SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ______.
Commission file Number 0-26492
NETSTAR, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1714009
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
10250 Valley View Road, Suite 113, Eden Prairie MN 55344
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 943-8990
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 ________
As of July 31, 1996, there were 10,647,702 shares of Common Stock outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NETSTAR, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, September 30,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 19,190,771 $ 26,812,544
Accounts receivable, less allowance
for doubtful accounts of
$9,000 at June 30, 1996 1,530,559 685,332
Interest receivable 80,884 44,115
Inventories 4,541,162 2,013,362
Prepaid expenses 992,601 184,436
------------ ------------
Total current assets 26,335,977 29,739,789
PROPERTY AND EQUIPMENT, net 2,985,987 1,176,989
OTHER ASSETS:
Capitalized software, less accumulated
amortization of $30,576 and
$21,405, respectively 18,334 27,505
Purchased software, less accumulated
amortization of $19,820 and
$7,665, respectively 133,890 89,335
Organization costs and other intangibles,
less accumulated amortization of $24,782
and $19,311, respectively 7,935 13,406
Deposits 24,388 21,541
------------ ------------
184,547 151,787
------------ ------------
$ 29,506,511 $ 31,068,565
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Notes payable $ -- $ 4,175,974
Accounts payable 1,677,564 708,801
Accrued expenses 981,368 493,314
Deferred revenue 246,820 130,332
Current portion of capital
lease obligations 64,542 93,478
------------ ------------
Total current liabilities 2,970,294 5,601,899
CAPITAL LEASE OBLIGATIONS, less current portion 57,324 104,746
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 20,000,000 shares
authorized, 10,479,830 and 8,825,480 shares
issued and outstanding, respectively 104,798 88,254
Additional paid-in capital 43,969,101 35,968,276
Accumulated deficit (17,595,006) (10,694,610)
------------ ------------
Total stockholders' equity 26,478,893 25,361,920
------------ ------------
$ 29,506,511 $ 31,068,565
============ ============
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
NETSTAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------------- ----------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES $ 1,804,524 $ 873,216 $ 4,418,474 $ 2,236,233
COST OF REVENUES 1,273,306 583,340 3,069,891 1,483,132
------------ ------------ ------------ ------------
Gross profit 531,218 289,876 1,348,583 753,101
OPERATING EXPENSES:
Research and development 2,014,358 656,524 4,329,419 1,951,379
Market development
and selling 1,445,068 377,058 3,070,859 1,117,327
General and administrative 637,428 245,872 1,741,922 613,440
------------ ------------ ------------ ------------
Total operating expenses 4,096,854 1,279,454 9,142,200 3,682,146
------------ ------------ ------------ ------------
Operating loss (3,565,636) (989,578) (7,793,617) (2,929,045)
INTEREST EXPENSE (6,304) (68,847) (39,376) (71,952)
INTEREST INCOME 261,763 19,614 939,336 84,633
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (3,310,177) (1,038,811) (6,893,657) (2,916,364)
INCOME TAXES 3,272 800 6,739 1,800
------------ ------------ ------------ ------------
NET LOSS $ (3,313,449) $ (1,039,611) $ (6,900,396) $ (2,918,164)
============ ============ ============ ============
NET LOSS PER COMMON AND COMMON
EQUIVALENT SHARE $ (.32) $ (.19) $ (.70) $ (.54)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 10,233,555 5,441,337 9,871,425 5,440,337
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
NETSTAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
June 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,900,396) $ (2,918,164)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 1,018,034 317,164
Changes in assets and liabilities:
Accounts receivable (845,227) (526,945)
Interest receivable (36,769) 2,215
Inventories (2,527,800) (933,604)
Prepaid expenses (865,959) (119,055)
Deposits (2,847) 18,383
Accounts payable 968,763 67,667
Accrued expenses and deferred revenues 604,542 356,344
------------ ------------
Total adjustments (1,687,263) (817,831)
------------ ------------
Net cash used in operating activities (8,587,659) (3,735,995)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,800,235) (403,157)
Capitalized and purchased software (56,710) (97,000)
------------ ------------
Net cash used in investing activities (2,856,945) (500,157)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligations (76,358) (53,839)
Net proceeds from issuance of common stock and warrants to purchase
common stock 6,031,341 179,400
Purchase of fractional shares (53) --
Payment of notes payable (2,132,099) --
Net proceeds from issuance of notes payable -- 3,721,712
------------ ------------
Net cash provided by financing activities 3,822,831 3,847,273
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,621,773) (388,879)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 26,812,544 4,072,620
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,190,771 $ 3,683,741
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash received for interest $ 902,567 $ 86,848
Capital lease obligations entered into for new equipment -- 182,417
NONCASH FINANCING ACTIVITY - During the nine months ended June 30, 1996,
$2,067,901 principal amount of notes payable were converted into 369,268 shares
of the Company's common stock. Unamortized deferred financing costs of $57,794
reduced the amount of additional paid-in capital resulting from the conversion.
See notes to consolidated financial statements.
</TABLE>
NETSTAR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
1. INTERIM FINANCIAL INFORMATION
In the opinion of management, the accompanying unaudited financial
statements contain all necessary adjustments, which are of a normal
recurring nature, to present fairly the financial position of NetStar Inc.
and subsidiary as of June 30, 1996, the results of their operations for
the three months and nine months periods ended June 30, 1996 and 1995 and
their cash flows for the nine months ended June 30, 1996 and 1995, in
conformity with generally accepted accounting principles.
These financial statements should be read in conjunction with the
financial statements and related notes as of and for the year ended
September 30, 1995 contained in the Company's Annual Report on Form 10-K
and with Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing on pages 7 to 10 of this Quarterly Report
on Form 10-Q.
2. INVENTORIES
Inventories consist of the following:
June 30, September 30,
1996 1995
-------------- ---------------
Raw materials $2,377,539 $828,317
Work-in-process 222,739 19,814
Finished goods 1,940,884 1,165,231
-------------- ---------------
$4,541,162 $2,013,362
=============== ===============
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
-------------- -----------------
<S> <C> <C>
Office furniture and equipment $ 720,403 $ 154,676
Machinery and equipment 1,199,265 266,850
Data processing equipment 2,455,901 1,231,318
Product development and management
information systems software 301,654 234,707
Spare parts 436,984 426,421
--------------- ---------------
5,114,207 2,313,972
Less accumulated depreciation
and amortization 2,128,220 1,136,983
--------------- ---------------
$2,985,987 $1,176,989
=============== ===============
</TABLE>
Property and equipment includes assets under capital leases as follows:
June 30, September 30,
1996 1995
-------------- ---------------
Data processing equipment $250,572 $250,572
Machinery and equipment 53,342 53,342
--------------- ---------------
303,914 303,914
Less accumulated amortization 196,087 125,307
--------------- ---------------
$107,827 $178,607
=============== ===============
4. NOTES PAYABLE
In June 1995, the Company issued $4,200,000 of convertible notes payable
(the "Bridge Notes") in a private placement. On October 9, 1995,
$2,067,901 principal amount of the Bridge Notes was converted into 369,268
shares of the Company's common stock at a conversion price of $5.60 per
share (which represents 80% of the price to the public of the shares sold
in the Company's initial public offering). The remaining $2,132,099,
together with interest at 10% per annum, was repaid on October 24, 1995.
The Company incurred costs of $336,415 and original issue discount of
$134,400 relating to the issuance of the Bridge Notes. These costs and the
original issue discount were amortized using the interest method from the
date of issuance through the repayment date of the Bridge Notes, resulting
in additional interest expense of $391,994 for the year ended September
30, 1995. The unamortized portion, $78,821, reduced the amount of
additional paid-in capital resulting from the conversion of the Bridge
Notes in October 1995.
5. STOCKHOLDERS' EQUITY
OVERALLOTMENT OPTION - In connection with the Company's initial public
offering of common stock in September 1995, the Company issued an option
to the underwriter to purchase up to 570,000 shares at $7.00 per share
solely to cover overallotments. This option was exercised in October 1995,
resulting in additional net proceeds of $3,730,650.
WARRANTS - During the nine months ended June 30, 1996, warrants were
exercised that contained a net value exercise provision whereby the
warrants could be exercised without cash for a lesser number of shares
(cashless exercise); the number of shares issued was based on the
relationship of the exercise price of the warrant to the market price of
the Company's common stock. In these transactions, 99,150 shares were
issued in exchange for warrants for 116,896 shares. In connection with
these transactions, the Company purchased fractional shares for $53. Also
during the nine months ended June 30, 1996, the Company received net
proceeds of $1,929,572 when certain holders of warrants exercised the
right to purchase 456,582 shares of common stock at prices ranging from
$1.25 to $5.60 per share.
STOCK OPTIONS - During the nine months ended June 30, 1996, the Company
received proceeds of $413,812 when certain stock option holders exercised
their right to purchase 159,350 shares of common stock at prices between
$1.25 and $5.00 per share.
STOCK OPTION PLAN - The Fiscal 1996 Employee Stock Purchase Plan and the
Fiscal 1996 Nonemployee Director Stock Option Plan (the "Fiscal 1996
Plans") were approved by the Board of Directors on December 6, 1995 and by
the Company's shareholders on March 14, 1996. The aggregate number of
shares that could be issued under the Fiscal 1996 Plans are 400,000 shares
of common stock. The Fiscal 1996 Employee Stock Purchase Plan allows
participating employees to purchase shares of the Company's common stock
at the lower of 85% of the fair market value of the common stock on the
enrollment date or the end date of the phase, as defined. The Fiscal 1996
Nonemployee Director Stock Option Plan provides for the grant of
nonqualified stock options to nonemployee directors in accordance with the
formula set forth therein.
6. PROPOSED MERGER
On May 30, 1996, the Company, Ascend Communications, Inc. (Ascend) and
Nebula Acquisition Corporation, a wholly-owned subsidiary of Ascend
(Nebula), entered into a merger agreement whereby Nebula will be merged
with and into the Company with the Company surviving the merger as a
wholly-owned subsidiary of Ascend, and each of the Company's common shares
will be converted into .35398 of a share of Ascend common stock. The
consummation of the merger is subject to, among other things, the approval
of the Company's shareholders.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NETSTAR, INC. AND SUBSIDIARY
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED JUNE 30, 1996 AND 1995
REVENUES
Revenues for the 1996 quarter were $1,804,524 compared to $873,216 for the
same period in 1995, an increase of 107%. The increase reflects sales of
20 GigaRouters and seven ClusterSwitches in the 1996 quarter compared to
11 GigaRouters and three ClusterSwitches in the 1995 quarter. The average
GigaRouter selling prices were $78,742 in 1996 versus $72,113 in 1995. The
average ClusterSwitch selling prices were $16,215 in 1996 and $17,476 in
1995. The increase in average GigaRouter selling prices primarily resulted
from a price increase instated late in fiscal 1995. The average number of
media cards included in each system was 4.5 in both quarters. The
ClusterSwitch revenue per unit was lower in 1996 because of a lower number
of media cards included in each unit.
Sales to the Company's international distributors were $493,537 in the
1996 quarter compared to $140,912 in the 1995 quarter. In the 1996
quarter, four GigaRouters were sold to a lessor of a domestic Internet
service provider.
COST OF REVENUES
Cost of revenues was $1,273,306, or 70.6% of total revenue, in the 1996
quarter compared to $583,340, or 66.8% of revenue, in the 1995 quarter.
Cost of revenues includes two principal components, the cost of materials
and the costs of the Company's internal manufacturing and support
operations. Cost of materials declined to 40.7% of revenues in the 1996
quarter from 43.2% of revenues in the 1995 quarter due to a customer price
increase instituted late in fiscal 1995 and because of lower costs of some
component parts. The cost of internal manufacturing and support operations
was 29.9% of sales in 1996 compared to 23.6% in 1995. The percentage
increased because the expenses increased.
OPERATING EXPENSES
Total operating expenses were $4,096,854 in the 1996 quarter compared to
$1,279,454 in the 1995 quarter, a $2,817,400 increase. Research and
development increased from $656,524 to $2,014,358, market development and
selling expenses from $377,058 to $1,445,068 and general and
administrative from $245,872 to $637,428. The increases were primarily
attributable to an increase in the number of employees from 51 at June 30,
1995 to 107 at June 30, 1996. For the 1996 quarter, compensation and
related expenses, including amounts classified as cost of sales, were
$2,023,001 compared to $814,456 in the 1995 quarter. The 1996 salary
amounts were $952,752 for research, development and customer support,
$661,280 for market development and selling, $169,922 for manufacturing
and $239,047 for general and administrative. During the 1996 quarter, the
Company also incurred significantly higher expenses than in the 1995
quarter for such items as prototype supplies, depreciation, travel and
entertainment, customer advertising and promotional expenses, public and
investor relations and other consulting fees. These higher expenses were
for development of new product features and in anticipation of a higher
level of future business activity as well as the full quarter effect of a
tripling of the number of employees in the field sales organization that
occurred in the second quarter of fiscal 1996.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense for the 1996 quarter was $6,304 versus $68,847 in the
1995 quarter. The 1995 quarter included interest expense on the Bridge
Notes issued in June of that year. Interest income was $261,763 in the
1996 quarter versus $19,614 in the 1995 quarter, the increase resulted
from the investment of the net proceeds of the September 1995 initial
public offering of common stock.
NET LOSS
The net loss increased to $3,313,449 in the 1996 quarter from $1,039,611
in the 1995 quarter because of an increase in operating expenses of
$2,817,400, partially offset by higher gross profits and net interest
income.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND 1995
REVENUES
Total revenues for the 1996 period were $4,418,474 compared to $2,236,233
for the same period in 1995, an increase of 98%. There were sales of 52
GigaRouters and 18 ClusterSwitches in 1996 compared to 29 GigaRouters and
seven ClusterSwitches in 1995. The average GigaRouter selling prices were
$75,038 in 1996 and $71,742 in 1995. The increase was due to a price
increase in the latter part of fiscal 1995. The average ClusterSwitch
selling prices were approximately $17,000 in each period.
Sales to international distributors were $ 2,615,224 in 1996 compared to
$677,050 in 1995.
COST OF REVENUES
Cost of revenues was 69.5% of total revenue in 1996 compared to 66.3% in
1995. Cost of materials declined to 41.3% of revenues in 1996 from 45.8%
of revenues in 1995 due principally to a customer price increase
instituted late in fiscal 1995 as well as because of lower costs of some
component parts. The cost of internal manufacturing and support operations
was 28.2% in 1996 compared to 20.6% in 1995; the increase was due to
expense increases.
OPERATING EXPENSES
Total operating expenses increased $5,460,054 (to $9,142,200 in 1996 from
$3,682,146 in 1995). The increases were $2,378,040 in research and
development, $1,953,532 in market development and selling and $1,128,482
in general and administrative. The increases were primarily attributable
to an increase in the number of employees as well as to significantly
higher expenses for prototype supplies, travel and entertainment, customer
advertising and promotional expenses, public and investor relations and
other consulting fees.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense was $39,376 in 1996 and $71,952 in 1995. Interest expense
includes $20,567 in 1996 and $62,565 in 1995 for the Bridge Notes that
were issued in June 1995 and which were repaid or converted to equity in
October 1995. Interest income was $939,336 in 1996 and $84,633 in 1995,
the increase resulting from the investment of the net proceeds of the
September 1995 initial public offering of common stock.
NET LOSS
The net loss for the 1996 period was $6,900,396, an increase of $3,982,232
over 1995. An increase in sales contributed to a $595,482 increase in
gross profits, however, operating expenses increased $5,460,054. The
higher operating loss was partially offset by an increase of $887,279 in
net interest income.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $19,190,771 at June 30, 1996 compared to
$26,812,544 at September 30, 1995, a decrease of $7,621,773. The net cash
used in operating activities was $8,587,659, principally from the net loss
for the nine months ended June 30, 1996 Cash used in investing activities
was $2,856,945 for purchases of property, equipment and software. Cash
from investing activities was $3,822,831. During 1996, net proceeds from
the issuance of common stock were $6,031,341, principally from the
exercise of the over-allotment option by the underwriter of the Company's
initial public offering of common stock and the exercise of warrants. The
Bridge Notes issued in June 1995 that were not converted to common stock
were repaid in the amount of $2,132,099. At June 30, 1996, the Company did
not have any material commitments that will result in significant cash
out-flows other than for the purchase of inventory in the ordinary course
of business.
The Company expects that it will continue to incur operating losses and
negative cash flows at least through its fiscal year ending September 30,
1997. The Company believes that existing cash and cash equivalents will
satisfy the Company's working capital and capital expenditures requirement
at least through that period. However, the information set forth in the
preceding two sentences is forward-looking information, and actual results
may differ materially from such information. Therefore, if, for any reason
(including, without limitation, those described below), the Company's
planned operations and expansion require more capital than anticipated,
revenues do not increase as planned, or operating losses are greater than
planned or continue beyond the period anticipated by management, the
Company may need additional financing prior to the end of fiscal 1997 in
order to maintain its operations. There can be no assurance that the
Company would be able to obtain any required additional financing when
needed or that such financing, if obtained, would be on terms favorable or
acceptable to the Company. If the Company was unable to obtain additional
financing when needed and under acceptable conditions, it would be
required to significantly scale back expansion plans and perhaps reduce
the scope of its operations. Factors that may affect the Company's
revenues, use of capital, expenses and/or operating losses include, but
are not limited to, the introduction of competing products with
performance equivalent to or exceeding that of the Company's products, a
claim (whether or not successfully made) that the Company's products
infringe a patent held by another company or individual, any performance
problems involving the Company's products, changes in technology that
could cause the Company's products to become obsolete, the departure of
key members of management and/or key employees, and general economic
conditions.
RECENT ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which requires adoption of the disclosure provisions for
employee transactions no later than fiscal years beginning after December
15, 1995 and adoption of the recognition and measurement provisions for
nonemployee transactions no later than after December 15, 1995. The new
standard defines a fair value method of accounting for stock options and
other equity instruments. Under the fair value method, compensation cost
is measured at the grant date based on the fair value of the award and is
recognized over the service period, which is usually the vesting period.
Pursuant to the new standard, companies are encouraged, but are not
required, to adopt the fair value method of accounting for employee
stock-based transactions. Companies are also permitted to continue to
account for such transactions under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," but would be required
to disclose in a note to the financial statements pro forma net income
(loss) and earnings (loss) per share as if the company had applied the new
method of accounting.
The Company has determined that it will elect not to change to the fair
value method for employee-based stock grants. Adoption of the new standard
for non-employee awards did not affect the Company's cash flows.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On May 30, 1996, the Company, Ascend and Nebula entered into an agreement and
Plan of Merger, as reported on a Current Report on Form 8-K filed by the Company
with the Securities and Exchange Commission ("SEC") on June 4, 1996. The
information set forth in Item 5. of such Current Report on Form 8-K, as well as
Exhibit 99.1 thereto, are hereby incorporated by reference herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The following exhibits are hereby filed as a part of this Quarterly Report
on Form 10-Q:
11.1 Statement re: computation of per share earnings
99.1 Item 5. Of the Company's Current Report on Form 8-K
filed with the SEC on June 4, 1996.
(b) Reports on Form 8-K.
A Current Report on Form 8-K reporting that the Company, Ascend and
Nebula had entered into an Agreement and Plan of Merger dated May
30, 1996 was filed by the Company on June 4, 1996
SIGNATURE
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.
NETSTAR, INC.
August 1, 1996 /s/ Duane S. Carlson
Duane S. Carlson
Executive Vice President, Chief
Financial Officer and Secretary
EXHIBIT INDEX
Exhibit Description
No. of Exhibit
11.1 Statement re: computation of per share loss
99.1 Item 5. of the Company's Current Report on Form
8-K filed with the SEC on June 4, 1996
EXHIBIT 11.1
NETSTAR, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
PER SHARE LOSS COMPUTATIONS
THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1996 AND 1995
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PRIMARY EPS:
Weighted average number of common
shares outstanding 10,233,555 5,025,480 9,871,425 5,024,480
Common stock equivalents from
assumed exercise of options
and warrants -- -- -- --
Common stock equivalents due to SEC
requirements 415,857 -- 415,857
------------ ------------ ------------ ------------
Total Shares 10,233,555 5,441,337 9,871,425 5,440,337
============ ============ ============ ============
Net Loss $ (3,313,449) $ (1,039,611) $ (6,900,396) $ (2,918,164)
============ ============ ============ ============
Per Common Share $ (.32) $ (.19) $ (.70) $ (.54)
============ ============ ============ ============
</TABLE>
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE - The net loss per common and
common equivalent share is based on the weighted average number of common and
common equivalent shares outstanding during the period. Net loss per common and
common equivalent share excludes stock options and warrants as common stock
equivalents when the effect of their inclusion would be antidilutive, except
that, in accordance with Securities and Exchange Commission requirements, common
and common equivalent shares issued during the 12 months prior to the Company's
filing of the initial registration statement relating to its initial public
offering have been included in the calculation (using the treasury stock method
based on the initial public offering price of $7.00 per share) as if they were
outstanding for all periods presented prior to the Company's initial public
offering.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): MAY 30, 1996
NETSTAR, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 0-26492 41-1714009
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
10250 VALLEY VIEW ROAD, SUITE 113
EDEN PRAIRIE, MINNESOTA 55344
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (612) 943-8990
NOT APPLICABLE
(Former name or former address, if changed since last report.)
(The remainder of this page was intentionally left blank.)
ITEM 5. OTHER EVENTS.
On May 30, 1996, NetStar, Inc. ("NetStar"), Ascend Communications, Inc.
("Ascend"), and Nebula Acquisition Corporation (a wholly-owned subsidiary of
Ascend) ("Nebula") entered into an Agreement and Plan of Merger (the
"Agreement"). Under the Agreement, each share of common stock of NetStar, other
than shares beneficially owned by Ascend, Nebula or any other wholly-owned
subsidiary of Ascend, will be converted into .35398 of a share of common stock
of Ascend. Outstanding options and warrants to acquire NetStar common stock will
be converted into Ascend options and warrants, respectively, and an outstanding
option or warrant to acquire one share of NetStar common stock will become an
option or warrant to acquire .35398 of a share of Ascend common stock. The
Agreement has been approved by the respective Boards of Directors of NetStar and
Ascend, and it is subject to the approval of NetStar's shareholders, the receipt
of various governmental approvals and other customary closing conditions. The
acquisition pursuant to the Agreement will be accounted for as a pooling of
interests and is intended to qualify as a tax-free reorganization.
This Current Report on Form 8-K contains forward-looking statements
that involve risks and uncertainties. Actual results may differ from the results
discussed in the forward-looking statements due to many factors including,
without limitation, unanticipated delays in obtaining regulatory approvals or
the approval of the NetStar shareholders.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Not applicable.
(B) PRO FORMA FINANCIAL INFORMATION.
Not applicable.
(C) EXHIBITS.
Exhibit 99.1 Joint Press Release of NetStar and Ascend dated
May 31, 1996.
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 hereunto duly authorized.
NetStar, Inc.
Date: June 4, 1996. By /s/ Wayne A. Zuehlke
Wayne A. Zuehlke
Vice President, Treasurer and Controller
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