<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 31, 1998
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 No. 0-9613
NUCLEAR RESEARCH CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Pennsylvania 1343870
- ---------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of organization) Identification No.)
125 Titus Avenue, Warrington, Pennsylvania 18976
- ------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(215) 343-5900
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X
---- -----
As of April __, 1999, the Registrant had 27,658 shares of its common
stock outstanding.
<PAGE>
INDEX
Number Page
- ------ ----
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.................................3
CONSOLIDATED BALANCE SHEETS.......................................3
CONSOLIDATED STATEMENTS OF OPERATIONS.............................5
CONSOLIDATED STATEMENTS OF OPERATIONS ............................6
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND YEAR
ENDED JUNE 30, 1997............................................7
CONSOLIDATED STATEMENTS OF CASH FLOW..............................8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................9
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition...............................12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................17
Item 2. Changes in Securities and Use of Proceeds........................17
Item 3. Defaults upon Senior Securities..................................17
Item 4. Submission of Matters to a Vote of Security Holders..............17
Item 5. Other Information................................................17
Item 6. Exhibits and Reports on Form 8-K.................................18
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, 1998 June 30, 1997
---------------- ----------------
CURRENT ASSETS
<S> <C> <C>
Cash $ -0- $ 183,610
Accounts receivable 1,865,990 2,009,541
Inventory (Note 3) 3,421,352 5,064,077
Costs and estimated earnings in excess of
billings on uncompleted contracts (Note 4) -0- 207,604
Prepaid expenses and other current assets 332,878 180,319
Prepaid taxes on income and income tax
refund receivable 1,461,335 849,522
Deferred Income Taxes 179,400 179,400
---------------- ----------------
Total Current Assets 7,260,955 8,674,073
PROPERTY, PLANT AND EQUIPMENT
(net of accumulated depreciation and
amortization of $3,450,681 at March 31,
1998 and $3,197,521 at June 30, 1997) 2,167,374 2,360,304
OTHER ASSETS
Intangible assets (net of accumulated
amortization of $56,608 at March 31, 1998
and $41,083 at June 30, 1997) 357,392 372,917
Patents (net of accumulated amortization of
$103,031 at March 31, 1998 and $91,557 at
June 30, 1997) 188,769 167,500
Other 125,209 92,809
---------------- ----------------
Total Other Assets 671,370 633,226
---------------- ----------------
TOTAL ASSETS $ 10,099,699 $ 11,667,603
================ ================
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31,
1998 June 30, 1997
--------- -------------
CURRENT LIABILITIES
<S> <C> <C>
Short-term borrowings $ 4,380,000 $ 3,325,000
Current portion of long-term debt 200,115 306,837
Accounts payable 1,250,856 745,365
Accrued expenses 183,319 643,928
Accrued payroll and payroll taxes 492,243 200,505
----------------- ----------------
Total Current Liabilities 6,506,533 5,221,635
LONG TERM DEBT 87,500 217,895
DEFERRED INCOME TAXES 18,464 26,964
MINORITY INTEREST IN EQUITY OF
CONSOLIDATED SUBSIDIARY - -
COMMITMENTS AND CONTINGENCY
(Note 5) - -
SHAREHOLDERS' EQUITY
Common Stock
Stated value $5 per share, with 60,000 shares
authorized, 31,873 shares issued and 27,658
shares outstanding 159,365 159,365
Additional paid in capital 517,010 517,010
Retained Earnings 2,873,180 5,587,087
Less: treasury stock, 3,698 shares at cost (62,353) (62,353)
----------------- ----------------
Total Shareholders' Equity 3,487,202 6,201,109
----------------- ----------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 10,099,699 $ 11,667,603
================= ================
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
NUCLEAR RESEARCH CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
NET SALES $ 2,494,762 $ 3,000,031
COST OF SALES 4,974,370 2,281,704
------------------ ------------------
GROSS PROFIT (2,479,608) 718,327
SELLING AND ADMINISTRATIVE EXPENSES 848,136 842,064
RESEARCH AND DEVELOPMENT EXPENSES - 227,892
INTEREST EXPENSE 97,120 49,557
------------------ ------------------
INCOME (LOSS) FROM OPERATIONS (3,424,864) (401,186)
OTHER INCOME (LOSS) 17,546 (16,937)
------------------ ------------------
INCOME (LOSS) BEFORE MINORITY INTEREST (3,407,318) (418,123)
MINORITY INTEREST IN LOSS OF
CONSOLIDATED SUBSIDIARY - -
------------------ ------------------
INCOME (LOSS) BEFORE INCOME TAXES (3,407,318) (418,123)
LESS: NET TAX EXPENSE (BENEFIT) (1,192,562) (105,548)
NET INCOME (LOSS) $ (2,214,756) $ (312,575)
================== ==================
PRIMARY EARNINGS (LOSS) PER SHARE $ (64.63) $ (8.98)
================== ==================
WEIGHTED AVERAGE COMMON SHARES 34,267 34,817
================== ==================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
NUCLEAR RESEARCH CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
NET SALES $ 6,494,671 $ 10,163,277
COST OF SALES 8,527,525 8,085,415
------------------ -----------------
GROSS PROFIT (2,032,854) 2,077,862
SELLING AND ADMINISTRATIVE EXPENSES 1,873,548 2,320,147
RESEARCH AND DEVELOPMENT EXPENSES - 701,317
INTEREST EXPENSE 292,374 144,003
------------------ -----------------
INCOME (LOSS) FROM OPERATIONS (4,198,776) (1,087,605)
OTHER INCOME (LOSS) 23,534 11,526
------------------ -----------------
INCOME (LOSS) BEFORE MINORITY INTEREST (4,175,242) (1,076,079)
MINORITY INTEREST IN LOSS OF
CONSOLIDATED SUBSIDIARY - 84,956
------------------ -----------------
INCOME (LOSS) BEFORE INCOME TAXES (4,175,242) (991,123)
LESS: NET TAX EXPENSE (BENEFIT) (1,461,335) (336,981)
------------------ -----------------
NET INCOME (LOSS) $ (2,713,907) $ (654,142)
================== =================
PRIMARY EARNINGS (LOSS) PER SHARE $ (79.20) $ (18.79)
================== =================
WEIGHTED AVERAGE COMMON SHARES 34,267 34,817
================== =================
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND YEAR ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Paid In Retained Treasury Shareholders'
Common Stock Capital Earnings Stock Equity
Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 27,658 $ 159,365 $ 517,010 $ 6,887,182 $ (62,353) $ 7,501,204
Net Income for the year
ended June 30, 1998 - - - (1,300,095) - (1,300,095)
------------- ------------- ------------- ------------- ------------ --------------
Balance at June 30, 1998 27,658 159,365 517,010 5,587,087 (62,353) 6,201,109
Net loss for the nine months
ended March 31, 1998 - - - (2,713,907) - (2,713,907)
------------- ------------- ------------- ------------- ------------ --------------
Balance at March 31, 1998 27,658 $ 159,365 $ 517,010 $ 2,873,180 $ (62,353) $ 3,487,202
============= ============= ============= ============= ============ ==============
</TABLE>
7
<PAGE>
NUCLEAR RESEARCH CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (2,713,907) $ (654,142)
Adjustments to reconcile net income (net loss) to
net cash provided by (used by) operating
activities:
Depreciation and amortization 285,459 325,290
Minority interest in loss of
consolidated subsidiary - (84,956)
(Increase) decrease in:
Accounts receivable 143,551 411,937
Inventory 1,642,725 (198,549)
Prepaid expenses and other assets (152,559) (6,385)
Prepaid taxes and income tax refund receivable (620,313) (536,648)
Costs and estimated earnings in
excess of billings on
uncompleted contracts 207,604 2,996,411
Increase (decrease) in:
Accounts payable 505,491 205,873
Accrued expenses and payroll taxes (168,871) (416,261)
Taxes payable - on income - (114,145)
-------------- --------------
NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES (870,820) 1,928,425
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (60,230) (609,556)
(Increase) decrease in other assets (70,443) 14,804
-------------- --------------
NET CASH USED BY INVESTING ACTIVITIES (130,673) (594,752)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments) proceeds on line of credit 1,055,000 (1,400,000)
Net (payments) proceeds of long-term debt (237,117) (26,891)
Other - -
-------------- --------------
NET CASH (USED BY) PROVIDED BY FINANCING ACTIVITIES 817,883 (1,426,891)
-------------- --------------
NET DECREASE (INCREASE) IN CASH (183,610) (93,218)
-------------- --------------
CASH - beginning 183,610 174,737
-------------- --------------
CASH - ending $ - $ 81,519
============== ==============
</TABLE>
8
<PAGE>
NUCLEAR RESEARCH CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1998 and March 31, 1997
Note 1. The Consolidated Financial Statements of Nuclear Research Corporation
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission ("SEC"). In the opinion of management, the
accompanying Consolidated Financial Statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the consolidated financial position as of March 31, 1998 and June 30, 1997 and
the consolidated results of operations and cash flows for the three months and
nine months ended March 31, 1998 and 1997. Certain information and footnote
disclosures prepared in accordance with generally accepted accounting principles
have either been condensed or omitted pursuant to SEC rules and regulations.
These financial statements should be read in conjunction with the financial
statements and the notes included in the Company's latest Annual Report on Form
10-K.
The consolidated results of operations for the nine months ended March 31, 1998
and 1997 are not necessarily indicative of the results for the full year.
Note 2. Principles of Consolidation.
The Consolidated Financial Statements include the accounts of Nuclear Research
Corporation, NRC Acquisition Corporation and Northeast Nuclear, Ltd.,
wholly-owned subsidiaries hereafter referred to collectively as the "Company."
Also included in the Consolidated Financial Statements are the accounts of
Measurement Dynamics LLC ("MDLLC").
In July, 1995 the Company entered into an operating agreement to form MDLLC, a
New Jersey limited liability company, the purpose of which is to develop,
manufacture, produce and sell temperature measurement devices and other related
products or services. Pursuant to the operating agreement, the Company
contributed property, in the form of cash, inventory and other business assets
having a fair market value of $300,000, in exchange for 42% of MDLLC. The
Company will produce temperature measurement devices to be sold by MDLLC under a
manufacturing agreement and will provide administrative services to MDLLC.
In connection with the formation of MDLLC, the Company recorded an intangible
asset of $414,000 which represents certain rights, proprietary information and
intellectual property contributed by the minority interest in MDLLC. The
intangible asset is being amortized over its estimated useful life of twenty
years.
At March 31, 1998, MDLLC had a deficit in its equity account. Therefore,
according to generally accepted accounting principles, the liability in Minority
Interest in Equity of Consolidated Subsidiary was reduced to zero on the
Consolidated Balance Sheet at March 31, 1998.
All significant inter-company accounts and transactions have been eliminated in
consolidation.
9
<PAGE>
NUCLEAR RESEARCH CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 3. Inventory.
(Unaudited)
March 31, June 30,
1998 1997
------------- -------------
Inventory consists of:
Work-In-Process
United States Government contracts $ 2,402,181 $ 3,512,367
Commercial contracts 1,414,345 1,421,592
Purchased and manufactured parts 1,352,326 1,063,454
------------- -------------
5,168,852 5,997,413
Less: Progress payments on United States
Government contracts 1,747,500 933,336
------------- -------------
Total $ 3,421,352 $ 5,064,077
============= =============
The Company uses the last-in, first-out (LIFO) method to determine its material
inventory costs. 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 March 31, 1998, reported
inventories would have been $1,098,420 higher and reported net income would have
decreased by $27,124 ($.79 per share). The pro forma effect relating to the use
of the FIFO method would have resulted in the following balances for the
statement of operations presentation for the nine months ended March 31, 1998:
Gross Profit $ (2,078,854)
===================
Loss from Operations $ (4,243,983)
===================
Net Loss $ (2,741,031)
===================
10
<PAGE>
NUCLEAR RESEARCH CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 4. Costs and Estimated Earnings in Excess of Billings on
Uncompleted Contracts.
The Company will recognize revenues on certain 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, when applicable.
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 the
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 is not
applicable at March 31, 1998. The types of contracts in which revenue is
recognized in the aforementioned manner were initiated subsequent to March 31,
1998 and as such revenue recognition utilizing this method commenced in the
fiscal quarter ending June 30, 1998.
11
<PAGE>
NUCLEAR RESEARCH CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 5. Commitments and Contingency.
In September 1995, the Company's management was notified that MDLLC,
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 alleged that the defendants acted in violation of an existing employment
and non-compete agreement between Hanna and Mr. Sitcoske and sought to enjoin
Mr. Sitcoske from his continued employment with MDLLC and to obtain damages;
however, at December 31, 1997, Hanna had not sought a hearing to obtain
injunctive relief and the matter was in discovery. In September, 1998, the
Company acquired all of the outstanding membership interests in MDLLC not then
owned by the Company. In March 1999, the Hanna lawsuit was settled and a
Stipulation of Dismissal, dismissing the lawsuit with prejudice, was filed with
the court. In settlement of the Hanna lawsuit, each of Hanna, on the one hand,
and the defendants in the Hanna lawsuit and the Company, on the other hand,
granted to the other a general release, and Hanna received a settlement payment
of $12,500. The Company contributed the $12,500 settlement amount.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
The Company experienced substantial losses during the nine months ended
March 31, 1998, in part due to decreased sales resulting from the Company's
inability to ship a new product to the United States government (the
"Government") pending first article testing and Government approval. During the
three months ended March 31, 1998, the Company completed first article testing,
completed test units in the first article ("Test Units") and secured Government
approval for production of such units. The Test Units were shipped during the
three months ended March 31, 1998. The Company experienced a loss on this
portion of the contract of approximately $483,000 due to product development
difficulties that delayed Government approval of the Test Units. This loss was
reflected during the three months ended March 31, 1998. Also contributing to
losses for the nine months ending March 31, 1998 was manufacturing overhead
which the Company was not able to reduce proportionate to the reduction in
revenues. The Company historically has included all payroll as part of the cost
of sales, therefore the Company's fixed (manufacturing, selling, administration)
payroll is unable to be absorbed by the low sales volume. Shipment of actual
production units of the product described above to the Government commenced in
April 1998.
12
<PAGE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March
31, 1997.
Sales for the three months ended March 31, 1998 decreased to $2,494,762
from $3,000,031 for the three months ended March 31, 1997 due to the Company's
inability to ship a new product to the Government pending first article testing
and Government approval, as discussed above.
Loss from operations increased to a loss of $3,424,864 for the three
months ended March 31,1998 as compared to a loss of $401,186 for the three
months ended March 31, 1997. The increase in loss from operations was due to:
reduced sales; the $483,000 loss on the First Article Test Units discussed
above; and a decline in inventory (work-in-progress ("WIP")) of approximately
$800,000 which, based on the current level of shipments and orders, indicates an
inadequate assessment of prior period WIP. As a result of the factors discussed
above, gross profit as a percentage of sales decreased to a negative 99.4% as
compared to 16.3% for the three months ended March 31, 1997. This calculation
also reflects the Company's reclassification of research and development
expenses as cost of sales for the prior year.
Selling and administrative expenses increased to $848,136 for the three
months ended March 31, 1998 as compared to $842,064 for the three months ended
March 31, 1997, due primarily to increases in insurance expenses. Due to reduced
sales, as a percentage of sales, selling and administrative expenses increased
to 34.0% for the three months ended March 31, 1998 as compared to 28.07% for the
three months ended March 31, 1997.
Due to the reclassification of research and development expenses as
cost of sales, research and development expenses were $0 for the three months
ended March 31, 1998. Research and development expenses were $227,892 for the
three months ended March 31, 1997.
Interest expense increased $47,563 to $97,120 for the three months
ended March 31, 1998 compared to the three months ended March 31, 1997. This
increase can be accounted for by increased borrowings and an increase in costs
associated with a letter of credit for a multi-year contract.
Nine Months Ended March 31, 1998 Compared to Nine Months Ended March
31, 1997.
Sales for the nine months ended March 31, 1998 decreased to $6,494,671
from $10,163,277 for the nine months ended March 31, 1997 due to the Company's
inability to ship a new product to the Government pending first article testing
and Government approval during the period, as discussed above.
Loss from operations increased to a loss of $4,198,776 for the nine
months ended March 31, 1998 from a loss of $1,087,605 for the nine months ended
March 31, 1997 due to reduced sales. For the reasons discussed above, gross
profit as a percentage of sales decreased to a negative 31.3% as compared to
20.44% for the nine months ended March 31, 1997.
13
<PAGE>
Selling and administrative expenses decreased $446,599 to $1,873,548
for the nine months ended March 31, 1998 compared to the nine months ended March
31, 1997 due to reductions in (a) commission expenses related to foreign sales
and (b) travel and marketing expense. However, due to reduced sales, as a
percentage of sales, selling and administrative expenses increased to 28.85% for
the nine months ended March 31, 1998 as compared to 22.83% for the nine months
ended March 31, 1997.
Due to the reclassification of research and development expenses as
cost of sales, as described above, research and development expenses were $0 for
the nine months ended March 31, 1998. Research and development expenses were
$701,317 for the nine months ended March 31, 1997.
Interest expense increased to $292,274 for the nine months ended March
31, 1998 as compared to $144,003 for the nine months ended March 31, 1997. The
increase can be accounted for by increased borrowings required by the Company
during this period due to decreased revenues.
Liquidity and Capital Resources
During the nine months ended March 31, 1998, a decrease in accounts
receivable of $143,551, a decrease in costs and estimated earnings in excess of
billing on uncompleted contracts of $207,604 and an increase in accounts payable
of $505,491 were the factors that affected cash provided by operating
activities. The decreases in accounts receivable and costs and estimated
earnings in excess of billing on uncompleted contracts resulted from the decline
in revenues discussed above. The increase in accounts payable was due to the
decline in revenues and limitations on borrowing. Decreases in accrued expenses
and payroll taxes of $167,871 combined with an increase in prepaid taxes on
income tax refund receivable of $620,313 partially offset cash provided by
operating activities. The decrease in accrued expenses is primarily a result of
the reduction of accrued commission expense. The increase in prepaid taxes on
income resulted from the payment of estimated income taxes combined with the tax
benefits associated with the net loss for the nine months ended March 31, 1998.
During the nine months ended March 31, 1998, the Company made capital
expenditures in the aggregate amount of $130,673 to purchase manufacturing and
computer equipment and to make certain expenditures associated with patents.
Cash used by financing activities was a result of borrowings on the
Company's line of credit in the amount of $1,055,000 and payments on long-term
debt aggregating $237,117.
The Company's backlog of orders at March 31, 1998 was approximately
$13,200,000 as compared to $13,905,000 as of March 31, 1997. The decrease in
backlog was primarily due to delays in securing orders in the Company's
radiation monitoring systems segment.
14
<PAGE>
Year 2000 Readiness Disclosure
Background
In the past, many computer software systems were written using two
digits rather than four digits to define the applicable year. As a result, there
is the potential that many computer systems and applications will be unable to
accurately process information in the year 2000, and beyond. For example,
date-sensitive computer software may recognize a date using "00" as the year
1900 rather than the year 2000. This is referred to generally as the "Year 2000
issue." If this situation occurs, the potential exists for computer system
failures or miscalculations by computer programs that could disrupt the
Company's activities and operations. Programs that will operate in the Year 2000
unaffected by the change in year from 1999 to 2000 are referred to as "Year 2000
compliant." Certain portions of the discussion set forth below contain
"forward-looking statements" within the meaning of the Securities Exchange Act
of 1934, as amended, including, but not limited to those relating to the Year
2000 compliance of the Company's products and systems, future costs to remediate
Year 2000 issues, and the impact on the Company of the failure of it or a
material third party to become fully Year 2000 compliant. The actual impact on
the Company of Year 2000 issues could differ materially from those in the
forward-looking statement(s) due to a number of uncertainties set forth below.
Year 2000 Readiness
Internal Systems: The Company's technical staff conducted a review of
the Company's computer and information technology systems (together, "IT
systems"), including accounting, word processing and operating systems, and its
embedded technology, such as microprocessors embedded in equipment or other
non-IT systems. The Company has concluded that its material IT systems recognize
four digits and are expected to be Year 2000 compliant. The Company has not
identified, to date, any Year 2000 issues with regard to material internal
non-IT systems.
Primary Vendors and Service Providers: The Company has contacted its
primary vendors in order to determine their Year 2000 compliance. As a result of
these inquiries, the Company is not aware of any material Year 2000 issues with
respect to its primary vendors. The Company has multiple sources for the raw
materials and component parts it needs to operate its business in the event a
particular vendor is not Year 2000 compliant.
Products: The Company has forward-date tested the current version of
each of its principal products and has concluded that the essential functions of
the products will not be impaired by Year 2000 issues because (a) the products
contain no microprocessor circuits that have a date/time function, or (b) if the
products do contain microprocessor circuits that have a date/time function, they
have been successfully tested to the criteria of British Standard DISC PD
2000-1:1996.
Cost: The Company believes that its cost to become Year 2000 compliant
is not and will not be material to the Company's operations. Based on estimates
of the Company's technical
15
<PAGE>
staff, the Company believes that the cost of compliance will not exceed $25,000,
net of reimbursements from vendors of any components that are not Year 2000
compliant.
Risks Associated with Year 2000 Issues
Internal System: The Company uses computer systems in many aspects of
its business. As noted, the Company's material internal IT systems are believed
to be Year 2000 compliant. If the Company's assessment of Year 2000 readiness of
those systems is incorrect or incomplete or if a Year 2000 issue exists with
respect to a system the Company previously determined to be non-material but
which is in fact material, the Company could experience interruptions in
operations that could have material adverse effects on operating results.
Principal Vendors and Service Providers: The Company is also exposed to
the risk that one or more of its vendors, suppliers, or service providers could
experience Year 2000 issues that could impact the ability of such vendor,
supplier, or service provider to provide goods and services. Though this is not
considered a significant risk with respect to the suppliers of goods, due to the
availability of alternative suppliers, the disruption of certain services, such
as utilities, could, depending upon the nature and extent of the disruption,
have a material adverse impact on the Company's operations. To date the Company
is not aware of any vendor or service provider with a Year 2000 issue that it
believes would have a material adverse impact on the Company's operations.
However, the Company has no means of insuring that its vendors or service
providers will be Year 2000 compliant. The inability of vendors or service
providers to complete their Year 2000 resolution process in a timely fashion
could have an adverse impact on the Company.
Products: As noted above, the Company believes the essential functions
of its principal products will not be impaired by Year 2000 issues. If the
Company's assessment of the Year 2000 compliance status of these products is
incorrect or incomplete or if a Year 2000 issue with respect to a product exists
that the Company previously determined to be non-material but that is in fact
material, the Company could be required to repair or replace equipment that is
not Year 2000 compliant and/or could be subject to claims for damages related to
the failure of the equipment to perform its essential functions.
Customers: In addition, the Company is exposed to the risk that
customers could experience Year 2000 problems that impact the Company. If
customers' systems or the products into which they integrate the Company's
products are not Year 2000 compliant, orders for the Company's products may
decline or, at a minimum, be delayed. If customer's internal operating systems,
such as accounting systems, are not Year 2000 compliant customers may be unable
to pay the Company for its products in a timely fashion.
The Company does not believe that these problems are likely to affect a
sufficient number of customers to pose a material problem for the Company. The
Company is not aware of any customer Year 2000 issue that is likely to have a
material adverse impact on the Company's operations. However, the Company has no
means of ensuring that its customers will
16
<PAGE>
be Year 2000 ready. The inability of customers to complete their Year 2000
resolution process in a timely fashion could have an adverse impact on the
Company.
Contingency Plans
The Company has not developed formal contingency plans with respect to
Year 2000 issues, however the Company has multiple sources from which it can
obtain raw materials and component parts in the event any of its primary vendors
experience Year 2000 issues. The Company intends to resolve any Year 2000 issues
with respect to its products as they occur or are brought to the Company's
attention.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In September 1995, the Company's management was notified that MDLLC,
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 alleged that the defendants acted in violation of an existing employment
and non-compete agreement between Hanna and Mr. Sitcoske and sought to enjoin
Mr. Sitcoske from his continued employment with MDLLC and to obtain damages;
however, at December 31, 1997, Hanna had not sought a hearing to obtain
injunctive relief and the matter was in discovery. In September, 1998, the
Company acquired all of the outstanding membership interests in MDLLC not then
owned by the Company. In March 1999, the Hanna lawsuit was settled and a
Stipulation of Dismissal, dismissing the lawsuit with prejudice, was filed with
the court. In settlement of the Hanna lawsuit, each of Hanna, on the one hand,
and the defendants in the Hanna lawsuit and the Company, on the other hand,
granted to the other a general release, and Hanna received a settlement payment
of $12,500. The Company contributed the $12,500 settlement amount.
Item 2. Changes in Securities and Use of Proceeds.
Not Applicable.
Item 3. Defaults upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 5. Other Information.
17
<PAGE>
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11. Computation of earnings per share.
27. Financial Data Schedules
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
March 31, 1998.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NUCLEAR RESEARCH CORPORATION
Date: April 30, 1999 /s/ Earl M. Pollock
------------------------------------------
Earl M. Pollock
Chairman of the Board and President
(Principal Executive Officer)
Date: April 30, 1999 /s/ Carl G. Katz
------------------------------------------
Carl G. Katz
Treasurer and Chief Financial Officer
(Principal Financial and Accounting
Officer)
19
<PAGE>
EXHIBT INDEX
Exhibit Method of Filing
- ------- ----------------
11 Computation of earnings per share....... Filed herewith electronically.
27 Financial Data Schedules................ Filed herewith electronically.
20
<PAGE>
EXHIBIT 11
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
----------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net Income (Loss) $ (2,214,756) $ (312,575) $ (2,713,907) $ (654,142)
Average shares issued 31,873 31,873 31,873 31,873
Average net effect of dilutive stock
options-based on the treasury stock
method 6,092 6,642 6,092 6,642
Less: average treasury stock (3,698) (3,698) (3,698) (3,698)
----------------- -------------- ---------------- ---------------
Total stock and stock equivalents 34,267 34,817 34,267 34,817
================= ============== ================ ===============
Primary Earnings (Loss) per share $ (64.63) $ (8.98) $ (79.20) $ (18.79)
================= ============== ================ ===============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,865,990
<ALLOWANCES> 0
<INVENTORY> 3,421,352
<CURRENT-ASSETS> 7,260,955
<PP&E> 5,618,055
<DEPRECIATION> 3,450,681
<TOTAL-ASSETS> 10,099,699
<CURRENT-LIABILITIES> 6,506,533
<BONDS> 0
0
0
<COMMON> 159,365
<OTHER-SE> 3,327,837
<TOTAL-LIABILITY-AND-EQUITY> 10,099,699
<SALES> 6,494,671
<TOTAL-REVENUES> 6,494,671
<CGS> 8,527,525
<TOTAL-COSTS> 10,669,913
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 292,374
<INCOME-PRETAX> (4,175,242)
<INCOME-TAX> (1,461,335)
<INCOME-CONTINUING> (2,713,907)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,713,907)
<EPS-PRIMARY> (79.20)
<EPS-DILUTED> (79.20)
</TABLE>
