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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 January 30, 1999
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[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from ________________ to __________________
Commission file number 0-17168
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FASTCOMM COMMUNICATIONS CORPORATION
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(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
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(Address of principal executive offices, Zip code)
(703) 318-7750
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(Registrants telephone number, including area code)
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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 February 26, 1999, there were 13,631,759 shares of the Common Stock, par
value $.01 per share, of the registrant outstanding.
No exhibits are filed with this report, which consists of 12 consecutively
numbered pages.
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FASTCOMM COMMUNICATIONS CORPORATION
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements
Consolidated Statements of Operations
Fiscal quarter and three fiscal quarters ended
January 30, 1999 and January 31, 1998.................................3
Consolidated Balance Sheets
January 30, 1999 and April 30, 1998...................................4
Consolidated Statements of Cash Flows
Fiscal quarter and three fiscal quarters
ended January 30, 1999 and January 31, 1998...........................5
Notes to Consolidated Financial Statements ..........................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................7-10
PART II OTHER INFORMATION
Item 1. Legal Proceedings....................................................11
SIGNATURES.............................................................................12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FASTCOMM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Fiscal quarter ended Three fiscal quarters ended
------------------------------- -------------------------------
January 30, January 31, January 30, January 31,
1999 1998 1999 1998
-------------- -------------- ----------- -----------
Revenue $1,701,812 $2,136,316 $4,037,161 $5,640,488
Expenses
Cost of sales 1,024,333 1,254,763 2,172,365 3,161,130
Selling, general and administrative 1,038,201 1,808,783 3,779,915 5,316,884
Research and development 522,862 587,710 1,877,985 1,765,431
Depreciation and amortization 115,850 148,269 345,481 407,238
Litigation settlement - 1,288,233 7,970 1,288,233
------------- ------------ ------------ ------------
Loss from operations (999,434) (2,951,442) (4,146,555) (6,298,428)
Other income (expense)
Other income - 2,000 - 39,166
Interest income 355 47,048 15,631 154,752
Interest expense (33,225) (34,780) (91,278) (195,939)
Imputed interest on debenture discount - (220,000) - (550,000)
Loss before reorganizational items (1,032,304) (3,157,174) (4,222,202) (6,850,449)
Reorganizational items:
Professional fees 217,224 - 544,158 -
Interest earned on accumulated cash
resulting from Chapter 11 proceeding (2,000) - (14,885) -
------------- ------------ ------------ ------------
215,224 - 529,273 -
Net loss $(1,247,528) $(3,157,174) $(4,751,475) $(6,850,449)
============= ============ ============ ============
Loss per share
Basic ($0.10) ($0.31) ($0.38) ($0.68)
Diluted ($0.10) ($0.31) ($0.38) ($0.68)
Weighted average number of shares
Basic 12,685,886 10,165,454 12,423,678 10,048,177
Diluted 12,685,886 10,165,454 12,428,678 10,048,177
See accompanying notes to unaudited consolidated financial statements
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FASTCOMM COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
January 30, April 30,
1999 1998
----------- ----------
(unaudited)
Current assets
Cash and cash equivalents $147,302 $1,213,052
Accounts receivable, net 1,172,826 3,126,100
Inventories, net 2,738,880 3,118,195
Prepaid and other 355,205 374,614
------------- ------------
4,414,213 7,831,961
Property and equipment, net 622,320 775,457
Deferred financing costs 19,086 76,344
Notes receivable 26,400 26,400
Goodwill, net 416,879 482,144
Other assets 41,453 33,723
------------- ------------
$5,540,351 $9,226,029
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $810,308 $2,427,712
Accrued payroll 135,912 308,109
Other current liabilities 570,412 843,178
Accrued litigation settlement - 1,195,560
------------- ------------
1,516,632 4,774,559
Liabilities subject to compromise (a) 4,455,715 -
Convertible debentures - 1,205,299
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5,972,347 5,979,858
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Shareholders' equity
Common stock, $.01 par value, 136,318 120,488
(25,000,000 shares authorized; 13,631,759 and
12,048,753 issued and outstanding)
Additional paid in capital 21,693,675 20,636,197
Accumulated deficit (22,261,989) (17,510,514)
------------- ------------
Total shareholders' equity (431,996) 3,246,171
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$5,540,351 $9,226,029
============= ============
(a) Liabilities subject to compromise:
Accounts payable $3,052,185 $ -
Accrued litigation settlement 1,203,530 -
Convertible debentures 200,000 -
------------- ------------
$4,455,715 $ -
============= ============
See accompanying notes to unaudited consolidated financial statements
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FASTCOMM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Fiscal quarter ended
----------------------------------------
January 30, January 31,
1999 1998
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Operating activities
Net loss $(1,247,528) $(3,157,174)
Items not affecting cash
Depreciation and amortization 115,850 148,269
Provision for doubtful accounts 47,954 42,363
Provision for inventory obsolescence 26,160 50,000
Non cash interest expense on debentures 39,426 72,793
Amortization of deferred financing costs 19,086 -
Provision for litigation loss - 1,288,233
Imputed discount on convertible debentures - 220,000
Changes in assets and liabilities
Accounts receivable (121,794) (345,440)
Inventories 542,388 189,742
Prepaid and other current assets (44,781) (97,322)
Other non current assets 3,870 (2,755)
Accounts payable and accrued liabilities 276,974 (198,441)
Other current liabilities (72,443) 99,746
----------- ------------
Net cash used by operations (414,838) (1,689,986)
----------- ------------
Investing activities
Additions of plant and equipment (78,039) (48,836)
----------- ------------
Net cash used by investing activities (78,039) (48,836)
----------- ------------
Financing activities
Proceeds from the issuance of convertible debentures - -
Payment of deferred financing costs - -
Net proceeds from exercise of options - -
Repayment of notes payable - -
----------- ------------
Net cash provided by financing activities - -
----------- ------------
Net increase in cash and equivalents (492,877) (1,738,822)
Cash and cash equivalents, beginning of period 640,179 4,112,858
----------- ------------
Cash and cash equivalents, end of period $147,302 $2,374,036
=========== ============
Supplemental cash flow disclosure:
Reorganizational items affecting cash
Professional fees paid $58,120 $ -
Interest received on accumulated cash
resulting from Chapter 11 proceeding (2,000) -
----------- ------------
$56,120 $ -
=========== ============
Three fiscal quarters ended
--------------------------------
January 30, January 31,
1999 1998
--------------- --------------
Operating activities
Net loss $(4,751,475) $(6,850,449)
Items not affecting cash
Depreciation and amortization 345,481 407,238
Provision for doubtful accounts 47,968 182,363
Provision for inventory obsolescence 80,000 300,000
Non cash interest expense on debentures 68,009 197,793
Amortization of deferred financing costs 57,258 -
Provision for litigation loss 7,970 1,288,233
Imputed discount on convertible debentures - 550,000
Changes in assets and liabilities
Accounts receivable 1,905,307 1,130,918
Inventories 299,315 (831,836)
Prepaid and other current assets 19,409 (140,588)
Other non current assets 3,870 (19,801)
Accounts payable and accrued liabilities 786,505 376,666
Other current liabilities 191,712 155,919
------------ ------------
Net cash used by operations (938,671) (3,253,544)
------------ ------------
Investing activities
Additions of plant and equipment (127,079) (304,103)
------------ ------------
Net cash used by investing activities (127,079) (304,103)
------------ ------------
Financing activities
Proceeds from the issuance of convertible debentures - 2,000,000
Payment of deferred financing costs - (100,000)
Net proceeds from exercise of options - 24,347
Repayment of notes payable - (29,000)
------------ ------------
Net cash provided by financing activities - 1,895,347
------------ ------------
Net increase in cash and equivalents (1,065,750) (1,662,300)
Cash and cash equivalents, beginning of period 1,213,052 4,036,336
------------ ------------
Cash and cash equivalents, end of period $147,302 $2,374,036
============ ============
Supplemental cash flow disclosure:
Reorganizational items affecting cash
Professional fees paid $257,571 $ -
Interest received on accumulated cash
resulting from Chapter 11 proceeding (14,885) -
------------ ------------
$242,686 $ -
============ ============
See accompanying notes to unaudited consolidated financial statements
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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, 1999.
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 quarters ended
January 30, 1999 and January 31, 1998 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 January 30, 1999 and January
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:
January 30, April 30,
1999 1998
---------------------------------
Production materials $ 1,454,779 $ 1,547,922
Work in process 224,493 336,680
Finished goods 1,059,608 1,233,593
----------- -----------
$ 2,738,880 $ 3,118,195
=========== ===========
4. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF RISK
The quarter ended January 30, 1999 and the three fiscal quarters ended January
30, 1999 include sales of $732,000 and $1,292,000 respectively representing 44%
and 33% of total revenues to one unrelated third party domestic corporation. As
of January 30, 1999, accounts receivable includes $438,000 due from this
corporation. As of the date of this report, accounts receivable includes $20,000
due from this corporation.
5. INCOME TAXES
The Company has estimated its annual effective tax rate at 0% due to uncertainty
over the level of earnings in fiscal 1999. 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.
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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. This filing was a direct result of
enforcement activities by a judgment creditor. (See Part II. Item 1. Legal
Proceedings) The Company has filed its Schedules and Statements of Financial
Affairs in accordance with the requirements of the Bankruptcy Code and is
current with its monthly operating reports. The Company continues to operate
under Bankruptcy Court protection from its pre petition creditors.
The Company has submitted its final Plan to the Bankruptcy Court. The Plan was
subsequently endorsed by the committee of unsecured creditors. The Plan is
subject to the approval of the Bankruptcy Court. Such approval is dependent on
the Company's ability to demonstrate that it will be able to meet its
obligations, return to profitability, generate positive cash flow or raise new
capital. The Company can offer no assurance as to whether its Plan will be
approved, or that, if approved, the terms and conditions of the Plan will be
favorable to its creditors and shareholders.
A Plan confirmation hearing has been scheduled for March 19, 1999. At such time,
the Company hopes to emerge from Chapter 11 protection.
THE COMPANY CAN OFFER NO ASSURANCE AS TO WHETHER THIS PLAN WILL BE APPROVED, OR
THAT, IF APPROVED, THE TERMS AND CONDITIONS OF THE PLAN WILL BE FAVORABLE TO ITS
CREDITORS AND SHAREHOLDERS. If the Company is unable to obtain approval of its
plan any creditor or party in interest may file a competing plan of
reorganization. If the court approves such plan, control of the Company might
transfer to the proponents of the competing plan. The Company is unaware of any
efforts to prepare a competing plan of reorganization, however it can offer no
assurances as to whether one might be prepared in the future.
FUTURE PROSPECTS
On a forward-looking basis and at such time as its Plan is approved by the
court, the Company anticipates improved sales of its products. Current and
prospective customers have indicated that they are holding orders pending the
outcome of the Chapter 11 proceeding. It is currently making changes to its
Quick product line that will qualify this product for larger and enhanced
distribution channels. The Company anticipates that sales related to its license
agreement with KG Data will generate revenues commencing with the later part of
its fiscal year ended April 30, 1999. The Company has changed its organizational
structure and reduced headcount. As a result, spending levels have declined
sharply.
The Company anticipates that it will 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 has executed an agreement with
an asset based lender whereby this lender will advance funds against approved
accounts receivable. 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.
The Company anticipates significant legal and consulting expenses associated
with its reorganization. On a fiscal year to date basis, these costs totaled
$544,000. The Company is unable to estimate future costs associated with these
actions. Assuming the Plan is approved, the Company anticipates a return to
profitability, on a current operating basis, in the early part of its fiscal
year ended April 30, 2000.
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 1999.
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RESULTS OF OPERATIONS
REVENUE
Fiscal quarter ended Three fiscal quarters ended
---------------------------- ---------------------------------
January 30, January 31, January 30, January 31,
1999 1998 1999 1998
-------------- ------------ --------------- ---------------
$ 1,701,812 $ 2,136,316 $ 4,037,161 $ 5,640,488
The Company believes that its filing a petition for reorganization under Chapter
11 has negatively impacted its ability to sell its products in the market place
in the near term.. The Company is engaged in discussions with several large
resellers worldwide, each of which has multiple end user opportunities. The
Company can give no assurance as to the outcome of such discussions.
Total revenues increased $496,000 (41%) compared with that of the previous
quarter and decreased $435,000 (20%) when compared with the corresponding
quarter of the previous fiscal year. The sequential quarter over quarter
increase is primarily attributable to an increase in unit sales of voice and
data frame relay access products ($482,000) and an increase in unit sales of
data compression products ($82,000). The decline in the current quarter in
comparison with that of the corresponding quarter of the previous fiscal year is
primarily attributable to a decrease in unit sales of voice and data frame relay
access devices ($645,000) offset by increased unit sales of data compression
products ($262,000).
On a fiscal year to date basis, total revenues declined $1,603,000 compared with
that of the corresponding period of the previous fiscal year. This decrease is
primarily attributable to decreases in unit sales of data and voice frame relay
access devices ($1,987,000) offset by an increase in unit sales of data
compression products ($381,000).
The quarter ended January 30, 1999 and the three fiscal quarters ended January
30, 1999 include sales of $732,000 and $1,292,000 respectively representing 44%
and 33% of total revenues to one unrelated third party domestic corporation..
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
Fiscal quarter ended Three fiscal quarters ended
---------------------------- ---------------------------------
January 30, January 31, January 30, January 31,
1999 1998 1999 1998
-------------- ------------ --------------- ---------------
Cost of sales $ 1,024,333 $ 1,254,763 $ 2,172,365 $ 3,161,130
Gross margin 40% 41% 46% 44%
The gross margins are comparable on a current quarter and fiscal year to date
basis.
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SELLING AND GENERAL AND ADMINISTRATIVE EXPENSES
Fiscal quarter ended Three fiscal quarters ended
---------------------------- ---------------------------------
January 30, January 31, January 30, January 31,
1999 1998 1999 1998
-------------- ------------ --------------- ---------------
$ 1,038,201 $ 1,808,783 $ 3,779,915 $ 5,316,884
Selling, general and administrative expenses decreased $771,000 or (43%) when
compared with that of the corresponding quarter in the previous fiscal year.
This decrease is primarily attributable to reduced advertising and promotion
costs ($76,000); reduced legal and professional fees ($414,000); reduced salary
and related costs associated with a decline in headcount ($73,000) and reduced
office and occupancy costs ($97,000)
On a fiscal year to date basis, selling, general and administrative expenses
decreased $1,537,000 or 29% when compared with that of the corresponding period
of the previous fiscal year. This decrease is primarily attributable to reduced
advertising and promotion costs ($454,000); reduced legal and professional fees
($640,000); reduced office and occupancy costs including those associated with
the closing of the Company's Australia sales office ($137,000) and a decline in
bad debt expense ($133,000).
RESEARCH AND DEVELOPMENT EXPENSES
Fiscal quarter ended Three fiscal quarters ended
---------------------------- ---------------------------------
January 30, January 31, January 30, January 31,
1999 1998 1999 1998
-------------- ------------ --------------- ---------------
$ 522,862 $ 587,710 $ 1,877,985 $ 1,765,431
Research and development expenditures consist primarily of hardware and software
engineering, personnel expenses, subcontracting costs, equipment, prototypes and
facilities. The year to date increase in such expenses is primarily attributable
to increased labor and material costs associated with new product development
and new product prototypes associated with the KG Data/ChanlComm product line.
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.
DEPRECIATION AND AMORTIZATION
The Company's autodialer patent was fully depreciated during the previous fiscal
year, which accounts for the decline in depreciation and amortization.
REORGANIZATIONAL ITEMS
During the quarter ended January 30, 1999, the Company incurred $217,000 in
expenses associated with its reorganization under Chapter 11. On a fiscal year
to date basis, these costs totaled $544,000. Such expenses primarily consisted
of legal fees and the costs of financial consulting services.
LIQUIDITY AND CAPITAL RESOURCES
At January 30, 1999, the Company had $147,000 in cash. During the current fiscal
quarter, working capital decreased from $4.1 million at October 31, 1998 to $2.9
million at January 30, 1999. At January 30, 1999, the Company had a current
ratio of 2.9 to one. These measures of liquidity have been positively benefited
by the reclassification of pre petition accounts payable ($3,052,000), accrued
litigation settlement ($1,204,000) and convertible debenture ($200,000) balances
to liabilities subject to compromise.
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. This filing was a direct result of
enforcement activities by a judgment creditor. (See Part II. Item 1. Legal
Proceedings) The Company continues to operate under bankruptcy court protection
from its pre petition creditors.
As a result of this petition for reorganization, pre petition accounts payable
($3,052,000), accrued litigation settlement ($1,204,000) and convertible
debenture ($200,000) balances were reclassified to liabilities subject to
compromise.
The Company anticipates that it will 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
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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 has
executed an agreement with an asset based lenders whereby this lender will
advance fund against approved accounts receivable. 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
THIRD FISCAL QUARTER OF 1999 COMPARED TO THIRD FISCAL QUARTER OF 1998
The Company used $415,000 in cash from operations during the quarter ended
January 31, 1999. This compares favorably to $1,690,000 in cash used by
operations during the corresponding quarter of the previous fiscal year. The
$1,275,000 improvement is primarily attributable to a $1,909,000 reduction in
the net loss for the quarter, reduced inventory purchases and reduced payments
to vendors offset by increased accounts receivable balances and a reduction in
non cash expenses associated with imputed interest on convertible debentures and
reserve for litigation loss.
The Company purchased $78,000 in fixed assets during the current fiscal quarter.
THREE FISCAL QUARTERS ENDED JANUARY 30, 1999 COMPARED TO THREE FISCAL QUARTERS
ENDED JANUARY 31, 1998
Cash used by operations decreased from $3,254,000 in the three fiscal quarters
ended January 31, 1998 to $939,000 in the three fiscal quarters ended January
30, 1999. This $2,315,000 improvement is primarily attributable to a $2,098,000
reduction in the net loss for the period, increased funds generated from
accounts receivable, reduced inventory purchases and increased accounts payable
balances offset by a reduction in non cash expenses associated with imputed
interest on convertible debentures reserve for litigation loss.
The Company purchased $127,000 in fixed assets during the three fiscal quarters
ended January 30, 1999.
Cash provided by financing activities is primarily attributable to $2,000,000 in
proceeds received, in the previous foscal year, as part of a $5 million
convertible debenture offering.
ACCOUNTS RECEIVABLE
The Company's accounts receivable balance increased $122,000 in the current
fiscal quarter and declined $1,905,000 on a fiscal year to date basis. This
fiscal year to date decline is primarily to reduced sales in the current fiscal
and improved collection efforts.
INVENTORIES
The Company's gross inventory balance decreased $542,000 in the current fiscal
quarter. The Company increased its reserve for inventory obsolescence by $26,000
to $1,450,000. 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 $754,000 in the current quarter and $3,678,000 on
a year to date basis. These decreases are attributable to the net losses
incurred offset by conversions of debentures into equity.
INCOME TAXES
The Company has estimated its annual effective tax rate at 0% due to uncertainty
over the level of earnings in fiscal 1999. 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.
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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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. The Company has submitted its final Plan
of Reorganization to the Bankruptcy Court. The Plan, which was subsequently
endorsed by the committee of unsecured creditors, is subject to the approval of
the Bankruptcy Court. A Plan confirmation hearing is scheduled for March 19,
1999. Shortly thereafter, the Company hopes to emerge from Chapter 11
protection.
The United States Securities and Exchange Commission ("SEC") has conducted an
inquiry pursuant to an order directing a private investigation relating to
certain prior public disclosures and periodic reports of the Company. The
Company continues to work with the SEC in an effort to settle this matter. While
no assurances can be given that the matter will be settled, or if settled, the
terms will be favorable to the Company, the Company is reasonably confident that
it will reach settlement of this action in the 1999 calendar year.
In 1997, a former officer and director of the Company commenced two lawsuits
against the Company in the Circuit Court of Fairfax, Virginia, one for wrongful
termination and the other for breach of contract. The breach of contract action
resulted in an adverse award of damages against the Company of approximately
$1,200,000 in February 1998. The filing of the bankruptcy petition transferred
the jurisdiction for the second case from the Circuit Court in Fairfax, Virginia
to the Bankruptcy Court. The Company and the claimant have filed papers with the
Bankruptcy Court seeking approval of a settlement and compromise of both cases.
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.
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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)
Date: March 16, 1999 By: /s/ Peter C. Madsen
Peter C. Madsen ---------------------------
President, Chief Executive Officer
and Chairman of the Board of Directors
(Principal Executive Officer)
Date: March 16, 1999 By: /s/ Mark H. Rafferty
Mark H. Rafferty ---------------------------
Vice President, Chief Financial Officer
Treasurer and Director
(Principal Financial and Accounting Officer)
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