<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 4, 1995 .
-------------------------------
/ / TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from to
-------------------- ---------------------
Commission file number 0-17168 .
---------------------
FASTCOMM COMMUNICATIONS CORPORATION
-----------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1289115 .
------------------------------ -------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
45472 Holiday Drive
Sterling, Virginia 20166
--------------------------------------------------
(Address of principal executive offices, Zip code)
(703) 318-7750
---------------------------------------------------
(Registrants telephone number, including area code)
---------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subjuct to such
filing requirements for the past 90 days. Yes X . No .
----- -----
As of December 1, 1995, there were 9,497,029 shares of the Common Stock, par
value $.01 per share, of the registrant outstanding.
No exhibits are filed with this report, which consists of 13 consecutively
numbered pages.
<PAGE> 2
FASTCOMM COMMUNICATIONS CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
--------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statements of Operations
Fiscal quarter and two fiscal quarters
ended November 4, 1995, and November 5, 1994 . . . 3
Consolidated Balance Sheets -
November 4, 1995, and April 30, 1995 . . . . . . . 4
Consolidated Statements of Cash Flows
Fiscal quarter and two fiscal quarters
ended November 4, 1995 and November 5, 1994 . . . 5
Notes to Consolidated Financial Statements . . . 6-7
Item 2 Management's Discussion and Analysis of
Financial Conditions and Results of
Operations . . . . . . . . . . . . . . . . . . 8-11
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . 12
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
(Page 2 of 13)
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FASTCOMM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Fiscal quarter ended Two fiscal quarters ended
----------------------------- -----------------------------
November 4, November 5, November 4, November 5,
1995 1994 1995 1994
-------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Product sales $1,815,522 $1,181,961 $3,203,839 $2,085,995
License fees and other 25,024 20,740 37,414 41,355
-------------- ------------ ------------- ------------
Total revenues 1,840,546 1,202,701 3,241,253 2,127,350
Expenses
Cost of sales 943,141 648,941 1,634,520 1,077,605
Selling, general and administrative 1,028,017 1,062,731 2,044,858 1,970,047
Research and development 362,373 259,332 639,210 463,239
Depreciation and amortization 72,606 53,640 140,719 106,396
-------------- ------------ ------------- ------------
Loss from operations (565,591) (821,943) (1,218,054) (1,489,937)
Other income (expense)
Other income 1,543 1,952
Interest income 11,420 1,303 57,898 11,513
Interest expense (5,356) (6,527) (15,336) (12,253)
-------------- ------------ ------------- ------------
Net loss ($557,984) ($827,167) (1,173,540) ($1,490,677)
============== ============= ============= ============
Loss per share
Primary ($0.06) ($0.10) ($0.12) ($0.18)
Fully diluted ($0.06) ($0.10) ($0.12) ($0.18)
Weighted average number of shares
Primary 9,495,958 8,233,057 9,469,423 8,126,082
Fully diluted 9,495,958 8,233,057 9,469,423 8,126,082
</TABLE>
See accompanying notes to unaudited consolidated financial statements
(Page 3 of 13)
<PAGE> 4
FASTCOMM COMMUNICATIONS CORPORATION
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
November 4, April 30,
1995 1995
------------- ------------
(audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $2,003,336 $3,105,346
Restricted investments 374,687
Accounts receivable, net of provision for
returns and doubtful accounts of $229,000
and $225,000 1,737,487 1,332,473
Inventories 1,958,677 1,969,150
Prepaid and other 65,505 74,685
------------- ------------
5,765,005 6,856,341
Property, plant and equipment 366,029 281,325
Software license, rights and other intangibles
net of accumulated amortization of $225,250
and $198,750 319,497 357,779
Other assets 133,555 81,844
------------- ------------
$6,584,086 $7,577,289
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long term debt $92,471 $226,171
Accounts payable and accrued liabilities 1,394,588 969,425
Other current liabilities 101,059
------------- ------------
1,487,059 1,296,655
Long term debt, less current maturities 59,000 131,754
------------- ------------
1,546,059 1,428,409
------------- ------------
Shareholders' equity
Common stock, $.01 par value, 94,970 94,445
(25,000,000 shares authorized; 9,497,029 and
9,444,529 issued and outstanding)
Additional paid in capital 13,311,932 13,249,770
Accumulated deficit (8,368,875) (7,195,335)
------------- ------------
Total shareholders' equity 5,038,027 6,148,880
------------- ------------
$6,584,086 $7,577,289
============= ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
(Page 4 of 13)
<PAGE> 5
FASTCOMM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Fiscal quarter ended Two fiscal quarters ended
------------------------------- --------------------------------
November 4, November 5, November 4, November 5,
1995 1994 1995 1994
------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Operating activities
Net loss ($557,984) ($827,167) ($1,173,540) ($1,490,677)
Items not affecting cash
Depreciation and amortization 71,475 64,958 139,588 117,714
Provision for doubtful accounts 4,225 24,925
Provision for inventory obsolescence 40,000 70,000
Cash effect of changes in:
Accounts receivable (527,170) 184,544 (429,940) 777,965
Inventories (63,252) 268,827 (59,527) 42,104
Prepaid and other current assets 12,609 (65,589) 9,181 (68,670)
Other non current assets (50,000) (50,630) (51,712) (51,967)
Accounts payable and accrued liabilities 620,428 (68,617) 425,163 (86,360)
Other current liabilities (42,640) (101,059) (34,153)
------------- ------------ ------------- --------------
Net cash used by operations (492,309) (493,674) (1,146,921) (794,044)
------------- ------------ ------------- --------------
Investing activities
Additions of property, plant and equipment (78,021) (34,638) (161,009) (46,665)
Purchase of software license rights and 0
other intangible assets (25,000) (26,317) (25,000) (93,817)
Reduction of investment collateral 374,687 13,088
------------- ------------ ------------- --------------
Net cash provided (used) by investing activities (103,021) (60,955) 188,678 (127,394)
------------- ------------ ------------- --------------
Financing activities
Proceeds from exercise of options 62,687 206,353 62,687 208,462
Repayment of notes payable (15,470) (52,025) (206,454) (141,916)
Preceeds from notes payable bank 80,000
------------- ------------ ------------- --------------
Net cash provided (used) by financing activities 47,217 154,328 (143,767) 146,546
------------- ------------ ------------- --------------
Net decrease in cash and equivalents (548,113) (400,301) (1,102,010) (774,892)
Cash and cash equivalents, beginning of period 2,551,449 601,158 $3,105,346 975,749
------------- ------------ ------------- --------------
Cash and cash equivalents, end of period $2,003,336 $200,857 $2,003,336 $200,857
============= ============ ============= ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
(Page 5 of 13)
<PAGE> 6
FASTCOMM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying interim consolidated financial statements of FastComm
Communications Corporation (the "Company") have been prepared without audit
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the consolidated financial
statements and related footnotes included in the Company's latest Annual Report
on Form 10-K.
In the opinion of Management, the consolidated financial statements reflect all
normal and recurring adjustments considered necessary for a fair presentation.
The results of operations as presented in this report are not necessarily
indicative of the results to be expected for the fiscal year ending April 30,
1996.
The Company's fiscal year ends on April 30. For interim reporting purposes,
effective with the quarter ended October 31, 1992, the interim fiscal quarters
are closed on the first weekend following the calendar quarter end date, unless
the quarter end date falls on a weekend, in which case such weekend is used as
the interim fiscal quarter end. Prior to the quarter ended October 31, 1992,
the interim fiscal quarters were closed on the last day of the calendar quarter
end.
The quarter ended November 4, 1995, included 91 calendar days, six less than
that of the quarter ended November 5, 1994.
2. EARNINGS (LOSS) PER SHARE
Net income (loss) per common share is calculated using the weighted average
number of shares of common stock outstanding and common share equivalents
outstanding for the period. For the quarter ended November 5, 1995, the
earnings per share calculation does not include common share equivalents in
that the inclusion of such equivalents would be antidilutive.
3. INVENTORIES
Inventories are valued at the lower of cost or market and consist of the
following:
<TABLE>
<CAPTION>
November 4, April 30,
1995 1995
-----------------------------------
<S> <C> <C>
Production materials $ 1,064,889 $ 1,151,875
Work in process 292,141 148,875
Finished goods 601,647 668,400
--------------- ---------------
$1,958,677 $ 1,969,150
=============== ===============
</TABLE>
4. RELATED PARTY TRANSACTIONS
During the quarter ended November 4, 1995, the Company sold approximately
$28,000 of product under normal terms and conditions to Newbridge Networks
Inc., a subsidiary of Newbridge Networks Corporation, a Canadian
telecommunications company. Sales to
(Page 6 of 13)
<PAGE> 7
Newbridge total approximately $66,000 for the two quarters ended November 4,
1995. FastComm sells to Newbridge under net 30 terms with prompt payment
discounts. Such terms are consistent with that of similar customers. Title
passes on shipment of product. Peter C. Madsen, President, Chief Executive
Officer and Chairman of the Board of Directors of FastComm Communications
Corporation is a Director of Newbridge Networks Corporation. The accounts
receivable due from Newbridge totals $10,601 at November 4, 1995, and $51,000
at April 30, 1995.
Thomas G. Amon, Director, is a partner in the law firm of Amon & Sabatini.
Payments for such services rendered to the Company by Amon & Sabatini in the
current fiscal quarter totaled $48,000 and $86,000 for the two quarters ended
November 4, 1995.
(Page 7 of 13)
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUE
<TABLE>
<CAPTION>
Fiscal quarter ended Two fiscal quarters ended
-------------------------- -------------------------------
November 4, November 5, November 4, November 5,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Product sales $1,815,522 $1,181,961 $3,203,839 $2,085,995
License fees and other 25,024 20,740 37,414 41,355
------------ ------------ ------------ ------------
Total revenues $1,840,546 $1,202,701 $3,241,253 $2,127,350
</TABLE>
Total revenues increased $440,000 (31%) over that of the previous quarter and
increased $638,000 (53%) when compared with the corresponding quarter of fiscal
1995. The increase in product sales from that of the previous quarter was
primarily attributable to an increase in the sale of frame relay access devices
($1,505,000 as compared with $1,168,000). The increase in product sales over
that of the corresponding quarter in the previous fiscal year is also primarily
attributable to increased sales of frame relay access devices ($1,505,000 as
compared with $791,000) offset by decreased sales of data compression products,
analog modems and channel service units. The market for the Company's data
compression is primarily international where circuit costs are higher and the
economies offered by compression are greater. The Company continues to
manufacture analog modems for specialized applications, however, it has no
plans to sell into the consumer market for low end modems.
On a fiscal year to date basis, revenues increased $1,114,000 (52%) when
compared to the first half of fiscal year 1995. This increase is primarily
attributable to increased sales of frame relay access devices ($2,673,000 as
compared with $1,201,000). This increase was offset by a decline in analog
modem and data compression product sales.
The quarter ended November 4, 1995, includes sales of $420,000 to one
unrelated third party domestic corporation. The two quarters ended November
4, 1995, includes sales of $477,000 to this corporation and sales of $416,000
to a domestic distributor.
The Company continues to focus its selling efforts on larger customers that
offer strong resale support of FastComm products to end users and on those that
present significant resale potential.
A significant portion of the Company's sales are derived from products shipped
against firm purchase received in each fiscal quarter and from products shipped
against firm purchase orders released in that quarter. Unforeseen delays in
product deliveries or the closing of sales, introduction of new products by the
Company or its competitors, supply shortages, varying patterns of customer
capital expenditures or other conditions affecting the digital access product
industry or the economy during any fiscal quarter could cause quarterly revenue
and net earnings to vary greatly.
(Page 8 of 13)
<PAGE> 9
COST OF GOODS SOLD AND GROSS MARGIN
<TABLE>
<CAPTION>
Fiscal quarter ended Two fiscal quarters ended
-------------------------------- ---------------------------------
November 4, November 5, November 4, November 5,
1995 1994 1995 1994
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Cost of sales $ 943,141 $ 648,941 $ 1,634,520 $ 1,077,605
Gross margin 48% 45% 49% 48%
</TABLE>
Gross margin is calculated by subtracting cost of sales from product sales.
Gross during the current fiscal quarter approximated 48%, as compared with that
of 46% for the quarter ended November 5, 1994. The increase in gross margin
is attributable to higher manufacturing volumes in the current quarter and to
1994 sale of slow moving inventory at a loss. During the quarter ended
November 4, 1995, the Company increased its reserve for inventory obsolescence
by $40,000 and wrote off an additional $19,000 in inventory. This reduced
gross margin by approximately 3%.
SELLING AND GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
Fiscal quarter ended Two fiscal quarters ended
--------------------------- -----------------------------
November 4, November 5, November 4, November 5,
1995 1994 1995 1994
----------- ------------ ------------ -----------
<S> <C> <C> <C>
$ 1,028,017 $ 1,062,731 $ 2,044,858 $ 1,970,047
</TABLE>
Selling, general and administrative expenses decreased $35,000 over that of the
corresponding quarter in the previous fiscal year. Such costs increased
$75,000 on a fiscal year to date basis. This increase is primarily
attributable to increased professional fees associated with the SEC
investigation (approximately $99,000), an increase in bad debt expense
(approximately $43,000) offset by a decline in advertising costs (approximately
$39,000) and decreased salary expenses (approximately $25,000).
RESEARCH AND DEVELOPMENT EXPENSES
<TABLE>
<CAPTION>
Fiscal quarter ended Two fiscal quarters ended
-------------------------- ---------------------------
November 4, November 5, November 4, November 5,
1995 1994 1995 1994
------------ ------------ ------------ -----------
<S> <C> <C> <C>
$ 362,373 $ 259,332 $ 639,210 $ 463,239
</TABLE>
Research and development expenditures consist primarily of hardware and
software engineering personnel expenses, subcontracting costs, equipment,
prototypes and facilities. The increase in such expenses on both a current
quarter and fiscal year to date basis is primarily attributable to labor and
material costs associated with new product development and new product
prototypes.
The markets for the Company's products are characterized by continuing
technological change. Management believes that significant expenditures for
research and development will continue to be required in the future.
LIQUIDITY AND CAPITAL RESOURCES
At November 4, 1995, the Company had $2,003,000 in cash and cash equivalents.
Working capital decreased $518,000 during the fiscal quarter ended November 5,
1995, and decreased $1,282,000 during the two fiscal quarters ended November 5,
1995.
(Page 9 of 13)
<PAGE> 10
The Company anticipates no funding will be required to meet its near term core
operating needs. However, the Company anticipates additional funding
requirements to meet future expansion and research and development expenses.
It is anticipated that such funding will be generated by way of additional
placements of equity, through research and development arrangements funded by
third parties and by investments by strategic partners. The Company can give
no assurance as to whether it will be able to conclude such financing
arrangements, or that, if concluded, they will be on terms favorable to the
Company.
SECOND FISCAL QUARTER OF 1996 COMPARED TO SECOND FISCAL QUARTER OF 1995
Cash used by operations decreased from $494,000 in the quarter ended November
5, 1994, to $492,000 in the quarter ended November 4, 1995. The $2,000
decrease in cash used in operating activities is primarily attributable to
increased accounts receivable and inventory balances associated with increased
sales offset by a $269,000 decrease in the net loss for the period, increases
accounts payable and accrued liability balances, an increase in the provision
for inventory obsolescence.
Cash used by investing activities totaled $103,000 in the current fiscal
quarter. This utilizaton of cash was primarily attributable to asset purchases
required to develop and produce new products.
Cash provided by financing activities is attributable to the exercise of common
stock options offset a repayment of notes payable for the acquisition of a
patent.
TWO FISCAL QUARTERS ENDED NOVEMBER 4, 1995 COMPARED TO TWO FISCAL QUARTERS
ENDED NOVEMBER 5, 1995
Cash used by operations increased from $794,000 in the two fiscal quarters
ended November 5, 1994, to $1,147,000 in the two fiscal quarters ended November
4, 1995. The $344,000 increase in cash used in operating activities is
primarily due to the sharp decline in accounts receivable, in the first half of
fiscal 1995, which did not recur in the current fiscal year, partially offset
by a $317,000 decrease in the net loss for the period, increases accounts
payable and accrued liability balances, and an increase in the reserve for
inventory obsolescence.
Cash provided by investing activities totaled $188,000 in the two fiscal
quarters ended November 4, 1995. The Company repaid the installment loan
payable to its bank and redeemed the US Treasury Bill that collateralized this
loan. This redemption, which totaled $375,000, was partially offset by $161,000
in fixed asset purchases.
Cash used by financing activities is primarily attributable to the repayment of
notes payable to the bank ($206,000) offset by proceeds from the exercise of
common stock warrants ($63,000).
REPAYMENT OF NOTES PAYABLE
During the first quarter of the current fiscal year, the Company repaid its
installment loan payable in the amount of $194,750 and redeemed the US Treasury
Bill that collateralized this loan. The proceeds from this Treasury Bill were
transferred to cash.
INVENTORIES
The Company's inventory balances increased slightly in the current fiscal
quarter. The Company increased its reserve for inventory obsolescence from
$525,000 to $565,000 during the current fiscal quarter. The specific targets
of this reserve are the data compression and analog modem inventories. The
market for the Company's data compression products has shifted from the
domestic market to the international market where circuit costs are higher and
the economies offered by compression are greater. The Company continues to
manufacture analog modems for specialized applications, however, it has no
plans to sell
(Page 10 of 13)
<PAGE> 11
into the consumer market for low end modems. The Company believes it will be
able to ship and/or liquidate its current inventory levels profitably and that
its reserve this for inventory obsolescence and excess inventory is adequate.
SHAREHOLDERS' EQUITY
Shareholders' equity decreased $1,110,000 during the two fiscal quarters ended
November 4, 1995. This decrease is attributable primarily to the year to
date net loss for the period.
(Page 11 of 13)
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 6, 1993, Sheffield Securities, Inc., a Delaware corporation that ceased
operations on November 9, 1990, commenced an action against the Company in the
Circuit Court of the Seventeenth Judicial Circuit in and for Broward County,
Florida. The suit pertains to the attempted exercise of an expired
Underwriter's Warrant Certificate. For jurisdictional purposes, the plaintiff
claims unspecified damages in excess of $15,000. Discovery is complete and the
trial is scheduled to commence in February 1996. Counsel to the Company is of
the opinion that the Company has meritorious defenses against plaintiffs
claims.
The United States Securities and Exchange Commission ("SEC") is currently
conducting a confidential inquiry pursuant to a formal order directing a
private investigation relating to certain prior public disclosures and periodic
reports of the Company. The Company is working with the SEC Staff. No
assurance can be given concerning the outcome of this investigation or that the
inquiry will be resolved in the near future.
(Page 12 of 13)
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
FASTCOMM COMMUNICATIONS CORPORATION
(Registrant)
/s/ Peter C. Madsen
Date: December 15, 1995 By:
--------------------------------
Peter C. Madsen
President, Chief Executive Officer
and Chairman of the Board of Directors
(Principal Executive Officer)
Date: December 15, 1995 /s/ Mark H. Rafferty
By:
-----------------------------------
Mark H. Rafferty
Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
(Page 13 of 13)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> NOV-04-1995
<CASH> 2,003,336
<SECURITIES> 0
<RECEIVABLES> 1,966,487
<ALLOWANCES> 229,000
<INVENTORY> 1,958,677
<CURRENT-ASSETS> 5,765,005
<PP&E> 945,659
<DEPRECIATION> 579,630
<TOTAL-ASSETS> 6,584,086
<CURRENT-LIABILITIES> 1,487,059
<BONDS> 0
0
0
<COMMON> 94,970
<OTHER-SE> 4,943,057
<TOTAL-LIABILITY-AND-EQUITY> 6,584,086
<SALES> 3,203,839
<TOTAL-REVENUES> 3,241,253
<CGS> 1,634,520
<TOTAL-COSTS> 2,824,787
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 229,000
<INTEREST-EXPENSE> 15,336
<INCOME-PRETAX> (1,173,540)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,173,540)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,173,540)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
