<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 March 31, 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
of incorporation or organization) Identification No.)
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 May 14, 1998 was 10,129,735.
1
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INDEX
Item Number Page
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1997 and March 31, 1998 (Unaudited) 3
Condensed Consolidated Statements of Operations
(Unaudited) for the three months ended March 31, 1997
and March 31, 1998 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the three months ended March 31, 1997
and March 31, 1998 5
Notes to Condensed Consolidated Financial
Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 11
Part II: Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12-14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
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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, MARCH 31,
1997 1998
----------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash cash equivalents and short term investments $ 1,814 $ 2,691
Accounts receivable, net 8,832 6,997
Inventories 4,973 4,993
Prepaid expenses and other current assets 2,191 2,304
--------- ---------
Total current assets 17,810 16,985
Property and equipment, net 810 774
Purchased technology, net 917 802
Other assets 372 362
--------- ---------
$ 19,909 $ 18,923
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 6,177 5,263
Accrued expenses 1,189 1,092
Accrued preferred stock dividends -- 1,067
Due to related parties 462 462
Current maturities of obligations under capital lease 58 60
--------- ---------
Total current liabilities 7,886 7,944
Deferred compensation 750 938
Obligations under capital lease, less current maturities 134 118
--------- ---------
Total liabilities 8,770 9,000
--------- ---------
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000
shares authorized; 45,684 and 77,684 shares issued
and outstanding at December 31, 1997 and at March 31, 1998,
stated at liquidation preference value 4,568 7,768
Common stock, $0.01 par value, 30,000,000
shares authorized; 9,488,715 and 10,009,055 shares issued
and outstanding at December 31,1997 and March 31, 1998,
respectively 95 100
Additional paid in capital 29,594 29,415
Accumulated deficit (23,118) (27,360)
--------- ---------
Total stockholders's equity 11,139 9,923
--------- ---------
$ 19,909 $ 18,923
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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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
------------------
MARCH 31, MARCH 31,
1997 1998
---- ----
<S> <C> <C>
Net revenues $8,825 $3,588
Cost of revenues 8,136 4,103
--------- ----------
Gross profit (loss) 689 (515)
Operating expenses:
Research and development 301 333
Selling and marketing 1,693 969
General and administrative 785 1,365
--------- ----------
Total operating expenses 2,779 2,667
--------- ----------
Loss before interest income (2,090) (3,182)
Interest income 0 7
--------- ----------
Net loss (2,090) (3,175)
Preferred stock dividends --- (1,067)
--------- ----------
Net loss applicable to common
stock ($2,090) ($4,242)
========= ==========
Net loss per common shares:
Basic ($0.44) ($0.48)
========= ==========
Diluted ($0.27) ($0.39)
========= ==========
Weighted average common shares:
Basic 4,800,000 8,809,055
========= ==========
Diluted 7,672,920 10,832,780
========= ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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NEXAR TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31, MARCH 31
1997 1998
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,090) $ (3,175)
Adjustment to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 141 173
Deferred compensation - 188
Changes in current assets and liabilities:
Accounts receivable (1,647) 1,835
Inventories 165 (20)
Prepaid expenses and other current assets (69) (113)
Accounts payable 934 (914)
Accrued expenses 1,292 (111)
--------- ---------
Net cash used in operating activities (1,274) (2,137)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (74) (12)
Increase in other assets (306) -
--------- ---------
Net cash used in investing activities (380) (12)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock - 1
Net proceeds from issuance of preferred stock - 3,025
--------- ---------
Net cash provided by financing activities - 3,026
--------- ---------
Net increase (decrease) in cash and cash
equivalents (1,654) 877
Cash and cash equivalents, beginning of period 2,739 1,814
--------- ---------
Cash and cash equivalents, end of period $ 1,085 $ 2,691
========= =========
Supplemental disclosure of noncash investing
and finacing activities:
Deferred offering costs $ 306 $ -
========= =========
Accrued preferred stock dividends $ - $ 1,067
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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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 annual report on 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 three month period ended March 31, 1998 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), which is inactive. 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:
<TABLE>
<CAPTION>
December 31, March 31,
(In Thousands) 1997 1998
--------- -------
<S> <C> <C>
Raw materials ....................................... $4,519 $3,856
Work-in-process .................................. 110 658
Finished goods .................................... 344 479
------ ------
$4,973 $4,993
====== ======
</TABLE>
Work-in-process and finished goods inventories consist of material, labor
and manufacturing overhead.
6
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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 $1,428,000 and $1,116,000
, respectively, of accounts receivable at March 31, 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.
7
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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 ended March 31, 1997 and March 31, 1998 as a percentage of net revenues
and provides the percentage increase in absolute dollars of such items comparing
the interim periods ended March 31, 1998 to the corresponding period from the
prior fiscal period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED % Charge of
MARCH 31, MARCH 31, Dollar Increase/
1997 1998 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Net revenues 100.0% 100.0% (59.3)
Cost of revenues 92.2% 114.4% (49.6)
-------- -------- -------
Gross profit (loss) 7.8% (14.4)% (174.7)
Operating expenses:
Research and development 3.4% 9.3% 10.6
Selling and marketing 19.2% 27.0% (42.8)
General and administrative 8.9% 38.0% 73.9
-------- -------- -------
Total operating expenses 31.5% 74.3% (4.0)
Net loss before
interest income (23.7)% (88.7)% 52.2
Interest income - 0.2% 100.0
-------- -------- -------
Net loss (23.7)% (88.5)% 51.9
======== ======== =======
</TABLE>
Net Revenues
Net Revenues for the first quarter ended March 31, 1998 were $3.6 million
as compared to $8.8 million during the same period a year ago. The Company
believes that the decline in revenues was attributable in part to increased
competition from larger manufacturers offering competing products, including
surplus inventory, at reduced prices (see "Recent Developments" below), which
adversely affected the number of orders for the Company's new XPA PC product,
which the Company first shipped in volume in the fourth quarter of 1997. Due to
a delay in closing a private placement financing transaction, the Company also
was unable to fulfill some orders due to a lack of sufficient capital to procure
necessary components.
8
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Gross Profit (Loss)
The Company recorded a gross loss of $515,000 in the first quarter of 1998
as compared to a gross profit of $689,000 for the same period in the previous
year. This decrease in gross profit was primarily due to unabsorbed fixed
factory costs as a result of the decreased shipments for the quarter.
Operating Expenses
Research and development expenses in the first quarter of 1998 remained
constant in absolute dollars compared to the same period in the prior year, but
increased as a percentage of revenues to 9.3%, primarily due to the lower
shipment volume during the quarter.
Selling and marketing expenses decreased to $969,000 in the first quarter
of 1998 as compared to $1,693,000 in the first quarter of 1997. This decrease
in absolute dollars was attributable to the higher level of expenses in the
first quarter of 1997 as compared to the same period in the current year for
marketing efforts focused on building brand awareness of the Company's products.
The Company has recently shifted its focus to emphasizing 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 $1,365,000 for the first
quarter of 1998 as compared to $785,000 for the same period of 1997. This
increase was primarily due to increased rent and legal expenses and deferred
compensation charges.
Liquidity and Capital Resources
On March 20, 1998, the Company issued 32,000 shares of Series B Preferred
Stock at $100 per share for total gross proceeds of $3,200,000 (the "Private
Placement"). The Series B Convertible Preferred Stock may be converted, in whole
or in part, into a number of shares of the Company's common stock equal to $100
per share converted by a conversion price equal to the lesser of (i) $3.25 per
share and (ii) 75% of the average closing bid price of the Company's common
stock in the five trading days prior to the date of conversion. See Part II,
Item 2 of this Form 10-Q, "Changes in Securities and Use of Proceeds," for a
full description of the terms of the Private Placement. In connection with the
Private Placement, the Company recorded dividends of $1,067,000 during the
quarter ended March 31, 1998. The accrued preferred stock dividends of
$1,067,000 are payable in common stock upon the conversion of the Series B
Convertible Preferred Stock into shares of the Company's common stock.
The Company continues to operate from its own working capital balance. This
balance at March 31, 1998 was $9.1 million. The primary components of working
capital consists of cash of $2.7 million, accounts receivable of $7.0 million
and inventory of $5.0 million at March 31, 1998.
The Company's capital requirements in connection with its development and
marketing activities have been and will continue to be significant. The Company
believes that amounts available from cash generated from operations, the Private
Placement and future financing transactions which the Company believes it can
consummate, as necessary, will be sufficient to meet the Company's cash
requirements through at least the next twelve months. Cash
9
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requirements for periods beyond the next twelve months depend on the Company's
ability to manage working capital requirements and its growth rate. The Company
may need to raise additional funds sooner in order to fund more rapid expansion,
to develop new or enhanced products, or to respond to competitive pressures.
There can be no assurances that additional financing will be available when
needed on terms favorable to the company or at all. If adequate funds are not
available or are not available on acceptable terms, the Company may be unable to
develop or enhance products or services, take advantage of future opportunities,
or respond to competitive pressures, which could have a material adverse effect
on the Company's business, financial condition or operating results.
Recent Developments
During 1997 many computer manufacturers, including industry leader Compaq
Computer, began offering PCs to home customers for less than $1,000. This has
led to growth in the home PC market, but also increased pressure on price
margins in the corporate, government and educational PC markets in which the
Company primarily competes. Industry forecasters are predicting that prices for
a wide range of PC hardware products will fall significantly during 1998 and
profit margins for makers of corporate PC systems will generally decline.
Although the Company believes that its relationships with its customers are good
and that its focus on increasing sales through private brand OEM agreements and
other strategic distribution agreements is a sound strategy for growth, there
can be no assurance that the recent trends in the industry identified above will
not have a material adverse effect on the Company and preclude it from achieving
profitability in the foreseeable future. Due to these factors, management of
the Company has determined that it is in the best interests of the Company and
its stockholders to explore the possibility of entering into strategic alliances
with larger industry participants. In March 1998, the Company engaged Southport
Partners, L.P., an investment banking firm based in Southport, Connecticut, to
provide advisory services to the Company concerning possible joint venture,
licensing and other potential transactions. The Company is not currently
engaged in any negotiations with respect to any such potential transaction nor
has any determination been made by the Company whether to enter into any such
transaction.
Due to the factors described in the preceding paragraph, the shortfall in the
Company's revenues in the first quarter of 1998, and the uncertainty of
obtaining additional financing as needed, the Company is currently developing
plans to restructure its operations. Such a restructuring could involve, among
other things, cost reductions, outside contract manufacturing, joint ventures or
a combination of these and other initiatives. The Company intends to announce
information regarding a restructuring plan in the next several weeks, but has
not as of the date of this report made any final determination as to the details
of any such plan.
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
10
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capital for working capital) 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
Form 10-K for the period ended December 31, 1997 (File No. 0-29194) and from
time to time in the Company's other filings with the Securities and Exchange
Commission, 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.
Item 3 Quantitative and Qualitative Disclosure About Market Risk.
Not applicable
11
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
On March 20, 1998, pursuant to several substantially similar Private
Placement Purchase Agreements (the "Purchase Agreements), the Company
consummated a private placement financing transaction (the "Private Placement")
resulting in gross proceeds to the Company of $3,200,000. The Company issued an
aggregate of 32,000 shares of the Company's Series B Convertible Preferred Stock
(the "Series B Preferred Stock") in the Private Placement. As compensation for
services rendered as finders in connection with the Private Placement, the
Company also issued to Adar Equities, LLC and Mueller & Company, Inc. cash
compensation of $80,000 each and warrants (the Warrants") exercisable prior to
March 20, 2002 for up to an aggregate of 2,100,000 shares of Common Stock,
subject to the Share Issuance Limit described below, at the following exercise
prices: 1,000,000 shares are exercisable at $4.00 per share; 550,000 shares are
exercisable at $4.25 per share and 550,000 shares are exercisable at $4.75 per
share. Each of the Warrants provide that they are not exercisable to the extent
that following any such exercise, the holder thereof would then be the
"beneficial owner" (as defined in Section 13(d) of the Exchange Act) of 10% or
more of the Company's then outstanding Common Stock. All of the securities sold
in the Private Placement were sold solely to accredited investors under the
Securities Act in a transactions exempt from registration under Section 4(2) of
the Securities Act. In relying upon such exemption (i) the Company did not
engage in any "general solicitation", (ii) each of the purchasers represented
that each had such knowledge and experience in financial and business matters
such that each was capable of evaluating the merits and risks of the prospective
investment and was able to bear the economic risk of such investment, (iii) the
purchasers were provided access to all necessary and adequate information to
enable the purchasers to evaluate the financial risk inherent in making an
investment, and (iv) each of the purchasers represented that each was acquiring
the shares for itself and not for distribution. The Company intends to use the
proceeds of the Private Placement and any exercises of the Warrants for working
capital.
Each share of Series B Preferred Stock is convertible into the number of
shares of Common Stock (subject to the Share Issuance Limit) described in the
following paragraph determined by dividing $100 by the lesser of (a) $3.25 and
(b) 75% of the average of the closing bid price of a share of the Common Stock
during the five trading days prior to such conversion. Until converted, each
share of Series B Preferred Stock is entitled to receive quarterly dividends at
the rate of $5.00 per share per annum, payable in cash or shares of Common Stock
having a market value equal to the dividend payable. As agreed, the Company on
May 1, 1998 filed a registration statement with the Securities and Exchange
Commission (File No. 333-51507) registering the shares of Common Stock issuable
upon conversion of the Series B Preferred Stock, shares of Common Stock issued
in lieu of cash dividends thereon at the option of the Company and shares of
Common Stock issued upon exercise of the Warrants for resale under the
Securities Act. The dividend increases to
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$18.00 per share per annum if resales of the Issuances are not subject to an
effective registration statement under the Securities Act by June 30, 1998 and
to $24.00 a share per annum if resales of shares issued in the Issuances are not
subject to such a registration statement by August 31, 1998. Each share of
Series B Preferred Stock is also entitled to a liquidation preference of $100
per share, plus any accrued but unpaid dividends in preference to any other
class or series of capital stock of the Company. Except as provided by
applicable law, holders of shares of Series B Preferred Stock have no voting
rights. Shares of Series B Preferred Stock are convertible at any time prior to
March 1, 2000, on which date all outstanding shares of the Series B Preferred
Stock will automatically convert into shares of Common Stock at the then
applicable conversion rate.
The exact number of shares of Common Stock issuable upon conversion of the
Series B Preferred Stock and exercise of the Warrants (collectively, the
"Issuances") cannot currently be determined because the number of shares
issuable upon conversion of the Series B Preferred Stock is dependent on future
events, principally consisting of the future trading prices of the Common Stock
and the conversion decisions of holders of shares of the Series B Preferred
Stock. The number of shares of Common Stock issuable as a result of the
conversion of the Series B Preferred Stock generally will vary inversely with
the market price of the Common Stock. Rules of the National Association of
Securities Dealers applicable to the Company require that the Company obtain
approval of its stockholders before the issuance at a price per share below the
greater of market or book value of the Common Stock of securities (or securities
convertible thereinto) having voting power equal to or greater than 20% or more
of the outstanding Common Stock of the Company. Accordingly, the Warrants and
the Certificate of Designation (the "Certificate") for the Series B Preferred
Stock each provide that no more than 2,001,810 shares (the "Share Issuance
Limit") of Common Stock (equal to approximately 19.99 percent of the Common
Stock based on the 10,009,055 shares of Common Stock outstanding as of March 20,
1998) are issuable upon the total aggregate of conversions of the Series B
Preferred Stock and the Warrants (on a first converted/first exercised basis)
until stockholder approval of the Issuances are obtained. The Certificate and
the Warrants require that the Company seek to obtain stockholder approval of the
Issuances at a meeting of stockholders on or prior to June 30, 1998. It is
presently expected that this approval will be sought at the annual meeting of
the Company's stockholders scheduled to be held on June 8, 1998. Under the
terms of Certificate and the Warrants, holders of shares of Common Stock issued
upon conversion of the Series B Preferred Stock or exercise of the Warrants are
not entitled to vote such shares at the annual meeting or any other meeting at
which such approval is sought. The Certificate also provides that shares of the
Series B Preferred Stock shall not be convertible at any time to the extent that
the holder of shares thereof would after such conversions be the beneficial
holder of more than 9.99% of the outstanding shares of Common Stock.
If stockholder approval of the Issuances is not approved by the
stockholders of the Company at a meeting held prior to June 30, 1998, the
holders of the Series B Preferred Stock shall have the right at any time to
require the Company to redeem any portion or all of any outstanding shares of
the Series B Preferred Stock at a price equal to $125 per share which sum would
accrue interest at the rate of 11% per annum until paid. If all 32,000 shares of
Series B Preferred Stock were so redeemed, the Company would be required to pay
the holders thereof a total of $4 million. In addition, during the absence of
such stockholder approval the holders of the Warrants shall have the right to
require the Company to redeem any portion of the Warrants designated by such
holders
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for redemption a redemption price per share equal to the pre-tax profit such
holders would have earned had such holders, at the close of business on the date
of its demand for redemption, exercised the redeemed portion and simultaneously
sold the shares received on such exercise at the closing sales price of the
Common Stock on such date, such redemption price accruing interest at 11% per
annum until paid. There can be no assurance that the Company will have available
cash resources to redeem the Series B Preferred Stock or Warrants if required to
do so. In the event stockholder approval of the Issuances is not obtained,
redemption of a substantial number of shares of Series B Preferred Stock or
Warrants could have a material adverse effect on the Company's financial
condition and its ability to implement its business strategy. Further, if any
such redemption causes the Company to fail to meet the listing requirements of
the Nasdaq National Market, including the requirement that the Company have
tangible net assets in excess of $4 million, the Company would be subject to
delisting.
The issuances of shares of Common Stock upon the conversion of outstanding
shares of Series B Preferred Stock will have no effect on the rights or
privileges of existing holders of Common Stock except that the economic
interests and voting rights of each stockholder will be diluted as a result of
such issuances. Further, prior to conversion, holders of Convertible Preferred
Stock will be entitled to receive dividends and distributions upon a liquidation
of the Company in preference to claims of holders of the Common Stock.
The Company issued on March 9, 1998 a warrant exercisable for up to 150,000
shares of the Company's common stock to Southport Partners, L.P., an investment
banking firm which the Company has engaged to provide strategic and financial
advice. The warrants are exercisable for up to five years at a price per share
of $4.265 subject to vesting upon the occurrence of certain specified events.
The warrants were issued in a transaction exempt from registration under Section
4(2) of the Securities Act.
The Company on January 28, 1998 and March 17, 1998 issued options to
acquire 75,000 and 25,000 shares, respectively, of the Company's common stock to
two consultants. The options are exercisable at a price per share of $5.063 and
$4.50, respectively, for up to five years subject to vesting upon the
achievement of specified performance objectives. The options were each issued in
transactions exempt from registration under Section 4(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
14
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Item 6. Exhibits and Reports on Form 8-K
* Exhibit 4.1 - Form of Private Placement Purchase Agreements
Exhibit 11.1 - Computation of Earnings Per Common Share
Exhibit 27 - Financial Data Schedule
_____________
* Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-3 (File No. 333-51507) filed on May 1, 1998.
No reports were filed on Form 8-K during the quarter ended March 31, 1998.
15
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NEXAR TECHNOLOGIES, INC.
Date: May 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)
16
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Exhibit 11.1
Statement Re: Earnings Per Share (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
March 31, March 31,
1997 1998
------------- -------------
<S> <C> <C>
Net loss applicable to common stock $(2,090,000) $(4,242,000)
=========== ===========
Weighted average common shares outstanding - basic 4,800,000 8,809,055
Common stock options issued at nominal amounts
within twelve months of initial public offering 2,872,920 2,023,725
------------- -------------
Weighted average number of common shares
outstanding - diluted 7,672,920 10,832,780
=========== ===========
Net loss per common share:
Basic $ (0.44) $ (0.48)
=========== ===========
Diluted $ (0.27) $ (0.39)
=========== ===========
</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 March 31, 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 March 31, 1998, such conditions
were not satisfied.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,691
<SECURITIES> 0
<RECEIVABLES> 8,610
<ALLOWANCES> (1,613)
<INVENTORY> 4,993
<CURRENT-ASSETS> 16,985
<PP&E> 774
<DEPRECIATION> (53)
<TOTAL-ASSETS> 18,923
<CURRENT-LIABILITIES> 7,944
<BONDS> 0
0
7,768
<COMMON> 100
<OTHER-SE> 2,055
<TOTAL-LIABILITY-AND-EQUITY> 18,923
<SALES> 3,588
<TOTAL-REVENUES> 3,588
<CGS> 4,103
<TOTAL-COSTS> 4,103
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,175)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,175)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,175)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> (0.39)
</TABLE>
