SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _____________ to _____________
COMMISSION FILE NUMBER 0-14039
NUCLEUS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
NEVADA 11-2714721
(State or other jurisdiction (I.R.S. Employer Identification No.)
I.R.S. Employer Identification No.)
401 NORTH MICHIGAN AVENUE, SUITE 745
CHICAGO, IL 60611
(Address of principal executive offices)
REGISTRANT TELEPHONE NUMBER, INCLUDING AREA CODE: (312) 683-9000
Check whether the Registrant (l) filed all reports required to be filed
by Section 13 or 15(d) of the Securities and Exchange Act during the past 12
months (or for such shorter periods that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
--- ---
The number of shares outstanding of the Company's only class of common
stock, as of May 11, 2000 was 11,639,141 shares of its $.001 par value common
stock.
Transitional Small Business Disclosure Format
(check one) Yes No X
--- ---
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities and Use of Proceeds
ITEM 3. Defaults Upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
Form 10-QSB Signature Page
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of March 31, 2000 and December 31, 1999
Statements of Operations for the three months ended March 31,
2000 and 1999
Statements of Cash Flows for the three months ended March 31,
2000 and 1999
Notes to Condensed Consolidated (Unaudited) Financial
Statements
<PAGE>
NUCLEUS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash ....................................................................... $ 2,417,215 $ 270,291
Accounts receivable ......................................................... 1,205,049 1,704,028
Other ....................................................................... 370,208 75,203
Deferred finance cost ....................................................... 1,323,343 --
------------ ------------
Total current assets ..................................................... 5,315,815 2,049,522
------------ ------------
Property and equipment, net ................................................. 208,027 133,745
Goodwill, net ............................................................... 6,144,878 6,454,869
------------ ------------
Total assets ............................................................. $ 11,668,720 $ 8,638,136
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Senior notes payable (net of discount of $5,849,667) ........................ $ 254,333 $ --
Line of credit .............................................................. 499,444 534,285
Notes payable ............................................................... 817,396 1,474,267
Trade accounts payable ...................................................... 1,925,608 2,962,731
Accrued expenses ............................................................ 1,062,763 819,402
------------ ------------
Total current liabilities ................................................ 4,559,544 5,790,685
Stockholders' equity:
Common stock -- $0.001 par value, 900,000,000 shares authorized; shares
issued and outstanding (11,639,141 and 9,610,104 on March 31, 2000
and December 31, 1999, respectively) ..................................... 11,639 9,610
Additional paid-in capital .................................................. 19,009,183 12,250,664
Stock warrants .............................................................. 727,349 377,069
Treasury stock .............................................................. (651,838) --
Accumulated deficit.......................................................... (11,987,157) (9,789,892)
------------ ------------
Total stockholders' equity .................................................. 7,109,176 2,847,451
------------ ------------
Total liabilities and stockholders' equity ..................................... $ 11,668,720 $ 8,638,136
============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated
(Unaudited) Financial Statements.
2
<PAGE>
NUCLEUS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
----------- ----------
<S> <C> <C>
Revenue ............................................. $ 3,823,618 $ 632,343
Cost of revenue...................................... 3,045,166 417,509
----------- ----------
Gross profit ..................................... 778,452 214,834
Operating expenses .................................. 2,055,395 427,478
Stock based compensation expense .................... 108,500 --
Depreciation and amortization expense ............... 316,906 14,291
----------- ----------
Operating loss ................................... (1,702,349) (226,935)
Interest and other expenses ......................... (494,916) (2,146)
----------- ----------
Loss before income taxes ............................ (2,197,265) (229,081)
Income tax benefit .................................. -- --
----------- ----------
Net loss ............................................ $(2,197,265) $ (229,081)
=========== ==========
Basic and diluted loss per common share ............. $ (0.22) $ (0.04)
=========== ==========
Weighted average shares outstanding--
basic and diluted ................................ 10,074,177 6,436,936
=========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated
(Unaudited) Financial Statements.
3
<PAGE>
NUCLEUS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net loss ....................................................................... $(2,197,265) $ (229,081)
Adjustments to reconcile net loss to net cash from operating
activities:
Depreciation and amortization ............................................... 316,906 14,291
Compensation expense related to issuance of equity securities ............... 108,500 --
Amortization of deferred financial costs and debt discount .................. 311,870 --
Loss on disposal of fixed assets ............................................ 10,000 --
Changes in operating assets and liabilities ................................. (894,988) 207,619
----------- -----------
Total adjustments ........................................................ (147,712) (221,910)
----------- -----------
Net cash from operating activities .......................................... (2,344,977) (7,171)
----------- ------------
Cash flows used for investing activities:
Capital expenditures ........................................................ (91,198) (3,738)
----------- ------------
Cash flows from financing activities:
Proceeds from senior notes payable .......................................... 6,104,000 --
Borrowings (repayments) on notes payable .................................... (656,870) (828)
Decrease in lines of credit ................................................. (34,841) --
Proceeds from the sale of common stock ...................................... 548,048 --
Purchase of treasury stock .................................................. (651,838) --
Payments of deferred financing costs ........................................ (725,400) --
----------- ------------
Net cash from financing activities ....................................... 4,583,099 (828)
----------- ------------
Increase (decrease) in cash .................................................... 2,146,924 (11,737)
Cash, beginning period ......................................................... 270,291 25,217
----------- ------------
Cash, end of period ............................................................ $ 2,417,215 $ 13,480
=========== ============
Non-cash investing and financing activities:
Common stock issued with debt facility ...................................... $ 6,104,000 $ --
Fair value of stock warrants issued with debt facility ...................... 350,280 --
=========== ============
</TABLE>
See accompanying Notes to Condensed Consolidated
(Unaudited) Financial Statements.
4
<PAGE>
NUCLEUS, INC.
NOTES TO CONDENSED CONSOLIDATED (UNAUDITED) FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1. GENERAL
We are a provider of Internet system and network management solutions
and technology professional services for enterprises looking to operate in an
Internet-based environment. Through the ongoing development of our eNucleus
Platform Solution, we deliver the building blocks for businesses to
conduct electronic commerce over the Internet. Our eNucleus Platform Solution
provides an integrated environment which delivers high speed Internet transport,
licensed e-business enabling software and hosting.
We began business operations in 1987 in Colorado Springs, Colorado, as
a provider of computer systems and componentry. We adopted the name Nucleus,
Inc. ("Nucleus") in December 1998 and reorganized in April 1999 when Nucleus
merged with Nucleus Holding Corporation ("Holdings"), a privately-held Illinois
corporation based in Chicago, Illinois. At that time, we installed a new
management team and formulated new goals and operating strategies. We
now maintain our headquarters in Chicago, Illinois.
The merger between Nucleus and Holdings was accounted for as a
pooling-of-interests for financial reporting purposes. Accordingly, our
consolidated financial statements have been restated for all periods prior to
the merger to include the results of operations, financial position and cash
flows of both Nucleus and Holdings. The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However, we
believe that the disclosures made are adequate to make the information presented
not misleading. In the opinion of management, all adjustments (consisting only
of normal recurring accruals) considered necessary for a fair presentation have
been included.
Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2000. For additional information with respect to Nucleus,
refer to the consolidated financial statements and footnotes for the year ended
December 31, 1999 that are included in our annual report on Form 10-KSB.
NOTE 2. FINANCIAL RESULTS AND LIQUIDITY
We have only recently begun to execute on our business plan and face
all the risks common to companies in their early stages of development,
including undercapitalization and uncertainty of funding sources, high initial
expenditure levels and uncertain revenue streams, an unproven business model,
difficulties in managing growth and difficulties in managing operations offering
services in different geographic locations. We have incurred net losses of $2.2
million for the three months ended March 31, 2000 and $6.4 million for the year
ended December 31, 1999. Our recurring losses raise substantial doubt about our
ability to continue as a going concern. Our financial statements do not reflect
any adjustments that might result from the outcome of this uncertainty. In March
2000, we received net proceeds of approximately $5.5 million from the issuance
of senior bridge notes payable on July 6, 2000, subject to a 120-day extension
at our option upon payment of an extension fee. We also issued in the first
quarter 2000 a total of 365,365 shares of our common stock for $548,000 in cash.
See Note 4. Financing Arrangements. We will continue to pursue long-term
financial support including seeking financial and strategic investors, lenders
and/or technology partners to execute our business plan. Under any of these
scenarios, management believes that our common stock would likely be subject to
substantial dilution. We believe that despite the financial hurdles and funding
uncertainties going forward, we have under development a business plan that, if
successfully funded and executed, can enhance operating results.
5
<PAGE>
NOTE 3. SEGMENT INFORMATION
We operate our business and manage financial information as one
business segment. We report revenue under the enterprise-wide disclosure
requirements as managed services, professional services or sales of client
premise equipment. We have no separately reportable segments under SFAS No. 131
and therefore do not report operations, identify assets and/or other resource
related to business segments. The following table shows the revenue components
for the three months ended March 31, 2000 and 1999, respectively.
THREE MONTHS
ENDED MARCH 31,
--------------------------
2000 1999
---------- --------
Revenues:
Managed services.......................... $ 253,782 $514,516
Professional services..................... 218,601 69,304
Client premise equipment.................. 3,351,235 48,523
---------- --------
Total revenues......................... $3,823,618 $632,343
========== ========
NOTE 4. FINANCING ARRANGEMENTS
In the first quarter 2000, we issued 365,365 shares of our common stock
for $548,000 in cash. We paid a broker-dealer $9,000 in cash and warrants to
purchase 6,000 shares of our common stock at $1.50 per share related to certain
of these sales.
On March 21, 2000, we issued senior bridge notes in the aggregate
principal amount of $6,104,000. The notes are due on July 6, 2000 and pay
interest of 12% per annum on a monthly basis. We may elect to extend the
maturity date of the notes for another 120 days by providing an extension fee to
the note investors equal to 5% of the gross note proceeds payable in stock.
The note investors also received 1,692,172 shares of common stock. If we raise
additional equity capital prior to the maturity date of the notes, the note
investors may convert their notes into permanent equity at the price per share
for which such equity is sold or at the conversion or exercise price per share
if convertible securities or warrants are sold.
Roth Capital Partners (formerly Cruttenden Roth Incorporated) acted as
placement agent for the senior bridge notes and received a cash fee of $610,400,
$115,000 in expenses and a 5-year warrant to purchase approximately 170,000
shares of common stock at an exercise price of $3.625 per share. We have agreed
to engage Roth Capital Partners in connection with future private or public
capital raising activities, for which we have negotiated fees payable upon the
closing of any such financings.
All of the shares and warrants issued in connection with the senior
bridge financing have registration rights.
NOTE 5. RELATED-PARTY TRANSACTIONS
During 1999, John C. Paulsen, our president and chief executive
officer, made cash loans to Nucleus and cash payments to Nucleus vendors
totaling $711,000. Nucleus made cash repayments and other cash advances to Mr.
Paulsen of $782,000 during 1999. As of December 31, 1999, Nucleus carried a
payable to Mr. Paulsen of $121,000, which represented the balance of the cash
provided net of deferred compensation and interest recorded for Mr. Paulsen for
1999. During the first quarter 2000, Mr. Paulsen made cash loans to Nucleus
totaling $154,000. Nucleus made cash repayments to Mr. Paulsen of the payable
outstanding and repurchased from Mr. Paulsen 264,078 shares of Nucleus common
stock for $1.50 per share.
During 1999, Henry Paulsen, John Paulsen's father, made loans to
Nucleus of $216,000 and received repayments and other cash advances from Nucleus
of $311,000. As of December 31, 1999, Nucleus carried a receivable from Henry
Paulsen of $26,000, representing the balance of the cash provided net of
deferred compensation and interest recorded for Henry Paulsen for 1999. During
the first quarter of 2000, Nucleus repurchased from Henry Paulsen 170,480 shares
of Nucleus common stock for $1.50 per share. The amount paid for the stock
included the receivable due from Henry Paulsen carried over from 1999.
NOTE 6. ACQUISITION
On May 11, 2000, we completed the acquisition of WebNet.com, Inc.
WebNet is an Atlanta-based provider of dedicated Internet access and hosting
solutions to middle market companies. As acquisition consideration, we issued
661,000 shares of our common stock to WebNet's shareholders and have agreed to
issue an additional 300,000 shares if the WebNet operation meets certain revenue
targets. WebNet shareholders also received a put option to require Nucleus to
repurchase 60,000 shares at $5.00 per share on May 11, 2001. The WebNet
operation will serve as the foundation for the expansion of our
Atlanta branch.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
We deliver the building blocks for businesses to conduct electronic
commerce over the Internet. Our eNucleus Platform Solution (eNPS) provides an
integrated environment which delivers high speed Internet transport, licensed
e-business enabling software and web hosting.
We presently earn revenue from the following product and service
offerings: managed services, professional services, and client premise
equipment.
We recognize revenue for managed and professional services as services
are performed. Clients are billed over the course of an engagement at an hourly
rate or on a recurring fixed-price basis. Billable rates vary by the service
provided and geographical region and typically range from $75 to $275 per hour
for professional services and $100 to $50,000 per month for managed services.
Client premise equipment revenue is recognized upon shipment of
equipment. Client premise equipment comprised 88% and 8% of our revenue for the
three months ended March 31, 2000 and 1999, respectively. Innovative Technology
Solutions, Inc. (ITS), which we acquired in July 1999, historically operated as
a reseller of computer equipment. During February 2000, ITS sales personnel
began marketing our eNPS services. Going forward, client premise equipment will
be sold primarily to support our managed services.
Cost of revenue includes the costs of services and material directly
related to the revenue. These costs include direct labor and benefits,
subcontracted labor or other outside services, and other direct costs associated
with revenues, as well as an allocation of certain indirect costs such as the
cost to purchase computer and network equipment sold to clients.
Operating expenses consist primarily of salaries, commissions, and
benefits for our marketing, sales and support personnel, advertising costs,
consultants' fees, provision for doubtful accounts and other miscellaneous
expenses.
Depreciation and amortization expense consists primarily of the
amortization of intangible assets recorded in connection with our acquisitions
and depreciation of our fixed assets. We expect these expenses to increase in
the future due to our plans to invest significant capital to expand our network.
EXPANSION
We are pursuing an aggressive strategy to deliver our products and
services on a national scale. We initiated our growth strategy by acquiring four
companies in 1999 to decrease our time to market and increase our revenue and
geographic presence, expanding from one to five operating locations. These
initial acquisitions provided us with an operating framework and infrastructure.
Beginning in February 2000, these businesses began offering our eNPS services.
We intend to extend sales of our eNPS services into the client base we obtained
through our acquisitions. Additionally, we intend to foster the local and
regional relationships developed by management of our acquired businesses into
potential sales opportunities.
Our growth strategy in the future will be primarily based on expanding
our internal capabilities through capital expenditures relating to our network
build out, the additional hiring of personnel, by aggressively expanding sales
into our existing customer base and by penetrating new customers.
7
<PAGE>
RESULTS OF OPERATIONS FOR THE FIRST QUARTER 2000
Revenue. For the first quarter 2000, revenues increased $3.2 million to
$3.8 million from $632,000 in the first quarter 1999. As a percent of
revenue, 7% and 81% was derived from managed services, 5% and 11% was derived
from professional services and 88% and 8% was derived from client premise
equipment for first quarter 2000 and first quarter 1999, respectively.
Cost of revenue. For the first quarter 2000, cost of revenue increased
approximately $2.6 million to $3.0 million from $418,000 in the first quarter
1999. As a percentage of revenue, cost of revenue increased to 80% in the first
quarter 2000 from 66% in the first quarter 1999. The increases are due to
increased sales volume from client premise equipment and a decrease in sales of
managed and professional services, which have higher margins.
Operating expenses. For the first quarter 2000, operating expenses
increased $1.6 million to $2.1 million from $427,000 in the first quarter 1999.
Operating expenses as a percentage of revenue decreased to 54% in the first
quarter 2000 from 68% in the first quarter 1999. We acquired four companies in
1999. For the first quarter 2000, operating expenses associated with these
acquired companies approximated $510,000. Additionally, as part of our growth
strategy, we increased our employee base, back office support, and added
additional management to support the growth of the business. We expect that our
growth strategy will continue to require significant sales and marketing
activities, including an expansion of our sales force and further development of
brand name recognition. In addition, we will continue to build our personnel
base to support our growth strategy in the rapidly evolving industry of managed
services. As a result, we believe that our selling, general and administrative
expenses will continue to increase in the future.
Stock based compensation expense. For the first quarter 2000, stock
based compensation expense was $109,000. No stock based compensation was
recorded in the first quarter 1999. During 1999, we granted stock options and/or
warrants to attract certain management personnel and/or advisors at exercise
prices below market value. These options/warrants vest over periods ranging from
zero to three years. As a result, we incurred non-cash compensation charges and
expect to continue to record such charges in future periods until the
compensation associated with these charges have been fully amortized. We expect
stock based compensation expense to increase as we continue to offer equity
incentives to attract talented management and advisory personnel.
Depreciation and amortization expense. Depreciation and amortization
expense increased $303,000 to $317,000 in the first quarter 2000 as compared to
the first quarter 1999. The increase was primarily a result of $310,000 in
amortization expense incurred from goodwill recorded with the purchase of our
acquired companies.
Interest and other expenses. Interest and other expenses increased
$493,000 to $495,000 in the first quarter 2000 from the first quarter 1999. Of
this amount, $129,000 relates to penalties we incurred by not registering
certain securities purchased from us on June 2, 1999, while $332,000 relates to
amortization of the costs associated with the common stock and warrants we
issued in connection with our senior bridge financing.
Net loss. Our net loss increased $2.0 million to $2.2 million in the
first quarter 2000 compared to a loss of $229,000 in the first quarter 1999. As
discussed above, the increased loss is attributable to growth strategy costs in
excess of current period revenue, additional depreciation and amortization
expense associated with acquisitions and non-cash interest expense incurred in
connection with our senior bridge financing.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Our working capital increased by $4.5 million to $756,000 at March 31,
2000, from a deficit of $3.7 million at December 31, 1999. This increase is
attributable to the common stock sales and senior bridge financing discussed
herein and using the proceeds to reduce our current liabilities.
In January 2000, we issued 365,365 shares of common stock for $548,000
in cash. We paid a broker-dealer $9,000 in cash and warrants to purchase 6,000
shares of our common stock at $1.50 per share related to certain of these sales.
On March 21, 2000, we issued senior bridge notes in the aggregate
principal amount of $6,104,000. The notes are due on July 6, 2000 and pay
interest of 12% per annum on a monthly basis. We may elect to extend the
maturity date of the notes for another 120 days by providing an extension fee to
the note investors equal to 5% of the gross note proceeds payable in stock.
The note investors also received 1,692,172 shares of common stock. If we raise
additional equity capital prior to the maturity date of the notes, the note
investors may convert their notes into permanent equity at the price per share
for which such equity is sold or at the conversion or exercise price per share
if convertible securities or warrants are sold.
Roth Capital Partners received a cash fee of $610,400, $115,000 in
expenses and a 5-year warrant to purchase approximately 170,000 shares of common
stock at an exercise price of $3.625 per share in connection with the financing.
We have agreed to engage Roth Capital Partners in connection with future private
or public capital raising activities, for which we have negotiated fees payable
upon the closing of any such financings. All of the shares and warrants issued
in connection with the senior bridge financing have registration rights.
During 1999, John C. Paulsen, our president and chief executive
officer, made cash loans to Nucleus and cash payments to Nucleus vendors
totaling $711,000. Nucleus made cash repayments and other cash advances to Mr.
Paulsen of $782,000 during 1999. As of December 31, 1999, Nucleus carried a
payable to Mr. Paulsen of $121,000, which represented the balance of the cash
provided net of deferred compensation and interest recorded for Mr. Paulsen for
1999. During the first quarter 2000, Mr. Paulsen made cash loans to Nucleus
totaling $154,000. Nucleus made cash repayments to Mr. Paulsen of the payable
outstanding and repurchased from Mr. Paulsen 264,078 shares of Nucleus common
stock for $1.50 per share.
During 1999, Henry Paulsen, John Paulsen's father, made loans to
Nucleus of $216,000 and received repayments and other cash advances from Nucleus
of $311,000. As of December 31, 1999, Nucleus carried a receivable from Henry
Paulsen of $26,000, representing the balance of the cash provided net of
deferred compensation and interest recorded for Henry Paulsen for 1999. During
the first quarter of 2000, Nucleus repurchased from Henry Paulsen 170,480 shares
of Nucleus common stock for $1.50 per share. The amount paid for the stock
included the receivable due from Henry Paulsen carried over from 1999.
On May 11, 2000, we completed the acquisition of WebNet.com, Inc.
WebNet is an Atlanta-based provider of dedicated Internet access and hosting
solutions to middle market companies. As acquisition consideration, we issued
661,000 shares of our common stock to WebNet's shareholders and have agreed to
issue an additional 300,000 shares if the WebNet operation meets certain revenue
targets. WebNet shareholders also received a put option to require Nucleus to
repurchase 60,000 shares at $5.00 per share on May 11, 2001. The WebNet
operation will serve as the foundation for the expansion of our Atlanta branch.
As part of our Atlanta expansion, we also recently signed a data center lease.
Monthly lease payments are $30,000, with escalation clauses. The lease expires
in 2007.
During January and February 2000, we made net working capital advances
totaling $289,000 to certain creditors of SJI Corporation, which had entered
into merger discussions with us. On March 20, we notified SJI of our intent to
discontinue merger negotiations and demanded repayment of the advances. As of
March 31, 2000, $23,000 had been repaid.
On July 23, 1999, we entered into a $500,000 secured demand loan
agreement with Bank of America. The line of credit is secured by our assets and
the assets of Mr. Paulsen, bears interest monthly at the rate of prime plus one
hundred basis points, and principal is payable on demand. As of March 31, 2000,
the entire amount under the line of credit was outstanding.
Effective June 30, 1999, in connection with the acquisition of ITS, we
issued 1,000,000 shares of our common stock and a $1,000,000 subordinated note.
The note bears interest at the rate of prime plus one percent, and is secured by
375,000 shares of the common stock owned by Mr. Paulsen. The note, which was
originally due on October 8, 1999, was extended by ITS shareholders in
consideration for 100,000 additional shares of our common stock. The note is due
on June 30, 2000. We retired $600,000 of this note out of the senior bridge
financing.
9
<PAGE>
Although we have plans to invest significantly in property and
equipment, we have no material commitments for such items at this time. We
anticipate we will have significant cash requirements for several years as we
expand our network, increase our employee base to support our expanding
operations and invest in our sales and marketing organization.
The satisfaction of our cash requirements hereafter will depend in
large part on our ability to successfully raise capital from external sources to
pay for our planned capital expenditures and to fund operations. We do not
expect that sufficient cash will be generated from operations to fund our growth
for the foreseeable future. As a result, we expect to aggressively
pursue additional sources of funds, the form of which will vary depending upon
prevailing market and other conditions and may include short or long-term
borrowings or the issuance of equity securities. We cannot assure you that we
will be able to obtain such funding, or if such funding is available, that it
will be on favorable terms.
PART II
ITEM 1. LEGAL PROCEEDINGS
We are from time to time a party to various legal actions arising in
the normal course of business. We believe that there is no proceeding threatened
or pending against us which, if determined adversely, would have a material
adverse effect on the financial condition of results of operations of Nucleus.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 20, 2000, we issued 100,000 shares of common stock to
sophisticated investors in transactions not involving a public offering for an
aggregate amount of $150,000. The sale was exempt from registration under
Section 4(2) of the Securities Act. The recipients of securities represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof. In each
instance, offers and sales were made without any public solicitation. The
securities were placed with the services of a broker-dealer, which was paid a
cash fee of $9,000 and warrants to purchase $6,000 shares of our common stock at
$1.50 per share which expire on Janaury 20, 2002. All recipients had adequate
access to information about Nucleus.
In various transactions not involving public offerings, on January 20,
2000 and February 4, 2000, we issued a total of 265,365 shares of our common
stock to sophisticated investors for an aggregate amount of $398,048. The sale
was exempt from registration under Section 4(2) of the Securities Act. The
recipients of securities represented their intentions to acquire the securities
for investment only and not with a view to or for sale in connection with any
distribution thereof. In each instance, offers and sales were made without any
public solicitation. No underwriter or broker-dealer was involved in the
transactions and no commission was paid. All recipients had adequate access to
information about Nucleus.
On January 20, 2000, we issued a warrant to purchase 200,000 shares of
our common stock at $2.12 per share to a financial consultant. The warrant
expires on the earlier of August 23, 2000 or 30 days following the effectiveness
of a registration statement which registers shares of our common stock.
On March 21, 2000, we received $6,104,000 through the sale of senior
bridge notes. Pursuant to the terms of this financing, we issued 1,692,172
shares of common stock. The sale was exempt from registration under Section 4(2)
of the Securities Act. The recipients of securities represented their intentions
to acquire the securities for investment only and not with a view to or for sale
in connection with any distribution thereof. In each instance, offers and sales
were made without any public solicitation. The securities were placed with the
services of a broker-dealer, which was paid a cash fee equal to 10% of the
offering amount, out-of-pocket expenses, and warrants equal to 10% of the number
of shares issued to the note investors. All recipients had adequate access to
information about Nucleus. All of these shares and warrants have registration
rights.
10
<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
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule
(B) Reports on Form 8-K
Not Applicable.
11
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
NUCLEUS, INC.
/s/ JOHN C. PAULSEN
--------------------------------------------
John C. Paulsen, President and
Chief Executive Officer
/s/ J. THEODORE HARTLEY
---------------------------------------------
J. Theodore Hartley, Executive Vice President
and Chief Financial Officer
Date: May 12, 2000
12
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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TO SUCH FINANCIAL STATEMENTS.
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