ChatCom Inc. Announces Fourth-Quarter and Full-Year Fiscal 1998 Results.

CHATSWORTH, Calif.--(BUSINESS WIRE)--July 14, 1998--ChatCom Inc. (Nasdaq:CHAT) Tuesday reported net sales of $1,211,000 for the fourth quarter ended March 31, 1998, a decrease of 17 percent from $1,459,000 in the comparable period one year ago.

The company reported a net loss of $3,383,000, equal to 32 cents a share, for the three months ended March 31, 1998, compared with a net loss of $2,341,000, or 24 cents a share, a year ago.

Fourth-quarter fiscal 1998 operating results were adversely impacted by a charge of $1.1 million related to inventory obsolescence as well as a charge of $567,000 related to the cost of settling a lawsuit.

For the fiscal year ended March 31, 1998, net sales totaled $7,271,000, a decrease of 20 percent from $9,103,000 a year ago. The company posted a net loss of $8,457,000, or 84 cents per share, for fiscal 1998, compared with a net loss of $5,495,000, or 61 cents per share, for fiscal 1997.

In commenting on the year's performance, E. Carey Walters, president and chief executive officer, cited some factors that had depressed the company's results: "The decline in revenues was due primarily to a decrease in shipments to domestic value-added resellers, which was attributable to the declining demand for remote- control-type remote-access solutions, decreased advertising expenditures and marketing support for VARs during fiscal 1998 due to the company's cash-flow constraints, and the redirection of the company's sales and marketing efforts toward the server-consolidation and network-emulation markets which began during fiscal 1997.

"Of the $3.1 million of sales return during fiscal 1998, $2.7 million related to the company's Singapore distributor, who attributed its inability to pay for the equipment primarily to the Asian economic crisis during the latter part of 1997 as well as slower-than-anticipated market acceptance of the ChatCom products.

"Of this amount, $0.5 million and $2.1 million had been accrued by the company during the quarters ended Sept. 30, 1997, and Dec. 31, 1997, respectively. The charge of $1.1 million for inventory obsolescence during the fourth quarter was a result of the less-than- anticipated sales during the second half of fiscal 1998 and the increase in inventory balances caused by the Singapore returns."

Walters went on to say: "The company has concentrated a significant portion of its capital on the design and development of a new family of products, code-named `BrightStar project.' BrightStar gives a similar `look and feel' to currently disparate technologies from Intel, Sun and DEC (now a wholly owned subsidiary of Compaq).

"BrightStar has the ability to collocate these disparate technologies, while making them appear to be similar, sharing the same peripherals, residing in the same chassis and plugging into the same high-performance disk subsystem. The company is initially introducing BrightStar with dual Pentium II 450 MHz CPU.

"BrightStar is presently scheduled for commercial introduction during the quarter ending Dec. 31, 1998."

Founded in 1982, ChatCom, located in Chatsworth, is a supplier of award-winning, managed, consolidated application and communication server systems. ChatCom can be reached at 818/709-1778; Web site www.jlchatcom.com.

Safe-harbor statement under the Private Securities Litigation Reform Act of 1995: Except for the historical information contained herein, certain matters discussed in this news release are forward-looking statements that involve risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting the revenues, operations, markets, products, prices and other factors discussed in the company's various filings with the Securities and Exchange Commission.

                             CHATCOM INC.
                            Balance Sheets
                            (In thousands)

                                                 March 31,   March 31,
                                                   1998        1997
Assets:
 Current assets:
  Cash and equivalents                         $    381    $  1,169
  Accounts receivable, net of allowances
   of $50,000 (1998) and $109,000 (1997)            849       1,334
 Inventories                                      2,636       2,721
 Prepaid expenses and other                          92         108
 Total current assets                             3,958       5,332
 Equipment and fixtures, net                        388         651
 Deposits                                            22          24
                                               $  4,368    $  6,007
Liabilities and shareholders' equity (deficit):
 Current liabilities:
  Accounts payable                             $  3,314    $  1,427
  Accrued expenses                                1,074         687
  Notes payable                                     890
  Current portion of capital lease obligations       15          23
  Total current liabilities                       5,293       2,137
 Capital lease obligations, less current portion     22          12
 Redeemable preferred stock:
  Series E convertible redeemable preferred
   stock, $1,100,000 redemption value net of
   $163,000 of offering costs, authorized 2,000
   shares, issued and outstanding 1,100 shares      937
 Shareholders' equity (deficit):
  Preferred stock, no par value; authorized,
   1 million shares
  Series D convertible preferred stock, $1,000
   stated value per share, authorized 5,000
   shares; issued and outstanding 2,496 shares    1,407       1,407
  Series F convertible preferred stock, $1,000
   stated value per share, authorized 1,000
   shares, issued and outstanding 945 shares        945
  Series G convertible preferred stock, $1,000
   stated value per share, authorized 1,000
   shares, issued and outstanding 400 shares        400
  Common stock, no par value, authorized
   25 million shares, issued and outstanding
   11,591,215 (1998) and 9,826,892 (1997)
   shares                                        11,025      10,090
  Additional paid-in capital                      2,839       2,404
  Accumulated deficit                           (18,500)    (10,043)
  Total shareholders' equity (deficit)           (1,884)      3,858
                                               $  4,368    $  6,007


                             CHATCOM INC.
                       Statements of Operations
           (In thousands, except share and per-share data)
                             (Unaudited)

                            Three months ended       Years ended
                                 March 31,             March 31,
                              1998       1997       1998       1997
Sales:
 Gross sales              $  1,386   $  1,459   $ 10,341   $  9,821
 Returns                      (175)        --     (3,070)      (718)
 Net sales                   1,211      1,459      7,271      9,103
Cost of sales                2,186      1,837      6,671      6,894
Gross profit                  (975)      (378)       600      2,209
Operating expenses:
 Selling                       510        815      3,170      3,262
 General and
  administrative               912        619      2,834      2,339
 Research and
  development                  425        483      2,041      1,246
 Severance expense             100                   100
 Total operating expenses    1,947      1,917      8,145      6,847
Loss from operations        (2,922)    (2,295)    (7,545)    (4,638)
Interest income                 (5)        10          4         49
Interest expense               (32)        --       (231)       (12)
Loss before income
 taxes                      (2,959)    (2,285)    (7,772)    (4,601)
Provision for income
 taxes                          --         --         (1)        --
Net loss                  $ (2,959)  $ (2,285)  $ (7,773)  $ (4,601)
Dividends on preferred
 stock                        (424)       (56)      (684)      (894)
Net loss available to
common shareholders       $ (3,383)  $ (2,341)  $ (8,457)  $ (5,495)
Basic net loss per
 common share             $  (0.32)  $  (0.24)  $  (0.84)  $  (0.61)
Weighted average number
 of common and common-
 share equivalents
 (primary and fully
 diluted)               10,604,443  9,826,892 10,068,865  8,965,743


    CONTACT: ChatCom Inc., Chatsworth
              Gordon Almquist, 818/709-1778
                               [e-mail]