<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 September 30, 1998
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
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(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)
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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 the latest practicable date: as of May 13, 1999
the registrant had 27,658 shares of its common stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No x
--- ---
<PAGE>
INDEX
<TABLE>
<CAPTION>
Number Page
- ------ ----
PART I - FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1: Financial Statements.............................................................1
BALANCE SHEET....................................................................1
STATEMENT OF OPERATIONS..........................................................3
STATEMENT
OF SHAREHOLDERS' EQUITY FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1998 AND YEAR ENDED JUNE 30, 1998............................4
STATEMENT OF CASH FLOWS..........................................................5
NOTES TO FINANCIAL STATEMENTS....................................................6
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................................14
Item 2. Changes in Securities and Use of Proceeds.......................................14
Item 3. Defaults upon Senior Securities.................................................14
Item 4. Submission of Matters to a Vote of Security Holders.............................14
Item 5. Other Information...............................................................14
Item 6. Exhibits and Reports on Form 8-K................................................14
</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
September 30, 1998 June 30, 1998
------------------ -------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 143,928 $ 132,036
Accounts receivable 2,610,785 1,881,026
Inventory (Note 2) 3,900,123 4,250,787
Prepaid taxes on income
and tax refund receivable 1,092,062 1,092,062
Prepaid expenses and
other current assets 252,410 180,357
Deferred Income Taxes 881,103 881,103
----------- -----------
Total Current Assets 8,880,411 8,417,371
PROPERTY, PLANT AND EQUIPMENT
(net of accumulated depre-
ciation and amortization of
$3,596,687 at
September 30, 1998 and
$3,529,926 at June 30, 1998) 2,023,078 2,072,608
OTHER ASSETS
Intangible assets 175,000 175,000
Patents (net of accumulated
amortization of $112,873
at September 30, 1998 and
$112,873 at June 30, 1998) 178,927 178,927
Other 181,034 166,034
----------- -----------
Total Other Assets 534,961 519,961
----------- -----------
TOTAL ASSETS $11,438,450 $11,009,940
=========== ===========
</TABLE>
See Notes to Financial Statements
1
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NUCLEAR RESEARCH CORPORATION BALANCE SHEET
(UNAUDITED)
-------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, 1998 June 30, 1998
------------------ -------------
CURRENT LIABILITIES
<S> <C> <C>
Short-term borrowings $ 5,190,000 $ 5,190,000
Current portion of
long-term debt 121,667 146,666
Accounts payable 1,038,449 902,653
Accrued expenses 402,079 1,103,500
Accrued payroll and
payroll taxes 440,134 319,184
Taxes payable on income 369,185 --
Billings on uncompleted contracts in excess of
costs and estimated earnings 25,127 23,656
------------ ------------
Total current liabilities 7,586,641 7,685,659
LONG-TERM DEBT 35,000 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 3,176,593 2,622,815
Less: treasury stock,
3,698 shares at cost (62,353) (62,353)
------------ ------------
Total shareholders' equity 3,790,615 3,236,837
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 11,438,450 $ 11,009,940
============ ============
</TABLE>
See Notes to Financial Statements
2
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NUCLEAR RESEARCH CORPORATION
STATEMENT OF OPERATIONS
(UNAUDITED)
-------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
NET SALES $ 5,003,601 $ 1,227,208
COST OF SALES 3,218,004 1,078,412
----------- -----------
GROSS PROFIT 1,785,597 148,796
SELLING AND ADMINISTRATIVE EXPENSES 788,072 500,970
RESEARCH AND DEVELOPMENT EXPENSES -- 257,671
INTEREST EXPENSE 79,665 75,507
----------- -----------
INCOME (LOSS) FROM OPERATIONS 917,860 (685,352)
OTHER INCOME (EXPENSES) 5,103 (763)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) 922,963 (686,115)
LESS: TAXES ON INCOME (BENEFIT) 369,185 (240,140)
----------- -----------
NET INCOME (LOSS) $ 553,778 $ (445,975)
=========== ===========
PRIMARY EARNINGS (LOSS) PER SHARE $ 20.02 $ (16.12)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES 27,658 27,658
=========== ===========
</TABLE>
See Notes to Financial Statements
3
<PAGE>
NUCLEAR RESEARCH CORPORATION STATEMENT
OF SHAREHOLDERS' EQUITY FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1998 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 three months
ended September 30, 1998 -- -- -- 553,778 -- 553,778
----------- ----------- ----------- ----------- ----------- -----------
Balance at
September 30, 1998 $ 27,658 $ 159,365 $ 517,010 $ 3,176,593 $ (62,353) $ 3,790,615
=========== =========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
4
<PAGE>
NUCLEAR RESEARCH CORPORATION STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 553,778 $(445,975)
Adjustments to reconcile net income to
net cash provided by (used by) operating
activities:
Depreciation and amortization 66,761 96,540
(Increase) decrease in:
Accounts receivable (729,759) 287,337
Inventory 350,664 (648,848)
Prepaid taxes-on income tax and
tax refund receivable -- (240,140)
Prepaid expenses and other assets (72,053) (126,729)
Costs and estimated earnings in
excess of billings on
uncompleted contracts -- 207,038
Increase (decrease) in:
Accounts payable 135,796 251,150
Accrued expenses and payroll taxes (580,470) (176,360)
Taxes payable - on income 369,185 --
Billings on uncompleted contracts in excess of cost and
estimated earnings 1,471 --
--------- ---------
NET CASH PROVIDED BY (USED BY)
OPERATING ACTIVITIES 95,373 (795,987)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (17,231) (45,500)
(Increase) decrease in other assets (15,000) --
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (32,231) (45,500)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds on line of credit -- 775,000
Payments of long-term debt 51,250 79,206
Other -- --
--------- ---------
NET CASH PROVIDED BY (USED BY)
FINANCING ACTIVITIES (51,250) 695,794
--------- ---------
NET INCREASE (DECREASE) IN CASH 11,892 (145,693)
CASH - beginning 132,036 183,610
--------- ---------
CASH - ending $ 143,928 $ 37,917
========= =========
</TABLE>
5
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NUCLEAR RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 1998 and September 30, 1997
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
September 30, 1998 and June 30, 1998 and the results of operations and cash
flows for the three months ended September 30, 1998 and 1997. Certain
information and footnote disclosures prepared in accordance with generally
accepted accounting principles have either been condensed or omitted pursuant to
SEC rules and regulations. These financial statements should be read in
conjunction with the financial statements and the notes included in the
Company's latest Annual Report on Form 10-K.
The results of operations for the three months ended September 30, 1998 and 1997
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.
6
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NUCLEAR RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 2. Inventory.
<TABLE>
<CAPTION>
(Unaudited)
September 30, June 30,
1998 1998
---------------- ---------------
<S> <C> <C>
Inventory consists of:
Work-In-Process
United States Government contracts $ 1,386,377 $ 1,585,356
Commercial contracts 579,366 695,253
Purchased and manufactured parts 2,237,403 2,872,827
---------------- ---------------
4,203,146 5,153,436
Less: Progress payments on United States
Government contracts 303,023 902,649
---------------- ---------------
Total $ 3,900,123 $ 4,250,787
================ ===============
</TABLE>
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 September 30, 1998, reported
inventories would have been $976,478 higher and reported net income would have
decreased by $22,971 ($.83 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 three months ended September 30,
1998:
Gross Profit $1,748,546
==========
Income from Operations $ 880,809
==========
Net Income $ 530,807
==========
7
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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 $ 497,781
Billings to date $522,908
-----------
$ (25,127)
===========
Included in accompanying balance sheet under
the following caption:
Billings on uncompleted
contracts in excess of cost and
estimated earnings $ (25,127)
===========
8
<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
Sales for the three months ended September 30, 1998 increased
to $5,003,601 from $1,227,208 for the three months ended September 30, 1997
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.
Income from operations increased to $917,860 for the three
months ended September 30, 1998 from a loss of $685,352 for the three months
ended September 30, 1997 due to increased sales. Gross profit as a percentage of
sales increased to 35.7% at September 30, 1998 as compared to 12.1% at September
30, 1997 due to the increase in sales described above.
Selling and administrative expenses increased $287,102 to
$788,072 for the three months ended September 30, 1998 compared to the three
months ended September 30, 1997, primarily due to increased sales.
9
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As a percentage of sales, selling and administrative expenses
decreased to 15.75% for the three months ended September 30, 1998 as compared to
40.82% for the three months ended September 30, 1997 due to the increase in
sales.
Research and development expenses decreased to $0 for the
three months ended September 30, 1998 as compared to $257,671 for the three
months ended September 30, 1997 due to the reclassification of research and
development expense as cost of sales.
Interest expense increased $4,158 to $79, 665 for the three
months ended September 30, 1998 compared to the three months ended September 30,
1997, primarily due to increased borrowings.
Liquidity and Capital Resources
During the three months ended September 30, 1998, the major
factors that affected cash provided by operating activities were an increase in
accounts receivable of $729,759, an increase in accounts payable of $135,796, an
increase in taxes payable on income of $369,185 and an increase in net income of
$553,778. These increases resulted from the increase in sales for the quarter
ended September 30, 1998. Additional factors affecting cash provided by
operating activities were a decrease in inventory of $350,664 and a decrease in
accrued expenses and payroll of $580,470. 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 increased revenues. The decrease in
accruals was due to the payment of June 30, 1998 accrued vacation and other
liabilities.
During the three months ended September 30, 1998, the Company
made capital expenditures in the aggregate amount of $17,231 to purchase
manufacturing and computer equipment.
The Company's backlog of orders as of September 30, 1998 was
$13,502,000 as compared to $17,440,000 as of September 30, 1997. The decline in
backlog was primarily due to the shipment of a new product to the Government
that had been previously delayed, as described above.
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
10
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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 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, the Bank required that Mr. and Mrs. Pollock give limited personal
guarantees and enter 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. The Board of Directors of the Company 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 the
required guaranty.
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
11
<PAGE>
forth below contain "forward-looking statements" within the meaning of the
Securities Exchange Act of 1934, as amended, including, but not limited to those
relating to the Year 2000 compliance of the Company's products and systems,
future costs to remediate Year 2000 issues, and the impact on the Company of the
failure of it or a material third party to become fully Year 2000 compliant. The
actual impact on the Company of Year 2000 issues could differ materially from
those in the forward-looking statement(s) due to a number of uncertainties set
forth below.
Year 2000 Readiness
Internal Systems: The Company's technical staff conducted a
review of the Company's computer and information technology systems (together,
"IT systems"), including accounting, word processing and operating systems, and
its embedded technology, such as microprocessors embedded in equipment or other
non-IT systems. The Company has concluded that its material IT systems recognize
four digits and are expected to be Year 2000 compliant. The Company has not
identified, to date, any Year 2000 issues with regard to material internal
non-IT systems.
Primary Vendors and Service Providers: The Company has
contacted its primary vendors in order to determine their Year 2000 compliance.
As a result of these inquiries, the Company is not aware of any material Year
2000 issues with respect to its primary vendors. The Company has multiple
sources for the raw materials and component parts it needs to operate its
business in the event a particular vendor is not Year 2000 compliant.
Products: The Company has forward-date tested the current
version of each of its principal products and has concluded that the essential
functions of the products will not be impaired by Year 2000 issues because (a)
the products contain no microprocessor circuits that have a date/time function,
or (b) if the products do contain microprocessor circuits that have a date/time
function, they have been successfully tested to the criteria of British Standard
DISC PD 2000-1:1996.
Cost: The Company believes that its cost to become Year 2000
compliant is not and will not be material to the Company's operations. Based on
estimates of the Company's technical 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.
12
<PAGE>
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.
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.
13
<PAGE>
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.
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.
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 September 30, 1998.
14
<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
Date: May 14, 1999 By: /s/ Earl M. Pollock
--------------------------------------------
Earl M. Pollock
Chairman of the Board and President
(Principal Executive Officer)
Date: May 14, 1999 By: /s/ Carl G. Katz
--------------------------------------------
Carl G. Katz
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Method of Filing
- ------- ----------------
<S> <C> <C>
11. Statement Regarding Computation of Per Share Earnings.............................Filed Herewith Electronically
27. Financial Data Schedule ..........................................................Filed Herewith Electronically
</TABLE>
16
<PAGE>
Exhibit 11
Statement of Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Net Income (Loss) $ 553,778 $ (445,975)
------------- -------------
Average Shares Issued 31,356 31,356
Average Net Effect of Dilutive
Stock Options Based On Treasury Stock Method 6,090 --(1)
Less Average Treasury Stock (3,698) (3,698)
------------- -------------
Total Stock and Stock Equivalents 33,748 27,658
============= =============
Earning (Loss) Per Share $ 20.02 $ (16.12)
============= =============
Earnings (Loss) Per Share Assuming Dilution $ 16.41 $ (16.12)
============= =============
</TABLE>
(1) Per FASB #128 - Dilution not reflected in a loss situation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 143,928
<SECURITIES> 0
<RECEIVABLES> 2,610,785
<ALLOWANCES> 0
<INVENTORY> 3,900,123
<CURRENT-ASSETS> 8,880,411
<PP&E> 5,619,765
<DEPRECIATION> 3,596,687
<TOTAL-ASSETS> 11,438,450
<CURRENT-LIABILITIES> 7,586,642
<BONDS> 0
0
0
<COMMON> 159,365
<OTHER-SE> 3,631,250
<TOTAL-LIABILITY-AND-EQUITY> 11,438,450
<SALES> 5,008,704
<TOTAL-REVENUES> 5,008,704
<CGS> 3,218,004
<TOTAL-COSTS> 4,006,076
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79,665
<INCOME-PRETAX> 922,963
<INCOME-TAX> 369,185
<INCOME-CONTINUING> 553,778
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 553,778
<EPS-PRIMARY> 20.02
<EPS-DILUTED> 16.41
</TABLE>
