10-K 1 w51851e10-k.txt FOR THE FISCAL YEAR ENDED: APRIL 30, 2001 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED APRIL 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition 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 or organization) Identification Number) 45472 HOLIDAY DRIVE DULLES, VIRGINIA 20166 ----------------------------------------- -------------------------------- (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, including area code: 703/318-7750 Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.01 PER SHARE -------------------------------------------------------------------------------- (Title of Class) 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 ----- APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities a plan confirmed by a court. Yes X No ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the Common Stock of the registrant held by non-affiliates of the registrant, computed by reference to the last sale price of such shares as of the close of trading on July 26, 2001 was $11,153,302 (24,785,116 shares times $0.45). As of July 26, 2001, there were 29,066,624 shares of the Common Stock of the registrant outstanding. Documents Incorporated By Reference: None 2 FASTCOMM COMMUNICATIONS CORPORATION FORM 10 K FOR THE YEAR ENDED APRIL 30, 2001 TABLE OF CONTENTS

2 3 SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS THIS ANNUAL REPORT ON FORM 10-K CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF AND MADE UNDER THE SAFE HARBOR PROVISIONS OF SECTION 27A OF THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT"). FROM TIME TO TIME, WE MAY PUBLISH OR OTHERWISE MAKE AVAILABLE FORWARD-LOOKING STATEMENTS OF THIS NATURE. FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS CONCERNING PLANS, OBJECTIVES, GOALS, STRATEGIES, FUTURE EVENTS OR PERFORMANCE, AND UNDERLYING ASSUMPTIONS AND OTHER STATEMENTS, WHICH ARE NOT HISTORICAL FACTS. THE WORDS "MAY", "COULD", "SHOULD", "WILL", "PROJECT", "INTEND", "CONTINUE", "BELIEVE", "ANTICIPATE", "ESTIMATE", "EXPECT", "PLAN", "INTEND" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS. EXAMPLES OF FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS REGARDING, AMONG OTHER MATTERS, OUR PLANS, INTENTIONS, BELIEFS AND EXPECTATIONS ABOUT THE FOLLOWING: OUR FUTURE PROSPECTS, INCLUDING OUR REVENUES, INCOME, MARGINS, PROFITABILITY, CASH FLOW, LIQUIDITY, FINANCIAL CONDITION AND RESULTS OF OPERATIONS; OUR BUSINESS PLANS AND STRATEGIES; THE RISKS AND UNCERTAINTIES RELATED TO OUR BUSINESS; OUR PRODUCTS AND SERVICES, MARKET POSITION, MARKET SHARE, BUSINESS, GROWTH STRATEGIES AND STRATEGIC RELATIONSHIPS; INDUSTRY TRENDS, COMPETITIVE CONDITIONS AND MARKET CONDITIONS, SEGMENTS AND TRENDS; THE SUFFICIENCY OF FUNDS FROM OPERATIONS AND AVAILABLE BORROWINGS TO MEET OUR FUTURE WORKING CAPITAL AND CAPITAL EXPENDITURE NEEDS; THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE CURRENT PLANS, INTENTIONS, BELIEFS AND EXPECTATIONS OF MANAGEMENT AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT. YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS ARE SUBJECT TO SUBSTANTIAL RISKS AND UNCERTAINTIES. ANY OR ALL OF THESE FORWARD-LOOKING STATEMENTS COULD TURN OUT TO BE WRONG. FORWARD-LOOKING STATEMENTS WILL BE AFFECTED BY INACCURATE ASSUMPTIONS WE MIGHT MAKE OR BY KNOWN OR UNKNOWN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, THE FACTORS DESCRIBED UNDER "ADDITIONAL FACTORS THAT MAY AFFECT OUR BUSINESS AND FUTURE RESULTS" IN ITEM 5 BELOW, AS WELL AS OTHER RISKS AND UNCERTAINTIES DISCUSSED ELSEWHERE IN THIS REPORT, IN DOCUMENTS INCORPORATED BY REFERENCE IN THIS REPORT AND IN OUR OTHER REPORTS AND FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION ("SEC"). WE UNDERTAKE NO DUTY OR OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. PART I. ITEM 1. DESCRIPTION OF BUSINESS INTRODUCTION FastComm Communications Corporation (the "Company" or "FastComm") designs, develops and manufactures signaling protocol conversion products that bridge the gaps that exist between incompatible communications networks, integrated access devices that serve as advanced voice/data/video/data convergence routers for enterprise and carrier users and protocol converters specifically designed for Unisys environments. FastComm also provides advanced internet protocol (IP) and data solutions over Frame Relay as well as voice/data integrated access devices (IAD's) and data routers. The Company's goal is to provide customers with leading edge technology and a cost-effective means of 3 4 incorporating these technologies into existing or new networks. FastComm is positioning itself in the evolving converged networks with a customer base that includes domestic and international corporations, carriers, internet service providers, competitive local exchange carriers, State and Federal government agencies as well as other telecommunications manufacturers. The Company targets business customers and designs its products for volume sales through third party resellers such as network product and service dealers, systems integrators, telephone carriers and original equipment manufacturers. These resellers form a primary distribution channel for the Company and also provide installation and maintenance support services. The Company was incorporated as MicroTel, Inc. under the laws of the Commonwealth of Virginia in May 1983. The Company changed its name to Data Safe Incorporated in February 1984; to Electronic Vaults, Inc., in August 1984; and to FastComm Communications Corporation, in October 1987. During the fiscal year ended April 30, 1997, the Company acquired Comstat Datacomm Corporation, ("CDC or Comstat"), a Georgia corporation engaged in the data communications business. On March 31, 2000, the Company completed its acquisition of substantially all of the assets and certain liabilities of Cronus Technology, Inc., ("Cronus") a privately held Illinois corporation that designs, manufactures and sells signaling protocol conversion solutions to the telecommunications industry. The Company's shares are quoted on the OTC Bulletin Board under the symbol FSCX.OB. FASTCOMM'S PRODUCTS FastComm's suite of products include: SIGNALING GATEWAY PRODUCT FAMILY The FastComm line of signaling gateways bridges the gap between incompatible communications networks, enabling seamless communication between in-band to in-band, in-band and out-of-band networks and out-of-band to out-of-band SS7, ISDN, and xGCP networks. There are 5 products in the signaling gateway product line: - SIGNALPATH(TM) 230 (SP-230) is a 52 T1/E1 signaling gateway allowing communication between in-band and out-of-band networks or between networks supporting different out-of-band protocols. As a signaling gateway supporting multiple national SS7 and in-band variants, the SP-230 could extend the softswitch architecture to foreign markets immediately. - SP-201 is a 4 T1/E1 variant of the SP-230. - R2 ADAPTER is a new low cost signaling appliance designed to enable PABX and IP/PABX vendors to penetrate international markets where the need for protocol conversion is the greatest. - TSC-100 is a 24 T1/E1 signaling gateway allowing communication between different variants of in-band signaling. - MUX-100 is an analog to digital converter. Protocol conversion is an available option. INTEGRATED ACCESS DEVICES (IAD'S) PRODUCT FAMILY Integrated Access Devices aggregate multiple traffic types (i.e. voice/fax, IP, video, etc.) onto a single access port or circuit. The FastComm IADs consist of the following two products: -METROLAN(TM) family of IADs is ideal for remote office/branch office environments. Supports up to 3 analog voice/fax ports, Ethernet, and up to 3 physical ports with extensive IP/legacy support. -GLOBALSTACK(TM) is a modular IAD that complements the MetroLAN(TM) for medium to large and central site environments. Supports up to 60 compressed digital voice/fax channels or 6 voice interfaces, Ethernet and a variety of serial data interfaces (i.e. V.35, X.21, V.24, T1/FT1, E1/Nx64kbps, and/or 56/64kbps CSU/DSUs). ROUTER/FRAD PRODUCT FAMILY This product family is geared toward providing data routing capability for IP and legacy communications. - QUICK II(TM) is an integrated router, protocol converter and terminal server all in one easy to manage compact 4 5 chassis, for attaching Unisys Poll Select devices into IP networks. -MONOFRAD(TM) is a data router supporting a Network and a single User port. -RINGFRAD(TM) is a data router supporting a Token Ring, a Network port and up to 4 User ports. -WEBROUTER(TM) is a compact, low cost Internet/Intranet router supporting Ethernet and a single Network port. -ETHERFRAD(TM) is a family of integrated IP and legacy data routers supporting Ethernet, a Network port and up to 5 User ports. SIGNALPATH 230 The SignalPath 230 (SP 230) is an advanced signaling protocol converter designed to solve signaling compatibility problems that exist between communications networks. Different types of communications protocols, both in-band and out-of-band, exist globally making communications between such networks impossible. The SP 230 breaks down the communications barriers presented by these different protocols and enables a seamless flow of signaling information across any network. The SP 230 can interface with switches and gateways provided by Cisco, Lucent, Nortel, Siemens, Ericsson, Alcatel and others. As a signaling gateway supporting multiple national SS7 and in-band variants, the SP-230 could extend the softswitch architecture to foreign markets immediately. In May, 2001, FastComm announced the SignalPath Release 7 software which significantly increases performance and system availability in its SignalPath Signaling Gateway product line. Release 7 has more capacity and supports higher calling volumes which in turn means more revenues for carriers who use the Signaling Gateway product in their networks. This release lays the foundation for future products aimed at supporting large capacity switch vendors who are looking to replace entirely the circuit-switch technology used by incumbent telecom providers with packet network technologies. R2 ADAPTER In June 2001, the Company introduced the R2 Adapter, a small low cost signaling appliance designed for PABX and IP/PABX vendors, small carriers and specific application providers (such as video conferencing) who want to quickly penetrate international markets where signaling conversion is required. Using existing FastComm technology, the R2 Adapter is equipped to handle multiple country-specific R2 variants that are deployed throughout the world. The R2 Adapter architecture positions the product for future Internet Protocol (IP), R2 to ISDN signaling conversion and IP based PABX applications. METROLAN The MetroLAN router combines analog voice from switches, PBXs, key systems, telephones, and the public telephone network with LAN/legacy data & multimedia and transports it over switched or dedicated digital networks. MetroLAN satisfies the needs of small office/branch offices that require optimum phone line performance. With FastComm's routing software, three analog voice ports, two data equipment serial interfaces and an Ethernet port, the MetroLAN is the perfect solution for voice/fax/data and video applications. The MetroLAN is compliant with FRF.11, supporting voice compression (with silence suppression) which allows up to 3 compressed voice channels to be transported in less than 30Kbps. Bandwidth is dynamically allocated between voice/video/data so that LAN traffic may continually adapt to fill the unused bandwidth. GLOBALSTACK The GlobalStack-EX voice/fax/data/video router combines digital and analog voice from switches, PBXs, key systems, and remote telephones with LAN/legacy data and transports it over switched or dedicated digital networks. With digital T1, E1, ISDN BRI and PRI interfaces, frame relay interfaces for data equipment, an Ethernet port, and FastComm's routing software, the GlobalStack-EX is the perfect solution for integrating voice/fax/data and multimedia throughout the enterprise network. The GlobalStack-EX satisfies large regional and central site office and POP locations where a confluence of communication mediums converge. The GlobalStack-EX is compliant with FRF.11, supporting voice compression (with silence suppression) and allows up to 30 voice channels to be transported in less than 300Kbps. Bandwidth is dynamically allocated between voice/video/data so that LAN traffic may continually adapt to fill the unused bandwidth. QUICK PRODUCT LINE The Quick II targets Unisys A and C-series mainframe customers who have been using legacy CP2000 equipment. Unisys sells and supports the Quick II to customers who require cost-effective network solutions for communication between legacy mainframe, peripheral and LAN applications. FastComm supports over 100 protocol variations which legacy equipment users depend on for seamless operations. 5 6 NEW PRODUCT DEVELOPMENT The Company invests heavily in research and development and expects such investment to continue. Recorded expenses for research and development have been as follows: ~~Fiscal year 2001 $5,684,000 51% of revenue Fiscal year 2000 $2,966,000 46% of revenue Fiscal year 1999 $2,388,000 52% of revenue~~

The Company's ability to anticipate changes in technology, industry standards and communications service provider offerings, and its ability to develop and introduce new and enhanced products on a timely basis that are successful in the market will be a significant factor in the Company's competitive position and in its prospects for growth. Management believes that the future success of the Company depends on its ability to continue to enhance its products, improve product performance and functionality and to develop new products that address emerging markets. Management believes that significant expenditures for research and development will continue to be required. To bring a product to market quickly, any design may be done entirely internally, externally, jointly with another firm, or from licensed technology. Larger companies, with greater engineering resources and more internal expertise, may be able to develop a larger portion of their products without outside technology. Elimination of licensing fees or royalties could provide them a cost advantage. Research and development project schedules for high technology products are inherently difficult to predict, and there can be no assurance that the Company will achieve its expected initial shipment dates of products in development. The timely availability of new and enhanced products is critical to the success of the Company. Delays in availability of these new products, or lack of market acceptance of such products, could adversely affect the Company. BACKLOG Because of its quarterly design and build cycle, the Company builds and fills to the extent possible all of its customer orders within the fiscal quarter of receipt. Backlog of undeliverable orders is usually not significant. Management believes that the Company's backlog as of any given date is not necessarily indicative of actual revenues for any succeeding period. Management knows of no material effect from non-compliance with environmental laws or regulations. SEASONALITY AND INFLATION The Company's operations have not proven to be seasonal, although quarterly revenue and net income may vary. Although the Company cannot accurately determine the amounts attributable thereto, the Company has been affected by inflation through increased costs of employee compensation and other operating expenses. The Company believes that inflation has not had a material effect on the Company's results of operation or financial condition. MARKETING AND SALES DOMESTIC The Company targets its signaling gateway products and its IAD product line to business customers and designs its products for volume sales through third party resellers such as network product and service dealers, systems integrators, telephone carriers and original equipment manufacturers. The Company has existing relationships and contracts with several large companies such as Nortel, Siemens, ECI. These resellers form a distribution channel for the Company and, in some instances, provide installation and maintenance support services. During fiscal year 2001, sales to Nortel, Lucent and Ceicer accounted for 14%, 11% and 10% of total sales. During fiscal year 2000, sales to Amadeus, Pacific Access Technology, and Anicom accounted for 18%, 15% and 12% of total sales. During fiscal year 1999, sales to Alcatel Data Networks accounted for 28% of total sales. There were no Government contracts during the fiscal year that were subject to renegotiation of profits or termination. 6 7 INTERNATIONAL In the international marketplace, independent distributors represent the Company in more than 35 countries. These firms are most often locally owned and managed, which gives them an important presence in their markets. Terms of international distribution agreements are similar to domestic agreements and grant to the distributor similar stock adjustment/rotation and stock update rights. In most instances, payment terms are cash in advance or confirmed documentary letter of credit. In most cases, a distributor obtains non-exclusive rights to all FastComm products for a specific geographic area. In fiscal years 2001, 2000 and 1999, the Company had export sales to foreign customers totaling $2,213,000, $616,000 and $1,800,000, respectively. The majority of the sales were made in Latin America and Europe. The Company's protocol library includes signaling variants for over 80 countries. Accordingly, the Company places significant emphasis on international selling opportunities. The Company employs an international sales force and has executed reseller contracts with distributors throughout the world. The Company is in discussions, of various stages, with other significant international customers as well as domestic customers who will purchase FastComm products for export. Since contracts have not yet been executed, no assurance can be made as to the outcome of these discussions. The Company's export sales may be subject to restrictions on foreign operations, including restrictions imposed by foreign governments on imports as well as U.S. Government originated restrictions, and are subject to risks associated with fluctuations in foreign exchange rates. Although substantially all foreign contracts are denominated, and revenues are paid, in United States dollars, to the extent the Company receives payments in foreign currencies, it may incur gains or losses because of exchange fluctuations between currencies. Moreover, fluctuations in currency exchange rates may cause the Company's established prices to be relatively more or less expensive in terms of local currencies. CUSTOMER SUPPORT AND SERVICE The Company maintains a technical support staff. Their work primarily supports resellers, but end users are periodically given technical information and assistance by telephone. For new products or features, including beta tests, Company personnel will visit end user sites to participate in installation and training. PROMOTION The Company places advertisements in trade publications that stress the unique product benefits. Most publications in which the Company advertises have international circulation, aiding the Company's selling efforts outside the U.S. The Company participates in industry trade shows in order to meet prospective customers, generate sales leads, communicate with the press, and to do market research. The Company exhibits under its own name and also takes opportunities to exhibit with its dealers and distributors who show FastComm products. COMPETITION The communications industry is highly competitive. Rapid technological change, evolving standards and regulatory developments characterize the market for the Company's products. Many of the Company's competitors and potential competitors have greater financial, technological, manufacturing, marketing and personnel resources than the Company. The Company's success depends to a large extent on the insight, experience, and energy of its people, and therefore on its ability to attract and retain experienced professionals. The primary competition for each of the Company's major products is as follows: SIGNALING GATEWAY PRODUCT FAMILY: The Company believes that there is a distinct market for signaling gateways and that the SignalPath product family is well positioned to take advantage of this trend. Competitors include TEKELEC, Acculabs, Natural Microsystems, Performance Technologies and Telesoft Design Ltd. Although, Sun Microsystems and Hewlett Packard have SS7 interfaces, they focus on their server market without much emphasis on the multitude of international signaling variants. 7 8 The complexity and lack of interworking standards represent high barriers to entry. Accordingly, very few companies concentrate on this market. Those companies that have demonstrated development of signaling products have typically become acquisition targets of larger telecommunications companies. INTEGRATED ACCESS DEVICES (IAD'S) PRODUCT FAMILY: Competition is extensive in this marketplace. The major competitor is Cisco Systems' 2520-2523, 3800 and other product lines. ROUTER/FRAD PRODUCT FAMILY: The users of the Quick II product are those with older Unisys mainframe computers that were designed to communicate using the Poll/Select protocol on leased lines. Progress in computers and communications technologies will force these networks to a more modern transmission format, typically frame relay or Internet Protocol (IP). FastComm supports both migration strategies with the Quick II, which replaces the CP 2000. The Quick II is sold and supported by Unisys personnel as well as certain other FastComm resellers. The major competitor to this product family is Cisco Systems. LICENSES, PATENTS, AND TRADEMARKS The communications industry traditionally relies more on trade secrets and rapid obsolescence than patents. None of the Company's current products is protected by patent. On November 12, 1998, the Company entered into a 20-year licensing agreement with Telogy Networks, Inc. to deliver their Golden Gateway Voice Over Packet software and documentation service. The total committed cost was $281,000. Payments are spread over a 24-month period. Deliverables include DSP unit licenses and developer's kit and MCU unit licenses and developer's kit. On November 24, 1998, the Company obtained a worldwide non-exclusive royalty bearing license from Alcatel Data Networks, Inc. ("Alcatel") to use and further develop Alcatel owned technology and intellectural property. The terms and conditions of this agreement call for a one-time fee of $50,000 payable in four equal installments plus royalty payments based on unit sales. The initial term of this agreement is twenty years and is renewable subject to negotiation of terms and conditions agreeable to both parties 30 days prior to its expiration. Effective with the acquisition of Cronus, the Company assumed a perpetual software license agreement that was originally into between Cronus and Trillium Digital Systems, Inc. in July 1996. The terms and conditions of this agreement allow the Company to utilize Trillium source code and documentation for further development and subsequent resale to end-users. The Company is required to pay annual maintenance fees of $39,324. The Company licenses outside technology for its product development. The cost to license software from commercial vendors is less than the loaded cost of internal developments. Licensing also speeds product delivery. All of the software licenses currently owned by the Company are perpetual. The Company expects to license additional software, particularly in areas that are highly standardized and have multiple sources to minimize costs. Software related to the ISDN, X.25, voice compression and SNA interfaces is licensed to the Company and has been integrated into its IAD / router product line. MANUFACTURING Over the past several years, the Company has outsourced the manufacturing of its circuit board assemblies to third party manufacturers. The Company believes that the outsourcing of manufacturing preserves capital for other business purposes. The Company's in house manufacturing process is limited to that of planning, purchasing, material management, final assembly and testing. The Company will continue this outsourcing activity for the foreseeable future. Most of the components used in the Company's manufacturing process are available from multiple sources. Single-source items are all from large vendors with stable histories of supplying material as needed. FastComm and its third party manufacturers have established strong relationships with key vendors to reduce the risk of significant shortages or delays relating to availability of materials. Shortages or delays in the supply of components could adversely affect the Company's ability to meet scheduled product shipments in any particular fiscal quarter, which could materially affect the Company's near term operating results. Management believes the loss of any supplier would not be materially detrimental to the Company's business in the long term. 8 9 EMPLOYEES At July 5, 2001, the Company had 63 full-time employees. None of the Company's employees is covered by a collective bargaining agreement. The Company believes that its employee relations are satisfactory. FUTURE PROSPECTS RECENT FUNDING In May 2001, the Company raised $3,000,000 through the sale of a 10% senior secured convertible debenture ("Debenture") to Wesley Clover Corporation. All or any portion of this Debenture may be converted into shares of common stock of the Company by dividing the aggregate principle amount converted together with all accrued but unpaid interest to the date of conversion by $0.446. The entire debenture plus accrued interest is due and payable in a single installment on June 8, 2006, unless sooner accelerated or converted into shares of common stock of the Company. In connection with this investment, the Company also issued warrants entitling Wesley Clover to purchase 3,363,229 shares of common stock of the Company for $0.5575 per share. The warrants expire on June 8, 2006 and may be called for redemption, by the Company, at such time as the bid price of the Company's shares of common stock remains above $1.12 for 30 consecutive trading days. When and if exercised, the unexercised warrants associated with this offering and other prior offerings and agreements would generate a maximum of $13,000,000 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. (See Item 7. Liquidity and Capital Resources) SIGNALING OPPORTUNITIES The Company is using the proceeds from this offering to develop new products and to add new features to its existing product line. In May 2001, FastComm announced the SignalPath Release 7 software which significantly increases performance and system availability in its SignalPath Signaling Gateway product line. Release 7 software has more capacity and supports higher calling volumes which in turn means more revenues for carriers who use the Signaling Gateway product in their networks. This release lays the foundation for future products aimed at supporting large capacity switch vendors who are looking to replace entirely the circuit-switch technology used by incumbent telecom providers with packet networks. The competitive environment that exists in the telecommunications marketplace today dictates that the telecommunications carriers and Internet Service Providers must seek additional revenue sources. Voice over internet protocol (VoIP) offers unparalleled scalability, flexibility and economy. For this reason, telecommunications carriers are reselling carrier grade IP telephony services purchased from business to business outsource providers. A problem exists in that the VoIP vendors are often limited in terms of supporting traditional signaling protocols. The Company's SignalPath 230 Signaling Gateway resolves this issue by providing a new level of interoperability with global networks that employ protocols not directly supported by the VoIP network. Worldwide, VoIP networks carried less than 1% of the number of calls made during calendar year 2000, however it has been estimated that 40% of large corporations have some sort of VoIP testing underway. Based on this market data, the Company believes that VoIP will continue to offer revenue opportunities in the future. PABX OPPORTUNITIES In June 2001, the Company introduced the R2 Adapter, a small low cost signaling appliance designed to enable PABX vendors to penetrate international markets where signaling conversion is required. Next generation IP based PABX's are software driven and far more flexible and cheaper to administer than traditional PABX's. According to an independent research report, the market for the IP based PABX's is significant and is expected to grow from $200 million today to $4 billion over the next four years. Currently, some PABX vendors, due to signaling incompatibilities, cannot sell IP based PABX's in parts of the world that employ an R2 signaling variant. The R2 Adapter resolves this incompatibility issue and opens large marketplaces that deploy R2, such as Latin America, the Middle East, Africa and parts of Southeast Asia, to these vendors. The IP/PABX vendors will generally sell one R2 Adapter for every IP based PABX sold. There is a very limited number of suppliers with competing products in the marketplace and accordingly, the Company anticipates significant future revenue from this product. RESTRUCTURING The Company commenced a broad restructuring aimed at achieving profitability and positive cash flow in its fiscal year 2002 by reducing costs and focusing on market opportunities which offer the greatest revenue potential. 9 10 The Company discontinued its ChanlComm product line that was designed by KG Data and closed its Connecticut facility. Until recently, the Company had been actively marketing the technology associated with this division. The Company has reduced its headcount from 103 to 63 fulltime employees and consolidated its two Virginia facilities into one. As a result of these and other cost saving activities, operating expenses have declined by approximately $1 million per quarter effective in the first quarter of fiscal year 2002. One time charges for these restructuring activities are reflected in the Company's operating results for its fourth fiscal quarter for the year ended April 30, 2001. The Company anticipates that it will require additional funding to meet future working capital needs and research and development expenses. It is anticipated that such funding will be generated by way of additional placements of convertible debt or equity, through investments made by strategic partners and through the exercise of in the money common stock warrants and options. 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. As part of a program to retain its employees, the Company adopted a program to re-price the options of its current employees. The Company also re-priced the options issued to its board of directors and to its chairman of the board. Under the program, the exercise price of current stock options was changed to $0.51 per share. Although each employee could elect not to participate in this program, the exercise price of approximately 2.5 million options was changed to the lower price. Under applicable accounting rules, the Company will have to account for future variations in the price of its common stock above $0.51 per share as compensation expense until the repriced options are either exercised, cancelled or expire. This calculation will be made each quarter based upon the performance of the Company's common stock in that quarter. Accordingly, operating results and earnings per share will be subjected to potentially significant fluctuations based upon changes in the market price of the Company's common stock. For the year ended April 30, 2001, operating results and earnings per share were not impacted by this repricing because the price of the common stock at April 30, 2001 was below $0.51 per share. ITEM 2. DESCRIPTION OF PROPERTIES The Company's executive, administrative and marketing operations are located in a leased 17,000 square foot facility in Dulles, Virginia. Aggregate base rent and common charges for this facility approximated $293,000 for the fiscal year ended April 30, 2001. This lease expires April 30, 2003. The Company's research and development, technical support and manufacturing operations are located in a leased 17,250 square foot facility located in Chantilly Virginia. Aggregate base rent and common charges for this facility approximated $183,000 on an annual basis. This lease, which was assumed as part of the Company's acquisition of Cronus, expires on September 30, 2002. In June 2001, the Company vacated these premises and consolidated all its operations at the Dulles facility. As part of the KG Data in acquisition in April 1999, the Company assumed a three year lease for a 3,700 square foot facility in Norwalk, Connecticut. Expenditures under this lease agreement approximated $49,000 for the fiscal year ended April 30, 2001. This lease expired on June 30, 2001. In fiscal 2001, the Company discontinued the ChanlComm product line that was designed by KG Data and accordingly did not renew this lease. Management believes that its leased facilities adequately serve the Company's present needs. ITEM 3. LEGAL PROCEEDINGS A supplier of parts for the Company's integrated access device product line has filed an action against the Company. The Plaintiff seeks $96,580.56 for goods and sold and delivered, $261,113.87 and $19,548.56 for goods allegedly manufactured but not yet delivered and $380,015 for parts allegedly ordered by Plaintiff to fulfill anticipated orders. The Company filed its answer to the complaint on June 15, 2001 and intends to vigorously defend this case. On January 29, 2001, two individuals holding subordinated senior notes totaling $1,000,000 commenced an action in the Circuit Court, Cook County, Illinois against the Company, Cronus, certain former principal shareholders of 10 11 Cronus and a liquidating trust established by Cronus and its trustees seeking repayment of the notes, together with accrued interest. FastComm has filed an answer, motion to dismiss and counterclaim, which are pending. In connection with this lawsuit, two co-defendants have filed cross-claims for indemnification against the Company. The Company has denied liability for indemnification in the circumstances of the lawsuit. The Company was recently sued in Federal District Court N.D. Illinois by Richard L. Abrahams, as Trustee of the R.L.A. 1993 Trust (the "Trust"). The action is for an alleged breach of contract entered into by the Company and the Trust in March, 2000 in connection with the Cronus acquisition. The trust seeks a declaratory judgment stating that the Company must issue to it, approximately 628,000 shares of common stock, which it contends, are due under the agreement, together with unspecified damages and costs. The Company has yet to answer the complaint but intends to vigorously deny all allegations. 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 11 12 PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Prior to June 9, 1998, FastComm shares of common stock were traded publicly on the NASDAQ National Market under the symbol FSCX. On June 9, 1998, the Company's shares of common stock were delisted from the National Market System. Effective June 16, 1998, the Company's shares of common stock have been quoted on the OTC Bulletin Board under the same symbol. The following table sets forth the range of high and low closing bid prices or sales prices, as applicable, of the Company's shares of common stock for each fiscal quarter during the two most recent fiscal years, as furnished by NASDAQ. The bid prices represent prices between dealers, do not include retail markups, markdowns or commissions and do not necessarily represent actual transactions.

As of July 20, 2001, there were 414 registered holders of record of the common stock and the closing sales price on such date for the Common Stock as reported by NASDAQ was $0.22 per share. DIVIDEND POLICY The Company has not paid dividends on its common stock. The Company anticipates that it will retain all earnings to finance the operation and growth of its business and does not anticipate paying cash dividends on the common stock in the foreseeable future. 12 13 ITEM 6. SELECTED FINANCIAL DATA The following sets forth certain selected financial data for the five fiscal years in the period ended April 30, 2001. The statement of operations data for the fiscal years ended April 30, 2001, 2000 and 1999 and the balance sheet data at April 30, 2001 and 2000 are derived from and are qualified by reference to the financial statements of the Company audited by BDO Seidman, LLP, the Company's independent certified public accountants, whose opinion contains an explanatory paragraph related to substantial doubt about the Company's ability to continue as a going concern and is included elsewhere, herein. The statement of operations data for the fiscal years ended April 30, 1998 and 1997 and the balance sheet data at April 30, 1999, 1998 and 1997 are derived from financial statements of the Company also audited by BDO Seidman, LLP, but not included in this Annual Report. The financial data should be read in conjunction with the financial statements and related notes and other financial information and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report.

13 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN THIS ANNUAL REPORT. IN ADDITION, THE COMPANY DESIRES TO TAKE ADVANTAGE OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SPECIFICALLY, THE COMPANY WISHES TO ALERT READERS THAT THE FACTORS SET FORTH IN ITEM 5, "MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS - ADDITIONAL FACTORS THAT MAY AFFECT OUR BUSINESS AND FUTURE RESULTS", AS WELL AS OTHER FACTORS, IN THE PAST HAVE AFFECTED AND IN THE FUTURE COULD AFFECT THE COMPANY'S ACTUAL RESULTS, AND COULD CAUSE THE COMPANY'S RESULTS FOR FUTURE QUARTERS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD LOOKING STATEMENTS MADE BY OR ON BEHALF OF THE COMPANY. FUTURE PROSPECTS RECENT FUNDING In May 2001, the Company raised an additional $3,000,000 through the sale of a 10% senior secured convertible debenture to Wesley Clover Corporation. All or any portion of this Debenture may be converted into shares of common stock of the Company by dividing the aggregate principle amount converted together with all accrued but unpaid interest to the date of conversion by $0.446. The entire debenture plus accrued interest is due and payable in a single installment on June 8, 2006, unless sooner accelerated or converted into shares of common stock of the Company. In connection with this investment, the Company also issued warrants entitling Wesley Clover to purchase 3,363,229 shares of common stock of the Company for $0.5575 per share. The warrants expire on June 8, 2006 and may be called for redemption, by the Company, at such time as the bid price of the Company's shares of common stock remains above $1.12 for 30 consecutive trading days. When and if exercised, the unexercised warrants associated with this offering and other prior offerings and agreements would generate a maximum of $13,000,000 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. (See Item 7. Liquidity and Capital Resources) SIGNALING OPPORTUNITIES The Company is using the proceeds from this recent offering to develop new products and to add new features to its existing product line. In May, 2001, FastComm announced the SignalPath Release 7 software which significantly increases performance and system availability in its SignalPath Signaling Gateway product line. Release 7 software has more capacity and supports higher calling volumes which in turn means more revenues for carriers who use the Signaling Gateway product in their networks. This release lays the foundation for future products aimed at supporting large capacity switch vendors who are looking to replace entirely the circuit-switch technology used by incumbent telecom providers with packet networks. The competitive environment that exists in the telecommunications marketplace today dictates that the telecommunications carriers and Internet Service Providers must seek additional revenue sources. Voice over I Internet protocol (VoIP) offers unparalleled scalability, flexibility and economy. For this reason, telecommunications carriers are reselling carrier grade IP telephony services purchased from business to business outsource providers. A problem exists in that the VoIP vendors are often limited in terms of supporting traditional signaling protocols. The Company's SignalPath 230 Signaling Gateway resolves this issue by providing a new level of interoperability with global networks that employ protocols not directly supported by the VoIP network. Worldwide, VoIP networks carried less than 1% of the number of calls made during calendar year 2000, however it has been estimated that 40% of large corporations have some sort of VoIP testing underway. Based on this market data, the Company believes that VoIP will continue to offer revenue opportunities in the future. PABX OPPORTUNITIES In June 2001, the Company introduced the R2 Adapter, a small low cost signaling appliance designed to enable PABX vendors to penetrate international markets where signaling conversion is required. Next generation IP based PABX's are software driven and far more flexible and cheaper to administer than traditional PABX's. According to an independent research report, the market for the IP based PABX's is significant and is expected to grow from $200 million today to $4 billion over the next four years. Currently, some PABX vendors, due to signaling 14 15 incompatibilities, cannot sell IP based PABX's in parts of the world that employ an R2 signaling variant. The R2 Adapter resolves this incompatibility issue and opens large marketplaces that deploy R2, such as Latin America, the Middle East, Africa and parts of Southeast Asia, to these vendors. The IP/PABX vendors will generally sell one R2 Adapter for every IP based PABX sold. There is a very limited number of suppliers with competing products in the marketplace and accordingly, the Company anticipates significant future revenue from this product. RESTRUCTURING The Company commenced a broad restructuring aimed at achieving profitability and positive cash flow in its fiscal year 2002 by reducing costs and focusing on market opportunities which offer the greatest revenue potential. The Company discontinued the ChanlComm product line that was designed by KG Data and closed its Connecticut facility. Until recently, the Company had been actively marketing the technology associated with this division. The Company has reduced its headcount from 103 to 63 fulltime employees and consolidated its two Virginia facilities into one. As a result of these and other cost saving activities, quarterly operating expenses have declined by approximately $1 million effective in the first quarter of fiscal year 2002. One time charges associated with these restructuring activities totaling $1,588,000 are reflected in the Company's operating results for its fourth fiscal quarter for the year ended April 30, 2001. During the fiscal year ended April 30, 2001, the Company recorded $1,364,000 in costs associated with the discontinuance of its ChanlComm product line. These costs were as follows: Inventory writeoff $554,000 Goodwill writeoff 347,000 Workforce reduction 337,000 Other 126,000 --------- Total $1,364,000

Also during the current fiscal year, the Company recorded $224,000 in costs associated with the consolidation of excess operating facilities. Such costs are primarily associated with a reserve for non-cancelable lease costs. Remaining cash expenditures relating to workforce reductions and termination of agreements will be substantially paid in the first and second quarters of fiscal 2002. As part of a program to retain its employees, the Company adopted a program to re-price the options of its current employees. The Company also re-priced the options issued to its board of directors and to its chairman of the board. Under the program, the exercise price of current stock options was changed to $0.51 per share. Although each employee could elect not to participate in this program, the exercise price of approximately 2.5 million options was changed to the lower price. Under applicable accounting rules, the Company will have to account for future variations in the price of its common stock above $0.51 per share as compensation expense until the repriced options are either exercised, cancelled or expire. This calculation will be made each quarter based upon the performance of the Company's common stock in that quarter. Accordingly, operating results and earnings per share will be subjected to potentially significant fluctuations based upon changes in the market price of the Company's common stock. For the year ended April 30, 2001, operating results and earnings per share were not impacted by this repricing because the price of the common stock at April 30, 2001 was below $0.51 per share. The Company anticipates that it will require additional funding to meet future working capital needs and research and development expenses. It is anticipated that such funding will be generated by way of additional placements of convertible debt or equity, through investments made by strategic partners and through the exercise of in the money common stock warrants and options. 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. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As explained in the succeeding paragraphs, the Company has sustained recurring operating losses and cash flow deficits in fiscal years 2001, 2000 and 1999. In addition, the Company must obtain funds from outside sources in fiscal year 2002 to successfully implement its business plan. Presently, the Company has no firm commitments from outside sources to provide these funds. These factors raise substantial doubt about the Company's ability to 15 16 continue as a going concern. The financial statements do not contain any adjustments that might result from the outcome of these uncertainties. BUSINESS ACQUISITION On March 31, 2000, the Company acquired substantially all of the assets and assumed certain liabilities of Cronus Technology, Inc. ("Cronus") for approximately $9,600,000, plus the assumption of liabilities of approximately $6,700,000 subject to adjustment as set forth in the agreement. The acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities were recorded at their estimated fair market values at the date of acquisition. The Company recorded goodwill of approximately $12,000,000 related to this transaction. The goodwill is being amortized on a straight line basis over four years. The terms and conditions of the purchase and debt assumption agreements related to this transaction obligated the Company to issue additional common shares if the fair market value of the Company's common stock did not reach $7.30 prior to the one year anniversary date of these agreements. This target was not met. Accordingly, the Company issued an additional 2,035,730 shares and increased the goodwill associated with this transaction by $763,399. The results of operations for the current fiscal year includes revenue and expenses generated by Cronus. The results of operations for the fiscal year ended April 30, 2000 include one months worth of such items. To facilitate comparability, the analysis of revenue and expense items includes information presented on a proforma basis assuming the inclusion of Cronus revenues and expenses as if the acquisition occurred on May 1, 1999. RESULTS OF OPERATIONS The following table sets forth, for the fiscal years indicated, the percentage of revenues represented by certain items in the Company's consolidated statements of income.

FISCAL 2001 COMPARED TO FISCAL 2000 Total revenues increased from $6,415,000 to $10,918,000 or by 70% during fiscal 2001 as compared to fiscal 2000. On a proforma basis, assuming the inclusion of Cronus sales, revenues totaled $12,932,000 for the fiscal year ended April 30, 2000. The $2,014,000 proforma decrease is primarily attributable to a decline in unit sales of voice and 16 17 data access products ($1,792,000). The Company did not make any significant price adjustments during the current fiscal year. During the fiscal year ended April 30, 2001, three customers accounted for 14%, 11% and 10% of total sales. 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, fluctuations in customer capital expenditures or other conditions affecting the networking industry or the economy during any fiscal quarter could cause quarterly revenue and net earnings to vary greatly. Gross margins, as a percentage of total revenues, increased from 36% to 56% during fiscal 2001 as compared to fiscal 2000. On a proforma basis, gross margins for both periods were 56%. During fiscal 2001, the Company wrote off, against its existing reserves $774,000 in inventory made obsolete by new product developments and the discontinuation of the ChanlComm product line. Accordingly, after this inventory writedown, the Company increased its reserve for inventory obsolescence by $774,000. The increase in the reserve adversely affected the fiscal year 2001 gross margin by approximately 7%. The Company's gross margin was positively impacted by sales of its signaling product lines which produce gross margins significantly greater than products offered by the Company in the previous fiscal year. As of April 30, 2001, the Company has recorded a $600,000 reserve for inventory obsolescence, which management believes is adequate. The Company expects gross margins may be adversely affected by increases in material or labor costs, heightened price competition, increasing levels of services, higher inventory balances, inventory financing, introduction of new products for new high growth markets and changes in channels of distribution or in the mix of products sold. Management also believes that gross margins may be additionally impacted due to constraints relating to certain component shortages that may exist in the supply chain. Selling, general and administrative expenses increased from $4,984,000 in fiscal 2000 to $7,662,000 in fiscal 2001. On a proforma basis, fiscal year 2000 selling, general and administrative expenses totaled $7,175,000. This 7% increase is primarily attributable to a $1.3 million increase in bad debt expense offset by reduced employee related costs associated with headcount reductions and reduced advertising and marketing expenses. Research and development expenditures consist primarily of hardware and software engineering, personnel expenses, subcontracting costs and, to a lesser degree, equipment and facilities. Research and development expenses increased from $2,966,000 in fiscal 2000 to $5,684,000 in fiscal 2001. On a proforma basis research and developmemt expenses for fiscal 2000 totaled $4,786,000. This 19% proforma increase is primarily attributable to increased labor and material costs associated with new product development and new product prototypes. The markets for the Company's products are characterized by continuous technological change. Management believes that significant expenditures for research and development will continue to be required. Depreciation and amortization expenses increased from $1,093,000 in fiscal 2000 to $3,907,000 in fiscal 2001. This increase is primarily attributable to the full year effect of the amortization of goodwill associated with the Cronus acquisition. FISCAL 2000 COMPARED TO FISCAL 1999 Total revenues increased from $4,653,000 to $6,415,000 or by 38% during fiscal 2000 as compared to fiscal 1999. The $1,762,000 increase was primarily attributable to $1,218,000 associated with the introduction of the GlobalStack and MetroLan product lines and $856,000 in sales of the Cronus product line. The Company acquired Cronus effective March 31, 2000 and accordingly included one month of Cronus sales in fiscal 2000. During the fiscal year ended April 30, 2000, three customers accounted for 18%, 15% and 12% of total sales. Gross margins, as a percentage of total revenues, decreased from 42% to 36% during fiscal 2000 as compared to fiscal 1999. During fiscal 2000, the Company wrote off, against its existing reserve, inventory made obsolete by new product developments, the acquisition of Cronus and a change in overall product focus. Accordingly, after the significant inventory writedown, the Company also increased its reserve for inventory obsolescence by $815,000. The increase in the reserve reduced gross margin by approximately 13%. The Company's gross margin was positively impacted by the introduction of the GlobalStack and MetroLan product lines. 17 18 Selling, general and administrative expenses increased from $4,747,000 in fiscal 1999 to $4,984,000 in fiscal 2000. This 5% increase is primarily attributable to expenses incurred by Cronus in April 2000 ($429,000) and increased marketing costs ($246,000) offset by reduced employee related costs ($192,000) and reduced equipment rental expense resulting from terminated and renegotiated leases ($210,000). Research and development expenditures consist primarily of hardware and software engineering, personnel expenses, subcontracting costs and, to a lesser degree, equipment and facilities. Research and development expenses increased from $2,388,000 in fiscal 1999 to $2,966,000 in fiscal 2000. This 24% increase is primarily attributable to one months worth of expenses incurred by Cronus ($278,000) and increased labor and material costs associated with new product development and new product prototypes associated with the GlobalStack, MetroLan and ChanlComm product lines. Depreciation and amortization expenses increased from $475,000 in fiscal 1999 to $1,093,000 in fiscal 2000. This increase is primarily attributable to one months amortization of goodwill associated with the Cronus acquisition ($323,000); the full year effect of the amortization of goodwill associated with the acquisition of KG Data and to a lesser degree, depreciation associated with Cronus fixed assets and other recent capital expenditures. LIQUIDITY AND CAPITAL RESOURCES During fiscal year 2001, the Company used approximately $5,244,000 in cash to fund its operating activities. The increase in the amount of cash used in operations is primarily due to the $6,000,000 increase in the net loss that was partially offset by non-cash expenses, primarily depreciation, amortization, inventory write-offs, impairment of goodwill and adjustments to inventory and receivable valuation accounts. Accounts receivable and other current assets declined by $698,000 while accounts payable and other current assets increased $1,535,000 providing additional liquidity. Accounts receivable decreased $393,000 during fiscal year 2001. Globally, telecommunications equipment vendors and resellers have experienced a significant decline in the demand for their products over the past nine month period. As a result of this slowdown in demand, the Company encountered significant difficulties in collecting accounts receivable from certain resellers of its products. At the end of the third quarter of fiscal 2001, the Company evaluated the collectability of its accounts receivable based on information available at the time. The Company increased its collection efforts in the fourth quarter, however, such efforts proved unsuccessful. Accordingly, the Company increased its allowance for doubtful accounts to $1.4 million at April 30, 2001, which management believes is adequate. Inventory levels increased $354,000 during fiscal year 2001. Inventory increased due to a buildup of inventory in anticipation of demand that did not materialize in the second half of fiscal 2001. The Company wrote off, against its existing reserve, inventory $773,000 in product made obsolete by new product developments and a change in overall product focus. The Company has a $600,000 reserve for inventory obsolescence, which management believes is adequate. At April 30, 2001, the Company had a cash balance of $69,000, a working capital deficit of $2.4 million and a current ratio of 0.66 to 1. All of the Company's assets are collateralized under the accounts receivable financing agreement with Alliance Financial Capital, Inc. ( See Item 7. Cash Requirements) FISCAL 2001 COMPARED TO FISCAL 2000 Cash used in operating activities increased from $4,568,000 in fiscal 2000 to $5,244,000 in fiscal 2001. The $676,000 increase in cash used in operating activities is primarily attributable to the 5,998,000 increase in the net loss for the current fiscal year offset by a $5,158,000 net increase in other non cash expenses, primarily depreciation and amortization accounts, asset valuation accounts and by changes in working capital items in fiscal 2001 compared to fiscal 2000. Such changes include a $1,249,000 decrease in cash used to fund accounts receivable, a $2,570,000 increase in cash invested in inventory and a $1,361,000 increase in current liability balances. Cash used by investing activities totaled $190,000 in fiscal 2001 as compared $345,000 in fiscal 2000. The Company purchased $235,000 in fixed assets during the current fiscal year. Investing activities in the previous fiscal year were partially offset by $182,000 assumed as part of the Cronus acquisition. 18 19 Cash provided by financing activities is primarily attributable to $3,845,000 in net proceeds received from the private placement of prepaid warrants and $1,188,000 in net proceeds received from the issuance of common stock offset by repayments on the revolving line of credit. The Company also received $400,000 from the exercise of stock options and warrants during the current fiscal year. FISCAL 2000 COMPARED TO FISCAL 1999 Cash used in operating activities increased from $2,329,000 in fiscal 1999 to $4,568,000 in fiscal 2000. The $2,329,000 increase in cash used in operating activities is primarily attributable to the $1,518,000 increase in the net loss for the year and by changes in working capital items in fiscal 2000 compared to fiscal 1999. Such changes included a $3,311,000 increase in cash used to fund accounts receivable, a $1,617,000 reduction in cash invested in inventory and increases in other non cash expenses, primarily depreciation and amortization accounts, asset valuation accounts. Cash used by investing activities totaled $345,000 in fiscal 2000 as compared $62,000 in fiscal 1999. The Company purchased $527,000 in fixed assets during the current fiscal. This was partially offset by $182,000 assumed as part of the Cronus acquisition. Cash provided by financing activities totaled $5,370,000 during fiscal 2000. The Company issued $1,087,000 in common stock during the fiscal year. Of this amount, $152,000 remains in escrow as restricted cash. The Company received $4,392,000 from the exercise of common stock warrants and $313,000 from the exercise of stock options during its fiscal year 2000. CASH REQUIREMENTS In fiscal 2002, the Company's cash commitments include minimum payments of $441,000 under its operating lease arrangements. Management believes that expenditures for research and development in fiscal 2002 will continue to be significant. The Company anticipates additional capital spending for software, computer and test equipment and furniture and fixtures in fiscal 2002. Where possible, such capital requirements are expected to be met through lease financing arrangements. REVOLVING LINE OF CREDIT In connection with the acquisition of Cronus, the Company assumed liabilities under a revolving line of credit and term loan agreement with LaSalle National Bank. Under the revolving line of credit the Company could borrow up to the lesser of $3,000,000 or 80% of eligible accounts receivable and 35% of eligible inventory, as defined in the agreement. The revolving line of credit bore interest at the bank's prime rate of interest plus 1.0% and was scheduled to mature on May 1, 2001. The term loan was payable in equal monthly principle payments of $9,875, bears interest at the bank's prime rate of interest plus 1.0% and was schedule to mature on May 1, 2001. In April 2000, the Company placed $250,000 in escrow to further collateralize the revolving line of credit and term loan. In July 2000, the bank informed the Company that the revolving line of credit and term loan would mature on September 30, 2000. On September 12, 2000, the bank agreed to a further extension until December 31, 2000. On February 6, 2001, the Company entered into an accounts receivable financing agreement with Alliance Financial Capital, Inc. that replaced the revolving line of credit and term loan agreement with LaSalle National Bank. All debt associated with the LaSalle agreement was satisfied. Under the new accounts receivable financing agreement, the Company can borrow up to the lesser of $3,000,000 or up to 85% of eligible accounts receivable, as defined in the agreement. The accounts receivable financing agreement bears interest at the prime rate plus 1.0% plus an additional 1.5% per invoice funded. The debt associated with this financing arrangement is senior to all other debt of the Company. The initial term of this agreement is for twelve months with a minimum average daily account balance of $750,000. In connection with the acquisition of Cronus, the Company assumed $1,000,000 in debt to two individuals, which is subordinated in priority and payment to all senior debt. This debt matured on December 10, 2000. The Company is currently in default on the repayment of this debt and the individuals have commenced a lawsuit against the Company. (See Part 2, Item 1. Legal Proceedings) The Company anticipates that it may require additional funding to meet future expansion and research and development expenses. It is anticipated that such funding will be generated by way of additional placements of equity, through research and development arrangements funded by third parties, by investments by strategic partners and through the exercise of in the money common stock warrants and options. The Company can give no assurance 19 20 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. PRIVATE PLACEMENTS In July 2000, the Company raised $1,170,000 in a private placement of 616,000 unregistered common shares to a group of accredited investors. In connection with this placement, the investors were granted warrants to purchase 308,000 of common stock for $3.00 per share. These warrants have expired. In September 2000, the Company sold 3,500 units at $1,000 per unit to a group of accredited investors. Each unit consists of a prepaid common stock purchase warrant ("Prepaid Warrant") and an incentive warrant ("Incentive Warrant") to acquire additional shares of common stock in the Company. The Prepaid Warrant is convertible at the option of the holder into common stock at a conversion price equal to the lesser of $2.00 or the average of the five lowest closing bid prices for the ten trading day period prior to conversion. The Prepaid Warrant earns interest at a rate of 4% payable in common stock. The Incentive Warrants allow the holder to purchase one half of one share at a $2.50 per share. The Incentive Warrants have a five year term and are exercisable immediately. The Company recorded the proceeds from the issuance of the Prepaid Warrants as paid in capital. The interest earned on these warrants will be reflected as a dividend. The Company paid a placement fee of $350,000 plus other associated costs of $71,000 and issued to the placement agent warrants to purchase 438,000 shares of stock at an exercise price of $2.50 per share. The fee paid and the fair value of the warrants issued were recorded as a reduction in paid in capital. The placement agent for this transaction was The Zanett Securities Corporation. In February 2001, the Company sold an additional 850 units at $1,000 per unit to the same investment group. The Prepaid Warrant is convertible at the option of the holder into common stock at a conversion price equal to the lesser of $.85 or the average of the lowest five closing bid prices for the ten trading day period prior to conversion. The Prepaid Warrant earns interest at a rate of 6% payable in common stock. The Incentive Warrants allow the holder to purchase one half of one share at a $1.0625 per share. The Incentive Warrants have a five year term and are exercisable immediately. The Company paid a placement fee of $85,000 plus other associated costs totaling $15,000 and issued the placement agent warrants to purchase 212,500 shares of stock at price of $1.0625 per share. In April 2001, the Company raised $102,000 in a private placement of 329,000 unregistered common shares to a group of accredited investors. In connection with this placement, the investors were granted warrants to purchase 164,500 shares at common stock for $0.41 per share. These warrants are exercisable for a period of two years after the closing date. In May 2001, the Company raised $3,000,000 through the sale of a 10% senior secured convertible debenture to Wesley Clover Corporation. All or any portion of this Debenture may be converted into shares of common stock of the Company by dividing the aggregate principle amount converted together with all accrued but unpaid interest to the date of conversion by $0.446. The entire debenture plus accrued interest is due and payable in a single installment on June 8, 2006, unless sooner accelerated or converted into shares of common stock. In connection with this investment, the Company also issued warrants entitling Wesley Clover to purchase 3,363,229 shares of common stock of the Company for $0.5575 per share. The warrants expire on June 8, 2006 and may be called for redemption, by the Company, at such time as the bid price of the Company's shares of common stock remains above $1.12 for 30 (thirty) consecutive trading days. UNEXERCISED WARRANTS When and if exercised, the unexercised warrants associated with these offerings and other prior offerings and agreements would generate a maximum of $13,000,000 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. INFLATION Management believes that inflation did not have a material effect on operations during the fiscal year ended April 30, 2001. CREDIT TERMS The Company extends credit to its customers. Accordingly, the Company may have significant risk in collecting accounts receivable from its customers. The Company has credit policies and procedures that it uses to minimize exposure to credit losses. The Company's collection personnel regularly contact customers with receivable balances 20 21 outstanding to expedite collection. If these collection efforts are unsuccessful, the Company may discontinue product shipments until the outstanding balance is paid. In many instances, the Company requires that international sales be paid in advance by wire transfer or confirmed letter of credit. This practice ensures against bad debts while improving cash flow. Certain Resellers may request a stock adjustment/rotation twice annually and a stock update at any time. "Stock adjustment/rotation" and "stock update" are agreements whereby FastComm permits a reseller, at FastComm's sole discretion, to return already purchased but unused and still current products to FastComm. Stock adjustments/rotations and stock updates, which require the approval of an officer of FastComm, are granted for specific purposes: - Stock adjustment/rotation allows an exchange for other FastComm products of equal value. At the sole discretion of FastComm, stock adjustments may be limited to 10% or 20% of the value of product ordered and accepted and paid for by the reseller during the prior six-month period. - Stock updates may be approved for either warranty revalidation and/or software revision level changes on products that are then returned to the dealer. At FastComm's sole discretion, returned products may be exchanged for the same types of equipment from inventory. FastComm, at its sole discretion, may charge a reseller a "restocking charge" of up to 20% to execute a stock adjustment or stock update. Stock adjustment/rotation and stock update do not permit distributors to return purchased merchandise for a refund. The Company's practices concerning stock adjustment/rotation and stock updates are believed to be consistent with those of the communications manufacturing industry, based on management's experiences and its analysis of similar companies. Accordingly, the Company believes that its policy of recognizing revenue at time of shipment is in accordance with generally accepted accounting principles. Normally, payment in full is due within thirty days from date of shipment to the reseller. The Company offers extended payment terms in certain situations. The Company also offers prompt payment discounts. Although normal payment terms are net 30 days from date of shipment, as a practical matter, the Company normally receives payments on accounts receivable beyond thirty (30) days, even from its most credit-worthy customers. Management does not believe that its credit and collection history is substantially different from other companies in the communications industry, based on management's experiences with similar companies. With the exception of the stock adjustment/rotation policies as discussed above and product warranty, the Company is not contractually obligated to accept returned merchandise. The Company's reserve for doubtful accounts totals $1,400,000, which management believes is adequate. RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Accounting Standards No. 142, "Accounting for Goodwill" ("SFAS 142"). SFAS 142 establishes accounting standards for existing goodwill related to purchase business combinations. Under the Statement, the Company would discontinue the periodic amortization of goodwill effective with adoption of the Statement. Also, the Company would have to test any remaining goodwill for possible impairment within the first six months of adopting the Statement based on new valuation criteria set forth in the Statement. Based on information available, the Company estimates that annual amortization expense will be reduced approximately $920,000 excluding any potential impairment charge which may result from the implementation of the new impairment test criteria or reclassification of goodwill to other intangible assets. The Statement becomes effective in 2003 and the Company is considering early adoption in fiscal 2002. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities and measure those instruments at fair market value. Under certain circumstances, a portion of the derivative's gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into income when the transaction affects earnings. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS 133 is effective for fiscal quarters of years beginning after June 21 22 15, 2000 and requires application prospectively. Presently, the Company does not use derivative instruments either in hedging activities or as investments. Accordingly, the adoption of SFAS 133 had no impact on the financial position or results of operations. In March 2000, the FASB issued interpretation No.44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25". FIN 44 clarifies the application of APB Opinion No. 25 for (a) the definition of employee for purposes of applying APB Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequences of various modifications to the previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 2, 2000 but certain conclusions cover specific events that occur after either December 15, 1998 or January 12, 2000. The adoption of FIN 44 did not have an affect on the Company's financial statements. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 which summarizes certain of the SEC staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The company adopted Staff Accounting Bulletin No. 101 effective October 1, 2000. The adoption of this guidance did not have a material impact on the Company's results of operations or financial position; however, the guidance may impact the way in which the company will account for future transactions. ADDITIONAL FACTORS THAT MAY AFFECT OUR BUSINESS AND FUTURE RESULTS THE COMPANY CAUTIONS THAT CERTAIN STATEMENTS IN THIS REPORT AND IN THE COMPANY'S OTHER PERIODIC REPORTS FILED PURSUANT TO THE UNITED STATES SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE , MAY BE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT, THE "SAFE HARBOR" FOR FORWARD LOOKING STATEMENTS ENACTED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THE FORWARD LOOKING STATEMENTS THAT MAY BE CONTAINED IN THE COMPANY'S REPORTS UNDER THE EXCHANGE ACT AND IN OTHER ORAL OR WRITTEN STATEMENTS MADE BY THE COMPANY OR BY ITS AUTHORIZED REPRESENTATIVES INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. AS A CONSEQUENCE, ACTUAL RESULTS MIGHT DIFFER MATERIALLY FROM RESULTS FORECAST OR SUGGESTED IN THESE FORWARD LOOKING STATEMENTS. SOME OF THESE RISKS AND UNCERTAINTIES ARE IDENTIFIED IN THE DISCUSSION TO FOLLOW. ADDITIONAL INFORMATION REGARDING THESE FACTORS AND OTHER IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY MAY BE REFERRED TO AS PART OF PARTICULAR FORWARD LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS MADE BY THE COMPANY OR ON ITS BEHALF ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE IMPORTANT FACTORS DISCUSSED BELOW AND TO THOSE THAT MAY BE DISCUSSED AS PART OF PARTICULAR FORWARD-LOOKING STATEMENTS. The Company cautions that the following important risk factors, among others, could cause actual results for the fiscal year ended April 30, 2002 and for subsequent financial reporting periods to differ materially from those forecast or suggested in any forward-looking statement made by the Company or on its behalf, in this report and otherwise. A number of these important factors have been discussed in this Annual Report on Form 10-K for the fiscal year ended April 30, 2001 and its quarterly reports on Form 10-Q previously filed with the United States Securities and Exchange Commission. WE HAVE A HISTORY OF LOSSES AND MAY EXPERIENCE FUTURE LOSSES We have incurred net losses of $12,815,000, $5,550,000 and $9,089,000 for the years ended April 30, 2001, 2000 and 1999, respectively. These losses are primarily attributable to sales levels insufficient to meet the costs associated with the development and marketing of new products in an emerging technology and to litigation costs and costs associated with the Chapter 11 bankruptcy described below. Sales levels have been negatively impacted due to the broad based decline in demand for telecommunications equipment. There can be no assurance that the Company will generate sufficient revenues to meet expenses or to operate profitably in the future. These losses present a significant risk to our stockholders. If we cannot achieve profitability or positive cash flows from operating activities, we may be unable to meet our working capital and other payment obligations, which would have a material adverse effect on our business, financial condition and results of operation and the price of our common stock. In addition, if we cannot return to sustained profitability we will be forced to sell all or part of our business, liquidate or seek to reorganize. 22 23 WE RECENTLY EMERGED FROM BANKRUPTCY 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. All litigation related to this matter has now been settled. 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 Chapter 11 bankruptcy filing had a negative impact on the Company's sales, its relationships with vendors and its ability to hire and retain qualified employees, among other areas. WE ARE ENGAGED IN A HIGHLY COMPETITIVE BUSINESS. The market for networking systems is extremely competitive. In most of the markets in which we compete our competitors are more established, benefit from greater market recognition and have greater financial, technological, production and marketing resources than we do. Competition could become even more intense if new companies enter the market or if our existing competitors expand their product lines. We compete on the basis of product features and capabilities, performance and price. An increase in competition could have an adverse effect on our operating results, both in terms of decreased market share and revenues and increased investments in research and development and sales and marketing in order to remain competitive. There can be no assurance that we will be able to make technological advances or that we will have sufficient resources to fund the necessary research and development and marketing and sales efforts that will enable us to profitably compete in our markets. WE RELY ON A LIMITED NUMBER OF KEY EMPLOYEES . Our success depends to a significant degree upon the continued contributions of our management, marketing, engineering and technical personnel, many of whom would be difficult to replace. There is intense competition for qualified personnel in our industry, and there can be no assurance that we will be able to attract and retain the qualified personnel necessary for the development of our business. Loss of the services of any of our key employees would be detrimental to our development. We do not have "key man" life insurance on any of our officers or directors.. WE MUST BE ABLE TO ADAPT TO CHANGES IN PROTOCOL AND OTHER TECHNOLOGY. New data signaling protocols may be developed that could displace the protocols currently supported in Company products, requiring additional software development to sustain the viability of those products. An announcement of such new protocols could have a negative effect on sales of older designs, as users hesitate to install equipment based on existing designs until they have evaluated the new ones. There can be no assurance that the Company would have the necessary resources, particularly the knowledgeable employees, to implement new protocols in a timely manner. Such failure to develop adequate products in response to new technology could adversely affect the Company's profitability. WE MUST INTRODUCE NEW PRODUCTS TO COMPETE The Company's future revenue is dependent on its ability to successfully develop, manufacture and market products. In this regard, future growth is dependent on the Company's ability to timely and successfully develop and introduce new products, establish new distribution channels, develop affiliations with leading market participants which facilitate product development and distribution, and market existing and new products with service providers, resellers, channel partners, and others. The introduction of new or enhanced products requires the Company to manage the transition from older products in order to minimize disruption in customer ordering patterns, avoid excessive levels of older product inventories and ensure that adequate supplies of new products can be delivered to meet customer demand. In addition, as the technical complexity of new products increases, it may become increasingly difficult to introduce new products quickly and according to schedule. There can be no assurance that the Company will successfully manage the transition to new products or that the Company's research and development efforts will result in commercially successful new technology and products in the future. WE REQUIRE ADDITIONAL CAPITAL TO CONTINUE OUR OPERATIONS AND WE CANNOT BE CERTAIN THAT THE NECESSARY FUNDS WILL BE AVAILABLE 23 24 Our ability to return to and maintain profitability is largely dependent upon our ability to introduce new products and technologies and expand our sales efforts in new geographic and product markets. These activities require substantial capital, and if we do not have access to sufficient funds, either from our own operations or through third party financing, our ability to make these necessary expenditures will be limited. Our current available cash and our anticipated cash from operations are insufficient to fund our operations until we are able to attain profitability, and the audit report of our independent public accountants reflects this contingency. Accordingly, we will require third party financing in order to continue our operations. We cannot assure you that we will be able to obtain financing on terms favorable to us, or at all. If we obtain additional funds by selling any of our equity securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights, preferences or privileges senior to the common stock. If we obtain additional funds by selling assets, there can be no assurance that we will be able to negotiate a favorable price for those assets or that the loss of those assets will not affect our future business prospects. If adequate funds are not available to us or available to us on satisfactory terms, we may be required to limit our marketing and product development activities or other operations, or otherwise modify our business strategy. These actions, if taken, could increase the difficulties we face in returning to sustained profitability. SOME COMPONENTS OF OUR PRODUCTS ARE AVAILABLE TO US ONLY FROM A LIMITED NUMBER OF SUPPLIERS Certain components used in our products are currently available from only one source and other of the components are available from only a limited number of suppliers. Although we have generally been able to obtain adequate supplies of components to date, our inability to develop alternative sources if and as required in the future, or to obtain sufficient sole source or limited source components as required, could result in delays or reductions in product shipments. Certain products that are or may in the future be marketed with or incorporated into our products are supplied by or are under development by third parties. These third parties may be the sole suppliers of such products. While the Company believes there are a number of suitable manufacturers, there can be no assurance that current or alternative sources will be able to supply all of our demands on a timely basis. Also, an unanticipated interruption in supply could have a short-term effect on our business. It will not be economically practical for the Company to develop its own manufacturing capacity in the foreseeable future. WE ARE DEPENDENT ON INTELLECTUAL PROPERTY RIGHTS TO PROTECT OUR POSITION IN THE INDUSTRY The Company's success depends in part upon its technological expertise and proprietary product designs. The Company relies upon its trade secret protection efforts and, to a lesser extent, copyrights to protect its proprietary technologies. There can be no assurance that these steps will be adequate to deter misappropriation or infringement of its proprietary technologies or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technology. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. Further, given the rapid evolution of technology and uncertainties in intellectual property law, there can be no assurance that the Company's current or future products will not be determined to infringe proprietary rights of others. Should the Company be sued for patent infringement, there can be no assurance that the Company will prevail, or, if required by such litigation, that it will be able to obtain the requisite licenses or rights to use such technology on commercially reasonable terms. In addition, any litigation, regardless of the outcome, could result in substantial costs to the Company. WE COULD BE AFFECTED BY GOVERNMENTAL RESTRAINTS OR CHANGES IN GOVERNMENTAL POLICY The Company's products are subject to regulation by the Federal Communications Commission (the "FCC"), and each of the Company's products must typically be tested before it can be introduced into the market. Any inability of the Company's products to conform to FCC regulations or any failure of the Company's products to meet FCC testing requirements could delay the introduction of the Company's products into the market, impact the Company's relationships with its OEMs and otherwise adversely affect the Company. Foreign authorities often establish telecommunications standards different from those in the United States, making it difficult and more time-consuming to obtain the required regulatory approvals. Any significant delay in obtaining such regulatory approvals could have an adverse effect on the Company's operating results. Furthermore, changes in such laws, regulations, policies or requirements could affect the demand for the Company's products or result in the need to modify products, which may involve substantial costs or delays in sales and could have an adverse effect on the Company's future operating results. 24 25 OUR OUTSTANDING SHARES MAY BE DILUTED A substantial number of shares of Common Stock are or will be issuable by the Company upon the exercise of warrants and options which the Company has issued, which could result in dilution to a Shareholder's percentage ownership interest in the Company and could adversely affect the market price of the Common Stock. On July 20, 2001, there were issued and outstanding a total of 29,066,624 shares of Common Stock. If all convertible debentures, warrants and stock options which the Company has issued were deemed converted and exercised, as the case may be, as of that date, there would be issuable approximately 20,851,763 shares of Common Stock. Upon such conversion and exercise, there would be outstanding 49,912.721 shares of Common Stock. The sale or availability for sale of a significant number of shares of Common Stock in the public market could adversely affect the market price of the Common Stock. The availability to the Company of additional equity financing, and the terms of any such financing, may also be adversely affected by the foregoing. WE RECENTLY RE-PRICED SUBSTANTIALLY ALL OF OUR STOCK OPTIONS TO A LOWER EXERCISE PRICE AND THE RESULTING ACCOUNTING CHARGES MAY CAUSE OUR FUTURE EARNINGS TO FLUCTUATE WIDELY As part of a program to retain its employees, the Company adopted a program to re-price the options of its current employees. The Company also re-priced the options issued to its board of directors and to its chairman of the board. Under the program, the exercise price of current stock options was changed to $0.51 per share. Although each employee could elect not to participate in this program, the exercise price of approximately 2.5 million options was changed to the lower price. Under applicable accounting rules, the Company will have to account for future variations in the price of its common stock above $0.51 per share as compensation expense until the repriced options are either exercised, cancelled or expire. This calculation will be made each quarter based upon the performance of the Company's common stock in that quarter. Accordingly, operating results and earnings per share will be subjected to potentially significant fluctuations based upon changes in the market price of the Company's common stock. POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS AND GROWTH RATE 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, fluctuations in customer capital expenditures or other conditions affecting the networking industry or the economy during any fiscal quarter could cause quarterly revenue and net earnings to vary greatly. Further, the Company schedules some production of its products and budgets expenses based on forecasts of sales, which are difficult to predict. The Company's manufacturing procedures are designed to assure rapid response to customer demand, but may, in certain circumstances, create risk of excess or inadequate inventory if orders do not match forecast. Moreover, shortages or delays in the supply of manufacturing components or shipments at acceptable prices could adversely affect the Company's ability to meet scheduled product shipments in any particular quarter, which could materially affect the Company's operating results. Because a substantial portion of customer orders are filled within the fiscal quarter of receipt, and because of the ability of customers to revise or cancel orders and change delivery schedules without significant penalty, quarter to quarter revenues and, to a greater degree, net earnings, may be subject to greater variability and less predictability. TECHNOLOGICAL CHANGES The markets for the Company's products are characterized by continuous technological change, evolving industry standards and frequent product introductions. Such changes in the market may adversely affect the Company's ability to sell its products. The Company's ability to anticipate changes in technology, industry standards and to develop and introduce new and enhanced products on a timely basis that are successful in the market, will be significant factors in the Company's competitive position and its prospects for growth. Moreover, if technologies or standards supported by the Company's products or carrier service offerings based on the Company's products become obsolete or fail to gain widespread commercial acceptance, the Company's business may be adversely affected. As a result, Management believes that significant expenditures for research and development will be required in the future. Research and development project schedules for high technology products are inherently difficult to predict and there can be no assurance that the Company will achieve its expected initial shipment dates 25 26 for products in development. Because timely availability of new and enhanced products is critical to the success of the Company, delays in availability of these products, or lack of market acceptance of such products, could adversely affect the Company. MARKET PRICE VOLATILITY OF SHARES OF COMMON STOCK The Company's shares of common stock have been subject to substantial market price volatility, some of which has occurred when there have been variations between the Company's actual or anticipated financial results and the expectations of that of the financial community and in the aftermath of public announcements by the Company and its competitors. Further, the stock market has experienced extreme price and volume fluctuations from time to time which have affected the market price of many technology companies in particular and which have often been unrelated to the operating performance of these companies. These broad market fluctuations, as well as general economic conditions, may adversely affect the market price of the Company's shares of common stock. The Company's shares of common stock are currently quoted on the NASDAQ OTC Bulletin Board. OTHER FACTORS THE COMPANY FURTHER CAUTIONS THAT THE FACTORS REFERRED TO ABOVE AND THOSE REFERRED TO AS PART OF PARTICULAR FORWARD LOOKING STATEMENTS MAY NOT BE EXHAUSTIVE, AND THAT NEW RISK FACTORS EMERGE FROM TIME TO TIME IN ITS RAPIDLY CHANGING BUSINESS. FURTHER, THE COMPANY'S INDEPENDENT AUDITORS HAVE INCLUDED A PARAGRAPH IN THEIR OPINION WHICH INDICATES THAT, BASED ON RECENT OPERATING LOSSES, ALONG WITH EXISTING WORKING CAPITAL AND ACCUMULATED DEFICITS, THERE IS SUBSTANTIAL DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN. THE COMPANY DOES NOT UNDERTAKE TO UPDATE ANY FORWARD LOOKING STATEMENTS IT MAY MAKE OR HAS MADE ON ITS BEHALF TO REFLECT CHANGES IN ITS EXPECTATIONS OR ASSUMPTIONS OR THE RISKS AND UNCERTAINTIES REFERRED TO. ITEM 7A. MARKET RISK In the normal course of business, operations of the Company may be exposed to fluctuations in currency values and interest rates. These fluctuations can vary the costs of financing, investing, and operating transactions. Because the Company has only fixed rate long term convertible debentures and no foreign currency transactions, there is no material impact on earnings by fluctuations in interest and currency exchange rates. 26 27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements and financial statement schedules are filed as part of this Report:

27 28 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders FASTCOMM COMMUNICATIONS CORPORATION We have audited the accompanying balance sheets of FASTCOMM COMMUNICATIONS CORPORATION as of April 30, 2001 and 2000, and the related statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended April 30, 2001. 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 auditing standards generally accepted in the United States of America. 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 FASTCOMM COMMUNICATIONS CORPORATION at April 30, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2001 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has sustained significant operating losses and cash flow deficits in 2001, 2000 and 1999. In addition, the Company must obtain funds from outside sources in 2002 to provide needed liquidity and successfully implement its business plan. Presently, the Company has no firm commitments from outside sources to provide these funds. 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. July 20, 2001 1 29 FASTCOMM COMMUNICATIONS CORPORATION BALANCE SHEETS ================================================================================

See accompanying summary of accounting policies and notes to financial statements. 2 30 FASTCOMM COMMUNICATIONS CORPORATION BALANCE SHEETS ================================================================================

See accompanying summary of accounting policies and notes to financial statements. 3 31 FASTCOMM COMMUNICATIONS CORPORATION STATEMENTS OF OPERATIONS ================================================================================

See accompanying summary of accounting policies and notes to financial statements. 4 32 FASTCOMM COMMUNICATIONS CORPORATION STATEMENTS OF OPERATIONS ================================================================================

See accompanying summary of accounting policies and notes to financial statements. 5 33 FASTCOMM COMMUNICATIONS CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY ================================================================================

See accompanying summary of accounting policies and notes to financial statements. 6 34 FASTCOMM COMMUNICATIONS CORPORATION STATEMENTS OF CASH FLOWS ================================================================================

7 35 FASTCOMM COMMUNICATIONS CORPORATION STATEMENTS OF CASH FLOWS ================================================================================

See accompanying summary of accounting policies and notes to financial statements. 8 36 FASTCOMM COMMUNICATIONS CORPORATION SUMMARY OF ACCOUNTING POLICIES ================================================================================ ORGANIZATION FastComm Communications Corporation (the "Company") was incorporated in Virginia in May 1983. The Company designs, manufactures, and markets data communications equipment for high-speed data transmission over public and private telephone networks. Management believes that the Company operates in one business segment. 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 impairment 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 April 30, 2001, 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 affected UNCERTAINTIES by a number of factors. Sales to three customers aggregated 35% and 45% of total revenue in 2001 and 2000, respectively. Sales to one customer were 28% of total revenue in 1999. The risk to the Company is that a loss of one or two customers could have a significant negative impact on revenues and operating results (see Note 12). The Company sells primarily to domestic and foreign dealers and distributors. 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. 9 37 FASTCOMM COMMUNICATIONS CORPORATION 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 and consumer electronics 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. REVENUE Revenues from product sales are recognized at the time RECOGNITION of product shipment. An allowance is provided for estimated sales returns and uncollectible accounts. Also, the Company establishes a reserve for estimated warranty claims at the time of product shipment. INVENTORY Production materials are valued using standard costs, which approximate the first-in, first-out (FIFO) method. Work-in-process represents direct labor, materials and overhead incurred on products not delivered to date. Finished goods are valued at the lower of cost or market, cost being determined on the specific identification method. PROPERTY, Property and equipment is recorded at cost and EQUIPMENT AND depreciated on a straight-line basis over the estimated DEPRECIATION useful life of the related assets (generally five years). Leasehold improvements are amortized over the lesser of the lease term or the useful life of the property. 10 38 FASTCOMM COMMUNICATIONS CORPORATION SUMMARY OF ACCOUNTING POLICIES ================================================================================ RESEARCH AND All costs incurred to establish the technological DEVELOPMENT COSTS feasibility of products are considered research and development costs which are charged to expense as incurred. GOODWILL The Company has recorded goodwill based on the difference between the cost and the fair value of certain purchased assets and it is being amortized on a straight-line basis over the estimated period of benefit, which ranges from 4 to 7 years. The Company periodically evaluates the goodwill for possible impairment. The analysis consists of a comparison of future projected undiscounted cash flows to the carrying value of the goodwill. Any excess goodwill would be written off due to impairment. In the fourth quarter of fiscal 2001, the Company decided to close its KG Data division. Therefore, there are no projected undiscounted cash flows of this division. Accordingly, the Company has determined that the goodwill is impaired. Included in the restructuring costs is $347,000 related to the impairment of this goodwill. See Note 15. ASSET The Company periodically evaluates the carrying value of IMPAIRMENT 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. 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. 11 39 FASTCOMM COMMUNICATIONS CORPORATION SUMMARY OF ACCOUNTING POLICIES ================================================================================ CASH AND The Company considers all highly liquid investments with CASH EQUIVALENTS 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. From time to time the Company maintains amounts in excess of the federal deposit insurance limitation of $100,000 in its bank accounts. COMPREHENSIVE The Company has adopted Statement of Financial INCOME Accounting Standards No. 130, "Reporting Comprehensive Income". Comprehensive income as defined includes all changes to equity except those resulting from investments by owners and distributions to owners. The Company has no items of comprehensive income to report. LOSS PER SHARE Loss per share is based on the weighted average number of shares of common stock and dilutive common stock equivalents outstanding. Basic loss per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution of securities that could share in the loss of an entity. Basic and diluted loss per share are the same during 2001, 2000 and 1999 because the impact of dilutive securities is anti-dilutive. RECENT In June 1998, the Financial Accounting Standards Board ACCOUNTING issued Statement of Financial Accounting Standards No. PRONOUNCEMENTS 133, "Accounting for Derivative Instruments" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities and measure those instruments at fair market value. Under certain circumstances, a portion of the derivative's gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into income when the transaction affects earnings. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. Presently, the Company does not use derivative instruments either in hedging activities or as investments. Accordingly, the adoption of SFAS 133 is not expected to impact its financial position or results of operations. 12 40 FASTCOMM COMMUNICATIONS CORPORATION SUMMARY OF ACCOUNTING POLICIES ================================================================================ In March 2000, the FASB issued interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25". FIN 44 clarifies the application of APB Opinion No. 25 for (a) the definition of employee for purposes of applying APB Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequences of various modifications to the previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 became effective July 2, 2000 but certain conclusions cover specific events that occurred after either December 15, 1998 or January 12, 2000. The adoption of FIN 44 did not have an effect on the Company's financial statements. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 which summarizes certain of the SEC staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company adopted Staff Accounting Bulletin No. 101 effective October 1, 2000. The adoption of this guidance did not have a material impact on the Company's results of operations or financial position, however, the guidance may impact the way in which the Company will account for future transactions. In July 2001, the FASB issued Statement of Financial Standards No. 142, "Accounting for Goodwill" ("SFAS 142"). SFAS 142 establishes accounting standards for existing goodwill related to purchase business combinations. Under the Statement, the Company would discontinue the periodic amortization of goodwill effective with adoption of the new Statement. Also, the Company would have to test any remaining goodwill for possible impairment within six months of adopting the Statement, and periodically thereafter, based on new valuation criteria set forth in the Statement. Further, the Statement has new criteria for purchase price allocation which could reduce amounts initially allocated to goodwill. Based on information available, the Company estimates that amortization expense in fiscal 2002 will be reduced approximately $920,000, excluding any potential impairment charge which may result from implementation of the new impairment valuation criteria or possible reclassification of amounts from goodwill to other intangible assets. The Statement becomes effective in 2003 and the Company is considering early adoption in fiscal 2002. 13 41 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ 1. FUTURE The accompanying financial statements have been prepared PROSPECTS assuming that the Company will continue as a going concern. As explained below the Company has sustained recurring operating losses and cash flow deficits in 2001, 2000 and 1999. The Company developed a business plan to increase revenue and reduce operating losses. However, the Company must obtain funds from outside sources in fiscal 2002 to provide needed liquidity and successfully implement its business plan. Presently, the Company has no firm commitments from outside sources to provide these funds. These factors raise substantial doubt about the Company's ability to continue in existence. Management's plans in regard to these matters are described in the succeeding paragraphs. The financial statements do not contain any adjustments that might result from the outcome of these uncertainties. While the Company is optimistic that it can execute its revised business plan, there can be no assurance that the increased sales necessary to return to profitability will materialize or if they do, that the Company will be able to raise sufficient cash to fund the additional working capital requirements. In May 2001, the Company raised $3,000,000 through the sale of a 10% senior secured convertible debenture via Regulation D to Wesley Clover Corporation. All or any portion of this Debenture may be converted into common stock of the Company by dividing the aggregate principle amount converted together with all accrued but unpaid interest to the date of conversion by $0.446. The entire debenture plus accrued interest shall be due and payable in a single installment on June 8, 2006, unless sooner accelerated or converted into common stock. In connection with this investment, the Company also issued 3,363,229 warrants entitling Wesley Clover to purchase common shares for $0.5575 per share. The warrants expire on June 8, 2006 and may be called for redemption, by the Company, at such time as the bid price of the Company's common stock remains above $1.12 for 30 (thirty) consecutive trading days. The Company will value the warrants and allocate the face amount between the debt and equity components. When and if exercised, the unexercised warrants associated with this offering and other prior offerings and agreements will generate a maximum of $13,000,000 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. 14 42 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ 2. PLAN OF On June 2, 1998, the Company filed a voluntary petition REORGANIZATION for reorganization under Chapter 11 of the United States Bankruptcy Code. This filing was a direct result of enforcement activities by a judgment creditor (See Note 13). The Company negotiated with its creditors a consensual Plan of Reorganization (the "Plan") and filed with the Court a Disclosure Statement and Plan of Reorganization dated October 21, 1998 as modified on December 23, 1998, January 8, 1999 and finally February 16, 1999. Creditors approved the Plan in March 1999 and the Court confirmed this Plan on March 30, 1999. The Plan became effective on April 12, 1999. Pursuant to the Plan, Class 1 creditors, representing existing holders of convertible debentures, were required to convert their debt to equity within six months of the effective date of the Plan. Claims of unsecured creditors, below $1,000, were repaid in cash on or before April 30, 1999. Claims of unsecured creditors greater than $1,000 were satisfied by two cash payments totaling 25% of the allowed claim on or before April 30, 1999. The Company issued debentures to these unsecured creditors for the remaining 75% of their allowed claims. The claim of Gary Davison related to the judgement of $1,195,560 obtained against the Company was reduced to $900,000 and allowed as an unsecured nonpriority claim. The Company then dismissed its appeal of the state court verdict underlying the Davison claim and Davison withdrew a second claim of $2,350,000 related to a pending trial on another matter associated with his dismissal from the Company. Prior to confirmation of the Plan, the Company's President assumed the allowed claim, the effect of which is the amount due Davison will now be paid to him. 15 43 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ In funding its Plan, the Company raised $1,000,000 by selling common stock in a private offering. The debentures, totaling $2,490,357 issued to the unsecured creditors, including the President in connection with purchase of the Davison claim, mature in April 2003. The debentures will be convertible into common stock of the Company between the first and fourth anniversary of the effective date of the Plan. The debentures are convertible at the average of the closing price of the Company's common stock for the ten consecutive trading days ending on the trading day immediately prior to conversion. The debentures bear interest at 7.5%, payable in common stock of the Company. If not converted sooner, all debentures must be converted to common stock by April 2003. The Company has the right, at anytime, to redeem for cash at par value all of the outstanding debentures plus any accrued interest. Each debentureholder had the additional right to surrender the entire debenture to the Company on April 12, 2000 and receive cash equal to 15% of the holder's original allowed claim plus interest. As of April 30, 2001, $732,643 in convertible debentures were outstanding. Confirmation of the Plan on March 30, 1999 resulted in an extraordinary gain determined as follows:

16 44 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ 3. BUSINESS On March 31, 2000, the Company acquired substantially ACQUISITIONS all of the assets and assumed certain liabilities of Cronus Technology, Inc. ("Cronus") for approximately $9,600,000, plus the assumption of liabilities of approximately $6,700,000 subject to adjustment as set forth in the agreement. Approximately $9,300,000 of the purchase price was funded through the issuance of shares of the Company's common stock and approximately $300,000 was paid in cash. Cronus manufactures and sells telecommunications equipment and provides consulting services for satelite telecommunications planning. The acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities were recorded at their estimated fair market values at the date of acquisition. The Company recorded goodwill of approximately $12,000,000 related to this transaction. The goodwill is being amortized on a straight line basis over four years. The terms and conditions of the purchase and debt assumption agreements related to this transaction obligated the Company to issue additional common shares if the fair market value of the Company's common stock did not reach $7.30 prior to the one year anniversary date of these agreements. The target price was not met and accordingly, the Company issued an additional 2,035,734 shares in March 2001. The maximum number of shares to be issued under the purchase agreement were valued as of the closing date. Accordingly, there was no additional purchase price adjustment. The following unaudited pro forma information presents the results of operations of the Company as if the acquisition had occurred on May 1, 1998.

These pro forma results of operations have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the acquisition occurred on the date indicated, or which may result in the future. 17 45 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ On March 31, 1999, the Company acquired all of the assets and assumed certain liabilities (as defined in the agreement) of KG Data Systems, Inc., ("KG Data"). KG Data has developed a product which transmits data between IBM mainframes and remote offices. The purchase price was $845,000, which was funded through the issuance of 719,149 shares of the Company's common stock. The acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities were recorded at their estimated fair market values at the date of acquisition. The Company recorded $723,325 of goodwill related to this transaction. This goodwill is being amortized on a straight line basis over four years. The operations of KG Data in 1999 were not material and accordingly, the Company has not presented pro forma results of operations. In the fourth quarter of fiscal 2001, the Company decided to close its KG Data division. Therefore, there are no projected undiscounted cash flows of this division. Accordingly, the Company has determined that the goodwill is impaired. Included in the restructuring costs is $347,000 related to the impairment of this goodwill. See Note 15. 4. ACCOUNTS Accounts receivable consist of the following: RECEIVABLE

18 46 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ 5. INVENTORIES Inventories consist of the following components:

6. PROPERTY AND Property and equipment consists of the following: EQUIPMENT

Depreciation expense for the three years ended April 30, 2001, 2000 and 1999 was $777,859, $495,944 and $379,591, respectively. 19 47 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ 7. OTHER CURRENT Other current liabilities consist of the following: LIABILITIES

8. LONG-TERM Long-term debt consists of the following: DEBT

20 48 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ (a) In connection with the acquisition of Cronus, the Company assumed liabilities under a revolving line of credit and term loan agreement with LaSalle National Bank. Under the revolving line of credit the Company could borrow up to the lesser of $3,000,000 or 80% of eligible accounts receivable and 35% of eligible inventory, as defined in the agreement. The revolving line of credit bore interest at the bank's prime rate of interest plus 1.0% and was scheduled to mature on May 1, 2001. Under the agreement, Cronus could issue letters of credit up to $250,000 in the aggregate. The term loan was payable in equal monthly principle payments of $9,875, bears interest at the bank's prime rate of interest plus 1.0% and was scheduled to mature on May 1, 2001. In April 2000, the Company placed $250,000 in escrow to further collateralize the revolving line of credit and term loan. In July 2000, the bank informed the Company that the revolving line of credit and term loan would mature on September 30, 2000. On September 12, 2000, the bank agreed to a further extension until December 31, 2000. In February 2001, the Company executed an accounts receivable financing agreement with Alliance Financial Capital, Inc. that replaced the revolving line of credit and term loan agreement with LaSalle National Bank. All debt associated with the LaSalle agreement was repaid. Under the new accounts receivable financing agreement, the Company can borrow up to the lesser of $3,000,000 or up to 85% of eligible accounts receivable, as defined in the agreement. Amounts outstanding under the accounts receivable financing agreement bear interest at the prime rate plus 1.0% plus an additional 1.5% per invoice funded. The initial term of this agreement is for twelve months with a minimum average daily account balance of $750,000. Average short-term borrowings and the related interest are as follows:

21 49 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ (b) In connection with the acquisition of Cronus, the Company assumed $1,000,000 in debt to two individuals, which is subordinated in priority and payment to all senior debt referenced above. This debt matured on December 10, 2000. The Company is currently in default on the repayment of this debt and the individuals filed a lawsuit against the Company to force repayment. The Company has indicated its inability to repay the debt (see Note 13). (c) In connection with the acquisition of Cronus, the Company assumed liabilities for capital lease obligations (c) related to various office equipment. As of April 30, 2001, future net minimum lease payments under capital leases are as follows:

22 50 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ The net book value of assets under capital leases was approximately $21,788 and $23,000 at April 30, 2001 and 2000, respectively. (d) In April 1999 the Company issued $2,490,357 in convertible debentures in satisfaction of the remaining 75% of each claim allowed in its plan of reorganization (see Note 2). The debentures earn interest at a rate of 7.5% payable in the form of common stock of the Company at time of conversion. The debentures are convertible at the average of the closing price of the Company's common stock for the ten consecutive trading days ending on the trading day immediately preceeding the date of conversion. No conversions were permitted prior to April 6, 2000. The Company may prepay the debentures at any time. Each debentureholder has the additional right, but not the obligation, to surrender the entire debenture to the Company on April 12, 2000 and receive a cash distribution equal to 15% of the holder's original allowed claim together with accumulated interest under the plan of reorganization. The debentures mature on April 12, 2003. Any debentures which have not been converted by this date will automatically be converted into common shares of the Company. During 2001 and 2000, holders of the debentures converted $39,620 and $1,825,552 of debentures and accrued interest into 43,465 and 513,249 shares of common stock, respectively. 23 51 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ (e) In April 1997, the Company issued $3,000,000 in 5.0% convertible debentures due April 2001. In May 1997, the Company issued $2,000,000 in 5% convertible debentures due May 2001. For the first 180 days following the issuance, the debentures were convertible at the option of the holder into common stock at a conversion price equal to the average closing bid prices on NASDAQ for the ten trading days prior to conversion. If the conversion occurs more than 180 days after the issuance, the conversion price is the lesser of 125% of the average closing bid prices on NASDAQ for the ten trading days prior to the issuance date, or, 90% of the average closing bid prices on NASDAQ for the ten trading days prior to the conversion date. In addition, if the conversion occurs more than 180 days after the issuance, the holder will receive one warrant for every five shares of common stock received upon conversion of the debentures. If the conversion occurs more than 360 days from the issuance, the holder will receive one warrant for every 2 1/2 common shares received upon conversion of the debentures. Each warrant will have a strike price set at 125% of the market price of the Company's common stock at the time of conversion. During 2000 and 1999, holders of the debentures converted $224,684 and $1,073,310 of debentures and accrued interest into 274,911 and 1,652,717 shares of common stock, respectively. All of the debentures were converted as of April 30, 2000. 9. STOCKHOLDERS' In March 2001, the Company issued 2,035,734 shares of EQUITY common stock under the terms and conditions of the purchase and debt agreements related to the acquisition of Cronus Technology, Inc in March 2000 (see Note 3). In February 2001, the Company sold 850 units at $1,000 per unit to a group of accredited invertors. Each unit consists of a prepaid common stock purchase warrant ("Prepaid Warrant") and an incentive warrant ("Incentive Warrant") to acquire additional shares of common stock of the Company. The Prepaid Warrant is convertible at the option of the holder into common stock at a conversion price equal to the lesser of $.85 or the average of the five lowest closing bid prices for the ten trading day period prior to conversion. The prepaid warrant earns interest at a rate of 6%, payable in common stock. The Incentive Warrants have a five-year term and are exercisable immediately at $.85. The Company recorded the proceeds from the issuance of the Prepaid Warrants as paid in capital. The interest earned on these warrants is reflected as a dividend. The Company paid a placement fee of $85,000 24 52 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ plus other associated costs totaling $15,000 and issued to the placement agent warrants to purchase 212,500 shares of stock at a price of $1.0625 per share. The fees paid and the fair value of the warrants issued are recorded as a reduction in paid in capital. In September 2000, the Company sold 3,500 units at $1,000 per unit to a group of accredited investors. Each unit consists of a prepaid common stock purchase warrant ("Prepaid Warrant") and an incentive warrant ("Incentive Warrant") to acquire additional shares of common stock of the Company. The Prepaid Warrant is convertible at the option of the holder into common stock at a conversion price equal to the lesser of $2.00 or the average of the five lowest closing bid prices for the ten trading day period prior to conversion. The prepaid warrant earns interest at a rate of 4% payable in common stock. The Incentive Warrants have a five-year term and are exercisable immediately at $2.00. The Company recorded the proceeds from the issuance of the Prepaid Warrants as paid in capital. The interest earned on these warrants is reflected as a dividend. The Company paid a placement fee of $350,000 plus other associated costs totaling $71,000 and issued to the placement agent, warrants to purchase 438,000 shares of stock at a price of $2.50 per share. The fee paid and the fair value of the warrants issued are recorded as a reduction in paid in capital In July 2000, the Company raised $1,170,000 through a private placement offering of securities to a group of accredited investors. Warrants to purchase common stock associated with this offering are exercisable for a period of one year after the closing date. During fiscal 2001, the Company received $353,888 on the exercise of warrants, which resulted in the Company issuing 256,729 shares of common stock. As of April 30, 2001, the Company has outstanding 5,089,441 warrants to purchase Common Stock of the Company at exercise prices ranging from $0.41 to $7.50. The warrants expire principally in 2003. During fiscal 2001, the Company issued 43,465 shares of common Stock on the conversion of debentures and accrued interest totaling $39,620. In April 2000, the Company issued 728,063 shares of common stock in 25 53 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ settlement of $5,314,862 in liabilities assumed as part of the acquisition of Cronus (see Note 3). In January 2000, the Company executed an agreement with an investment banking firm to provide investment banking and advisory services through August 31, 2001. As consideration for these services the Company issued 200,000 warrants to purchase the Company's common stock at an exercise price of $7.50 per share. The warrants are exercisable at any time from February 1, 2000 to January 31, 2003. The warrants have been valued at $570,817 using the Black-Scholes option pricing model. The Company has recorded the value of these warrants as deferred investment advisory fees and is amortizing the value over the term of the agreement. In July 1999, the Company issued 1,110,040 shares of common stock for $1,086,723 through a private placement offering of securities to a group of accredited investors. During fiscal 2000, the Company received $4,392,184 in proceeds on the exercise of warrants, which resulted in the Company issuing 3,682,009 shares of common stock. As of April 30, 2000, the Company has outstanding 2,662,106 warrants to purchase common stock of the Company at exercise prices ranging from $1.87 to $7.50. The warrants expire principally in 2003. During fiscal 2000, the Company issued 788,160 shares of common stock on the conversion of debentures and accrued interest totaling $2,050,236. In April 1999, the Company issued 1,333,333 shares of common stock for $1,000,000 though a private placement offering of securities to a group of Company employees, insiders and accredited investors. These proceeds, except for the $71,723 ($152,367 in 1999) placed in escrow, funded the 25% cash payment to the unsecured creditors as per the plan of reorganization. 26 54 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ Exercise prices for warrants outstanding as of April 30, 2001 are as follows:

10. STOCK OPTIONS The Company has both a qualified and non-qualified stock option plan (the "Plans") under which options to purchase up to 2,260,000 shares of common stock may be granted to officers, directors and other key employees of the Company. The exercise price of each option may not be less than 100% of the fair market value of the stock on the date of grant for incentive stock options or 85% of such fair market value for non-qualified stock options, as determined by the Board. Generally, options vest over a three year period and expire five years from the date of grant and, in most cases, upon termination of employment. The following table relates to options outstanding, granted, exercised, and canceled during 2001, 2000 and 1999, under the Plan: 27 55 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================

A summary of stock options outstanding and exercisable as of April 30, 2001 is as follows:

28 56 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ The Company has adopted the disclosure-only provisions of SFAS-No. 123 "Accounting for Stock Based Compensation", but applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock option plans. For SFAS No. 123 purposes, the weighted average fair value of each option grant has been estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 6.13%, 5.96% and 5.53% and expected volatility of 110%, 125.0% and 60.0% and expected option life of 5, 4 and 5 years for the years ended April 30, 2001, 2000 and 1999, respectively, and dividend payout rate of zero for each year Using these assumptions, the weighted average fair value of the stock options granted is $1.83, $1.41 and $0.38 for 2001, 2000 and 1999, respectively. There were no adjustments made in calculating the fair value to account for vesting provisions or for non-transferability or risk of forfeiture. If the Company had elected to recognize compensation cost based on the fair value at the grant dates for options issued under the plans described above, consistent with the method prescribed by SFAS No. 123, net loss applicable to common shareholders and loss per share would have been changed to the pro forma amounts indicated below:

29 57 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ As part of a program to retain its employees, the Company adopted a program to re-price the options of its current employees in March 2001. The Company also re-priced the options issued to its board of directors and to its chairman of the board. Under the program, the exercise price of current stock options was changed to $0.51 per share. Although each employee could elect not to participate in the program, approximately 2.5 million options were changed to the lower exercise price. Under applicable accounting rules, the Company will have to account for future variations in the price of its common stock above $0.51 per share as compensation expense until the re-priced options are either exercised, cancelled or expire. This calculation will be made each quarter based upon the performance of the Company's common stock in that quarter. Accordingly, operating results and earning per share will be subjected to potentially significant fluctuations based upon changes in the market price of our common stock. For the year ended April 30, 2001, operating results and earnings per share were not impacted by the repricing because the price of the common stock at April 30, 2001 was below $0.51 per share. 11. INCOME TAXES The Company has net operating loss carryforwards for income tax reporting purposes of approximately $34,846,000, which begin to expire in 2008. The amount of the net operating loss carryforward related to the compensation element of stock options is approximately $10,456,000, which when realized will be a credit to paid in capital. In addition, the Company has research and development credit carryforwards of approximately $1,115,000, which begin to expire in 2006. The difference between the Federal tax rate and the effective tax rate realized as a percent of pretax earnings for the years ended April 30, 2001, 2000, and 1999, is as follows:

30 58 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ No deferred taxes have been recognized in the accompanying consolidated financial statements as of April 30, 2001 and 2000. The components of deferred income taxes are as follows:

31 59 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ Management has provided a valuation allowance for deferred tax assets as of April 30, 2001, because they are unable to predict when the benefit of these items will be recognized in future years. 12. SIGNIFICANT Certain customers accounted for 10% or more of the CUSTOMERS AND Company's total revenue during the years ended April 30, FOREIGN EXPORTS 2001, 2000 and 1998 as noted below:

Sales to customers A, B, and C were $1,541,000, $1,142,000 and $1,119,000 in 2001, respectively. Sales to customers D, E and F were $1,162,000, $930,000 and $775,000 in 2000, respectively. Sales to customer C were $1,307,000 in 1999. In 2001, the Company had export sales to foreign customers totaling approximately $2,213,000. This constitutes 21% of total revenues. The export sales were made to customers in Latin America and Europe. In 1999, the Company had export sales to foreign customers totaling approximately $1,800,000. This amount constitutes 39% of total revenues. The export sales were made to customers in Venezuela, Peru and Brazil. There were no significant export sales in 2000. 32 60 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ 13. COMMITMENTS CONTINGENCIES AND CONTINGENCIES In 1997, Gary H. Davison 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 involved claims for options to purchase 100,000 shares of stock and a $100,000 bonus. On February 17, 1998, a jury in Fairfax County awarded Mr. Davison $1,125,000 in damages and $163,233 in interest accrued from May 26, 1996 in this case. Accordingly, the Company recorded a loss provision for this amount in its third fiscal quarter ended January 31, 1998. Subsequently, this award was reduced by $100,000. The Company filed an appeal of this decision with the Virginia Supreme Court. The Company settled these lawsuits for $900,000 as part of its plan of reorganization (see Note 2). In fiscal 1995, the Securities and Exchange Commission (the "SEC") began an inquiry relating to certain prior public disclosures and periodic reports of the Company. In September 1999, the Company, its Chief Executive Officer and Chairman of the Board and its Chief Financial Officer agreed to a settlement with the SEC. Without admitting or denying the allegations, the Company consented to the entry of a final judgement which enjoins it from violations of specific sections of the Securities Exchange Act of 1934 and the involved officers consented to the entry of an order to cease and desist committing or causing any violations or future violations of specific sections of the Securities and Exchange Act of 1934. A supplier of parts for the Company's integrated access device product line has asserted claims for $111,000 for good sold and delivered and $270,000 for goods manufactured but not yet delivered. The Company is actively working to settle this matter and expects to do so shortly. The Company has accrued the related liabilities in the accompanying balance sheet. On January 29, 2001, two individuals holding subordinated senior notes totaling $1,000,000 commenced an action in the Circuit Court, Cook County, Illinois against the Company, Cronus, certain former principal shareholders of Cronus and a liquidating trust established by Cronus and its trustees seeking repayment of the notes, together with accrued interest. The Company has filed a motion to dismiss the complaint on jurisdictional grounds. On March 6, 2001, the Circuit Court denied an application by the Plaintiffs seeking an injunction against the Defendants and other relief. The Company believes it has meritorious defenses against this action. Subsequent to April 30, 2001, the Company was sued in Federal District Court in Illinois by Richard L. Abrahams, as Trustee of the R.L.A. 1993 Trust (the "Trust"). The action is for an alleged breach of a contract executed by the Company and the Trust in March 2000 related to conversion of debt to equity in connection with the Cronus acquisition. The Trust seeks to force the Company to issue an additional 628, 000 common shares which it contends are due under the assumption and conversion agreement, together with unspecified damage and costs. The Company has yet to answer the complaint but intends to 33 61 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ vigorously deny all allegations. 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. OPERATING LEASES The Company leases office space and certain office equipment under operating lease arrangements that expire at various dates through 2003. The main office lease provides for scheduled rent increases in the future which are being amortized over the lease period. Rent expense for the years ended April 30, 2001, 2000, and 1999, was approximately $668,000, $434,000 and $662,000, respectively. Aggregate future minimum lease payments under the operating leases are as follows:

COMPENSATION The Company maintains an employment agreement with its President and Principal Executive Officer. This agreement provides for a base salary of $100,000 plus bonus and incentive compensation as may be deemed appropriate by the Board of Directors. The agreement was scheduled to expire on January 31, 2001, however, the agreement was automatically renewed through January 31, 2002 by the Board of Directors. In connection with the acquisition of KG Data, the Company entered into a three year employment agreement, expiring March 31, 2002, with the former President and sole stockholder of KG Data. This agreement provides for a base salary of $100,000 plus bonus and incentive compensation as deemed appropriate by the Board of Directors. The former President and sole stockholder of KG Data has been terminated. The Company has accrued the remaining amounts due under the employment agreement. See Note 15. 34 62 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ The Company maintains a defined contribution plan that covers substantially all of its employees. Employees may contribute a portion of their compensation as defined under the Internal Revenue Code and employer contributions are discretionary. There were no employer contributions in 2001, 2000 or 1999. 14. FINANCIAL Generally accepted accounting principles requires the INSTRUMENTS disclosure of the fair value of financial instruments; however, this information does not represent the aggregate net fair value of the Company. Some of the information used to determine fair value is subjective and judgmental in nature; therefore, fair value estimates, especially for less marketable securities, may vary. The amounts actually realized or paid upon settlement or maturity could be significantly different. Unless quoted market price indicates otherwise, the fair value of accounts receivable generally approximates market because of the short maturity of these instruments. The Company has estimated the fair value of long-term debt based on quoted market prices for similar debentures. The estimated fair values of the Company's financial instruments, none of which are held for trading purposes, are summarized as follows:

15. RESTRUCTURING The Company commenced a broad restructuring aimed at COSTS achieving profitability and positive cash flow in fiscal 2002 by reducing costs and focusing on market opportunities which offer the greatest revenue potential. The Company closed its KG Data division and closed the related Connecticut facility. The Company has reduced its headcount from 103 to 63 fulltime employees and consolidated its two Virginia facilities into one. As a result of these and other cost saving activities, quarterly operating expenses should decline by approximately $1,000,000 (or approximately $4,000,000 annually) in fiscal 2002. One time charges associated with these restructuring activities totaling $1,588,000 are reflected in the Company's operating results for its fourth fiscal quarter 35 63 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ for the year ended April 30, 2001. During the fiscal year ended April 30, 2001, the Company recorded $1,364,000 in costs associated with closing its KG division. These costs were as follows: Inventory writedown $ 554,000 Goodwill impairment 347,000 Severance 337,000 Other 126,000 ------------------------------------------------------- Total $1,364,000 =======================================================

Also during the fourth quarter, the Company recorded $224,000 in costs associated with the consolidation of excess operating facilities. Such costs are primarily associated with a reserve for non-cancelable lease costs. Remaining cash expenditures relating to work force reductions and termination of employment agreements will be substantially paid in the first and second quarters of fiscal 2002. Amounts related to the remaining lease commitments due to the consolidation of facilities will be paid over the respective lease term through fiscal 2003 or shorter if settled for a lower amount. The Company expects to substantially complete implementation of its restructuring program by the end of the first quarter of fiscal 2002 36 64 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ 16. SUPPLEMENTAL Supplemental information on interest paid is as follows: CASH FLOW INFORMATION

Supplemental disclosure of non-cash investing and financing activities:

37 65 FASTCOMM COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ 17. QUARTERLY Summarized quarterly financial data for fiscal 2001 and FINANCIAL DATA 2000 is as follows: (UNAUDITED)

During the fourth quarter ended April 30, 2001, the Company recorded a provision for doubtful accounts of $1,117,845 which had the effect of increasing the operating loss by $1,117,845 or $0.05 per share. The Company recorded increases in the allowance for doubtful accounts in the first three quarters based on its best estimate of amounts collectible from customers. During the fourth quarter, collectibility problems arose with two significant customers. The Company revised downward its estimate of the amounts it could collect and, accordingly, increased the allowance for doubtful accounts. 38 66 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE FASTCOMM COMMUNICATIONS CORPORATION The audits referred to in our report, which includes an explanatory paragraph related to substantial doubt about the Company's ability to continue as a going concern, to FastComm Communications Corporation, dated July 14, 2001 which is contained in Item 8 of this Form 10-K, included the audit of the financial statement schedule listed in the accompanying index for each of the three years in the period ended April 30, 2001. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based upon our audits. In our opinion, such schedule presents fairly, in all material respects, the information set forth therein. BDO Seidman, LLP Washington, D.C. July 20, 2001 39 67 FASTCOMM COMMUNICATIONS CORPORATION SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS SCHEDULE II ================================================================================

(1) Accounts written off (2) Inventory scrapped or disposed of 40 68 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE. 28 69 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following lists the directors and executive officers of the Company, their ages, descriptions of their business experience and positions held with the Company:

(1) Member Stock Option Committee. (2) Member Audit Committee. All directors hold office until the next annual meeting of the shareholders and the election and qualification of their successors. The officers are elected by and serve at the discretion of the Board of Directors. See "Employment and Control Arrangements" under Item 11, "Executive Compensation." PETER C. MADSEN has been President, Chief Executive Officer and a director of the Company since September 1992. From November 1986 to January 1992, he was an officer of the Newbridge Networks Corporation, a Canadian telecommunications company, most recently as Vice President and General Manager, United States Region, and President of Newbridge Networks Inc., Newbridge Networks Corporation's United States subsidiary. Mr. Madsen served as a director of Newbridge Networks Corporation from September 1987 until June 1998. MARK H. RAFFERTY has been Vice President, Chief Financial Officer and Treasurer of the Company since August 1993 and a director of the Company since March 1998. From August 1992 to August 1993, Mr. Rafferty was Vice President, Finance at Newbridge Networks Inc. From August 1987 through August 1992, Mr. Rafferty was Controller of Newbridge Networks Inc. WILLIAM A. GRANT was Executive Vice President - Global Sales for the Company from November, 1997 to January, 2001. From October 1996 through October 1997, Mr. Grant served as Vice President - Global Sales for Memotec Communications Corporation. From January 1994 through September 1996, Mr. Grant was Vice President - Business Development for FastComm. Prior to this time, Mr. Grant was President of Inteletouch Corporation, a telecommunications equipment company. Mr. Grant left the Company effective January 12, 2001. DR. KENNETH A. BLOOM has served as Vice President - Mainframe Networking since March 1999. For five years prior to this time, Dr. Bloom was President and sole stockholder of KG Data Systems, Inc., which was acquired by the Company in March 1999. SAFA ALKATEB was Vice President - Engineering for the Company from February 1999 to December 2000. From April 1994 to January 1999, Mr. Alkateb held a variety of engineering positions within the Company. From October 1992 to March 1994, Mr. Alkateb was Product Development Senior Software Engineer for Novak Engineering Company, an engineering consulting firm. Mr. Alkateb left the Company effective December 15, 2000. 29 70 MICHAEL L. HARMON has been Vice President - Business Development for the Company since November 2000. From 1989 through 2000, Mr. Harmon held various software and business development positions at Bechtel Corporation. ROY WAINWRIGHT was Executive Vice President of the Company from April 2000 to November 2000. From March 1997 to March 2000, Mr. Wainwright was Vice President/ General Manager of Cronus Communications Inc. From June 1995 to March 1997, Mr. Wainwright was Associate Vice President - Product Marketing at Computer Sciences Corporation. Mr. Wainwright left the Company effective November 15, 2000. GEORGE GLASS has been Vice President - Engineering of the Company since December 2000. For the five preceding years, Mr. Glass was Vice President - Engineering and Operations Manager of Cronus Technology, Inc. and its predecessor company, Anadigicom. DARLENE GREENHAW has been Vice President - Sales for the Company since April 3, 2000. From October 1999 to March 2000, Ms. Greenhaw was Vice President - Sales at Cronus Communications Inc. From September 1987 to September 1999, Ms. Greenhaw was Vice President - Sales at Newbridge Networks Inc. EDWARD R. OLSON has served as a director since January 1989. Mr. Olson has served as President and Chief Executive Officer of Woods Equipment Company since February 2001 and as Chairman since November 2000. Mr. Olson has also served as President and Chief Executive Officer of Ed Olson Consulting Group, Ltd. since 1993. Additionally, he has served as Principal of Dominion Management LLC and its predecessor KPMG Baymark Strategies LLC since 1995. Mr. Olson was President and Chief Operating Officer of Porta Systems Corporation from 1995 to 1997 and President and Chairman of M-C Industries from 1990 to 1997. Mr. Olson is a director of Dynamic Metal Forming, Inc. and S&L Metal Products Corporation. F. MICHAEL PASCOE has served as a director since August 2000. From December 1999 to June 2000, Mr. Pascoe was President and CEO of Pairgain Technologies, a DSL company. From 1986 to 1999, Mr. Pascoe held various senior management positions at Newbridge Networks Corporation, a Canadian telecommunications equipment manufacturer. Mr. Pascoe serves as a director of Anda Networks and Mariner Networks. THOMAS G. AMON has served as a director since December 1994. For the past five years, Mr. Amon has been an attorney in private practice in New York City. Since June 1, 1999, Mr. Amon has been a partner in the law firm of Sokolow, Dunaud, Mercadier & Carreras, LLP located in New York, NY and Paris, France. In September 1999, the Company's Chief Executive Officer and its Chief Financial Officer agreed to a settlement with the SEC. Without admitting or denying the allegations, the Company's Chief Executive Officer and its Chief Financial Officer 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. The Company's Chief Financial Officer 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 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. On November 18, 1999, a motion for final decree was granted and the case was closed. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and with the National Association of Securities Dealers, Inc. Automated Quotations (NASDAQ) system. Officers, directors and greater than ten percent shareholders are required by regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no Forms 5 were required for those persons, the Company believes that during its fiscal year ended April 30, 2001, all filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with. 30 71 ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth information regarding compensation paid by the Company to the five named executives (the "Named Executive Officers") for services furnished in all capacities to the Company during the fiscal year ended April 30, 2001, as well as such compensation paid by the Company to the Named Executive Officers during the Company's two previous fiscal years

1) Automobile benefit. 2) At April 30, 2001, Mr. Madsen held 1,760,510 restricted shares of Common Stock with a market value of $510,548 at that date. 3) At April 30, 2001, Mr. Rafferty held 13,420 restricted shares of Common Stock with a market value of $3,892 at that date. 4) At April 30, 2001, Mr. Grant held 36,667 restricted shares of Common Stock with a market value of $10,633 at that date. Mr. Grant left the Company effective January 15, 2001. 5) At April 30, 2001, Mr. Glass held 8,632 restricted shares of Common Stock with a market value of $2,503 at that date. 31 72 FISCAL 2001OPTION GRANTS The following table sets forth information concerning grants of stock options to the Named Executive Officers made pursuant to the Company's 1999 Stock Option Plan during the fiscal year ended April 30, 2001: Stock Option Grants in Fiscal Year 2001 INDIVIDUAL GRANTS The exercise price of each option may not be less than 100% of the fair market value of the stock on the date of the grant for incentive options or 85% of such fair market value for non-qualified stock options, as determined by the Board of Directors. The vesting period is determined by the Board of Directors. Options expire five years from the date of grant and, in most cases, upon termination of employment.

As part of a program to retain its employees, the Company adopted a program to re-price the options of its current employees. The Company also re-priced the options issued to its board of directors and to its chairman of the board. Under the program, the exercise price of current stock options was changed to $0.51 per share. Although each employee could elect not to participate in this program, the exercise price of approximately 2.5 million options was changed to the lower price. Under applicable accounting rules, the Company will have to account for future variations in the price of its common stock above $0.51 per share as compensation expense until the repriced options are either exercised, cancelled or expire. This calculation will be made each quarter based upon the performance of the Company's common stock in that quarter. Accordingly, operating results and earnings per share will be subjected to potentially significant fluctuations based upon changes in the market price of the Company's common stock. 32 73 FISCAL 2001 AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES The following table sets forth information concerning each exercise of stock options during the fiscal year ended April 30, 2001 by each of the Named Executive Officers and the fiscal year-end value of unexercised options held by such persons:

BOARD REPORT ON EXECUTIVE COMPENSATION The Company does not have a formal compensation committee. Compensation levels for executive officers are approved by the Board of Directors. The Board of Directors is presently comprised of the following individuals: Peter C. Madsen, Thomas G. Amon, Edward R. Olson, F. Michael Pascoe and Mark H. Rafferty. Salaries are reviewed periodically and are based on individual performance, the extent of individual experience and responsibility and comparisons with salaries paid in the industry. The Company recruits for its executive officer positions from within the communications industry. In most instances, the source company is significantly larger than the Company. It has been the policy of the Board of Directors of FastComm to hire executive officers at levels below that of their current salaries along with a stock option package intended to make up for the differentiation and to provide a performance incentive. The Company believes that stock options are an attractive benefit in that they enhance performance and loyalty at little cost. The Company believes the compensation packages offered to its current employees and prospective employees have been consistent with that of the communications industry. The Board granted six executive officers options during fiscal 2001. Five of these grants were determined by the individuals performance, responsibility and seniority. The remaining grant was a condition of employment. The Board adheres to a policy of granting options to executive officers based upon performance and responsibility. In addition, the Board also considers the relative importance of the job function being performed and the number of options currently held by the executive officer, and options granted for comparable positions in peer group companies. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During the year, Peter C. Madsen, Edward R. Olson, Thomas G. Amon, F. Michael Pascoe and Mark H. Rafferty as directors participated in deliberations of the Company's Board of Directors concerning executive officer 33 74 compensation and stock option grants, including their own. None of such directors was party to any reportable interlock or participation during fiscal 2001. EMPLOYMENT AND CONTROL ARRANGEMENTS Pursuant to the Employment Agreement dated September 18, 1992, Mr. Madsen was elected President and Chief Executive Officer of the Company at an annual base salary of $100,000 per year. Under this agreement, Mr. Madsen has been granted full control of and authority over the operations of the Company, subject to the general oversight of the Board of Directors. This agreement, which currently expires on January 31, 2002, is renewable thereafter on a year to year basis. In connection with the acquisition of KG Data, the Company entered into a three year Employment and Non Competition Agreement on March 31, 1999 with Dr. Kenneth A. Bloom. The Agreement provides that Dr. Bloom be employed by the Company in a senior management capacity at an annual salary of $100,000 plus incentives. DIRECTOR COMPENSATION Directors receive no cash compensation for their services as such, however, the Board of Directors has authorized payment of reasonable expenses incurred by non-employee directors in connection with attendance at meetings of the Board of Directors. Further, members of the Company's Board of Directors are granted options to purchase shares of common stock of the Company pursuant to the Company's 1999 Stock Option Plan. During fiscal year 2001, the Company granted options to purchase 30,000 shares of its common stock of the Company to both Edward R. Olson and Thomas G. Amon and 50,000 options to F. Michael Pascoe. Also during fiscal year 2001, the Board granted Mr. Amon options to purchase an additional 50,000 shares of common stock of the Company for his professional assistance in the acquisition of Cronus. The Chairman of the Board receives no compensation for serving in such capacity. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT At July 20, 2001, there were 29,066,624 shares of common stock of the Company issued and outstanding. As of such date, options to purchase 3,783,765 shares of common stock were outstanding. Each holder of shares of common stock of the Company, but not holders of unexercised options, is entitled to one vote per share on each matter, which may be presented at a meeting of shareholders. Cumulative voting is not allowed. The Company's shares of common stock are quoted on the OTC Bulletin Board under the symbol FSCX. OB. The following table sets forth information regarding ownership of shares of common stock of the Company at July 20, 2001, by each person who is known by management of the Company to own beneficially more than five percent of the common stock of the Company(setting forth the address of each such person), by each Director, by the Named Executive Officers of the Company identified in "Item 11. Executive Compensation," and by all Directors and Named Executive Officers of the Company as a group. Shares issuable on exercise of options exercisable within 60 days of July 20, 2001 are deemed to be outstanding for the purpose of computing the percentage ownership of persons beneficially owning such warrants or options, but have not been deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Except as otherwise indicated, the persons indicated below have sole voting and investment power with respect to the shares indicated as owned by them except as otherwise stated in the notes to the table. 34 75

1) Director 2) Gives effect to 450,000 options owned by Mr. Madsen exercisable within 60 days 3) Gives effect to 73,334 options owned by Mr. Olson exercisable within 60 days 4) Gives effect to 126,667 options owned by Mr. Amon exercisable within 60 days 5) Gives effect to 366,111 options owned by Mr. Rafferty exercisable within 60 days 6) Gives effect to 197,333 options owned by Mr. Grant exercisable within 60 days 7) Gives effect to 125,000 options owned by Mr. Wainwright exercisable within 60 days 8) Gives effect to 253,834 options owned by Mr. Alkatebexercisable within 60 days 9) Gives effect to 40,000 options owned by Ms. Greenhaw exercisable within 60 days 10) Gives effect to 20,000 options owned by Mr. Harmon exercisable within 60 days 11) Gives effect to 16,667 options owned by Mr. Pascoe exercisable within 60 days 12) Gives effect to 8,632 options owned by Mr. Glass exercisable within 60 days 13) Gives effect to 80,000 options owned by Dr. Bloom exercisable within 60 days 14) Percent of Class based upon 29,066,624 shares outstanding at July 20, 2001 35 76 The Company is unaware of any arrangement the operation of which could at a subsequent date result in a change in control of the Company. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company paid the law firm of Sokolow, Dunaud, Mercadier and Carreras LLP $185,000 in the fiscal year ended April 30, 2001. Thomas G. Amon, a Director of the Company since December 1994, is a partner in this law firm. The terms of the transactions described above were negotiated at arms length such that the terms were as favorable to the Company as could have been obtained from an unaffiliated third party. The Company has entered into separate indemnification agreements with each of its directors and executive officers that may require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. 36 77 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) and (a)(2) Financial Statements and Schedules. The financial statements and financial statement schedules filed as a part of this Report are listed beneath Item 8 of this Report. (a)(3) Exhibits. The exhibits filed as a part of this Report are listed on the Exhibit Index following this Report. (b) Reports on Form 8-K. The Company filed one report on Form 8-K in the fourth quarter of its fiscal year ended April 30, 2001 announcing the February 2001 private placement. 37 78 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on July 30, 2001. FASTCOMM COMMUNICATIONS CORPORATION By: /s/ Peter C. Madsen ------------------- Peter C. Madsen President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on July 30, 2001. POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Peter C. Madsen and Mark H. Rafferty, his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with the exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney- in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof. /s/ Peter C. Madsen President (Principal Executive Officer) ---------------------------------- and Director Peter C Madsen /s/ Mark H. Rafferty Vice President - Finance, Secretary, ---------------------------------- Treasurer and Director Mark H. Rafferty (Principal Financial and Accounting Officer) /s/ Thomas G. Amon ---------------------------------- Thomas G. Amon Director /s/ Edward R. Olson ---------------------------------- Edward R. Olson Director /s/ F. Michael Pascoe ---------------------------------- F. Michael Pascoe Director 38 79 EXHIBIT INDEX

39 80 10.11*** Amended and Restated Employment Agreement between the Company and Robert N. Dennis. 10.12* Exclusive Master Distribution Agreement for FastComm Products between FastComm Communications Corporation and Daitel Technologies 10.13* Distribution Agreement for products between FastComm Communications Corporation and C&L Communications, Inc. 10.14* Distributor Agreement for FastComm products between FastComm Communications Corporation and Tadiran, Ltd. 10.15* Distribution Agreement between the Company and Sumitronics, Inc. 10.16* Consulting Agreement between Gary H. Davison and Newbridge Networks Inc. 10.17* Agreement between the Company and ZyBel Microsystems, Inc. 10.18 (a) Plan of Reorganization Under Chapter 11 10.19 (b) Acquisition Agreement, KG Data Systems, Inc. 10.20 (c) Employment Agreement of Dr. Kenneth A. Bloom 10.21(d) Agreement and Plan of Reorganization by and among FastComm Communications Corporation, Cronus Technology, Inc., Cronus Communications, Inc., and certain principal Stockholders, dated as of March 27, 2000. 10.22(d) Form of Warrant Agreement between FastComm Communications Corporation in favor of certain individuals, dated as of March 31, 2000. 10.23(d) Investment Banking Agreement between FastComm Communications Corporation and Kaufman Bros. LLP, dated January 24, 2000. 10.24(d) Financial Advisor Agreement between FastComm Communications Corporation and Kaufman Bros. LLP, dated March 14, 2000. 10.25(d) Warrant Agreement between FastComm Communications Corporation and Kaufman Bros. LLP, dated February 1, 2000. 10.26 Loan Agreement with Alliance Financial Capital Corporation 11.0* Statement re: Computation of per share earnings.

----------- * Filed with revised form 10KA filed August 12, 1994. ** These exhibits are incorporated by reference from the corresponding exhibits to the Company's Form S-18 Registration Statement, SEC File Number 333-19758. *** These exhibits are incorporated by reference from the corresponding exhibits to the Company's Form S-3 Registration Statement, SEC File No. 333-43374. **** These exhibits are incorporated by reference from the corresponding exhibits to the Company's Form S-3 Registration Statement, see File No. 333-26459 (a) Filed with Form 8K dated April 6, 1999 (b) Filed with Form 8K dated April 21, 1999 40 81 (c) Filed with Form 8K dated April 21, 1999 (d) Filed with Form 8K dated April 14, 2000 (e) Filed with Form 8K dated June 12, 2001 41

FASTCOMM COMMUNICATIONS CORP 10-K