##### 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 July 1, 2001
 
OR
|                                                
|[   ]                                            |  | Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Commission File No. 000-27221



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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 [   ]

The number of shares outstanding of the Registrants common stock, $.0015
par value, as of August 8, 2001 was 24,094,474.



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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. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK                            
|PART II   OTHER INFORMATION 
|                              | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   
|EXHIBIT INDEX                
|EXHIBIT 10.1                 

VIXEL CORPORATION
 INDEX TO FORM 10-Q FOR QUARTER ENDED JULY 1, 2001

|                              |                                                                                                                                   |    |    |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | -- | -- |  |  | 
|                              | Page                                                                                                                             
|                              |                                                                                                                                  
|Part I. FINANCIAL INFORMATION
|                             
|                              | Item 1. Financial Statements                                                                                                     
|                             
|                              | Condensed Balance Sheet as of July 1, 2001 (unaudited) and
December 31, 2000 (unaudited)                                          |    | 3 
|                             
|                              | Condensed Statement of Operations for the three and six month periods ended
July 1, 2001 (unaudited) and July 2, 2000 (unaudited) |    | 4 
|                             
|                              | Condensed Statement of Cash Flows for the three and six month periods ended
July 1, 2001 (unaudited) and July 2, 2000 (unaudited) |    | 5 
|                             
|                              | Notes to Condensed Financial Statements                                                                                           |    | 6 
|                             
|                              | Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations                                     |    | 7 
|                             
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                                |    | 21
|                             
|Part II OTHER INFORMATION    
|                             
|                              | Item 2. Changes in Securities and Use of Proceeds                                                                                 |    | 21
|                             
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                                                       |    | 21
|                             
|                              | Item 6. Exhibits and Reports on Form 8-K                                                                                          |    | 22
|                             
|Signature                     |                                                                                                                                   | 23
|                             
|Exhibit Index                 |                                                                                                                                   | 24



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)

|                                     |                                     |                                                                                                                                     |                                            |       |          |        |              |       |          |        | 
|------------------------------------ | ----------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | -------- | ------ | ------------ | ----- | -------- | ------ | 
|                                     |                                     |                                                                                                                                     |                                            |       | July 1,  |        | December 31,
|                                     |                                     |                                                                                                                                     |                                            |       | 2001     |        | 2000        
|                                     |                                     |                                                                                                                                     |                                            |       |          |        |             
|Assets                              
|                                     | Current assets                     
|                                     |                                     | Cash and cash equivalents                                                                                                           |                                            | $     | 20,291   |        |              | $     | 17,066   |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                     | Short-term investments                                                                                                              |                                            |       | 17,603   |        |              |       | 25,636   |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                     | Accounts receivable, net of allowance for doubtful
accounts of $521 and $850, respectively                                          |                                            |       | 2,736    |        |              |       | 7,344    |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                     | Inventories                                                                                                                         |                                            |       | 2,318    |        |              |       | 1,415    |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                     | Prepaid expenses and other current assets                                                                                           |                                            |       | 1,415    |        |              |       | 2,129    |       
|                                     |                                     |                                                                                                                                     |                                            |       |          |        |              |      
|                                     |                                     |                                                                                                                                     | Total current assets                       |       |          | 44,363 |              |       |          | 53,590 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Property and equipment, net         |                                                                                                                                     |                                            | 6,142 |          |        |              | 7,307 |         
|                                    
|                                    
|                                    
|                                    
|                                     | Goodwill and other intangibles, net |                                                                                                                                     |                                            | 1,348 |          |        |              | 1,680 |         
|                                    
|                                    
|                                    
|                                    
|                                     | Other assets                        |                                                                                                                                     |                                            | 340   |          |        |              | 354   |         
|                                     |                                     |                                                                                                                                     |                                            |       |          |        |              |      
|                                     |                                     |                                                                                                                                     | Total assets                               |       | $        | 52,193 |              |       | $        | 62,931 | 
|                                     |                                     |                                                                                                                                     |                                            |       |          |        |              |      
|Liabilities and stockholders equity
|                                     | Current liabilities                
|                                     |                                     | Current portion of long-term debt and capital leases                                                                                |                                            | $     | 1,912    |        |              | $     | 2,466    |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                     | Accounts payable                                                                                                                    |                                            |       | 5,033    |        |              |       | 5,083    |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                     | Accrued liabilities                                                                                                                 |                                            |       | 7,119    |        |              |       | 6,927    |       
|                                     |                                     |                                                                                                                                     |                                            |       |          |        |              |      
|                                     |                                     |                                                                                                                                     | Total current liabilities                  |       |          | 14,064 |              |       |          | 14,476 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Long-term debt and capital leases   |                                                                                                                                     |                                            | 619   |          |        |              | 1,510 |         
|                                     |                                     |                                                                                                                                     |                                            |       |          |        |              |      
|                                     |                                     |                                                                                                                                     | Total liabilities                          |       |          | 14,683 |              |       |          | 15,986 | 
|                                     |                                     |                                                                                                                                     |                                            |       |          |        |              |      
|                                     | Commitments and contingencies      
|                                     | Stockholders equity               
|                                     |                                     | Common stock, $.0015 par value; 60,000,000 shares
authorized; 24,092,252 and 23,845,041
shares issued and outstanding, respectively |                                            |       | 36       |        |              |       | 36       |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                     | Additional paid-in capital                                                                                                          |                                            |       | 156,681  |        |              |       | 156,387  |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                     | Stock-based compensation                                                                                                            |                                            |       | (1,332   | )      |              |       | (2,160   | )     
|                                    
|                                    
|                                    
|                                    
|                                     |                                     | Notes receivable from stockholders                                                                                                  |                                            |       | (3,745   | )      |              |       | (5,122   | )     
|                                    
|                                    
|                                    
|                                    
|                                     |                                     | Treasury stock, at cost; 66,666 shares                                                                                              |                                            |       | (50      | )      |              |       | (50      | )     
|                                    
|                                    
|                                    
|                                    
|                                     |                                     | Accumulated deficit                                                                                                                 |                                            |       | (114,080 | )      |              |       | (102,146 | )     
|                                     |                                     |                                                                                                                                     |                                            |       |          |        |              |      
|                                     |                                     |                                                                                                                                     | Total stockholders equity                 |       |          | 37,510 |              |       |          | 46,945 | 
|                                     |                                     |                                                                                                                                     |                                            |       |          |        |              |      
|                                     |                                     |                                                                                                                                     | Total liabilities and stockholders equity |       | $        | 52,193 |              |       | $        | 62,931 | 
|                                     |                                     |                                                                                                                                     |                                            |       |          |        |              |      

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



3



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##### Table of Contents






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

|                                     |                                                |                          |        |                    |       |                  |        |         |       |         |         |       |        |   |         |        |        | 
|------------------------------------ | ---------------------------------------------- | ------------------------ | ------ | ------------------ | ----- | ---------------- | ------ | ------- | ----- | ------- | ------- | ----- | ------ | - | ------- | ------ | ------ | 
|                                     |                                                |                          |        | THREE MONTHS ENDED |       | SIX MONTHS ENDED
|                                     |                                                |                          |        |                    |       |                 
|                                     |                                                |                          |        | July 1,            |       | July 2,          |        | July 1, |       | July 2,
|                                     |                                                |                          |        | 2001               |       | 2000             |        | 2001    |       | 2000   
|                                     |                                                |                          |        |                    |       |                  |        |         |       |        
|Revenue                             
|                                    
|                                    
|                                    
|                                    
|                                     | SAN systems                                    |                          | $      | 3,971              |       |                  | $      | 7,726   |       |         | $       | 7,511 |        |   | $       | 14,696 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Components                                     |                          |        | 2,520              |       |                  |        | 55      |       |         |         | 5,034 |        |   |         | 862    |       
|                                     |                                                |                          |        |                    |       |                  |        |         |       |         |         |       |        |   |         |       
|                                     |                                                | Total revenue            |        |                    | 6,491 |                  |        |         | 7,781 |         |         |       | 12,545 |   |         |        | 15,558 | 
|                                    
|                                    
|                                    
|                                    
|Cost of revenue (1)                  |                                                |                          | 3,997  |                    |       |                  | 5,300  |         |       |         | 7,836   |       |        |   | 10,881  |       
|                                     |                                                |                          |        |                    |       |                  |        |         |       |         |         |       |        |   |         |       
|Gross profit                         |                                                |                          | 2,494  |                    |       |                  | 2,481  |         |       |         | 4,709   |       |        |   | 4,677   |       
|                                     |                                                |                          |        |                    |       |                  |        |         |       |         |         |       |        |   |         |       
|Operating expenses                  
|                                    
|                                    
|                                    
|                                    
|                                     | Research and development (2)                   |                          |        | 3,676              |       |                  |        | 3,845   |       |         |         | 7,669 |        |   |         | 7,289  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Selling, general and administrative (3)        |                          |        | 3,940              |       |                  |        | 4,531   |       |         |         | 8,757 |        |   |         | 8,637  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Amortization of goodwill and other intangibles |                          |        | 191                |       |                  |        | 540     |       |         |         | 438   |        |   |         | 1,079  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Amortization of stock-based compensation       |                          |        | 282                |       |                  |        | 631     |       |         |         | 798   |        |   |         | 1,773  |       
|                                     |                                                |                          |        |                    |       |                  |        |         |       |         |         |       |        |   |         |       
|                                     |                                                | Total operating expenses |        |                    | 8,089 |                  |        |         | 9,547 |         |         |       | 17,662 |   |         |        | 18,778 | 
|                                     |                                                |                          |        |                    |       |                  |        |         |       |         |         |       |        |   |         |       
|Loss from operations                 |                                                |                          | (5,595 | )                  |       |                  | (7,066 | )       |       |         | (12,953 | )     |        |   | (14,101 | )     
|                                    
|                                    
|                                    
|                                    
|Other income, net                    |                                                |                          | 451    |                    |       |                  | 741    |         |       |         | 1,019   |       |        |   | 1,509   |       
|                                     |                                                |                          |        |                    |       |                  |        |         |       |         |         |       |        |   |         |       
|Net loss                             |                                                | $                        | (5,144 | )                  |       | $                | (6,325 | )       |       | $       | (11,934 | )     |        | $ | (12,592 | )     
|                                     |                                                |                          |        |                    |       |                  |        |         |       |         |         |       |        |   |         |       
|Basic and diluted net loss per share |                                                | $                        | (0.22  | )                  |       | $                | (0.28  | )       |       | $       | (0.51   | )     |        | $ | (0.56   | )     
|                                     |                                                |                          |        |                    |       |                  |        |         |       |         |         |       |        |   |         |       
|Weighted-average shares outstanding  |                                                |                          | 23,502 |                    |       |                  | 22,663 |         |       |         | 23,383  |       |        |   | 22,383  |       
|                                     |                                                |                          |        |                    |       |                  |        |         |       |         |         |       |        |   |         |       



---

|(1) |  | Includes amortization of stock-based compensation of $7 and $16 for the three months ended July 1, 2001 and July 2, 2000, respectively,
and $18 and $42 for the six months ended July 1, 2001 and July 2, 2000, respectively.       
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Excludes amortization of stock-based compensation of $8 and $31 for the three months ended July 1, 2001 and July 2, 2000, respectively,
and $18 and $81 for the six months ended July 1, 2001 and July 2, 2000, respectively.       
|   
|   
|   
|   
|(3) |  | Excludes amortization of stock-based compensation of $274 and $600 for the three months ended July 1, 2001 and July 2, 2000, respectively,
and $780 and $1,692 for the six months ended July 1, 2001 and July 2, 2000, respectively.

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



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##### Table of Contents






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

|                                               |                                                                            |                                                |                                          |                                                     |       |                  |        |         |       |       |        |  
|---------------------------------------------- | -------------------------------------------------------------------------- | ---------------------------------------------- | ---------------------------------------- | --------------------------------------------------- | ----- | ---------------- | ------ | ------- | ----- | ----- | ------ | -
|                                               |                                                                            |                                                |                                          |                                                     |       | SIX MONTHS ENDED
|                                               |                                                                            |                                                |                                          |                                                     |       |                 
|                                               |                                                                            |                                                |                                          |                                                     |       | July 1,          |        | July 2,
|                                               |                                                                            |                                                |                                          |                                                     |       | 2001             |        | 2000   
|                                               |                                                                            |                                                |                                          |                                                     |       |                  |        |        
|Cash flows from operating activities           |                                                                            |                                                |                                          |                                                     |       |                  |        |        
|                                              
|                                              
|                                              
|                                              
|                                               | Net loss                                                                   |                                                | $                                        | (11,934                                             | )     |                  | $      | (12,592 | )    
|                                              
|                                              
|                                              
|                                              
|                                               | Adjustments to reconcile net loss to net cash used in
operating activities
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                            | Depreciation                                   |                                          |                                                     | 2,066 |                  |        |         | 1,517 |      
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                            | Amortization of goodwill and other intangibles |                                          |                                                     | 332   |                  |        |         | 1,079 |      
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                            | Stock-based compensation                       |                                          |                                                     | 816   |                  |        |         | 1,815 |      
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                            | Changes in                                    
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                            |                                                | Accounts receivable, net                 |                                                     |       | 4,608            |        |         |       | (705  | )     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                            |                                                | Inventories                              |                                                     |       | (903             | )      |         |       | 1,573 |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                            |                                                | Prepaid expenses and other assets        |                                                     |       | 728              |        |         |       | 303   |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                            |                                                | Accounts payable and accrued liabilities |                                                     |       | 142              |        |         |       | (258  | )     
|                                               |                                                                            |                                                |                                          |                                                     |       |                  |        |        
|                                               |                                                                            |                                                |                                          | Net cash used in operating activities               |       |                  | (4,145 | )       |       |       | (7,268 | )
|                                               |                                                                            |                                                |                                          |                                                     |       |                  |        |        
|Cash flows from investing activities          
|                                              
|                                              
|                                              
|                                              
|                                               | Purchase of short-term investments                                         |                                                |                                          | (19,481                                             | )     |                  |        | (12,117 | )    
|                                              
|                                              
|                                              
|                                              
|                                               | Sale of short-term investments                                             |                                                |                                          | 27,513                                              |       |                  |        | 48,979  |      
|                                              
|                                              
|                                              
|                                              
|                                               | Purchase of property and equipment                                         |                                                |                                          | (866                                                | )     |                  |        | (1,599  | )    
|                                               |                                                                            |                                                |                                          |                                                     |       |                  |        |        
|                                               |                                                                            |                                                |                                          | Net cash provided by investing activities           |       |                  | 7,166  |         |       |       | 35,263 |  
|                                               |                                                                            |                                                |                                          |                                                     |       |                  |        |        
|Cash flows from financing activities          
|                                              
|                                              
|                                              
|                                              
|                                               | Receipt of payment on stockholder notes receivable                         |                                                |                                          | 1,377                                               |       |                  |        | 24      |      
|                                              
|                                              
|                                              
|                                              
|                                               | Principal payments on long-term debt and capital leases                    |                                                |                                          | (1,481                                              | )     |                  |        | (1,473  | )    
|                                              
|                                              
|                                              
|                                              
|                                               | Amortization of debt issuance costs                                        |                                                |                                          | 1                                                   |       |                  |        | 8       |      
|                                              
|                                              
|                                              
|                                              
|                                               | Proceeds from exercise of stock options                                    |                                                |                                          | 307                                                 |       |                  |        | 1,321   |      
|                                               |                                                                            |                                                |                                          |                                                     |       |                  |        |        
|                                               |                                                                            |                                                |                                          | Net cash provided by (used in) financing
activities |       |                  | 204    |         |       |       | (120   | )
|                                               |                                                                            |                                                |                                          |                                                     |       |                  |        |        
|Net increase in cash and cash equivalents      |                                                                            |                                                | 3,225                                    |                                                     |       |                  | 27,875 |        
|                                              
|                                              
|                                              
|                                              
|Cash and cash equivalents, beginning of period |                                                                            |                                                | 17,066                                   |                                                     |       |                  | 16,706 |        
|                                               |                                                                            |                                                |                                          |                                                     |       |                  |        |        
|Cash and cash equivalents, end of period       |                                                                            | $                                              | 20,291                                   |                                                     |       | $                | 44,581 |        
|                                               |                                                                            |                                                |                                          |                                                     |       |                  |        |        
|Cash paid for interest                         |                                                                            | $                                              | 178                                      |                                                     |       | $                | 455    |        
|                                              
|                                              
|                                              
|                                              
|Equipment purchased under capital leases       |                                                                            | $                                              | 35                                       |                                                     |       | $                | 698    |        

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



5



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##### Table of Contents






VIXEL CORPORATION
 
Notes to Condensed Financial Statements
(Information for the three months ended
July 1, 2001 and July 2, 2000)
(Unaudited)

NOTE 1. BASIS OF PRESENTATION

The accompanying condensed financial statements as of July 1, 2001 and for
the three and six month periods ended July 1, 2001 and July 2, 2000 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 and financial position for the interim
periods. Certain information and note disclosures normally included in
financial statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Results of operations
for the three and six month periods ended July 1, 2001 are not necessarily indicative of
future financial results.

Investors should read these interim statements in conjunction with
Managements Discussion and Analysis of Financial Condition and Results of
Operations and the financial statements and notes thereto for the fiscal year
ended December 31, 2000 (audited) included in our Annual Report on Form 10-K,
filed with the Securities and Exchange Commission on March 29, 2001.

Certain items in the July 2, 2000 financial statements have been
reclassified to conform to the July 1, 2001 presentation. These
reclassifications have no impact on stockholders equity, net loss or cash
flows as previously reported.

NOTE 2. INVENTORIES

Inventories consist of the following (in thousands):

|                                              |  |         |        |              |  |   |        |  
|--------------------------------------------- |  | ------- | ------ | ------------ |  | - | ------ | -
|                                              |  | July 1, |        | December 31,
|                                              |  | 2001    |        | 2000        
|                                              |  |         |        |             
|Raw materials                                 |  | $       | 2,849  |              |  | $ | 1,177  |  
|                                             
|                                             
|                                             
|                                             
|Finished goods                                |  |         | 1,763  |              |  |   | 1,266  |  
|                                             
|                                             
|                                             
|                                             
|Less: write-down to expected
realizable value |  |         | (2,294 | )            |  |   | (1,028 | )
|                                              |  |         |        |              |  |   |        |  
|                                              |  | $       | 2,318  |              |  | $ | 1,415  |  
|                                              |  |         |        |              |  |   |        |  

NOTE 3. NET LOSS PER SHARE

Basic net loss per share represents the net loss divided by the
weighted-average number of common shares outstanding during the period,
excluding shares of restricted stock subject to repurchase. Diluted net loss
per share represents net loss divided by the weighted-average number of common
shares outstanding including the potentially dilutive impact of common stock
options and warrants and shares of restricted stock subject to repurchase.
Common stock options and warrants are converted using the treasury stock
method. Basic and diluted net loss per share are equal for the periods
presented because the impact of common stock equivalents is anti-dilutive.
Potentially dilutive securities totaling 5,448,744 and 4,467,479 shares for the
quarters ended July 1, 2001 and July 2, 2000, respectively, were excluded from
diluted net loss per share calculations due to their anti-dilutive effect.



6



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##### Table of Contents






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

The following discussion should be read in conjunction with the condensed
financial statements in Item 1 of this Quarterly Report and with the
Managements Discussion and Analysis of Financial Condition and Results of
Operations contained in our Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 29, 2001.

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

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

References to dollar amounts are in thousands unless otherwise specified.

COMPANY OVERVIEW

We are a provider of comprehensive solutions in storage area networks, or
SANs. SANs are networks that are specifically designed to interconnect
computer systems and data storage devices. Our portfolio of Fibre Channel
products, including our SAN management software, switches, hubs and
transceivers, is fully interoperable and designed to perform in concert to
address a wide variety of data and storage needs.

We derive substantially all of our revenue from the sale of SAN
interconnect products, including switches, hubs and transceivers. We currently
include our SAN InSite software with our switches and managed hubs and do not
sell this software separately from our other products. We have, however,
developed a version of our SAN InSite software, SAN InSite Professional, that
we will license for a fee. We introduced SAN InSite Professional during the
second quarter of 2001, but to date have not recognized any revenue from this
new product. SAN systems revenue consists of revenue generated from our SAN
switches, hubs and transceiver products sold as a result of selling our
switches and hubs. Component revenue consists primarily of revenue generated
from the sale of our transceiver products to original equipment manufacturers,
or OEMs, for use in their products. During the second quarter of 2001, we
discontinued the manufacturing and selling of our transceiver products.

We sell our products primarily to a limited number of customers. Sun
Microsystems, Compaq Computer and Avid Technology represented 45.9%, 23.0% and
11.0% of revenue, respectively for the three months ended July 1, 2001. Compaq
Computer, Sun Microsystems and Bell Microproducts represented 22.6%, 21.2% and
11.6% of revenue, respectively for the three months ended July 2, 2000. No
other individual customer represented more than 10.0% of our total revenue in
those periods. During the three months ended July 1, 2001 and July 2, 2000,
8.3% and 21.3%, respectively, of our total revenue was derived from sales to
distribution channel customers. We plan to continue to expand our sales
channels to include systems integrators, VARs and additional distributors in
the United States and internationally.

We recently developed a Fibre Channel loop switch application specific
integrated circuit, or ASIC, for use in various storage devices. We have
licensed the manufacturing and selling of this ASIC to a third party and will
generally derive royalty revenue from its sales.



7



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We generally recognize revenue at the time of product shipment, unless we
have future obligations for installation or when we ship product demonstration
units. Revenue from products shipped with future installation obligations is
recognized when we meet our future obligation. Revenue is not recognized on
demonstration units unless the customer ultimately purchases the unit, and the
related revenue is recognized at that time. Our agreements with our North
American distributors provide for price protection and for stock rotation based
on a percentage of shipments for the preceding quarter when an offsetting order
is requested. Revenue for these stock rotation rights is deferred until the
stock rotation period has passed. We provide an allowance for price protection
rights. We also maintain a reserve for product warranty costs based on a
combination of historical experience and specifically identified potential
warranty liabilities.

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

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 |       | Six Months Ended
|                     |                                                |                          |       |                    |       |                 
|                     |                                                |                          |       | July 1,            |       | July 2,          |       | July 1, |       | July 2,
|                     |                                                |                          |       | 2001               |       | 2000             |       | 2001    |       | 2000   
|                     |                                                |                          |       |                    |       |                  |       |         |       |        
|Revenue              |                                                |                          |       |                    |       |                  |       |         |       |         |        |      |       |  |       |     
|                    
|                    
|                    
|                    
|                     | SAN systems                                    |                          |       | 61.2               | %     |                  |       | 99.3    | %     |         |        | 59.9 | %     |  |       | 94.5 | %    
|                    
|                    
|                    
|                    
|                     | Components                                     |                          |       | 38.8               |       |                  |       | 0.7     |       |         |        | 40.1 |       |  |       | 5.5  |      
|                     |                                                |                          |       |                    |       |                  |       |         |       |         |        |      |       |  |       |     
|                     |                                                | Total revenue            |       |                    | 100.0 |                  |       |         | 100.0 |         |        |      | 100.0 |  |       |      | 100.0 | 
|                    
|                    
|                    
|                    
|Cost of revenue      |                                                |                          | 61.6  |                    |       |                  | 68.1  |         |       |         | 62.5   |      |       |  | 69.9  |     
|                     |                                                |                          |       |                    |       |                  |       |         |       |         |        |      |       |  |       |     
|Gross profit         |                                                |                          | 38.4  |                    |       |                  | 31.9  |         |       |         | 37.5   |      |       |  | 30.1  |     
|                     |                                                |                          |       |                    |       |                  |       |         |       |         |        |      |       |  |       |     
|Operating expenses   |                                                |                          |       |                    |       |                  |       |         |       |         |        |      |       |  |       |     
|                    
|                    
|                    
|                    
|                     | Research and development                       |                          |       | 56.6               |       |                  |       | 49.4    |       |         |        | 61.1 |       |  |       | 46.9 |      
|                    
|                    
|                    
|                    
|                     | Selling, general and administrative            |                          |       | 60.8               |       |                  |       | 58.3    |       |         |        | 69.8 |       |  |       | 55.5 |      
|                    
|                    
|                    
|                    
|                     | Amortization of goodwill and other intangibles |                          |       | 2.9                |       |                  |       | 6.9     |       |         |        | 3.5  |       |  |       | 6.9  |      
|                    
|                    
|                    
|                    
|                     | Amortization of stock-based compensation       |                          |       | 4.3                |       |                  |       | 8.1     |       |         |        | 6.4  |       |  |       | 11.4 |      
|                     |                                                |                          |       |                    |       |                  |       |         |       |         |        |      |       |  |       |     
|                     |                                                | Total operating expenses |       |                    | 124.6 |                  |       |         | 122.7 |         |        |      | 140.8 |  |       |      | 120.7 | 
|                     |                                                |                          |       |                    |       |                  |       |         |       |         |        |      |       |  |       |     
|Loss from operations |                                                |                          | (86.2 | )                  |       |                  | (90.8 | )       |       |         | (103.3 | )    |       |  | (90.6 | )   
|                    
|                    
|                    
|                    
|Other income, net    |                                                |                          | 6.9   |                    |       |                  | 9.5   |         |       |         | 8.1    |      |       |  | 9.7   |     
|                     |                                                |                          |       |                    |       |                  |       |         |       |         |        |      |       |  |       |     
|Net loss             |                                                |                          | (79.2 | )%                 |       |                  | (81.3 | )%      |       |         | (95.1  | )%   |       |  | (80.9 | )%  
|                     |                                                |                          |       |                    |       |                  |       |         |       |         |        |      |       |  |       |     

THREE AND SIX MONTHS ENDED JULY 1, 2001 COMPARED WITH THREE AND SIX MONTHS
ENDED JULY 2, 2000

Revenue.Total revenue in the second quarter of fiscal 2001 was $6,491, a
decrease of $1,290, or 16.5%, compared with $7,781 for the second quarter of
fiscal 2000. Total revenue for the first six months of fiscal 2001, was
$12,545, a decrease of $3,013, or 19.4%, from $15,558 for the first six months
of fiscal 2000.



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Revenue generated from our SAN systems was $3,971, or 61.2%, of total
revenue, for the second quarter of fiscal 2001. This represents a decrease of
$3,755, or 48.6%, from the comparable quarter of fiscal 2000. SAN systems
revenue was $7,511, or 59.9%, of total revenue, for the first six months of
fiscal 2001. This represents a decrease of $7,185, or 48.9%, from the first
six months of fiscal 2000. We believe the decreases in SAN systems revenue in
2001 compared with 2000 are primarily a result of a slowdown in the United
States economy.

Component revenue was $2,520, or 38.8%, of total revenue for the second
quarter of fiscal 2001. This represents an increase of $2,465 from the
comparable quarter of fiscal 2000. Component revenue was $5,034 or 40.1%, of
total revenue for the first six months of fiscal 2001. This represents an
increase of $4,172 from the first half of fiscal 2000. The increase in our
component revenue is a result of a one-time order of a transceiver product from
one of our OEM customers. This order was received during the fourth quarter of
2000 and shipments against the order took place during the fourth quarter of
2000 and the first and second quarters of 2001. We have transitioned away from
the component business, and component revenue during the second quarter is
anticipated to represent the final revenue from our gigabit interface
converter, or GBIC, products. As a result, we expect our third quarter 2001
component revenue will decrease compared with the second quarter of 2001.

Gross profit. 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 expenses and inventory obsolescence.
Gross profit in the second quarter of fiscal 2001 was $2,494, or 38.4%, of
total revenue compared with $2,481, or 31.9%, for the second quarter of fiscal
2000. Gross profit in the first six months of fiscal 2001 was $4,709, or
37.5%, of total revenue, compared with $4,677, or 30.1%, of total revenue in the
first six months of fiscal 2000. The increase in gross profit percentage in
2001 compared with 2000 reflects the shift to higher-margin switch revenue and
increased gross margins on the 2001 component revenue.

Cost of revenue for the second quarter of fiscal 2001 was reduced by
$2,200 as a result of the settlement of claims against a third party vendor.
Also, included in cost of revenue for the second quarter of fiscal 2001 were
provisions for excess and obsolete inventory and purchase commitments totaling
approximately $3.1 million, reduced by $800 resulting from the settlement of a
patent infringement claim related to our GBIC transceivers for less than
previously estimated. These provisions resulted primarily from transitioning
out of the GBIC and gigabaud link modules, or GLM, transceiver products and a
reduction in future revenue forecasts. Inventory purchases and commitments
are based upon future sales forecasts. To mitigate the component supply
constraints that have existed in the past, our contract manufacturer built
inventory levels for certain components with long lead times and entered into
certain longer-term commitments for certain components. Due to the sudden and
significant decrease in demand for certain of our products, inventory levels
exceeded our requirements based on sales forecasts through the end of fiscal
2001. This excess inventory charge was calculated based on the inventory levels
in excess of demand for each specific product. We do not anticipate that the
excess inventory subject to this charge will be used at a later date.

We expect gross profit as a percentage of revenue to decrease in the third
quarter of 2001 as a result of the initial sales of our new ASIC product being
made from inventory that we will have purchased at higher pre-production
prices. Also, lower anticipated volumes of total product sales, primarily as a
result of transitioning out of the transceiver products, will result in higher
overhead burden on remaining product sales.

Research and development expenses.Research and development (R&D)
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. R&D expenses in the second quarter of fiscal 2001 were $3,676,
compared with $3,845 in the second quarter of fiscal 2000, a decrease of 4.5%.
R&D expenses, as a percentage of revenue, increased to 56.6% in the second
quarter of



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fiscal 2001, compared with 49.4% in the second quarter of fiscal 2000. The
decrease in R&D expenses was primarily attributable to capitalization of $106
of software development costs in the second quarter of 2001 relating to SAN
InSite Professional. R&D expenses in the first six months of fiscal 2001 were
$7,669, compared with $7,289 in the first six months of fiscal 2000, an
increase of 5.2%. R&D expenses, as a percentage of revenue, increased to 61.1%
in the first six months of fiscal 2001, compared with 46.9% in the first six
months of fiscal 2000. The increase in R&D expenses was primarily attributable
to increased costs for prototypes and test units related to our new 9000 series
switches.

In accordance with Statement of Financial Accounting Standards (SFAS)
No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed, costs incurred for the research and development of new
software products are expensed as incurred until such time that technological
feasibility, in the form of a working model, is established, after which time
such costs are capitalized. During the second quarter of 2001, we capitalized
$106 of development costs related to SAN InSite Professional software. The
capitalized software costs will be amortized to cost of revenue over a period
of 36 months or in proportion to revenues realized as a percentage of expected
revenues if the resulting amortization is greater.

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 anticipate that research and development expenses will
increase in the future.

Selling, general and administrative expenses.Selling, general and
administrative (SG&A) expenses consist primarily of salaries, commissions and
related expenses for personnel engaged in marketing, sales, finance and
information technology support functions, as well as professional fees,
allowance for doubtful accounts receivable, trade shows and other marketing
activities. SG&A expenses in the second quarter of fiscal 2001 were $3,940
compared with $4,531 in the second quarter of fiscal 2000, a decrease of 13.0%.
SG&A expenses, as a percentage of revenue, increased to 60.7% in the second
quarter of fiscal 2001, compared with 58.2% in the second quarter of fiscal
2000. The decrease in expenses was primarily due to a decrease in allowance for
doubtful accounts receivable, reduced recruiting and relocation expenses and a
reduction in travel expenses in the second quarter of fiscal 2001. SG&A
expenses in the first six months of fiscal 2001 were $8,757, compared with
$8,637 in the first six months of fiscal 2000, an increase of 1.4%. SG&A
expenses as a percentage of revenue, increased to 69.8% in the first six months
of fiscal 2001, compared with 55.5% in the first six months of fiscal 2000.
The increase in expense was primarily due to an increase in consulting expenses
during the first six months of fiscal 2001 compared to the first six months of
fiscal 2000. We expect our selling, general and administrative expenses to
decrease for the remainder of 2001. This reduction is anticipated as a result
of reducing the number of personnel engaged in marketing, finance and
information technology support functions during the second quarter of 2001, and
planned reductions of discretionary spending for the remainder of 2001.

Amortization of goodwill and other intangibles.Amortization of goodwill
and other intangibles in the second quarter of fiscal 2001 was $191 compared
with $540 in the second quarter of fiscal 2000. Amortization of goodwill and
other intangibles in the first six months of fiscal 2001 was $438, compared
with $1,079 in the first six months of fiscal 2000. These decreases are the
result of certain intangible assets capitalized in conjunction with our
purchase of Arcxel Technologies in February 1998, being fully amortized during
fiscal 2000.

Amortization of stock-based compensation.Total amortization of
stock-based compensation in the second quarter of fiscal 2001 was $282,
compared with $631 in the second quarter of fiscal 2000. Of these amounts, $7
and $16, respectively, were included in cost of revenue. Total amortization
of stock-based compensation in the first six months of fiscal 2001 was $798,
compared with $1,773 in the first six months of fiscal 2000. Of these amounts,
$18 and $42, respectively, were included in cost of revenue. At July 1, 2001,
unamortized stock-based compensation was approximately $1.3 million.

Other income, net.Other income, net consists of interest income,
interest expense and other miscellaneous income or expense. Other income in
the second quarter of fiscal 2001 was $451, compared



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with $741 in the second quarter of fiscal 2000. As a percentage of revenue,
other income decreased from 6.9% in the second quarter of 2001 from 9.5% in the
second quarter of 2000. Other income in the first six months of fiscal 2001
was $1,019, compared with $1,509 in the second quarter of fiscal 2000. As a
percentage of revenue, other income decreased from 8.1% in the first six months
of fiscal 2001 from 9.7% in the first six months of fiscal 2000. Other income
in all periods consisted primarily of interest income. The decreases in 2001
compared with 2000 are primarily the result of decreased cash, cash equivalents
and short-term investment balances in the first six months of 2001 compared to
the same period in 2000.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations primarily through the
sale of common stock and preferred stock with aggregate proceeds of
approximately $114.3 million. Additionally, we have financed our operations
through capital equipment lease lines, working capital credit facilities, notes
payable and $6.9 million in net cash received from the sale of our laser diode
fabrication facility and gigabit Ethernet product line in 1998. Our principal
sources of liquidity at July 1, 2001 consisted of $20.3 million in cash and
cash equivalents and $17.6 million in short-term investments.

Cash utilized by operating activities was $4.1 million for the six months
ended July 1, 2001, due primarily to net losses, offset by a reduction in
working capital required to fund our operations. Cash provided by investing
activities was $7.2 million, primarily related to maturities of short-term
investments, offset by purchases of short-term investments, and capital
expenditures of $866. Cash provided by financing activities was $204,
primarily due to proceeds from the exercise of stock options, payments received
on stockholder notes receivable, offset by payments on capital lease
obligations.

We believe that our existing cash, cash equivalents and short-term
investment balances will be sufficient to meet our cash requirements at least
through the next twelve 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 or potential
expansion of sales, general and administrative activities, the timing of
introductions of new products, and market acceptance of our products. We
cannot assure you that additional equity or debt financing, if required, will
be available on acceptable terms or at all.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44 (FIN 44), Accounting for Stock Based Compensation in
March 2000. FIN 44 provides guidance and clarification to the application of
Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to
Employees. Our adoption of FIN 44, effective July 1, 2000, has not materially
impacted our financial position, results of operations or cash flows.

Effective January 1, 2002, the Company will adopt Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets.
This pronouncement will change the accounting for goodwill from an amortization
method to an impairment-only approach. Thus, amortization of goodwill,
including goodwill recorded in past business combinations, will cease. In
addition, initial impairment tests will be required to be completed by the end
of the first quarter of 2002 for intangible assets and by the end of 2002 for
goodwill. Any losses resulting from these initial impairment tests will be
recognized as the effect of a change in accounting principle. Annual impairment
tests will be required every year thereafter, with any impairment recognized as
losses on impairment of assets. Management has not yet completed an evaluation
of the effects this standard will have on the Companys consolidated financial
statements. However, amortization of intangibles will be lower in 2002 than in
prior periods, and the Company could incur charges as a result of the
impairment tests.



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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 $11.9 million for the six months ended July 1, 2001, and expect to
incur losses in the future. As of July 1, 2001, we had an accumulated deficit
of $114.1 million. We expect to incur significant product development, sales
and marketing and administrative expenses, and we will need to generate
significant revenue to achieve and maintain profitability. We cannot be certain
that we ever will realize sufficient revenue to achieve profitability and even
if we do achieve profitability, we may not be able to sustain or increase
profitability.

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

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



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

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

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

Our OEMs tend to order sporadically, and their purchases can vary
significantly from quarter to quarter. Our OEMs generally forecast expected
purchases in advance, but frequently do not order as expected and tend to place
purchase orders only shortly before the scheduled delivery date. We plan our
operating expenses based in part on revenue projections derived from our OEMs
forecasts. Because most of our expenses are fixed in the short term or
incurred in advance of anticipated revenue, we may not be able to decrease our
expenses in a timely manner to offset any unexpected shortfall in revenue.
These order habits 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.



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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 and resellers, as well as on the sales
efforts and success of these customers. Sun Microsystems, Compaq Computer and
Avid Technology represented 45.9%, 23.0% and 11.0% of our total revenue,
respectively, for the three months ended July 1, 2001. Although we are
attempting to expand our base of OEMs and resellers, most of our future revenue
may come from a small number of customers.

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



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

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

Our success is dependent upon acceptance of Fibre Channel technology and the
growth of the emerging SAN market.

Our SAN InSite management software, switches and hubs are used exclusively
in SANs. Accordingly, widespread adoption of SANs is critical to our future
success. The market for SANs and related software, switches and hubs is
evolving rapidly and it is difficult to predict its potential size or future
growth rate. Our success in generating revenue in this emerging SAN market
will depend on, among other things, our ability to:



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

Our failure to do any of these activities would adversely affect our ability to
successfully compete in the emerging SAN market.

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 over IP and Infiniband
have been discussed as competing alternatives to SANs. 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.



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We expect that a growing percentage of our future revenue will be derived from
our switch products, our SAN management software products, and royalties from
technology development agreements with customers, and our success will depend
on widespread acceptance of these products and technologies.

Our future success depends upon our ability to address the rapidly
changing needs of our customers by developing and introducing high-quality,
cost-effective products as well as product enhancements and services on a
timely basis and by keeping pace with technological developments and emerging
industry standards. If we do not successfully develop, introduce and market new
products, especially our switch products, our revenue may decline. We have
announced the first end user shipment of our new 9000 Series 2-gigabit Fibre
Channel switches and have launched our SAN InSite management software, SAN
InSite Professional. Our future revenue growth will depend on the success of
our new products and product launches by customers for which we are developing
products under technology development agreements and the success of our current
switch products. In addition, as we introduce new or enhanced products, we will
have to manage successfully the transition from older products in order to
minimize disruption in our customers ordering patterns, avoid excessive levels
of older product inventories and ensure that enough supplies of new products
can be delivered to meet our customers demands. To the extent customers defer
or cancel orders in expectation of new product releases, any delay in
development or introduction of new products could cause our operating results
to suffer.

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

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

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

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

For switch sales, we compete primarily with Brocade Communications, McDATA
Corporation and Qlogic Corporation. For hub sales, we compete primarily with
Emulex Corporation and Gadzoox Networks. Although we do not believe that any of
the above competitors offer comprehensive SAN interconnect management software
that directly competes with ours, other vendors, such as Brocade and Gadzoox,
provide single point-device managers for either switch or hub products, but not
across multiple interconnect devices, including switches, hubs and
transceivers. We have launched a version of our SAN InSite management
software, SAN InSite Professional, to manage third party devices within the SAN
interconnect. Other software vendors, such as Veritas Software, SANavigator
Inc., and Prisa Networks, have introduced or have under development products
that may compete with our product. Our competitors continue to introduce
improved products with lower prices, and we will have to do the same to remain
competitive. Furthermore, larger companies in other related industries or our
customers may develop or acquire technologies and apply their significant
resources, including their distribution channels and brand recognition, to
capture significant SAN market share. Therefore, we may not be able to compete
successfully in the SAN market.



14



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

Given the product life cycles in the markets for our products, any delay
or unanticipated difficulty associated with new product introductions or
product enhancements could significantly harm our business, results of
operations and financial condition. During the second quarter of 2001, we
introduced our new 9000 Series 2-gigabit Fibre Channel switches, and a new
version of our SAN InSite management software, SAN InSite Professional, that
will manage third party products in the SAN. During the remainder of 2001, we
plan to introduce our loop switch on a chip ASIC and a Fibre Channel switch
module for Lucent Technologys OptiStar EdgeSwitch. 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.                                                

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

OEMs and resellers typically conduct significant evaluation, testing,
implementation and acceptance procedures before they begin to market and sell
new solutions that include our products. This evaluation process is lengthy
and may range from six months to one year or more. This process is complex and
may require significant sales, marketing and management efforts on our part.
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.

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

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

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

Our distribution strategy focuses primarily on developing and expanding
indirect distribution channels through OEMs and resellers. Our failure to
execute this strategy successfully could limit our ability to grow or sustain
revenue. Furthermore, as we expand our sales to resellers, we may increase our
selling costs, as these parties generally require a higher level of customer
support than our OEMs. If we fail to develop and cultivate relationships with
significant resellers, or if these resellers are not successful in their sales
efforts, sales of our products may decrease and our operating results would
suffer. Many of our resellers also sell



15



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products that compete with our
products. We cannot assure you that our resellers will market our products
effectively or continue to devote the resources necessary to provide us with
effective sales, marketing and technical support. Our failure to successfully
develop or manage our reseller relationships or their failure to sell our
products could reduce our revenue.

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

We rely on K*Tec Electronics, an outside contract-manufacturing firm, to
manufacture, store and ship our products. We share K*Tecs manufacturing
capacity with numerous companies whose manufacturing needs may conflict with
ours. If K*Tec is unable or unwilling to complete production runs for us in the
future, or experiences any significant delays in completing production runs or
shipping our products, the manufacturing and sale of our products would be
temporarily suspended. We have in the past experienced delivery problems based
on capacity constraints for production, test and material supply. If our
product volume requirements increase, we may find it necessary to augment our
manufacturing capacity by exploring 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 facility, would
significantly harm our business, results of operations and financial condition.

In October 2000, Kent Electronics announced that it had sold K*Tec
Electronics to Thayer-Blum Funding II LLC. K*Tec Electronics has assured us
that the sale will not affect its ability to meet our manufacturing needs.
However, we cannot be certain that K*Tec will continue to operate in the same
manner as before the sale or be able to meet our manufacturing requirements
without additional cost, or at all.

K*Tec is not obligated to supply products for us, except as may be
provided in a particular purchase order that K*Tec has accepted. We place
purchase orders with K*Tec 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 K*Tec
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.

During the second quarter of 2001 we launched our new 9000 Series
2-gigabit Fibre Channel switches, and plan to regularly introduce new products
and product enhancements, which will require that we coordinate our efforts
with K*Tec to rapidly achieve volume production. If we do not effectively
manage our relationship with K*Tec, or if K*Tec experiences delays,
disruptions, capacity constraints or quality control problems in its
manufacturing operations, our ability to ship products to our customers could
be delayed and our competitive position and reputation could be harmed.
Qualifying a new contract manufacturer and commencing volume production is
expensive and time consuming. If we are required to or choose to change
contract manufacturers, we may lose revenue and damage our customer
relationships.

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

We currently purchase several key components from single sources. We
depend on single sources for our card guides, ASICs and 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 products due to a
lack of 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.

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



16



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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. Any of
these occurrences would negatively impact our business and operating results.

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

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

A component in our transceivers has experienced an abnormally high failure
rate, which has adversely affected and could in the future affect our sales.

We observed, and some customers confirmed, that in certain applications
our GBIC and GLM transceivers manufactured prior to March 1998 that
incorporated a third party CD laser experienced an abnormally high failure
rate. We no longer use the CD laser. As a result of this problem, we recorded
a warranty reserve of $3.6 million in the fourth quarter of fiscal 1998.
Although we have settled claims by customers that purchased the majority of
these products, there is a risk that additional claims could occur and that the
total amount reserved may be inadequate to cover all potential claims. Claims
against us in excess of the amount of our reserves could have a material
adverse effect on our business and financial condition. Partially as a result
of this problem we have seen our component revenue decrease from $24.2 million
in fiscal 1998 to $13.7 million in fiscal 1999 to $3.6 million in fiscal 2000.
We discontinued the manufacturing and selling of our GBIC products during the
second quarter of 2001.

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

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

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

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



17



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

The loss of the services of any of our key employees, the inability to
attract or retain qualified personnel in the future or delays in hiring
required personnel could hinder the development and introduction of and
negatively impact our ability to sell our products. 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 29.9% of our total
revenue for the three months ended July 1, 2001. We plan to expand our
international sales, especially in Europe and Asia. Our international sales
growth will be limited if we are unable to establish relationships with
international distributors, establish foreign operations, effectively manage
international sales channels and develop relationships with service
organizations. We cannot be certain that we will be able to establish, generate
and build market demand for our products internationally. Our international
operations will be subject to a number of risks, including:



| |  |  | increased complexity and costs of managing international operations;               
| | - |  | -----------------------------------------------------------------------------------
|
| |  |  | multiple protectionist, conflicting and changing governmental laws and regulations;
|
| |  |  | longer sales cycles;                                                               
|
| |  |  | 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 SAN interconnect 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 SAN interconnect 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 SAN
interconnect 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.



18



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

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

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

We believe that our continued success depends on protecting our
proprietary technology. We currently rely on a combination of patents,
copyrights, trademarks, trade secrets and contractual provisions to establish
and protect our intellectual property rights. In addition, we also enter into
confidentiality or license agreements with our employees, consultants and
corporate partners, and control access to and distribution of our software,
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. 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 has been and may continue to be volatile.

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



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| |  |  | changes in financial estimates by securities analysts;                                                                                                              
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in market valuations of other technology companies;                                                                                                         
|
| |  |  | announcements by us or our competitors of significant technical
innovations, contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;
|
| |  |  | additions or departures of key personnel; and                                                                                                                       
|
| |  |  | future sales of capital stock.                                                                                                                                      

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

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

We believe that our existing cash, cash equivalents and short-term
investment balances will be sufficient to meet our capital requirements at
least through the next twelve 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. Further, if
we issue equity securities, existing stockholders may experience additional
dilution or the new equity securities may have rights, preferences or
privileges senior to those of existing holders. 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 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 no or limited 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.



20



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

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




|        |                                                          
|------- | ---------------------------------------------------------
|ITEM 3. | QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

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

Our investment portfolio, with a fair value of $17.6 million as of July
1, 2001, is invested in commercial paper, government securities and corporate
indebtedness that could experience an adverse decline in fair value should an
increase in interest rates occur. In addition, declines in interest rates
could have an adverse impact on interest earnings for our investment portfolio.
We do not currently hedge against this interest rate exposure.

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




PART II   OTHER INFORMATION




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

The Companys Registration Statement on Form S-1 (No. 333-81347) for its
initial public offering of its common stock become effective September 30,
1999. The initial public offering resulted in net proceeds to the Company of
$82.8 million. Expenses related to the offering totaled approximately $1.4
million. Through July 1, 2001, the proceeds were applied to repay $12.3
million in debt and $4.3 million in capital lease obligations, $4.1 million was
used to purchase property and equipment and $25.3 million was used for working
capital and general purposes.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Companys Annual Meeting of Stockholders was held on May 22, 2001 in
Bellevue, Washington. Of the 23,922,706 shares outstanding as of the record
date, 17,322,604 were present or represented by proxy at the meeting. The
results of the voting on the matters submitted to the stockholders are as
follows:



|1. |  | To elect two (2) Class Two Directors to serve until the 2004 Annual
Meeting of Stockholders and until a successor is duly elected and
qualified.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

|                    |  |            |  |         
|------------------- |  | ---------- |  | --------
|Name                |  | For        |  | Withheld
|                    |  |            |  |         
|Charles A. Haggerty |  | 17,164,939 |  | 157,665 
|                   
|                   
|                   
|                   
|Werner F. Wolfen    |  | 17,239,124 |  | 83,480  



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|2. |  | Appointment of PricewaterhouseCoopers LLP as independent auditors of the
Company for its fiscal year ending December 31, 2001.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------

|                  |  |  |            | 
|----------------- |  |  | ---------- | 
|Votes for:        |  |  | 17,282,359 | 
|                 
|                 
|                 
|                 
|Votes against:    |  |  | 28,898     | 
|                 
|                 
|                 
|                 
|Votes abstaining: |  |  | 11,347     | 

Directors continuing in office until the 2002 Annual Meeting were Messrs. James
M. McCluney and Timothy M. Spicer.




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  (1) |  | Bylaws of the Registrant (Exhibit 3.4)                                                      
|        
|        
|        
|        
|4.1  (1) |  | Form of Registrants Common Stock Certificate                                               
|        
|        
|        
|        
|10.1     |  | Form of Change in Control Agreement between Registrant and
certain of its executive officers



---

|(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.        

(b)  Reports on Form 8-K:

None.



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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: August 15, 2001 | VIXEL CORPORATION
(Registrant)                                                                                                                                                      
|---------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                      
|                       | /s/  Kurtis L. Adams
Kurtis L. Adams
Chief Financial Officer, Vice President of Finance, Secretary and Treasurer
(Authorized Officer and Principal Financial and Accounting Officer)



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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  (1) |  | Bylaws of the Registrant (Exhibit 3.4)                                                      
|        
|        
|        
|        
|4.1  (1) |  | Form of Registrants Common Stock Certificate                                               
|        
|        
|        
|        
|10.1     |  | Form of Change in Control Agreement between Registrant and
certain of its executive officers



---

|(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.        



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