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Gadzoox Beats Earnings Estimate

Gadzoox Networks Inc.
(Nasdaq: ZOOX) yesterday offered a glimmer of hope for a storage networking
recovery by beating the consensus of Wall Street analysts for its first
quarter fiscal 2002, which ended June 30 (see Gadzoox Reports on Q1).

The maker of switches and hubs lost $9.4 million, or 30 cents a share,
compared with Wall Streets projection of a $12 million loss, or 38 cents a
share. Revenues came in at $6.6 million, versus the consensus estimate of $6.4

The bad news is that revenues are still down considerably from the
quarter a year ago when Gadzoox had $9 million in sales. During that
quarter, Gadzoox lost $14 million, or 30 cents a share. (Last year’s
per-share loss, however, should not be compared with the latest quarterly
loss. A year ago, there were fewer outstanding shares because the company
had not yet gone public).

Gadzoox has also been in a tenuous cash position, slumping to $11 million
at the end of the March quarter. Thanks to a $15 million private equity
placement in May, the company closed the June quarter with $17 million in
cash (but diluted shareholder equity, with 5.6 million new shares). At
its recent burn rate, Gadzoox has only about two quarters of cash before it
needs to raise more money -- not an easy or pleasant task in the current
market environs.

On a more positive note, the latest quarter looks better than the previous quarter, when the company lost $40 million, or $1.42 a share, on
$6.4 million revenues. Although revenues are up slightly, the loss is not an
apples-to-apples comparison because the March quarter included several
one-time charges, including asset write-downs, restructuring expenses, and
goodwill amortization.

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