<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended March 31, 1999
OR
/ / Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from _______________ to _______________
Commission file No. 0-9613
NUCLEAR RESEARCH CORPORATION
-----------------------------------------------------------------
(Exact name of Small Business Issuer as specified in its charter)
Pennsylvania 1343870
- ---------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of organization) Identification No.)
125 Titus Avenue, Warrington, Pennsylvania 18976
- ------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(215) 343-5900
---------------------------------------------------
(Registrant's telephone number, including area code)
---------------------------------------------------
Former Name, Former Address and Formal Fiscal Year,
If Changed Since Last Report
Check whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act 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
--- ---
State the number of shares outstanding of each of the issuer's
classes of common equity, as of latest practicable date: as of May 31, 1999, the
registrant had 27,658 shares of its common stock outstanding.
Transitional Small Business Disclosure format (check one):
Yes No X
--- ---
-i-
<PAGE>
INDEX
<TABLE>
<CAPTION>
Number Page
- ------ ----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements............................................................................1
Balance Sheet...................................................................................1
Statements of Operations........................................................................3
Statements of Operations........................................................................4
Statements of Shareholders' Equity For The Nine Months
Ended March 31, 1999 And Year Ended June 30, 1998...............................................5
Statements of Cash Flows........................................................................6
Notes to Financial Statements...................................................................7
Item 2: Management's Discussion and Analysis of Financial Condition and Results of
Operations.....................................................................................10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................15
Item 2. Changes in Securities and Use of Proceeds......................................................16
Item 3. Defaults upon Senior Securities................................................................16
Item 4. Submission of Matters to a Vote of Security Holders............................................16
Item 5. Other Information..............................................................................16
Item 6. Exhibits and Reports on Form 8-K...............................................................16
</TABLE>
-ii-
<PAGE>
The Private Securities Litigation Reform Act of 1996 provides
a "safe harbor" for forward-looking statements. Certain information included in
this Quarterly Report contains information that is forward looking, such as
information relating to future sales and earnings, shipments and shipping
schedules, impact of Year 2000 issues and adequacy of cash available from
financing and current cash flows. 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.
-iii-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
- ------- --------------------
NUCLEAR RESEARCH CORPORATION
BALANCE SHEET
(UNAUDITED)
-----------------------------
<TABLE>
<CAPTION>
ASSETS
March 31, 1999 June 30, 1998
-------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 913,379 $ 132,036
Accounts receivable 2,507,746 1,881,026
Inventory (Note 2) 3,844,465 4,250,787
Costs and estimated earnings in
excess of billings on uncompleted
contracts (Note 3) 104,696 -
Prepaid taxes on income
and tax refund receivable 24,835 1,092,062
Prepaid expenses and
other current assets 287,770 180,357
Deferred income taxes 881,103 881,103
------------- -------------
Total current assets 8,563,994 8,417,371
PROPERTY, PLANT AND EQUIPMENT
(net of accumulated depreciation and amortization
of $3,730,208 at March 31, 1999 and $3,529,926
at June 30, 1998) 1,897,741 2,072,608
OTHER ASSETS
Intangible assets (net of accumulated amortization
of $0 at March 31, 1999
and $0 at June 30, 1998) 175,000 175,000
Patents (net of accumulated
amortization of $112,873
at March 31, 1999 and
$112,873 at June 30, 1998) 180,497 178,927
Other 160,497 166,034
------------- -------------
Total other assets 515,994 519,961
------------- -------------
TOTAL ASSETS $ 10,977,729 $ 11,009,940
============= =============
</TABLE>
See Notes to Financial Statements
1
<PAGE>
NUCLEAR RESEARCH CORPORATION BALANCE SHEET
(UNAUDITED)
------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 1999 June 30, 1998
-------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Short-term borrowings $ 4,865,000 $ 5,190,000
Current portion of
long-term debt 87,500 146,666
Accounts payable 663,704 902,653
Accrued expenses 380,629 1,103,500
Accrued payroll and
payroll taxes 427,851 319,184
Taxes payable on income 516,005 -
Billings on uncompleted contracts in excess of
costs and estimated earnings - 23,656
--------------- --------------
Total current liabilities 6,940,689 7,685,659
LONG-TERM DEBT - 61,250
DEFERRED INCOME TAXES 26,194 26,194
MINORITY INTEREST IN EQUITY OF
CONSOLIDATED SUBSIDIARY - -
COMMITMENTS AND CONTINGENCY
(Note 4) - -
SHAREHOLDERS' EQUITY
Common Stock
Stated value $5 per
share, with 60,000 shares
authorized, 31,873 shares
issued and 27,658 shares
outstanding 159,365 159,365
Additional paid in
capital 517,010 517,010
Retained Earnings 3,396,824 2,622,815
Less: treasury stock,
3,698 shares at cost (62,353) (62,353)
--------------- --------------
Total shareholders' equity 4,010,846 3,236,837
--------------- --------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 10,977,729 $ 11,009,940
=============== ==============
</TABLE>
See Notes to Financial Statements
2
<PAGE>
NUCLEAR RESEARCH CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
-----------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
NET SALES $ 3,677,664 $ 2,494,762
COST OF SALES 2,827,898 4,974,370
------------- -------------
GROSS PROFIT 849,766 (2,479,608)
SELLING AND ADMINISTRATIVE EXPENSES 1,049,068 848,136
RESEARCH AND DEVELOPMENT EXPENSES - -
INTEREST EXPENSE 130,470 97,120
------------- -------------
INCOME (LOSS) FROM OPERATIONS (329,772) (3,424,864)
OTHER INCOME 31,627 17,546
------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) (298,145) (3,407,318)
LESS: TAXES (BENEFIT) ON INCOME (118,995) (1,192,562)
------------- -------------
NET INCOME (LOSS) $ (179,150) $ (2,214,756)
============= =============
PRIMARY EARNINGS (LOSS) PER SHARE $ (6.48) $ (80.08)
============= =============
WEIGHTED AVERAGE COMMON SHARES 27,658 27,658
============= =============
</TABLE>
See Notes to Financial Statements
3
<PAGE>
NUCLEAR RESEARCH CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
-----------------------------
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
NET SALES $ 13,581,755 $ 6,494,671
COST OF SALES 9,346,825 8,527,525
-------------- -------------
GROSS PROFIT 4,234,930 (2,032,854)
SELLING AND ADMINISTRATIVE EXPENSES 2,681,335 1,873,548
RESEARCH AND DEVELOPMENT EXPENSES - -
INTEREST EXPENSE 320,067 292,374
-------------- -------------
INCOME (LOSS) FROM OPERATIONS 1,233,528 (4,198,776)
OTHER INCOME 56,486 23,534
-------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) 1,290,014 (4,175,242)
LESS: TAXES (BENEFIT) ON INCOME 516,005 (1,461,335)
-------------- -------------
NET INCOME (LOSS) $ 774,009 $ (2,713,907)
============== =============
PRIMARY EARNINGS (LOSS) PER SHARE $ 27.98 $ (98.12)
============== =============
WEIGHTED AVERAGE COMMON SHARES 27,658 27,658
============== =============
</TABLE>
See Notes to Financial Statements
4
<PAGE>
NUCLEAR RESEARCH CORPORATION STATEMENTS
OF SHAREHOLDERS' EQUITY FOR THE NINE MONTHS
ENDED MARCH 31, 1999 AND YEAR ENDED JUNE 30, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid In Retained Shareholders'
Shares Amount Capital Earnings Treasury Stock Equity
------ ------ ------- -------- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at
June 30, 1997 27,658 $159,365 $517,010 $ 5,587,087 $(62,353) $ 6,201,109
Net loss for
the year ended
June 30, 1998 -- -- -- (2,964,272) -- (2,964,272)
---------- -------- -------- ----------- -------- -----------
Balance at
June 30, 1998 27,658 159,365 517,010 2,622,815 (62,353) 3,236,837
Net profit for
the nine months
ended March 31, 1999 -- -- -- 774,009 -- 774,009
---------- -------- -------- ----------- -------- -----------
Balance at
March 31, 1999 27,658 $159,365 $517,010 $ 3,396,824 $(62,353) $ 4,010,846
========== ======== ======== =========== ======== ===========
</TABLE>
See Notes to Financial Statements
5
<PAGE>
NUCLEAR RESEARCH CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 774,009 $ (2,713,907)
Adjustments to reconcile net income to
net cash provided by (used by) operating
activities:
Depreciation and amortization 200,282 285,459
(Increase) decrease in:
Accounts receivable (626,720) 143,551
Inventory 406,322 1,642,725
Prepaid taxes on income tax and
tax refund receivable 1,067,227 (620,313)
Prepaid expenses and other assets (107,413) (152,559)
Costs and estimated earnings in
excess of billings on
uncompleted contracts (104,696) 207,604
Increase (decrease) in:
Accounts payable (238,949) 505,491
Accrued expenses and payroll taxes (614,204) (168,871)
Taxes payable on income 516,005 -
Billings on uncompleted contracts in excess of cost and
estimated earnings (23,656) -
------------ -------------
NET CASH PROVIDED BY (USED BY)
OPERATING ACTIVITIES 1,248,207 (870,820)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (25,415) (60,230)
(Increase) decrease in other assets 3,967 (70,443)
------------ -------------
NET CASH USED BY INVESTING ACTIVITIES (21,448) (130,623)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) on line of credit (325,000) 1,055,000
Payments of (proceeds from) long-term debt 120,416 (237,117)
Other - -
------------ -------------
NET CASH PROVIDED BY (USED BY)
FINANCING ACTIVITIES (445,416) 817,813
------------ -------------
NET INCREASE (DECREASE) IN CASH 781,343 (183,610)
------------ -------------
CASH - beginning 132,036 183,610
------------ -------------
CASH - ending $ 913,379 $ -
============ =============
</TABLE>
See Notes to Financial Statements
6
<PAGE>
NUCLEAR RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
March 31, 1999 and March 31, 1998
Note 1. The Financial Statements of Nuclear Research Corporation have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission ("SEC"). In the opinion of management, the accompanying
Financial Statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position as of
March 31, 1999 and June 30, 1998 and the results of operations and cash flows
for the three months and nine months ended March 31, 1999 and 1998. Certain
information and footnote disclosures prepared in accordance with generally
accepted accounting principles have either been condensed or omitted pursuant to
SEC rules and regulations. These financial statements should be read in
conjunction with the financial statements and the notes included in the
Company's latest Annual Report on Form 10-K.
The results of operations for the nine months ended March 31, 1999 and 1998 are
not necessarily indicative of the results for the full year.
The Financial Statements include the accounts of Nuclear Research Corporation,
NRC Acquisition Corporation and Northeast Nuclear, Ltd., wholly-owned
subsidiaries hereafter referred to collectively as the "Company." Also included
in the Financial Statements are the accounts of Measurement Dynamics LLC
("MDLLC").
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 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.
7
<PAGE>
NUCLEAR RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 2. Inventory.
(Unaudited)
March 31, June 30,
1999 1998
----------------------------------------
Inventory consists of:
Work-In-Process
United States Government
contracts $ 795,825 $ 1,585,356
Commercial contracts 1,579,335 695,253
Purchased and manufactured
parts 1,599,081 2,872,827
----------------- -----------------
3,974,241 5,153,436
Less: Progress payments on United
States Government contracts 129,776 902,649
----------------- -----------------
Total $ 3,844,465 $ 4,250,787
================= =================
The Company uses the last-in, first-out (LIFO) method to determine its material
inventory costs. The following information will facilitate comparison with
operating results of companies using the FIFO method. If the Company's inventory
had been determined using the FIFO method at March 31, 1999, reported
inventories would have been $758,573 higher and reported net income would have
increased by $41,158 ($1.48 per share). The pro forma effect relating to the use
of the FIFO method would have resulted in the following balances for the
statement of operations presentation for the nine months ended March 31, 1999:
Gross Profit $4,337,825
===========
Income from Operations $1,336,423
===========
Net Income $ 815,167
===========
8
<PAGE>
NUCLEAR RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 3. Costs and Estimated Earnings in Excess of Billings on Uncompleted
Contracts.
The Company recognizes revenues on several fixed-price contracts using the
percentage-of-completion method, measured by the percentage of cost incurred to
date compared to the estimated total cost for the contracts. That method is used
because management considers total cost to be the best available measure of
progress on the contracts. Because of inherent uncertainties in estimating
costs, it is at least reasonably possible that the estimates used will change
within the near term.
Contract costs include all direct material, direct labor and indirect costs
related to contract performance. Provisions for estimated losses on the
uncompleted contracts are made in the period in which such losses are
determined. Changes in estimated job profitability resulting from job
performance, job conditions, claims, change orders, and settlements, are
accounted for in the period in which the changes occur.
The asset, "Costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed.
The liability "Billings on uncompleted contracts in excess of cost and estimated
earnings" represents billings in excess of revenue recognized.
Costs, estimated earnings, and billings on uncompleted contracts are summarized
as follows:
Costs incurred and estimated
earnings on uncompleted
contracts $ 647,414
Billings to date 542,718
-----------
$ 104,696
===========
Included in accompanying balance sheet under the following
caption:
Costs and estimated earnings
in excess of billings on
uncompleted contracts $ 104,696
==========
9
<PAGE>
NUCLEAR RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 4. Commitments and Contingency.
---------------------------
In September 1995, the Company's management was notified that
MDLLC, Mark A. Sitcoske and a company controlled by Mr. Sitcoske, Measurement
Dynamics, Inc., had been named as co-defendants in a suit filed on September 7,
1995 in the Superior Court of the State of Rhode Island by Hanna Manufacturing,
Inc. ("Hanna"), a Rhode Island company that previously employed Mr. Sitcoske.
The suit alleged that the defendants acted in violation of an existing
employment and non-compete agreement between Hanna and Mr. Sitcoske and sought
to enjoin Mr. Sitcoske from his continued employment with MDLLC and to obtain
damages; however, at December 31, 1997, Hanna had not sought a hearing to obtain
injunctive relief and the matter was in discovery. In September, 1998, the
Company acquired all of the outstanding membership interests in MDLLC not then
owned by the Company. In March 1999, the Hanna lawsuit was settled and a
Stipulation of Dismissal, dismissing the lawsuit with prejudice, was filed with
the court. In settlement of the Hanna lawsuit, each of Hanna, on the one hand,
and the defendants in the Hanna lawsuit and the Company, on the other hand,
granted to the other a general release, and Hanna received a settlement payment
of $12,500. The Company contributed the $12,500 settlement amount.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
- ------ of Operations
------------------------------------------------------------------------
Results of Operations
- ---------------------
Three Months Ended March 31, 1999 Compared to Three Months
Ended March 31, 1998.
----------------------------------------------------------
Sales for the three months ended March 31, 1999 increased to
$3,677,664 from $2,494,762 for the three months ended March 31, 1998, primarily
due to the shipment of a new product to the United States government (the
"Government"). Shipments of the new product commenced in April 1998 and
continued through the reporting period following an extended period prior to
April 1998 during which the Company was unable to ship the product pending first
article testing and Government approval. The Company expects the shipments of
the new product to the Government to continue through the remainder of the
fiscal year ended June 30, 1999 and beyond.
Loss from operations decreased to $(329,772) for the three
months ended March 31, 1999 as compared to a loss of $(3,424,864) for the three
months ended March 31, 1998 due to an increase in sales and gross profit as a
percentage of sales. Gross profit as a percentage of sales for the three months
ended March 31, 1999 was 23.1% as compared to a negative 99.4% for the three
months ended March 31, 1998. The increase in gross profit as a percentage of
sales was primarily due to the increase in revenue associated with the shipment
of a new product to the Government as described above.
10
<PAGE>
Selling and administrative expenses increased to $1,049,068
for the three months ended March 31, 1999 compared to $848,136 for the three
months ended March 31, 1998, primarily due to increased sales. Selling and
administrative expense as a percentage of sales decreased to 28.5% as compared
to 34.8% for the three months ended March 31, 1998 due to the increase in sales.
Research and development expenses were $0 for the three months
ended March 31, 1999 and March 31, 1998.
Interest expense increased from $97,120 for the three months
ended March 31, 1998 to $130,470 for the three months ended March 31, 1999. The
increase can be attributed to an increase in borrowings and related costs
associated with letters of credit.
Nine Months Ended March 31, 1999 Compared to Nine Months Ended
March 31, 1998.
--------------------------------------------------------------
Sales for the nine months ended March 31, 1999 increased to
$13,581,755 from $6,494,671 for the nine months ended March 31, 1998 due to the
shipment of a new product to the Government, as described above.
Income from operations increased to $1,233,528 for the nine
months ended March 31, 1999 from a loss of $(4,198,776) for the nine months
ended March 31, 1998 because of increases in sales and gross profit as a
percentage of sales. Gross profit as a percentage of sales increased to 31.2% as
compared to a negative (31.3%) for the nine months ended March 31, 1998 due to a
shift in product mix and an increase in revenue associated with the shipment of
a new product to the Government as describe above.
Selling and administrative expenses increased $807,787 to
$2,681,335 for the nine months ended March 31, 1999 compared to the nine months
ended March 31, 1998, primarily due to an increase in sales. As a percentage of
sales, selling and administrative expenses decreased to 19.7% for the nine
months ended March 31, 1999 as compared to 28.8% for the nine months ended March
31, 1998 due to increased sales.
The Company had no research and development expenses for
either the nine months ended March 31, 1999 or the nine months ended March 31,
1998.
Interest expense increased to $320,067 for the nine months
ended March 31, 1999 as compared to $292,374 for the nine months ended March 31,
1998. The increase was due to increasing borrowings and costs associated with
letters of credit.
11
<PAGE>
Liquidity and Capital Resources
- -------------------------------
During the nine months ended March 31, 1999, the major factors
that affected cash provided by operating activities were an increase in accounts
receivable of $626,720, an increase in net income of $239,949 and an increase in
taxes payable on income of $516,005. These increases were the result of
increased revenues for the nine months ended March 31, 1999. Additional factors
that contributed to the increase in cash provided by operating activities were a
decrease in inventory of $406,322, a decrease in prepaid taxes on income and
income tax refund receivable of $1,067,227, a decrease in accounts payable of
$272,134 and a decrease in accrued expenses and payroll taxes of $614,204. The
decrease in inventory was due to consumption of raw materials in connection with
the manufacture of the new product described above, the sale of which generated
increased revenue. The decreases in accounts payable and accrued expenses were
due to payments made by the Company for recurring payables and accruals. The
decrease in income tax refund was due to collection of the receivable.
During the nine months ended March 31, 1999, the Company made
capital expenditures in the aggregate amount of $25,415 to purchase
manufacturing and computer equipment.
The decrease in cash provided by financing activities was a
result of payments made by the Company to (1) reduce its line of credit by
$325,000, and (2) reduce its long term debt by $120,416.
The Company's backlog of orders at March 31, 1999 was
approximately $26,093,000 as compared to $13,200,000 at March 31, 1998.
Substantially all such orders are subject to cancellation. The Company expects
to ship approximately $4,100,000 of the March 31, 1999 backlog prior to the
fiscal year ending June 30, 1999 ("fiscal 1999"). The increase in backlog was
primarily due to a new $15,982,000 Government contract. The Company expects
approximately $650,000 of this Government contract to be funded by the end of
fiscal 1999. The balance of the contract is expected to be funded over the
next four years.
In May 1998, the Company and its lender, First Union National
Bank, successor by merger to CoreStates Bank, N.A. and Bucks County Bank and
Trust Company (the "Bank"), entered into a First Amendment to Line of Credit
Agreement (the "First Amendment"). 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
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 to 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.
12
<PAGE>
On April 29, 1999, the Bank and the Company entered into a
Forbearance and Loan Restructuring Agreement (the "Forbearance Agreement")
pursuant to which, among other things, the forbearance period set forth in the
First Amendment was extended 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 measured was reduced from $4,127,730 to
$3,800,000 effective January 1, 1999. In connection with the Forbearance
Agreement, Mr. and Mrs. Pollock gave limited personal guarantees and entered
into non-recourse stock pledge agreements pledging to the Bank all of the common
stock of the Company owned by them as collateral for the limited personal
guarantees. In exchange for their giving the guarantees and entering into the
non-recourse stock pledge agreements, the Board of Directors of the Company
issued an additional five-year warrant for 5,000 shares to Mr. and Mrs. Pollock,
as tenants by the entireties.
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
"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.
13
<PAGE>
Primary Vendors and Service Providers: The Company has
contacted its primary vendors in order to determine their Year 2000 compliance.
As a result of these inquiries, the Company is not aware of any material Year
2000 issues with respect to its primary vendors. The Company has multiple
sources for the raw materials and component parts it needs to operate its
business in the event a particular vendor is not Year 2000 compliant.
Products: The Company has forward-date tested the current
version of each of its principal products and has concluded that the essential
functions of the products will not be impaired by Year 2000 issues because (a)
the products contain no microprocessor circuits that have a date/time function,
or (b) if the products do contain microprocessor circuits that have a date/time
function, they have been successfully tested to the criteria of British Standard
DISC PD 2000-1:1996.
Cost: The Company believes that its cost to become Year 2000
compliant is not and will not be material to the Company's operations. Based on
estimates of the Company's technical staff, the Company believes that the cost
of compliance will not exceed $25,000, net of reimbursements from vendors of any
components that are not Year 2000 compliant.
Risks Associated with Year 2000 Issues
--------------------------------------
Internal System: The Company uses computer systems in many
aspects of its business. As noted, the Company's material internal IT systems
are believed to be Year 2000 compliant. If the Company's assessment of Year 2000
readiness of those systems is incorrect or incomplete or if a Year 2000 issue
exists with respect to a system the Company previously determined to be
non-material but which is in fact material, the Company could experience
interruptions in operations that could have material adverse effects on
operating results.
Principal Vendors and Service Providers: The Company also is
exposed to the risk that one or more of its vendors, suppliers, or service
providers could experience Year 2000 issues that could impact the ability of
such vendor, supplier, or service provider to provide goods and services. Though
this is not considered a significant risk with respect to the suppliers of goods
due to the availability of alternative suppliers, the disruption of certain
services, such as utilities, could, depending upon the nature and extent of the
disruption, have a material adverse impact on the Company's operations. To date
the Company is not aware of any vendor or service provider with a Year 2000
issue that it believes would have a material adverse impact on the Company's
operations. However, the Company has no means of insuring that its vendors or
service providers will be Year 2000 compliant. The inability of vendors or
service providers to complete their Year 2000 resolution process in a timely
fashion could have an adverse impact on the Company.
Products: As noted above, the Company believes the essential
functions of its principal products will not be impaired by Year 2000 issues. If
the Company's assessment of the Year 2000 compliance status of these products is
incorrect or incomplete or if a Year 2000 issue with respect to a product exists
that the Company previously determined to be non-material but that is in fact
material, the Company could be required to repair or replace equipment that is
not Year 2000 compliant and/or could be subject to claims for damages related to
the failure of the equipment to perform its essential functions.
14
<PAGE>
Customers: In addition, the Company is exposed to the risk
that customers could experience Year 2000 problems that impact the Company. If
customers' systems or the products into which they integrate the Company's
products are not Year 2000 compliant, orders for the Company's products may
decline or, at a minimum, be delayed. If customer's internal operating systems,
such as accounting systems, are not Year 2000 compliant customers may be unable
to pay the Company for its products in a timely fashion.
The Company does not believe that these problems are likely to
affect a sufficient number of customers to pose a material problem for the
Company. The Company is not aware of any customer Year 2000 issue that is likely
to have a material adverse impact on the Company's operations. However, the
Company has no means of ensuring that its customers will be Year 2000 ready. The
inability of customers to complete their Year 2000 resolution process in a
timely fashion could have an adverse impact on the Company.
Contingency Plans
-----------------
The Company has not developed formal contingency plans with
respect to Year 2000 issues, however the Company has multiple sources from which
it can obtain raw materials and component parts in the event any of its primary
vendors experience Year 2000 issues. The Company intends to resolve any Year
2000 issues with respect to its products as they occur or are brought to the
Company's attention.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
- ------ -----------------
In September 1995, the Company's management was notified that
MDLLC, Mark A. Sitcoske and a company controlled by Mr. Sitcoske, Measurement
Dynamics, Inc., had been named as co-defendants in a suit filed on September 7,
1995 in the Superior Court of the State of Rhode Island by Hanna, a Rhode Island
company that previously employed Mr. Sitcoske. The suit alleged that the
defendants acted in violation of an existing employment and non-compete
agreement between Hanna and Mr. Sitcoske and sought to enjoin Mr. Sitcoske from
his continued employment with MDLLC and to obtain damages; however, at December
31, 1997, Hanna had not sought a hearing to obtain injunctive relief and the
matter was in discovery. In September, 1998, the Company acquired all of the
outstanding membership interests in MDLLC not then owned by the Company. In
March 1999, the Hanna lawsuit was settled and a Stipulation of Dismissal,
dismissing the lawsuit with prejudice, was filed with the court. In settlement
of the Hanna lawsuit, each of Hanna, on the one hand, and the defendants in the
Hanna lawsuit and the Company, on the other hand, granted to the other a general
release, and Hanna received a settlement payment of $12,500. The Company
contributed the $12,500 settlement amount.
Item 2. Changes in Securities and Use of Proceeds.
- ------- ------------------------------------------
Not Applicable.
15
<PAGE>
Item 3. Defaults upon Senior Securities.
- ------- --------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
Not Applicable.
Item 5. Other Information.
- ------- ------------------
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
- ------- ---------------------------------
(a) Exhibits.
10 Warrant issued to Earl M. Pollock and
Dorothy S. Pollock
11 Statement regarding computation of per share
earnings.
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter
ended March 31, 1999.
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NUCLEAR RESEARCH CORPORATION
----------------------------------------------
(Registrant)
Date: June 14, 1999 /s/ Earl M. Pollock
---------------------------------------------
Earl M. Pollock
Chairman of the Board and President
(Principal Executive Officer)
Date: June 14, 1999 /s/ Carl G. Katz
----------------------------------------------
Carl G. Katz
Treasurer and Chief Financial Officer
(Principal Financial and Accounting
Officer)
17
<PAGE>
EXHIBIT INDEX
Exhibit Method of Filing
- ------- ----------------
10 Warrant issued to Earl M. Pollock
and Dorothy Pollock Filed electronically herewith.
11 Statement regarding computation of
per share earnings. Filed electronically herewith.
27 Financial Data Schedule Filed electronically herewith.
18
<PAGE>
NUCLEAR RESEARCH CORPORATION
WARRANT TO PURCHASE 5,000 SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M., PHILADELPHIA TIME, ON
JANUARY 14, 2004
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 January 14, 2004 at an exercise price of
$117.03 per share (the "Warrant Price"), Five Thousand (5,000) 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.
<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 January 14, 1999
-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.
<PAGE>
NUCLEAR RESEARCH CORPORATION AND SUBSIDIARIES
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
--------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net Income (Loss) $ (179,150) $ (2,214,756) $ 774,009 $ (2,713,907)
------------- -------------- ------------ --------------
Average shares issued 31,356 31,356 31,356 31,356
Average net effect of dilutive stock
options-based on the treasury stock
method --(1) --(1) 6,090 --(1)
Less: average treasury stock (3,698) (3,698) (3,698) (3,698)
------------- -------------- ------------ --------------
Total stock and stock equivalents 27,658 27,658 33,748 27,658
============= ============== ============ ==============
Primary Earnings (Loss) per share $ (6.48) $ (80.08) $ 27.98 $ (98.12)
============= ============== ============ ==============
Earnings (Loss) per share assuming dilution $ (6.48) $ (80.08) $ 22.93 $ (98.12)
============= ============== ============ ==============
</TABLE>
(1) Per FASB #128 - Dilution not reflected in loss situation.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 913,379
<SECURITIES> 0
<RECEIVABLES> 2,507,746
<ALLOWANCES> 0
<INVENTORY> 3,844,465
<CURRENT-ASSETS> 8,563,994
<PP&E> 5,627,949
<DEPRECIATION> 3,730,208
<TOTAL-ASSETS> 10,997,729
<CURRENT-LIABILITIES> 6,940,689
<BONDS> 0
0
0
<COMMON> 159,365
<OTHER-SE> 3,851,481
<TOTAL-LIABILITY-AND-EQUITY> 10,977,729
<SALES> 13,638,241
<TOTAL-REVENUES> 13,638,241
<CGS> 9,346,825
<TOTAL-COSTS> 12,028,160
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 320,067
<INCOME-PRETAX> 1,290,014
<INCOME-TAX> 516,005
<INCOME-CONTINUING> 774,009
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 774,009
<EPS-BASIC> 27.98
<EPS-DILUTED> 22.93
</TABLE>
