1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
(Amendment No. 1)
AMMENDMENT TO REPORT FILED
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1394
Date of Report (Date of earliest event reported): March 31, 2000
FASTCOMM COMMUNICATIONS CORPORATION
Virginia 000-17168 54-1289115
- -------------------------------------------------------------------------------------------
(State of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
45472 Holiday Drive, Sterling, VA 20166
- -------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(703) 318-7750
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
The undersigned hereby amends the following items, Financial Statements,
exhibits or other portions of its Form 8-K dated April 14, 2000.
ITEM 7. Financial Statements.
Page
----
(a) Unaudited financial statements of business acquired and 3
(b) Pro forma financial information 19
When the Registrant originally filed its April 14, 2000 Form 8-K it noted
that, for various reasons, it was unable at that time to submit the required
historical and pro forma financial statements relating to its acquisition of
substantially all of the assets of Cronus Communications, Inc. This information
is set forth in the pages attached hereto.
2
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FASTCOMM COMMUNICATIONS CORPORATION
Date: June 14, 2000
/s/ Mark H. Rafferty
------------------------------------
Name: Mark H Rafferty
Title: Chief Financial Officer
3
Report Of Independent Certified Public Accountants
Board of Directors and Stockholders
Cronus Communications, Inc.
We have audited the accompanying balance sheets of Cronus Communications, Inc.
as of December 31, 1999 and 1998, and the related statements of operations and
retained earnings (accumulated deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cronus Communications, Inc. at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has sustained significant
operating losses in 1999 and 1998 and has significant short-term cash
commitments. These factors raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are described in Note 1. The financial statements do not contain any adjustments
that might result from the outcome of these uncertainties.
BDO Seidman, LLP
Washington, D.C.
May 22, 2000
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CRONUS COMMUNICATIONS, INC.
BALANCE SHEETS
December 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents $ 245,137 $ -
Accounts receivable, less allowance for doubtful
accounts of $130,000 and $157,150 1,693,833 1,618,282
Due from parent company - 203,804
Inventories (Note 2) 1,373,520 1,643,584
Refundable income taxes (Note 6) 806,635 435,547
Prepaid expenses and other current assets 26,450 113,010
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 4,145,575 4,014,227
- ----------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation and amortization (Note 3) 671,081 972,816
GOODWILL, net of accumulated amortization of
$1,260,724 and $905,332 519,123 874,515
SOFTWARE DEVELOPMENT COSTS, net of accumulated amortization
of $132,404 and $3,325 (Note 4) 1,051,742 421,236
OTHER ASSETS 142,273 191,959
- ----------------------------------------------------------------------------------------------------------------
$6,529,794 $6,474,753
================================================================================================================
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CRONUS COMMUNICATIONS, INC.
BALANCE SHEETS
December 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Checks issued against future deposits $ - $ 24,834
Current maturities of long-term debt (Note 5) - 861,371
Capital lease obligations, current portion (Note 5) 20,755 5,544
Accounts payable 598,108 814,716
Due to parent company (Note 5) 2,140,008 -
Deferred revenue 258,552 4,942
Accrued expenses 979,720 1,459,777
Accrued interest expense 426,419 -
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,423,562 3,171,184
- ----------------------------------------------------------------------------------------------------------------
NOTES PAYABLE (Note 5) 4,730,687 2,079,100
CAPITAL LEASE OBLIGATIONS (Note 5) 3,898 8,217
DEFERRED RENT 23,873 25,027
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 9,182,020 5,283,528
- ----------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY (DEFICIT) (Note 5)
Common stock, no par value; 2,000,000 shares authorized,
608,695 shares issued and outstanding 6,087 6,087
Retained earnings (accumulated deficit) (2,652,226) 1,191,225
Stock subscription receivable (6,087) (6,087)
- ----------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) (2,652,226) 1,191,225
- ----------------------------------------------------------------------------------------------------------------
$ 6,529,794 $ 6,474,753
================================================================================================================
See accompanying summary of accounting policies and notes to financial statements.
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CRONUS COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS AND RETAINED
EARNINGS (ACCUMULATED DEFICIT)
Year ended December 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------
REVENUES (Note 7)
Product sales $ 6,995,211 $ 7,692,001
Engineering services and other 377,869 1,514,240
- ----------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 7,373,080 9,206,241
- ----------------------------------------------------------------------------------------------------------------
Cost of goods sold 2,170,877 2,017,146
- ----------------------------------------------------------------------------------------------------------------
GROSS PROFIT 5,202,203 7,189,095
OPERATING EXPENSES
Research and development 2,097,865 2,680,922
Sales and marketing 1,834,738 2,236,220
General and administrative (Note 5) 4,480,787 1,730,134
Depreciation and amortization 876,183 1,093,912
- ----------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 9,289,573 7,741,188
- ----------------------------------------------------------------------------------------------------------------
OPERATING LOSS (4,087,370) (552,093)
- ----------------------------------------------------------------------------------------------------------------
OTHER INCOME (expense)
Interest income 7,774 2,869
Interest expense (603,416) (427,483)
Other income (expense) 32,926 (5,090)
- ----------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (562,716) (429,704)
- ----------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAX BENEFIT (4,650,086) (981,797)
INCOME TAX BENEFIT (Note 6) 806,635 337,408
- ----------------------------------------------------------------------------------------------------------------
NET LOSS (3,843,451) (644,389)
RETAINED EARNINGS (ACCUMULATED DEFICIT), beginning of year 1,191,225 1,835,614
- ----------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS (ACCUMULATED DEFICIT), end of year $(2,652,226) $ 1,191,225
================================================================================================================
See accompanying summary of accounting policies and notes to financial statements.
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CRONUS COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
Year ended December 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,843,451) $ (644,389)
ADJUSTMENTS TO RECONCILE NET LOSS
TO CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization 876,183 1,093,912
Provision for doubtful accounts 95,739 284,020
Write-off of accounts receivable (122,889) (113,226)
Deferred income taxes - 87,612
Amortization of financing costs 2,664 28,910
Compensation expense to former shareholders 3,696,057 -
CHANGES IN ASSETS AND LIABILITIES
(INCREASE) DECREASE IN ASSETS
Accounts receivable (48,401) 221,908
Other receivables - 45,056
Inventories 270,064 (251,787)
Prepaid expenses and other current assets 86,560 (43,677)
Refundable income taxes (371,088) (435,547)
Other assets (2,299) (12,830)
INCREASE (DECREASE) IN LIABILITIES
Accounts payable (216,608) 355,886
Deferred revenue 253,610 4,942
Accrued expenses (480,057) 294,689
Deferred rent (1,154) 25,027
Accrued interest expense 426,419 -
Other - (41,177)
- ----------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 621,349 899,329
- ----------------------------------------------------------------------------------------------------------------
5
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CRONUS COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
Year ended December 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (20,930) (740,178)
Increase in purchased software - (100,050)
Increase in software development costs (759,585) (424,561)
- ----------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (780,515) (1,264,789)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Checks issued against future deposits (24,834) 24,834
Due to parent company 2,140,008 (494,363)
Due from parent company 203,804 (203,804)
Repayments of long-term debt (1,905,841) (524,878)
Proceeds from long-term debt - 1,526,342
Payments on capital leases (8,834) (22,607)
Decrease in deferred financing costs - (6,996)
- ----------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 404,303 298,528
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 245,137 (66,932)
CASH AND CASH EQUIVALENTS, beginning of year - 66,932
- ----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 245,137 $ -
================================================================================================================
See accompanying summary of accounting policies and notes to financial statements.
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CRONUS COMMUNICATIONS, INC.
SUMMARY OF ACCOUNTING POLICIES
ORGANIZATION Cronus Communications, Inc. (the "Company") was
incorporated on February 28, 1995 in Illinois.
The Company is engaged in manufacturing and
selling telecommunications equipment and
providing consulting services for satellite
telecommunications systems planning. The Company
sells products and provides services primarily
in the United States.
USE OF ESTIMATES The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of
the financial statements and the reported
amounts of revenues and expenses during the
reporting period. Actual results could differ
from those estimates. Certain estimates used by
management are particularly susceptible to
significant changes in the economic environment.
These include estimates of inventory
obsolescence, valuation allowances for trade
receivables and deferred tax assets, and
evaluation of the recoverability of goodwill.
Each of these estimates, as well as the related
amounts reported in the financial statements,
are sensitive to near term changes in the
factors used to determine them. A significant
change in any one of those factors could result
in the determination of amounts different than
those reported in the financial statements.
Management believes that as of December 31, 1999
and 1998, the estimates used in the financial
statements are adequate based on the information
currently available.
RISKS AND The Company's future operating results may be
UNCERTAINTIES affected by a number of factors. During fiscal
year 1999, two significant customers accounted
for approximately 30% of total revenue. The risk
to the Company is that a loss of one or two
customers could have a significant adverse
impact on revenues and operating results.
The Company sells primarily to large
multinational original equipment manufacturers.
Generally sales are on credit and no collateral
is required, although the Company reserves the
right to have the products returned in the event
of default. The Company provides an allowance
for estimated sales returns and uncollectible
accounts. The Company's concentration of sales
to certain customers, discussed above, exposes
the Company to a relatively greater risk of loss
than would be the case with greater
diversification.
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CRONUS COMMUNICATIONS, INC.
SUMMARY OF ACCOUNTING POLICIES
The Company operates in a highly volatile
industry that is characterized by fierce
industry-wide competition resulting in
aggressive pricing practices, continually
changing customer demand patterns, growing
competition from well-capitalized high
technology companies, and rapid technological
development. The Company's operating results
could be adversely affected should the Company
be unable to anticipate customer demand
accurately, to maintain short design cycles
while meeting evolving industry performance
standards, to manage its product transactions,
inventory levels, and manufacturing processes
efficiently, to distribute its product quickly
in response to customer demand, to differentiate
its products from those of its competitors, or
to compete successfully in the markets for its
new products.
CASH AND The Company considers all highly liquid
CASH EQUIVALENTS investments with an original maturity of three
months or less to be cash equivalents. The
Company invests its excess cash principally in
overnight repurchase accounts and short-term
government securities. The Company maintains
amounts in excess of the federal deposit
insurance limitation of $100,000 in its bank
accounts.
INVENTORY Inventories are valued at the lower of cost or
market. Cost is based on standard costs, which
approximate the first-in, first-out (FIFO)
method.
PROPERTY AND EQUIPMENT Property and equipment is recorded at cost and
depreciated on a straight-line basis over the
estimated useful life of the related assets
(generally three to seven years). Leasehold
improvements are amortized over the lesser of
the lease term or the useful life of the
property. Inventory used for testing and
demonstration purposes is capitalized and
included in property and equipment.
SOFTWARE Costs incurred to establish the technological
DEVELOPMENT feasibility of computer software are considered
COSTS research and development costs and are expensed
as incurred. When the technological feasibility
of a software product has been established,
development costs are capitalized.
Capitalization of these costs ceases when the
product is considered available for sale to
customers. Amortization of capitalized software
cost, for both internally developed and
purchased software products, is provided on a
product-by-product basis over the estimated
economic life of the product, which is generally
four years. Management evaluates the
recoverability of the software on a periodic
basis and, if necessary, recognizes any
impairment that may have occurred.
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CRONUS COMMUNICATIONS, INC.
SUMMARY OF ACCOUNTING POLICIES
GOODWILL The Company has recorded goodwill based on the
excess of purchase price over net assets
acquired. The Company analyzes the future
projected cash flows in comparison to the
carrying value of the goodwill for possible
impairment. During 1998, management determined
from such an analysis that an impairment of
goodwill had occurred. In response, the Company
recorded a write down of approximately $603,000
and reduced the life of the goodwill from 15
years to 5 years. Management will continue to
analyze the projected cash flows for evidence of
any additional impairment.
ASSET In accordance with Statement of Financial
IMPAIRMENT Accounting Standards 121, the Company
periodically evaluates the carrying value of
long-lived assets when events and circumstances
warrant such a review. The carrying value of a
long-lived asset is considered impaired when the
anticipated undiscounted cash flow from such
asset is separately identifiable and is less
than the carrying value. In that event, a loss
is recognized based on the amount by which the
carrying value exceeds the fair market value of
the long-lived asset. Fair market value is
determined primarily using the anticipated cash
flows discounted at a rate commensurate with the
risk involved.
REVENUE Revenues from product sales are recognized at
RECOGNITION the later of product shipment or customer
acceptance. An allowance is provided for
estimated sales returns and uncollectible
accounts. Revenue from consulting services is
recognized when the services are performed.
INCOME TAXES The Company accounts for income taxes in
accordance with Statement of Financial
Accounting Standards No. 109, Accounting for
Income Taxes ("SFAS 109"). Under SFAS 109,
deferred taxes are determined using the
liability method which requires the recognition
of deferred tax assets and liabilities based on
differences between financial statement and
income tax basis using presently enacted tax
rates.
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CRONUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. FUTURE PROSPECTS The accompanying financial statements have been
prepared assuming that the Company will continue
as a going concern. The Company has sustained
recurring operating losses in 1999 and 1998 and
has significant short-term cash commitments.
During 1999, the Company experienced periodic
shortages of cash largely due to its inability
to obtain outside financing of its research and
development efforts. Accordingly, the Company
has significant short-term cash commitments
largely resulting from the liquidity crisis
experienced in 1999. Management has attempted to
sell all or a portion of the Company's assets to
solve the liquidity crisis. In March 2000, the
Company completed the sale of certain assets and
the buyer assumed certain short and long-term
liabilities (see Note 11). However, there can be
no assurance that management can raise
additional funds to liquidate the remaining
liabilities. These factors raise substantial
doubt about the Company's ability to continue in
existence. The financial statements do not
contain any adjustments that might result from
the outcome of these uncertainties.
2. INVENTORIES Inventories consist of the following components:
December 31, 1999 1998
-----------------------------------------------------------------------
Raw materials $ 475,464 $ 390,561
Work-in-process 118,659 403,160
Finished goods 779,397 849,863
-----------------------------------------------------------------------
$1,373,520 $1,643,584
=======================================================================
3. PROPERTY AND Property and equipment consists of the following:
EQUIPMENT
December 31, 1999 1998
-------------------------------------------------------------------------------
Manufacturing equipment $ 261,579 $ 257,284
Furniture and fixtures 1,049,053 1,026,841
Leasehold improvements 128,621 128,621
Capitalized inventory 300,827 291,424
-------------------------------------------------------------------------------
1,740,080 1,704,170
Less accumulated depreciation
and amortization 1,068,999 731,354
-------------------------------------------------------------------------------
$ 671,081 $ 972,816
===============================================================================
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CRONUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
4. SOFTWARE Software development costs at December 31, 1999
DEVELOPMENT COSTS and 1998 consist of the following:
1999 1998
--------------------------------------------------------------------------------------------
Internally developed software $1,184,146 $424,561
Less accumulated amortization 132,404 3,325
--------------------------------------------------------------------------------------------
Net capitalized software
development costs $1,051,742 $421,236
============================================================================================
5. LONG-TERM Long-term debt consists of the following:
DEBT
December 31, 1999 1998
--------------------------------------------------------------------------------------------
Notes payable due to
former shareholders (a) $4,730,687 $1,039,129
Term loan (b) - 747,566
Line of credit (b) - 1,153,776
Capital lease obligations (c) 24,653 13,761
--------------------------------------------------------------------------------------------
4,755,340 2,954,232
Less current maturities of
long-term debt - 861,371
Less current maturities of
Capital lease obligations 20,755 5,544
--------------------------------------------------------------------------------------------
$4,734,585 $2,087,317
============================================================================================
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CRONUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(a) On May 15, 1996, the Company purchased 100% of
the stock of Anadigicom Corporation. The Company
issued $2,084,000 in notes payable to the former
stockholders as partial consideration for the
acquisition. In 1996 and 1997, the Company made
payments of $951,477 to the former shareholders.
During 1998, the Company experienced severe cash
flow problems and did not make all of the
required principle and interest payments. In
March 1999, the Company renegotiated the amounts
due to the former shareholders. As part of this
renegotiation the Company issued new notes
totaling $4,735,187 which included $3,696,057 in
contingent consideration due under the purchase
agreement. The Company expensed this additional
consideration in 1999 because it in substance
represents compensation to the former
shareholders. The Company has included this
additional compensation in general and
administrative expenses in the accompanying
statement of operations. The notes bear interest
at 9% with one principal and interest payment due
May 1, 1999 and the remainder due March 15, 2004.
(b) During 1997, the Company obtained a $2,000,000
line of credit with a bank. Borrowings are
limited to eligible accounts receivable as
defined in the agreement. The line bore interest
at the bank's prime rate of interest plus 1.5%.
The line was collateralized by accounts
receivable, the receipts of which were deposited
into a restricted cash account and used to reduce
the outstanding balance. The line of credit
matured in February 1999 and was not renewed.
The Company also had a term loan with the bank.
The term loan bore interest at the bank's prime
rate of interest plus 4.0%, payable monthly, and
was collateralized by substantially all assets of
the Company. The term loan matured in February
1999 and was not renewed.
During 1999, the parent company obtained a line
of credit from a bank which is collateralized by
the Company's common stock. The Company receives
working capital advances from and transfers
excess cash to the parent company to facilitate
repayment of the line of credit.
(c) The Company leases equipment included in the
balance sheet as property and equipment under
capital leases with various companies. The assets
are included at a capitalized cost of $69,539 and
$49,813, with accumulated amortization of $42,985
and $27,161, at December 31, 1999 and 1998.
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CRONUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Future minimum lease payments under the capital
lease obligations are as follows:
------------------------------------------------------------
2000 $21,938
2001 4,057
------------------------------------------------------------
25,995
Less amount representing interest (1,342)
------------------------------------------------------------
Present value of future minimum lease
payments $24,653
============================================================
6. INCOME TAXES The Company files separate company federal and
state income tax returns. The parent company is a
subchapter S Corporation and, accordingly, the
individual shareholders are taxed on
distributions received from the Company. The
Company accounts for income taxes under the asset
and liability method which requires that deferred
tax assets and liabilities be recognized for the
estimated future tax consequences attributable to
differences between the financial statement
carrying amounts of existing assets and
liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in
which those temporary differences are expected to
be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax
rates is recognized in income tax expense in the
period that includes the enactment date. A
valuation allowance is provided for deferred tax
assets if it is more likely than not that these
items will either expire before the Company is
able to realize their benefit or that future
deductibility is uncertain.
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CRONUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
The income tax benefit is comprised of the
following:
Year ended December 31, 1999 1998
--------------------------------------------------------------------------
CURRENT
Federal $(660,430) $(384,052)
State (146,205) (40,968)
--------------------------------------------------------------------------
TOTAL (806,635) (425,020)
VALUATION ALLOWANCE - 87,612
--------------------------------------------------------------------------
$(806,635) $(337,408)
==========================================================================
The income tax benefit recognized in 1999 and
1998 results from the carryback of net operating
losses and tax credits to recover income taxes
previously paid. The effective tax rate is
different from the statutory rate of 34% due to
the carryback of the tax credits offset in 1998
by the write off of deferred tax assets
previously recorded and the increase in the
valuation allowance for 1999. There are no
remaining net operating loss carryforwards at
December 31, 1999.
The components of net deferred tax assets are as
follows:
December 31, 1999 1998
------------------------------------------------------------------------------------
DEFERRED TAX ASSETS
Allowance for doubtful accounts $ 53,000 $ 64,000
Inventory reserve 36,000 18,000
Accrued vacation 58,000 62,000
Accelerated depreciation 10,000 35,000
Goodwill amortization 1,455,000 247,000
------------------------------------------------------------------------------------
Total deferred tax assets 1,612,000 426,000
------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES
Software development costs 431,000 173,000
------------------------------------------------------------------------------------
Total deferred tax liabilities 431,000 173,000
------------------------------------------------------------------------------------
Net deferred tax assets 1,181,000 253,000
Less: Valuation allowance (1,181,000) (253,000)
------------------------------------------------------------------------------------
TOTAL $ - $ -
====================================================================================
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CRONUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Management has provided a valuation allowance for
deferred tax assets as of December 31, 1999 and
1998, because they are unable determine that it
is more likely than not that the benefit of these
items will be recognized in future years.
7. SIGNIFICANT Certain customers accounted for 10% or more of
CUSTOMERS AND the Company's total revenue during the years
FOREIGN EXPORTS ended December 31, 1999 and 1998 as noted below:
1999 1998
Customer % of Sales Customer % of the Sales
------------------------------------------------------------------------
A 14% C 17%
B 16%
========================================================================
In 1999 and 1998, the Company had export sales to
foreign customers totaling approximately
$1,646,159 and $1,133,856, respectively. These
amounts constitute 20% and 13% of total revenues,
respectively. The export sales were made to
customers primarily in Canada and Mexico.
8. RETIREMENT PLAN The Company sponsors a defined contribution
pension plan with participation available to all
employees over 21 years old with at least three
months of service. Employees may contribute up to
the maximum allowed which was $9,500 for 1999 and
1998. The Company may make a discretionary
contribution as determined by the Board of
Directors. Employees vest in these discretionary
contribution amounts ratably over five years.
Contributions to the plan were $46,672 for the
year ended December 31, 1999. There were no
contributions made for the year ended December
31, 1998.
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CRONUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
9. COMMITMENTS AND The Company leases its corporate facilities under
CONTINGENCIES an agreement which expires in 2002. The Company
is responsible for insurance, property taxes and
assessments, and utilities on the property. Rent
expense totaled $153,705 and $195,112 for 1999
and 1998, respectively. The remaining lease
commitments are as follows:
Year ended December 31,
------------------------------------------------------------
2000 $138,333
2001 142,473
2002 109,224
------------------------------------------------------------
$390,030
============================================================
10. SUPPLEMENTAL CASH Supplemental information on interest paid is as
FLOW INFORMATION follows:
For the Year ended December 31, 1999 1998
--------------------------------------------------------------------------
Interest $142,183 $270,072
==========================================================================
11. SUBSEQUENT On March 31, 2000, the Company sold certain
EVENT assets to FastComm Communications Corp.
("FastComm"), an unrelated third party, which
also assumed substantially all of the existing
short and long-term liabilities. FastComm did not
purchase intangible assets or assume the amount
payable to the parent company. The preliminary
sales price is approximately $27,000,000 plus the
assumption of liabilities, subject to adjustment
as set forth in the purchase agreement. FastComm
will issue up to 4,825,000 common shares as
consideration for the purchase.
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FASTCOMM COMMUNICATIONS CORPORATION
NOTE TO PRO FORMA COMBINED
FINANCIAL STATEMENTS
The unaudited pro forma combined financial statements on the following pages
reflect the acquisition of the tangible assets and assumption of substantially
all of the long-term and short-term liabilities, excluding the amount payable to
the parent company, of Cronus Communications, Inc. in exchange for common shares
of FastComm Communications Corporation ("FastComm"). The pro forma balance sheet
gives effect to the acquisition as if it had occurred as of January 31, 2000,
which was the end of FastComm's fiscal third quarter. The pro forma statements
of operations for the year ended April 30, 1999 and the nine months ended
January 31, 2000 have been prepared as if the acquisition took place on May 1,
1998. The acquisition has been accounted for using the purchase method and,
accordingly, the assets acquired and the liabilities assumed have been recorded
at estimated fair value. The goodwill resulting from the acquisition will be
amortized on a straight-line basis over four years. The pro forma financial
statements are not necessarily indicative of FastComm's financial condition or
results of operations if the acquisition had occurred as indicated or of future
periods.
20
FASTCOMM COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JANUARY 31, 2000
FASTCOMM CRONUS
COMMUNICATIONS COMMUNICATIONS PRO FORMA PRO FORMA
CORPORATION INC. ADJUSTMENTS CONSOLIDATED
-------------- -------------- ----------- ------------
ASSETS
Current Assets
Cash and cash equivalents $ 1,800,027 $ 245,137 $ 2,045,164
Restricted cash 152,367 - 152,367
Accounts receivable, net 1,135,761 1,927,007 3,062,768
Inventories, net 2,314,360 1,373,520 3,687,880
Refundable Income Taxes - 806,635 2 (806,635) -
Prepaid expenses and other current assets 135,607 26,450 162,057
------------ ----------- ----------- -----------
Total Current Assets 5,538,122 4,378,749 (806,635) 9,110,236
Property and equipment, net 747,111 642,548 3 64,255 1,453,914
Other Assets
Goodwill 967,078 489,459 2 (489,459) 29,165,650
3 28,939,933
3 (64,255)
3 (426,419)
3 (250,687)
Capitalized Software - 1,040,985 2 (1,040,985) -
Deposits 50,206 138,163 188,369
------------ ----------- ----------- -----------
Total Other Assets 1,017,284 1,668,607 26,668,128 29,354,019
------------ ----------- ----------- -----------
$ 7,302,517 $ 6,689,904 25,925,748 $39,918,169
============ =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ - $ - 1 1,934,861 $ 1,000,000
4 (934,861)
Accounts payable 1,474,532 598,108 2,072,640
Accrued compensation 265,752 - 265,752
Capital lease obligation, current portion - 20,755 20,755
Deferred revenue - 258,552 258,552
Due to related party - 2,140,008 1 (1,934,861) -
2 (205,147)
Accrued interest - 426,419 3 (426,419) -
Other current liabilities 432,224 979,720 1,411,944
------------ ----------- ----------- -----------
Total Current Liabilities 2,172,508 4,423,562 (1,566,427) 5,029,643
Convertible Debentures 1,342,200 - 1,342,200
Long-term debt - 4,730,687 3 (250,687) -
4 (4,480,000)
Capital lease obligation, long-term portion - 3,898 3,898
Deferred Rent - 23,873 2 (23,873) -
------------ ----------- ----------- -----------
Total Liabilities 3,514,708 9,182,020 (6,320,987) 6,375,741
Stockholders' Equity
Common stock 212,031 - 212,031
Additional paid-in capital 30,103,919 - 30,103,919
Accumulated deficit (26,528,141) (2,492,116) 2 (2,108,059) 3,226,478
3 28,939,933
4 5,414,861
Total Stockholders' Equity 3,787,809 (2,492,116) 32,246,735 33,542,428
------------ ----------- ----------- -----------
$ 7,302,517 $ 6,689,904 25,925,748 $39,918,169
============ =========== =========== ===========
Pro Forma adjustments
- ---------------------
(1) To record transfer of notes payable from parent company.
(2) To record elimination of certain assets and liabilities not acquired.
(3) To record acquisition of certain assets and liabilities of Cronus
Communications Inc. as if it occurred on January 31, 2000 and to record fair
value adjustment of assets and liabilities acquired.
(4) To convert certain notes payable and long-term debt assumed into equity.
21
FASTCOMM COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1999
FASTCOMM CRONUS
COMMUNICATIONS COMMUNICATIONS PRO FORMA PRO FORMA
CORPORATION INC. ADJUSTMENTS CONSOLIDATED
-------------- -------------- ----------- ------------
Revenues
Product sales $ 4,091,843 $ 7,552,643 $ - $ 11,644,486
Service revenue 561,462 1,286,966 - 1,848,428
------------ ------------ ------------ ------------
Total revenues 4,653,305 8,839,609 - 13,492,914
Operating Costs and Expenses
Cost of goods sold 2,679,255 2,047,892 - 4,727,147
Selling, general and administrative 4,747,003 5,644,378 - 10,391,381
Research and development 2,387,904 2,486,570 - 4,874,474
Depreciation and amortization 475,223 1,000,649 1 6,566,458 8,042,330
------------ ------------ ------------ ------------
Total Operating Costs and Expenses 10,289,385 11,179,489 6,566,458 28,035,332
------------ ------------ ------------ ------------
Operating Loss (5,636,080) (2,339,880) (6,566,458) (14,542,418)
Other Income (Expense)
Other income (7,635) 7,582 - (53)
Interest income 8,950 4,504 - 13,454
Interest expense (104,894) (343,988) 2 (140,000) (454,462)
3 134,420
------------ ------------ ------------ ------------
Total Other Income (103,579) (331,902) (5,580) (441,061)
------------ ------------ ------------ ------------
Loss Before Reorganizational Items (5,739,659) (2,671,781) (6,572,038) (14,983,479)
Reorganizational Items (643,041) - - (643,041)
------------ ------------ ------------ ------------
Loss Before Income Taxes $ (6,382,700) $ (2,671,781) $ (6,572,038) $(15,626,520)
Basic and diluted loss per common share $ (0.43) $ (0.70)
============ ============
Weighted-average number of common shares
outstanding during period 12,917,125 4 17,345,188
Pro Forma adjustments
- ---------------------
(1) To record amortization expense from May 1, 1998 to April 30, 1999 for
goodwill being amortized over 4 years.
(2) To record interest expense on $1,000,000 in bridge loans from May 1, 1998 to
April 30, 1999 for debt not assumed by FastComm.
(3) To eliminate interest expense on notes payable to former shareholders from
May 1, 1998 To April 30, 1999.
(4) To reflect shares issued by FastComm in consideration of the acquisition of
Cronus Communications, Inc.
22
FASTCOMM COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JANUARY 31, 2000
FASTCOMM CRONUS
COMMUNICATIONS COMMUNICATIONS PRO FORMA PRO FORMA
CORPORATION INC. ADJUSTMENTS CONSOLIDATED
-------------- -------------- ------------ ------------
Revenues
Product sales $ 4,491,526 $ 5,829,343 $ - $ 10,320,869
Service revenue - 314,891 - 314,891
------------ ------------ ------------ ------------
Total revenues 4,491,526 6,144,234 - 10,635,760
Operating Costs and Expenses
Cost of goods sold 2,292,124 1,809,064 - 4,101,188
Selling, general and administrative 3,109,132 4,773,020 - 7,882,152
Research and development 1,942,143 1,573,399 - 3,515,542
Depreciation and amortization 489,334 620,762 1 5,150,634 6,260,730
------------ ------------ ------------ ------------
Total Operating Costs and Expenses 7,832,733 8,776,245 5,150,634 21,759,612
------------ ------------ ------------ ------------
Operating Loss (3,341,207) (2,632,011) (5,150,634) (11,123,852)
Other Income (Expense)
Other income 23,489 24,695 - 48,184
Interest income 14,760 5,831 - 20,591
Interest expense (165,118) (452,562) 2 (105,000) (296,261)
3 426,419
------------ ------------ ------------ ------------
Total Other Income (126,869) (422,036) 321,419 (227,486)
------------ ------------ ------------ ------------
Loss before Income Taxes (3,468,076) (3,054,047) (4,829,215) (11,351,338)
Basic and diluted loss per common share $ (0.19) $ (0.41)
============ ============
Weighted-average number of common shares
outstanding during period 17,989,645 4 22,417,708
Pro Forma adjustments
- ---------------------
(1) To record amortization expense from May 1, 1999 to January 31, 2000 for
goodwill being amortized over 4 years.
(2) To record interest expense on $1,000,000 in bridge loans from May 1, 1999 to
January 31, 2000.
(3) To eliminate interest expense on notes payable to former shareholders from
May 1, 1999 To January 31, 2000 for debt not assumed by FastComm
(4) To reflect shares issued by FastComm in consideration of the acquisition of
Cronus Communications, Inc.