<PAGE>
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 June 30, 1998
Commission File Number:
000-29194
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)
257 TURNPIKE ROAD
SOUTHBOROUGH, MASSACHUSETTS 01772
(Address of principal executive offices)
(508) 485-7900
(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 [x] No [_]
The number of shares of the registrant's Common Stock, $ 0.01 par value,
outstanding as of August 14, 1998 was 10,390,901.
1
<PAGE>
INDEX
<TABLE>
<CAPTION>
Item Number Page
<S> <C>
Part I: Introduction 3
Financial Condition 3
Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1997 and June 30, 1998 (Unaudited) 4
Condensed Consolidated Statements of Operations
(Unaudited) for the three months and six months ended
June 30, 1997 and June 30, 1998 5
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the six months ended June 30,1997
and June 30, 1998 6
Notes to Condensed Consolidated Financial
Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
Item 3. Quantitative and Qualitative Disclosure About Market Risk 12
Part II: Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13-14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
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Introduction
This quarterly report, future filings of the Company, press releases of the
Company, and oral statements made with the approval of an authorized executive
officer of the Company, contain or may contain forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," and
similar expressions are intended to identify forward-looking statements. There
are a number of factors that could cause the Company's actual results to differ
materially from those indicated by such forward-looking statements. These
factors include, without limitation, those set forth below under the captions
"Financial Condition," "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Liquidity," "--Certain Factors that May
Affect Future Results", "--Recent Developments," and "Litigation."
Financial Condition
The Company recently has taken the following initial steps as part of its
planned restructuring of the Company's finances and operations: (i) On July 24,
1998, the Company entered into a Commercial Financing Agreement with Porter
Capital Corporation providing for short term secured financing of up to
$850,000; (ii) the Company has entered into negotiations regarding the
"outsource" contract manufacturing of its personal computers and financing
related thereto; (iii) the Company engaged Venture Partners Ltd. of Kensington,
Connecticut to provide advisory services with respect to restructuring its
operations and finances and (iv) the Company has entered into negotiations for
the sublease or early termination of the lease of the Company's 100,000 square
foot manufacturing facility in Hayward California. Notwithstanding these steps,
because of the substantial losses incurred in fiscal 1997 and continuing losses
in fiscal 1998 from its operations, the Company needs to raise additional funds
soon to continue its business at current operating levels. Accordingly, the
Company is also engaged in discussions with potential lenders and investors for
new debt and equity financing of the Company. In the event the Company is
unable to obtain the funds needed to continue its business operations, the
combination of continued losses and concern among the Company's customers and
suppliers about the Company's future viability could force the Company to
substantially curtail or cease its business operations or to seek protection
under insolvency laws. The Company's financial performance during the third and
fourth quarters of 1998 and in the future will depend upon its ability to
purchase goods and services on credit, to meet its obligations as they become
due, and to successfully implement its restructuring plan. No assurance can be
given that the Company will be able to raise the required funds on favorable
terms or on any terms.
3
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
(Unaudited)
DECEMBER 31, JUNE 30,
1997 1998
------------ ---------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,814 $ 806
Accounts receivable, net 8,832 6,242
Inventories 4,973 4,012
Prepaid expenses and other current assets 2,191 2,018
-------- --------
Total current assets 17,810 13,078
Property and equipment, net 810 643
Purchased technology, net 917 688
Other assets 372 352
-------- --------
$ 19,909 $ 14,761
======== ========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable 6,177 4,825
Accrued expenses 1,189 758
Accrued preferred stock dividends - 1,045
Due to related parties 462 462
Current maturities of obligations under
capital lease 58 62
-------- --------
Total current liabilities 7,886 7,152
Deferred compensation 750 1,125
Obligations under capital lease,
less current maturities 134 102
-------- --------
Total liabilities 8,770 8,379
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000
shares authorized; 45,684 and 75,984 shares
issued and outstanding at December 31, 1997
and June 30, 1998, stated at liquidation
preferred value 4,568 7,593
Common stock, $0.01 par value, 30,000,000
shares authorized; 9,488,715 and 10,390,901
shares issued and outstanding at
December 31, 1997 and June 30, 1998,
respectively 95 104
Additional paid in capital 29,594 29,677
Accumulated deficit (23,118) (30,992)
-------- --------
Total stockholders' equity 11,139 6,382
-------- --------
$ 19,909 $ 14,761
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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NEXAR TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share And Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ -----------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1998 1997 1998
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $9,172 $3,864 $17,997 $7,452
Cost of revenues 8,515 4,272 16,651 8,375
-------- -------- -------- --------
Gross profit (loss) 657 (408) 1,346 (923)
-------- -------- -------- --------
Operating expenses:
Research and development 419 334 720 667
Selling and marketing 2,226 1,175 3,919 2,143
General and administrative 740 1,688 1,525 3,054
-------- -------- -------- --------
Total operating expenses 3,385 3,197 6,164 5,864
Net loss before interest
income ($2,728) ($3,605) ($4,818) ($6,787)
Interest income 87 9 87 16
-------- -------- -------- --------
Net loss (2,641) (3,586) (4,731) (6,771)
Preferred stock dividends - (37) - (1,104)
Net loss applicable to
common stock ($2,641) ($3,633) ($4,731) ($7,875)
======== ======== ======== ========
Net loss per common share:
Basic ($0.34) ($0.40) ($0.75) ($0.88)
======== ======== ======== ========
Diluted ($0.25) ($0.33) ($0.52) ($0.73)
======== ======== ======== ========
Weighted average common
shares:
Basic 7,718,681 9,020,957 6,275,556 8,915,006
========== ========== ========== ==========
Diluted 10,591,601 10,924,002 9,148,476 10,818,051
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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NEXAR TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------
JUNE 30, JUNE 30,
1997 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($4,731) ($6,771)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 293 332
Deferred compensation - 375
Changes in current assets and
liabilities:
Accounts receivable (5,761) 2,590
Inventories 1,052 961
Prepaid expenses and other
current assets (480) 173
Accounts payable 369 (1,351)
Accrued expenses (853) (461)
Deferred revenue 1,908 -
------- -------
Net cash used in operating activities (8,203) (4,152)
------- -------
Cash flows from investing activities:
Purchases of property and equipment (240) 85
Increase in other assets 686 -
------- -------
Net cash used in investing activities 446 85
------- -------
Cash flows from financing activities:
Payments made to related parties ($7,700) -
Net proceeds from issuance of common stock 19,687 34
Net proceeds from issuance of preferred stock - 3,025
------- -------
Net cash provided by financing activities $11,987 3,059
------- -------
Net increase (decrease) in cash and cash
equivalents 4,230 (1,008)
Cash and cash equivalents, beginning of period 2,739 1,814
------- -------
Cash and cash equivalents, end of period $ 6,969 $ 806
======= =======
Supplemental disclosure of noncash investing
and financing activities:
Conversion of amounts due to related parties
to preferred stock $ 4,568 -
Conversion of amounts due to related parties
to common stock $10,000 -
Accrued preferred stock dividends - $ 1,045
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
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, 1997 included in
the Company's Form 10-K. 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
six-month period ended June 30, 1998 are not necessarily indicative of the
results to be expected for the full year.
The Company's condensed consolidated financial statements have been presented on
the basis that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
Company has suffered recurring losses from operations and is in need of
additional working capital to fund operating activities. The Company is engaged
in discussions with potential lenders and investors for new debt and equity
financing of the Company. In the event the Company is unable to obtain the funds
needed to continue its business operations, the combination of continued losses
and the concern among the Company's customers and suppliers about the Company's
future viability could force the Company to substantially curtail or cease its
business operations or to seek protection under insolvency laws. There can be no
assurance that the Company can complete a financing transaction on favorable
terms or on any terms.
The accompanying financial statements do not include any adjustments relating to
the recoverability and classification of asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
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), which is inactive. All significant intercompany
balances and transactions have been eliminated in consolidation.
7
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3.) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
(In Thousands) 1997 1998
------------ -------
<S> <C> <C>
Raw materials .................................... $4,519 $3,114
Work-in-process .................................. 110 508
Finished goods ................................... 344 390
------ ------
$4,973 $4,012
====== ======
</TABLE>
Work-in-process and finished goods inventories consist of material, labor
and manufacturing overhead.
4.) 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
includes two customers, who represented approximately $ 833,874 and $687,344,
respectively, of accounts receivable at June 30, 1998. 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.
5.) Initial Public Offering
The Company completed the initial public offering of 2,500,000 shares at $9.00
per share on April 14, 1997. Net proceeds to the Company amounted to $19.7
million. The Company's condensed statement of cash flows for the period ended
June 30, 1997 contains the effect of this transaction.
8
<PAGE>
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. Initially the Company 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 desktop PCs based upon patented and patent pending technologies.
The table below presents the statement of operations items for the three
months and six months ended June 30, 1997 and June 30, 1998 as a percentage of
net revenues and provides the percentage increase in absolute dollars of such
items comparing the interim periods ended June 30, 1998 to the corresponding
period from the prior fiscal period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED % Change of SIX MONTHS ENDED % Change of
JUNE 30, JUNE 30, Dollar Increase/ JUNE 30, JUNE 30, Dollar Increase/
1997 1998 (Decrease) 1997 1998 (Decrease)
------ ------ ---------------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues 100.0% 100.0% (57.9)% 100.0% 100.0% (58.6)%
Cost of revenues 92.8% 110.6% (49.8)% 92.5% 112.4% (49.7)%
----- ----- ------ ------ ----- -----
Gross profit (loss) 7.2% (10.6)% (162.1)% 7.5% (12.4)% (8.9)%
Operating expenses:
Research and development 4.6% 8.6% (20.3)% 4.0% 9.0% (7.4)%
Selling and marketing 24.3% 30.4% (47.2)% 21.8% 28.8% (45.3)%
General and administrative 8.1% 43.7% 128.1 % 8.5% 41.0% 100.3%
----- ----- ------ ------ ----- -----
Total operating expenses 37.0% 82.7% (5.6)% 34.3% 78.7% (4.9)%
Net loss before interest income (29.8)% (93.3)% (32.1)% (26.8)% (91.1)% (40.9)%
Interest income 1.0% 0.2% (89.7)% 0.5% 0.2% (81.6)%
----- ----- ------ ------ ----- -----
Net loss (28.8)% (93.1)% (36.2)% (26.3)% (90.9)% (43.1)%
Preferred stock dividends - (1.0)% - - (14.8)% -
----- ----- ------ ------ ----- ------
Net loss applicable to common stock (28.8)% (94.0)% (37.6)% (26.3)% (105.7)% (66.5)%
===== ===== ====== ====== ===== ======
</TABLE>
Net Revenues
Net revenues for the second quarter ended June 30, 1998 were $3.9 million
as compared to $9.2 million during the same period a year ago. For the six
months ended June 30, 1998 net revenues decreased to $7.5 million as compared to
$18.0 million in the comparable period of 1997. The decline in revenues was
attributable in part to increased competition from larger manufacturers offering
competing products and concern among some of the Company's potential customers
about the Company's future viability. Due to the Company's cash flow
constraints, the Company also was unable to procure the necessary components to
fulfill some of its orders.
9
<PAGE>
Gross Profit (Loss)
The Company recorded a gross loss of $408,000 in the second quarter of 1998 as
compared to a gross profit of $657,000 for the same period in the previous year.
For the six months ended June 30, 1998 the gross loss was $923,000 as compared
to a gross profit of $1,346,000 for the same period a year ago. The decrease in
gross profit for the comparable periods was primarily due to unabsorbed fixed
factory costs, as a result of the decreased shipments for the three months and
six months ended June 30, 1998. In addition, the Company adjusted its inventory
valuation at June 30, 1998 to reflect the reduced component pricing that the PC
industry is experiencing.
Operating Expenses
Research and development expenses in the second quarter and the six months
ended June 30, 1998 decreased in absolute dollars as compared to the same
period(s) in the prior year. Research and development expenses increased as a
percentage of revenues to 8.6% in the second quarter of 1998, as compared to
4.6% for the same period a year ago and for the respective six-month period
increased to 9.0% in 1998 from 4.0% in 1997. This percentage increase was
primarily due to the lower shipment volume during the three months and six
months ended June 30, 1998.
Selling and marketing expenses decreased to $1.2 million in the second quarter
of 1998 as compared to $2.2 million in the second quarter of 1997. For the six
months ended June 30, 1998 selling and marketing expenses decreased to $2.1
million as compared to $3.9 million for the same period a year ago. The decrease
in both the three months and six months periods were attributable to the higher
level of expense in 1997 as compared to the same period(s) in the current year
for marketing efforts focused on building brand awareness of the Company's
products. The Company has shifted its focus to emphasize original equipment
manufacturer (OEM) relationships, but intends to continue to invest in
cooperative sales and marketing efforts with its customers.
General and administrative expenses increased to $1.7 million in the second
quarter of 1998 as compared to $0.7 million for the same period a year ago. For
the six months ended June 30, 1998 these expenses amounted to $3.1 million as
compared to $1.5 million for the same period of 1997. The increase in general
and administrative expenses for the three months and six months periods of 1998
was primarily due to increased legal, outside consulting, rent, directors and
officers insurance, and deferred compensation charges.
Liquidity and Capital Resources.
The Company's working capital has decreased to $5.9 million at June 30, 1998
compared to $9.9 million at December 31, 1997. The Company consummated a short-
term accounts receivable financing arrangement on July 24, 1998 with Porter
Capital Corporation. This financing will allow the Company to receive funds in
advance of payment on certain of its accounts receivable of up to $850,000 and
will assist the Company to fund expenditures for the short term, while the
Company seeks to obtain longer term debt financing and/or private investment
monies.
The Company needs to raise additional funds in the near term to continue its
business at current operating levels. Accordingly, the Company is engaged in
discussions with potential lenders and investors for new debt and equity
financing of the Company. In the event the Company is unable to obtain the funds
needed to continue its business operations, the combination of continued losses
and
10
<PAGE>
the concern among the Company's customers and suppliers about the Company's
future viability could force the Company to substantially curtail or cease its
business operations or to seek protection under insolvency laws. There can be
no assurance that the Company can complete a financing transaction on favorable
terms or on any terms.
Certain Factors that May Affect Future Results
There are a number of factors that could cause the Company's actual results to
differ materially from those indicated by forward-looking statements contained
in this report, in future filings of the Company, press releases of the Company,
and oral statements made with the approval of an authorized executive officer of
the Company. These factors include those set forth above under the captions "--
Financial Condition," and "--Liquidity" and below under the captions "Recent
Developments" and "Litigation." Additional factors that may cause or
contribute to such differences include, but are not limited to, risks discussed
in the Company's Form 10-K for the period ended December 31, 1997 and from time
to time in the Company's other filings with the Securities and Exchange
Commission (the "Commission") (File No. 0-29194), including, without limitation,
the following, (a) the uncertainty of the availability of additional capital to
fund the Company's operations, (b) intense competition in the personal computer
business, (c) the Company's dependence on a substantial customer, (d) the risks
associated with rapid substantial growth, (e) the uncertainty of market
acceptance of the Company's products, (f) the dependence of the Company on
outside engineering for the development of its products, (g) the risks
associated with the protection and possible infringement of the Company's
intellectual property, (h) dependence upon a third party to provide service and
support to the Company's customers, (i) dependence on third party distributors
and resellers, and (j) 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.
Recent Developments
The Company has taken the following initial steps as part of its planned
restructuring of the Company's finances and operations: (i) on July 24, 1998,
the Company entered into a Commercial Financing Agreement with Porter Capital
Corporation providing for short term secured financing of up to $850,000; (ii)
the Company has entered into negotiations regarding the "outsource" contract
manufacturing of its personal computers and financing related thereto; (iii) the
Company engaged Venture Partners Ltd. of Kensington, Connecticut to provide
advisory services with respect to restructuring its operations and finances; and
(iv) the Company has entered into negotiations for the sublease or early
termination of the lease of the Company's 100,000 square foot manufacturing
facility in Hayward, California.
By letter dated July 16, 1998, The Nasdaq Stock Market ("Nasdaq") informed the
Company that the Company was not in compliance with a Nasdaq National Market
listing requirement that the market value of shares of the Company's common
stock held by the public (i.e., publicly traded shares not held by its executive
officers, directors or greater than 10% stockholders) be at least $5 million.
Nasdaq advised the Company that it has until October 16, 1998 to demonstrate
compliance with such requirement by attaining a $5 million market value for such
shares for ten consecutive trading days. Nasdaq further advised the Company
that if it is unable to so comply and obtains no other relief pursuant to Nasdaq
procedural remedies, the Company's common stock will be delisted from the
11
<PAGE>
Nasdaq National Market on October 20, 1998. The Company received a similar
letter from Nasdaq dated August 7, 1998 regarding the failure of the Company's
common stock to maintain a required minimum $1 per share bid price and informing
the Company that it must demonstrate compliance with such per share price
requirement for ten consecutive trading days by November 9, 1998 (in addition to
meeting its other compliance requirements, including those applicable to the
market value of its non-affiliated publicly traded shares described above) in
order to avoid delisting of its shares of common stock from the Nasdaq National
Market on November 11, 1998. Given the Company's ongoing efforts to restructure
its operations, the Company anticipates that it will appeal a potential
delisting to Nasdaq's Listing and Hearing Review Committee and anticipates that
delisting of the Company's common stock may be stayed during the pendency of
such appeal. There can be no assurance, however, that the Company will be able
to maintain the Nasdaq National Market listing for the Company's common stock
(whether as a result of failure to meet the minimum bid price requirement, the
market value requirement or other requirements imposed by the Nasdaq National
Market). The Company's management anticipates that the absence of the Nasdaq
National Market listing for the Company's common stock would have an adverse
effect on the market for, and potentially the market price of, the Company's
common stock. If the Company's common stock is delisted from the Nasdaq National
Market, the Company expects that brokers would continue to make a market in the
Company's common stock on the OTC Bulletin Board.
In March 1998, the Company announced that it had engaged an investment-banking
firm to provide advisory services to the Company concerning a possible joint
venture, a sale of the Company, licensing and other potential transactions.
The Company is not currently engaged in any negotiations with respect to any
such potential transaction.
Item 3 Quantitative and Qualitative Disclosure About Market Risk
Not applicable
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On July 7, 1998, First International Computer, Inc. ("FIC"), a Taiwanese
corporation and the Company's sole supplier of its proprietary motherboards,
filed a lawsuit against the Company in the Superior Court of Alameda County,
California. FIC's complaint seeks damages of $4,150,210 based on its
allegations that the Company has failed to order shipment of goods manufactured
by FIC that FIC alleges it manufactured pursuant to purchase orders submitted by
the Company. The Company believes that the allegations are without merit and
that FIC is attempting to force the Company to pay for finished goods
manufactured by FIC (and surplus component parts acquired by FIC) that were not
subject to firm purchase orders by the Company and for which the Company has no
obligation of payment. The parties have agreed that FIC will continue to supply
the Company with its proprietary motherboards as needed on a cash-on-delivery
basis while the parties attempt to resolve the dispute and the Company will not
be required to file a response to FIC's complaint until at least August 31, 1998
in order that the Company and FIC can engage in discussions seeking to resolve
the matter. If the Company is unable to resolve FIC's claims, it intends to
vigorously defend against FIC's allegations. If the Company is unable to
resolve the dispute, however, there can be no assurance that the Company will be
able to obtain its proprietary motherboards from FIC past August 31, 1998. The
Company does not currently have an alternative supplier of these component parts
and any sustained interruption in the supply of these parts would have a
material adverse effect on the Company.
Item 2. Changes in Securities and Use of Proceeds
In consideration of services rendered, the Company on April 30, 1998 issued
12,500 shares of the Company's common stock to a consultant that is qualified an
accredited investor. These shares were issued in a transaction exempt from
registration under Section 4(6) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The matters set forth below were acted on at the annual meeting of the
stockholders of the Company held on June 22, 1998. The Company solicited
proxies for the annual meeting pursuant to the Commission's Regulation 14; there
was no solicitation in opposition to board of director's nominee for director as
listed in the Proxy Statement or the substitute nominee listed in the Notice of
Postponement for the meeting dated June 1, 1998
1. Steven Georgiev was elected as a director to a three-year term ending on
the date of the annual meeting of stockholders in 2001 and when a successor is
duly elected and qualified. 6,157,444 shares were voted in favor of Mr.
Georgiev's election, 3,745,225 shares were withheld, and no shares were voted
against, abstained, or subject to a broker non-vote. The directors whose term of
office as a director continued after the annual meeting are Joseph E. Levangie
and Albert J. Agbay.
13
<PAGE>
2. Stockholders disapproved a proposal for issuance of shares of common
stock of the Company upon conversion of shares of the Company's Series B
Convertible Preferred Stock and upon the exercise of certain warrants in excess
of an aggregate of 2,001,810 shares of common stock. As to this proposal,
1,038,949 shares were voted in favor, 6,267,599 shares were voted against,
136,871 shares were voted to abstain and 2,459,250 shares were subject to broker
non-votes.
3. Stockholder approved the Board's selection of BDO Seidman, LLP as the
Company's independent auditor for the year ending December 31, 1998. As to this
proposal, 5,721,075 shares were voted in favor, 4,175,944 shares were voted
against, 5,650 shares were voted to abstain and no shares were subject to broker
non-votes.
Item 5. Other Information
Stockholders wishing to bring a proposal before the 1999 annual meeting of the
stockholders (but not include it in the Company's Proxy Statement) must cause
written notice of the proposal to be received by the Secretary of the Company at
the executive offices of the Company at 257 Turnpike Road, Southborough,
Massachusetts 01772 by no later than March 16, 1999.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11.1 - Computation of Earnings Per Common Share
Exhibit 27 - Financial Data Schedule
The Company filed a Form 8-K with the Commission on June 23, 1998 including a
copy of a press release released by the Company on that date regarding the
outcome of matters decided at the annual meeting of stockholders held on June
22, 1998 and other information.
14
<PAGE>
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: August 14, 1998 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)
15
<PAGE>
Exhibit 11.1
Statement Re: Earnings Per Share (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, 1997 June 30, 1998 June 30, 1997 June 30, 1998
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net loss applicable to common stock $ (2,641,000) $ (3,633,000) $ (4,731,000) $ (7,875,000)
------------- ------------- ------------- --------------
Weighted average common shares outstanding-
basic 7,718,681 9,020,957 6,275,556 8,915,006
Common stock options issued at nominal amounts
within twelve months of initial
public offering 2,872,920 1,903,045 2,872,920 1,903,045
------------- ------------- ------------- --------------
Weighted average number of common shares
outstanding-diluted 10,591,601 10,924,002 9,148,476 10,818,051
------------- ------------- ------------- --------------
Net loss per common share:
Basic $ (0.34) $ (0.40) $ (0.75) $ (0.88)
------------- ------------- ------------- --------------
Diluted $ (0.25) $ (0.33) $ (0.52) $ (0.73)
------------- ------------- ------------- --------------
</TABLE>
The Company follows Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share, issued by the Financial Accounting Standards Board. Under
SFAS No. 128, the basic and diluted net loss per share of common stock for the
periods ended June 30, 1997 and 1998 is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period,
including stock options issued at nominal amounts within twelve months of the
Company's initial public offering (IPO). Stock options issued at nominal amounts
within twelve months prior to the Company's IPO are considered outstanding for
all periods presented for the diluted calculation in accordance with the
Securities and Exchange Commission Staff Accounting Bulletin No. 98.
The Company's convertible preferred stock and other convertible instruments are
not considered outstanding for the diluted calculation since their effect is
antidilutive. The weighted average number of common shares outstanding excludes
1,200,000 shares of common stock subject to a contingent repurchase right of the
Company. The 1,200,000 shares will only be released upon the attainment of
certain revenue, net income and stock price milestones, as defined in an
agreement between Palomar and the Company. At June 30, 1998 such conditions were
not satisfied.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 806
<SECURITIES> 0
<RECEIVABLES> 7,219
<ALLOWANCES> (977)
<INVENTORY> 4,012
<CURRENT-ASSETS> 13,078
<PP&E> 723
<DEPRECIATION> (80)
<TOTAL-ASSETS> 14,761
<CURRENT-LIABILITIES> 7,152
<BONDS> 0
0
7,593
<COMMON> 104
<OTHER-SE> (1,315)
<TOTAL-LIABILITY-AND-EQUITY> 14,761
<SALES> 7,452
<TOTAL-REVENUES> 7,452
<CGS> 8,375
<TOTAL-COSTS> 8,375
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 150
<INTEREST-EXPENSE> (16)
<INCOME-PRETAX> (7,875)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,875)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,875)
<EPS-PRIMARY> (0.88)
<EPS-DILUTED> (0.73)
</TABLE>
