<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 AUGUST 5, 1995 .
----------------------------------
/ / TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ----------------
Commission File Number: 0-17168
FASTCOMM COMMUNICATIONS CORPORATION
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
VIRGINIA 54-1289115
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
45472 HOLIDAY DRIVE
STERLING, VIRGINIA 20166
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(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, including area code: 703/318-7750
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 .
----- ----
As of September 1, 1995, there were 9,444,529 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>
<S> <C> <C>
PART I FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Consolidated Statements of Operations
Fiscal quarters ended August 5, 1995
and July 31, 1994 . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets -
August 5, 1995 and April 30, 1995 . . . . . . . . . . 4
Consolidated Statements of Cash Flows
Fiscal quarters ended August 5, 1995
and July 31, 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
-----------------------------
August 5, July 31,
1995 1994
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<S> <C> <C>
Product sales $1,400,707 $924,649
Expenses
Cost of sales 691,379 428,664
Selling, general and administrative 1,016,841 907,316
Research and development 276,837 203,907
Depreciation and amortization 68,113 52,756
---------- ---------
Income (loss) from operations (652,463) (667,994)
Other income (expense)
Other income 409 -
Interest income 46,478 10,210
Interest expense (9,980) (5,726)
---------- ---------
Net loss ($615,556) ($663,510)
========== =========
Loss per share
Primary ($0.07) ($0.08)
Fully diluted ($0.07) ($0.08)
Weighted average number of shares
Primary 9,444,529 8,013,292
Fully diluted 9,444,529 8,013,292
</TABLE>
See accompanying notes to unaudited consolidated financial statements
(Page 3 of 13)
<PAGE> 4
FASTCOMM COMMUNICATIONS CORPORATION
BALANCE SHEET
ASSETS
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<CAPTION>
August 5, April 30,
1995 1995
------------ -----------
(unaudited) (audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $2,551,449 $3,105,346
Restricted investments - 374,687
Accounts receivable, net of provision for
returns and doubtful accounts of $225,000
and $204,000 1,214,542 1,332,473
Inventories 1,935,425 1,969,150
Prepaid and other 78,115 74,685
---------- ----------
5,779,531 6,856,341
Property, plant and equipment 329,256 281,325
Software license, rights and other intangibles 324,723 357,779
Other assets 83,555 81,844
---------- ----------
$6,517,065 $7,577,289
========== ==========
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LIABILITIES AND SHAREHOLDERS' EQUITY
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<S> <C> <C>
Current liabilities
Current portion of long term debt $107,941 $226,171
Accounts payable and accrued liabilities 774,160 969,425
Other current liabilities 42,640 101,059
---------- ----------
924,741 1,296,655
Long term obligations, less current maturities 59,000 131,754
---------- ----------
983,741 1,428,409
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Shareholders' equity
Common stock, $.01 par value, 94,445 94,445
(25,000,000 shares authorized;
9,444,529 issued and outstanding)
Additional paid in capital 13,249,770 13,249,770
Accumulated deficit (7,810,891) (7,195,335)
---------- ----------
Total shareholders' equity 5,533,324 6,148,880
---------- ----------
$6,517,065 $7,577,289
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
(Page 4 of 13)
<PAGE> 5
FASTCOMM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASHFLOWS
(unaudited)
<TABLE>
<CAPTION>
Fiscal quarter ended
------------------------------------
August 5, July 31,
1995 1994
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<S> <C> <C>
Operating activities
Net loss ($615,556) ($663,510)
Items not affecting cash
Depreciation and amortization 68,113 52,756
Provision for doubtful accounts 20,700
Provision for inventory obsolescence 30,000
Cash effect of changes in:
Accounts receivable 97,230 593,421
Inventories 3,725 (226,723)
Prepaid and other current assets (3,428) (3,081)
Other non current assets (1,712) (1,337)
Accounts payable and accrued liabilities (195,265) (17,743)
Other current liabilities (58,419) (34,153)
---------- ----------
Net cash (used) provided by operations (654,612) (300,370)
---------- ----------
Investing activities
Additions of property, plant and equipment (82,988) (12,027)
Purchase of software license rights and
other intangible assets (67,500)
Reduction of investment collateral 374,687 13,088
---------- ----------
Net cash provided (used) by investing activities 291,699 (66,439)
---------- ----------
Financing activities
Proceeds from exercise of options 2,109
Repayment of notes payable to bank (190,984) (89,891)
Proceeds from notes payable bank 80,000
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Net cash provided (used) by financing activities (190,984) (7,782)
---------- ----------
Net increase (decrease) in cash and equivalents (553,897) (374,591)
Cash and cash equivalents, beginning of period 3,105,346 975,749
---------- ----------
Cash and cash equivalents, end of period $2,551,449 $601,158
========== ==========
</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 August 5, 1995, included 97 calendar days, five greater
than that of the quarter ended July 31, 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 August 5,
1995, the earnings per share calculation does not include common share
equivalents in that the inclusion of such equivalents would be
antidilutive.
(Page 6 of 13)
<PAGE> 7
3. INVENTORIES
Inventories are valued at the lower of cost or market and consist of the
following:
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<CAPTION>
August 5, April 30,
1995 1995
--------------------------------
<S> <C> <C>
Production materials $984,828 $1,151,875
Work-in-process 232,368 148,875
Finished goods 718,229 668,400
---------- ----------
$1,935,425 $1,969,150
========== ==========
</TABLE>
4. RELATED PARTY TRANSACTIONS
During the quarter ended August 5, 1995, the Company sold approximately
$38,000 of product under normal terms and conditions to Newbridge Networks
Inc., a subsidiary of Newbridge Networks Corporation, a Canadian
telecommunications company. 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 also a Director of
Newbridge Networks Corporation. The accounts receivable due from
Newbridge were $30,000 at August 5, 1995, and $51,000 at April 30, 1995.
Thomas G. Amon, Director, is a partner in the law firm of Amon & Sabatini.
Invoices for services rendered the Company, in the current fiscal quarter,
by Amon & Sabatini totaled $78,000.
(Page 7 of 13)
<PAGE> 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUE
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<CAPTION>
Fiscal quarter ended
--------------------------------
August 5, July 31,
1995 1994
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<S> <C> <C>
Sales $1,400,707 $924,649
</TABLE>
Product sales increased $662,000 (90%) over that of the previous quarter
and increased $476,000 (51%) 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 ($1,168,000 as compared with $555,000) due
to greater demand for frame relay services. The increase in product
sales over that of the corresponding quarter in the previous fiscal year
was also primarily attributable to increased sales of frame relay access
devices ($1,168,000 as compared with $410,000) offset by decreased sales
of data compression products and analog modems. 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 into the consumer market for low end modems.
The quarter ended August 5, 1995, included net product sales of
$140,000 to an international distributor and $240,000 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, varying
patterns of customer capital expenditures or other conditions affecting
the networking 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
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<CAPTION>
Fiscal quarter ended
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August 5, July 31,
1995 1994
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<S> <C> <C>
Cost of sales $691,379 $428,664
Gross Margin 51% 54%
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Gross margin is calculated by subtracting cost of sales from net product
sales. Gross margin on product sales during the current fiscal quarter
approximated 51%, as compared with that of 54% for the quarter ended
July 31, 1994. The three percentage point decrease reflects shifts in
product mix as well as increases in the current quarter to the reserve
for inventory obsolescence.
SELLING AND GENERAL AND ADMINISTRATIVE EXPENSES
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<CAPTION>
Fiscal quarter ended
--------------------------------
August 5, July 31,
1995 1994
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<S> <C> <C>
$1,016,841 $907,316
</TABLE>
Selling, general and administrative expenses increased $109,000, or 12%,
over that of the corresponding quarter in the previous fiscal year. This
increase is primarily attributable to increased professional fees
associated with the current SEC investigation (approximately $70,000),
increased management salaries (approximately $25,000), increased office
and communications expenses (approximately $36,000), an increase in bad
debt expense (approximately $28,000) offset by a decline in advertising
costs (approximately $29,000).
RESEARCH AND DEVELOPMENT EXPENSES
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<CAPTION>
Fiscal quarter ended
--------------------------------
August 5, July 31,
1995 1994
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<S> <C> <C>
$276,837 $203,907
</TABLE>
Research and development expenditures consist primarily of hardware and
software engineering personnel expenses, subcontracting costs and, to a
lesser degree, equipment, prototypes and facilities. Research and
development expenses increased $73,000, or 36%, in the current quarter
when compared to that of the corresponding quarter in the previous fiscal
year. The increase is primarily attributable to labor, material and
tooling costs required to develop 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.
(Page 9 of 13)
<PAGE> 10
DEPRECIATION AND AMORTIZATION
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<CAPTION>
Fiscal quarter ended
--------------------------------
August 5, July 31,
1995 1994
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<S> <C> <C>
$68,113 $52,756
</TABLE>
Depreciation and amortization expenses increased from $53,000 in the
quarter ended July 31, 1994 to $68,000 in the quarter ended August 5,
1995. This 28% increase is primarily attributable to the amortization of
the patent for the FastCaller(TM) personal access device and, to a lesser
degree, the depreciation associated with fixed asset purchases.
LIQUIDITY AND CAPITAL RESOURCES
At August 5, 1995, the Company had $2,551,000 in cash and cash
equivalents. Working capital decreased $705,000, from $5,560,000 to
$4,855,000, during the quarter ended August 5, 1995.
The Company anticipates no funding will be required to meet its near term
core operating needs. However, the Company anticipates 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.
FIRST QUARTER OF FISCAL 1996 COMPARED TO FIRST QUARTER OF FISCAL 1995
Cash used by operations increased from $300,000 in the quarter ended July
31, 1994, to $655,000 in the quarter ended August 5, 1995. The $355,000
increase in cash used in operating activities is primarily attributable
to the pay down of accounts payable and accrued liabilities ($195,000)
and to the sharp decline in accounts receivable, achieved in the quarter
ended July 31, 1994, which did not recur in the current fiscal quarter.
Cash provided by investing activities totaled $292,000 in the current
fiscal quarter. 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 $83,000
in fixed asset purchases.
Cash used by financing activities is primarily attributable to the
repayment of the Company's installment loan payable to its bank.
(Page 10 of 13)
<PAGE> 11
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 declined slightly in the current fiscal
quarter. The Company increased its reserve for inventory obsolescence
from $495,000 to $525,000 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
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 for obsolete and excess inventory is
adequate.
SHAREHOLDERS' EQUITY
Shareholders' equity decreased $616,000 during the quarter ended August
5, 1995. This decrease is attributable to the 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,
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 an order directing a
private investigation relating to certain prior public disclosures and
periodic reports of the Company. The Company is cooperating fully with
the SEC Staff. The Company is confident that the inquiry will be
resolved in the near future, although no assurance can be given that such
will be the case.
(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)
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<S> <C>
Date: September 15 , 1995 By: /s/ PETER C. MADSEN
--------------------------
Peter C. Madsen
President, Chief Executive Officer
and Chairman of the Board of
Directors (Principal Executive Officer)
Date: September 15 , 1995 By: /s/ MARK H. RAFFERTY
---------------------------
Mark H. Rafferty
Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
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(Page 13 of 13)
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<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information extracted from Fiscal Year
1996 Form 10Q for Quarter Ended Aug. 05, 1995 and is qualified in its entirety
by reference to such Financial Statements for the Fiscal Quarter Ended Aug. 05,
1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> AUG-05-1995
<CASH> 2,551,449
<SECURITIES> 0
<RECEIVABLES> 1,439,552
<ALLOWANCES> 225,000
<INVENTORY> 1,935,425
<CURRENT-ASSETS> 5,779,531
<PP&E> 867,638
<DEPRECIATION> 538,382
<TOTAL-ASSETS> 6,517,065
<CURRENT-LIABILITIES> 924,741
<BONDS> 0
<COMMON> 94,445
0
0
<OTHER-SE> 5,438,879
<TOTAL-LIABILITY-AND-EQUITY> 6,517,065
<SALES> 1,400,707
<TOTAL-REVENUES> 1,400,707
<CGS> 691,379
<TOTAL-COSTS> 691,379
<OTHER-EXPENSES> 1,361,791
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,980
<INCOME-PRETAX> (615,556)
<INCOME-TAX> 0
<INCOME-CONTINUING> (615,556)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (615,556)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
