-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SZJeDI6OfEWxs1/beNUlFUtJdJ9qm5uyb0t1HCKWEyRWdGEbvlhEq4aghkZYvTuK J8TYbHr75H6/4ClT6Ad51A== 0000913849-99-000198.txt : 19991117 0000913849-99-000198.hdr.sgml : 19991117 ACCESSION NUMBER: 0000913849-99-000198 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUCLEUS INC CENTRAL INDEX KEY: 0000761034 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER RENTAL & LEASING [7377] IRS NUMBER: 112714721 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-14039 FILM NUMBER: 99756589 BUSINESS ADDRESS: STREET 1: 150 N MICHIGAN AVENUE STREET 2: SUITE 3610 CITY: CHICAGO STATE: IL ZIP: 60601 BUSINESS PHONE: 3126839000 MAIL ADDRESS: STREET 1: 150 N MICHIGAN AVENUE STREET 2: SUITE 3610 CITY: CHICAGO STATE: IL ZIP: 60601 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN GENERAL VENTURES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: APPLIED GENETIC VENTURES INC DATE OF NAME CHANGE: 19920604 10QSB 1 FORM 10QSB 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 September 30, 1999 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.) OF INCORPORATION OR ORGANIZATION) 150 NORTH MICHIGAN AVENUE, SUITE 3610 CHICAGO, IL 60601 (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 November 15, 1999 was 9,233,604 shares of its $.001 par value common stock. Transitional Small Business Disclosure Format (check one) Yes |_| No |X| 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 ITEM 1. FINANCIAL STATEMENTS Balance Sheets as of September 30, 1999 and December 31, 1998 Statements of Operations for the nine months ended September 30, 1999 and 1998 and for the three months ended September 30,1999 and 1998 Statements of Cash Flows for the nine months ended September 30, 1999 and 1998 Notes to Financial Statements NUCLEUS, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ----------- ASSETS - -------------------------------------------------------------------- Current assets: Cash............................................................. $ 67,370 $ 25,217 Accounts receivable.............................................. 849,701 171,312 Due from related party........................................... -- 115,383 Unbilled revenue................................................. 108,324 167,977 Inventory........................................................ 113,495 34,690 Other current assets............................................. 239,094 58,829 ----------- ----------- Total current assets........................................ 1,377,984 573,408 Property, plant and equipment, net.................................. 213,628 67,315 Other assets........................................................ 500,000 -- Intangibles, net.................................................... 6,905,080 20,195 ----------- ----------- Total assets................................................ $ 8,996,692 $ 660,918 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT - -------------------------------------------------------------------- Current liabilities: Bank line of credit.............................................. $ 258,037 $ -- Notes payable current............................................ 6,137 3,310 Accounts payable................................................. 1,692,333 765,369 Accrued expenses................................................. 630,883 323,056 Due to former owners............................................. 1,105,282 -- Due to related party............................................. 330,038 175,000 ----------- ----------- Total current liabilities................................... 4,022,710 1,266,735 Notes payable....................................................... -- 9,142 Stockholders' (deficit) equity: Common stock and paid in capital................................. 10,260,082 2,783,657 Retained (deficit) earnings...................................... (5,286,100) (3,398,616) ----------- ----------- Total stockholders' (deficit) equity........................ 4,973,982 (614,959) ----------- ----------- Total liabilities and stockholders' equity.................. $ 8,996,692 $ 660,918 =========== ===========
NUCLEUS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS ENDED ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1999 1998 ------------- ------------- ------------- ------------- Revenue............................ $ 4,657,317 $1,115,723 $ 5,954,945 $2,693,625 Cost of sales...................... 3,861,318 806,426 4,848,785 1,892,977 Selling, general and administrative expenses........................ 1,489,177 178,387 2,680,082 652,846 Stock-based and other compensation. 104,000 48,700 104,000 120,803 Amortization and appreciation expense........................ 157,871 5,799 171,374 16,464 ----------- ---------- ----------- ---------- Income (loss) from operations... (955,049) 76,411 (1,849,296) 10,535 Other income (expense)............. (46,829) (3,157) (38,149) 7,143 ----------- ---------- ----------- ---------- Net income (loss).................. $(1,001,878) $ 73,254 $(1,887,445) $ 17,678 =========== ========== =========== ========== Diluted earnings (loss) per share $ (0.11) $ 0.01 $ (0.25) $ (0.00) =========== ========== =========== ========== Diluted weighted average shares outstanding.................. 9,052,753 6,413,165 7,491,181 6,413,165 =========== ========== =========== ==========
NUCLEUS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 ------------- ------------- Net income (loss).................................................. $(1,887,445) $ 17,678 Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization................................... 171,374 16,464 Compensation expense related to issuance of equity securities... 104,000 120,803 Stock issued for services....................................... -- 61,955 Loss on disposal of fixed assets................................ 17,536 -- Changes in operating assets and liabilities net of acquisitions.......................................... 870,469 135,762 ----------- --------- Total adjustments.......................................... 1,163,379 334,984 ----------- --------- Net cash provided (used) by operating activities................ (724,066) 352,662 ----------- --------- Cash flows used for investing activities Deposits on acquisition......................................... (500,000) -- Capital expenditures............................................ (50,188) (9,127) ----------- --------- Net cash used for investing activities....................... (550,188) (9,127) ----------- --------- Cash flows from financing activities: Borrowings (repayments) on notes payable........................ (56,254) 89,952 Proceeds from the sale of common stock.......................... 1,595,000 704 Payments to former owners....................................... (222,339) -- Increase (decrease) in officer loans............................ -- (364,571) ----------- --------- Net cash provided by (used in) financing activities.......... 1,316,407 (273,915) ----------- --------- Increase in cash................................................... 42,153 69,620 Cash and cash equivalents, beginning period........................ 25,217 2,819 ----------- --------- Cash and cash equivalents, end of period........................... $ 67,370 $ 72,439 =========== =========
NUCLEUS, INC. NOTES TO CONDENSED CONSOLIDATED (UNAUDITED) FINANCIAL STATEMENTS SEPTEMBER 30, 1999 NOTE 1. GENERAL We are a professional services organization delivering Internet-based information technology solutions to middle market companies. Our goal is to provide our clients with Internet-based technology to improve and simplify core business processes, enhance revenue capabilities, lower the cost of technology and shorten product and service cycle times. We began business operations in 1987 in Colorado Springs, Colorado, as a provider of computer systems and componentry. We adopted the name Nucleus, Inc. 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 our current goals and operating strategies. We now maintain our headquarters in Chicago. An integral component of our business strategy is to make targeted acquisitions of IT and e-commerce service companies in the United States. We intend to use these strategic acquisitions as a platform for creating an enterprise that can deliver a branded Internet-based IT solution to middle market companies nationwide. 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. 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 nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1999. The condensed consolidated balance sheet at December 31, 1998 has been derived from the audited consolidated financial statements at that date for both Nucleus and Holdings, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For additional information with respect to Nucleus, refer to the consolidated financial statements and footnotes for the year ended December 31, 1998 that are included in our annual report on Form 10-KSB and our proxy dated March 19, 1999. NOTE 2. BUSINESS ACQUISITIONS Effective June 30, 1999, we acquired one-hundred percent of the capital stock of Innovative Technology Solutions, Inc. ("ITS"). ITS is a provider of multifaceted technology solutions to middle market companies throughout the Pacific Northwest. To consummate the transaction, 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, with interest and principal payable on demand and is secured by 400,000 shares of the common stock owned by our president John C. Paulsen. The ITS acquisition has been accounted for as a purchase business combination, and, accordingly has been included in our unaudited condensed statement of operations for the nine month period ended September 30, 1999 from the date of acquisition. The following table presents the purchase consideration (a) in cash and (b) in shares of our common stock to ITS' shareholders, the estimated fair value of the net assets acquired, and resulting goodwill. The purchase price has been allocated to the company's assets and liabilities based on their respective carrying values, as these carrying values are deemed to represent fair market value of these assets and liabilities. The allocation of purchase price is preliminary, but we do not expect that the final allocation of purchase price will differ significantly. Goodwill recorded in connection with this acquisition will be amortized over fifteen years. SHARES OF COMMON VALUE OF TOTAL NET ASSETS CASH STOCK SHARES CONSIDERATION ACQUIRED GOODWILL - ---------- --------- ---------- ------------- ---------- ---------- $1,000,000 1,000,000 $3,875,000 $4,875,000 $56,845 $4,818,155 The following unaudited pro forma data presents the combined results of operations of Nucleus, the ITS acquisition described above, and the three additional acquisitions we have completed to date (Comp-Pro Computer, Inc., Telos Distributing, Inc. and Young Data Systems) as if they occurred at the beginning of the periods presented. Such unaudited pro forma data do not reflect the effects of any anticipated changes to be made by Nucleus in its operations from the historical operations, are presented for informational purposes only and should not be construed to be indicating (i) the results of operations or the financial position of Nucleus that actually would have occurred had the acquisition been consummated as of the dates indicated or (ii) the results of operation or the financial position of Nucleus in the future. THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1999 ------------------ ------------------ Sales...................... $ 4,657,317 $16,881,302 Net loss................... (1,581,879) (2,056,931) Diluted loss per share..... $ (0.17) $ (0.24) NOTE 3. SEGMENT INFORMATION During 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes new standards for reporting information about operating segments in interim and annual financial statements. We adopted this pronouncement in 1998. We operate our Internet-based consulting business primarily in two segments: Internet and Telecommunications through the resale of long distance and Internet access (CTI) and IT consulting through strategic technology consulting, professional services, and information technology procurement and infrastructure (IT). Summarized financial information is shown in the following table:
NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------------------------------- -------------------------------------- CTI IT TOTAL CTI IT TOTAL ---------- ------------- ------------- ---------- ----------- ---------- Revenues..................... $1,315,908 $ 4,639,037 $ 5,954,945 $2,049,152 $ 644,473 $2,693,625 Operating income (loss)...... 81,913 (1,931,209) (1,849,296) 246,739 (236,204) 10,535 Identifiable assets.......... 248,388 1,743,224 1,991,612 460,923 379,113 840,036 Depreciation expense......... 4,216 167,158 171,374 4,684 11,780 16,464 Capital expenditures......... -- 50,188 50,188 -- 9,127 9,127
NOTE 4. COMMON AND PREFERRED STOCK Authorized, issued and outstanding shares and par value of our common and preferred stock are as follows:
Shares Outstanding ---------------------------- December 31, September 30, Authorized Shares Par Value 1998 1999 ----------------- --------------- ------------ ------------- Preferred stock.......... 8,000,000 no stated value -- -- Common stock............. 900,000,000 $0.001 1,129,827 9,082,771
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION We are a professional services organization delivering Internet-based IT solutions to middle market companies. Our goal is to provide our clients with Internet-based technology to improve and simplify core business processes, enhance revenue capabilities, lower the cost of technology and shorten product and service cycle times. We are pursuing an aggressive acquisition strategy to acquire companies whose higher margin service offerings can complement our existing products and services and enable us to offer a comprehensive range of Internet-based technology solutions to our clients. We presently earn revenues from the following IT services: strategic technology consulting, professional services, Internet and telecommunications, and information technology procurement and infrastructure. We recognize revenue from strategic technology consulting and professional services as services are performed. Clients are billed over the course of an engagement on either a time and materials basis or a fixed-price basis. Billable rates vary by the service provided and geographical region and typically range from $75 to $250 per hour. The pricing, management and execution of individual engagements are the responsibility of the consulting office that performs or coordinates the services. Revenues from procurement and assembly of computer and network systems are recognized upon shipment or acceptance of equipment. To date, we have had only limited experience with fixed-price engagements. The failure to estimate accurately the resources and time required for an engagement, to manage effectively client expectations regarding the scope of services to be delivered for the estimated fees or to complete fixed-price engagements within budget, on time and to client's satisfaction would expose us to risks associated with cost overruns and, in certain cases, penalties, any of which could have a material adverse effect on our revenues or operating income. There are no significant post-sales support obligations related to our revenues. Cost of revenues includes the costs of services and material directly related to the revenues including 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, the cost to purchase computer and network equipment sold to clients. Selling, general and administrative costs include salaries, benefits, commissions payable to our sales personnel, marketing, advertising, and administrative costs. Amortization expenses relate to intangible assets recorded in connection with our acquisitions. ACQUISITIONS An integral component of our business strategy is to make targeted acquisitions of IT and e-commerce service companies in the United States. In April 1999, we began to acquire IT and e-commerce service companies in select geographic regions. The primary services offered by these businesses include traditional information technology solutions. These initial acquisitions will provide us with an installed client base, a highly motivated sales force and an operating framework and infrastructure. Our acquisition program to date has resulted in the acquisition of four companies. Each of the four acquisitions we have completed to date have been accounted for as purchase business combinations. For each acquisition, a portion of the purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values on the acquisition date. The portion of the purchase price in excess of tangible and identifiable intangible assets and liabilities assumed for the these acquisitions total approximately $6.9 million and is recorded as goodwill on our unaudited consolidated balance sheet as of September 30, 1999. Goodwill will be amortized over a period from one to fifteen years for book purposes. We anticipate that we will realize savings, with respect to these acquisitions, from greater volume discounts from suppliers, and consolidation of finance, administration and marketing functions. The integration process for these acquisitions may also present opportunities to reduce costs through the elimination of duplicative functions and through economies of scale, but may necessitate additional costs and expenditures for corporate management and administration, systems integration and facilities expansion. These various costs and possible cost savings may make historical operating results not comparable to, or indicative of, future performance. There can be no assurance that we will achieve any cost savings. RESULTS OF OPERATIONS Revenues. For the September quarter, revenues increased by $3.5 million, or 317%, from $1.1 million, in 1998 to $4.7 million in 1999. On a year to date basis, revenues increased approximately $3.3 million, or 121%, from $2.7 million in 1998 to $6.0 million in 1999. The increase in revenue was primarily a result of a inclusion of sales from the four acquired companies since acquisition which accounted for approximately $4.6 million of 1999 sales to date, primarily in IT consulting services. As a percentage of revenue, 26% and 78% was derived from our IT consulting services for the year to date period in 1998 and 1999, respectively and 74% and 22% was derived from our Internet and telecommunications service for the year to date period in 1998 and 1999, respectively. Cost of revenues. For the September quarter, cost of revenues increased by $3.1 million, or 379%, from $806,000 in 1998 to $ 3.9 million in 1999, or 72% compared to 83% of revenue, respectively. On a year to date basis, cost of revenues increased approximately $3.0 million, or 256%, from $1.9 million in 1998 to $4.9 million during 1999, or 70% compared to 81% of revenue, respectively. The increase in cost of revenue is primarily a result of a reduction in volume generated by our Internet and telecommunication services, from which we have historically recognized higher margins as compared to our IT consulting services. Selling, general and administrative expenses. For the September quarter, selling, general and administrative expenses increased $1.3 million, or 793%, from $178,000 in 1998 to $1.5 million in 1999. For the year to date period, selling, general, and administrative expenses increased $2.0 million, or 411%, from $652,000 in 1998 to $2.7 million in 1999, or 45% compared to 37% of revenue, respectively. The increase is related to professional fees and travel incurred in connection with our acquisition strategy and compensation expense and related benefits, resulting from hiring additional personnel at our corporate headquarters. Stock-based and other compensation. For the September quarter, stock-based and other compensation expenses increased $25,000 or 212%, from $49,000 in 1998 to $104,000 in 1999. For the year to date period, stock-based and other compensation expenses decreased $17,000, or 14%, from $121,000 in 1998 to $104,000 in 1999, or 5% compared to 2% of revenue, respectively. Loss from operations. For the September quarter, loss from operations increased $1.1 million from income of $76,000 in 1998 to a loss of $1.0 million in 1999. For the year to date period, loss from operations increased $1.9 million, from income of $10,000 in 1998 to a loss of $1.8 million in 1999. As a percentage of revenues, our operating income/loss decreased from income of 1% in 1998 to a loss of 31% in 1999. The increase in loss from operations was a result of increased selling, general, and administrative expenses and stock-based and other compensation expenses incurred during 1999. LIQUIDITY AND CAPITAL RESOURCES Our working deficit increased by $2.0 million from $693,000 at December 31, 1998, compared to $2.6 million at September 30, 1999. This increase is attributable to professional fees and other expenses we have incurred in connection with the acquisition we have consummated during 1999, increased costs incurred with the hiring of additional personnel and the note payable outstanding related to the acquisition of ITS which is due upon demand. At various times from July 1, 1999 through November 15, 1999 we sold 110,500 shares of our common stock for an aggregate amount of $218,000. The satisfaction of our cash requirements during 1999 and thereafter will depend in large part on our ability to successfully generate revenues from operations and raise capital to fund operations. There can, however, be no assurance that sufficient cash will be generated from operations or that unanticipated events requiring the expenditure of funds within our existing operations will not occur. In addition, we intend to continue to aggressively pursue our strategy of acquiring IT and e-commerce service companies throughout the United States. Although we will strive to structure the use of our common stock as currency to pay for potential acquisition targets, a portion or all of the purchase price may be in the form of cash. Additionally, because we intend to grow through acquisition, we may encounter competition in the marketplace for these acquisitions. This may result in an increase in the purchase price for potential acquisitions and require us to curtail or modify our acquisition program. 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 high yield financing vehicles, 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. On June 26, 1999, we signed a definitive purchase agreement to acquire one-hundred percent of the capital stock of Computing Concepts, Inc. ("CCI"), a New Jersey based full service value added IT firm. CCI offers a wide range of services including customized help-desk, staff augmentations in most technical areas, training and network design and implementation. Pursuant to the terms of the agreement, and in order to prevent CCI from seeking other potential acquirers, we paid a $500,000 non-refundable earnest money deposit to CCI's shareholders upon the signing of the agreement and were required to provide additional non-refundable deposits if the transaction had not been closed by August 31, 1999. On August 31, 1999, we elected not to provide the additional deposit monies. The closing of this transaction is contingent upon our ability to secure financing for this transaction. The earnest money deposit will be applied toward the purchase price of CCI in the event the transaction closes, however these monies will be non-refundable if the transaction is not completed. We are continuing negotiations to acquire CCI and are in discussions with a number of financial institutions to secure the acquisition financing. We can make no assurance that this transaction will be completed. On July 23, 1999, we entered into a $500,000 secured demand loan agreement (the "Line of Credit") with Bank of America. The Line of Credit is secured by our assets and the assets of our president John C. Paulsen, bears and pays interest monthly at the rate of prime plus one hundred basis points, and principal is payable on demand. As of November 15, 1999, the entire amount under the Line of Credit was outstanding, which included $100,000 reserved for a supplier under a letter of credit. As of November 15, 1999, there were no draws against the letter of credit. We currently have no commitments for capital expenditures and no other lines of credit upon which to borrow. YEAR 2000 COMPLIANCE We have created a task force comprised of IT, finance, and administrative personnel to evaluate our internal and external systems as they relate to Year 2000 issues. Computer and related systems that can be potentially affected by the Year 2000 issue include our operating systems, financial reporting systems, and data and communications. Additionally, we are assessing the systems of the companies we have acquired, or plan to acquire, for Year 2000 issues. We have not yet fully completed review of these systems; however, based on a preliminary review, we do not believe that significant Year 2000 issues exist at these companies. We will continue to assess internal non-information technology systems and external systems, including systems used by manufacturers and suppliers of computer equipment, software programs, telephone systems, and data systems, systems comprising our enterprise networks and equipment used to provide services to our clients. To date, we have not identified any Year 2000 issues with third parties which could have a material adverse effect on our business. We may identify a significant internal or external Year 2000 issue in the future which, if not remediated in a timely manner, could have a material adverse effect on our business, financial condition and results of operations. Costs We have not incurred any significant costs in reviewing Year 2000 compliance other than the opportunity cost of time spent by our personnel and we do not anticipate any significant further cost in identifying Year 2000 issues. Contingency Plans We have prepared contingency plans, including manual order entry procedures and identification of potential software modifications, in the event that there are delays in upgrading the non-ready systems. Costs associated with our contingency plans, which we do not believe would be material, could include the hiring of additional personnel to process orders and implement software modifications. The exact amount of the costs associated with our contingency plans cannot be determined at this time as a result of not knowing the number of additional personnel that we may need to hire. Risks of Year 2000 Issues Based on the activities outlined above, including the assessment of the systems of the companies we have acquired, or plan to acquire, we believe we are fully compliant with Year 2000 requirements. Based on our assessments to date, we believe that we will not experience any material disruption in internal systems or information processing as a result of Year 2000 issues. However, almost all of our systems and products relating to our internal and external systems and products are manufactured or supplied by third parties which are outside of our control. Although we have taken steps that we believe should have identified potential Year 2000 issues, if some or all of our internal or external systems and products fail, or if any critical systems are overlooked or are not Year 2000 ready in a timely manner, there could be a material adverse effect on our business, financial condition and results of operation and on the price of our common stock. In addition, if a critical provider of services, such as those supplying electricity, water or other services, or a vendor or manufacturer supplying products or services sold to our clients, experiences difficulties resulting in disruption of services to us or the sale of malfunctioning products to our clients, there could be a material adverse effect on our financial condition, results of operations and the price of our common stock. Potential risks include: o The disruption of utility services resulting in a closure of the affected facility for the duration of the disruption, o The disruption of services we provide to our clients, o The inability to process client billing accurately or in a timely manner, o The inability to provide accurate financial reporting to management, auditors, investors and others, o Litigation costs associated with potential suits from clients and investors, and o Delays in implementing other projects as a result of work by internal personnel on Year 2000 issues. 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 At various times between July 1, 1999 and November 15, 1999, we issued 110,500 shares of our common stock to sophisticated investors in various transactions not involving a public offering. 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 transaction and no commission was paid. All recipients had adequate access to information about Nucleus. 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 On August 16, 1999, Nucleus filed a Current Report on Form 8-K relating to its merger with Young Data Systems, Inc. On August 27, 1999, Nucleus filed an amendment to such 8-K on Form 8-K/A. On July 28, 1999, Nucleus filed a Current Report on Form 8-K relating to its merger with Innovative Technology Solutions, Inc. On September 13, 1999, Nucleus filed an amendment to such 8-K on Form 8-K/A. On June 7, 1999, Nucleus filed a Current Report on Form 8-K relating to its merger with Telos Distributing, Inc. On August 16, 1999, Nucleus filed an amendment to such 8-K on Form 8-K/A. On May 12, 1999, Nucleus filed a Current Report on Form 8-K related to its acquisition of Comp Pro Computers, Inc. On July 13, 1999, Nucleus filed an amendment to such 8-K on Form 8-K/A. 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. Date: November 15, 1999 /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 EX-27 2 FINANCIAL DATA SCHEDULE FOR NUCLEUS, INC.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1998 SEP-30-1999 67 0 850 0 113 1,378 214 43 8,997 4,022 0 0 0 10,260 (5,286) 8,997 5,955 5,955 4,848 0 0 0 38 (1,887) 0 (1,887) 0 0 0 (1,887) (0.25) (0.25)
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