<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, 1998
or
[ x ] 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 Identification
incorporation or organization) 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
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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 No X
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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. [ ]
There is no trading market for the voting securities of the Registrant.
The Registrant had 27,658 common shares outstanding as of June 30, 1998, of
which 10,725 shares are held by persons who are not officers or directors of the
Registrant.
Documents incorporated by reference: None
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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.
The Company has two subsidiaries, NRC Acquisition Corporation, a
Pennsylvania corporation and Northeast Nuclear Ltd., a Virgin Islands
corporation. Neither of these subsidiaries has any business operations and,
commencing with the Company's fiscal year ended June 30, 1998 ("fiscal 1998"),
the assets and liabilities of these subsidiaries are treated as the assets and
liabilities of the Company.
In September 1998 the Company acquired all of the outstanding
membership interests of Measurement Dynamics LLC, a New Jersey limited liability
company ("MDLLC"), not then owned by the Company. In connection with that
acquisition, as of June 30, 1998, all of the assets and liabilities of MDLLC
became the assets and liabilities of the Company and the Company wrote off
amounts due the Company from MDLLC. Prior to its acquisition of the other
outstanding membership interests of MDLLC, the Company owned 42% of the
outstanding membership interests of MDLLC.
(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
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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:
<TABLE>
<CAPTION>
Net Sales
---------
Product Categories (Dollars in Thousands)
------------------ For the Fiscal Year Ended June 30,
----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Health Physics Instruments $ 4,667 $ 5,818 $ 17,641
Environmental Monitoring Systems
and Equipment 4,442 5,418 7,049
Nucleonic Gauges, Geiger Muller Tubes
and Temperature/Humidity Monitoring
Systems 620 967 411
TOTAL $ 9,729 $ 12,203 $ 25,101
</TABLE>
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<TABLE>
<CAPTION>
Product Categories Percentage of Net Sales
------------------ -----------------------
For the Fiscal Year Ended June 30,
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1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Health Physics Instruments 47.9% 47.7% 70.3%
Environmental Monitoring Systems
and Equipment 45.6 44.4 28.1
Nucleonic Gauges, Geiger Muller
Tubes and Temperature/Humidity
Monitoring Systems 6.5 7.9 1.6
----- ----- -----
TOTAL 100.0% 100.0% 100.0%
</TABLE>
During the fiscal 1998, 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 MDLLC. MDLLC was established to develop, manufacture, produce and
sell Temperature/Humidity Monitoring Systems and other related products or
services. Pursuant to a contribution agreement among the Company and the other
initial members of MDLLC, 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 MDLLC. The Company was to produce
under a manufacturing agreement the Temperature/Humidity Monitoring Systems,
which were to be sold by MDLLC, and was to provide administrative services to
MDLLC. In September 1998 the Company acquired all of the outstanding
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membership interests of MDLLC not then owned by the Company. The assets and
liabilities of MDLLC were treated as the assets and liabilities of the Company
as of June 30, 1998 and amounts due the Company from MDLLC were written off.
This transaction resulted in a net loss to the Company of $954,424 for fiscal
1998.
In addition to its efforts to expand its business in its
Temperature/Humidity Monitoring Systems product line through its investment in
and, ultimately, its acquisition of MDLLC, the Company has continued marketing
Geiger Muller Tubes for both military and commercial markets. The Company
believes that the discrete sale of these radiation detectors represents a
continuing diversification of its product line. At June 30, 1998 backlog for
Geiger Muller Tubes was $149,000, compared to $122,000 at June 30, 1997.
During fiscal 1998, the Company dedicated resources toward broadening
and updating its Nucleonic Gauges product line. At June 30, 1998 backlog for
Nucleonic Gauges was $38,000 compared to $46,000 at June 30, 1997.
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 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
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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. In 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 1998 were obtained through the Company's internal marketing
staff which currently consists of seven persons.
(d) Backlog. At June 30, 1998, the Company's backlog of orders was
$15,857,000 compared to $18,795,000 at June 30, 1997. Substantially all such
orders are subject to cancellation. The Company expects to ship approximately
$9,300,000 of the June 30, 1998 backlog in the fiscal year ended June 30, 1999
("fiscal 1999"). Also included in the backlog of orders at June 30, 1998 and
1997, respectively, is $2,289,000 and $4,200,000 representing the unfunded
amount on a Government contract awarded in May 1996.
The Company was awarded a contract by the United States Army in May
1996. The Government exercised options and the current value of the contract is
$10,600,000. At June 30,
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1998 approximately $8,740,000 from this contract is included in the backlog of
$15,857,000. The fourth year of the contract was funded in December 1998 in the
amount of $2,289,000. The contract represents a continuation of the Company's
manufacturing for the Government of a next generation product that utilizes the
Company's patented technique of radiation measurement. The Company experienced
losses during fiscal 1998 related to its inability to ship the product to the
Government due to product development difficulties that delayed completion of
first article testing and Government approval of first article test units (the
"Test Units"). See Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations." First article testing was completed and
Government approval of Test Units was obtained in March 1998 and shipments of
actual production units commenced in April 1998. Subsequent to June 30, 1998,
the Company was able to accelerate production, and the first three years of the
contract were completed by February 1999.
Domestic commercial orders for fiscal 1998 were $3,217,000 compared to
$2,325,000 for the fiscal year ended June 30, 1997 ("fiscal 1997"). The Company
believes that the increase in domestic orders is primarily attributable to an
easing of customer budget constraints and to customers' increased need for spare
parts resulting from order cutbacks in prior years due to budget constraints.
(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, increased from 31.9% of revenues in fiscal 1997 to
45.3% of revenues in fiscal 1998. The increase resulted from the commencement of
the $10,600,000 Government contract noted above and an overall decline in total
revenue in fiscal 1998 as compared to fiscal 1997. 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 48-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 is the only customer that accounted for at least 10% of
the Company's total revenues in fiscal 1998. 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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Foreign shipments accounted for 22% of the Company's total revenues in
fiscal 1998 as compared to 44% in fiscal 1997 and 26% in the fiscal year ended
June 30, 1996 ("fiscal 1996"). The increase in foreign shipments as a percentage
of total revenues from fiscal 1996 to fiscal 1997 was due to a decrease in
overall revenues of $12,898,000. The decreases in foreign shipments as a
percentage of total revenues in fiscal 1998 as compared to fiscal 1997 was due
to the completion in fiscal 1997 of substantially all of the Company's Far East
backlog.
Domestic commercial sales for fiscal 1998 increased to $3,229,000
compared to $2,931,000 for fiscal 1997. 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,
-----------------------------------
1998 1997 1996
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<S> <C> <C> <C>
Export Sales:
Australia $ 39,900 $ 10,000 $ 106,000
Europe 710,800 906,000 662,000
Far East 397,300 3,818,000 4,966,000
Middle East 117,200 29,000 21,000
North America 950,900 619,000 648,000
Other 10,900 -- 24,000
---------- ---------- ----------
TOTAL $2,227,000 $5,382,000 $6,427,000
</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
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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, 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 draws from its technical
staff to assign personnel to research and development functions as required and
as resources will allow. The Company has substantially reduced research and
development activities due to its recent financial results.
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The Company expended $100,000 on research in fiscal 1998 compared to
$1,054,389 and $1,096,206 in fiscal 1997 and 1996, respectively.
Customer-sponsored research accounted for $0 in fiscal 1998, $0 in fiscal 1997
and $97,382 in fiscal 1996.
(j) Personnel. At June 30, 1998, the Company had a total of 146
full-time employees, consisting of 88 employees at the Company's Warrington,
Pennsylvania location and 58 employees at the Company's Dover, New Jersey
location. Of these employees, 76 were engineering and production workers and the
balance were officers, managers, sales and office personnel and indirect labor.
At March 25, 1999, the Company had a total of 154 full-time employees consisting
of 92 employees at the Company's Warrington, Pennsylvania location and 62
employees at the Company's Dover, New Jersey location. Of these employees, 88
were engineering and production workers and the balance were officers, managers,
sales and office 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,
contains approximately 49,000 square feet with approximately 18,000 square feet
reserved for offices and engineering laboratories and 31,000 square feet for
manufacturing facilities.
The Company leases 38,000 square feet of space on the second floor of a
building on Richboynton Road in Dover, New Jersey, for offices, engineering
laboratories and manufacturing facilities. The lease expired effective February
28, 1999 and the Company
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executed a letter agreement extending the lease on a month to month basis,
provided that the Company is required to give three months notice if it decides
to terminate the lease. 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 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 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
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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, 1998, the Company had approximately 1,675
shareholders of record, of which approximately 1,616 shareholders own 10 shares
or fewer.
The Company did not pay any dividends in fiscal years 1998 and 1997 and
does not anticipate paying dividends in the foreseeable future.
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
For the Fiscal Year Ended June 30,
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1998 1997 1996 1995 1994
--------------- --------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 9,728,960 $ 12,202,559 $ 25,100,604 $ 27,051,737 $ 20,852,694
Net Income (Loss) $ (2,964,272) $ (1,300,095) $ 1,706,967 $ 1,278,476 $ 622,353(1)
Net Income (Loss) Per
Common Share(3) $ (107.18) $ (47.01) $ 61.72 $ 46.22 $ 22.50
Total Assets $ 11,009,940 $ 11,667,603 $ 13,809,940 $ 11,392,003(2) $ 11,024,694
Long-term Debt $ 61,250 $ 217,895 $ 141,666 $ 379,131 $ 738,870
Dividends Declared, Per $ 0 $ 0 $ 0 $ 0 $ 0
Common Share
</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.
(3) Net Income (Loss) Per Common Share has been restated for the fiscal
years ended June 30, 1997, 1996, 1995 and 1994 to reflect a correction
in the number of shares reported outstanding for each such fiscal year
from 28,175 to 27,658.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The Company experienced disappointing results in both sales and
earnings during fiscal 1998, in part due to (a) decreased sales resulting from
the Company's inability to complete first article testing and obtain first
article approval of Test Units from the Government on a new product to be
shipped to the Government, as described above; (b) customer budget constraints,
which delayed orders; (c) a loss of $954,424 in connection with the acquisition
of all of the outstanding membership interests of MDLLC; (d) the Company's
continuing investments toward the growth and development of Geiger Mueller Tubes
and Nucleonic Gauge Products; and (e) delays in the full implementation of cost
reduction programs.
The Company commenced shipping of the new product to the Government in
the last quarter of fiscal 1998, and sales and earnings, exclusive of the MDLLC
write-offs, increased significantly over each of the first three quarters of
fiscal 1998. The Company expects the shipments of the new product to the
Government to continue through fiscal 1999 and beyond.
The Company suffered a net loss on the acquisition of MDLLC of
$954,424, which is being recognized during the fourth quarter of fiscal 1998.
The Company's management believed, and continues to believe, that the most
effective way to secure a return on the Company's investment in MDLLC and to
expand its Temperature/Humidity Monitoring product line business was to become
the sole owner of the outstanding membership interests of MDLLC and thereby gain
total control over all operating decisions for the product line.
The Company reduced its work force during the first and second quarters
of fiscal 1998. However, during the third and fourth quarters of fiscal 1998,
the Company expanded its
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workforce in order to meet production requirements for the product approved by
the Government for production in March 1998, as discussed above.
Fiscal 1998 Compared with Fiscal 1997
Sales for fiscal 1998 decreased to $9,728,960 from $12,202,559 for
fiscal 1997. The decrease in sales in fiscal 1998 is attributable primarily to
delays in shipping a new Government product, as noted above.
Loss from operations increased to a loss of $3,782,455 in fiscal 1998
compared to a loss of $2,214,398 in fiscal 1997 because of reduced sales. Due to
reduced sales, gross profit as a percentage of sales decreased to negative 3.25%
as compared to 17.57% for fiscal 1997.
Selling and administrative expenses decreased $102,066 to $2,974,546 in
fiscal 1998. Due to reduced sales, as a percentage of sales, selling and
administrative expenses increased to 30.57% for fiscal 1998 as compared to
25.21% for fiscal 1997.
Research and development expenses decreased $954,389 to $100,000 for
fiscal 1998, due to the Company's reclassification of research and development
expenses as cost of sales. Research and development expenses as a percentage of
sales decreased to 1.03% for fiscal 1998 as compared to 8.64% for fiscal 1997,
also as a result of the reclassification of research and development expenses.
Interest expenses increased $165,032 to $392,160 for fiscal 1998 as a
result of increased borrowings, an increase in related costs associated with a
letter of credit for a multi-year contract and reduced sales volume.
The effective tax rate decreased from 39% in fiscal 1997 to 37% in
fiscal 1998.
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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 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 was due to (a) the completion
of several Government contracts; (b) the Company's inability to ship a new
product to the Government due to delays in completion of first article testing
and in obtaining Government approval of Test Units during fiscal 1997; (c)
customers' budget constraints, which delayed orders; and (d) a lower order base
which Management attributed to competitive conditions.
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 percentage of sales, research and development expenses
increased to 8.64% for fiscal 1997 as compared to 4.37% for fiscal 1996.
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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.
Liquidity and Capital Resources
During fiscal 1998, increases in prepaid taxes on income and tax refund
receivable of $242,540 and deferred income taxes of $701,703 combined with a
reduction in inventory of $813,290 were principal factors that affected cash
provided by operating activities. The increases in prepaid taxes on income and
tax refund receivable combined with the increase in deferred income taxes is
primarily the result of the tax benefits associated with the net loss in fiscal
1998. The reduction in inventory is primarily the result of write down for
obsolete inventory. Increases in write down of intangible assets of $175,583,
accounts payable of $157,288 and accrued expenses and accrued payroll and
payroll taxes of $578,251, combined with decreases in accounts receivable of
$128,515 and costs and estimated earnings in excess of billings on uncompleted
contracts of $207,604 were additional factors affecting cash provided by
operating activities. The write down of intangible assets is related to the
acquisition of all of the outstanding membership interests of MDLLC and the
related treatment of MDLLC's assets and liabilities as the assets and
liabilities of the Company. See Note 1 to the Consolidated
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Financial Statements. The increases in accounts payable and accrued expenses
were due primarily to customer advances on services to be performed and the
fiscal 1998 net loss. The increase in accrued payroll and payroll taxes is due
to a provision for severance pay in anticipation of layoffs related to cost
reduction efforts. The decrease in accounts receivable is primarily due to the
decrease in sales from fiscal 1997. The decrease in costs and estimated earnings
in excess of billings on uncompleted contracts is primarily attributable to
completion of several multi-year contracts as of June 30, 1998.
The Company made capital expenditures in fiscal 1998 in the amount of
$100,276 to purchase manufacturing and computer equipment and to make certain
expenditures associated with patents. Cash provided by financing activities for
fiscal 1998 increased to $1,548,184 as a result of proceeds on the Company's
working capital line of credit in the amount of $1,865,000 partially offset by
payments on long-term debt of $316,816.
During fiscal 1998, the Company increased its working capital line of
credit to $6,000,000 of which $5,190,000 was outstanding at June 30, 1998. The
maximum amount available under this line of credit is limited by certain
outstanding standby letters of credit, in the amount of $784,734 at June 30,
1998, issued as collateral for performance on long-term contracts. See Note 4 to
the Consolidated financial Statements. The interest rate on the working capital
line of credit is payable at the prime rate of the Company's lender, First Union
Bank, successor by merger to CoreStates Bank, N.A. and Bucks County Bank and
Trust Company (the "Bank") and was 8.5% at June 30, 1998. The working capital
line of credit is collateralized by accounts receivable, inventory, property,
plant and equipment, assignment of letters of credit
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confirmed and negotiated by the Bank and the assignment of all existing and
future Government contracts that exceed $500,000.
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, 1998 was
$41,666. 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
MDLLC. The purpose of this loan was to assist in financing the working capital
requirements of the MDLLC. The principal balance of this loan at June 30, 1998
was $166,250. See Note 5 to the Consolidated Financial Statements.
In May 1998, the Company and the Bank entered into a First Amendment to
Line of Credit Agreement (the "First Amendment"), a copy of which is filed
herewith. Under the First Amendment, the borrowing availability on the Company's
line of credit loans with the Bank was increased from $5,500,000 to $6,000,000.
Under the First Amendment, the additional credit
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<PAGE>
availability was made available to the Company on a committed basis until June
30, 1998, provided that no Event of Default or Collateral Deterioration (as
those terms are defined in the First Amendment) greater than $800,000 occurred.
Effective July 1, 1998, the line of credit was provided at the sole and absolute
discretion of the Bank, repayable on demand regardless of whether an Event of
Default or Collateral Deterioration greater than $800,000 occurred. The First
Amendment subsequently was extended through October 7, 1998. As of the date of
this filing, no Event of Default or Collateral Deterioration has occurred.
As a condition precedent of the Bank's entering into the First
Amendment, Earl M. Pollock, President of the Company, and Dorothy S. Pollock,
Secretary of the Company and wife of Earl M. Pollock, entered into a Guaranty
pursuant to which they jointly and severally guaranteed the obligations of the
Company to the Bank up to the lesser of $800,000 or the amount of any Collateral
Deterioration. In exchange for entering into the Guaranty, the Company issued to
Earl M. Pollock and Dorothy S. Pollock, as tenants by the entireties, a warrant
for the purchase of 3,000 shares of Common Stock at an exercise price of $117.03
per share, the book value per share of the Company as of June 30, 1998. The
warrant expires on May 20, 2003.
On January 20, 1999, First Union Bank and the Company entered into a
term sheet agreeing to the terms and conditions under which First Union Bank
will agree to extend the forbearance period set forth in the First Amendment
through June 30, 1999. As consideration for this extension, the Company paid to
the Bank $200,000 as a principal reduction to the Company's line of credit and
agreed to amortize the working capital line of credit at a rate of $25,000 per
month plus interest. In addition, the amount from which Collateral Deterioration
is
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<PAGE>
measured was reduced from $4,127,730 to $3,800,000 effective January 1, 1999. As
of the filing of this report, the Company and First Union Bank are negotiating a
forbearance agreement in accordance with the terms of the term sheet. It is
expected that First Union will require that Mr. and Mrs. Pollock give a personal
guarantee in connection with the forbearance agreement. The Board of Directors
of the Company has determined to issue an additional five-year warrant for 5,000
shares to Mr. and Mrs. Pollock, as tenants by the entireties, upon the execution
and delivery by them of such guarantee.
The Company is exploring the possibility of a significant transaction
to provide the capital and other resources required by the Company, including
the liquidation of its obligations to the Bank. The Company believes that
available financing and current cash flow will be adequate to support ongoing
operations in the near term.
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
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<PAGE>
"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
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<PAGE>
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
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<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.
-24-
<PAGE>
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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The financial statements are listed under Item 14 in this Report on
Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
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 79, has been Chairman, President and Chief
Executive Officer of the Company for more than five years.
Dorothy S. Pollock, age 69, 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.
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<PAGE>
Charles H. Sulzberger, Jr., age 71, 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.
Carl G. Katz, age 50, joined the Company and was appointed Treasurer
and Chief Financial Officer in November 1997. Prior to joining the Company, Mr.
Katz was employed by Le-Jo Enterprises as Chief Financial Officer from 1995
through October 1997. Le-Jo Enterprises is a manufacturer of a full line of
industrial blades and food service products. Prior to 1995, Mr. Katz was
employed by Starr Transit as Chief Operating Officer. Starr Transit is a
transportation and tour company. Mr. Katz is a Certified Public Accountant.
Harold J. Cooley, age 64, 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, require the Company's officers and directors and
persons who own 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
other filings required to be made by the reporting persons for the period July
1, 1997 through June 30, 1998 were made on a
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<PAGE>
timely basis, except for (a) one report of Carl G. Katz, Treasurer and Chief
Financial Officer, relating to his appointment to an executive officer position,
which was filed subsequent to its due date, (b) one report of Earl M. Pollock,
President, Chief Executive Officer and member of the Board of Directors,
relating to one transaction, which has been sent for filing with the SEC
subsequent to its due date and (c) one report of Dorothy S. Pollock, Secretary
and member of the Board of Directors, relating to one transaction, which has
been sent for filing with the SEC subsequent to its due date.
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,
1998, to or on behalf of the Company's Chief Executive Officer and the other
most highly compensated executive officer of the Company whose total annual
salary and bonus exceeded $100,000 (the Company had only one such executive
officer, in addition to its Chief Executive Officer, during fiscal 1998).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------------------
Annual Compensation Awards Payouts
------------------------------------------ -------------------------- ---------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Other Annual Restricted Underlying LTIP All Other
Name and Compensation Stock Options/ Payouts Compensation
Principal Position Year Salary ($) Bonus ($) ($) Award(s) ($) SARs (#) ($) ($)
- ---------------------- ------- -------------- ------------- ------------ ------------- ------------ --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earl M. Pollock 1998 $ 183,922 -0- -0- -0- -0- -0- -0-
Chairman of the 1997 $ 249,343 -0- -0- -0- -0- -0- -0-
Board, President 1996 $ 226,622 -0- -0- -0- -0- -0- -0-
and Chief
Executive Officer
Harold J. Cooley 1998 $ 235,040 -0- -0- -0- -0- -0- -0-
Senior Vice 1997 $ 230,342 -0- -0- -0- -0- -0- $22,600*
President, 1996 $ 225,514 $ 46,153 -0- -0- -0- -0- $17,384*
Operations
====================== ======= ============== ============= ============ ============= ============ ========= ================
====================== ======= ============== ============= ============ ============= ============ ========= ================
</TABLE>
* Payments for accrued, unused vacation time.
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<PAGE>
Option Holdings
The following table provides information regarding Company options held
by the Company's named executive officers at the end of the Company's most
recent fiscal year (such officers did not exercise any options during the most
recent fiscal year).
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
<TABLE>
<CAPTION>
Number of Unexercised
Options/SAR at Fiscal Value of Unexercised
Year-End (#) In-the-Money Options/SARs
Shares Acquired Value Realized (#) Exercisable/ at Fiscal Year-End ($)(1)
Name on Exercise (#) ($) Unexercisable Exercisable/Unexercisable
- -------------------------- --------------- ----------------- ---------------------- ---------------------------
<S> <C> <C> <C> <C>
Earl M. Pollock(2) - - -0- -
Harold J. Cooley - - 2,600/150 $219,760/$0
=========================== =============== ================= ====================== ===========================
</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, 1998, the book value of the Company's Common
Stock was $117.03 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, execution of a non-recourse surety agreement
by Mr. Pollock as security for the Company's credit facilities and the Guaranty
executed by Mr. Pollock in connection with the First Amendment.
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
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<PAGE>
Company's sole obligation is to pay Mr. Cooley's last full year's base
compensation for one year following termination due to disability.
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 1998, the Company paid fees in the
aggregate amount of $1,000 to Mr. Sulzberger.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of April 9, 1999, the number of
shares of common stock owned beneficially by all persons known to the Company to
be 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.
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<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of Percent
Beneficial Owner(1) Beneficial Ownership (2) of Class
- ------------------- ------------------------ --------
<S> <C> <C>
Earl M. Pollock 18,750 (3) 48.5%
Dorothy S. Pollock 10,752 (4) 35.1%
Harold J. Cooley 2,477 (5) 8.2%
Charles H. Sulzberger, Jr. 1,896 6.9%
Reba Pollock 1,681 6.1%
Directors and officers as 30,875 (3)(5) 74.8%
a group (4 persons)
</TABLE>
- ------------
(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, except as otherwise described in footnotes (3)
and (4), these persons hold sole voting and dispositive power with
respect to the shares of stock owned by them as of June 30, 1998.
(3) Includes 11,000 shares issuable upon exercise of warrants, including
3,000 shares issuable upon exercise of a warrant held jointly with his
wife, Dorothy S. Pollock. Does not include any other shares owned by
his wife as to which Mr. Pollock disclaims beneficial ownership.
(4) Includes 3,000 shares issuable upon exercise of a warrant held jointly
with her husband, Earl M. Pollock. Does not include any other shares
owned by her husband as to which Mrs. Pollock disclaims beneficial
ownership.
(5) Includes 2,600 shares that Mr. Cooley has the option to purchase, all
of which are currently exercisable. Excludes an aggregate of 150 shares
issuable upon exercise of options held by Mr. Cooley that are not
exercisable within 60 days.
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<PAGE>
PART IV
Item 13. Certain Relationships and Related Transactions.
In May 1998, in connection with and as partial consideration for a
personal guarantee by Earl M. Pollock and Dorothy S. Pollock of the increased
credit facility provided by the First Amendment, the Company issued to Mr.
Pollock and Ms. Pollock, as tenants by the entireties, warrants for the purchase
of 3,000 shares of the Company's common stock exercisable at $117.03 per share,
the book value per share of the Company as of June 30, 1998. The warrants expire
May 20, 2003. See Note 12 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.
Statements of Operations.
Balance Sheets.
Statements of Cash Flows.
Statements of Stockholders' Equity.
Notes to Financial Statements.
2. Consolidated Financial Statement Schedules:
Not applicable.
3. 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).
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<PAGE>
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)* 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).
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<PAGE>
Exhibit
Number Description of Exhibits.
10(f)* 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(g)* 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(h) Amended and Restated Lease Agreement, dated December 31, 1997, 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(i) 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(j) 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(k) 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(l) 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(m) 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(n) 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(o) 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).
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<PAGE>
Exhibit
Number Description of Exhibits.
10(p) 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(q) 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).
10(r)* 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(s) First Amendment to Line of Credit, dated May 20, 1998, between the
Company and the Bank.
10(t) Allonge to Master Demand Note, made May 20, 1998, of the Company to the
Bank.
10(u) Guaranty, dated May 20, 1998, by Earl M. Pollock and Dorothy S. Pollock
for the benefit of the Bank.
10(v)* Warrant issued to Earl M. Pollock and Dorothy S. Pollock dated May 20,
1998.
10(w)* 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(x) 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(y) Commercial Promissory Note Modification Agreement, dated September 29,
1997, by and between the Company and the Bank (incorporated herein by
reference to Exhibit 10(w) to the Company's Report on Form 10-K for
fiscal 1997).
11 Computation of earnings per share.
21 At June 30, 1998, the Company's three subsidiaries were NRC Acquisition
Corp., a Pennsylvania corporation; Northeast Nuclear, Ltd., a Virgin
Islands corporation; and Measurement Dynamics LLC, a New Jersey limited
liability company.
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<PAGE>
Exhibit
Number Description of Exhibits.
27 Financial Data Schedule
- -------------
*Constitutes management contract or compensatory plan or arrangement
required to be filed as an exhibit to this form.
(b) Reports on Form 8-K.
During the fiscal year ended June 30, 1998, the Company has
not filed any Reports on Form 8-K.
The Private Securities Litigation Reform Act of 1996 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 and shipping
schedules, income from operations, backlog orders to be filled during fiscal
1999, impact on the Company of a significant reduction in Government contract
work, availability of materials and components, impact of Year 2000 issues and
adequacy of cash available from financing and current cash flow. 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.
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<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 April 30, 1999.
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 April 30, 1999.
/s/ Earl M. Pollock
- ------------------------------------
Earl M. Pollock, Chairman of the
Board and President (Principal
Executive Officer)
/s/ Carl G. Katz
- ------------------------------------
Carl G. Katz, 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
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<PAGE>
Nuclear Research Corporation
1998 Annual Report
________________________________________________________________________________
Schmeltzer o Master Group, PC
_____________________________
Certified Public Accountants/
Business Consultants
<PAGE>
Nuclear Research Corporation
Contents
________________________________________________________________________________
Independent Auditors' Report 1
Financial Statements
Statements of Operations 2
Balance Sheets 3
Statements of Cash Flows 4
Statements of Stockholders' Equity 5
Notes to Financial Statements 6-18
<PAGE>
SMG LETTERHEAD
Independent Auditors' Report
To the Board of Directors
Nuclear Research Corporation
Warrington, Pennsylvania
We have audited the accompanying balance sheet of Nuclear Research Corporation
as of June 30, 1998 and the related statements of operations, stockholders'
equity and cash flows for the year then ended. We have also audited the
accompanying consolidated balance sheet of Nuclear Research Corporation and
Subsidiaries as of June 30, 1997 and the related consolidated statements of
operations, stockholders equity and cash flows for each of the years in the
two-year period ended June 30, 1997. These financial statements and consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 1998 financial statements referred to above present fairly,
in all material respects, the financial position of Nuclear Research Corporation
as of June 30, 1998, and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles. Also, in our opinion, the 1997 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 the results of their operations and their cash flows for each of the two
years in the period ended June 30, 1997 in conformity with generally accepted
accounting principles.
/s/ Schmeltzer o Master Group
-------------------------------------
September 22, 1998
<PAGE>
Nuclear Research Corporation
Statements of Operations
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Consolidated Consolidated
Years Ended June 30, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales (Note 10) $ 9,728,960 $12,202,559 $25,100,604
Cost of Sales 10,044,709 10,058,828 18,307,530
- ----------------------------------------------------------------------------------------------------------
Gross Profit (Loss) (315,749) 2,143,731 6,793,074
Selling and Administrative Expenses 2,974,546 3,076,612 3,027,078
Research and Development Expenses (Note 1) 100,000 1,054,389 1,096,206
Interest Expense 392,160 227,128 357,396
- ----------------------------------------------------------------------------------------------------------
Income (Loss) from Operations (3,782,455) (2,214,398) 2,312,394
Other Income (Loss)
Miscellaneous 47,144 11,293 41,764
Interest 8,407 2,481 5,922
Net loss on merger (Note 1) (954,424) - -
- ----------------------------------------------------------------------------------------------------------
Total Other Income (Loss) (898,873) 13,774 47,686
- ----------------------------------------------------------------------------------------------------------
Income (Loss) Before Minority Interest (4,681,328) (2,200,624) 2,360,080
Minority Interest in Loss of Consolidated
Subsidiary (Note 1) - 81,056 316,427
- ----------------------------------------------------------------------------------------------------------
Income (Loss) - Before Income Taxes (Benefit) (4,681,328) (2,119,568) 2,676,507
Less: income tax (benefit) (Note 11) (1,717,056) (819,473) 969,540
- ----------------------------------------------------------------------------------------------------------
Net Income (Loss) $(2,964,272) $(1,300,095) $ 1,706,967
- ----------------------------------------------------------------------------------------------------------
Basic Earnings (Loss) Per Share (Note 1)
(Restated for 1997 and 1996) $ (107.18) $ (47.01) $ 61.72
- ----------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Share -
Assuming Dilution (Note 1)
(Restated for 1997 and 1996) $ (107.18) $ (47.01) $ 49.25
- ----------------------------------------------------------------------------------------------------------
See Accompanying Notes
</TABLE>
2
<PAGE>
Nuclear Research Corporation
Balance Sheets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Consolidated
June 30, 1998 1997
- ----------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Current Assets
Cash (Note 1) $ 132,036 $ 183,610
Accounts receivable (Notes 1, 4, and 5) 1,881,026 2,009,541
Inventory (Notes 1, 2, 4, and 5) 4,250,787 5,064,077
Prepaid taxes-on income and tax refund receivable 1,092,062 849,522
Prepaid expenses and other current assets 180,357 130,319
Costs and estimated earnings in excess of
billings on uncompleted contracts (Note 1) - 207,604
Deferred income taxes (Note 11) 881,103 179,400
- ----------------------------------------------------------------------------------------------------------
Total Current Assets 8,417,371 8,624,073
Property, Plant and Equipment - Net (Notes 1, 3, 4, and 5) 2,072,608 2,360,304
Other Assets
Intangible assets, net (Note 1) 353,927 540,417
Other 166,034 142,809
- ----------------------------------------------------------------------------------------------------------
Total Other Assets 519,961 683,226
- ----------------------------------------------------------------------------------------------------------
Total Assets $11,009,940 $11,667,603
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Short-term borrowings (Note 4) $ 5,190,000 $ 3,325,000
Current portion of long-term debt (Note 5) 146,666 306,837
Accounts payable 902,653 745,365
Accrued expenses 1,103,500 643,928
Accrued payroll and payroll taxes 319,184 200,505
Billings on uncompleted contracts in excess
of costs and estimated earnings (Note 1) 23,656 -
- ----------------------------------------------------------------------------------------------------------
Total Current Liabilities 7,685,659 5,221,635
Long-Term Debt (Note 5) 61,250 217,895
Deferred Income Taxes (Note 11) 26,194 26,964
Minority Interest in Equity of Consolidated Subsidiary (Note 1) -
Commitments and Contingency (Note 8)
Stockholders' Equity
Common stock
Stated value $5 per share, with 60,000
shares authorized, 31,356 shares issued,
and 27,658 shares outstanding 159,365 159,365
Additional paid-in capital 517,010 517,010
Retained earnings 2,622,815 5,587,087
Less: treasury stock, 3,698 shares at cost (62,353) (62,353)
- ----------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 3,236,837 6,201,109
- ----------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $11,009,940 $11,667,603
- ----------------------------------------------------------------------------------------------------------
See Accompanying Notes
</TABLE>
3
<PAGE>
Nuclear Research Corporation
Statements of Cash Flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Consolidated Consolidated
Years Ended June 30, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $(2,964,272) $(1,300,095) $1,706,967
Adjustments to reconcile net income (loss)
to net cash provided by (used by)
operating activities:
Deferred income taxes (702,473) (133,670) (47,270)
Depreciation and amortization 387,855 430,263 428,008
Gain on disposition of property and equipment 33,229 - (4,000)
Minority interest in loss of consolidated subsidiary - (81,056) (316,427)
Write down of intangible assets 175,583 - -
(Increase) decrease in:
Accounts receivable 128,515 862,763 1,254,016
Other receivable 10,000 - -
Inventory 813,290 (454,903) (880,449)
Prepaid taxes - on income and tax refund receivable (242,540) (849,522) -
Prepaid expenses and other assets (50,038) 79,940 (94,544)
Costs and estimated earnings in excess of
billings on uncompleted contracts 207,604 2,962,602 (1,436,654)
Increase (decrease) in:
Accounts payable 157,288 (147,949) (661,568)
Accrued expenses and payroll taxes 578,251 (393,014) 273,294
Taxes payable - on income - (114,145) (342,910)
Billings on uncompleted contracts in excess
of costs and estimated earnings 23,656 - -
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used by) Operating Activities (1,444,052) 861,214 (121,537)
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Capital expenditures (100,276) (688,409) (1,069,149)
Proceeds from sale of equipment - - 4,000
Increase in other assets (55,430) (62,524) (50,833)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (155,706) (750,933) (1,115,982)
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net proceeds (payments) on line of credit 1,865,000 - 1,475,000
Proceeds of long-term debt - 511,816 300,000
Payments of long-term debt (316,816) (613,224) (417,032)
Other - - (12,617)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used by) Financing Activities 1,548,184 (101,408) 1,345,351
- -----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash (51,574) 8,873 107,832
Cash - Beginning 183,610 174,737 66,905
- -----------------------------------------------------------------------------------------------------------------------
Cash - Ending $ 132,036 $ 183,610 $ 174,737
- -----------------------------------------------------------------------------------------------------------------------
Supplementary Disclosures:
Interest paid $ 365,327 $ 251,757 $ 355,700
- -----------------------------------------------------------------------------------------------------------------------
Income taxes paid $ 66,929 $ 284,704 $ 889,935
- -----------------------------------------------------------------------------------------------------------------------
See Accompanying Notes
</TABLE>
4
<PAGE>
This Page Was Intentionally Left Blank
<PAGE>
<TABLE>
<CAPTION>
_________________________________________________________________________________________________________
Years Ended June 30, 1998, 1997 and 1996
_________________________________________________________________________________________________________
Common Stock
__________________________________
Number of Shares Amount
__________________________________
<S> <C> <C>
Balance at June 30, 1995 (consolidated) 27,658 $159,365
Net income for the year ended June 30, 1996 (consolidated) - -
- ---------------------------------------------------------------------------------------------------------
Balance at June 30, 1996 (consolidated) 27,658 159,365
Net loss for the year ended June 30, 1997 (consolidated) - -
- ---------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 (consolidated) 27,658 159,365
Net loss for the year ended June 30, 1998 - -
- ---------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 27,658 $159,365
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Nuclear Research Corporation
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
_______________________________________________________________________________________________________________
_______________________________________________________________________________________________________________
Additional Total
Paid-in Retained Treasury Stockholders'
Capital Earnings Stock Equity
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
$ 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
- (2,964,272) - (2,964,272)
- ---------------------------------------------------------------------------------------------------------------
$ 517,010 $ 2,622,815 $(62,353) $ 3,236,837
- ---------------------------------------------------------------------------------------------------------------
See Accompanying Notes
</TABLE>
5
<PAGE>
This Page Was Intentionally Left Blank
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 1 Organization
Organization ------------
and Nuclear Research Corporation (the Company) was incorporated on
Summary of July 17, 1950 under the laws of the Commonwealth of
Significant Pennsylvania. The Company is engaged in the business of
Accounting designing, manufacturing and servicing detection, measurement
Policies 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. During the year ended June 30, 1998, the Company's
wholly owned subsidiaries, NRC Acquisition Corporation and
Northeast Nuclear, Ltd. were dissolved. The assets and
liabilities of the wholly owned subsidiaries were merged into
the Company. Measurement Dynamics LLC (MDLLC), owned 42% by the
Company, was terminated on June 30, 1998. The Company acquired
all of the outstanding membership interest of MDLLC, not then
owned by the Company. The assets and liabilities of MDLLC were
merged into the Company as of June 30, 1998. In addition,
amounts due the Company from MDLLC were written off.
Principles of Consolidation
---------------------------
The consolidated financial statements prior to the year ended
June 30, 1998 included 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 were eliminated in consolidation. Northeast
Nuclear, Ltd. was a foreign sales corporation (FSC) and as such
filed its own corporate tax return. MDLLC was a limited
liability company (LLC) and as such filed its own partnership
tax return (see Note 11). MDLLC had a deficit in its equity
account; therefore, according to generally accepted accounting
principles, the liability in minority interest in equity of
subsidiary has been reduced to zero on the 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.
6
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 1 Accounting for Contracts (Continued)
Organization ------------------------------------
and The Company recognizes revenues on several fixed-price contracts
Summary of using the percentage-of-completion method, measured by the
Significant percentage of cost incurred to date compared to the estimated
Accounting total cost for the contracts. That method is used because
Policies management considers total cost to be the best available measure
(Continued) 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 account entitled "costs and estimated earnings in
excess of billings on uncompleted contracts", represents
revenues recognized in excess of amounts billed. The liability
account entitled "billings on uncompleted contracts in excess of
costs and estimated earnings", represents billings in excess of
revenues recognized.
Costs, estimated earnings, and billings on uncompleted contracts
at June 30 are summarized as follows:
1998 1997
----------------------------------------------------------------
Costs incurred and estimated earnings
on uncompleted contracts $408,047 $9,457,954
Less: Billings to date 431,703 9,250,350
----------------------------------------------------------------
$(23,656) $ 207,604
----------------------------------------------------------------
Included in accompanying balance sheet
under the following caption:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ - $ 207,604
----------------------------------------------------------------
Billings on uncompleted contracts in
excess of costs and estimated earnings $ 23,656 $ -
----------------------------------------------------------------
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.
For purposes of preparing the statement of cash flows, the
Company considers all highly liquid investments available for
current use with an initial maturity of three months or less to
be cash and cash equivalents
7
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 1 Accounts Receivable
Organization -------------------
and Accounts receivable at June 30, consists of:
Summary of
Significant
Accounting 1998 1997
Policies ----------------------------------------------------------------
(Continued)
United States Government $ 749,771 $ 485,625
Commercial contracts 745,161 757,162
Foreign contracts 386,094 750,066
Unbilled receivables - U. S. Government - 16,688
----------------------------------------------------------------
Total $1,881,026 $2,009,541
----------------------------------------------------------------
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, consist of:
1998 1997
----------------------------------------------------------------
Patents and trademarks, net $ 176,351 $ 164,556
Copyrights, net 2,576 2,944
Other, net 175,000 372,917
----------------------------------------------------------------
$ 353,927 $ 540,417
----------------------------------------------------------------
8
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 1 Intangible Assets (Continued)
Organization -----------------------------
and The costs of the patents and trademarks are being amortized
Summary of using the straight line method over their remaining useful
Significant lives, not to exceed seventeen years. Accumulated amortization
Accounting was $111,769 at June 30, 1998 and $90,821 at June 30, 1997.
Policies Amortization expense amounted to $20,948, $13,559 and $13,956 in
(Continued) 1998, 1997 and 1996, 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 $1,104 at June 30, 1998 and $736 at June 30,
1997. Amortization expense was $368 for the years ended June 30,
1998 and 1997 and 1996.
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 $63,417 at June 30, 1998 and $41,083 at June
30, 1997. Amortization expense was $22,334, $20,700 and $20,383
for the years ended June 30, 1998, 1997 and 1996, respectively.
Advertising
-----------
Advertising costs are expensed as incurred. Advertising expense
for 1998, 1997 and 1996 was $16,287, $17,388 and $17,040
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 tax returns of the parent
corporation, depreciation from an involuntary conversion of
property and Federal 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 $100,000, $1,054,389, and $1,096,206 in 1998,
1997 and 1996, respectively. Customer-sponsored research
accounted for $-0-, $-0- and $97,382 in 1998, 1997 and 1996,
respectively.
Earnings Per Share
------------------
During the year ended June 30, 1998, FASB No. 128, Earnings per
Share, became effective for financial statements issued for
periods ending after December 15, 1997. This statement requires
dual presentation of basic and diluted EPS on the face of the
income statement and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. This statement
also requires restatement of all prior-period EPS data
presented. As a result, we have restated the EPS information for
June 30, 1997 and 1996.
9
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 1 Earnings Per Share (Continued)
Organization ------------------------------
and Basic EPS is calculated by dividing net income (loss) by the
Summary of weighted average shares of common stock of the Company ("Common
Significant Stock"). The calculation of fully dilutive EPS assumes the
Accounting dilutive effect of the Company's stock options and warrants
Policies converted into Common Stock at the later of the beginning of the
(Continued) year or issue date. During a loss period, the assumed exercise
of outstanding in-the-money stock options and warrants have an
antidilutive effect. As a result, these shares are not included
in the weighted average shares outstanding of 27,658 used in the
calculation of basic and fully dilutive EPS at June 30, 1998,
1997 and 1996.
Reclassifications
-----------------
Certain items in the 1997 financial statements have been
reclassified to conform with current year presentation.
Note 2 Inventory at June 30, consists of:
Inventory
1998 1997
----------------------------------------------------------------
Work-In-Process
United States Government contracts $1,585,356 $3,512,367
Commercial contracts 695,253 1,421,592
Purchased and manufactured parts 2,872,827 1,063,454
----------------------------------------------------------------
5,153,436 5,997,413
Less: Progress payments on United
States Government contracts 902,649 933,336
----------------------------------------------------------------
Total $4,250,787 $5,064,077
----------------------------------------------------------------
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, 1998 and 1997,
reported inventories would have been higher by $1,188,945 and
$1,143,627, respectively. Reported net loss for the year ended
June 30, 1998 would have decreased by $27,961 ($1.01 per share).
Reported net loss for the year ended June 30, 1997 would have
decreased by $72,487 ($2.62 per share). Reported net income for
the year ended June 30, 1996 would have decreased by $1,167
($.04 per share).
10
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 2 The proforma effect relating to the use of the FIFO method would
Inventory have resulted in the following balances for the statements of
(Continued) operations presentation for the years ended June 30:
Restated
1998 1997 1996
----------------------------------------------------------------
Gross profit (loss) $ (270,431) $ 2,261,130 $ 6,790,429
----------------------------------------------------------------
Income (loss) from
operations $(3,737,137) $(2,096,999) $ 2,309,749
----------------------------------------------------------------
Net income (loss) $(2,936,311) $(1,227,608) $ 1,705,350
----------------------------------------------------------------
In the year ended June 30, 1998 and 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 1998 and
1996 purchases. The effect of this liquidation was to increase
net income by $23,594 ($.84 per share) and $96,663 ($2.75 per
share) for the years ended June 30, 1998 and 1996, respectively.
Note 3 Property, plant and equipment at June 30, consists of:
Property,
Plant and 1998 1997
Equipment ----------------------------------------------------------------
Land and land improvements $ 79,207 $ 79,207
Building and improvements 1,771,102 1,763,490
Equipment and furniture 3,631,524 3,594,427
Leasehold improvements 120,701 120,701
----------------------------------------------------------------
5,602,534 5,557,825
Less: accumulated depreciation and
amortization 3,529,926 3,197,521
----------------------------------------------------------------
Total $2,072,608 $2,360,304
----------------------------------------------------------------
Depreciation expense amounted to $344,205, $395,636, and
$393,301 in 1998, 1997 and 1996, respectively.
Note 4 The Company maintains a working capital line of credit in the
Short-Term maximum amount of $6,000,000, payable on demand of which
Borrowings $5,190,000 was outstanding at June 30, 1998. The additional
credit availability will be made available on a committed basis,
provided that no default or collateral deterioration greater
than $800,000 occurs. The maximum amount available under this
line of credit is limited by certain outstanding standby letters
of credit in the amount of $784,734 at June 30, 1998 (see Note
8). Interest is payable at the bank's prime rate (8.5% at June
30, 1998). 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.
11
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 4 At June 30, 1997 the Company maintained a working capital line
Short-Term of credit in the maximum amount of $5,500,000, payable on demand
Borrowings of which $3,325,000 was outstanding. The maximum amount
(Continued) available under this line of credit was limited by certain
outstanding standby letters of credit in the amount of $272,622
at June 30, 1997 (see Note 8). Interest was payable at the
bank's prime rate (8.5% at June 30, 1997). 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 assignment of all existing and
future United States Government contracts that exceed $500,000.
The line was guaranteed by NRC Acquisition Corporation and
MDLLC. The maximum amount guaranteed by MDLLC was $400,000.
Note 5 Long-term debt consists of the following:
Long-Term
Debt
1998 1997
----------------------------------------------------------------
Note payable - bank - payable in
monthly installments of $8,750,
including interest at 7.85%,
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
(see Notes 1, 2 and 3). Payments
extend through January, 2000
$166,250 $271,250
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.
41,666 141,666
12
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 5 Note payable - government -
Long-Term payable in monthly installments of
Debt $8,987 plus interest at 9%. The
(Continued) Note was paid off in 1998. - 107,840
Note payable - township - payable
in monthly installments of $248
plus interest at 4.8%. The Note
was paid off in 1998. - 3,976
----------------------------------------------------------------
207,916 524,732
Less: current portion (146,666) (306,837)
----------------------------------------------------------------
Total long-term debt $ 61,250 $217,895
----------------------------------------------------------------
The following schedule represents the annual obligations on
long-term debt outstanding at June 30, 1998:
Year Amount
----------------------------------------------------------------
1999 $ 146,666
2000 61,250
----------------------------------------------------------------
Total $ 207,916
----------------------------------------------------------------
Note 6 Supplementary information regarding non-cash investing and
Statement financing activities:
of Cash
Flows 1998 1997 1996
----------------------------------------------------------------
Non-cash acquisition of
intangible assets $ - $ - $414,000
----------------------------------------------------------------
Disposition of fully
depreciated property
and equipment $11,024 $ - $ -
----------------------------------------------------------------
Non-cash disposal of
minority interest
inventory $ - $3,900 $ -
----------------------------------------------------------------
Organization cost
written off due to
termination of
Measurement
Dynamics, LLC and
Northeast Nuclear Ltd. $22,205 $ - $ -
----------------------------------------------------------------
13
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 7 The Company sponsors a 401(k) retirement plan which is funded
Retirement entirely by employee contributionsand covers substantially all
Plan full-time eligible employees.
Note 8 Lease Obligations
Commitments -----------------
and The Company leases administrative and manufacturing facilities
Contingency under an operating lease that expired February, 1997. The lease
was renewed for two years, and 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, 1998
are as follows:
Year ending June 30, Amount
----------------------------------------------------------------
1999 $ 54,667
----------------------------------------------------------------
Total $ 54,667
----------------------------------------------------------------
Rent expense associated with operating leases amounted to
$82,000, $66,681 and $54,103 in 1998, 1997 and 1996,
respectively.
Employment Agreements
---------------------
The Company has employment agreements with two officers which
call for future minimum payments for each of the next four years
as follows:
Year ending June 30, Amount
----------------------------------------------------------------
1999 $235,040
2000 235,040
2001 235,040
2002 235,040
----------------------------------------------------------------
Total $940,160
----------------------------------------------------------------
Standby Letters of Credit
-------------------------
The Company is contingently liable for standby letters of credit
aggregating $1,437,037 as of June 30, 1998, as collateral for
performance on long-term contracts.
14
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 9 The following methods and assumptions were used to estimate the
Fair Value fair value of each class of financial instruments for which it
of Financial is practicable to estimate that value:
Instruments
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:
1998 1997
----------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------------------------------
Long-term debt $207,916 $207,033 $524,732 $522,482
----------------------------------------------------------------
Note 10 Total sales in fiscal 1998 included 45.3% to various branches of
Major the United States Department of Defense excluding sales to
Customers private contractors who in turn sell to the United States
and Export Government. Sales to the United States Department of Defense in
Sales 1997 and 1996 accounted for 31.9% and 65.1% of total sales,
respectively.
Export sales in U. S. dollars were as follows:
1998 1997 1996
----------------------------------------------------------------
Australia $ 39,900 $ 10,000 $ 106,000
Europe 710,800 906,000 662,000
Far East 397,300 3,818,000 4,966,000
Middle East 117,200 29,000 21,000
North America 950,900 619,000 648,000
Other 10,900 - 24,000
----------------------------------------------------------------
Total $2,227,000 $5,382,000 $6,427,000
----------------------------------------------------------------
The majority of export sales are secured by irrevocable letters
of credit.
15
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 11 Provision (benefit) for income taxes consisted of the following:
Income
Taxes 1998 1997 1996
----------------------------------------------------------------
Federal:
Current tax (benefit) $(1,014,383) $(682,726) $ 834,484
Deferred provision
(benefit) (573,417) (708) (41,708)
State:
Current tax - - 182,326
Deferred benefit $ (129,256) (136,039) (5,562)
----------------------------------------------------------------
Total $(1,717,056) $(819,473) $ 969,540
----------------------------------------------------------------
The following is a reconciliation of income taxes at the Federal
statutory rate with income taxes recorded by the Company:
1998 1997 1996
----------------------------------------------------------------
Federal tax at statutory
rate from continuing
operations $(1,638,465) $(747,853) $ 910,012
State income taxes, net
of Federal benefit (84,016) (89,759) 120,335
Other 5,982 (4,857) (4,972)
Minority interest in
loss of subsidiary - 69,410 19,085
Research and development
and other credits (557) (14,865) (4,074)
Federal tax savings
attributable to foreign
sales corporation - (31,549) (70,846)
----------------------------------------------------------------
Provision (benefit) for
taxes on income $(1,717,056) $ (819,473) $ 969,540
----------------------------------------------------------------
The deferred tax asset and deferred tax liability comprised the
following at June 30:
1998 1997
----------------------------------------------------------------
Deferred tax assets:
Deferred loss from MDLLC $ - $ 46,500
Net operating loss and
tax credit carryforward 583,303 132,900
Obsolete inventory write
down for books 442,139 -
----------------------------------------------------------------
1,025,442 179,400
Valuation allowance (144,339) -
----------------------------------------------------------------
Net deferred tax assets 881,103 179,400
----------------------------------------------------------------
Deferred tax liability:
Depreciation (26,194) (26,964)
----------------------------------------------------------------
Net deferred tax liability $ (26,194) $(26,964)
----------------------------------------------------------------
16
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 11 The valuation allowance increased $144,339 during the year ended
Income June 30, 1998. At June 30, 1997 the Company believed that all of
Taxes the deferred tax assets were more likely than not to be
(Continued) realized.
Income taxes (receivable and prepaid) at June 30, 1998 and 1997
were $1,092,062 and $849,522, respectively.
The Company has loss carryforwards totaling $813,000 which may
be used to offset future taxable income. The carryforwards
expire in 2013.
Note 12 Stock Option Plan
Related -----------------
Party The Company maintains an Incentive Stock Option and
Transactions 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. As of June 30, 1998 there have been no grants.
Outstanding Stock Options
-------------------------
Incentive stock options to purchase an aggregate amount of 1,000
shares were issued to two key employees and are exercisable at
an aggregate rate of 200 shares per year beginning October 29,
1991. The exercise price is $90 per share.
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 2,050 shares were issued to
three key employees and one consultant and are exercisable at an
aggregate rate of 410 shares per year beginning November 8,
1995. The exercise price is $160.28.
Option Shares Exercisable Non-Exercisable
----------------------------------------------------------------
Outstanding, July 1, 1997 4,520 1,530
Expired (700) (300)
Issued during year ended
June 30, 1998 - -
Exercisable during year ended
June 30, 1998 410 (410)
----------------------------------------------------------------
Outstanding June 30, 1998 4,230 820
----------------------------------------------------------------
Exercisable June 30, 1998 $422,160 -
----------------------------------------------------------------
During the year ended June 30, 1998 a key employee left. As a
result, options which were available to him expired.
17
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 12 Stock Warrants
Related --------------
Party
Transactions The Company issued stock warrants to the President of the
(Continued) 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, 1998, 1997 and 1996.
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, 1998, 1997 and 1996.
The Company issued additional warrants during the year ended
June 30, 1998 to the President that are exercisable into 3,000
shares of the Company's stock at price of $114.88 per share. The
warrants expire May 20, 2003 and were outstanding at June 30,
1998.
18
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method
Number Description of Exhibit of 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).
10(e) 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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method
Number Description of Exhibit of Filing
- ------ ---------------------- ---------
<S> <C> <C>
10(f) 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(g) 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(h) 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(i) 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(j) 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(k) 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(l) 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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method
Number Description of Exhibit of Filing
- ------ ---------------------- ---------
<S> <C> <C>
10(m) 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(n) 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(o) 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(p) 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(q) 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).
10(r) 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(s) First Amendment to Line of Credit, dated May 20, 1998, between the *
Company and the Bank.
10(t) Allonge to Master Demand Note, made May 20, 1998, of the Company to the *
Bank.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method
Number Description of Exhibit of Filing
- ------ ---------------------- ---------
<S> <C> <C>
10(u) Guaranty, dated May 20, 1998, by Earl M. Pollock and Dorothy S. *
Pollock for the benefit of the Bank.
10(v) Warrant issued to Earl M. Pollock and Dorothy S. Pollock dated *
May 20, 1998.
10(w) 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(x) 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(y) Commercial Promissory Note Modification Agreement, dated
September 29, 1997, by and between the Company and the Bank
(incorporated herein by reference to Exhibit 10(w) to the
Company's report on Form 10-K for fiscal 1997).
11 Computation of earnings per share. *
21 At June 30, 1998, The Company's three subsidiaries were 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(s)
FIRST AMENDMENT TO LINE OF CREDIT AGREEMENT
THIS AGREEMENT is entered into this 20th day of May, 1998, between
NUCLEAR RESEARCH, a Pennsylvania business corporation with its chief executive
office and principal place of business at 125 Titus Avenue, Warrington,
Pennsylvania 18976 (the "Borrower"), and FIRST UNION NATIONAL BANK, successor
by merger to Corestates Bank, N.A. and Bucks County Bank and Trust Company, with
offices at 1339 Chestnut Street, Philadelphia, Pennsylvania 19103 (the "Bank").
BACKGROUND
A. The Borrower and the Bank are parties to a Line of Credit Agreement
dated January 14, 1997 (the "Loan Agreement"), and certain Loan Documents
executed in connection therewith. Unless otherwise indicated in this Agreement,
all capitalized terms not otherwise defined shall have the meaning given to them
in the Loan Agreement.
B. The Borrower has requested that the Bank increase the borrowing
availability of the Line of Credit Loans from the current outstanding balance of
Five Million Four Hundred Ninety-Nine Thousand Seven Hundred Thirty-Four Dollars
($5,499,734.00) to the maximum amount of up to Six Million Dollars
($6,000,000.00). From the date of this Agreement through and including June 30,
1998, this additional credit availability will be made available on a committed
basis, provided that no Event of Default or Collateral Deterioration (as defined
below) greater than Eight Hundred Thousand Dollars ($800,000.00) occurs.
Effective July 1, 1998, and at all times thereafter, Line of Credit Loans shall
be provided in the sole and absolute discretion of the Bank,
-1-
<PAGE>
and shall be repayable at any time thereafter on a demand basis, irrespective of
whether or not an Event of Default or Collateral Deterioration greater than
$800,000.00 has occurred. Subject to the terms and conditions noted below, and
the continued full and complete compliance with the Loan Agreement, the Loan
Documents and all other agreements, documents and instruments executed by the
Borrower in favor of the Bank, the Bank has agreed to provide this additional
increased credit availability under the Line of Credit Loans.
AGREEMENT
In consideration of the foregoing, and the covenants set forth below,
and intending to be legally bound, the Borrower and the Bank agree:
1. Amendments to Loan Agreement. Effective as of the date of
this Agreement:
(a) Section 1.01 is amended by inserting, alphabetically
where they would otherwise appear, the following new defined terms:
Eligible Receivables means Accounts (as defined in the
Pennsylvania Uniform Commercial Code) due and owing to the
Borrower for the sale of goods or the rendition of services
(exclusive of sales, excise or any other taxes) where: (a)
delivery of the merchandise or rendition of the services has
been completed; (b) no return, rejection or repossession has
occurred; (c) the merchandise or the services have been
finally accepted by the account debtor without dispute,
offset, defense, counterclaim or other claim of avoidance; (d)
no more than ninety (90) days have elapsed from the date of
the invoice on which the account is based; (e) the Account is,
and continues to be, in full conformity with the
representations and warranties made by the Borrower to the
Bank and (f) the Borrower is, and continues to be, satisfied
with the credit standing of the account debtor in relation to
the amount of credit extended. Without limiting the general
nature of the foregoing, the following types of Accounts shall
not be deemed Eligible Receivables: (i) any Account known to
be not collectible for any reason (including, without
limitation, bankruptcy of the account debtor); (ii) any
Account represented by an invoice without a definite due date;
(iii) any Account represented by a pre-billed invoice; (iv)
any Account in litigation or arbitration; (v) any Account of
an account debtor where fifty percent (50%) or more of the
amounts of all Accounts owing by such account debtor are
outstanding more than ninety (90) days past the end of the
month in which the
-2-
<PAGE>
invoice on which the Account is based; (vi) any Account not
arising in the ordinary course of business; (vii) any Account
in which the Bank does not have a first priority perfected
security interest and lien; (viii) any Account owing by an
account debtor located outside of the United States (unless,
as determined by the Bank in its sole discretion, such Account
is payable in United States dollars and is guaranteed as to
payment by a letter of credit or other means acceptable to the
Bank or such Account is otherwise acceptable to the Bank in
its sole discretion) ; (ix) any Account owing by a subsidiary
or affiliate of the Borrower, or by an entity controlling or
under common control with the Borrower, and (xi) any Account
arising out of a consignment or commission contract or
agreement.
Eligible Inventory means Inventory (as defined in the
Pennsylvania Uniform Commercial Code) of the Borrower
consisting of the gross amount of its raw materials, only
work-in-process relating to the UDR contract and finished
goods products and with respect to which (i) the Bank
maintains a perfected, first priority security interest and
lien, and (ii) the Bank has obtained a landlord's waiver
acceptable to it, if such Inventory is stored, located or
warehoused at a location not owned by the Borrower.
Line of Credit Principal Balance means the principal amount
outstanding and remaining unpaid under the Line of Credit
Loans extended by the Bank to the Borrower.
Liquid Collateral means the total of eighty percent (80%) of
Eligible Receivables, plus twenty percent (20%) of Eligible
Inventory.
Liquid Collateral Shortfall means the difference between the
Line of Credit Principal Balance and the Liquid Collateral.
Collateral Deterioration means the increase (if any) in the
amount of the Liquid Collateral Shortfall from the Beginning
Measurement Date to the date on which an advance is requested
under the Line of Credit Loans. The amount of any such
Collateral Deterioration shall be determined initially from
the borrowing base certification and supporting documentation
attached as Exhibit "A" and prepared from the books and
records of the Borrower as regularly kept by it in the
ordinary course of business and as reflected on the borrowing
base certifications from time to time submitted by the
Borrower to the Bank, all of which shall be maintained in
accordance with generally accepted accounting principles,
consistently applied; provided, however, that the Bank shall
maintain the right to audit, inspect and verify the books and
records of the Borrower to determine whether, using the same
definitions, valuations and procedures used in preparing the
borrowing base certificate attached as Exhibit "A" to this
Agreement, the borrowing base certification accurately
reflects the amount of Liquid Collateral.
-3-
<PAGE>
Beginning Measurement Date means May 18, 1998, at which date
(i) the Borrower has certified to the Bank that its Liquid
Collateral is equal to $1,372,004.39, and (ii) the Line of
Credit Principal Balance was $5,499,734.00 thus making the
certified Liquid Collateral Shortfall equal to $4,127,729.58.
(b) Section 2.01 of the Loan Agreement is deleted in its entirety, and
inserted in its place is the following new section:
SECTION 2.01. The Line of Credit. The Bank agrees, on the
terms and conditions hereinafter set forth, to make loans (the
"Line of Credit Loans") to the Borrower from time to time, in
accordance with the terms of the Master Demand Note in an
aggregate amount not to exceed, at any one time outstanding, a
sum equal to Six Million Dollars ($6,000,000.00); provided,
however, that in no event shall the Bank be obligated to
consider making Line of Credit Loans if there has been a
Collateral Deterioration of more than Eight Hundred Thousand
Dollars ($800,000.00) from the Beginning Measurement Date to
the time a request is being made for a Line of Credit Loan
(the "Borrowing Availability") . The Borrowing Availability
shall be reduced from time to time by the face amount of all
Letters of Credit then outstanding, other than letter of
credit no 522976, (together with the amount of any
unreimbursed drawings under Letters of Credit) and may, at
Borrower's option, be permanently reduced from time to time in
amounts designated by Borrower to Bank. In the event of such
reduction by Borrower, the Note and other Loan Documents shall
be modified as required by Bank to reflect such reduction.
Within the limits of the amount set forth in this Section
2.01, and subject to the provisions of this Agreement,
including, without limitation, the Bank's right to demand
repayment of the Line of Credit Loans at any time, the
Borrower may borrow, repay and reborrow under this Section
2.01. Notwithstanding the above provisions, or anything to the
contrary set forth in Section 2.02, 2.09, 2.10 or 8.01 of this
Agreement, Line of Credit Loans shall be made available by the
Bank to the Borrower from the date of this Agreement through
and including June 30, 1998, so long as (a) no Event of
Default has occurred or is continuing, and (b) the Collateral
Deterioration from the Beginning Measurement Date has not
exceeded the sum of Eight Hundred Thousand Dollars
($800,000.00).
-4-
<PAGE>
(c) Section 2.08(1) (i) is supplemented by inserting the phrase
"investment property" immediately after the phrase "accounts receivable" in that
Section. Section 2.08 is further amended by deleting the phrase "where the total
contract amount exceeds Five Hundred Thousand Dollars ($500,000)" where that
phrase currently appears in Section 2.08(5).
(d) Section 5.08 of the Loan Agreement is supplemented by amending
subsection (1) to require that those reports be delivered to the Bank on or
before June 30 of each year, and Section 5.08 is further amended by adding the
following new subsections, immediately after current subsection (5):
(6) On or before Tuesday of each week, and prior to each
request for an advance under the Line of Credit Loans, a fully
completed and signed borrowing base certification in the form
attached as Exhibit "A" to this Agreement, certifying to the
Bank as of the end of the immediately preceding Business Day,
among other things, the amount of the Borrower's Eligible
Receivables, Eligible Inventory, the Line of Credit Principal
Balance and such other matters as are set forth on the
attached certification; and
(7) On or before Tuesday of each week, an update and report,
in such format and detail as the Bank may reasonably request,
providing to the Bank additional information (if any) with
respect to the Borrower's efforts in connection with any sale
of all or a portion of its business, or attempts to obtain
alternative financing and/or investors.
(e) Sections 5.06(l) and 6.02(2) are modified to recognize Borrower is
not paying certain of its accounts payable in accordance with required
contractual terms.
(f) Section 5.09 of the Loan Agreement is deleted in its entirety.
(g) Section 4.07 of the Loan Agreement is amended to recognize the
possibility of a claim being filed against the Borrower by Measurement Dynamics,
LLC.
-5-
<PAGE>
(h) Section 6.04 is amended by deleting the phrase appearing at the end
of such section providing "if such dividend, stock purchase, or other action
described in this paragraph would cause or result in the occurrence of an Event
of Default as defined herein".
(i) All provisions of the Loan Agreement, the Loan Documents and any
other agreement, document or instrument executed by the Borrower in favor of the
Bank (including, without limitation, the provisions of Section 7.01(1) through
(8) of the Loan Agreement) which provide for cure periods and/or notification
prior to an Event of Default having been deemed to occur are eliminated and
stricken.
(j) Section 10.02 is amended by providing that notice to the Bank shall
be given to:
Ms. Marybeth C. Ettore
CoreStates Bank, N.A.
1339 Chestnut Street
Widener Building
FC 1-8-13-2
Philadelphia, PA 19101-7618
2. Conditions. As conditions precedent of the execution, delivery and
effectiveness of this Agreement, and the increased amount of the Line of Credit
Loans, the Borrower shall have delivered or caused to be delivered to the Bank,
in form and content satisfactory to the Bank and its counsel, the following
agreements, documents and instruments:
(a) An Allonge to the Master Demand Note, increasing the face
amount of such Master Demand Note to $6,000,000.00;
(b) An Agreement of Suretyship executed by Earl M. Pollock and
Dorothy S. Pollock with respect to their liability as sureties for in connection
with any "Collateral Deterioration" (as defined in their Surety Agreement to the
Bank);
-6-
<PAGE>
(c) An Affidavit executed by Earl M. Pollock and Dorothy S.
Pollock with respect to their knowing, voluntary and intelligent waiver of
rights with regard to the warrant of attorney to confess judgment contained in
the Surety Agreement;
(d) Implementation by the Borrower of the procedures required
by Section 3 of the Security Agreement with respect to the opening, depositing
and processing of payments through the "Cash Collateral Account", as defined in
such Security Agreement;
(e) UCC-3 Amendment Financing Statements to reflect, among
other things, the change in name and address of the Bank, as well as the
inclusion of "investment property" in the description of Collateral;
(f) This Agreement, duly executed; and
(g) Such additional agreements, documents or instruments as
the Bank or its counsel may have requested under the terms of this Agreement,
or otherwise.
3. Representations and Warranties. In order to induce the Bank to enter
into this Agreement, the Borrower represents and warrants to the Bank that:
(a) The execution, delivery and performance of this Agreement,
and all agreements, documents and instruments executed and delivered in
connection with this Agreement (the "Related Documents") have been duly
authorized by all necessary corporate or other required action, and do not and
will not violate any provision of law or of the charter, by-laws, or the like,
or any agreement, trust or other indenture or instrument to which it is a party
or by which its properties may be bound, or any order or decree affecting it or
its properties, so that this Agreement and the Related Documents will be a
legal, valid and binding obligations of the Borrower, enforceable in accordance
with their terms.
-7-
<PAGE>
(b) All representations and warranties made to the Bank in the
Loan Agreement and the Loan Documents are true, complete and correct, with the
same effect as though made on and as of the date of this Agreement.
(c) The Borrower acknowledges and confirms that: (i) the Loan
Agreement, Loan Documents and all other agreements, documents, instruments
executed by the Borrower in favor of the Bank are legal, valid and binding
obligations of the Borrower, enforceable in accordance with their terms and
conditions, and all security interests, mortgage liens and other encumbrances
provided for or referred to in the Loan Agreement and Loan Documents have been
duly granted, and properly attached and recorded or perfected. The Borrower
represents and warrants that it does not have or maintain, and shall not assert,
any defense, set-off, counterclaim or claim of avoidance of any nature to the
Indebtedness, the Loan Agreement and Loan Documents. As of May 19, 1998, the
Borrower further confirms the outstanding principal and accrued but unpaid
interest balances under the promissory notes referred to below:
Principal Interest
--------- --------
1. Master Demand Note $5,499,734.00 $20,038.75
2. $1,800,000 Commercial
Promissory Note dated 1/14/97 $175,000.00 $190.80
3. Demand Note dated 9/30/94,
as amended $774,303.00 -0-
4. $300,000 Term Note dated 8/21/95 $49,999.80 $68.75
4. Miscellaneous.
(a) This Agreement shall be deemed a modification of the Loan
Agreement and the Loan Documents, to the extent it is directly inconsistent with
any of those agreements. Subject
-8-
<PAGE>
to the foregoing, the Loan Agreement, the Loan Documents and all other
agreements, documents and instruments executed by the Borrower in favor of the
Bank, and all of their terms, conditions, representations, warranties, covenants
and other undertakings are ratified and confirmed, and shall continue in full
force and effect.
(b) This Agreement shall be binding upon and inure to the
benefit of the respective successors and assigns of the Borrower and the Bank,
and shall be construed and enforced in accordance with the laws in effect in the
Commonwealth of Pennsylvania.
(c) The Borrower represents and warrants that Exhibit "B" to
this Agreement sets forth and describes all patents, copyrights, trademarks (and
all pending applications with respect to the foregoing) in which the Borrower
has an interest either as owner, licensee or otherwise. The Borrower does
further covenant and agree to deliver to the Bank, on or before June 5, 1998,
such additional agreements, documents or instruments as the Bank or its counsel
may request with respect to the liens granted to the Bank in the Loan Agreement
and other Loan Documents (including, without limitation, patent mortgages and
assignments, copyright and trademark security agreements and other similar or
related documents).
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
NUCLEAR RESEARCH
By: /s/ Earl M. Pollock
---------------------------------------
Earl M. Pollock, President
FIRST UNION NATIONAL BANK
By: /s/ Marybeth C. Ettore
---------------------------------------
Marybeth C. Ettore, Vice President
-9-
<PAGE>
EXHIBIT 10(t)
ALLONGE TO MASTER DEMAND NOTE
This Allonge to Master Demand Note (the "Allonge") is made this 20th
day of May, 1998, to be part of and attached to the Master Demand Note of the
undersigned to Corestates Bank, N.A. dated January 14, 1997, in the principal
amount of $5,500,000, as amended to date (the "Note").
Effective as of the date of this Allonge, the amount $5,500,000 in the
Note is replaced with the amount $6,000,000.
Except as otherwise expressly set forth above, all terms and provisions
of the Note are ratified, confirmed, and restated, as though set forth at
length.
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned
have executed this Allonge as of the day and year first above written.
NUCLEAR RESEARCH CORPORATION
By: /s/ Earl M. Pollock
---------------------------
Name: Earl M. Pollock
Title: President
<PAGE>
EXHIBIT 10(u)
GUARANTY
This Guaranty is made and entered into by the undersigned, and by each
of them if more than one (the "Guarantor"), for the benefit of CoreStates Bank,
N.A.*, a national banking association (the "Bank").
1. Obligor. The "Obligor" means the following person or entity, and if
more than one, any or all of the following persons or entities:
NUCLEAR RESEARCH CORPORATION
2. Obligations. The "Obligations" means all existing and hereafter
incurred or arising indebtedness, obligations and liabilities of the Obligor to
the Bank, whether absolute or contingent, direct or indirect and out of whatever
transactions arising, and includes without limitation, all matured and unmatured
indebtedness, obligations and liabilities of the Obligor under or in connection
with existing and future loans and advances evidenced by promissory notes or
otherwise, letters of credit, acceptances, all other extensions of credit,
repurchase agreements, security agreements, mortgages, overdrafts, foreign
exchange contracts and all other contracts for payment or performance,
indemnities, and all indebtedness, obligations and liabilities under any
guaranty or surety agreement, or as co-maker or co-obligor with any person for
any of the foregoing, including without limitation all interest, expenses, costs
(including collection costs) and fees (including reasonable attorney's fees and
prepayment fees) incurred, arising or accruing (whether prior or subsequent to
the filing of any bankruptcy petition by or against any Obligor) under or in
connection with any of the foregoing. If the term "Obligor" includes more than
one person or entity, the Obligations shall include all Obligations of any one
or more of such persons or entities, whether such Obligations are individual,
joint, several or joint and several.
3. Unconditional Guaranty. In consideration of any existing Obligations
and any Obligations which may hereafter arise or be incurred, each Guarantor,
intending to be legally bound, absolutely and unconditionally (and jointly and
severally if more than one),guaranties to Bank the payment, performance and
satisfaction when due (whether by stated maturity, demand, acceleration or
otherwise) of all Obligations**. The obligations of the Guarantor hereunder
shall continue in full force and effect irrespective of the validity, legality
or enforceability of any agreements, notes or documents pursuant to which any of
the Obligations arise, or the existence,
- --------
*Corestates Bank, N.A. also conducts business as Philadelphia National
Bank, as CoreStates First Pennsylvania Bank and as CoreStates Hamilton Bank.
**As set forth on the Rider attached to this Guaranty.
1
<PAGE>
value or condition of any collateral for any of the Obligations, or of any other
guaranty of the Obligations, or any other circumstance which might otherwise
constitute a legal or equitable discharge of a surety or guarantor.
4. Cost of Enforcement. Each Guarantor agrees (jointly and severally if
more than one) to pay Bank all costs and expenses (including reasonable
attorneys' fees) at any time incurred by Bank in the enforcement of this
Guaranty against any Guarantor.
5. Payment by Guarantor. Payment by each Guarantor is due upon demand
by Bank and is payable in immediately available funds in lawful money of the
United States of America**.
6. Continuing Guaranty. This Guaranty shall continue in full force and
effect with respect to each Guarantor and may not be revoked until all existing
Obligations and all Obligations hereafter incurred or arising* have been paid,
performed and satisfied in full.
7. Waivers and Consents By Guarantor. Each Guarantor unconditionally
consents to, and waives as a defense to liability hereunder, each of the
following: (a) any waiver, inaction, delay or lack of diligence by Bank in
enforcing its rights against any Obligor or in any property, or the
unenforceability of any such rights, including any failure to perfect, protect
or preserve any lien or security interest which may be intended directly or
indirectly to secure any of the Obligations, and the absence of notice thereof
to any Guarantor, (b) the absence of any notice of the incurrence or existence
of any Obligation, (c) any action, and the absence of notice thereof to any
Guarantor, taken by Bank or any Obligor with respect to any of the Obligations,
including any release, subordination or substitution of any collateral or
release, termination, compromise, modification or amendment of any instrument
executed by or applicable to any Obligor or of any claim, right or remedy
against any Obligor or any property, (d) any impairment of Guarantor's right to
reimbursement by way of subrogation, indemnification or contribution, (e) any
other action taken or omitted by Bank in good faith with respect to the
Obligations, (f) the absence or inadequacy of any formalities of every kind in
connection with enforcement of the Obligations, including presentment, demand,
notice and protest, and (g) the waiver of any rights of Bank under or any action
taken or omitted by Bank with respect to any other guaranty of the Obligations.
8. Other Agreements By Guarantor. Each Guarantor agrees that there
shall be no requirement that Bank document its acceptance of this Guaranty,
evidence its reliance thereon. or that Bank take any action against any person
or any property prior to taking action against any Guarantor. Each Guarantor
further agrees that Bank's rights and remedies hereunder shall not be impaired
or subject to any stay, suspension or other delay as a result of Obligor's
insolvency or as a result of any proceeding applicable to Obligor or Obligor's
property under any bankruptcy
- --------
**As set forth in the Rider attached to this Guaranty.
2
<PAGE>
or insolvency law. Each Guarantor also agrees that payments and other reductions
on the Obligations may be applied to such of the Obligations and in such order
as Bank may elect.
9. Subrogation and Similar Rights. No Guarantor will exercise any
rights with respect to Bank or any Obligor related to or acquired in connection
with or as a result of its making of this Guaranty which it may acquire by way
of subrogation, indemnification or contribution, by reason of payment made by it
hereunder or otherwise, until after the date on which all of the Obligations
shall have been satisfied in full. Until such time, any such rights against the
Obligor shall be fully subordinate in lien and payment to any claim in
connection with the Obligations which Bank now or hereafter has against the
Obligor. If any amount shall be paid to any Guarantor on account of such
subrogation, indemnification or contribution at any time when all of the
Obligations and all other expenses guaranteed pursuant hereto shall not have
been paid in full, such amount shall be held in trust for the benefit of Bank,
shall be segregated from the other funds of Guarantor and shall forthwith be
paid over to Bank to be applied in whole or in part by Bank against the
Obligations, whether matured or unmatured, in such order as the Bank shall
determine in its sole discretion. If Guarantor shall make payment to the Bank of
all or any portion of the Obligations and all of the Obligations shall be paid
in full. Guarantor's right of subrogation shall be without recourse to and
without any implied warranties by Bank and shall remain fully subject and
subordinate to Bank's right to collect any other amounts which may thereafter
become due to the Bank by the Obligor in connection with the Obligations.
10. Reinstatement of Liability. If any claim is made upon the Bank for
repayment or recovery or any amount or amounts received by Bank in payment or on
account of any Obligations and Bank repays all or part of said amount by reason
of (a) any judgment, decree or order of any court or administrative body having
jurisdiction over the Bank or any of its property, or (b) any settlement or
compromise in good faith with any such claimant (including Obligor), then and in
such event each Guarantor agrees that any such judgment, decree, order,
settlement or compromise shall be binding upon the Guarantor, notwithstanding
any termination hereof or the cancellation of any note or other instrument
evidencing any Obligation, and each Guarantor shall remain liable to the Bank
hereunder for the amount so repaid or recovered to the same extent as if such
amount had never originally been received by Bank.
11. Security Interest. Each Guarantor hereby assigns to the Bank and
grants to the Bank a security interest in any balance or assets in any deposit
or other account of such Guarantor in or with the Bank whenever and so long as
any of the Obligations shall be outstanding and unpaid and agrees that the
security interest hereby granted shall be independent of the right of setoff.
12. Financial Information on Guarantor. Each Guarantor hereby agrees to
provide the Bank with such information on the business affairs and financial
condition of such Guarantor as the Bank from time to time may reasonably request
and to notify the Bank of any change in the address of such Guarantor. In the
event that such Guarantor fails to comply with a request for
3
<PAGE>
information as herein agreed, within ten (10) days after receipt of the request,
such Guarantor upon demand by the Bank agrees to purchase from the Bank without
representation, warranty or recourse the Obligations and to pay therefor the
unpaid principal amount of all such Obligations, including interest thereon to
the date of purchase.
13. Effect of Other Agreements. The provisions of this Guaranty are
cumulative and concurrent with Bank's rights and remedies against Guarantor
under any existing or future agreement pertaining or evidencing any of the
Obligations. No such additional agreement shall be deemed a modification or
waiver hereof unless expressly so agreed by Bank in writing. If Bank holds any
other guaranty or surety agreement applicable to any of the Obligations, the
liability of each Guarantor hereunder shall be joint and several with each party
obligated on such other guaranty or surety agreement, unless otherwise agreed by
Bank in writing.
14. Confession of Judgment; Warrant of Attorney. Each Guarantor
irrevocably authorizes and empowers any attorney or any clerk of court of
record, upon the occurrence of a default or an Event of Default under or in
connection with any of the Obligations, or at any time thereafter, to appear for
and confess judgment against such Guarantor for the full amount of such
Guarantor's liability under paragraph 3 hereof, with or without declaration,
with costs of suit and release of errors, without stay of execution and with an
amount not to exceed the greater of five percent (5%) of the principal amount of
such judgment or $5,000 added for collection fees. If a copy of this Guaranty,
verified by affidavit by or on behalf of Bank, shall have been filed in such
action, it shall not be necessary to file the original of this Guaranty. The
authority granted hereby shall not be exhausted by the initial exercise thereof
and may be exercised by Bank from time to time. There shall be excluded from the
lien of any judgment obtained solely pursuant to this paragraph all improved
real estate in any area identified by the Federal Emergency Management Agency as
having special flood hazards if the community in which such area is located is
participating in the National Flood Insurance Program. Any such exclusion shall
not affect any lien upon property not so excluded.
15. Guaranties Address. Guarantor warrants and represents that the
address set forth below is Guarantor's correct mailing address and agrees
immediately to notify Bank in the event of any change therein.
16. Miscellaneous. (a) No amendment of any provision of this Guaranty
shall be effective unless it is in writing and signed by each Guarantor and
Bank, and no waiver of any provisions of this Guaranty, and no waiver or consent
to any departure by the Guarantor therefrom, shall be effective unless it is in
writing and signed by Bank, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given, (b)
Any provision of this Guaranty which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions
hereof or affecting the validity or enforceability of such provisions in any
other jurisdiction, (c) The obligations of each Guarantor hereunder shall not be
subject to any counterclaim, setoff, deduction or defense based upon any
4
<PAGE>
related or unrelated claim which such Guarantor may now or hereafter have
against Bank or any Obligor, except payment of the Obligations, and shall not be
affected by any change in Obligor's legal status or ownership or by any change
in corporate, partnership or other organizational structure applicable to
Obligor, (d) This Guaranty shall (i) be binding on each Guarantor and its
personal representatives, estate, heirs, successors and assigns, and (ii) inure,
together with all rights and remedies of Bank hereunder, to the benefit of the
Bank and its successors, transferees and assigns. Notwithstanding the foregoing
clause (i), none of the rights or obligations of any Guarantor hereunder may be
assigned or otherwise transferred without the prior written consent of the Bank,
(e) This Guaranty shall be governed by and construed in accordance with the
internal laws, and not the law of conflicts, of the Commonwealth of
Pennsylvania.
17. CONSENT TO JURISDICTION AND VENUE. IN ANY LEGAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS
GUARANTY OR THE RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGNED PARTY HEREBY
IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED IN ANY COUNTY IN THE COMMONWEALTH OF PENNSYLVANIA WHERE BANK
MAINTAINS AN OFFICE AND AGREES NOT TO RAISE ANY OBJECTION TO SUCH JURISDICTION
OR TO THE LAYING OR MAINTAINING OF THE VENUE OF ANY SUCH PROCEEDING IN SUCH
COUNTY. EACH UNDERSIGNED PARTY AGREES THAT SERVICE OF PROCESS IN ANY SUCH
PROCEEDING MAY BE DULY EFFECTED UPON IT BY MAILING A COPY THEREOF, BY REGISTERED
MAIL, POSTAGE PREPAID, TO EACH UNDERSIGNED PARTY.
18. WAIVER OF JURY TRIAL. EACH UNDERSIGNED PARTY HEREBY WAIVES, AND
BANK BY ITS ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL
PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN
TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS
GUARANTY OR THE RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR BANK TO ENTER INTO, ACCEPT OR RELY UPON THIS GUARANTY.
IN WITNESS WHEREOF, each Guarantor has executed this Guaranty as of the
20th day of May, 1998.
- --------------------------------------------------------------------------------
NAME OF CORPORATION OR PARTNERSHIP GUARANTOR
- --------------------------------------------------------------------------------
ADDRESS
5
<PAGE>
By: By:
-------------------------------- -----------------------------------
**See attached Rider, the terms and conditions of which are incorporated by
reference.
INDIVIDUALS OR PROPRIETORS SIGN BELOW
/s/ Arthur W. Mullin /s/ Earl M. Pollock
- ---------------------- ----------------------- ----------------------
WITNESS ADDRESS OF GUARANTOR SIGNATURE OF GUARANTOR
/s/ Arthur W. Mullin /s/ Dorothy S. Pollock
- ---------------------- ----------------------- ----------------------
WITNESS ADDRESS OF GUARANTOR SIGNATURE OF GUARANTOR
6
<PAGE>
RIDER TO GUARANTY FROM EARL M. POLLOCK
AND DOROTHY S. POLLOCK TO FIRST UNION NATIONAL BANK
DATED MAY 20, 1998 RELATIVE TO THE OBLIGATIONS
OF NUCLEAR RESEARCH CORPORATION
This Rider to Guaranty Agreement is executed in connection with, to be
appended to and deemed incorporated by reference in the above-referenced
Guaranty Agreement, to which this Rider is attached.
Definitions. As used in this Guaranty Agreement, the following defined terms
shall have the following meaning:
Eligible Receivables, Eligible Inventory, Line-of Credit Principal Balance,
Liquid Collateral, Liquid Collateral Shortfall and Beginning Measurement Date
all have the meaning given to those terms in a First Amendment to Line of Credit
Agreement dated May 20, 1998 between the Obligor and the Bank (the "Loan
Agreement").
Collateral Deterioration means the increase (if any) in the amount of the Liquid
Collateral Shortfall from the Beginning Measurement Date to the Collateral
Deterioration Measurement Date. The amount of any such Collateral Deterioration
shall be determined initially from the borrowing base certification attached as
Exhibit "A" to the Loan Agreement and prepared from the books and records of the
Obligor as regularly kept in the ordinary course of its business and as
reflected on the borrowing base certifications from time to time submitted by
the Obligor to the Bank, all of which shall be maintained in accordance with
generally accepted accounting principles, consistently applied; provided,
however, that the Bank shall maintain the right to audit, inspect and verify the
books and records of the Obligor to determine whether, using the same
definitions, valuations and procedures used in preparing the borrowing base
certification attached as Exhibit "A" to the Loan Agreement, the Borrowing Base
Certification accurately reflects the amount of Liquid Collateral.
Collateral Deterioration Measurement Date means the earlier of the date on which
the principal balance of Line of Credit Loans under the Loan Agreement is
reduced to Five Million Five Hundred Thousand Dollars ($5,500,000.00), or the
date on which the Collateral Deterioration equals or exceeds Eight Hundred
Thousand Dollars ($800,000.00); provided, however, that if neither of the
foregoing events occurs at any time after the Bank has delivered to the Obligor
a notice of demand for payment, the Collateral Deterioration Measurement Date
shall be 120 days from the date on which such demand for payment is made (or, if
such 120th date is not a business day, the next immediately following business
day).
Limitation of Guarantors Liability. Notwithstanding anything to the contrary set
forth in this Guaranty Agreement, it is agreed that the maximum principal amount
of the indebtedness with respect to which the Guarantors shall be indebted to
the Bank shall not exceed the lesser of (i) Eight Hundred Thousand Dollars
($800,000), or (ii) the amount of the Collateral Deterioration.
7
<PAGE>
By way of illustration only, if there is a Collateral Deterioration in the
amount of $500,000 when comparing the amount of Liquid Collateral Shortfall on
the Beginning Measurement Date to the amount of Liquid Collateral Shortfall on
the Collateral Deterioration Measurement Date, the amount of the Guarantors
liability under this Guaranty Agreement shall be limited to the principal sum of
$500,000, together with interest accrued on the Guarantors liability from the
Collateral Deterioration Measurement Date on such amount, and costs of
collection as provided for above. Alternatively, if the Collateral Deterioration
from the Beginning Measurement Date to the Collateral Deterioration Measurement
Date is $1,500,000, then the liability of the Guarantors under this Guaranty
Agreement shall only be $800,000, together with interest accrued on the
Guarantors liability from the Collateral Deterioration Measurement Date on such
amount, and costs of collection as provided for above. By way of third example,
if there is no Collateral Deterioration when comparing the amount of Liquid
Collateral Shortfall on the Beginning Measurement Date to the amount of Liquid
Collateral Shortfall on the Collateral Deterioration Measurement Date, then the
Guarantors shall have no liability of any nature under this Guaranty Agreement.
In all instances, the final determination of whether a Collateral Deterioration
has occurred shall be subject to the right of the Bank to audit, inspect and
verify the books and records of the Obligor as provided for above and, if the
Bank and the Guarantors cannot agree upon the amount or existence of any
Collateral Deterioration, such disagreement shall be resolved by a court of
competent jurisdiction located within the territory referred to in paragraph 17
of the Guaranty Agreement.
/s/ Arthur W. Mullin /s/ Earl M. Pollock
- ------------------------------ ------------------------
WITNESS Earl M. Pollock
/s/ Arthur W. Mullin /s/ Dorothy S. Pollock
- ------------------------------ ------------------------
WITNESS Dorothy S. Pollock
The above modifications to the Guaranty Agreement to which this Rider
is attached are acknowledged and agreed to this 20th day of May, 1998 by the
Bank.
FIRST UNION NATIONAL BANK
By: /s/ Marybeth C. Ettore
------------------------
Marybeth C. Ettore,
Vice President
8
<PAGE>
EXHIBIT 10(v)
NUCLEAR RESEARCH CORPORATION
WARRANT TO PURCHASE 3,000 SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M., PHILADELPHIA TIME, ON
MAY 20, 2003
This certifies that, for value received, EARL M. POLLOCK and DOROTHY
POLLOCK, as tenants by the entireties, or registered assigns (collectively, the
"Warrant Holder") is entitled to purchase from NUCLEAR RESEARCH CORPORATION, a
Pennsylvania corporation (the "Company"), at any time from the date hereof until
5:00 p.m., Philadelphia time, on May 20, 2003, at an exercise price of $117.03
per share (the "Warrant Price"), Three Thousand (3,000) shares of the Company's
Common Stock, stated value $5.00 per share (the "Warrant Shares"). The number of
Warrant Shares and the Warrant Price shall be subject to adjustment from time to
time as set forth below.
1. Exercise of Warrant.
a. This Warrant may be exercised in whole at any time or in
part, from time to time, as hereinafter provided by presenting this Warrant with
the Exercise Form attached hereto duly executed and by making simultaneous
payment of the Warrant Price at the principal office of the Company, 125 Titus
Avenue, Warrington, Pennsylvania 18976, or such other place as the Company may
designate in writing to the Warrant Holder. Payment of such price shall be made
at the option of the Warrant Holder in cash or by check.
b. Any partial exercise of this Warrant must be in multiples
of 1,000 Warrant Shares. No other partial exercise shall be effective and shall
be null and void.
c. Upon any partial exercise of this Warrant, there shall be
issued to the Warrant Holder a new Warrant in respect of the Warrant Shares as
to which this Warrant shall not have been exercised. This Warrant may be
exchanged at the office of the Company by surrender of this Warrant properly
endorsed for one or more new Warrants of the same aggregate number of Warrant
Shares as are evidenced by the Warrant exchanged. This Warrant is transferrable
at the office of the Company in the manner and subject to the limitations set
forth below.
2. No Rights as Shareholder Prior to Issuance of Stock Certificates. No
rights or privileges of a shareholder of the Company in respect to any of the
Warrant Shares shall inure to the Warrant Holder, or any other person entitled
to exercise this Warrant as herein provided, unless and until stock certificates
representing such Warrant Shares shall have been issued and delivered by the
Company hereunder.
-1-
<PAGE>
3. Adjustments.
a. In the event that, prior to delivery by the Company of all
of the Warrant Shares, there shall occur an increase or decrease in the number
of shares of Common Stock of the Company issued and outstanding as a result of a
subdivision or consolidation of shares or other capital adjustment, or the
payment of a stock dividend or other increase or decrease in such shares,
effected without receipt of consideration by the Company, then, in any such
event, the remaining number of Warrant Shares still subject to this Warrant and
the Warrant Price therefor shall be adjusted in a manner determined by the Board
of Directors of the Company such that the adjusted number of Warrant Shares and
the adjusted Warrant Price shall be the substantial equivalent of the number of
Warrant Shares still subject to this Warrant and the Warrant Price thereof prior
to such change.
b. In the event that the Company shall propose to take any
action of the type described in Section 3(a) above, then the Company shall give
notice to the Warrant Holder, which notice shall specify the record date, if
any, with respect to any such action and the date on which such action is to
take place. Such notice shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the amount or
type of securities or other property issuable upon conversion. In the case of
any action which would require the fixing of a record date, such notice shall be
given at least twenty (20) days prior to the date so fixed, and in the case of
all other actions, such notice shall be given at least thirty (30) days prior to
the taking of such proposed action.
c. If so requested by the Warrant Holder, the Company shall,
within one hundred twenty (120) days after the end of each of its fiscal years,
deliver to the Warrant Holder a certificate of the independent public
accountants for the Company: (i) setting forth the number of shares of Common
Stock, or the kind and amount of any securities or property other than shares of
Common Stock, for which this Warrant is exercisable; and (ii) setting forth in
reasonable detail the facts requiring any adjustments made during such fiscal
year.
4. Reservation of Shares. The Company covenants and agrees that all
shares of Common Stock which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and non-assessable and free from all taxes, liens and charges with respect to
the issuance thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issuance) other than any applicable withholding
taxes. The Company further covenants and agrees that, during the period within
which rights represented by this Warrant may be exercised, the Company will at
all times have authorized and reserved a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant, and
will at its expense expeditiously upon each such reservation of shares of Common
Stock use its best efforts to procure the listing thereof (subject to issuance
or notice of issuance) on any stock exchanges (including NASDAQ National Market
System) on which shares of the Common Stock are then listed.
-2-
<PAGE>
5. Restrictions on Transferability.
a. The Warrant Holder has been advised and understands that
this Warrant and the Warrant Shares issuable upon the exercise hereof have not
been registered under the Securities Act of 1993, as amended (the "Act"), are
"Restricted Securities" within the meaning of Rule 144 under the Act, and are
subject to restrictions on transfer, and that the Company is under no obligation
to register this Warrant or the Warrant Shares under the Act or to take any
action which would make available to the Warrant Holder any exemption from such
registration. The Warrant Holder and any holders of Warrant Shares, by
acceptance hereof and thereof, agree not to transfer or otherwise dispose of
this Warrant or the Warrant Shares except in compliance with the Act and other
applicable securities laws, and then only against receipt of an agreement of the
transferee to comply with the provisions of this Section 5 with respect to any
resale or other disposition of such securities.
b. The Warrant Shares shall contain an appropriate legend
concerning restrictions set forth in Section 5a, above.
6. Severability. In the event that one or more of the provisions of
this Warrant shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Warrant, but this Warrant shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
7. Governing Law. This Warrant shall be governed and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
8. Captions. The captions used in this Warrant are for convenience
only; they form no part of this Warrant and shall not affect its interpretation.
9. Notices. Any notice required by the provisions of this Warrant to be
given to the holders of this Warrant or of the Warrant Shares shall be deemed
given if deposited in the United States mail, first class postage prepaid, and
addressed to each holder of record at his or her address appearing on the books
of the Company.
NUCLEAR RESEARCH CORPORATION
By: /s/ Carl Katz
--------------------------------
Carl Katz
Chief Financial Officer
Dated as of May 20, 1998
-3-
<PAGE>
EXERCISE FORM
[To Be Signed Only Upon Exercise of Warrant]
To Nuclear Research Corporation:
The undersigned, the Warrant Holder of the enclosed Warrant, hereby
irrevocably elects to transfer the purchase right represented by such Warrant
for, and to purchase thereunder * shares of the Common Stock of Nuclear Research
Corporation and herewith makes payment to Nuclear Research Corporation of $
therefor, and requests that the certificate or certificates for such shares be
issued in the name of and delivered to the undersigned.
Dated:
-------------------------- --------------------------------
[SIGNATURE MUST CONFORM IN ALL
RESPECTS TO NAME OF HOLDER AS
SPECIFIED ON THE FACE OF THE
WARRANT]
--------------------------------
--------------------------------
--------------------------------
Address
--------------------------------
Tax Identification No.
*Insert the number of shares of the Common Stock of Nuclear Research Corporation
as to which the Warrant is being exercised without making any adjustment for any
stock or other securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
-4-
<PAGE>
Exhibit 11
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
EXHIBIT 11
CALCULATIONS OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997 June 30, 1996
------------- ------------- --------------
<S> <C> <C> <C>
Net Income (Loss) $ (2,964,272) $ (1,300,095) $ 1,706,967
------------- ------------- --------------
Average Shares Issued(1) 31,356 31,356 31,356
Average Net Effect of Dilutive Stock Options Based
on the Treasury Stock Method -- -- 7,003
Less: Average Treasury Stock (3,698) (3,698) (3,698)
------------- ------------- --------------
Total Stock and Stock Equivalents 27,658 27,658 34,661
============= ============= ==============
Earnings (Loss) Per Share $ (107.18) $ (47.01) $ 61.72
============= ============= ==============
Earnings (Loss) Per Share Assuming Dilution $ (107.18) $ (47.01) $ 49.25
============= ============= ==============
</TABLE>
(1) See Footnote 1 to the Financial Statements.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 132,036
<SECURITIES> 0
<RECEIVABLES> 1,881,026
<ALLOWANCES> 0
<INVENTORY> 4,250,787
<CURRENT-ASSETS> 8,417,371
<PP&E> 5,602,534
<DEPRECIATION> 3,529,926
<TOTAL-ASSETS> 11,009,940
<CURRENT-LIABILITIES> 7,685,659
<BONDS> 0
0
0
<COMMON> 159,365
<OTHER-SE> 3,077,472
<TOTAL-LIABILITY-AND-EQUITY> 11,009,940
<SALES> 9,728,960
<TOTAL-REVENUES> 9,728,960
<CGS> 10,044,709
<TOTAL-COSTS> 14,018,128
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 392,160
<INCOME-PRETAX> (4,681,328)
<INCOME-TAX> (1,717,056)
<INCOME-CONTINUING> (2,964,272)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,964,272)
<EPS-PRIMARY> (107.18)
<EPS-DILUTED> (107.18)
</TABLE>
