<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 October 30, 1999 .
----------------------------------
OR
[ ] TRANSITION 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 subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
As of December 1, 1999, there were 17,999,271 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.
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FASTCOMM COMMUNICATIONS CORPORATION
FORM 10Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Consolidated Statement of Operations
Fiscal quarter and two fiscal quarters ended
October 30, 1999 and October 31, 1998...................3
Consolidated Balance Sheets
October 30, 1999 and April 30, 1999.....................4
Consolidated Statements of Cash Flows
Fiscal quarter and two fiscal quarters ended
October 30, 1999 and October 31, 1998 ..................5
Notes to Consolidated Financial Statements..............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........7-11
PART II OTHER INFORMATION
Item 1. Legal Proceedings......................................12
SIGNATURES............................................................13
2
<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
--------------------------------------- -------------------------------------
October 30 October 31 October 30 October 31
1999 1998 1999 1998
-------------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
Revenue $ 1,568,651 $ 1,205,474 $ 3,316,108 $ 2,335,349
Expenses
Cost of sales 837,072 536,191 1,616,747 1,148,032
Selling, general and administrative 1,048,709 1,171,876 2,028,903 2,741,714
Research and development 702,623 652,667 1,284,200 1,355,123
Depreciation and amortization 172,680 114,444 327,780 229,631
Litigation settlement - - - 7,970
-------------------- -------------- --------------- -----------------
Loss from operations (1,192,433) (1,269,704) (1,941,522) (3,147,121)
Other income (expense)
Other income - - 23,489 -
Interest income - 5,087 1,958 15,276
Interest expense (61,279) (30,187) (114,175) (58,053)
-------------------- -------------- --------------- -----------------
Loss before reorganizional items (1,253,712) (1,294,804) (2,030,250) (3,189,898)
Reorganizational items
Professional fees - 216,875 - 326,934
Interest earned on accumulated cash
resulting from Chapter 11 proceeding - (7,731) - (12,885)
-------------------- -------------- --------------- -----------------
- 209,144 - 314,049
-------------------- -------------- --------------- -----------------
Net loss $ (1,253,712) $ (1,503,948) $ (2,030,250) $ (3,503,947)
==================== ============== =============== =================
Loss per share:
Basic and diluted ($0.07) ($0.12) ($0.12) ($0.29)
Weighted average number of shares
Basic and diluted 17,684,880 12,314,715 17,152,644 12,294,000
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
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FASTCOMM COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
October 30 April 30,
1999 1999
-------------------- --------------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 43,025 $ 90,727
Restricted cash 152,367 152,367
Accounts receivable, net 977,050 647,492
Inventories, net 2,349,420 2,658,788
Prepaid and other 202,167 228,120
-------------------- --------------------
3,724,029 3,777,494
Property and equipment, net 787,613 631,959
Deferred financing costs - 12,671
Goodwill, net 1,014,664 1,109,838
Other assets 49,557 49,096
-------------------- --------------------
$ 5,575,863 $ 5,581,058
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,318,423 $ 1,080,713
Accrued payroll 229,505 246,615
Other current liabilities 908,877 527,342
-------------------- --------------------
2,456,805 1,854,670
Convertible debentures 2,490,357 2,690,357
-------------------- --------------------
4,947,162 4,545,027
-------------------- --------------------
Shareholders' equity
Common stock, $.01 par value, 179,026 161,429
(50,000,000 shares authorized; 17,902,160 and
16,142,974 issued and outstanding)
Additional paid in capital 25,539,990 23,934,667
Accumulated deficit (25,090,315) (23,060,065)
-------------------- --------------------
Total shareholders' equity 628,701 1,036,031
-------------------- --------------------
$ 5,575,863 $ 5,581,058
==================== ====================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
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FASTCOMM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Fiscal quarter ended Two fiscal quarters ended
--------------------------------- ---------------------------------
October 30 October 31 October 30 October 31
1999 1998 1999 1998
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Operating activities
Net loss $ (1,253,712) $ (1,503,948) $ (2,030,250) $ (3,503,947)
Items not affecting cash
Depreciation and amortization 172,680 114,444 327,780 229,631
Provision for doubtful accounts (8,455) 14 (8,596) 14
Provision for inentory obsolescense 150,000 53,840 150,000 53,840
Non cash interest expense on debentures 73,469 7,084 123,757 28,583
Amortization of deferred financing costs 12,671 19,086 12,671 38,172
Provision for litigation loss - - - 7,970
Changes in assets and liabilities
Accounts receivable (149,075) 192,804 (320,963) 2,027,101
Inventories (73,037) 84,279 159,369 (243,073)
Prepaid and other current assets 8,368 21,617 25,952 64,190
Accounts payable and accrued liabilities 75,504 (120,677) 220,600 509,531
Other current liabilities 237,069 275,755 281,964 264,155
--------------- -------------- -------------- ---------------
Net cash used by operations (754,518) (855,702) (1,057,716) (523,833)
--------------- -------------- -------------- ---------------
Investing activities
Additions of property, plant and equipment (227,279) (34,762) (388,260) (49,040)
--------------- -------------- -------------- ---------------
Net cash used by investing activities (227,279) (34,762) (388,260) (49,040)
--------------- -------------- -------------- ---------------
Financing activities
Proceeds from the issuance of common stock - - 1,000,000 -
Net proceeds from exercise of warrants and options 33,350 - 398,274 -
--------------- -------------- -------------- ---------------
Net cash provided by financing activities 33,350 - 1,398,274 -
--------------- -------------- -------------- ---------------
Net decrease in cash and equivalents (948,447) (890,464) (47,702) (572,873)
Cash and cash equivalents, beginning of period 991,472 1,530,643 90,727 1,213,052
--------------- -------------- -------------- ---------------
Cash and cash equivalents, end of period $ 43,025 $ 640,179 $ 43,025 $ 640,179
=============== ============== ============== ===============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
5
<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
adjustments considered necessary for a fair presentation and all such
adjustments are of a normal and recurring nature. 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, 2000.
The Company's fiscal year ends on April 30. For interim reporting purposes 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. The quarter ended
October 30, 1999 and October 31, 1998 each consisted of 91 calendar days.
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 quarters ended October 30, 1999 and October
31, 1998, 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>
October 30, April 30,
1999 1999
----------------------------------------------------------
<S> <C> <C>
Production materials $ 1,220,561 $ 1,466,235
Work in process 54,663 111,568
Finished goods 1,074,196 1,080,985
------------------------ --------------------------
$ 2,349,420 $ 2,658,788
======================== ==========================
</TABLE>
4. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF RISK
The fiscal quarter October 30, 1999 includes sales of $404,000 and $344,000
representing 26% and 22% of total revenues to two unrelated third party domestic
corporations. On a fiscal year to date basis, sales to these corporations
totaled $1,117,000 and $421,000 representing 34% and 13% of total revenue.
5. INCOME TAXES
The Company has estimated its annual effective tax rate at 0% due to uncertainty
over the level of earnings in fiscal 2000. Also, the Company has net operating
loss carryforwards for income tax reporting purposes for which no income tax
benefit has been recorded due to uncertainty over generation of future taxable
income.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PETITION FOR REORGANIZATION UNDER CHAPTER 11
On June 2, 1998, the Company filed a voluntary petition for reorganization under
Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court
for the Eastern District of Virginia. On March 30, 1999, the Company's Plan of
Reorganization was approved by the Bankruptcy Court and the Company emerged from
Chapter 11. The Plan of Reorganization became effective on April 12, 1999. The
Plan provides for cash and debenture payments equal to 100% of each allowed
claim plus interest. The positions of all common shareholders were preserved.
The Company is in compliance with all of the terms and conditions of its Plan of
Reorganization. On November 18, 1999, a motion for final decree was granted and
the case was closed.
FUTURE PROSPECTS
On a forward-looking basis, the Company anticipates improved sales of its
products. The Company has introduced its GlobalStack and MetroLan product lines,
all of which have voice, data and video capabilities. Orders have been received
and shipments commenced in the Company's second fiscal quarter. The Company
added new features to its Quick product line that qualify this product for a
larger and enhanced distribution channel. Initial shipments of the ChanlComm(R)
product commenced in the fourth quarter of fiscal 1999. To date, such shipments
have been minimal. The Company anticipates that sales of the ChanlComm(R)
product will begin generating more significant revenues commencing with the
fourth quarter of its fiscal year ended April 30, 2000. This product is being
well received in both the domestic and international marketplaces.
The Company has changed its organizational structure and reduced headcount. As a
result, spending levels have declined sharply. Further, the Company anticipates
a significant reduction in legal and professional fees from that of the previous
fiscal year.
SUBSEQUENT EVENT - ACCELERATED WARRANT CONVERSION PROGRAM
On November 17, 1999 the Company initiated an accelerated warrant conversion
program designed to raise capital to finance working capital and product
expansion plans. Under the terms and conditions of this program, current warrant
holders were offered either (a) a discount in the exercise price of 20% ("Option
A") or (b) a discount in the exercise price of 10% and the issuance of a new
warrant that will be exercisable for one-half a share of common stock at an
exercise price of $2.50 per share ("Option B").
This program terminated on December 10, 1999. 852,898 warrants were exercised
under Option A and 1,708,027 warrants were exercised under Option B. The Company
issued 854,014 warrants to those electing Option B. This program generated
$3,049,000 in cash for the Company.
The Company anticipates that it may require additional funding to meet operating
requirements, 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, by asset based lending facilities and through the exercise of in the
money stock options and warrants. 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.
There can be no assurance that the required increased sales and improved
operating efficiencies necessary to return to profitability will materialize, or
if they do, the Company will be able to raise sufficient funding to finance its
working capital needs. Absent a return to profitability or the receipt of
additional capital, FastComm is unlikely to be able to operate and meet its
obligations throughout fiscal year 2000.
7
<PAGE> 8
RESULTS OF OPERATIONS
REVENUE
<TABLE>
<CAPTION>
Fiscal quarter ended Two fiscal quarters ended
- --------------------------------------- ----------------------------------------
October 30 October 31 October 30 October 31
1999 1998 1999 1998
- ---------------- ----------------- ------------------ ----------------
<S> <C> <C> <C>
$1,568,651 $1,205,474 $3,316,108 $2,335,349
</TABLE>
Total revenues decreased $178,000 (10%) compared with that of the previous
quarter and increased $363,000 (30%) when compared with the corresponding
quarter of the previous fiscal year. The sequential quarter over quarter
decrease is primarily attributable to a decrease in unit sales of data frame
relay access products offset by the initial shipments of GlobalStack and
MetroLan products. The increase in the current quarter in comparison with that
of the corresponding quarter of the previous fiscal year is primarily
attributable to an increase in unit sales of data frame relay access devices and
the initial shipments of GlobalStack and MetroLan products.
On a fiscal year basis, total revenue increased $981,000 compared with that of
the corresponding period of the previous fiscal year. This 42% increase is
primarily attributable to an increase in unit sales of data frame relay access
products, an increase in unit sales of the Quick product line and to revenue
associated with the initial shipments of the GlobalStack and MetroLan product
lines.
The fiscal quarter October 30, 1999 includes sales of $404,000 and $344,000
representing 26% and 22% of total revenues to two unrelated third party domestic
corporations. On a fiscal year to date basis, sales to these corporations
totaled $1,117,000 and $421,000 representing 34% and 13% of total revenue.
A significant portion of the Company's sales are derived from products shipped
against firm purchase orders 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.
COST OF GOODS SOLD AND GROSS MARGIN
<TABLE>
<CAPTION>
Fiscal quarter ended Two fiscal quarters ended
--------------------------------------------------- -----------------------------------------------------
October 30 October 31 October 30 October 31
1999 1998 1999 1998
--------------------- ------------------------ -------------------------- ---------------------
<S> <C> <C> <C> <C>
Cost of sales $ 837,072 $ 536,191 $ 1,616,747 $ 1,148,032
Gross margin 47% 56% 51% 51%
</TABLE>
Gross margin on product sales approximated 56% on both a current quarter and
fiscal year to date basis. During the current fiscal quarter, the Company
discontinued its data compression and data controller product lines, and
accordingly increased its reserve for inventory obsolescence by $150,000. This
increase reduced gross margin by 9% and 5% respectively on a current quarter and
fiscal year to date basis.
SELLING AND GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
Fiscal quarter ended Two fiscal quarters ended
- --------------------------------------- -------------------------------------
October 30 October 31 October 30 October 31
1999 1998 1999 1998
- ---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C>
$ 1,048,709 $ 1,171,876 $ 2,028,903 $ 2,741,714
</TABLE>
Selling, general and administrative expenses decreased $123,000 or (11%) when
compared with that of the corresponding quarter in the previous fiscal year.
This decrease is primarily attributable to reduced salary and benefit costs
associated with a decline in headcount ($172,000); reduced costs associated with
bad debts
8
<PAGE> 9
($28,000) offset by increased advertising costs ($55,000) and increased investor
relations costs associated with the Company's annual shareholders meeting
($26,000).
On a fiscal year to date basis, selling, general and administrative expenses
decreased $713,000 or (26%) when compared with that of the corresponding period
of the previous fiscal year. This decrease is primarily attributable to reduced
salary and benefit costs associated with a decline in headcount ($388,000);
reduced legal and professional fees ($158,000); reduced travel costs ($90,000);
and reduced operating lease costs resulting from expired and renegotiated lease
agreements ($207,000); and reduced bad debt expenses ($28,000) offset by
increased advertising costs ($102,000); and increased investor relations costs
associated with the Company's annual shareholders meeting ($26,000).
RESEARCH AND DEVELOPMENT EXPENSES
<TABLE>
<CAPTION>
Fiscal quarter ended Two fiscal quarters ended
- --------------------------------------- ----------------------------------------
October 30 October 31 October 30 October 31
1999 1998 1999 1998
- ---------------- ----------------- ------------------ ----------------
<S> <C> <C> <C>
$ 702,623 $ 652,667 $ 1,284,200 $ 1,355,123
</TABLE>
Research and development expenditures consist primarily of hardware and software
engineering, personnel expenses, subcontracting costs, equipment, prototypes and
facilities. The increase in such in the current quarter when compared with the
corresponding quarter of the previous fiscal year is primarily attributable
labor and material costs associated with the development of the GlobalStack,
MetroLan and ChanlComm product lines.
Research and development expenditures for the two fiscal quarters ended October
31, 1998 included a $150,000 fee associated with the exclusive license agreement
with KG Data Systems, Inc. Net of this one time expenditure, research and
development costs increased $79,000 when compared with that of the corresponding
quarter of the previous fiscal year. This increase is primarily attributable to
the previously mentioned product development costs.
The markets for the Company's products are characterized by continuing
technological change. Management believes that significant expenditures for
research and development will continue in the future.
DEPRECIATION AND AMORTIZATION
<TABLE>
<CAPTION>
Fiscal quarter ended Two fiscal quarters ended
- ------------------------------------- ---------------------------------------
October 30 October 31 October 30 October 31
1999 1998 1999 1998
- ---------------- ----------------- ------------------ ----------------
<S> <C> <C> <C>
$ 172,680 $ 114,444 $ 327,780 $ 229,631
</TABLE>
The increase in depreciation and amortization is primarily attributable
depreciation associated with current year fixed asset purchases and to the
amortization of goodwill associated with the acquisition of KG Data Systems in
March, 1999. This goodwill is being amortized on a straight line basis over a
seven year period at a rate of $26,000 per quarter.
REORGANIZATIONAL ITEMS
During the quarter ended October 31, 1998, the Company incurred $217,000 in
expenses associated with its reorganization under Chapter 11. During the two
fiscal quarters ended October 31, 1998, these costs totaled $327,000. Such
expenses primarily consisted of legal fees and the costs of financial consulting
services. In that the Company's reorganization was approved on March 30, 1999,
such expenses will not recur.
LIQUIDITY AND CAPITAL RESOURCES
At October 30, 1999, the Company had $43,000 in cash. During the current fiscal
quarter, working capital decreased from $2.5 million at July 31, 1999 to $1.3
million at October 30, 1999. At October 30, 1999, the Company had a current
ratio of 1.5 to one.
SUBSEQUENT EVENT - ACCELERATED WARRANT CONVERSION PROGRAM
On November 17, 1999 the Company initiated an accelerated warrant conversion
program designed to raise capital to finance working capital and product
expansion plans. Under the terms and conditions of this program, current warrant
holders were offered either (a) a discount in the exercise price of 20% ("Option
A") or (b) a discount in the exercise price of 10% and the issuance of a new
warrant that will be exercisable for one-half a share of common stock at an
exercise price of $2.50 per share ("Option B").
9
<PAGE> 10
This program terminated on December 10, 1999. 852,898 warrants were exercised
under Option A and 1,708,027 warrants were exercised under Option B. The Company
issued 854,014 warrants to those electing Option B. This program generated
$3,049,000 in cash for the Company. These funds will be used for working
capital and research and development purposes.
During the quarter ended July 31, 1999, the Company raised an additional
$1,000,000 through a private placement of securities to a group of accredited
investors. Each security ("Unit") consists of (1) one common share; (2) an A
warrant exercisable immediately and permitting the holder to purchase one share
of common stock in the Company at a price of $1.50 per share ("A Warrant") and
(3) a B warrant exercisable immediately and permitting the holder to purchase
one half of a share of common stock at a price of $2.25 per share ("B Warrant").
The warrants are exercisable for a period of three years, expiring on July 29,
2002. The A Warrants may be called for redemption, by the Company, at such time
as the bid price of the Company's common stock remains above $3.00 for 20
(twenty) consecutive trading days. The B Warrants may be called for redemption,
by the Company, at such time as the bid price of the Company's common stock
remains above $4.50 for 20 (twenty) consecutive trading days. These Units carry
with them certain registration rights.
When and if exercised, the 3,173,945 unexercised warrants associated with this
private placement, the debentures and warrants issued in conjunction with the
Company's Bankruptcy reorganization, the outstanding convertible debentures and
the accelerated warrant conversion program would generate a maximum of
$6,144,000 in additional cash for the Company. The Company can give no
assurance as to whether any warrants will be exercised, nor to the amount of
cash that will be generated, if any of these securities are exercised.
The Company anticipates that it may require additional funding to meet operating
requirements, 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, by asset based lending facilities and through the exercise of in the
money stock options and warrants. The Company can give no assurance as to
whether it will be able to conclude other financing arrangements, or that, if
concluded, they will be on terms favorable to the Company
SECOND FISCAL QUARTER OF 2000 COMPARED TO SECOND FISCAL QUARTER OF 1999
The Company used $755,000 in cash from operations during the quarter ended
October 30, 1999. This compares favorably to $856,000 in cash used by operations
during the corresponding quarter of the previous fiscal year. This $101,000
decline is primarily attributable to a $249,000 reduction in the net loss for
the quarter and reduced payments to vendors offset by increased accounts
receivable balances.
The Company purchased $227,000 in fixed assets during the current fiscal
quarter. The majority of these purchases will be utilized for hardware and
software development.
TWO FISCAL QUARTERS ENDED OCTOBER 30, 1999 COMPARED TO TWO FISCAL QUARTERS ENDED
OCTOBER 31, 1998
The Company used $1,058,000 in cash from operations during the two fiscal
quarters ended October 30, 1999. This usage of funds is primarily attributable
to the net loss for the period offset non-cash expenditures and increased
accounts receivable and current liability balances.
The Company purchased $388,000 in fixed assets during the two fiscal quarters
ended October 30, 1999. The majority of these purchases will be utilized for
hardware and software development.
Cash provided by financing activities is primarily attributable to $1,000,000 in
proceeds received from the placement of common shares.
ACCOUNTS RECEIVABLE
The Company's accounts receivable balance increased $149,000 in the current
fiscal quarter and $321,000 on a fiscal year to date basis.
INVENTORIES
During the current fiscal quarter, the Company disposed of $238,000 in unusable
inventory and recorded a charge against its reserve for inventory obsolescence.
Also during the current fiscal quarter, the Company discontinued its data
compression and data controller product lines, and accordingly increased its
reserve for inventory obsolescence $150,000. The Company's reserve for inventory
obsolescence totals $1,361,000. The Company believes it will be able to ship
and/or liquidate its current inventory levels profitably and that its reserve
for inventory obsolescence and excess inventory is adequate.
SHAREHOLDERS' EQUITY
Shareholders' equity decreased $996,000 in the current fiscal quarter and
$408,000 on a fiscal year to date basis. This decrease is attributable to the
net losses incurred offset by the $1 million private placement and proceeds from
the exercise of common stock warrants and options.
10
<PAGE> 11
INCOME TAXES
The Company has estimated its annual effective tax rate at 0% due to uncertainty
over the level of earnings in fiscal year 2000. Also, the Company has net
operating loss carryforwards for income tax reporting purposes for which no
income tax benefit has been recorded due to uncertainty over generation of
future taxable income.
YEAR 2000
In accordance with the U. S. Securities and Exchange Commission's Staff Legal
Bulletin No. 5, the Company has assessed both the cost of addressing and the
costs or consequences of incomplete or untimely resolution of the Year 2000
issue. The Company has reviewed its internal systems and has upgraded and
replaced such systems with applications, in the normal course of business, that
are Year 2000 compliant. To date, the costs of such upgrades have been minimal..
The Company currently utilizes off the shelf software and uses no internally
developed software in the operation of its business. The software embedded in
the Company's products is not date sensitive and as such is not subject to the
Year 2000 issue. Accordingly, the Company has determined that its estimated
costs related to the Year 2000 issue are not anticipated to be material to the
Company's business, operations or financial condition.
CERTAIN PARTS OF THE FOREGOING DISCUSSION AND ANALYSIS MAY INCLUDE
FORWARD-LOOKING STATEMENTS THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. AS
A CONSEQUENCE, ACTUAL RESULTS MIGHT DIFFER MATERIALLY FROM RESULTS FORECAST OR
SUGGESTED IN ANY FORWARD-LOOKING STATEMENTS. SEE "MARKETS FOR REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS -- CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION" IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 28, 1999, the Company, its CEO and Chairman of the Board, Peter C.
Madsen, and its CFO, Mark H. Rafferty, agreed to a settlement with the
Securities and Exchange Commission (SEC) arising out of the five-year old
investigation of the Company by the SEC. Without admitting or denying the
allegations in the Complaints filed by the SEC, the Company consented to the
entry of a final Judgment which enjoins it from violations of Sections 10(b),
13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.
Without admitting or denying the allegations, Messrs. Madsen and Rafferty each
agreed to consent to the entry of an Order to cease and desist committing or
causing any violations or any future violations of Sections 13(a), 13(b)(2)(A)
and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 promulgated
thereunder. Mr. Rafferty also agreed to cease and desist from committing or
causing any violations or any future violations of Rule 13a-1 promulgated under
the Exchange Act.
On March 30, 1999, the Company's Plan of Reorganization was approved by the
Bankruptcy Court and the Company emerged from Bankruptcy protection. The Company
has been operating pursuant to this Plan since that date. On November 18, 1999,
a motion for final decree was granted and the case was closed.
No other material legal proceeding to which the Company is party or to which the
Company is subject is pending and no such proceeding is known by the Company to
be contemplated.
12
<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 14, 1999 By:
Peter C. Madsen ---------------------------
President, Chief Executive Officer
and Chairman of the Board of Directors
(Principal Executive Officer)
/s/ Mark H. Rafferty
Date: December 14, 1999 By:
Mark H. Rafferty ---------------------------
Vice President, Chief Financial Officer
Treasurer and Director
(Principal Financial and Accounting Officer)
13
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