<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 December 31, 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 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................................1
---------------------------------
CONSOLIDATED BALANCE SHEETS......................................1
CONSOLIDATED STATEMENTS OF OPERATIONS............................3
CONSOLIDATED STATEMENTS OF OPERATIONS ...........................4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND YEAR
ENDED JUNE 30, 1997.....................................5
CONSOLIDATED STATEMENTS OF CASH FLOWS............................6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results Operations..........................................10
-----------------------------------------------------------
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................14
-----------------
Item 2. Changes in Securities and Use of Proceeds.......................15
-----------------------------------------
Item 3. Defaults upon Senior Securities.................................15
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders.............15
---------------------------------------------------
Item 5. Other Information...............................................15
-----------------
Item 6. Exhibits and Reports on Form 8-K................................15
--------------------------------
ii
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
December 31, 1997 June 30, 1997
----------------- ----------------
CURRENT ASSETS
<S> <C> <C>
Cash $ 17,661 $ 183,610
Accounts receivable 2,224,318 2,009,541
Inventory (Note 3) 5,790,089 5,064,077
Prepaid taxes on income and tax refund receivable 323,312 849,522
Prepaid expenses and other current assets 300,754 180,319
Costs and estimated earnings in excess of billings on
uncompleted contracts (Note 4) -0- 207,604
Deferred Income Taxes (Note 11) 179,400 179,400
----------------- ----------------
Total Current Assets 8,835,534 8,674,073
PROPERTY PLANT AND EQUIPMENT - Net 2,229,887 2,360,304
OTHER ASSETS
Intangible assets (net of accumulated amortization of
$51,342 at December 31, 1997 and $41,803 at June 30,
1997) 362,568 372,917
Patents (net of accumulated amortization of $99,206 at
December 31, 1997 and $91,557 at June 30, 1997 178,509 167,500
Other 114,926 92,809
----------------- ----------------
Total Other Assets 656,003 633,226
----------------- ----------------
TOTAL ASSETS $ 11,721,424 $ 11,667,603
================= ================
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1997
----------------- ----------------
<S> <C> <C>
CURRENT LIABILITIES
Short-term borrowings $ 4,000,000 $ 3,325,000
Current portion of long-term debt 252,821 306,837
Accounts payable 890,695 745,365
Accrued expenses 184,051 643,928
Accrued payroll and payroll taxes 551,185 200,505
----------------- ----------------
Total Current Liabilities 5,878,752 5,221,635
LONG-TERM DEBT 113,750 217,895
DEFERRED INCOME TAXES 26,964 26,964
MINORITY INTEREST IN EQUITY OF CONSOLIDATED
SUBSIDIARY (Note 2) - -
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 5,087,936 5,587,087
Less: treasury stock, 3,698 shares at cost (62,353) (62,353)
----------------- ----------------
Total Shareholders' Equity 5,701,958 6,201,109
----------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,721,424 $ 11,667,603
================= ================
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
NUCLEAR RESEARCH CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1997 1996
---- ----
<S> <C> <C>
NET SALES $ 2,772,701 $ 2,750,329
COST OF SALES 2,474,743 2,445,437
------------------ -------------------
GROSS PROFIT 297,958 304,892
SELLING AND ADMINISTRATIVE
EXPENSES 524,442 777,073
RESEARCH AND DEVELOPMENT
EXPENSES (257,671) 257,174
INTEREST EXPENSE 119,747 40,783
------------------ -------------------
INCOME (LOSS) FROM OPERATIONS (88,560) (770,138)
OTHER INCOME (LOSS) 6,751 (5,024)
------------------ -------------------
INCOME (LOSS) BEFORE MINORITY
INTEREST (81,809) (775,162)
MINORITY INTEREST IN LOSS OF
CONSOLIDATED SUBSIDIARY - 12,682
------------------ -------------------
INCOME (LOSS) BEFORE INCOME TAXES (81,809) (762,480)
LESS: NET TAX EXPENSE (BENEFIT) (28,633) (294,352)
------------------ -------------------
NET INCOME (LOSS) $ (53,176) $ (468,128)
================== ==================
PRIMARY EARNINGS (LOSS) PER SHARE $ (1.55) $ (13.27)
================== ==================
WEIGHTED AVERAGE COMMON SHARES 34,267 35,265
================== ==================
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
NUCLEAR RESEARCH CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1997 1996
---- ----
<S> <C> <C>
NET SALES $ 3,999,909 $ 7,163,248
COST OF SALES 3,553,155 5,803,713
------------------ -----------------
GROSS PROFIT 446,754 1,359,535
SELLING AND ADMINISTRATIVE
EXPENSES 1,025,412 1,457,251
RESEARCH AND DEVELOPMENT
EXPENSES -- 473,425
INTEREST EXPENSE 195,254 94,446
------------------ -----------------
INCOME (LOSS) FROM OPERATIONS (773,912) (665,587)
OTHER INCOME (LOSS) 5,988 7,632
------------------ -----------------
INCOME (LOSS) BEFORE MINORITY
INTEREST (767,924) (657,955)
MINORITY INTEREST IN LOSS
OF CONSOLIDATED SUBSIDIARY -- 84,956
------------------ -----------------
INCOME (LOSS) BEFORE INCOME TAXES (767,924) (572,999)
LESS: NET TAX EXPENSE (BENEFIT) (268,773) (231,433)
------------------ -----------------
NET INCOME (LOSS) $ (499,151) $ (341,566)
================== =================
PRIMARY EARNINGS (LOSS) PER SHARE $ (14.56) $ (9.68)
================== =================
WEIGHTED AVERAGE COMMON SHARES 34,267 35,265
================== =================
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND YEAR ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid In Retained Treasury Shareholders'
Shares Amount Capital Earnings Stock Equity
------ ------ ------- -------- ----- ------
Balance at
<S> <C> <C> <C> <C> <C> <C>
June 30, 1996 27,658 $ 159,365 $ 517,010 $ 6,887,182 $ (62,353) $ 7,501,204
Net Loss for
the year ended
June 30, 1997 -- -- -- (1,300,095) -- (1,300,095)
------------- ----------- ----------- ------------- ---------- -------------
Balance at
June 30, 1997 27,658 159,365 517,010 5,587,087 (62,353) 6,201,109
Net loss for
the six months
ended December 31,
1997 -- -- -- (499,151) -- (499,151)
------------- ----------- ----------- ------------- ---------- -------------
Balance at
December 31, 1997 27,658 $ 159,365 $ 517,010 $ 5,087,936 $ (62,353) $ 5,701,958
============= =========== =========== ============= ========== =============
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
NUCLEAR RESEARCH CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (499,151) $ (341,566)
Adjustments to reconcile net income (net loss) to
net cash provided by (used by) operating
activities:
Depreciation and amortization 191,959 224,691
Minority interest in loss of
consolidated subsidiary -- (84,956)
(Increase) decrease in:
Accounts receivable (214,777) 1,075,328
Inventory (726,012) 329,965
Prepaid expenses and other assets (120,435) (105,937)
Prepaid taxes or income 526,210 (431,100)
Costs and estimated earnings in
excess of billings on
uncompleted contracts 207,604 1,485,818
Increase (decrease) in:
Accounts payable 145,330 118,037
Accrued expenses and payroll taxes (109,197) (431,566)
Taxes payable - on income -- (114,145)
----------- -----------
NET CASH PROVIDED BY (USED BY) OPERATING
ACTIVITIES (598,469) 1,724,569
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (40,353) (368,466)
(Increase) decrease in other assets (43,966) 7,735
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (84,319) (360,731)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments) proceeds on line of credit 675,000 (1,200,000)
Net (payments) proceeds of long-term debt (158,161) (274,471)
Other -- --
----------- -----------
NET CASH (USED BY) PROVIDED BY FINANCING ACTIVITIES 516,839 (1,474,471)
----------- -----------
NET DECREASE (INCREASE) IN CASH (165,949) (110,633)
----------- -----------
CASH - beginning 183,610 174,737
-----------
CASH - ending $ 17,661 $ 64,104
----------- ===========
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
NUCLEAR RESEARCH CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 1997 and December 31, 1996
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 December 31, 1997 and June 30, 1997
and the consolidated results of operations and cash flows for the three months
and six months ended December 31, 1997 and 1996. 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 six months ended December 31,
1997 and 1996 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 December 31, 1997, 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 December 31, 1997.
All significant inter-company accounts and transactions have been eliminated in
consolidation.
7
<PAGE>
NUCLEAR RESEARCH CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 3. Inventory.
(Unaudited)
December 31, June 30,
1997 1997
---------- ------------
Inventory consists of:
Work-In-Process
United States Government
contracts $2,873,852 $3,512,367
Commercial contracts 2,699,890 1,421,592
Purchased and manufactured
parts 1,827,282 1,063,454
---------- ----------
7,401,024 5,997,413
Less: Progress payments on United
States Government contracts 1,610,935 933,336
---------- ----------
Total $5,790,089 $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 December 31, 1997, reported
inventories would have been $1,003,420 higher and reported net loss would have
increased by $84,124 (2.45 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 six months ended December 31, 1997:
Gross Profit $ 306,547
Loss from Operations $ 858,031
Net Loss $ (583,275)
8
<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 recognizes revenues on certain long term 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 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 December 31, 1997.
9
<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 Financial Condition and Results
Operations
Results of Operations
Three Months Ended December 31, 1997 Compared to Three Months Ended
December 31, 1996.
Sales for the three months ended December 31, 1997 increased to
$2,772,701 from $2,750,329 for the three months ended December 31, 1996,
primarily due to the completion of certain long-term contracts.
Loss from operations was reduced to a loss of $88,560 for the three
months ended December 31, 1997 as compared to a loss of $770,138 for the three
months ended December 31, 1996 due to an increase in gross profit as a
percentage of sales. Gross profit as a percentage of sales for the three months
ended December 31, 1997 was 20% as compared to 1.7% for the three months ended
December 31, 1996. The increase in gross profit as a percentage of sales is
primarily due to the reclassification of Research and Development expense.
Selling and administrative expenses decreased to $524,442 for the three
months ended December 31, 1997 compared to $777,073 for the three months ended
December 31, 1996. The reduction was a result of the Company's cost cutting
efforts. Selling and administrative expense
10
<PAGE>
as a percentage of sales decreased to 18.9% as compared to 28.3% for the three
months ended December 31, 1996 due to the Company's cost cutting efforts.
Due to the reclassification of research and development expenses as
cost of sales, the Company had no research and development expenses for the
three months ended December 31, 1997. Research and development expenses for the
three months ended December 31, 1996 were $257,174.
Interest expense increased from $78,964 to $119,747 for the three
months ended December 31, 1997. The increase can be attributed to an increase in
borrowings and related costs associated with letters of credit.
Six Months Ended December 31, 1997 Compared to Six Months Ended
December 31, 1996.
Sales for the six months ended December 31, 1997 decreased to
$3,999,909 from $7,163,248 for the six months ended December 31, 1996 due to the
Company's inability to ship a new product to the United States government (the
"Government") pending completion of first article testing and Government
approval. Shipments to the Government of the new product commenced in April
1998.
Loss from operations increased to a loss of $773,912 for the six months
ended December 31, 1997 from a loss of $665,587 for the six months ended
December 31, 1996 because of reduced sales. Gross profit as a percentage of
sales decreased to 11.1% as compared to 12.4% for the six months ended December
31, 1996, due to a shift in product mix and the reclassification of research and
development expenses.
Selling and administrative expenses decreased $431,839 to $1,025,412
for the six months ended December 31, 1997 compared to the six months ended
December 31, 1996, primarily due to decreased commissions, resulting from
decreased sales, and the Company's cost reduction efforts. Due to reduced sales,
as a percentage of sales, selling and administrative expenses increased to 25.6%
for the three months ended December 31, 1997 as compared to 20.3% for the six
months ended December 31, 1996.
Due to the reclassification of research and development expenses as
cost of sales, the Company had no research and development expenses for the six
months ended December 31, 1997. Research and development expenses for the six
months ended December 31, 1996 were $473,425.
Interest expense increased to $195,254 for the six months ended
December 31, 1997 as compared to $94,446 for the six months ended December 31,
1996. The increase was due to increased borrowings and an increase in costs
associated with letters of credit for several multi-year contracts.
11
<PAGE>
Liquidity and Capital Resources
During the six months ended December 31, 1997, increases in accounts
receivable of $214,777 and inventory of $726,012 were the primary factors
affecting cash used by operations. The inventory increase was due to certain new
contracts with ship dates anticipated to commence in the fourth fiscal quarter
of the fiscal year ended June 30, 1998 and continue through the fiscal year
ended June 30, 1999. The inventory increase was funded by an increase in the
Company's line of credit in the amount of $675,000. The six month net loss of
$499,151 was an additional factor that affected cash used by operations. A
$207,604 decline in the cost in excess of billings on uncompleted contracts, due
to completion of such contracts, partially offset the increases in accounts
receivable and inventory mentioned above. There were no contracts at December
31, 1997 that were affected by the Company's historical use of the percentage of
completion method of income recognition.
During the six months ended December 31, 1997, the Company made capital
expenditures in the aggregate amount of $84,319 to purchase manufacturing and
computer equipment and to make certain expenditures associated with patents.
The increase in cash provided by financing activities was a result of
an increase in borrowings on the Company's line of credit of $675,000, offset by
net payment of long-term debt of $158,161.
The Company's backlog of orders at December 31, 1997 was $16,500,000 as
compared to $15,400,000 at December 31, 1996. The increase in backlog was
primarily due to add-ons to existing Government contracts.
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.
12
<PAGE>
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 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
13
<PAGE>
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 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
14
<PAGE>
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.
The Company held its 1997 Annual Meeting of Shareholders on December
10, 1997. At the Meeting, Earl M. Pollock, Dorothy S. Pollock and Charles H.
Sulzberger were re-elected to the Company's Board of Directors. Shareholders
cast 22,403 votes for the election of each of Earl M. Pollock and Dorothy S.
Pollock and 22,406 votes for the election of Charles H. Sulzberger as director;
210 votes were withheld with respect to the election of each of Earl M. Pollock
and Dorothy Pollock and 209 votes were withheld with respect to the election of
Charles H. Sulzberger as director.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11 Computation of earnings per share.
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
December 31, 1997.
15
<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
(Registrant)
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)
16
<PAGE>
EXHIBIT INDEX
Exhibit Method of Filing
- ------- ----------------
11 Computation of earnings per share. Filed electronically herewith.
27 Financial Data Schedule Filed electronically herewith.
17
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net Income (Loss) $ (53,176) $ (468,128) $ (499,151) $ (341,566)
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 7,090 6,092 7,090
Less: average treasury stock (3,698) (3,698) (3,698) (3,698)
-------------- --------------- -------------- ---------------
Total stock and stock equivalents 34,267 35,265 34,267 35,265
============== =============== ============== ===============
Primary Earnings (Loss) per share $ (1.55) $ (13.27) $ (14.56) $ (9.68)
============== =============== ============== ===============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 17,661
<SECURITIES> 0
<RECEIVABLES> 2,224,318
<ALLOWANCES> 0
<INVENTORY> 5,790,089
<CURRENT-ASSETS> 8,835,534
<PP&E> 5,598,180
<DEPRECIATION> 3,368,293
<TOTAL-ASSETS> 11,721,424
<CURRENT-LIABILITIES> 5,878,752
<BONDS> 0
0
0
<COMMON> 159,365
<OTHER-SE> 5,542,593
<TOTAL-LIABILITY-AND-EQUITY> 11,721,424
<SALES> 3,999,909
<TOTAL-REVENUES> 3,999,909
<CGS> 3,553,155
<TOTAL-COSTS> 4,578,567
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 195,254
<INCOME-PRETAX> (767,924)
<INCOME-TAX> (268,773)
<INCOME-CONTINUING> (499,151)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (499,151)
<EPS-PRIMARY> (14.56)
<EPS-DILUTED> (14.56)
</TABLE>
