accounting principles generally accepted in the United States of America and
pursuant to the rules and regulations of the Securities and Exchange Commission
requires management to make estimates and assumptions that affect the amounts
reported in the condensed financial statements and accompanying notes. Actual
results could differ materially from those estimates.

Certain prior year amounts have been reclassified to conform to current
period presentation. Reclassifications have not impacted our financial
position, net loss or cash flows of the prior period.

NOTE 2. NET LOSS PER SHARE

Basic and diluted net loss per share represents the net loss applicable to
common stockholders divided by the weighted-average number of common shares
outstanding during the period. We have excluded outstanding convertible
preferred stock, options to purchase common stock, stock subject to repurchase
rights, and warrants to purchase common stock, as these securities are
antidilutive for all periods presented.

The following table sets forth the adjustments to net income resulting in
net loss applicable to common stockholders (in thousands):

|                                                                   |  |                           |        |           |  |   |        |  
|------------------------------------------------------------------ |  | ------------------------- | ------ | --------- |  | - | ------ | -
|                                                                   |  | Three-month periods ended
|                                                                   |  |                          
|                                                                   |  | March 30,                 |        | March 31,
|                                                                   |  | 2003                      |        | 2002     
|                                                                   |  |                           |        |          
|Net loss                                                           |  | $                         | (2,811 | )         |  | $ | (4,337 | )
|Accretion of discount on Series B Convertible
Preferred Stock      |  |                           | (73    | )         |  |   |       |  
|Accumulation of 6% cumulative dividend on Series B
Preferred Stock |  |                           | (56    | )         |  |   |       |  
|                                                                   |  |                           |        |           |  |   |        |  
|Net loss applicable to common stockholders                         |  | $                         | (2,940 | )         |  | $ | (4,337 | )
|                                                                   |  |                           |        |           |  |   |        |  

The following table sets forth the antidiliutive securities excluded from
the net loss per share calculation (in thousands):

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|                                   |  |                           |        |           |  |  |       | 
|---------------------------------- |  | ------------------------- | ------ | --------- |  |  | ----- | 
|                                   |  | Three-month periods ended
|                                   |  |                          
|                                   |  | March 30,                 |        | March 31,
|                                   |  | 2003                      |        | 2002     
|                                   |  |                           |        |          
|Convertible preferred stock        |  |                           | 3,809  |           |  |  |      | 
|Options to purchase common stock   |  |                           | 6,987  |           |  |  | 5,536 | 
|Warrants to purchase common stock  |  |                           | 1,277  |           |  |  | 284   | 
|Common stock subject to repurchase |  |                           | 21     |           |  |  | 271   | 
|                                   |  |                           |        |           |  |  |       | 
|Total                              |  |                           | 12,094 |           |  |  | 6,091 | 
|                                   |  |                           |        |           |  |  |       | 

NOTE 3. STOCK OPTIONS

We account for stock option grants pursuant to the provisions of Statement
of Financial Accounting Standard No. 123 Accounting for Stock-Based
Compensation (SFAS 123).Under the provisions of SFAS 123, employee
stock-based compensation expense is measured using either the intrinsic-value
method as prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB 25), or the fair value method described in
SFAS 123. Companies choosing the intrinsic-value method are required to
disclose the pro forma impact of the fair value method on net income. We have
elected to continue accounting for our employee and director stock-based awards
under the provisions of APB 25. We account for equity grants to other than
employees and directors pursuant to the fair value provisions of SFAS 123.

Had we determined compensation expense based on the fair value of the
option at the grant date for all stock options issued to employees and for
shares issued to employees at a discount pursuant to the Employee Stock
Purchase Plan, our net loss and net loss per share would have been increased to
the pro forma amounts indicated below (in thousands, except per share amounts):

|                                                                   |                                                      |                              |        |                           |       |           |        |        |       |  
|------------------------------------------------------------------ | ---------------------------------------------------- | ---------------------------- | ------ | ------------------------- | ----- | --------- | ------ | ------ | ----- | -
|                                                                   |                                                      |                              |        | Three-month periods ended
|                                                                   |                                                      |                              |        |                          
|                                                                   |                                                      |                              |        | March 30,                 |       | March 31,
|                                                                   |                                                      |                              |        | 2003                      |       | 2002     
|                                                                   |                                                      |                              |        |                           |       |          
|Net loss applicable to common
stockholders as reported             |                                                      | $                            | (2,940 | )                         |       | $         | (4,337 | )     
|Employee stock based compensation
included in net loss as reported |                                                      |                              | 500    |                           |       |           | 280    |       
|Stock based compensation pursuant
to fair value accounting         |                                                      |                              | (2,313 | )                         |       |           | (1,610 | )     
|                                                                   |                                                      |                              |        |                           |       |           |        |       
|                                                                   | Pro forma net loss applicable to
common stockholders |                              | $      | (4,753                    | )     |           | $      | (5,667 | )    
|                                                                   |                                                      |                              |        |                           |       |           |        |       
|Basic and diluted net loss per share                               |                                                      |                              |        |                           |       |           |        |       
|                                                                   |                                                      | As reported                  |        | $                         | (0.12 | )         |        | $      | (0.18 | )
|                                                                   |                                                      |                              |        |                           |       |           |        |       
|                                                                   |                                                      | Pro
forma net loss per share |        | $                         | (0.20 | )         |        | $      | (0.24 | )
|                                                                   |                                                      |                              |        |                           |       |           |        |       

The stock based compensation pursuant to fair value accounting information
presented has been determined as if we had accounted for our stock options
issued to employees under the fair value method for all periods presented. The
fair value of each option granted is estimated at the date of grant using the
following weighted-average assumptions:

|                        |  |                |      |                |  |  |      |  
|----------------------- |  | -------------- | ---- | -------------- |  |  | ---- | -
|                        |  | March 30, 2003 |      | March 31, 2002
|                        |  |                |      |               
|Expected term           |  | 5 years        |      | 5 years       
|Risk-free interest rate |  |                | 2.86 | %              |  |  | 2.79 | %
|Dividend yield          |  |                | 0    | %              |  |  | 0    | %
|Volatility              |  |                | 100  | %              |  |  | 100  | %

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NOTE 4. INVENTORIES

Inventories consist of the following:

|                                              |  |           |        |              |  |   |        |  
|--------------------------------------------- |  | --------- | ------ | ------------ |  | - | ------ | -
|                                              |  | March 30, |        | December 29,
|                                              |  | 2003      |        | 2002        
|                                              |  |           |        |             
|Raw materials                                 |  | $         | 3,898  |              |  | $ | 3,244  |  
|Finished goods                                |  |           | 1,593  |              |  |   | 1,843  |  
|Less: write-down to expected realizable value |  |           | (3,990 | )            |  |   | (3,584 | )
|                                              |  |           |        |              |  |   |        |  
|                                              |  | $         | 1,501  |              |  | $ | 1,503  |  
|                                              |  |           |        |              |  |   |        |  

NOTE 5. WARRANTY

We offer
product warranties of one to five years. Warranty coverages provide
for the repair or replacement of defective products, at our option.
Estimated future warranty obligations related to certain products are
provided by charges to operations in the period in which the related
revenue is recognized. These estimates are based on historical
warranty experience and other relevant information of which we are
aware. Cost associated with warranty coverage may include replacement
product, parts, labor and other costs. The following table sets forth
the amount of warranty accrued, expensed and utilized or adjusted
during the three-month period ended March 30, 2003.

|                                        |  |                               |       |                                     |  |              |     |                          |  |   |      |   |  |   |       |  | 
|--------------------------------------- |  | ----------------------------- | ----- | ----------------------------------- |  | ------------ | --- | ------------------------ |  | - | ---- | - |  | - | ----- |  | 
|                                        |  | Balance
at
Beginningof Period |       | Amounts
Charged toCosts andExpenses |  | (Deductions) |     | Balance at End
of Period
|                                        |  |                               |       |                                     |  |              |     |                         
|Accrued warranty costs                  |  |                               |       |                                     |  |              |     |                          |  |   |      |   |  |   |       |  | 
|Three-month period ended March 30, 2003 |  | $                             | 1,749 |                                     |  | $            | 159 |                          |  | $ | (458 | ) |  | $ | 1,450 |  | 

NOTE 6. SERIES B CONVERTIBLE PREFERRED STOCK

In February 2003 we completed an $8.0 million private placement of
3,809,524 shares of our newly designated Series B Convertible Preferred Stock
at $2.10 per share. In addition, the purchasers of the Series B Convertible
Preferred Stock received warrants to purchase 1,142,856 shares of common stock
with a strike price of $2.63 per share and a 5 year term.

Each share of Series B Convertible Preferred Stock is currently
convertible into one share of common stock, subject to adjustment for certain
dilutive events. Except as limited by law or the Certificate of
Designation, the holders of Series B Convertible Preferred Stock are entitled
to vote with holders of common stock at a rate of 0.8936 vote per share until holders shares are converted into shares of
Common Stock. Shares of Series B Convertible Preferred Stock automatically
convert to common stock, if, at anytime after three years from the original
issue date, the common stock has been traded with a volume weighted average
price in excess of $7.00 per share for twenty of the previous thirty trading
days with a minimum average trading volume of 200,000 shares per day. In
addition, holders of Series B Convertible Preferred Stock are entitled to
receive cumulative dividends at the rate of 6% per annum, payable on a
quarterly basis on May 15, August 15, November 15 and February 15 of each year.
Dividends on the preferred stock will be paid in shares of Series B Convertible
Preferred Stock during the first year after closing and then, at our
discretion, in either shares of Series B Convertible Preferred Stock or cash.

In the event of our liquidation, dissolution or winding up, the holders of
Series B Convertible Preferred Stock, are generally entitled to receive a
liquidation preference over the holders of Common Stock equal to the greater of
(i) $2.10 per share of Series B Convertible Preferred Stock held and any
declared but unpaid dividends, and (ii) the amount that would have been paid to
the holders of Series B Convertible Preferred Stock had such preferred shares
been converted to Common Stock immediately prior to such liquidation,
dissolution or winding up.

On or after the date occurring seven years from the original issue date,
the holders of a majority of the then outstanding shares of Series B
Convertible Preferred Stock may require us to effect a redemption of
outstanding shares of Series B Preferred Stock at the original issuance price
of $2.10 per share. Due to these redemption rights afforded to the holders of
Series B Convertible Preferred Stock, the proceeds allocated to the Series B
Preferred Stock have been classified outside of stockholders equity on the
balance sheet on the mezzanine between total liabilities and stockholders
equity.

We received approximately $7.8 million, net of issuance costs, from the
sale and issuance of our Series B Convertible Preferred Stock and warrants to
purchase common stock and allocated $6.7 million to the Series B Convertible
Preferred Stock and $1.1 million to the warrants to purchase common stock based
on their relative fair values on the date of issuance pursuant to Accounting
Principles Board Opinion No. 14 Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants. The fair value used to allocate proceeds
to the Series B Convertible Preferred Stock was based upon a valuation that
considered, among other things, the closing price of the common stock on the
date of closing, the impact of the preferred stock on market capitalization on
an as converted basis, dividend rights, liquidation preferences and redemption
rights. The fair value used to allocate proceeds to the warrants to purchase
common stock was based on a Black Scholes valuation model and the following
assumptions: exercise price $2.63; no dividends; term of 5 years; risk free
interest rate of 3.02%; and volatility of 107.4%.

In accordance with the provisions of EITF 98-5 Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios and EITF 00-27 Application of Issue No. 98-5 to
Certain Convertible Instruments, we separately valued the in-the-money
conversion feature embedded in the Series B Convertible Preferred Stock and
assigned a $3.2 million value to the embedded beneficial conversion and
recorded this embedded value as an increase to additional paid in capital. The
following table sets forth the calculation used in determining the beneficial
conversion value (in thousands, except per share amounts):

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|                                                                                                                                      |  |   |        | 
|------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------ | 
|Proceeds allocated to the Series B Convertible
Preferred Stock based on relative fair value prior to
the allocation of issuance costs |  | $ | 6,856  | 
|Shares of Series B Convertible Preferred Stock sold                                                                                   |  |   | 3,810  | 
|                                                                                                                                      |  |   |        | 
|Effective proceeds received per share                                                                                                 |  | $ | 1.7996 | 
|Weighted
average closing price of common stock on
transaction dates                                                                   |  | $ | 2.6517 | 
|Intrinsic value of beneficial conversion per share                                                                                    |  | $ | 0.8521 | 
|Shares of Series B Convertible Preferred Stock sold                                                                                   |  |   | 3,810  | 
|                                                                                                                                      |  |   |        | 
|Aggregate value of beneficial conversion                                                                                              |  | $ | 3,246  | 
|                                                                                                                                      |  |   |        | 

The aggregate of $1.1 million of proceeds allocated to the common stock
warrants issued in conjunction with the offering,
the $3.2 million value assigned to the embedded beneficial
conversion and the
$0.2 million of allocated transaction costs, the Series B
Preferred Convertible Stock was
recorded in additional paid in capital resulting in a net carrying amount of
the Series B Convertible Preferred Stock of $3.5 million.
The $3.5 million
carrying amount reflects a discount of $4.5 million from the $8.0 million to be
paid to holders of the Series B Convertible Preferred Stock upon mandatory
redemption which may occur anytime after February 14, 2010. The
$3.5 million
discount will be accreted to net loss applicable to common stockholders on a
straight-line basis, which approximates the effective yield method, up to the
earlier of the stated date of redemption or conversion of the preferred shares
into common stock.

NOTE 7. NOTES RECEIVABLE FROM STOCKHOLDERS

During January 2003, we repurchased 1,359,160 shares of common stock at
$2.47 per share from two officers in a non-cash transaction and collected cash
of approximately $236,000 from the officers in full satisfaction of the
principal and unpaid interest balances of the officers notes totaling $3.6
million. Of the 1,359,160 shares repurchased by the company, 300,592 shares
were granted to an officer within six months of the repurchase. In accordance
with the provisions of EITF 00-23 Issues Related to the Accounting for Stock
Compensation under APB Opinion No. 25 and FASB Interpretation No. 44 the
repurchase of the 300,592 shares resulted in a non-cash compensation charge to
earnings during the first quarter of 2003 of $364,000.

NOTE 8. RECENT ACCOUNTING PRONOUNCEMENTS

During June 2001, the FASB issued Statement of Financial Accounting
Standard No. 143 Accounting for Obligations Associated with the Retirement of
Long-Lived Assets (SFAS 143). The provisions of FAS 143 apply to all entities
that incur obligations associated with the retirement of tangible long-lived
assets. SFAS 143 is effective for financial statements issued for fiscal years
beginning after June 15, 2002. Under SFAS 143, a liability for an asset
retirement obligation (i.e. liability) is recognized at fair value during the
period in which it is incurred. The offset to the liability is capitalized as
a component of the carrying amount of the asset bringing rise to the future
retirement obligation. We adopted SFAS 143 effective December 30, 2002, the
beginning of our 2003 fiscal year. Our adoption of SFAS 143 did not impact our
financial position, results of operations or cash flows for the three-month
period ended March 30, 2003.

During December 2002, the FASB issued Statement of Financial Accounting
Standard No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure (SFAS 148). SFAS 148 amends the guidance set forth in Statement of
Financial Accounting Standard No. 123 Accounting for Stock-Based Compensation
(SFAS 123) and provides guidance for companies that elect to change their
accounting for employee stock based compensation to the fair value method of
accounting. The statement also expands and increases the frequency of the
existing disclosure requirements to require more prominent and quarterly
disclosure of the effects of stock based compensation pursuant to the
provisions of SFAS 123. We adopted SFAS 148 effective December 30, 2002 and
have included the expanded interim disclosures in the footnotes to our
condensed financial statements contained herein. Our adoption of SFAS 148 did
not impact our financial position, results of operations or cash flows for the
three-month period ended March 30, 2003.




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

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December 29,
2002 Annual Report on Form 10-K, filed with the Securities and Exchange
Commission on March 28, 2003.

This document contains forward-looking statements that involve risks 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.

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 new embedded storage switch products as well as our
SAN interconnect switch and hub products that connect computers to data storage
devices in a network configuration. Our new embedded storage switch products
are based on a switch-on-a-chip, or SOC. This SOC 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 SOC incorporates our InSpeedTM technology, which is an advanced
switching architecture that results in a single chip capable of handling
multiple Fibre Channel devices. The InSpeed SOC can be embedded into storage
enclosure devices such as redundant array of independent disks, or RAID,
enclosures, tape libraries, NAS environments and next generation storage
systems to enhance the performance and scaling of these solutions as well as
improve device reliability, availability and serviceability. We are also using
the InSpeed SOC in Fibre Channel switches and blades that can be embedded by
OEMs in their storage solutions. This technology can also be used to offer high
performance, low cost switches for entry level SANs. Revenue from InSpeed-based
products represented approximately 74% of our first quarter 2003 revenue.

We derive substantially all of our revenue from the sale of Fibre Channel
products, including embedded storage switch products, and SAN switches and
hubs. We sell these products primarily to a limited number of OEMs. HP
Corporation (including Compaq Computer Corporation) represented 52% of revenue
for the three-month period ended March 30, 2003. HP Corporation, Xyratex
Technology Ltd., a contract manufacturer for Network Appliance, Inc., and Avid
Technology represented 22%, 22%, and 11% of revenue, respectively, for the
three-month period ended March 31, 2002. No other individual customer
represented more than 10% of our total revenue during those periods.
The period over period variations in the percentage of revenue
generated by specific customers due to the introduction of new
products and fluctuations in customer demand. Our new InSpeed
products were integrated into HPs Enterprise Virtual Array
product during 2002 which resulted in a period over period increase
in HPs revenue as a percentage of total revenue. Xyratex made a
large initial SOC product purchase during 2002 that was not expected
to recur during 2003 resulting in a period over period decrease in
revenue from Xyratex. Avid remains a customer but generated less than
10% of our total revenue during the three-month period ended
March 30, 2003. 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 have outsourced our switch and hub box product manufacturing,
fulfillment and repair operations and most of our materials management to
Suntron Corporation (Suntron). We purchase certain components directly from
suppliers and resell them to Suntron at our cost and recognize no revenue from
these transactions. We also outsource the manufacturing of our SOCs to
third-party manufacturers that ship these components to us or Suntron for
inclusion in our product assemblies.

Critical Accounting Policies

General

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses for
the reporting periods presented. Management reviews the estimates and
assumptions used for financial reporting each period and has discussed the
development, selection and disclosure of these estimates and assumptions with
the Audit Committee of the Board of Directors. Actual results could differ
materially from those estimates and future changes to such estimates or
assumptions used could materially and
adversely affect the financial statements. Amounts in the financial
statements, which are particularly susceptible to changes in

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estimates in the
near term, include the recoverability of goodwill and other intangibles, the
allowance for doubtful accounts, warranty reserves and inventory valuation.

Revenue Recognition

We recognize revenue when it is realized or realizable and earned. We
consider revenue realized or realizable and earned when there is persuasive
evidence of an arrangement, the product has been delivered to the customer, the
sales price is fixed or determinable and collectability is reasonably assured.

Product
is delivered to a customer when shipped or the customer takes
possession of the product. Our products ship freight on board  shipping point
via customer provided transport carrier. Under circumstances in which we
maintain product inventories at third party facilities where a customer may
take delivery on a just-in-time basis, delivery occurs and legal title to the
product transfers to the customer, when the customer takes physical possession
of the inventory. Once a product is shipped or removed from a just-in-time
inventory facility, the product may not be returned for credit or
refund.

We defer the recognition of revenue for sales subject to price protections
or stock rotation rights offered to select customers until the expiration of
such protections or rights. Price protections provide customers credit for
recent purchases in the event of product price reductions while stock rotation
rights provide for the return of a limited portion of the customers prior
quarter purchases in exchange for credit to be applied to future purchases. We
defer the portion of sales subject to price protections or stock rotation
rights based on estimated utilization of such rights. Deferred revenue, to the
extent not utilized, is recognized into revenue upon the expiration of the
rights.

Valuation of Long-Lived Assets Including Goodwill and Purchased Intangible Assets

We review property and equipment and goodwill for impairment whenever
events or changes in circumstances indicate the carrying value of an asset may
not be recoverable. Our asset impairment review assesses the fair value of the
assets based on the future cash flows the assets are expected to generate. An
impairment loss is recognized when estimated undiscounted future cash flows
expected to result from the use of the asset plus net proceeds expected from
disposition of the asset (if any) are less than the carrying value of the
asset. This approach uses our estimates of future market growth, forecasted
revenue and costs, expected periods the assets will be utilized and appropriate
discount rates. Such evaluations of impairment of long-lived assets including
goodwill are an integral part of, but not limited to, our strategic reviews of
our business and operations performed in conjunction with restructuring
actions. When impairment is identified, the carrying amount of the asset is
reduced to its estimated fair value. Deterioration of our business in the
future could also lead to impairment adjustments as such issues are identified.
Those impairment adjustments could materially and adversely impact the results
of operations for the period in which those adjustments are recorded.

Allowance for Doubtful Accounts

We evaluate the collectibility of our trade receivables based on a
combination of factors. We regularly analyze our significant customer accounts,
and, should we become aware of a specific customers inability to meet its
obligations to us, we record a specific reserve for bad debt to reduce the
related receivable to the amount we reasonably believe is collectible. We also
record reserves for bad debt for all other customers based on a variety of
factors including the length of time the receivables are past due, the
financial health of the customer, macroeconomic considerations and historical
experience. If circumstances related to specific customers change, our
estimates of the recoverability of receivables could be further adjusted,
possibly adversely and materially, and adjustments, whether favorable or
unfavorable, would be recorded during the period in which the change in
circumstances is identified.

Warranty Provision

We provide for the estimated cost of product warranties at the time
revenue is recognized. While we engage in extensive product quality programs
and processes, including actively monitoring and evaluating the quality of our
contract manufacturer and other suppliers, our estimated warranty obligation is
affected by product failure rates, product failures outside of our historical
experience, and other costs incurred in correcting a product failure. We
believe that our current warranty reserve is appropriate. However, projected
product failure rates or costs could differ adversely and materially from our
estimates, and revisions to the estimated warranty reserve would be required
during the period in which changes in estimates are identified.

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Inventory

Inventory is carried at the lower of standard cost (which approximates
current cost using a first in, first out cost flow assumption) or estimated net
realizable value. We perform detailed assessments of our inventory each period,
which includes reviewing, among other factors, demand requirements and product
life cycle plans. Based on our analyses, we record adjustments to inventory
for excess, or obsolescence, when appropriate, to reflect inventory at its net
realizable value. Revisions to our inventory adjustments may be required if
actual demand or product life cycles differ from our estimates, and could
adversely and materially impact our statement of operations during the period
in which such adjustment is necessary.

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 30,          |      | March 31,
|                     |                                          |  | 2003               |      | 2002     
|                     |                                          |  |                    |      |          
|Revenue              |                                          |  | 100.0              | %    |           |  | 100.0 | %   
|Cost of revenue      |                                          |  | 50.5               |      |           |  | 55.1  |     
|                     |                                          |  |                    |      |           |  |       |     
|Gross profit         |                                          |  | 49.5               |      |           |  | 44.9  |     
|                     |                                          |  |                    |      |           |  |       |     
|Operating expenses   |                                          |  |                    |      |           |  |       |     
|                     | Research and development                 |  |                    | 46.3 |           |  |       | 75.8 | 
|                     | Selling, general and administrative      |  |                    | 52.7 |           |  |       | 56.3 | 
|                     | Amortization of identifiable intangibles |  |                    | 1.0  |           |  |       | 2.3  | 
|                     | Amortization of stock-based compensation |  |                    | 2.1  |           |  |       | 5.8  | 
|                     |                                          |  |                    |      |           |  |       |     
|                     |                                          |  | 102.1              |      |           |  | 140.3 |     
|                     | Sale of assets                           |  |                    | 0.1  |           |  |       | 0.5  | 
|                     |                                          |  |                    |      |           |  |       |     
|                     |                                          |  | 102.2              |      |           |  | 140.8 |     
|                     |                                          |  |                    |      |           |  |       |     
|Loss from operations |                                          |  | (52.7              | )    |           |  | (95.9 | )   
|Other income, net    |                                          |  | 1.7                |      |           |  | 4.0   |     
|                     |                                          |  |                    |      |           |  |       |     
|Net loss             |                                          |  | (51.0              | )%   |           |  | (91.9 | )%  
|                     |                                          |  |                    |      |           |  |       |     

RESTRUCTURING

During April 2002, we adopted and implemented a restructuring plan to
reduce our cost structure and focus on our InSpeed-based product development
and sales. As a result of the plan, we recorded restructuring charges of $1.7
million, net of adjustments. The restructuring plan included, among other
charges, a charge of $899,000 for the consolidation of space within our
Bothell, Washington corporate headquarters and our engineering facility in
Irvine, California. This charge includes the cost associated with the idle
facility space at these locations for the remainder of the lease terms. At
December 29, 2002 the $0.6 million of accrued restructuring liability remaining
was related solely to excess facilities at our Bothell, Washington location
through the first quarter of fiscal 2005. During the three-month period ended
March 30, 2003 the restructuring liability was reduced to $0.5 million due to
lease payments made on our Bothell facility.

THREE-MONTH PERIOD ENDED MARCH 30, 2003 COMPARED WITH THE THREE-MONTH PERIOD ENDED MARCH 31, 2002

Revenue.Revenue during the three-month periods ended March 31, 2003 and
March 30, 2002 was derived from our InSpeed, hub and switch products. Revenue
increased 17% to $5.5 million from $4.7 million for the three-month periods
ended March 30, 2003 and March 31, 2002, respectively. This $0.8 million
increase was due to a $2.8 million, or 128%, increase in revenue from our
InSpeed family of products. InSpeed products represented 74% of revenue for
the three-month period ended March 30, 2003 compared with 26% for the
three-month period ended March 31, 2002. The increase in InSpeed product
revenue was partially offset by declines in revenue generated by our hub and
non-InSpeed switch products which declined an aggregate of 58% from $3.0
million to $1.3 million for the three-month periods ended March 30, 2003 and
March 31, 2002, respectively.

Cost of revenue. Cost of revenue includes the cost to acquire finished
products from a third party manufacturer of our products,
expenses we incur related to inventory management, product quality
testing, customer order fulfillment, and provisions for warranty

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expenses and
inventory obsolescence. Cost of revenue increased 7.7% to $2.8 million from
$2.6 million for the three-month periods ended March 30, 2003 and March 31,
2002, respectively. This $0.2 million increase was due to a 16.6% increase in
revenue partially offset by improved margins. Margins on sales increased
to 49.5% of revenue in the current period compared with 44.9% during
the same period in the prior year. The
improvement in margins is due to higher-margin InSpeed products comprising a
larger percentage of total revenue during the three-month periods ended March
30, 2003 compared with the three-month period ended March 31, 2002.

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 declined 27.8% to $2.6 million from $3.6
million for the three-month periods ended March 30, 2003 and March 31, 2002,
respectively. This decrease is due to a $1.0 million reduction in compensation
costs. The decrease in compensation costs reflects the reduction of research
and development personnel due to the sale of our SAN management software assets
combined with implementation of our restructuring plan, both occurring during
the second quarter of 2002.

We believe that continued investment in research and development is an
essential element of our strategic objectives to design quality products while
reducing costs. We expect research and development expenses to continue to
represent a significant portion of our overall operating expenses during 2003
as a result of expenses incurred in the development of enhancements to existing
products and development of future product offerings.

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, and expenses related to various marketing
activities. Selling, general and administrative expenses increased 7.4% to $2.9
million from $2.7 million for the three-month periods ended March 30, 2003 and
March 31, 2002, respectively. This $0.2 million increase was primarily due to
increased compensation costs which increased $0.2 million between the periods.
As a percentage of revenue, selling, general and administrative expenses
decreased 52.7% from 56.3% for the three-month periods ended March 30,
2003 and March 31, 2002, respectively.

Amortization of intangible assets. Amortization of intangible assets
decreased 50.5% to $54,000 from $109,000 for the three-month periods ended March
30, 2003 and March 31, 2002, respectively. This decrease is due to all
recorded intangible assets becoming fully amortized during the three-month
period ended March 30, 2003. Goodwill is not amortized, but is subject to
periodic impairment testing. No impairment of goodwill was noted during either
period presented.

Amortization of stock-based compensation. Amortization of stock-based
compensation decreased 66.7% to $0.1 million from $0.3 million for the
three-month periods ended March 30, 2003 and March 31, 2002, respectively.
This decrease is primarily the result of amortizing deferred stock compensation
on an accelerated basis which results in greater amortization during earlier
periods. At March 30, 2003, unamortized stock-based compensation was
immaterial.

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 $123.1 million, including $8.0 million received during February
2003 upon closing our Series B Convertible Preferred Stock financing.
Additionally, we have financed our operations through capital equipment lease
lines, working capital credit facilities, notes payable, $6.9 million in net
cash received from the sale of our laser diode fabrication facility and gigabit
Ethernet product line and $4.7 million in net cash received from the sale of
our SAN management software assets. Our principal sources of liquidity at March
30, 2003 consisted of $10.6 million in cash and cash equivalents and $13.7
million in liquid investments.

Cash utilized by operating activities was $1.8 million for the three-month
period ended March 30, 2003, and was due primarily to our operating loss, net
of non-cash expenses. Cash provided by investing activities was $0.3 million
and resulted from maturities of short-term investments of $5.8 million,
proceeds from the collection of a $2.5 million note receivable received in
conjunction with the sale of our SAN management software, offset by $7.5
million of purchases of short-term investments and capital expenditures of $0.5
million. Cash provided by financing activities reflects the $7.8 million raised
in conjunction with our sale of Series B Convertible Preferred Stock.

As of March 30, 2003, we had an accumulated deficit of $136.7 million and
have never been profitable. 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.

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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 twenty-four 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.

RELATED PARTY TRANSACTIONS

During January 2003, we repurchased 1,359,160 shares at $2.47 per share
from two officers in a non-cash transaction and collected cash of approximately
$236,000 from the officers in full satisfaction of the principal and unpaid
interest balances of the officers notes totaling $3.6 million. The note
receivable arrangements were originally entered into during April and May of 1999 in
connection with the exercise of stock options. Approximately 301,000 of the
1,359,160 shares repurchased by the company were granted to an officer within
six months of the repurchase. Therefore, the 301,000 are subject to the
provisions of EITF 00-23 Issues Related to the Accounting for Stock
Compensation under APB Opinion No. 25 and FASB Interpretation No. 44 and
resulted in a non-cash compensation charge to earnings during the first quarter
of 2003 of $364,000.

RECENT ACCOUNTING PRONOUNCEMENTS

During June 2001, the FASB issued Statement of Financial Accounting
Standard No. 143 Accounting for Obligations Associated with the Retirement of
Long-Lived Assets"(SFAS 143). The provisions of FAS 143 apply to all entities
that incur obligations associated with the retirement of tangible long-lived
assets. SFAS 143 is effective for financial statements issued for fiscal years
beginning after June 15, 2002. Under SFAS 143, a liability for an asset
retirement obligation (i.e. liability) is recognized at fair value during the
period in which it is incurred. The offset to the liability is capitalized as
a component of the carrying amount of the asset bringing rise to the future
retirement obligation. We adopted SFAS 143 effective December 30, 2002, the
beginning of our 2003 fiscal year. Our adoption of SFAS 143 did not impact our
financial position, results of operations or cash flows for the three-month
period ending March 30, 2003.

During December 2002, the FASB issued Statement of Financial Accounting
Standard No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure (SFAS 148). SFAS 148 amends the guidance set forth in Statement of
Financial Accounting Standard No. 123 Accounting for Stock-Based Compensation
(SFAS 123 and provides guidance for companies that elect to change their
accounting for employee stock based compensation to the fair value method of
accounting. The statement also expands and increases the frequency of the
existing disclosure requirements to require more prominent and quarterly
disclosure of the effects of stock based compensation pursuant to the
provisions of SFAS 123. We adopted SFAS 148 effective December 30, 2002 and
have included the expanded interim disclosures in the footnotes to our
financial statements contained herein. Our adoption of SFAS 148 did not impact
our financial position, results of operations or cash flows for the three-month
period ending March 30, 2003.

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 $2.8 million for the three-month period
ended March 30, 2003, and expect to incur losses in the future. As of
March 30, 2003, we had an accumulated deficit of
$136.7 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 vary in future periods for a number of
reasons, which could adversely affect the trading price of our stock.

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, timing 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;

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| |   |                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------
| |  | the gain or loss of significant OEMs or other customers;                                                
|
| |  | the rate of market acceptance of our InSpeed technology;                                                
|
| |  | the length of time needed by customers for the evaluation and
    integration of our products;          
|
| |  | delays in or longer than expected design cycles for new products;                                       
|
| |  | 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;                                              
|
| |  | changes in the mix of products sold or the mix of sales
    channels; 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 from Hewlett-Packard Company represented 52% of
revenue, for the three-month period ended
March 30, 2003. 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

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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 the market acceptance of our embedded storage switch products and growth of the storage market.

We are focusing the majority of our development, sales and
marketing resources on the new embedded storage switch market.
Our InSpeed based products incorporate a relatively new
technology we developed for this market. Our success in
generating revenue in this market will depend on, among other
things, our ability to:



| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | demonstrate the benefits of embedded switch products to OEMs;                                                                                                              
|
| |  | enhance our existing embedded
storage switch 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 storage OEMs; and                                                                                                   
|
| |  | accurately predict the direction of industry standards and base our products on those industry standards.                                                                  

If the acceptance of our InSpeed technology and InSpeed based
products by large OEMs does not materialize, or the market for
back-end embedded storage switches does not grow, our results of
operations and financial condition could be harmed significantly.

The sales cycle for our products
are 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. This process becomes more complex 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.

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, SATA (Serial Advanced Technology
Attachment) 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 InSpeed
technology-based products 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
InSpeed products and product launches by customers that
incorporate our InSpeed SOCs and switches. In addition, as we
introduce new or enhanced InSpeed products, we will have to
manage successfully the transition from older releases in order
to minimize disruption in our customers ordering patterns,
avoid excessive levels of older product inventories and ensure
that enough 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.

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

We target our embedded storage switches at a new and evolving
market. As yet no other company has publicly introduced products
similar to our InSpeed family of products. As this market grows
we may face competition from storage networking switch
providers, including Brocade Communications Systems, Inc. and
QLogic Corporation, semiconductor companies, or OEMs, including
our OEM customers, that may choose to develop technology or
products that compete with ours.

We may not be able to compete successfully in the SAN market.
The markets for SAN interconnect products are highly competitive
and 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 could have a material adverse effect on our
business, results of operations and financial condition.

Our current competitors include a number of domestic and
international companies, many of which have longer operating
histories, greater name recognition and substantially greater
financial, technical, and sales and marketing resources, and may
have larger distribution channels, access to more customers and
a larger installed customer base than we do. As a result, these
companies may be able to undertake more extensive marketing
campaigns and adopt more aggressive pricing policies than we
can. We may not have the financial resources, technical
expertise or marketing, manufacturing, distribution, and support
capabilities to compete successfully in the future. There can
also be no assurance that we will be able to compete
successfully against current or future competitors or that
current or future competitive pressures will not materially harm
our business.

For SAN interconnect sales, we compete primarily with Brocade
Communications Systems, Inc. and QLogic Corporation. Our
competitors continue to introduce improved SAN 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 industry is subject to rapid
technological change, and we must keep pace with the changes to
successfully compete.

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

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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, an outside contract-manufacturing firm, to
manufacture, store and ship our box products. We share
Suntrons manufacturing and assembly capacity with numerous
companies whose needs may conflict with ours. If Suntron is
unable, unwilling, or fails 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 for an undeterminable period of time. 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 and/or
sole-source and require extended lead times. Our business will
be adversely affected if we are unable to accurately 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, or reduces or discontinues 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 SOCs, card guides,
ASICs and our microprocessors. ASICs are custom designed
computer chips that perform specific functions very efficiently.
In addition, we license software from a third party that is
incorporated into our switches and hubs. If we cannot supply our
SOCs or other products due to a lack of availability of the
single source components, or 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.

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

Fibre Channel products, including InSpeed based products,
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,
cause significant customer relations problems, and damage our
reputation.

If we fail to successfully
develop and maintain the Vixel and InSpeed brands, our revenue may
not grow and our stock price may decline.

We believe that establishing and maintaining the Vixel and
InSpeed brands 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 Fibre Channel products. If we fail
to promote our brands successfully, or if we incur excessive
expenses in an attempt to promote and maintain the Vixel or
InSpeed brands, our business, results of operations and
financial condition may be materially and 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 or Inspeed brands may decline
and our business may suffer.

If we lose key personnel or are
unable to hire 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. 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. We also
need to increase the number of technical staff members with
experience in ASIC design as we further develop our product
line. Competition for these highly skilled employees in our
industry is intense.

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.

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

Our revenue from international sales represented 31% of our
total revenue for the three-month period ended
March 30, 2002. We plan to expand our international
sales, especially in Japan and Asia. Our international sales
growth will be limited if we are unable to establish
relationships with international OEMs and 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;
|
| |  | longer sales cycles;                                                                   

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| |   |                                                                    
| | - | -------------------------------------------------------------------
| |  | difficulties in collecting accounts receivables;                   
|
| |  | reduced or limited protections 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 storage device or a SAN
must utilize the same standards in order to operate together.
Our products comprise only a part of a storage device or 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, including InSpeed. 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 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.

On March 3, 2003 we filed a patent infringement action
against QLogic Corporation in the United States District Court
for the District of Delaware. The complaint states that QLogic
is infringing U.S. Patent No. 6,118,776, entitled
Methods and Apparatus for Fiber Channel Interconnection of
Private Loop Devices, through the unauthorized
manufacture, use, sale and offering for sale of various storage
area network

20



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##### Table of Contents



switching products, including QLogics SANBox2 product. We
are seeking unspecified past damages, potential future
royalties, or, alternatively, injunctive relief.

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
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 is volatile,
which could negatively affect stockholders investment.

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 reduction 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                                                                                                                                  
|
| |  | political and economic instability, including, but not limited
    to war, military actions, and acts of terrorism.                                                            

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.

Our preferred stockholders have
significant control over us and may approve or reject matters
contrary to the common stockholders' vote or interests.

In February 2003, we completed a private placement of Series B
Convertible Preferred Stock the Series B
Preferred and warrants to purchase common stock. So long
as 1,450,000 shares of Series B Preferred remain
outstanding, the Series B Preferred holders have the right
to appoint a director to our board and certain actions, such as
the authorization and sale of certain senior securities, that we
may wish to undertake require the consent of the holders of a
majority of the outstanding shares of Series B Preferred,
voting as a separate class. The interests of the holders of our
Series B will not necessarily be identical to those of
holders of our common stock. For instance, in the event of
certain change in control transactions, the holders of the
Series B Preferred are entitled to payment of a liquidation
preference prior to the payment of any consideration to the
holders of

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##### Table of Contents



our common stock. This may cause the holders of the
Series B Preferred to favor or oppose a merger or sale of
the Company or its assets in circumstances where holders of
common stock may have a contrary desire.

The sale of a substantial number
of shares of common stock could cause the market price of our common
stock to decline.

Sales of a substantial number of shares of our common stock in
the public market, or the appearance that such shares are
available for sale, could adversely affect the market price for
our common stock. In connection with our private placement of
preferred stock in February 2003, we agreed to file registration statements with the
SEC covering the resale by those investors of 3,809,524 shares of
common stock underlying the conversion of the Series B
Preferred and 1,142,856 shares of common stock that may be
issued upon the exercise of the warrants issued in that private
placement. Once registered for resale these shares will become
freely tradeable, subject only to prospectus delivery
requirements and possible restrictions under Rule 144. The
registration of these shares, or the sale of a substantial
number of shares may cause our stock price to decline regardless of
our performance.

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

Including the proceeds from the sale of preferred stock and the
collection of the note from the sale of SAN InSite in early
2003, we believe that our existing cash, cash equivalent and
investment balances will be sufficient to meet our cash
requirements at least through the next twenty-four 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.

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 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.

22



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##### Table of Contents



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.

23



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##### Table of Contents






ITEM 3. QUANTITATIVE AND QUALITATIVE 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 $13.7 million as of March
30, 2003, 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, future 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.




ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

We conducted an evaluation of our controls and procedures, as defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, within
90 days of the filing of this report. Based on this evaluation, our principal
executive officer and principal financial officer concluded that, as of the
date of the evaluation, our disclosure controls were effective in providing
reasonable assurance that the material information required to be included in
our reports filed with the Securities and Exchange Commission is properly
recorded, processed, summarized, and reported within the time specified periods
pursuant to SEC rules. It should be noted that the design of any system of
control is based in part upon certain assumptions, and there can be no
assurance that any design will succeed in achieving its stated objectives.

In addition, there were no significant changes in our system of internal
control or in other factors that could significantly impact these controls
subsequent to the date of evaluation. Furthermore, we have not identified any
material deficiencies or weaknesses in our system of internal control,
therefore no corrective actions were taken.




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 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,

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##### Table of Contents



2000. Subsequent to the
filing, the Court issued a summary judgment releasing our officers and
directors from the action. We intend to defend ourselves vigorously in this
matter.

On March 3, 2003 we filed a patent infringement action against QLogic
Corporation in the United States District Court for the District of Delaware.
The complaint states that QLogic is infringing U.S. Patent No. 6,118,776,
entitled Methods and Apparatus for Fiber Channel Interconnection of Private
Loop Devices, through the unauthorized manufacture, use, sale and offering for
sale of various storage area network switching products, including QLogics
SANBox2 product. We are seeking unspecified past damages, potential future
royalties, or, alternatively, injunctive relief.




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Sales of Unregistered Securities

In February 2003, we completed an
$8.0 million private placement of 3,809,524 shares of our
newly designated Series B Preferred to two entities affiliated
with Goldman Sachs & Co. and other accredited investors. In
addition, these investors received warrants to purchase
1,142,857 shares of our common stock at an exercise price of
$2.63 per share and a five-year term. The sale and issuance of the
Series B Preferred and common stock warrants were considered to
be exempt from registration pursuant Section 4(2) or
Regulation D of the Securities Act of 1933, as amended.

Except
as limited by law or the Certificate of Designation of Series B
Preferred, the holders of Series B Preferred are entitled to
vote with common stock at a rate of 0.8936 vote per share of
Series B until holders shares are converted into shares of
common stock. So long as there remain 1,450,000 shares of
Series B Preferred outstanding, the holders of Series B
Preferred are entitled to elect one director to our board of
directors designated by Goldman Sachs & Co. (the
Series B Director).

We will
not, for so long as 1,450,000 shares of Series B Preferred
remain outstanding, without the affirmative vote of the holders of a
majority of the outstanding shares of Series B Preferred, voting
together as a single class: (i) alter or change the rights,
preferences or privileges of the shares of Series B Preferred so
as to affect adversely such shares; (ii) increase or decrease
(other than by redemption or conversion) the total number of
authorized shares of Series B Preferred; (iii) authorize to
issue or obligate itself to issue equity securities (or any equity or
debt securities convertible into equity securities) ranking senior to
or pari passu with the Series B Preferred with respect to
dividends, distributions or rights upon liquidation; and
(iv) affect any capital reorganization or reclassification of
equity securities (or securities convertible into other securities)
into equity securities ranking senior to the Series B Preferred
with respect to dividends, distributions or rights upon liquidation.
In addition, for so long as 1,450,000 shares of Series B
Preferred remain outstanding, we will not without first obtaining the
approval of the Series B Director, redeem, purchase or otherwise
acquire (or pay into or set aside for a sinking fund for such
purpose) any share or shares of common stock or other securities
junior in preference to the Series B Preferred.

Each
share of Series B Preferred is currently convertible into one
share of common stock, subject to adjustment for stock splits, stock
dividends and similar events, and certain other dilutive events.
Shares of Series B Preferred automatically convert to common
stock, if, at anytime after three years from the original issue date,
the common stock has been traded with a volume weighted average price
in excess of $7.00 per share for 20 of the previous 30 trading
days with a minimum average trading volume of 200,000 shares per
day. In addition, holders of Series B Preferred are entitled to
receive cumulative dividends at the rate of 6% per annum, payable on a
quarterly basis. Dividends will be paid in shares of Series B
Preferred during the first year after closing and then, at our
discretion, in either shares of Series B Preferred or cash.

In the
event of our liquidation, dissolution or winding up, the holders of
Series B Preferred, are generally entitled to receive a
liquidation preference over the holders of common stock equal to the
greater of (i) $2.10 per share of Series B Preferred held
and any declared but unpaid dividends, and (ii) the amount that
would have been paid to the holders of Series B Preferred had
such preferred shares been converted to common stock immediately
prior to such liquidation, dissolution or winding up. On or after the
date occurring seven years from the original issue date the holders of
a majority of the then outstanding shares of Series B Preferred
may require us to effect a redemption of outstanding shares of
Series B Preferred at the original issuance price of $2.10 per
share, together with any accrued but unpaid dividends.

In
connection with the private placement, we agreed to file registration
statements with the SEC covering the resale by the investors of the
shares of common stock underlying the conversion of the Series B
Preferred and the shares of common stock that may be issued upon the
exercise of the warrants issued in the private placement.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

|        |  |                                                                                          
|------- |  | -----------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                          
|NUMBER  |  | DESCRIPTION                                                                              
|        |  |                                                                                          
|3.1 (1) |  | Amended and Restated Certificate of Incorporation of
Registrant (Exhibit 3.2)            
|        |  |                                                                                          
|3.2 (2) |  | Certificate of Designation of Series A Junior
Participating Preferred Stock (Exhibit 3.1)
|        |  |                                                                                          
|3.3 (3) |  | Certificate of Designation of Series B Convertible Preferred
Stock                       
|        |  |                                                                                          
|3.4 (1) |  | Bylaws of the Registrant (Exhibit 3.4)                                                   

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|        |  |                                                                                                                                  
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                  
|NUMBER  |  | DESCRIPTION                                                                                                                      
|        |  |                                                                                                                                  
|4.1 (1) |  | Specimen Stock Certificate (Exhibit 4.1)                                                                                         
|        |  |                                                                                                                                  
|4.2 (1) |  | Amended and Restated Investors Rights Agreement dated
February 17, 1998 (Exhibit 4.2)                                           
|        |  |                                                                                                                                  
|4.3 (1) |  | First Amendment to Amended and Restated Investors
Rights Agreement dated February 17, 1998 (Exhibit 4.3)                        
|        |  |                                                                                                                                  
|4.4 (2) |  | Rights Agreement dated November 15, 2000, between the
Registrant and Computer Share Trust Company, Inc.
(Exhibit 4.1)            
|        |  |                                                                                                                                  
|4.5 (2) |  | Form of Rights Certificate (Exhibit 4.2)                                                                                         
|        |  |                                                                                                                                  
|4.6 (3) |  | Form of Warrant to Purchase Common Stock of Vixel Corporation                                                                    
|        |  |                                                                                                                                  
|4.7 (3) |  | Registration Rights Agreement dated as of February 14, 2003, by
and between Vixel Corporation and the investor signatory thereto.
|        |  |                                                                                                                                  
|99.1    |  | Certification of James M. McCluney, Chief Executive
Officer and Kurtis L. Adams, Chief Financial Officer                         



---

|(1) |  | 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.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | 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.        
|   
|(3) |  | Incorporated by reference to Registrants current
report on Form 8-K filed with the Securities and Exchange Commission on
February 20, 2003.                               

(b)  Reports on Form 8-K:

We filed the following reports on Form 8-K during the first fiscal quarter of
2003 and through the filing of this Quarterly Report:



|(i)  |  | On January 30, 2003 Vixel filed a report on Form 8-K, which reported
under Item 9 the press release entitled Vixel Corporation Announces
Fourth Quarter and Fiscal Year 2002 Results relating to the financial
results of the quarter and year ended December 29, 2002.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(ii) |  | On February 14, 2003, Vixel filed a report on Form 8-K, which reported
under Items 5 and 7 the sale of Series B Convertible Preferred Stock.                                                                                                                             

24



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##### 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, 2003 |  | VIXEL CORPORATION                                                                                                                              
|                    |  |                                                                                                                                                
|                    |  | /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)

25



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##### Table of Contents



I, James M. McCluney, certify that:



|1) |  | I have reviewed this quarterly report on Form 10-Q of Vixel Corporation;                                                                                                                                                                                                                                                      
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2) |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3) |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4) |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                      



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to us by
others, particularly during the period in which this quarterly report is
being prepared;
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                        



|5) |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing
the equivalent function):
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        



|6) |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |                                      
| |  | -------------------------------------
| |  | /s/ James M. McCluney                
| |  |                                      
| |  | James M. McCluney                    
| |  | President and Chief Executive
Officer

26



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##### Table of Contents



I, Kurtis L. Adams, certify that:



|1) |  | I have reviewed this quarterly report on Form 10-Q of Vixel Corporation;                                                                                                                                                                                                                                                      
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2) |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3) |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4) |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                      



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to us by
others, particularly during the period in which this quarterly report is
being prepared;
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                        



|5) |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing
the equivalent function):
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        



|6) |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |                        
| |  | -----------------------
| |  | /s/ Kurtis L. Adams    
| |  |                        
| |  | Kurtis L. Adams        
| |  | Chief Financial Officer

27



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##### Table of Contents






EXHIBIT INDEX

|        |  |                                                                                                                                  
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                  
|NUMBER  |  | DESCRIPTION                                                                                                                      
|        |  |                                                                                                                                  
|3.1 (1) |  | Amended and Restated Certificate of Incorporation of Registrant
(Exhibit 3.2)                                                    
|        |  |                                                                                                                                  
|3.2 (2) |  | Certificate of Designation of Series A Junior Participating
Preferred Stock (Exhibit 3.1)                                        
|        |  |                                                                                                                                  
|3.3 (3) |  | Certificate of Designation of Series B Convertible Preferred
Stock                                                               
|        |  |                                                                                                                                  
|3.4 (1) |  | Bylaws of the Registrant (Exhibit 3.4)                                                                                           
|        |  |                                                                                                                                  
|4.1 (1) |  | Specimen Stock Certificate (Exhibit 4.1)                                                                                         
|        |  |                                                                                                                                  
|4.2 (1) |  | Amended and Restated Investors Rights Agreement dated February
17, 1998 (Exhibit 4.2)                                           
|        |  |                                                                                                                                  
|4.3 (1) |  | First Amendment to Amended and Restated Investors Rights
Agreement dated February 17, 1998 (Exhibit 4.3)                        
|        |  |                                                                                                                                  
|4.4 (2) |  | Rights Agreement dated November 15, 2000, between the Registrant
and Computer Share Trust Company, Inc. (Exhibit 4.1)            
|        |  |                                                                                                                                  
|4.5 (2) |  | Form of Rights Certificate (Exhibit 4.2)                                                                                         
|        |  |                                                                                                                                  
|4.6 (3) |  | Form of Warrant to Purchase Common Stock of Vixel Corporation                                                                    
|        |  |                                                                                                                                  
|4.7 (3) |  | Registration Rights Agreement dated as of February 14, 2003, by
and between Vixel Corporation and the investor signatory thereto.
|        |  |                                                                                                                                  
|99.1    |  | Certification of James M. McCluney, Chief Executive Officer and
Kurtis L. Adams, Chief Financial Officer                         



---

|(1) |  | 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.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | 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.        
|   
|(3) |  | Incorporated by reference to Registrants current
report on Form 8-K filed with the Securities and Exchange Commission on
February 20, 2003.                               

28