NENG's 10Q for 3Q03 is out......
Risks of dependence on one strategic partner.
We derive a significant portion of our revenues from one customer, and our revenues may decline significantly if this customer cancels or delays purchases of our products, terminates their contract with us, or exercises certain of their other rights under the terms of the contract.
In the three and nine months ended June 30, 2003, one customer accounted for 48% and 50% of our total net revenues, respectively. Under the terms of a non-exclusive contract with this customer, the customer has the right to enter into agreements with other parties for similar products, the customer is not obligated to purchase any minimum quantity of products from us and the customer may choose to stop purchasing from us at any time. In addition, the customer may terminate the agreement in the event that we attempt to assign its rights under the agreement to another party without the customer’s prior approval. Furthermore, in the event that we default on certain portions of the agreement and do not cure during the prescribed cure period, the customer may obtain the right to manufacture the products defined in the agreement in exchange for a mutually agreeable royalty fee. If any of these events were to occur, or if this customer delays purchases of our products, our revenues and operating results would be adversely affected, our reputation in the industry may suffer and our ability to predict cash flow accurately would decrease.
Our distribution business relies on reference sales originating from our largest customer and our business would suffer if we lost these reference sales.
A significant portion of our distribution revenues are derived from reference sales of products, which are approved for configuration in the data storage networks sold by our largest customer.
We are one of two North American distributors that this customer refers its customers to for the supply of data storage network components that have been authorized for use in this customer’s data storage networks.
We expect this to continue in the future. These reference sales have historically had a higher margin and have represented a substantial amount of TidalWire’s revenues as compared to revenues from other sales. If we were to lose these reference sales or if the margins we derive from such sales were reduced to any significant degree, our results of operations and financial condition would suffer.
