<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
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 0-9613
NUCLEAR RESEARCH CORPORATION
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(Exact name of registrant as specified in its charter)
Pennsylvania 1343870
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
125 Titus Avenue
Warrington, Pennsylvania 18976
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 343-5900
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, stated value $5 per share
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(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
There is no trading market for the voting securities of the Registrant.
The Registrant had 28,175 common shares outstanding as of June 30, 1997, of
which 10,725 shares are held by persons who are not officers or directors of the
Registrant.
Documents incorporated by reference: None
<PAGE>
PART I
Item 1. Business.
(a) General. Nuclear Research Corporation (the "Company") was
incorporated on July 17, 1950 under the laws of the Commonwealth of
Pennsylvania. The Company is engaged in the business of designing, manufacturing
and servicing the detection, measurement and monitoring devices and gauges
described below.
(b) Products and Markets. The Company's product categories consist of:
(i) portable radiation detection and health physics measuring instruments
("Health Physics Instruments"); (ii) environmental systems and equipment for
detecting, measuring and monitoring radiation in air, liquid and gases for
nuclear materials ("Environmental Monitoring Systems and Equipment"); and (iii)
temperature/humidity monitoring and alarm systems for food processing plants,
cold storage and transit ("Temperature/Humidity Monitoring Systems"), Geiger
Muller tubes for detecting radiation ("Geiger Muller Tubes") and nuclear gauges
for industrial process control ("Nucleonic Gauges"). The Company sells products
to the United States Government (the "Government"), to foreign governments, and
to utilities and companies in the processing industry, including mining,
chemical, petroleum, steel, paper, glass, transportation and food and beverage
companies.
Net sales contributed by these product categories and their percentage
of total sales are as follows:
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<TABLE>
<CAPTION>
Net Sales
Product Categories (Dollars in Thousands)
For the Fiscal Year Ended June 30,
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1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Health Physics Instruments $ 5,818 $17,641 $21,600
Environmental Monitoring Systems
and Equipment 5,418 7,049 5,143
Nucleonic Gauges, Geiger Muller
Tubes and Temperature/Humidity 967 411 309
Monitoring Systems ------- ------- --------
TOTAL $12,203 $25,101 $27,052
</TABLE>
<TABLE>
<CAPTION>
Product Categories Percentage of Net Sales
For the Fiscal Year Ended June 30,
-------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Health Physics Instruments 47.7% 70.3% 79.9%
Environmental Monitoring Systems
and Equipment 44.4 28.1 19.0
Nucleonic Gauges, Geiger Muller
Tubes and Temperature/Humidity 7.9 1.6 1.1
Monitoring Systems ------- ------ ------
TOTAL 100.0% 100.0% 100.0%
</TABLE>
During the fiscal year ended June 30, 1997 ("fiscal 1997"),
the Company continued its efforts to expand its business in two product lines,
the Temperature /Humidity Monitoring Systems product line and the Geiger Muller
Tube product line, and committed additional resources to upgrade its Nucleonic
Gauges product line.
In July 1995 the Company entered into an operating agreement
for the formation of a New Jersey limited liability company (the "LLC"). The
purpose of the LLC is to develop, manufacture, produce and sell
Temperature/Humidity Monitoring Systems and other related
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products or services. Pursuant to a contribution agreement among the Company and
the other members of the LLC, the Company contributed property, in the form of
cash, inventory and other business assets with a fair market value of $300,000,
in exchange for a 42% membership interest in the LLC. The Company will produce
under a manufacturing agreement the Temperature/Humidity Monitoring Systems
which will be sold by the LLC and will provide administrative services to the
LLC. At June 30, 1997, the LLC's backlog for Temperature/Humidity Monitoring
Systems was $897,000 compared to $17,000 at June 30, 1996. Included in the
backlog at June 30, 1997 is $731,000 of orders which require customer approval
of trial units prior to shipment of production units. Substantially all such
orders are subject to cancellation.
In addition to its efforts to expand its business in its
Temperature/Humidity Monitoring Systems product line, the Company has continued
marketing Geiger Muller Tubes for both military and commercial markets. The
Company believes that the discrete sale of such radiation detectors represents a
continuing diversification of its product line. At June 30, 1997 backlog for
Geiger Muller Tubes was $122,000 compared to $73,000 at June 30, 1996.
During fiscal 1997, the Company dedicated resources toward
broadening and updating its Nucleonic Gauges product line. At June 30, 1997
backlog for Nucleonic Gauges was $46,000 compared to $28,000 at June 30, 1996.
In 1986 the Company obtained two United States patents that
are significant to its business. One patent covers a radiation measurement
apparatus that utilizes a technique used in certain of the Company's Health
Physics and Environmental Monitoring devices. The technique of operation, as
described in the patent, permits more extensive use of a stable, inexpensive
radiation detector that, prior to the invention, was limited to a comparatively
narrow scope of
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use. The possession of this patent allows the Company, in a protected fashion,
to compete in a much broader market. The second patent covers an apparatus that
utilizes a computer program that permits more accurate measurement of radiation
in connection with the apparatus covered by the first patent and is an
improvement over the devices covered by the first patent. The second patent
allows the Company to address additional business opportunities in specialized
low level nuclear measurement. The Government has certain use rights with
respect to these patents. The Company also has obtained corresponding patents in
certain foreign countries. During 1991, the Company obtained a United States
patent relating to a radiation measurement device used in connection with other
products manufactured by the Company. The patents obtained in the United States
have a life of 17 years from the date of grant.
(c) Distribution. The Company's products are marketed directly
to its customers through its own marketing staff and through a variety of
manufacturers' representatives acting as independent commissioned sales agents
and distributors. Commissions range from 3% to 15% depending upon the amount of
follow-up service provided. In certain instances, where opportunities for growth
or expansion are unique, the Company has tailored its agreements with such
representatives with a view to enhance sales efforts. Approximately 75% of all
sales in fiscal 1997 were obtained through the Company's internal marketing
staff which currently consists of seven persons.
(d) Backlog. At June 30, 1997, the Company's backlog of orders
was $18,795,000 compared to $19,195,000 at June 30, 1996. Substantially all such
orders are subject to cancellation. Included in the backlog at June 30, 1997 is
a $3,900,000 contract with a South Korean company which was awarded to the
Company but not signed as of June 30, 1997. The contract was signed on September
18, 1997. The Company expects to ship approximately
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$8,000,000 of the June 30, 1997 backlog in the fiscal year ended June 30, 1998
("fiscal 1998"). Also included in the backlog of orders at June 30, 1997 and
1996, respectively, is $4,200,000 and $7,300,000 which represents the unfunded
amount on a Government contract awarded in May 1996.
The Company was awarded a $10,600,000 contract by the United
States Army in May 1996. The Government exercised options and the current value
of the contract is $11,050,000. The contract represents a continuation of the
Company's manufacturing for the United States Army of a next generation product
that utilizes the Company's patented technique of radiation measurement. The
Company experienced difficulty completing the first article and anticipates
(although there is no assurance of) first article completion by October 1997. In
such event, shipments are expected to commence in the second quarter of fiscal
1997.
The recent completion of several Government contracts may
continue to reduce sales and earnings over one or more succeeding quarters and
until existing backlog and new orders are sufficient to reverse the trend.
Domestic commercial orders for fiscal 1997 were $2,325,000
compared to $3,022,000 for the fiscal year ended June 30, 1996 ("fiscal 1996").
The Company believes that the decrease in domestic commercial orders is
primarily attributable to customer budget constraints which have delayed orders.
(e) Sources of Supply. The Company's products are manufactured
from widely distributed electronic components and fabricated parts made of
metal, plastics and rubber. Nuclear materials are used to calibrate the products
or to create a radiation source for checks or measurements, but are not normally
used in the manufacturing process. Required materials and
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components have been readily available from multiple sources at competitive
prices and the Company foresees no significant problem of availability.
(f) Competitive Conditions. The Company has a limited number
of competitors in each of its product categories. Certain of these companies
have greater capital and technical resources than the Company. Competition in
each of the Company's product categories is based primarily upon price,
technology and ability to deliver.
(g) Customers. Contracts with the Government, including the
United States Department of Defense, decreased from 65.1% of revenues in fiscal
1996 to 31.9% of revenues in fiscal 1997. The decrease resulted from the
fulfillment of certain multi-year contracts and difficulties encountered
completing the first article for a major Government contract. Some of the
products manufactured for the Government are proprietary and others are
manufactured in accordance with Government specifications and drawings. All of
the Company's contracts with the Government provide for termination at the
discretion of the Government for reasons of convenience and/or justifiable
cause. Only four of the Government contracts accepted by the Company in its
47-year history have been terminated by the Government. The final negotiated
settlements in three of those instances did not result in a material loss of
profits on completed portions of the contracts because earned profits were paid
up to the points of termination. However, termination does cause a reduction in
backlog and in projected revenues and profits from the terminated portion of the
contract.
The Government and one foreign power company are the only
customers that accounted for at least 10% of the Company's total revenues in
fiscal 1997. The loss or significant reduction of Government contract work would
be likely to have a material adverse effect on the Company.
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Total foreign shipments accounted for 44% of the Company's
total revenues in fiscal 1997 as compared to 26% in fiscal 1996 and 12% in the
fiscal year ended June 30, 1995 ("fiscal 1995").
Domestic commercial sales for fiscal 1997 increased to
$2,931,000 compared to $2,296,000 for fiscal 1996. The increase in domestic
commercial sales can be accounted for by an increase in the previous year's
domestic commercial orders.
All of the Company's sales to unaffiliated customers are
manufactured in and shipped from the United States. Export sales information
appears below:
<TABLE>
<CAPTION>
For the Year Ended June 30,
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1997 1996 1995
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<S> <C> <C> <C>
Export Sales:
Australia 10,000 $ 106,000 $ --
Europe 906,000 662,000 469,000
Far East 3,818,000 4,966,000 2,299,000
Middle East 29,000 21,000 36,000
North America 619,000 648,000 313,000
Other -- 24,000 15,000
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TOTAL $5,382,000 $6,427,000 $3,132,000
</TABLE>
(h) Regulation. The United States Nuclear Regulatory
Commission ("USNRC") imposes controls on the handling of nuclear materials,
including disposal of material waste and toxic material discharge, as well as
security against loss or theft of nuclear material and the protection of
personnel in or near nuclear environments. The Company is subject to these
regulations and has on staff a qualified health physicist who serves as the
Company's radiation safety officer and supervises the Company's compliance. He
is responsible for the preparation,
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updating and implementation of the Company Radiation Safety Handbook, a copy of
which is on file with the USNRC. The USNRC periodically conducts spot
inspections to determine compliance with its regulations and license
requirements.
The Company considers the maintenance and upgrading of these
controls as well as the maintenance of adequate storage facilities to be normal
costs of business. The Company believes its current facilities and
administrative procedures meet USNRC requirements.
The Company holds licenses granted by the USNRC for the
receipt, use, storage and distribution of various radioisotope source materials
used in its normal course of business. Each of the licenses is for a term of
five years. Prior to their expiration, two licenses were renewed for an
additional five year term. The expiration dates of the licenses are: April 30,
2000; September 30, 2000; January 31, 2001; November 30, 2002; October 31, 2004.
Radiac (radiation detection, identification and computation)
instruments for military use constitute a portion of the Company's foreign
sales. Approval by the Office of Munitions Control of the United States
Department of State is required prior to the issuance of an export license for
such instruments. The Office of Munitions Control can impose certain
restrictions on the sale of these instruments.
(i) Research and Development. The Company has a six person
staff consisting of electronics engineers, nuclear physicists and computer
programmers who perform research and development activities for the Company.
This group spends from 80% to 85% of its time on a project basis in development
of special products for customers and new and improved products for the
Company's own product lines.
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The Company expended $1,054,389 on research in fiscal 1997
compared to $1,096,206 and $1,052,718 in fiscal years 1996 and 1995,
respectively. Customer-sponsored research accounted for $0 in fiscal 1997,
$97,382 in fiscal 1996 and $187,854 in fiscal 1995.
(j) Personnel. At September 1, 1997, the Company had a total
of 132 full-time employees, consisting of 82 employees at the Company's
Warrington, Pennsylvania location and 50 employees at the Company's Dover, New
Jersey location. Of these employees, 64 are engineering and production workers
and the balance are officers, managers, clerical personnel and indirect labor.
None of the Company's employees are represented by a labor union.
Item 2. Properties.
On March 23, 1981, the Company purchased a building at 125
Titus Avenue, Warrington, Pennsylvania for use as the Company's headquarters and
as a manufacturing facility. The building, which is located on a three-acre
site, originally contained approximately 29,000 square feet with approximately
8,000 square feet reserved for offices and engineering laboratories and 21,000
square feet for manufacturing facilities. During fiscal 1996, the Company
completed construction of a 20,000 square foot addition to the Warrington
facility to accommodate increased space requirements and to provide space for
growth. During fiscal 1997, the Company completed additional work in connection
with the new addition, including interior finishing, plumbing and electrical
work, expansion of existing parking lots and installation of exterior lighting.
On January 15, 1982, the Company leased 38,000 square feet of
space on the second floor of a building on Richboynton Road in Dover, New
Jersey, to be used for offices, engineering laboratories and manufacturing
facilities. The lease term was for a period of ten years with a five-year
renewal option which was exercised, effective March 1, 1992. The lease
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expired effective February 28, 1997 and the Company executed a new, two year
lease for the same space, plus an additional 10,000 square feet for storage,
effective March 1, 1997. The new lease provides the Company with three one-year
renewal options. See Note 8 to the Consolidated Financial Statements.
The Company believes that its properties are adequate to meet
its current requirements.
Item 3. Legal Proceedings.
In September 1995, the Company's management ("Management") was
notified that the LLC, Mark A. Sitcoske and a company controlled by Mr.
Sitcoske, Measurement Dynamics, Inc., had been named as co-defendants in a suit
filed on September 7, 1995 in the Superior Court of the State of Rhode Island by
Hanna Manufacturing, Inc. ("Hanna"), a Rhode Island Company that previously
employed Mr. Sitcoske. The suit alleges that the defendants acted in violation
of an existing employment and non-compete agreement between Hanna and Mr.
Sitcoske and seeks to enjoin Mr. Sitcoske from his continued employment with the
LLC and to obtain damages; however, Hanna has not yet sought a hearing to obtain
injunctive relief. The matter is now in discovery and Management expects that
the resolution of this matter will have no material impact on the Company.
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Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
There is no established public trading market for the common
stock of the Company.
As of June 30, 1997, the Company had approximately 1,725
shareholders of record.
The Company did not pay any dividends in fiscal years 1997 and
1996 and does not anticipate paying dividends in the foreseeable future.
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Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
For the Fiscal Year Ended June 30,
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1997 1996 1995 1994 1993
------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 12,202,559 $ 25,100,604 $ 27,051,737 $ 20,852,694 $ 22,201,291
Net Income (Loss) $ (1,300,095) $ 1,706,967 $ 1,278,476 622,353(1) $ 395,179
Net Income (Loss)
Per Common
Share $ (37.94) $ 48.52 $ 38.25 $ 19.69 $ 12.84
Total
Assets $ 11,667,603 $ 13,809,940 $ 11,392,003(2) $ 11,024,694 $ 10,296,249
Long-term
Debt $ 217,895 141,666 $ 379,131 $ 738,870 $ 913,680
Dividends
Declared,
Per Common
Share $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
(1) During fiscal 1994, the final settlement of the Company's insurance
claim related to the partial roof collapse at the Dover Division in
March 1993 resulted in a recorded gain of $323,209.
(2) Certain items in the 1995 financial statements have been reclassified to
conform with their 1996 presentation.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Liquidity and Capital Resources
During fiscal 1997, reductions in costs and estimated earnings
in excess of billing on uncompleted contracts of $2,962,602 combined with an
increase in prepaid taxes on income and tax refund receivables of $849,522 were
the principal factors which affected the cash provided by operating activities.
The decrease in costs and estimated earnings in excess of billings on
uncompleted contracts is primarily attributable to the shipments of several
multi-year contracts during fiscal 1997. The costs and estimated earnings in
excess of billings on uncompleted contracts resulted from the Company's use of
the percentage of completion method for income recognition of several multi-year
contracts. See Note 1 to the Consolidated Financial Statements. The increase in
prepaid taxes on income and tax refund receivable is primarily the
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result of the tax benefit associated with the net loss in fiscal 1997 combined
with the payment of estimated taxes. Increases in inventory of $454,903 combined
with decreases in accounts receivable of $862,763 and accrued expenses and
payroll taxes of $393,014 partially offset cash provided by operating activities
for fiscal 1997. The increase in inventory can be attributed primarily to (a) a
major new Government contract scheduled to ship during fiscal 1998 and (b)
delays in shipment of several commercial contracts. The decrease in accounts
receivable is primarily attributable to substantially higher sales in fiscal
1996 as compared to fiscal 1997. The decrease in accrued expenses and payroll
taxes resulted primarily from a reduction of accrued commission expenses and the
repayment of an outstanding liability.
The Company made capital expenditures in fiscal 1997 in the
aggregate amount of $277,323 to purchase manufacturing and computer equipment
and to make certain expenditures associated with patents. Additionally, $411,086
was expended on the 20,000 square foot addition to the Company's Warrington
facility. Cash used by financing activities for fiscal 1997 decreased to
$101,408 as a result of proceeds on long-term debt in the amount of $511,816
partially offset by payments on long-term debt of $613,224.
During fiscal 1997, the Company increased its working capital
line of credit to $5,500,000 of which $3,325,000 was outstanding at June 30,
1997. The interest rate on this line of credit is payable at the prime rate (8
1/2% as at June 30, 1997) of the Company's lender (the "Bank"). The line of
credit is collateralized by accounts receivable, inventory, property, plant and
equipment, assignment of a letter of credit confirmed and negotiated by the
Bank, assignment of all existing and future Government contracts that exceed
$500,000 and the guaranty of the Company's wholly-owned subsidiary, NRC
Acquisition Corp. ("NRC"), and the LLC. The maximum amount guaranteed by the LLC
is $400,000. The maximum amount
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available for advances under this line of credit is limited to certain standby
letters of credit issued as collateral for performance on long-term contracts
and bids. The value of these standby letters of credit was $272,622 at June 30,
1997. See Notes 4 and 8 to the Consolidated Financial Statements.
The Company also has a long-term note with the Bank at an
interest rate of 8.25%. The note is collateralized by accounts receivable,
inventory, property, plant and equipment and assignment of a letter of credit
confirmed and negotiated by the Bank. The principal balance of this loan at June
30, 1997 was $141,666. See Note 5 to the Consolidated Financial Statements.
On January 14, 1997, the Company entered into a $1,800,000
term loan with repayment based on a five year term, with interest at 7.85% per
annum. In June 1997, the Company negotiated with the Bank the terms of a
Commercial Promissory Note Modification Agreement pursuant to which the
principal amount of the term loan note was reduced to $400,000, the amount of
monthly principal payments thereon was reduced from $20,000 to $8,750 and the
term of the loan was reduced from five years to three years. The note is
collateralized by accounts receivable, inventory, property, plant and equipment,
assignment of a letter of credit confirmed and negotiated by the Bank,
assignment of all existing and future Government contracts that exceed $500,000
and the guaranty of NRC and the LLC. The purpose of this loan is to assist in
financing the working capital requirements of the LLC. The principal balance of
this loan at June 30, 1997 was $271,520. See Note 5 to the Consolidated
Financial Statements.
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The Company believes that, notwithstanding the Company's
recent performance, funds from operations and amounts available under its
present credit facilities will be sufficient to satisfy the Company's operating
cost requirements in the current fiscal year.
Results of Operations
The Company experienced disappointing results in both sales
and earnings during fiscal 1997, in part due to (a) completion of several
Government contracts, (b) decreased sales resulting from the Company's inability
to ship a new product to the Government during the fiscal year, (c) customers'
budget constraints, which have delayed orders, and (d) a lower order base which
Management believes is due to competitive conditions. The aforementioned new
product that the Company was unable to ship to the Government during fiscal 1997
is currently in the first article stage of testing and requires Government
approval prior to shipment. The Company anticipates (although there is no
assurance) that shipments of this product will commence in the second quarter of
fiscal 1998.
The Company anticipates that it will continue to show a net
loss for at least the first two quarters of fiscal 1998 due to (a) its inability
to ship the new product to the Government during the first quarter, to date, in
fiscal 1998, as discussed above, (b) a decrease in orders received during fiscal
1997, (c) delays in the shipment of several commercial contracts, (d) delays in
the Company's realization of the benefits of its cost reduction efforts and (e)
the Company's continued investments toward the growth of the LLC and the
development of opportunities for growth, particularly with respect to its Geiger
Muller Tubes and Nucleonic Gauge product lines.
In January 1997, the Company entered into a term loan in the
amount of $1,800,000, of which amount $1,400,000 was committed for the Company's
acquisition of two
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companies with which it was then in negotiations. Both acquisition attempts
failed and the principal amount of the term loan note was reduced to $400,000.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources." However, the Company continues to
seek acquisition opportunities. In addition, the Company anticipated, but did
not realize, significant growth for the LLC as well as for the Company's Geiger
Muller Tube and Nucleonic Gauge product lines.
In July 1997, the Company reduced its work force in accordance
with reduced sales levels.
Fiscal 1997 Compared with Fiscal 1996
Sales for fiscal 1997 decreased to $12,202,559 from
$25,100,604 for fiscal 1996. The decrease in sales in fiscal 1997 is
attributable to the factors discussed above. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Results of
Operations."
Income (loss) from operations decreased to a loss of
$2,214,398 in fiscal 1997 from income of $2,312,394 in fiscal 1996 because of
reduced sales. Due to reduced sales, gross profit as a percentage of sales
decreased to 17.57% as compared to 27.06% for fiscal 1996.
Selling and administrative expenses increased $49,534 to
$3,076,612 in fiscal 1997. Due to reduced sales, as a percentage of sales,
selling and administrative expenses increased to 25.21% for fiscal 1997 as
compared to 12.06% for fiscal 1996.
During fiscal 1997, the Company continued its practice of
investing in the development of new technologies and new applications of its
existing technologies in an effort to create new business opportunities.
Research and development expenses decreased $41,817 to $1,054,389 for fiscal
1997. Due to reduced sales, as a
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percentage of sales, research and development expenses increased to 8.64% for
fiscal 1997 as compared to 4.37% for fiscal 1996.
Interest expenses decreased $130,268 to $227,128 for fiscal
1997 as a result of decreased borrowings and a reduction in related costs
associated with a letter of credit for a multi-year contract.
The effective tax rate increased from 36% in fiscal 1996 to
39% in fiscal 1997.
FAS 106 - Post Retirement Benefits Other than Pensions and FAS
109 - Accounting for Income Taxes have been issued and are effective for the
years beginning after December 15, 1992. In the opinion of Management, the
adoption of these pronouncements has not had a material effect on the Company's
financial position or its results of operations.
Fiscal 1996 Compared with Fiscal 1995
Sales for fiscal 1996 decreased to $25,100,604 from
$27,051,737 for fiscal 1995. The decrease in sales in fiscal 1996 was primarily
due to the completion of several Government contracts. However, the Company's
aggressive marketing efforts in foreign markets resulted in an increase in
foreign sales of 105% from $3,132,000 in fiscal 1995 to $6,427,000 in fiscal
1996.
Income from operations increased to a record $2,312,394 in
fiscal 1996 from $2,034,346 in fiscal 1995. The increase in income from
operations was primarily due to an increase in shipments of a particular product
line with higher gross margins (which resulted in a more favorable product mix)
which was partially offset by an increase in selling and administrative
expenses. Gross profit as a percentage of sales increased to 27.06% for fiscal
1996 as compared to 20.07% for fiscal 1995.
Selling and administrative expenses increased $994,761 to
$3,027,078 in fiscal 1996. The increase was primarily due to increased
commission expenses and costs associated
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with the LLC. As a percentage of sales, selling and administrative expenses
increased to 12.06% for fiscal 1996 as compared to 7.51% for fiscal 1995.
During fiscal 1996, the Company continued its practice of
reinvesting part of its earnings to develop new technologies and new
applications of its existing technologies in an effort to create new business
opportunities. Research and development expenses increased $43,488 to $1,096,206
for fiscal 1996. The amount of research and development expenses funded
internally for new product development was $998,824 in fiscal 1996, compared to
$864,864 in fiscal 1995. As a percentage of sales, research and development
expenses increased to 4.37% for fiscal 1996 as compared to 3.89% for fiscal
1995.
Interest expenses increased $48,650 to $357,396 for fiscal
1996 as a result of higher borrowings and related costs associated with letters
of credit for several multi-year contracts.
The effective tax rate decreased from 38% in fiscal 1995 to
36% in fiscal 1996.
FAS 106 - Post Retirement Benefits Other than Pensions and
FAS 109 - Accounting for Income Taxes have been issued and are effective for the
years beginning after December 15, 1992. In the opinion of Management, the
adoption of these pronouncements has not had a material effect on the Company's
financial position or its results of operations.
Item 8. Financial Statements and Supplementary Data.
The financial statements are listed under Item 14 in this
Report on Form 10-K.
Item 9. Disagreements on Accounting and Financial Disclosure.
None.
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PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors and officers of the Company are elected for a term
of one year and until their successors are elected and qualified. The Company's
directors and executive officers, and their business experience during the past
five years, are as follows.
Earl M. Pollock, age 78, has been Chairman, President and
Chief Executive Officer of the Company for more than five years.
Dorothy S. Pollock, age 68, is the wife of the President and
has been a Director and Secretary of the Company for more than five years. Mrs.
Pollock takes no active role in the operation of the business.
Charles H. Sulzberger, Jr., age 70, was elected a Director of
the Company on August 10, 1981. Mr. Sulzberger was employed by Lincoln Bank
(since merged with Continental Bank, Norristown, Pennsylvania) from 1973 to
1984, at which time he held the position of Vice President. He is currently
engaged in private investment counseling.
Mark S. Pollock, age 38, was appointed Treasurer and Chief
Financial Officer in May 1988. Mr. Pollock had been the Controller of the
Corporation since November 1987. Mr. Pollock is a Certified Public Accountant.
Mr. Pollock is the nephew of Earl and Dorothy Pollock.
Harold J. Cooley, age 63, was appointed Senior Vice President
of Operations in 1988. Mr. Cooley had been the Vice President of Technical
Support since November 1983.
Compliance with Section 16(a) of the Securities Exchange Act
of 1934
Section 16(a) of the Securities Exchange Act of 1934 (the
"Act"), and the regulations thereunder, requires the Company's officers and
directors and persons who own
-20-
<PAGE>
more than 10% of the registered class of the Company's equity securities
collectively, the "reporting persons") to file reports of ownership
and changes in ownership with the Securities and Exchange Commission and to
furnish the Company with copies of these reports. Based solely on the Company's
review of the copies of these reports received by it, and written
representations received from reporting persons, the Company believes that all
filings required to be made by the reporting persons for the period July 1, 1996
through June 30, 1997 were made on a timely basis.
Item 11. Executive Compensation.
Summary Compensation Table
The following table provides certain summary information
concerning compensation paid or accrued by the Company, for its fiscal year
ended June 30, 1997, to or on behalf of the Company's Chief Executive Officer
and the other most highly compensated executive officers of the Company (the
Company had only three executive officers during fiscal 1997).
-21-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------------
Annual Compensation Awards Payouts
----------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Annual Restricted LTIP All Other
Name and Compensation Stock Options Payouts Compensa-
Principal Position Year Salary ($) Bonus ($) ($) Award(s) ($) SARs (#) ($) tion ($)
- ------------------ ---- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earl M. Pollock 1997 $249,343 -0- -0- -0- -0- -0- $ -0-
Chairman of the 1996 $226,622 -0- -0- -0- -0- -0- $ -0-
Board, President 1995 $229,546 -0- -0- -0- -0- -0- $ -0-
and Chief
Executive Officer
Harold J. Cooley 1997 $230,342 -0- -0- -0- -0- -0- $22,600*
Senior Vice 1996 $225,514 $ 46,153 -0- -0- -0- -0- $17,384*
President, 1995 $280,198 -0- -0- -0- -0- $ -0-
Operations
Mark S. Pollock 1997 $108,000 -0- -0- -0- -0- -0- $ 8,308*
Treasurer and 1996 $106,212 -0- -0- -0- -0- -0- $ -0-
Chief Financial 1995 $ 96,065 -0- -0- -0- -0- -0- $ -0-
Officer
===================================================================================================================================
===================================================================================================================================
</TABLE>
* Payments for accrued, unused vacation time.
Option Holdings
The following table provides information regarding Company
options held by the Company's named executive officers at the end of the
Company's most recent fiscal year (such officers did not exercise any options
during the most recent fiscal year).
-22-
<PAGE>
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
<TABLE>
<CAPTION>
Number of Unexercised
Options/SAR at Fiscal Value of Unexercised
Year-End (#) In-the-Money Options/SARs
Shares Acquired (#) Exercisable/ at Fiscal Year-End ($)(1)
Name on Exercise (#) Value Realized ($) Unexercisable Exercisable/Unexercisable
- ------------------- --------------- ------------------ --------------------- -------------------------
<S> <C> <C> <C> <C>
Earl M. Pollock(2) - - -0- -
Harold J. Cooley - - 2,300/450 $322,763/26,915
Mark S. Pollock - - 700/300 $ 77,007/17,943
===================================================================================================================================
===================================================================================================================================
</TABLE>
(1) There is no trading market for the Company's securities. The fair market
value of the Company's Common Stock is determined by the book value of the
Company's Common Stock. On June 30, 1997, the book value of the Company's Common
Stock was $220.09 per share.
(2) See Item 13 "Certain Relationships and Related Transactions" for a
description of warrants for the purchase of the Company's Common Stock that were
granted to Earl M. Pollock in connection with and as partial consideration for a
loan to the Company by Mr. Pollock and the execution of a non-recourse surety
agreement by Mr. Pollock as security for the Company's credit facilities.
Employment Contracts and Change-in-Control Arrangements
On July 1, 1995, the Company entered into a seven-year
employment agreement with Harold J. Cooley. Pursuant to the employment
agreement, Mr. Cooley is presently entitled to receive base compensation at the
annual rate of $235,040. In addition, at the end of each fiscal year Mr. Cooley
is eligible for a bonus based on certain performance-based criteria. In the
event that the Company terminates Mr. Cooley's employment without cause, the
Company is required to continue to pay Mr. Cooley's base compensation,
determined in accordance with the agreement, for the full term of the agreement.
In the event that Mr. Cooley's employment is terminated due to death, the
Company is required to continue to make all payments otherwise payable pursuant
to the agreement to Mr. Cooley or his beneficiary, as applicable, for a period
of one year following his death. If Mr. Cooley's employment is terminated due to
disability, the Company's sole obligation is to pay Mr. Cooley's last full
year's base compensation for one year following termination due to disability.
-23-
<PAGE>
If the Company merges or consolidates with a company that
controls over 50% of the voting control of the Company or is acquired by any
party not an affiliate of the Company, the Company may terminate the employment
agreement and Mr. Cooley's employment. In the event of such termination, the
Company is required to pay Mr. Cooley his accrued base compensation plus a sum
equal to his most recent two full years' base compensation. One half of such sum
must be paid within thirty days of termination and the balance must be paid
within thirteen months of termination.
Compensation of Directors
Charles H. Sulzberger receives a fee of $500 per meeting of
the Board of Directors that he attends. During fiscal 1997, the Company paid
fees in the aggregate amount of $1,500 to Mr. Sulzberger.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of June 30, 1997, the
number of shares of common stock owned beneficially by all persons known to the
Company who are the beneficial owners of more than 5% of the Company's Common
Stock, by all directors of the Company and by all directors and officers of the
Company as a group.
Amount and Nature of Percent
Beneficial Owner(1) Beneficial Ownership (2) of Class
- ------------------- ------------------------ --------
Earl M. Pollock 15,751 (3) 43.5%
Dorothy S. Pollock 7,751 (4) 27.5%
Harold J. Cooley 2,477 (5) 8.1%
Mark S. Pollock 2,506 (6) 8.6%
Charles H. Sulzberger, Jr. 1,896 6.7%
Directors and officers as 30,381 (3)(5)(6) 77.3%
a group (5 persons)
-24-
<PAGE>
- ------------
(1) The address of each of the persons listed above is 125 Titus Avenue,
Warrington, Pennsylvania 18976.
(2) Based on information furnished to the Company by the directors and officers
of the Company, these persons hold sole voting and dispositive power with
respect to the shares of stock owned by them as of June 30, 1997.
(3) Includes 8,000 shares issuable upon exercise of warrants. Does not include
shares owned by his wife, Dorothy S. Pollock, as to which Mr. Pollock
disclaims beneficial ownership.
(4) Does not include shares owned by her husband, Earl M. Pollock, as to which
Mrs. Pollock disclaims beneficial ownership.
(5) Includes 2,450 shares that Mr. Cooley has the option to purchase, 2,300 of
which are currently exercisable and 150 of which will become exercisable on
November 8, 1997. Excludes an aggregate of 300 shares issuable upon
exercise of options held by Mr. Cooley that are not exercisable within 60
days.
(6) Includes an aggregate of 800 shares issuable upon the exercise of options
granted to Mark S. Pollock, 700 of which are currently exercisable and 100
of which become exercisable on November 8, 1997; also includes 1,681 shares
owned by his father's estate, of which he is a co-executor, as to which
shares he disclaims beneficial ownership. Excludes an aggregate of 200
shares issuable upon exercise of options held by Mark S. Pollock which are
not exercisable within 60 days.
PART IV
Item 13. Certain Relationships and Related Transactions.
In connection with and as partial consideration for a loan
from the Company's President, Earl M. Pollock, which loan was repaid in fiscal
1993, the Company issued to Earl M. Pollock in March 1989 warrants for the
purchase of 5,000 shares of the Company's common stock exercisable in 1,000
share multiples at $100 per share. The warrants initially were to expire on
March 31, 1994 but, as a result of an amendment in July 1991, now expire on
March 31, 2004. In November 1994, in connection with and as partial
consideration for a non-recourse surety agreement executed by Earl M. Pollock as
security for the Company's credit facilities, the Company issued to Mr. Pollock
warrants for the purchase of 3,000 shares of the Company's common stock
exercisable in 1,000 share multiples at $160.28 per share. The
-25-
<PAGE>
warrants expire on November 8, 2004. None of the warrants issued to Earl M.
Pollock have yet been exercised. See Note 12 to the Consolidated Financial
Statements. On January 14, 1997, in connection with the execution of new loan
agreements with the Company, the Bank released the non-recourse surety
agreement. See Notes 4 and 5 to the Consolidated Financial Statements.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this Report.
1. Consolidated Financial Statements:
Report of Independent Public Accountants.
Consolidated Balance Sheets.
Consolidated Statements of Operations.
Consolidated Statements of Stockholders'
Equity.
Consolidated Statements of Cash Flows.
Notes to Consolidated Financial Statements.
2. Consolidated Financial Statement Schedules:
Not applicable.
3. Reports on Form 8-K.
During the fiscal year ended June 30, 1997, the Company
has not filed any Reports on Form 8-K.
4. Exhibits:
Exhibit
Number Description of Exhibits.
- ------- -------------------------
3(a) Articles of Incorporation (incorporated herein by reference
to Exhibit 1 to the Company's Form 10 filed on April 15,
1981).
-26-
<PAGE>
Exhibit
Number Description of Exhibits.
- ------- ------------------------
3(b) By-laws, as amended (incorporated herein by reference to the
Company's Form 10-K for the fiscal year ended June 30,
1987).
4 Specimen stock certificate (incorporated herein by reference
to Exhibit 3 to the Company's Form 10 filed on April 15,
1981).
10(a) Articles of Agreement between Bucks County Industrial
Development Corporation and the Company (relating to
Warrington, Pennsylvania building) (incorporated herein by
reference to Exhibit 5(ii) to the Company's Form 10 filed on
April 15, 1981).
10(b) Agreement for Merger and Plan of Reorganization dated August
5, 1986 among NRC Acquisition Corp., RIL Electronics, Inc.
and the Company (incorporated herein by reference to Exhibit
2 to the Company's Report on Form 8-K filed on August 29,
1986).
10(c)* Stock option issued to Harold J. Cooley dated March 30, 1989
(incorporated herein by reference to Exhibit 10-e to the
Company's Report on Form 10-K for the fiscal year ended June
30, 1989).
10(d)* Warrants issued to Earl Pollock dated March 30, 1989
(incorporated herein by reference to Exhibit 10-f to the
Company's Report on Form 10-K for the fiscal year ended June
30, 1989).
10(e) $150,000 note issued to Earl Pollock dated March 2, 1989
(incorporated herein by reference to Exhibit 10-g to the
Company's Report on Form 10-K for the fiscal year ended June
30, 1989).
10(f)* 1990 Incentive Stock Option and Non-Qualified Option Plan
(incorporated herein by reference to Exhibit 10(h) to the
Company's Report on Form 10-K for the fiscal year ended June
30, 1991).
10(g)* Amendment No. 1 to stock option issued to Harold J. Cooley
(incorporated herein by reference to Exhibit 10(i) to the
Company's Report on Form 10-K for the fiscal year ended June
30, 1991).
10(h)* Amendment No. 1 to warrant issued to Earl Pollock
(incorporated herein by reference to Exhibit 10(j) to the
Company's Report on Form 10-K for the fiscal year ended June
30, 1991).
-27-
<PAGE>
Exhibit
Number Description of Exhibits.
- ------- -------------------------
10(i) Amended note issued to Earl Pollock (incorporated herein by
reference to Exhibit 10(k) to the Company's Report on Form
10-K for the fiscal year ended June 30, 1991).
10(j) Amended and Restated Lease Agreement, dated December 31,
1996, by and between Cadillac Plastic Group, Inc. and the
Company (incorporated herein by reference to Exhibit 10(a)
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1996).
10(k) Term Loan Agreement, dated as of January 14, 1997, between
the Company and CoreStates Bank, N.A. ("CoreStates")
(incorporated herein by reference to Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1997).
10(l) Commercial Promissory Note, dated January 14, 1997, from the
Company to CoreStates (incorporated herein by reference to
Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1997).
10(m) Open-End Mortgage, made on January 14, 1997, by the Company
in favor of CoreStates (incorporated herein by reference to
Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1997).
10(n) Line of Credit Agreement, dated as of January 14, 1997,
between the Company and CoreStates (incorporated herein by
reference to Exhibit 10(d) to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1997).
10(o) Master Demand Note, dated January 14, 1997 from the Company
to CoreStates (incorporated herein by reference to Exhibit
10(e) to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997).
10(p) Open End Mortgage, made on January 14, 1997, by the Company
in favor of CoreStates (incorporated herein by reference to
Exhibit 10(f) to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1997).
10(q) Security Agreement, made on January 14, 1997, between
CoreStates and the Company (incorporated herein by reference
to Exhibit 10(g) to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1997).
10(r) General Assignment of Government Contracts and the Proceeds
Thereof, dated as of January 14, 1997, from the Company to
CoreStates (incorporated herein by reference to Exhibit
10(h) to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997).
10(s) Assignment of Proceeds of Letter of Credit, dated January
14, 1997, from the Company to CoreStates (incorporated
herein by reference to Exhibit 10(i) to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997).
-28-
<PAGE>
10(t)* Warrant issued to Earl M. Pollock dated November 8, 1994
(incorporated herein by reference to Exhibit 10(n) to the
Company's Report on Form 10-K for fiscal 1995).
10(u)* Employment Agreement, dated June 27, 1995, by and between
the Company and Harold J. Cooley (incorporated herein by
reference to Exhibit 10(o) to the Company's Report on Form
10-K for fiscal 1995).
10(v) Operating Agreement of Measurement Dynamics LLC, a New
Jersey limited liability company, dated July 12, 1995, by
and between the Company, Mark Sitcoske and Ernest W. DeLany
(incorporated herein by reference to Exhibit 10(p) to the
Company's Report on Form 10-K for fiscal 1995).
10(w) Commercial Promissory Note Modification Agreement, dated ,
1997, by and between the Company and CoreStates.
11 Computation of earnings per share.
21 The Company's three subsidiaries are NRC Acquisition Corp.,
a Pennsylvania corporation; Northeast Nuclear, Ltd., a
Virgin Islands corporation; and Measurement Dynamics LLC, a
New Jersey limited liability company.
27 Financial Data Schedule
- -----------
*Constitutes management contract or compensatory plan or arrangement
required to be filed as an exhibit to this form.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Annual Report on Form 10-K contains information that is forward looking, such as
information relating to future sales and earnings, shipments, income from
operations, backlog orders to be filled during fiscal 1997, capital
expenditures, availability of materials and components, adequacy of cash
available from the Company's operations and credit facilities and the impact on
the Company of the outcome of certain litigation described herein. Such forward
looking information involves important risks and uncertainties that could
significantly affect expected results in the future from those expressed in any
forward-looking statements made by, or on behalf of, the Company. These risks
and uncertainties include, but are not limited to, uncertainties relating to
economic conditions, acquisitions and divestitures, Government and regulatory
policies, the pricing and availability of equipment, materials and programming,
technological developments and changes in the competitive environment in which
the Company operates.
-29-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on September 29, 1997.
NUCLEAR RESEARCH CORPORATION
By: /s/ Earl M. Pollock
---------------------------
Earl M. Pollock, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on September 29, 1997.
/s/ Earl M. Pollock
- -----------------------------------
Earl M. Pollock, Chairman of the
Board and President (Principal
Executive Officer)
/s/ Mark S. Pollock
- -----------------------------------
Mark S. Pollock, Treasurer and
Chief Financial Officer (Principal
Financial and Accounting Officer)
/s/ Dorothy S. Pollock
- -----------------------------------
Dorothy S. Pollock, Director
/s/ Charles H. Sulzberger, Jr.
- -----------------------------------
Charles H. Sulzberger, Jr., Director
-30-
<PAGE>
INDEX
PAGE
----
Independent Auditors' Report F-2
Consolidated Financial Statements F-3
Consolidated Statements of Operations F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Cash Flows F-5
Consolidated Statements of Stockholders' Equity F-6
Notes to Consolidated Financial Statements F-8
<PAGE>
[LETTERHEAD]
To the Board of Directors
Nuclear Research Corporation
Warrington, Pennsylvania
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of
Nuclear Research Corporation and Subsidiaries as of June 30, 1997 and 1996 and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended June 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Nuclear Research Corporation and Subsidiaries as of June 30, 1997 and 1996 and
the results of their operations and their cash flows for each of the three years
in the period ended June 30, 1997 in conformity with generally accepted
accounting principles.
SCHMELTZER o MASTER GROUP, P.C.
/s/ Schmeltzer o Master Group, P.C.
Certified Public Accountants
Wyncote, Pennsylvania
September 13, 1997
F-2
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- --------
<S> <C> <C> <C> <C>
NET SALES (Note 10) $12,202,559 $25,100,604 $27,051,737
COST OF SALES 10,058,828 18,307,530 21,623,610
----------- ----------- -----------
GROSS PROFIT 2,143,731 6,793,074 5,428,127
SELLING AND ADMINISTRATIVE EXPENSES 3,076,612 3,027,078 2,032,317
RESEARCH AND DEVELOPMENT EXPENSES (Note 1) 1,054,389 1,096,206 1,052,718
INTEREST EXPENSE 227,128 357,396 308,746
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (2,214,398) 2,312,394 2,034,346
OTHER INCOME
Miscellaneous 11,293 41,764 12,252
Interest 2,481 5,922 5,778
----------- ----------- -----------
Other income 13,774 47,686 18,030
----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST (2,200,624) 2,360,080 2,052,376
MINORITY INTEREST IN LOSS OF CONSOLIDATED
SUBSIDIARY (Note 1) 81,056 316,427 -
----------- ----------- ---------
INCOME (LOSS) - before income taxes (benefit) (2,119,568) 2,676,507 2,052,376
Less: income tax (benefit) (Note 11) (819,473) 969,540 773,900
----------- ----------- -----------
NET INCOME (LOSS) $(1,300,095) $ 1,706,967 $ 1,278,476
=========== =========== ===========
PRIMARY EARNINGS (LOSS) PER SHARE (Note 1) $ (37.94) $ 48.52 $ 38.25
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash (Note 1) $ 183,610 $ 174,737
Accounts receivable (Notes 1, 4, and 5) 2,009,541 2,872,304
Inventory (Notes 1, 2, 4, and 5) 5,064,077 4,613,074
Prepaid taxes-on income and tax refund
receivable 849,522 -
Prepaid expenses and other current assets 180,319 260,259
Costs and estimated earnings in excess of
billings on uncompleted contracts (Note 1) 207,604 3,170,206
Deferred income taxes (Note 11) 179,400 46,500
----------- -----------
Total current assets 8,674,073 11,137,080
PROPERTY, PLANT AND EQUIPMENT - Net
(Notes 1, 3, 4, and 5) 2,360,304 2,067,531
OTHER ASSETS
Intangible assets, net (Note 1) 540,417 539,917
Other 92,809 65,412
----------- -----------
Total other assets 633,226 605,329
----------- -----------
TOTAL ASSETS $11,667,603 $13,809,940
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings (Note 4) $ 3,325,000 $ 3,325,000
Current portion of long-term debt (Note 5) 306,837 484,474
Accounts payable 745,365 893,314
Accrued expenses 643,928 1,001,480
Accrued payroll and payroll taxes 200,505 235,967
Taxes payable - on income (Note 11) - 114,145
----------- -----------
Total current liabilities 5,221,635 6,054,380
LONG-TERM DEBT (Note 5) 217,895 141,666
DEFERRED INCOME TAXES (Note 11) 26,964 27,734
MINORITY INTEREST IN EQUITY OF CONSOLIDATED
SUBSIDIARY (Note 1) - 84,956
COMMITMENTS AND CONTINGENCY (Note 8)
STOCKHOLDERS' EQUITY
Common stock
Stated value $5 per share, with 60,000
shares authorized, 31,873 shares issued,
and 28,175 shares outstanding 159,365 159,365
Additional paid-in capital 517,010 517,010
Retained earnings 5,587,087 6,887,182
Less: treasury stock, 3,698 shares at cost (62,353) (62,353)
----------- -----------
Total stockholders' equity 6,201,109 7,501,204
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,667,603 $13,809,940
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,300,095) $ 1,706,967 $ 1,278,476
Adjustments to reconcile net income (loss)
to net cash provided by (used by) operating
activities:
Deferred income taxes (133,670) (47,270) (770)
Depreciation and amortization 430,263 428,008 388,699
Gain on disposition of property and
equipment - (4,000) -
Minority interest in loss of consolidated
subsidiary (81,056) (316,427) -
(Increase) decrease in:
Accounts receivable 862,763 1,254,016 (365,542)
Other receivable - - 695,335
Inventory (454,903) (880,449) 1,494,431
Prepaid taxes - on income and tax
refund receivable (849,522) - -
Prepaid expenses and other assets 79,940 (94,544) (144,235)
Costs and estimated earnings in
excess of billings on uncompleted
contracts 2,962,602 (1,436,654) (1,733,552)
Increase (decrease) in:
Accounts payable (147,949) (661,568) (425,164)
Accrued expenses and payroll taxes (393,014) 273,294 (417,727)
Taxes payable - on income (114,145) (342,910) 350,804
----------- ----------- -----------
NET CASH PROVIDED BY (USED BY) OPERATING
ACTIVITIES 861,214 (121,537) 1,120,755
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (688,409) (1,069,149) (343,427)
Proceeds from sale of equipment - 4,000 -
Increase in other assets (62,524) (50,833) (8,716)
----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (750,933) (1,115,982) (352,143)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) on line of credit - 1,475,000 (525,000)
Proceeds of long-term debt 511,816 300,000 -
Payments of long-term debt (613,224) (417,032) (339,980)
Other - (12,617) -
----------- ----------- -----------
NET CASH PROVIDED BY (USED BY) FINANCING
ACTIVITIES (101,408) 1,345,351 (864,980)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 8,873 107,832 (96,368)
CASH - beginning 174,737 66,905 163,273
----------- ----------- -----------
CASH - ending $ 183,610 $ 174,737 $ 66,905
=========== =========== ===========
SUPPLEMENTARY DISCLOSURES:
Interest paid $ 251,757 $ 355,700 $ 307,195
=========== =========== ===========
Income taxes paid $ 284,704 $ 889,935 $ 434,171
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
Common Stock
-----------------------------
Number
of Share Amount
------------ ----------
Balance at July 1, 1994 28,175 $ 159,365
Net income for the year
ended June 30, 1995 - -
---------- ---------
Balance at June 30, 1995 28,175 159,365
Net income for the year
ended June 30, 1996 - -
---------- ---------
Balance at June 30, 1996 28,175 159,365
Net loss for the year
ended June 30, 1997 - -
---------- ---------
Balance at June 30, 1997 28,175 $ 159,365
========== =========
F-6
<PAGE>
<TABLE>
<CAPTION>
Additional Total
Paid-in Retained Treasury Stockholders'
Capital Earnings Stock Equity
----------- ----------- ------------- --------------
<S> <C> <C> <C>
$ 517,010 $ 3,901,739 $ (62,353) $ 4,515,761
- 1,278,476 - 1,278,476
--------- ----------- ---------- -----------
517,010 5,180,215 (62,353) 5,794,237
- 1,706,967 - 1,706,967
--------- ----------- ---------- -----------
517,010 6,887,182 (62,353) 7,501,204
- (1,300,095) - (1,300,095)
--------- ----------- ---------- -----------
$ 517,010 $ 5,587,087 $ (62,353) $ 6,201,109
========= =========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Nuclear Research Corporation (the Company) was incorporated on
July 17, 1950 under the laws of the Commonwealth of Pennsylvania.
The Company is engaged in the business of designing, manufacturing
and servicing detection, measurement and monitoring devices and
gauges for customers throughout the world, with a majority of its
revenue derived from products primarily manufactured for use by
the United States Department of Defense.
Principles of Consolidation
The consolidated financial statements include the accounts of
Nuclear Research Corporation (the parent), NRC Acquisition
Corporation and Northeast Nuclear, Ltd., wholly-owned
subsidiaries, and Measurement Dynamics LLC (MDLLC), owned 42% by
Nuclear Research Corporation, hereafter referred to collectively
as the "Company". All significant intercompany accounts and
transactions have been eliminated in consolidation. Northeast
Nuclear, Ltd. is a foreign sales corporation (FSC) and as such
files its own corporate tax return. MDLLC is a limited liability
company (LLC) and as such files its own partnership tax return
(see Note 11). MDLLC now has a deficit in its equity account;
therefore, according to generally accepted accounting principles,
the liability in minority interest in equity of consolidated
subsidiary has been reduced to zero on the consolidated balance
sheet at June 30, 1997.
Use of Estimates
Management uses estimates and assumptions in preparing these
financial statements in accordance with generally accepted
accounting principles. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from estimates that were used.
Accounting for Contracts
Substantially all of the Company's contracts are firm-fixed price.
The units of delivery method (a modification of the percentage-of-
completion method) recognizes as revenue the contract price of
units delivered during a period and recognizes the costs allocable
to the delivered units. Estimates of cost to complete are reviewed
and revised periodically throughout the lives of the contracts,
and adjustments to profit resulting from such revisions are
recorded in the accounting period in which the revisions are made.
Losses on specific contracts are recorded by charging any amounts
in excess of estimated realizable value to cost of sales as they
are identified.
F-8
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company recognizes revenues on several fixed-price contracts
using the percentage-of-completion method, measured by the
percentage of cost incurred to date compared to the estimated
total cost for the contracts. That method is used because
management considers total cost to be the best available measure
of progress on the contracts. Because of inherent uncertainties in
estimating costs, it is at least reasonably possible that the
estimates used will change within the near term.
Contract costs include all direct material, direct labor and
indirect costs related to contract performance. Provisions for
estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Changes in estimated job
profitability resulting from job performance, job conditions,
claims, change orders, and settlements are accounted for in the
period in which the changes occur.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess
of amounts billed.
Costs, estimated earnings, and billings on uncompleted contracts
at June 30 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Costs incurred and
estimated earnings
on uncompleted contracts $9,457,954 $6,316,693
Less: Billings to date 9,250,350 3,146,487
---------- ----------
$ 207,604 $3,170,206
========== ==========
Included in accompanying balance sheet under the following
caption:
Costs and estimated earnings
in excess of billings on
uncompleted contracts $ 207,604 $3,170,206
========== ==========
</TABLE>
Cash
The Company maintains cash at a financial institution
headquartered in Philadelphia, Pennsylvania which may exceed
federally insured amounts at times and which may at times
significantly exceed balance sheet amounts due to outstanding
checks.
F-9
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts Receivable
Accounts receivable at June 30, consists of:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
United States Government $ 485,625 $ 777,137
Commercial contracts 757,162 409,385
Foreign contracts 750,066 1,669,094
Unbilled receivables -
U. S. Government 16,688 16,688
---------- ----------
Total $2,009,541 $2,872,304
========== ==========
</TABLE>
The Company does not provide an allowance for doubtful accounts
because of the composition of its customer base, the use of
irrevocable letters of credit for export sales and the lack of any
significant uncollectible amounts in prior years.
Inventory
Inventories, other than inventoried costs relating to long-term
contracts, are stated at the lower of cost (principally last-in,
first-out - LIFO) or market and include material, labor and
factory overhead. Market represents the lower of replacement cost
or estimated net realizable value (see Note 2). Inventoried costs
relating to long-term contracts are stated at the actual
production cost including factory overhead incurred to date,
reduced by amounts identified with revenue recognized on delivered
units. The costs attributed to delivered units under long-term
contracts are based on the estimated average cost of all
manufactured units.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for
maintenance and repairs are charged against operations. Renewals
and betterments that materially extend the life of the assets are
capitalized (see Note 3). Depreciation and amortization are
computed using straight-line and accelerated methods over the
estimated useful lives of the related assets.
Intangible Assets
Intangible assets at June 30, consists of:
1997 1996
--------- ---------
Patents and trademarks, net $ 164,556 $ 142,988
Copyrights, net 2,944 3,312
Other, net 372,917 393,617
--------- ---------
$ 540,417 $ 539,917
========= =========
F-10
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The cost of the patents and trademarks are being amortized using
the straight line method over their remaining useful lives, not to
exceed seventeen years. Accumulated amortization was $90,821 at
June 30, 1997 and $74,943 at June 30, 1996. Amortization expense
amounted to $13,559, $13,956 and $12,261 in 1997, 1996 and 1995,
respectively.
The cost of the copyrights is being amortized using the straight
line method over their remaining useful lives, which has been
determined by management to be five years. Accumulated
amortization was $736 at June 30, 1997 and $368 at June 30, 1996.
Amortization expense was $368 for both the years ended June 30,
1997 and 1996 and $-0- for the year ended June 30, 1995.
Other intangible assets represent the assets contributed to MDLLC
by the minority members of the LLC and include products, product
ideas and various trade names. The assets are being amortized
using the straight line method over their remaining useful lives,
not to exceed nineteen years. Accumulated amortization was $41,083
at June 30, 1997 and $20,383 at June 30, 1996. Amortization
expense was $20,700, $20,383 and $-0- for the years ended June 30,
1997, 1996 and 1995, respectively.
Income Taxes
Deferred income taxes are recorded based upon differences between
the financial statement and the tax basis of assets and
liabilities. The temporary differences include the inclusion of
the loss from MDLLC in the consolidated tax returns of the parent
corporation, depreciation from an involuntary conversion of
property and state net operating loss carryovers (see Note 11).
Research and Development
Research and development costs related to both present and future
products are charged to operations as incurred. These costs
amounted to $1,054,389, $1,096,206 and $1,052,718 in 1997, 1996
and 1995, respectively. Customer-sponsored research accounted for
$-0-, $97,382 and $187,854 in 1997, 1996 and 1995, respectively.
Earnings Per Share
Primary earnings per share amounts are based upon the weighted
average number of common shares outstanding during the periods,
including the common stock equivalents associated with stock
options and warrants (see Note 12).
The weighted average number of shares outstanding and stock
equivalents amounted to 34,267, 35,178 shares and 33,422 shares
for the years ended June 30, 1997, 1996, and 1995, respectively.
F-11
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 2 - INVENTORY
<TABLE>
<CAPTION>
Inventory at June 30, consists of:
1997 1996
----------- --------
<S> <C> <C>
Work-In-Process
United States Government
contracts $ 3,512,367 $ 3,226,042
Commercial contracts 1,421,592 865,157
Purchased and manufactured parts 1,063,454 521,875
----------- -----------
5,997,413 4,613,074
Less: Progress payments on United
States Government contracts 933,336 -
----------- -----------
Total $ 5,064,077 $ 4,613,074
=========== ===========
</TABLE>
The Company uses the last-in, first-out (LIFO) method to determine
its material inventory costs, because it results in a better
matching of costs and revenues. The following information will
facilitate comparison with operating results of companies using
the FIFO method. If the Company's inventory had been determined
using the FIFO method at June 30, 1997 and 1996, reported
inventories would have been higher by $1,143,627 and $1,026,228,
respectively. Reported net income for the year ended June 30, 1997
would have increased by $72,487 ($2.12 per share). Reported net
income for the year ended June 30, 1996 would have decreased by
$1,617 ($.05 per share). Reported net income for the year ended
June 30, 1995 would have increased $92,119 ($2.76 per share). The
proforma effect relating to the use of the FIFO method would have
resulted in the following balances for the consolidated statements
of operations presentation for the years ended June 30, 1997, 1996
and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- --------
<S> <C> <C> <C>
Gross profit $ 2,483,691 $ 6,790,429 $ 5,583,242
=========== =========== ===========
Income (loss) from
operations $(2,100,099) $ 2,309,749 $ 2,189,461
=========== =========== ===========
Net income (loss) $(1,227,608) $ 1,705,350 $ 1,370,595
=========== =========== ===========
</TABLE>
In the year ended June 30, 1996, a reduction in inventory resulted
in a liquidation of LIFO inventory carried at lower costs in prior
years as compared with the cost of 1996 purchases. The effect of
this liquidation was to increase net income by $96,663 ($2.75 per
share).
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30, consists of:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Land and land improvements $ 79,207 $ 79,207
Building and improvements 1,763,490 1,352,404
Equipment and furniture 3,594,427 3,317,104
Leasehold improvements 120,701 120,701
---------- ----------
5,557,825 4,869,416
Less: accumulated depreciation
and amortization 3,197,521 2,801,885
---------- ----------
Total $2,360,304 $2,067,531
========== ==========
</TABLE>
Depreciation and amortization expense amounted to $395,636,
$379,022 and $373,334 in 1997, 1996 and 1995, respectively.
F-12
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 4 - SHORT-TERM BORROWINGS
The Company maintains a working capital line of credit in the
maximum amount of $5,500,000, payable on demand of which
$3,325,000 was outstanding at June 30, 1997. The maximum amount
available under this line of credit is limited by certain
outstanding standby letters of credit in the amount of $272,622 at
June 30, 1997(see Note 8). Interest is payable at the bank's prime
rate (8.5% at June 30, 1997). The line is collateralized by
accounts receivable, inventory, property, plant and equipment,
assignment of a letter of credit confirmed and negotiated by the
bank, and assignment of all existing and future United States
Government contracts that exceed $500,000. The line is guaranteed
by NRC Acquisition Corporation and MDLLC. The maximum amount
guaranteed by MDLLC is $400,000.
The Company maintained a working capital line of credit in the
maximum amount of $5,000,000, payable on demand of which
$3,325,000 was outstanding at June 30, 1996. Interest was payable
at the bank's prime rate (8.0% at June 30, 1996), plus .5%. The
line was collateralized by accounts receivable, inventory,
property, plant and equipment, assignment of a letter of credit
confirmed and negotiated by the bank, and a non-recourse surety
agreement executed by the President and a director for $1,000,000
secured by a pledge of 8,476 shares of the Company's stock (see
Notes 1, 2, and 3). In January, 1997 the President and a director
were released from the non-recourse surety agreement.
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Note payable - bank - payable in monthly installments of $8,750,
including interest at 7.85%, collateralized by accounts
receivable, inventory and property, plant and equipment,
assignment of a letter of credit confirmed and negotiated by the
bank and assignment of all existing and future United States
Government contracts that exceed $500,000 (see Notes 1, 2 and 3).
Guaranteed by NRC Acquisition Corporation and MDLLC.
Payments extend through January, 2000. 271,250 -
</TABLE>
F-13
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 5 - LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Note payable - bank - payable in monthly installments of $8,334
plus interest at 8.25%, collateralized by accounts receivable,
inventory, property, plant and equipment, assignment of a letter
of credit confirmed and negotiated by the bank and a non-recourse
surety agreement executed by the President and a director for
$1,000,000 secured by a pledge of 8,476 shares of the Company's
stock. Payments extend through November, 1998. In January, 1997
the President and a director were released from the non-recourse
surety agreement. 141,666 241,666
Note payable - government - payable in monthly installments of
$8,987 plus interest at 9%. Payments extend through July, 1998. 107,840 -
Note payable - township - payable in monthly installments of $248
plus interest at 4.8%. Payments extend through October, 1998. 3,976 -
Note payable - bank - payable in monthly installments of $28,292,
including interest at 7.95%, collateralized by accounts
receivable, inventory and property, plant and equipment, (see
Notes 1, 2, and 3). Payments extended through June, 1997. - 332,855
Capital lease obligation - payable in monthly installments of
$5,334 including interest at 7.2%, collateralized by certain
equipment. Payments extended through May, 1997. - 51,619
---------- ----------
524,732 626,140
Less: current portion (306,837) (484,474)
---------- ----------
Total long-term debt $ 217,895 $ 141,666
========== ==========
</TABLE>
F-14
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 5 - LONG-TERM DEBT (CONTINUED)
The following schedule represents the annual obligations on
long-term debt outstanding at June 30, 1997:
Year Amount
---- ------
1998 $ 306,837
1999 156,645
2000 61,250
----------
Total $ 524,732
==========
NOTE 6 - STATEMENT OF CASH FLOWS
Supplementary information regarding non-
cash investing and financing activities:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Non-cash acquisition of
intangible assets $ - $ 414,000 $ -
========= ========= ========
Disposition of fully
depreciated property and
equipment $ - $ - $ 12,721
========= ========= =========
Non-cash disposal
of minority interest
inventory $ 3,900 $ - $ -
========= ========= =========
</TABLE>
NOTE 7 - RETIREMENT PLAN
The Company sponsors a 401(k) retirement plan which is funded
entirely by employee contributions and covers substantially all
full-time eligible employees.
NOTE 8 - COMMITMENTS AND CONTINGENCY
Lease Obligations
The Company leases administrative and manufacturing facilities
under an operating lease that expired February, 1997. The lease
was renewed for two years, which now expires in February, 1999
with three separate one year renewal options. The lease generally
provides that the Company pays the taxes, insurance and
maintenance expenses related to the leased property.
The minimum future rentals under this lease as of June 30, 1997
are as follows:
Year ending June 30, Amount
-------------------- ------
1998 $ 82,000
1999 54,667
---------
Total $ 136,667
=========
F-15
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 8 - COMMITMENTS AND CONTINGENCY (CONTINUED)
Rent expense associated with operating leases amounted to $66,681,
$54,103 and $59,022 in 1997, 1996 and 1995, respectively.
Employment Agreements
The Company has employment agreements with two officers which call
for future minimum payments for each of the next five years as
follows:
Years ending June 30, Amount
--------------------- -------
1998 $359,840
1999 $235,040
2000 $235,040
2001 $235,040
2002 $235,040
Thereafter $ -
Standby Letters of Credit
The Company is contingently liable for standby letters of credit
aggregating $1,046,925 as of June 30, 1997, as collateral for
performance on long-term contracts.
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value:
Long-Term Debt
The fair value of the corporation's long-term debt is estimated
based on the quoted market prices for the same or similar issues
or on the current rates offered to the corporation for debt of the
same remaining maturities.
The estimated fair values of the corporation's financial
instruments are as follows:
1997 1996
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- --------
Long-term debt $524,732 $522,482 $626,140 $619,047
F-16
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 10 - MAJOR CUSTOMERS AND EXPORT SALES
Total sales in fiscal 1997 included 31.9% to various branches of
the United States Department of Defense excluding sales to private
contractors who in turn sell to the United States Government.
Sales to the United States Department of Defense in 1996 and 1995
accounted for 65.1% and 78.5% of total sales, respectively.
Export sales in U. S. dollars were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Australia $ 10,000 $ 106,000 $ -
Europe 906,000 662,000 469,000
Far East 3,818,000 4,966,000 2,299,000
Middle East 29,000 21,000 36,000
North America 619,000 648,000 313,000
Other - 24,000 15,000
---------- ---------- ----------
Total $5,382,000 $6,427,000 $3,132,000
========== ========== ==========
</TABLE>
The majority of export sales are secured by irrevocable letters of
credit.
NOTE 11 - INCOME TAXES
Provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Federal:
Current tax (benefit) $ (682,726) $ 834,484 $ 589,581
Deferred provision (benefit) (708) (41,708) (708)
State:
Current tax - 182,326 185,089
Deferred benefit (136,039) (5,562) (62)
---------- ---------- ----------
Total $ (819,473) $ 969,540 $ 773,900
========== ========== ==========
</TABLE>
The following is a reconciliation of income taxes at the
Federal statutory rate with income taxes recorded by the
Company:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Federal tax at statutory
rate from continuing
operations $ (747,853) $ 910,012 $ 697,808
State income taxes, net
of Federal benefit (89,759) 120,335 122,159
Other (4,857) (4,972) 8,291
Minority interest in loss
of consolidated
subsidiary 69,410 19,085 -
</TABLE>
F-17
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 11 - INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
Research and development
and other credits (14,865) (4,074) (27,848)
Federal tax savings
attributable to foreign
sales corporation (31,549) (70,846) (26,510)
---------- ---------- ----------
Provision (benefit) for
taxes on income $ (819,473) $ 969,540 $ 773,900
========== ========== ==========
</TABLE>
The deferred tax asset and deferred tax liability comprised the
following at June 30:
<TABLE>
<CAPTION>
1997 1996
--------- -------
<S> <C> <C>
Deferred tax assets:
Deferred loss from MDLLC $ 46,500 $ 46,500
Net operating loss and
tax credit carryforward 132,900 -
---------- ---------
179,400 46,500
Valuation allowance - -
---------- ---------
Net deferred tax assets 179,400 46,500
========== =========
Deferred tax liability:
Depreciation (26,964) (27,734)
---------- ---------
Net deferred tax liability $ (26,964) $ (27,734)
========== ==========
</TABLE>
The company believes that deferred tax assets are more likely than
not to be realized.
Income taxes payable (receivable and prepaid) at June 30, 1997 and
1996 were ($849,522) and $114,115, respectively.
NOTE 12 - RELATED PARTY TRANSACTIONS
Stock Option Plan
The Company maintains an Incentive Stock Option and Non-Qualified
Option Plan (the Plan). Pursuant to the terms of the Plan, 10,000
shares of the Company's common stock are reserved for issuance.
The Plan provides for the granting of incentive stock options as
defined under the Internal Revenue Code. Also under the Plan,
non-qualified options may be granted to selected officers and
employees. The Plan was effective October 29, 1990 and expires
October 28, 2000. The exercise price is fair market value on the
date of grant.
Outstanding Stock Options
Incentive stock options to purchase an aggregate amount of 1,500
shares were issued to three key employees and are exercisable at
an aggregate rate of 300 shares per year beginning October 29,
1991. The exercise price is $90 per share.
F-18
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 12 - RELATED PARTY TRANSACTIONS (CONTINUED)
Prior to the adoption of the Plan, the Company granted to the
Senior Vice President an option to purchase 2,000 shares of common
stock. The option expires March 31, 2004. The option is
exercisable at $67.68 per share.
During the year ended June 30, 1995, incentive stock options to
purchase an aggregate amount of 2,550 shares were issued to four
key employees and one consultant and are exercisable at an
aggregate rate of 510 shares per year beginning November 8, 1995.
The exercise price is $160.28.
Non -
Option shares Exercisable Exercisable
------------- ----------- -----------
Outstanding, July 1, 1996 4,010 2,040
Issued during year ended
June 30, 1997 - -
Exercisable during year
ended June 30, 1997 510 (510)
---------- ----------
Outstanding June 30, 1997 4,520 1,530
========== ==========
Exercisable June 30, 1997 $ 433,560
==========
Stock Warrants
The Company issued stock warrants to the President of the Company.
The warrants are exercisable into 5,000 shares of the Company's
stock in 1,000 share increments at a price of $100 per share. The
warrants, which expire March 31, 2004, were outstanding at June
30, 1997, 1996 and 1995.
The Company issued additional warrants during the year ended June
30, 1995 to the President that are exercisable into 3,000 shares
of the Company's stock in 1,000 share increments at a price of
$160.28 per share. The warrants, which expire November 8, 2004,
were outstanding at June 30, 1997, 1996 and 1995.
F-19
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
Number Description of Exhibit Filing
- ------ ---------------------- ---------
<S> <C> <C>
3(a) Articles of Incorporation (incorporated herein by
reference to Exhibit 1 to the Company's Form 10 filed on
April 15, 1981).
3(b) By-laws, as amended (incorporated herein by reference to
the Company's Form 10-K for the fiscal year ended June
30, 1987).
4 Specimen stock certificate (incorporated herein by
reference to Exhibit 3 to the Company's Form 10 filed
on April 15, 1981).
10(a) Articles of Agreement between Bucks County
Industrial Development Corporation and the Company
(relating to Warrington, Pennsylvania building)
(incorporated herein by reference to Exhibit 5(ii) to the
Company's Form 10 filed on April 15, 1981).
10(b) Agreement for Merger and Plan of Reorganization
dated August 5, 1986 among NRC Acquisition Corp.,
RIL Electronics, Inc. and the Company (incorporated
herein by reference to Exhibit 2 to the Company's
Report on Form 8-K filed on August 29, 1986).
10(c) Stock option issued to Harold J. Cooley dated March
30, 1989 (incorporated herein by reference to Exhibit
10-e to the Company's Report on Form 10-K for the
fiscal year ended June 30, 1989).
10(d) Warrants issued to Earl Pollock dated March 30, 1989
(incorporated herein by reference to Exhibit 10-f to the
Company's Report on Form 10-K for the fiscal year
ended June 30, 1989).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
Number Description of Exhibit Filing
- ------ ---------------------- ---------
<S> <C> <C>
10(e) $150,000 note issued to Earl Pollock dated March 2,
1989 (incorporated herein by reference to Exhibit 10-g
to the Company's Report on Form 10-K for the fiscal
year ended June 30, 1989).
10(f) 1990 Incentive Stock Option and Non-Qualified
Option Plan (incorporated herein by reference to
Exhibit 10(h) to the Company's Report on Form 10-K
for the fiscal year ended June 30, 1991).
10(g) Amendment No. 1 to stock option issued to Harold J.
Cooley (incorporated herein by reference to Exhibit
10(i) to the Company's Report on Form 10-K for the
fiscal year ended June 30, 1991).
10(h) Amendment No. 1 to warrant issued to Earl Pollock
(incorporated herein by reference to Exhibit 10(j) to the
Company's Report on Form 10-K for the fiscal year
ended June 30, 1991).
10(i) Amended note issued to Earl Pollock (incorporated
herein by reference to Exhibit 10(k) to the Company's
Report on Form 10-K for the fiscal year ended June 30,
1991).
10(j) Amended and Restated Lease Agreement, dated
December 31, 1996, by and between Cadillac Plastic
Group, Inc. and the Company (incorporated herein by
reference to Exhibit 10(a) to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
December 31, 1996).
10(k) Term Loan Agreement, dated as of January 14, 1997,
between the Company and CoreStates Bank, N.A.
("CoreStates") (incorporated herein by reference to
Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended March 31,
1997).
10(l) Commercial Promissory Note, dated January 14, 1997,
from the Company to CoreStates (incorporated herein
by reference to Exhibit 10(b) to the Company's
Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1997).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
Number Description of Exhibit Filing
- ------ ---------------------- ---------
<S> <C> <C>
10(m) Open-End Mortgage, made on January 14, 1997, by the
Company in favor of CoreStates (incorporated herein
by reference to Exhibit 10(c) to the Company's
Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1997).
10(n) Line of Credit Agreement, dated as of January 14,
1997, between the Company and CoreStates
(incorporated herein by reference to Exhibit 10(d) to
the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997).
10(o) Master Demand Note, dated January 14, 1997 from the
Company to CoreStates (incorporated herein by
reference to Exhibit 10(e) to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
March 31, 1997).
10(p) Open End Mortgage, made on January 14, 1997, by the
Company in favor of CoreStates (incorporated herein
by reference to Exhibit 10(f) to the Company's
Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1997).
10(q) Security Agreement, made on January 14, 1997,
between CoreStates and the Company (incorporated
herein by reference to Exhibit 10(g) to the Company's
Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1997).
10(r) General Assignment of Government Contracts and the
Proceeds Thereof, dated as of January 14, 1997, from
the Company to CoreStates (incorporated herein by
reference to Exhibit 10(h) to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
March 31, 1997).
10(s) Assignment of Proceeds of Letter of Credit, dated
January 14, 1997, from the Company to CoreStates
(incorporated herein by reference to Exhibit 10(i) to the
Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
Number Description of Exhibit Filing
- ------ ---------------------- ---------
<S> <C> <C>
10(t) Warrant issued to Earl M. Pollock dated November 8,
1994 (incorporated herein by reference to Exhibit 10(n)
to the Company's Report on Form 10-K for fiscal
1995).
10(u) Employment Agreement, dated June 27, 1995, by and
between the Company and Harold J. Cooley
(incorporated herein by reference to Exhibit 10(o) to
the Company's Report on Form 10-K for fiscal 1995).
10(v) Operating Agreement of Measurement Dynamics LLC,
a New Jersey limited liability company, dated July 12,
1995, by and between the Company, Mark Sitcoske
and Ernest W. DeLany (incorporated herein by
reference to Exhibit 10(p) to the Company's Report on
Form 10-K for fiscal 1995).
10(w) Commercial Promissory Note Modification *
Agreement, dated , 1997, by and between
the Company and CoreStates.
11 Computation of earnings per share. *
21 The Company's three subsidiaries are NRC
Acquisition Corp., a Pennsylvania corporation;
Northeast Nuclear, Ltd., a Virgin Islands corporation;
and Measurement Dynamics LLC, a New Jersey
limited liability company.
27 Financial Data Schedule *
</TABLE>
- -----------------------
* Filed herewith electronically.
<PAGE>
Exhibit 10(w)
COMMERCIAL PROMISSORY NOTE MODIFICATION AGREEMENT
This Agreement dated the 29th day of September, 1997 by and
between CoreStates Bank, N.A., a national banking association, with offices at
4259 West Swamp Road, Doylestown, Pennsylvania, 18901 ("Bank") and Nuclear
Research Corporation, a Pennsylvania corporation, having its principal place of
business at 125 Titus Avenue, Warrington, Pennsylvania, 18974 ("Borrower").
Background
A. Bank and Borrower entered into a loan agreement on or about
January 14, 1997 pursuant to which Bank agreed to lend to Borrower the sum of
One Million Eight Hundred Thousand Dollars ($1,800,000.00) ("Loan") upon certain
terms and conditions for use by the Borrower in connection with the acquisition
of the business assets of one company, the acquisition of the assets of a
second company and the restructuring of advances by Borrower to Measurement
Dynamics LLC.
B. In connection with the aforesaid Loan Borrower executed a
Note dated January 14, 1997 in favor of Bank in the original principal amount of
One Million Eight Hundred Thousand Dollars ($1,800,000.00) (the "Note"), the
terms of which are incorporated herein by reference.
C. The Note is secured by, inter alia, a Mortgage dated
January 14, 1997, executed and delivered by Borrower to Bank and securing the
principal sum of One Million Eight Hundred Thousand Dollars ($1,800,000.00),
which Mortgage encumbers the property of Borrower known as 125 Titus Avenue,
Warrington, Bucks County, Pennsylvania, (the "Property") and was recorded in the
Office for the Recorder of Deeds of Bucks County, Pennsylvania, at Land Record
Book Page (the "Mortgage").
D. The Note is further secured by Guaranty Agreements, in
favor of Bank, executed by N.R.C, Acquisition Corp., a Pennsylvania corporation
and Measurement Dynamics LLC, a New Jersey limited liability company (herein the
"Guarantors"), executed on January 14, 1997.
E. The Note, Mortgage, and all other documents executed and
delivered in connection with the Loan, as modified, are hereinafter referred to
individually as a "Loan Document" and collectively as the "Loan Documents". The
property secured by the Mortgage shall be referred to herein as the "Mortgaged
Property".
F. By the terms of the Note, Borrower is obligated to tender
monthly installments of principal each in the amount of Twenty Thousand Dollars
($20,000.00) and payment of the entire principal balance outstanding as of
January 14, 2002.
-1-
<PAGE>
G. Borrower did not complete the acquisitions for which the
Loan proceeds were advanced and therefore a significant portion of the principal
sum was not advanced to Borrower.
H. Borrower and Bank desire to amend the Loan Documents in
order to reduce the amount of the monthly installments of principal, reduce the
term of the Loan, carry forward the liens against the Mortgaged Property and to
make other necessary modifications, all on the terms and conditions set forth
herein.
NOW THEREFORE, INTENDING TO BE LEGALLY BOUND HEREBY, and in
consideration of the mutual covenants and promises contained herein, Bank and
Borrower hereby agree to modify the Note dated on or about January 14, 1997, as
follows:
1. Section (a) of the Note is hereby modified as follows:
(a) Commencing on the effective date of this
Modification Agreement and thereafter on the same day of each succeeding month,
Borrower shall repay the then outstanding principal balance of the Loan in
thirty-two (32) equal successive monthly installments of principal each in the
amount of Eight Thousand Seven Hundred Fifty Dollars ($8,750,00), together with
interest monthly on the outstanding principal balance at the fixed rate of 7.85%
per annum. If not sooner paid the entire principal balance outstanding and all
accrued but unpaid interest shall be due and payable in full no later than
January 14, 2000.
2. Borrower hereby represents and warrants that as of the date
hereof:
(i) The current outstanding principal
balance of the Note as of the effective date of this Modification Agreement is
Two Hundred Eighty Thousand Dollars ($280,000.00);
(ii) No default or event of default exists
under the Loan Documents, including the Note, Mortgage, or any other Loan
Document, and there exists no condition which, but for the passage of time or
the giving of notice, or both, would constitute a default under the Loan
Documents, including the Note, the Mortgage, or any other Loan Document;
(iii) There are no set-offs or defenses
which Borrower has against the enforcement of the Note, the Mortgage, or any
other Loan Documents; and
(iv) The Mortgage Modification Agreement
dated even date herewith is not intended to have any effect upon the lien
priority of the Mortgage or to impair the security of any other lienholder.
3. As a condition precedent to the execution by Bank of this
Agreement, Borrower agrees to the following:
-2-
<PAGE>
(i) The Mortgage shall continue to be a
fourth lien mortgage against the property which it encumbers.
(ii) Borrower agrees to pay all fees and
expenses of Bank in connection with the issuance and preparation of this
Agreement, including all legal fees.
(iii) Borrower shall obtain the consent of
the Guarantors to this Agreement.
4. Except as expressly extended and amended by this
Modification Agreement, the Note, Mortgage, and other Loan Documents shall
remain in full force and effect pursuant to their respective terms. This
Modification Agreement is not intended to be nor shall it constitute a novation
of the Note or any other Loan Document or the indebtedness and obligations
evidenced or secured thereby, as the case may be. Borrower hereby ratifies,
confirms and approves the Note, Mortgage, and other Loan Documents, as modified
by this Modification Agreement, and the indebtedness and obligations evidenced
and/or secured thereby and Borrower agrees that the same shall constitute valid
and binding, agreements of Borrower, enforceable in accordance with their
respective terms. All references to the Loan Documents contained in the Note,
Mortgage, and any other Loan Documents shall be deemed to refer to such
documents as amended and extended by this Modification Agreement,
5. Borrower hereby represents, warrants and reaffirms to Bank
that it is the intention of the parties to this Modification Agreement that all
existing collateral security held by the Bank shall continue to serve as
collateral for the Note and any other liabilities due the Bank by the Borrower
pursuant to the Note and other Loan Documents, and, until the Loan is paid in
full, the security interests and mortgages held by the Bank shall otherwise
continue in full force and legal effect.
6. This Agreement shall be effective as of June 14, 1997.
7. All provisions of this Modification Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, administrators, successors and assigns. This Modification shall be
governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania. Borrower hereby acknowledges receipt of a true copy of this
Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement effective the day and year first above written.
Bank
CORESTATES BANK, N.A.
By: /s/ Edward F. Mulligan
----------------------------------------
Name: Edward F. Mulligan
Title: Vice President
"Borrower" NUCLEAR RESEARCH CORPORATION
By: /s/ Earl M. Pollock
-----------------------------------------
Name: Earl M. Pollock
Title: President
CONSENT OF GUARANTORS
N.R.C. Acquisition Corp. and Measurement Dynamics LLC, as
Guarantors for the obligations of Borrower under Guaranty Agreements dated
January 14, 1997, do hereby consent to the Note Modification Agreement set forth
above and do hereby reaffirm all of its obligations and liabilities as
Guarantors of Borrower.
N.R.C. ACQUISITION CORP.
By: /s/ Earl M. Pollock
------------------------------------------
Name: Earl M. Pollock
Title: President
MEASUREMENT DYNAMICS LLC
By: /s/ Ernest Delaney
-------------------------------------------
Name: Ernest Delaney
Title: Executive Vice President
-4-
<PAGE>
Exhibit 11
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
EXHIBIT 11
CALCULATIONS OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 June 30, 1995
-------------- ------------- --------------
<S> <C> <C> <C>
Net Income (Loss) $ (1,300,095) $ 1,706,967 $ 1,278,476
--------------- ------------- --------------
Average Shares Issued 31,873 31,873 31,873
Average Net Effect of Dilutive Stock
Options Based on the Treasury Stock
Method 6,092 7,003 5,247
Less: Average Treasury Stock (3,698) (3,698) (3,698)
--------------- -------------- ---------------
Total Stock and Stock Equivalents 34,267 35,178 33,422
=============== ============== ===============
Earnings (Loss) Per Share $ (37.94) $ 48.52 $ 38.25
=============== ============== ===============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000073296
<NAME> NUCLEAR RESEARCH CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 183,610
<SECURITIES> 0
<RECEIVABLES> 2,217,145
<ALLOWANCES> 0
<INVENTORY> 5,064,077
<CURRENT-ASSETS> 8,674,073
<PP&E> 5,557,825
<DEPRECIATION> 3,197,521
<TOTAL-ASSETS> 11,667,603
<CURRENT-LIABILITIES> 5,221,635
<BONDS> 0
0
0
<COMMON> 159,365
<OTHER-SE> 6,041,744
<TOTAL-LIABILITY-AND-EQUITY> 11,667,603
<SALES> 12,283,615
<TOTAL-REVENUES> 12,283,615
<CGS> 10,058,828
<TOTAL-COSTS> 11,113,217
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 227,128
<INCOME-PRETAX> (2,119,568)
<INCOME-TAX> (819,473)
<INCOME-CONTINUING> (1,300,095)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,300,095)
<EPS-PRIMARY> (37.94)
<EPS-DILUTED> (37.94)
</TABLE>
