UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 1997
Commission File Number:
0-29194
NEXAR TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3268334
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
182 TURNPIKE ROAD
WESTBOROUGH, MASSACHUSETTS 01581
(Address of principal executive offices)
(508) 836-8700
(Telephone number)
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 [ ] No [ x ]
The number of shares of the registrant's Common Stock, $ 0.01 par value,
outstanding as of May 6, 1997 was 9,200,000.
INDEX
Item Number Page
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1996, March 31, 1997 and Pro
forma as of March 31, 1997 (Unaudited) 3
Condensed Consolidated Statements of
Operations for the three months ended March 31,
1996 and March 31, 1997 (Unaudited) 4
Condensed Consolidated Statements of Cash
Flows for the three months ended March 31,
1996 and March 31, 1997 (Unaudited) 5
Notes to Condensed Consolidated Financial
Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
Part II: Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote
of Security Holders 12-13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Exhibit 11.1 - Computation of Pro forma
Earnings Per Common Share
Exhibit 27 - Financial Data Schedule
Signatures
14
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
(Unaudited)
MARCH 31,
DECEMBER 31, MARCH 31, 1997
1996 1997 PRO FORMA
------------ --------- ---------
ASSETS
Current Assets:
Cash......................... $ 2,739 $ 1,085 $ 1,085
Accounts receivable, net..... 7,747 9,394 9,394
Inventories.................. 6,113 5,948 5,948
Prepaid expenses and other
current assets........... 368 437 437
--------- --------- ---------
Total current assets...... 16,967 16,864 16,864
Property and equipment, net.. 255 312 312
Purchased technology, net.... 1,375 1,260 1,260
Other assets................. 992 1,288 1,288
--------- --------- ---------
$ 19,589 $ 19,724 $ 19,724
========= ========== =========
LIABILITIES AND STOCKHOLDERS'
(DEFICIT) EQUITY
Current Liabilities:
Accounts payable............. $ 4,537 $ 5,471 $ 5,471
Accrued expenses............. 2,005 3,297 3,297
--------- ---------- ---------
Total current liabilities... 6,542 8,768 8,768
Due to related parties....... 22,818 22,818 8,250
--------- ---------- ---------
Commitments and Contingencies
Stockholders' (Deficit) Equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized;
no shares issued and outstanding at
December 31, 1996 and March 31, 1997;
45,684 shares issued and outstanding
pro forma March 31, 1997 -- -- 1
Common stock, $.01 par value, 30,000,000
shares authorized; 4,800,000 shares
issued and outstanding at December 31,
1996 and March 31, 1997; 6,700,000
shares issued and outstanding pro forma
March 31, 1997 48 48 67
Additional paid-in capital......... (48) (48) 14,500
Accumulated deficit.............. (9,771) (11,862) (11,862)
------- -------- --------
Total Stockholders' (Deficit) Equity (9,771) (11,862) 2,706
------- -------- -------
$19,589 $19,724 $19,724
======== ======== =======
See accompanying notes to condensed consolidated financial statements.
3
NEXAR TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share And Per Share Data)
(Unaudited)
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1997
--------- ---------
Net revenues.......................... $ 117 $ 8,825
Cost of revenues...................... 116 8,136
---------- ---------
Gross profit....................... 1 689
Operating expenses:
Research and development........... 67 301
Selling and marketing.............. 327 1,693
General and administrative......... 442 785
---------- ---------
Total operating expenses........... 836 2,779
---------- ---------
Net loss $ (835) $ (2,090)
=========== ==========
Pro forma net loss per common and
common equivalent share............ $ (0.10) $ (0.25)
=========== ==========
Pro forma weighted average number
of common and common equivalent
shares outstanding.................. 8,421,838 8,421,838
========= ==========
See accompanying notes to condensed consolidated financial statements.
4
NEXAR TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1997
--------- ---------
Cash flows from operating activities:
Net loss................................ $ (835) $ (2,090)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization....... 2 141
Changes in current assets and
liabilities:
Accounts receivable............... 196 (1,647)
Inventories....................... (968) 165
Prepaid expenses and other
current assets.................... (16) (69)
Accounts payable.................. 248 934
Accrued expenses.................. (461) 1,292
------- -------
Net cash used in operating
activities........................ (1,834) (1,274)
Cash flows from investing activities:
Purchases of property and equipment.... -- (74)
Increase in other assets............... -- (306)
------- -------
Net cash used in
investing activities................ -- (380)
Cash flows from financing activities:
Due to related parties.............. 1,080 --
------- -------
Net cash provided by
financing activities................ 1,080 --
Net decrease in cash...................... (754) (1,654)
Cash, beginning of period................. 981 2,739
------- -------
Cash, end of period....................... $ 227 $ 1,085
========= =========
Supplemental disclosure of non cash
investing and financing activities:
Deferred offering costs............. $ -- $ 306
========= =========
See accompanying notes to condensed consolidated financial statements.
5
Nexar Technologies, Inc. and Subsidiary
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared by Nexar Technologies, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission regarding interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1996 included in
the Company's Registration Statement on Form S-1 (File No. 333-18489), as
amended (the "Registration Statement"). The accompanying condensed consolidated
financial statements reflect all adjustments (consisting of normal, recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of results for the interim periods presented. The results of
operations for the three month period ended March 31, 1997 are not necessarily
indicative of the results to be expected for the full year.
2.) Principles of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, Intelesys Corporation
(a Delaware corporation). All significant intercompany balances and transactions
have been eliminated in consolidation.
3.) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
December 31, March 31,
(In thousands) 1996 1997
------------ ---------
Raw materials............................. $ 4,214 $ 4,570
Work-in-process........................... 769 812
Finished goods............................ 1,130 566
--------- --------
$ 6,113 $ 5,948
======== ========
Work-in-process and finished goods inventories consist of material,
labor and manufacturing overhead.
6
4.) Unaudited Pro Forma Presentation
The unaudited pro forma condensed consolidated balance sheet as of March 31,
1997 reflects the conversion of $10,000,000 due to related parties into
1,900,000 shares of the Company's common stock and the conversion of $4,568,449
due to related parties into 45,684 shares of convertible preferred stock
effective on the closing of the Company's initial public offering on April 14,
1997. In connection with this conversion of amounts due to related parties, by
agreement between the Company's majority stockholder and the Company, 1,200,000
of the common shares will be held in escrow, subject to a contingent repurchase
right of the Company at a nominal price per share, and will only be released to
the Company's majority stockholder based upon the Company's achievement of
certain revenue, net income, and stock price milestones, as defined, through
December 31, 2000.
5.) Pro Forma Net Loss per Common and Common Equivalent Share
Pro forma net loss per common and common equivalent share is computed by
dividing the net loss by the pro forma weighted average number of common and
common equivalent shares outstanding. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83, and the Accounting Principles Board
(APB) Opinion No. 15, the pro forma weighted average number of common and common
equivalent shares outstanding assumes the conversion of $10,000,000 due to
related parties into 700,000 shares of the Company's common stock (excluding
1,200,000 shares of common stock subject to a contingent repurchase right of the
Company, at a nominal price per share, and will only be released upon the
attainment of certain revenue, net income and stock price milestones, as defined
in an agreement between the Company's majority stockholder and the Company), and
assumes that all common stock and common stock equivalents issued within twelve
months prior to the initial filing of the Company's initial public offering (See
Note 7) have been included in the calculation, using the treasury stock method,
as if they were outstanding for all periods immediately preceding the initial
public offering. Options issued more than twelve months prior to the initial
filing of the Company's initial public offering have not been included as their
effect would be anti-dilutive. Historical net loss per share has not been
presented as such information is not considered to be relevant or meaningful.
6.) Concentration of Credit Risk
Statement of Financial Accounting Standards (SFAS) No. 105, Disclosure of
Information About Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk, requires disclosures
of any significant off-balance-sheet and credit risk concentrations. The Company
has no significant off-balance-sheet concentrations of credit risk such as
foreign currency exchange contracts, options contracts or other foreign hedging
arrangements. Financial instruments that subject the Company to credit risk
consist primarily of cash and trade accounts receivable. The Company places its
cash in highly rated financial institutions. The Company's accounts receivable
credit risk is limited to one customer for the year ended December 31, 1996, who
presented approximately $12,270,000 of total revenues and approximately
7
$4,256,000 of accounts receivable at December 31, 1996. This customer for the
period ended March 31, 1997 represented approximately $1,816,000 of total
revenues and approximately $1,865,000 of accounts receivable. To reduce risk,
the Company routinely assesses the financial strength of its customers and, as a
consequence, believes that its accounts receivable credit risk exposure is
limited. The Company maintains an allowance for potential credit losses. During
the year ended December 31, 1996, the Company sold approximately $430,000 of
product to a company owned by a current and former officer of Nexar. The Company
collected $210,000 of this amount and wrote off the remaining balance,
approximately $220,000, as uncollectible during the year ended December 31,
1996. The Company has not experienced any other significant losses related to
individual customers or groups of customers in any particular industry or
geographic area.
7.) Subsequent Events
The Company completed its initial public offering of 2,500,000 shares of Common
Stock at $9.00 per share on April 14, 1997. Net proceeds to the Company
amounted to $20.3 million.
8
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Nexar Technologies, Inc. (the "Company") was organized and commenced
operations in March of 1995. The Company has focused on developing its products
and its marketing and distribution strategies and did not generate material
revenues until April 1996 when it began shipping its proprietary personal
computers (PCs). The Company develops, manufactures and markets
high-performance, competitively-priced desktop PCs based upon patent pending
technologies.
The table below presents the statement of operations items for the
three months ended March 31, 1996 and March 31, 1997 as a percentage of net
revenues and provides the percentage increase in absolute dollars of such items
comparing the interim periods ended March 31, 1997 to the corresponding period
from the prior fiscal period.
THREE MONTHS ENDED % Change
March 31, March 31, of Dollar
1996 1997 Increase
--------- --------- ---------
Net revenues............................ 100.0% 100.0% 7442.7%
Cost of revenues........................ 99.1 92.2 6913.8
------ ------ -------
Gross profit............................ 0.9 7.8 688.0
Operating expenses:
Research and development............. 57.3 3.4 349.3
Selling and marketing................ 279.5 19.2 417.7
General and administrative........... 377.8 8.9 77.6
----- ---- -----
Total operating expenses............. 714.6 31.5 232.4
----- ---- -----
Net loss................................ (713.7)% (23.7)% 150.3%
======== ======= ======
Net Revenues
Net revenues for the first quarter ended March 31, 1997 increased to
$ 8.8 million as compared to the same period a year ago. The increase over the
comparable period in the prior year is primarily due to higher unit revenues
resulting from initial market acceptance of the Company's proprietary personal
computers.
9
Gross Profit
Gross profit increased to $ 689,000 in the first quarter of 1997
compared to $ 1,000 for the same period in the previous year. As a percentage of
net revenues, gross profit increased to 7.8% for the first quarter of 1997 over
the comparable period in the prior year. The improvement in gross profit was due
to absorption of certain fixed costs as a result of increasing volume shipments
of product. The Company operates in a very price competitive marketplace. The
Company expects that with the introduction of its new products, attainment of
economies of scale and absorption of fixed cost through increased unit volume it
will experience higher gross profits.
Operating Expenses
Research and development costs increased to $ 301,000, or 3.4% of net
revenues in the first quarter of 1997 compared to $ 67,000, or 57.3% of net
revenues in the first quarter of 1996. This increase was attributed to the
continued development of future products including the cost of development
provided by an outside engineering firm.
Selling and marketing expense increased to $ 1.7 million in the first
quarter of 1997 compared to $ 327,000 in the first quarter of 1996. As a
percentage of net revenues, selling and marketing expenses decreased to 19.2% in
the first quarter of 1997 compared to 279.5% in the same period of 1996. Selling
and marketing expense increased in absolute dollars as a result of expenses
associated with higher unit volumes as well as extended marketing efforts aimed
at positioning the Company's products and increasing market share.
General and administrative (G&A) expenses increased to $ 785,000 in the
first quarter of 1997 compared to $ 442,000 in the first quarter of 1996. As a
percentage of net revenues, general and administrative expenses decreased to
8.9% in the first quarter of 1997 compared to 377.8% in the same period of 1996.
G&A expenses increased in absolute dollars due to the strategic hiring of
additional staff and increased operating costs associated with managing the
growth of the Company.
Liquidity and Capital Resources
Since inception, the Company financed its operations primarily through
loans from related parties, which provided aggregate proceeds to the Company of
approximately $22.8 million. At March 31, 1997, the Company had approximately
$1.1 million in cash. On April 14, 1997 the Company completed its initial public
offering and received net proceeds of $ 20,300,000.
The Company has no credit facilities with unaffiliated lenders and
believes that its cash and net proceeds from the initial public offering will be
sufficient to meet its presently anticipated working capital and capital
expenditure requirements for at least the next twelve months.
10
Cautionary Statement
Statements in this report expressing the expectations and beliefs of
the Company regarding its future results or performance are forward-looking
statements that involve a number of risks and uncertainties. In particular,
certain statements contained in the Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical facts
(including, but not limited to, statements concerning anticipated availability
of capital for working capital and for capital expenditures) constitute
"forward-looking statements". The Company's actual future results may differ
significantly from those stated in any forward-looking statements. Factors that
may cause or contribute such differences include, but are not limited to, risks
discussed in the Company's Prospectus dated April 8, 1997 included in its
Registration Statement on Form S-1 (Reg. No. 333-18489) and from time to time in
the Company's other filings with the Securities and Exchange Commission,
including, without limitation, the following, (a) intense competition in the
personal computer business, (b) the Company's dependence on a substantial
customer, (c) the risks associated with rapid substantial growth, (d) the
uncertainty of market acceptance of the Company's products, (e) the dependence
of the Company on outside engineering for the development of its products, (f)
the risks associated with the protection and possible infringement of the
Company's intellectual property, (g) dependence upon a third party to provide
service and support to the Company's customers, (h) dependence on third party
distributors and resellers, and (i) the risks associated with reliance on
suppliers.
As a result of the foregoing and other factors, the Company may
experience material fluctuations in future operating results on a quarterly or
annual basis which could materially and adversely affect its business, financial
condition, operating results and stock price.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
A. By Written Consent dated February 28, 1997, the holders of a
majority of the Common Stock of the Company consented in writing to (1) the
approval of several amendments and a restatement of the Certificate of
Incorporation of the Company for filing (in the form filed as Exhibit 3.2 to the
Registration Statement) with the Secretary of State of Delaware upon the
consummation of the Company's Initial Public Offering (April 14, 1997), (2) an
amendment to the Company's 1995 Stock Option Plan, increasing the number of
shares issuable thereunder to 5,300,000 (in the form filed as Exhibit 10.7 to
the Registration Statement) and, (3) the adoption of the Company's 1996 Director
Stock Option Plan (in the form filed as Exhibit 10.9 to the Registration
Statement) and 1996 Employee Stock Purchase Plan (in the form filed as Exhibit
10.8 to the Registration Statement). The terms of each of these documents are
summarized in the Registration Statement.
B. The Annual Meeting of Stockholders of the Company was held on
March 26, 1997 at which the following matters were approved:
1. Election of Directors
The following individuals were elected directors of
the Company for terms commencing upon the consummation of the Company's
Initial Public Offering (April 14, 1997) until the date of the annual
meeting of the stockholders in the year set forth opposite their
respective names and until their respective successors are duly elected
and qualified.
Buster C. Glosson 1998
Joseph P. Caruso 1998
Joseph E. Levangie 1999
Steven Georgiev 1999
Morton Goldman 2000
Albert J. Agbay 2000
12
Each director's nomination received all 4,600,000
votes cast for election, there being no shares withheld, voted against,
abstained, or subject to a broker non-vote.
2. Ratification of Selection of Independent Auditor
All 4,600,000 votes cast at the Annual Meeting were
voted in favor of the appointment of Arthur Andersen LLP, as the
Company's independent auditor for the year ending December 31, 1997.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11.1 Computation of Pro forma Earnings Per Common Share
Exhibit 27 Financial Data Schedule
No reports have been filed on Form 8-K during the quarter ended March 31, 1997.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NEXAR TECHNOLOGIES, INC.
Date: May 6, 1997 BY /s/ Albert J. Agbay
--------------------------------------
Albert J. Agbay
Chairman, Chief Executive Officer
and President (as authorized officer)
BY /s/ Gerald Y. Hattori
--------------------------------------
Gerald Y. Hattori
Vice President, Finance,
Chief Financial Officer and
Treasurer (as authorized
officer and as principal
financial officer)
14
Exhibit 11.1
Statement Re: Pro forma Earnings Per Share (Unaudited)
THREE MONTHS ENDED
March 31, March 31,
1996 1997
------------ ------------
Net loss $ (835,149) $ (2,090,491)
=========== =============
Weighted average common shares outstanding 4,800,000 4,800,000
Stock issued within twelve months of
initial public offering 2,921,838 2,921,838
Pro forma conversion of amounts due to
related parties 700,000 700,000
Pro forma weighted average number of common
and common equivalent shares outstanding 8,421,838 8,421,838
========= =========
Pro form net loss per share $(0.10) $(0.25)
========= =========
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83,
stock and stock options issued at prices below the initial public offering price
during the twelve month period immediately preceding the initial filing date of
the Company's Registration Statement of its initial public offering have been
included as outstanding for all periods presented. The dilutive effect of the
common stock equivalents are in accordance with the treasury stock method.
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<LEGEND> This Financial Data Schedule contains summary financial information
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ended March 31, 1997 and is qualified in its entirety by reference to such
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