-----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, QWTt6nMhV76TlfdfXzkt0yVkaBXtdlJ1sS+dQNL+0tS+YTFZzfU9b6s3/qrodUYD TtqztKVJ2lPVfKoc/rkWMg== 0000891618-97-004697.txt : 19971117 0000891618-97-004697.hdr.sgml : 19971117 ACCESSION NUMBER: 0000891618-97-004697 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUKO INFORMATION SYSTEMS INC /CA/ CENTRAL INDEX KEY: 0000108949 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 160962874 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27790 FILM NUMBER: 97721125 BUSINESS ADDRESS: STREET 1: 2391 QUME DR CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 3106524959 MAIL ADDRESS: STREET 1: 2235 QUME DR CITY: SAN JOSE STATE: CA ZIP: 95131 FORMER COMPANY: FORMER CONFORMED NAME: GROWERS EXPRESS INC DATE OF NAME CHANGE: 19940224 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1997 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q (Mark One) (X) Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Quarterly Period Ended September 30, 1997. or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Transition Period to Commission File Number 2-31438 NUKO Information Systems, Inc. --------------------------------------------------------------- Delaware 16-0962874 ------------------------------- ----------------------------------- (State of Other Jurisdiction or (I.R.S. Employer Identification No.) Incorporation or Organization) 2391 Qume Drive, San Jose, California 95131 ----------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (408) 526-0288 ----------------------------------------------------------------------- (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES (X) NO ( ) Indicate the number of shares outstanding of each of the issuer's classes of Common Stock as of the latest feasible date: CLASSES Outstanding as of October 31, 1997 ------------------------------- ----------------------------------- Common Stock ($0.001 par value) 14,960,137 2 NUKO Information Systems, Inc. Index to Quarterly Report on Form 10-Q For the Period Ended September 30, 1997
PART I FINANCIAL INFORMATION PAGE NO. - ------ ----------------------------------------------------------------- -------- Item 1 Financial Statements Condensed Consolidated Balance Sheets September 30, 1997 and December 31, 1996. 3 Condensed Consolidated Statement of Operations Three Months Ended September 30, 1997 and 1996. 5 Condensed Consolidated Statement of Operations Nine Months Ended September 30, 1997 and 1996 6 Condensed Consolidated Statement of Cash Flows Nine Months Ended September 30, 1997 and 1996. 7 Notes to Condensed Consolidated Financial Statements 8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II OTHER INFORMATION - ------- ---------------------------------------------------------------- Item 1 Legal proceedings 14 Item 2 Changes in Securities and Use of Proceeds 15 Item 5 Other Information 17 Item 6 Exhibits and Reports on Form 8-K 24
2 3 PART I FINANCIAL INFORMATION Item 1. Financial Statements NUKO Information Systems, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1997 1996 (unaudited) ---------- ----------- ASSETS: Current Assets: Cash and cash equivalents $ 722,647 $ 2,270,423 Restricted cash -- 200,000 Accounts receivable, trade 191,483 6,864,479 Inventories, net 2,225,894 4,828,632 Other current assets 436,616 564,729 ---------- ----------- Total Current Assets 3,576,640 14,728,263 Property and Equipment, net 3,262,856 3,445,868 Equity Investment 1,000,000 -- Other Assets 266,735 6,127 ---------- ----------- TOTAL ASSETS $8,106,231 $18,180,258 ========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 4 NUKO Information Systems, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (Cont'd.)
September 30, December 31, 1997 1996 (unaudited) ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable $ 5,879,226 $ 7,216,513 Accrued liabilities 1,429,754 1,052,553 Notes payable 50,000 -- Line of credit -- 2,160,255 Current portion -- capital lease obligation 151,263 225,105 ------------ ------------ Total current liabilities 7,510,243 10,654,426 Capital lease obligation, less current portion 113,860 39,128 ------------ ------------ Total liabilities 7,624,103 10,693,554 ------------ ------------ REDEEMABLE PREFERRED STOCK 4,866,596 -- Issued and outstanding: 4,251 shares at September 30, 1997 and 5,000 shares at December 31, 1996. STOCKHOLDERS' EQUITY (DEFICIT): Preferred stock, $.001 par value; 5,000,000 shares authorized; issued and outstanding: 0 shares at September 30, 1997 and 5,000 at December 31, 1996 -- 5 Common stock, $0.001 par value, 40,000,000 shares authorized; shares issued and outstanding: 14,960,137 shares at September 30, 1997 and 10,491,101 shares shares at December 31, 1996 14,960 10,491 Additional paid-in capital 35,791,466 27,293,448 Deferred compensation expense (522,852) (710,596) Accumulated deficit (39,668,042) (19,106,644) ------------ ------------ Total stockholders' equity (deficit) (4,384,468) 7,486,704 ------------ ------------ TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) $ 8,106,231 $ 18,180,258 ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 5 NUKO Information Systems, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended September 30, September 30, 1997 1996 ------------ ------------ Net sales $ 186,115 $ 4,298,744 ------------ ------------ Cost and Expenses: Cost of sales 5,345,580 2,919,178 Research and development 1,749,164 1,547,971 Selling, general and administrative expenses 2,686,935 2,640,519 ------------ ------------ 9,781,679 7,107,668 ------------ ------------ Loss from operations (9,595,564) (2,808,924) Other income (expense), net (57,782) 108,720 ------------ ------------ Net loss (9,653,346) (2,700,204) ------------ ------------ Accretion of dividends on preferred stock (165,328) -- ------------ ------------ Net loss available to common shareholders $ (9,818,674) $ (2,700,204) ============ ============ Net loss available to common shareholders per share $ (0.72) $ (0.26) ============ ============ Weighted average shares outstanding 13,628,338 10,424,015 ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 6 NUKO Information Systems, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Nine Months Ended September 30, September 30, 1997 1996 ------------ ------------ Net sales $ 4,337,795 $ 6,936,024 ------------ ------------ Cost and Expenses: Cost of sales 9,274,671 4,451,408 Research and development 5,449,806 5,260,161 Selling, general and administrative expenses 7,413,290 6,495,607 ------------ ------------ 22,137,767 16,207,176 ------------ ------------ Loss from operations (17,799,972) (9,271,152) Other income (expense), net (180,757) 317,545 ------------ ------------ Net loss (17,980,729) (8,953,607) ------------ ------------ Accretion of dividends on preferred stock (2,580,668) -- ------------ ------------ Net loss available to common shareholders $(20,561,397) $ (8,953,607) ============ ============ Net loss available to common shareholders per share $ (1.75) $ (0.95) ============ ============ Weighted average shares outstanding 11,738,756 9,455,315 ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 7 NUKO Information Systems, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended Sept 30, 1997 Sept 30, 1996 ------------- ------------- Cash flows from operating activities Net loss $(17,980,729) $ (8,953,607) Adjustments to reconcile net loss to net cash used in operating activities: Compensation expense 294,445 976,437 Allowance for excess and obsolete inventory 4,493,674 876,561 Allowance for doubtful accounts 1,121,405 -- Depreciation and amortization 1,234,326 374,471 Changes in operating assets and liabilities: Restricted cash 200,000 -- Accounts receivable 5,551,591 (4,736,438) Interest on stock subscriptions -- 30,567 Inventories (1,890,936) (2,513,726) Prepaid expenses 128,113 (416,368) Other assets (264,621) 241,035 Accounts payable (1,337,287) 2,641,807 Accrued liabilities 377,201 595,947 ------------ ------------ Net cash used in operating activities (8,072,818) (10,883,314) ------------ ------------ Cash flows from investing activities: Equity investment (587,463) -- Purchases of property and equipment (1,047,301) (2,322,082) ------------ ------------ Net cash used in investing activities (1,634,764) (2,322,082) Cash flows from financing activities Repayments of borrowings (2,160,255) -- Notes payable 50,000 Sale and leaseback under capital lease 371,467 89,475 Payments on capital lease obligations (370,578) (90,907) Proceeds from exercise of common stock options and warrants 2,102,502 705,709 Proceeds from share subscriptions -- 311,400 Proceeds from issuance of common stock 3,369,570 3,834,754 Proceeds from issuance of preferred stock 4,797,100 -- ------------ ------------ Net cash provided by financing activities 8,159,806 4,850,431 ------------ ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (1,547,776) (8,354,965) Cash and cash equivalents at beginning of period 2,270,423 11,255,820 ------------ ------------ Cash and cash equivalents at end of period $ 722,647 $ 2,900,855 ============ ============ Noncash investing activities: Acquisition of equity investment by issuance of common stock $ 412,537 -- ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. 7 8 NUKO Information Systems, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 1. BASIS OF PRESENTATION The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. 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 of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three months and nine months ended September 30, 1997 and 1996 are not necessarily indicative of the results that may be expected for a full fiscal year. The December 31, 1996 balance sheet data was derived from the audited financial statements, but does not include the disclosure required by generally accepted accounting principles. The Company has sustained recurring losses from operations. Management has developed a fiscal 1997 operating plan in which the Company has placed significant reliance on obtaining outside financing. Management is actively pursuing additional debt and equity financing from both institutional and corporate investors and funding opportunities from strategic corporate partners. Since there is no assurance that management will complete their plans, there is substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. For further information, refer to the financial statements and accompanying footnotes for the year ended December 31, 1996, included in the Company's Annual Report on Form 10-K for such period. 2. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market. The components of inventory consists of the following:
Sept 30, 1997 December 31, (unaudited) 1996 ---------- ---------- Raw material $ 352,146 $1,445,748 Work in progress 710,279 1,253,617 Finished Goods 1,163,469 2,129,267 ---------- ---------- Net Inventory $2,225,894 $4,828,632 ========== ==========
3. INCOME TAXES The Company's tax rate differs from the federal tax rate primarily because net operating losses have not been benefited. 8 9 NUKO Information Systems, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 4. REDEEMABLE PREFERRED STOCK Pursuant to the Company's Articles of Incorporation, as amended, the holder of Preferred Stock may only convert its outstanding Preferred Stock to a maximum aggregate common stock ownership percentage of 19.99% calculated as of date of issuance of the Preferred Stock. Any excess shares over 19.99% that are issuable upon conversion of outstanding Preferred Stock are subject to mandatory redemption unless, within sixty days, the Company either obtains stockholder approval of the additional conversions over 20%, or the Company obtains permission to allow such issuances from the NASDAQ Stock Market. As of September 30, 1997, based on the common stock price at that date, the balance of the outstanding Preferred Stock is subject to mandatory redemption. The holder of the Preferred Stock has agreed to waive the mandatory redemption, under certain conditions as described in an agreement, through January 1, 1998. A proxy filing has been made to obtain stockholder approval for conversions in excess of 20%. The Company has reclassified $4,866,596, which represents the portion that may be subject to mandatory redemption, from Preferred Stock to Redeemable Preferred Stock. 5. RECENT ACCOUNTING PRONOUNCEMENTS During February 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 128, "Earnings per Share" (SFAS No. 128) which establishes standards for computing and presenting earnings per share (EPS) more comparable to international standards. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. The Company is studying the impact of the adoption of SFAS No. 128, which is effective for the financial statements issued for periods ending after December 15, 1997, will have on its EPS calculation. On July 1, 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). This statement establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general purpose financial statements. This statement is effective for fiscal years beginning after December 15, 1997, with earlier application permitted. The FASB has issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" (SFAS 131), which supersedes SFAS 14 "Financial Reporting for Segments of a Business Enterprise". SFAS 131 changes current practice under SFAS 14 by establishing a new framework on which to base segment reporting and also requires interim reporting of segment information. SFAS 131 is effective for fiscal years beginning after December 31, 1997, with earlier application encouraged. The Statement's interim reporting disclosures would not be required in the first year of adoption, but would commence in the first 9 10 quarter immediately subsequent to the first year in which the company provides year end disclosure. 6. CONTINGENCIES On March 18, 1997, Manufacturers' Services Limited ("MSL") commenced litigation against the Company in the United States District Court for the Northern District of California. In its complaint, MSL alleges that the Company breached certain express and implied contractual obligations to MSL by failing to pay for products manufactured by MSL and for inventory MSL acquired on behalf of the Company. The relief sought by MSL includes damages estimated at approximately $3.2 million. The Company intends to vigorously defend against MSL's claims in this lawsuit. On April 29, 1997, Bruce Young and John Glass, former employees of the Company, filed lawsuits in Superior Court of California, County of Santa Clara, against the Company. The complaints, subsequently combined, were filed alleging breach of contract and violation of certain labor codes. The Company intends to vigorously defend the action. On May 23, 1997, Lillian Levine filed a lawsuit in the Unites States District Court for the Northern District of California against the Company and its former Chief Financial Officer. On June 24, 1997, Bruce and Carol Wolitarsky filed a lawsuit in the Unites States District Court for the Northern District of California against the Company, its President/Chief Executive Officer/Chairman of the Board and its former Chief Financial Officer. Both actions were filed as class actions on behalf of all persons who purchased the Company's Common Stock from April 24, 1997 through May 20, 1997 or their successors in interest. These suits have consolidated and the name plaintiffs have been selected as the lead plaintiffs. The plaintiffs have filed a consolidated amended complaint alleging that during the class period the defendants issued incorrect financial and business information about the Company, its finances, performance and reporting of its revenues and financial results for its first quarter of 1997. The plaintiffs allege that this caused the market price of the Company's Common Stock to be artificially inflated and caused them and other purchasers to pay too much for their Common Stock. The plaintiffs allege claims under the federal securities laws and seek damages for all members of the class. The Company intends to vigorously defend the action. 7. SUBSEQUENT EVENTS The Company announced on November 12, 1997 that ongoing efforts to obtain equity financing in order to meet the equity requirements for National Market System quotation of its common stock on NASDAQ had not been consummated and that if the Company were delisted from The National Market System, trading of the Company's stock would be conducted on the OTC Bulletin Board or the "pink sheets" maintained by The National Quotation Bureau. The Company presented its case for continued listing on the National Market System on November 13, 1997, and is awaiting NASDAQ's decision. 10 11 NUKO Information Systems, Inc. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This report contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated as a result of certain factors, including those set forth in Item 5 of this report and in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. NET SALES AND NET LOSS Net sales for the third quarter are $0.2 million compared to $4.3 million for the same period in 1996. The decline in sales results from a substantial change in the marketplace away from those originally anticipated by the Company, and the relatively long delay in re-focusing it on more promising markets. Sales for the nine month period ended September 30, 1997 are $4.3 million compared to $6.9 million for the same period in the prior year. Sales for the quarter included shipment of the Company's Highlander products. The net loss for the quarter is $9.8 million or $0.72 per share, compared to a net loss of $2.7 million or $0.26 per share for the same period in 1996. The net loss for the nine month period ended September 30, 1997 is $20.6 million or $1.75 per share compared to a loss of $9.0 million or $0.95 per share for the same period in 1996. Net losses reflect the Company's write-down of inventory, increased bad debt reserve, as well as its continued investment in research and development and operations. COST OF SALES Cost of sales for the third quarter of 1997 was $5.3 million compared to $2.9 million for the same period in 1996. Cost of sales for the nine month period ended September 30, 1997 was $9.3 million compared to $4.5 million for the same period in the prior year. Cost of sales for the third quarter reflects a $4.2 million write down of inventory, due to lower anticipated sales volumes over the near term and a reserve against possible obsolescence, plus unabsorbed manufacturing overhead. RESEARCH AND DEVELOPMENT EXPENSE Research and development expenses for the third quarter of 1997 were $1.7 million compared to $1.5 million for the same period in 1996. Research and development expenses for the nine months ended September 30, 1997 were $5.4 million, compared to $5.3 million for the same period in the prior year. The research and development expenses reflect the Company's commitment to invest in the development and enhancement of the Company's family of product lines. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for the third quarter of 1997 were $2.7 million compared to $2.6 million for the same period in 1996. Expenses for the nine month period ended September 30, 1997 were $7.4 million compared to $6.5 million for the same period in the prior year. The increase in expenses was primarily related to an increase in bad debt reserves and legal expenses, partially offset by on-going cost reduction efforts. 11 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation (Cont'd.) RECENT ACCOUNTING PRONOUNCEMENTS During February 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 128, "Earnings per Share" (SFAS No. 128) which establishes standards for computing and presenting earnings per share (EPS) more comparable to international standards. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. The Company is studying the impact of the adoption of SFAS No. 128, which is effective for the financial statements issued for periods ending after December 15, 1997, will have on its EPS calculation. On July 1, 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). This statement establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general purpose financial statements. This statement is effective for fiscal years beginning after December 15, 1997, with earlier application permitted. The FASB has issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" (SFAS 131), which supersedes SFAS 14 "Financial Reporting for Segments of a Business Enterprise". SFAS 131 changes current practice under SFAS 14 by establishing a new framework on which to base segment reporting and also requires interim reporting of segment information. SFAS 131 is effective for fiscal years beginning after December 31, 1997, with earlier application encouraged. The Statement's interim reporting disclosures would not be required in the first year of adoption, but would commence in the first quarter immediately subsequent to the first year in which the company provides year end disclosure. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations primarily through debt and equity financing. At September 30, 1997, the Company's ending balance of cash and cash equivalents was $0.7 million which reflects a decrease of $1.5 million from the December 31, 1996 balance. The Company had working capital of approximately $(3.9) million, representing a decrease of $8.0 million from the Company's working capital at December 31, 1996. During the quarter, the Company used cash to funds its operating requirements. In October 1996, the Company obtained a $6.0 million line of credit with Silicon Valley Bank. The line of credit was renewed on June 10, 1997 for a period of one year. At September 30, 1997, the Company was in breach of the net worth covenant, there were no amounts outstanding under the Silicon Valley Bank Line of Credit. The Company has long term debt consisting of lease agreements for the purpose of financing the acquisition of general furnishings, computers and manufacturing equipment. The unpaid long term balance of these obligations was approximately $0.1 million and $0.03 million at September 30, 1997 and December 31, 1996, respectively. 12 13 While the Company completed private placements in the third quarter of fiscal 1997 of $3.4 million, and had warrants exercised for $1.8 million, the Company believes that it needs to raise additional financing during the fourth quarter in order to meet its requirements for the quarter. In addition, the Company believes that it will need to raise financing beyond its fourth quarter of fiscal 1997 requirements in order to implement its 1998 Operating Plan. The Company intends to actively pursue additional debt or equity financing from institutional or corporate investors, funding opportunities from strategic partners and through additional private placements. There can be no assurance that the Company will be able to obtain such financing on acceptable terms or at all. Failure to obtain such additional capital could have a materially adverse effect on the Company. See "Item 5. Other Information - RISK FACTORS - Indispensable Need for Capital/ Report of Independent Accountants Regarding Ability to Continue as a Going Concern" and " - Additional Capital Requirements". 13 14 NUKO Information Systems, Inc. PART II OTHER INFORMATION Item 1. Litigation On March 18, 1997, Manufacturers' Services Limited ("MSL") commenced litigation against the Company in the United States District Court for the Northern District of California. In its complaint, MSL alleges that the Company breached certain express and implied contractual obligations to MSL by failing to pay for products manufactured by MSL and for inventory MSL acquired on behalf of the Company. The relief sought by MSL includes damages estimated at approximately $3.2 million. The Company intends to vigorously defend against MSL's claims in this lawsuit. On April 29, 1997, Bruce Young and John Glass, former employees of the Company, filed lawsuits in Superior Court of California, County of Santa Clara, against the Company. The complaints,subsequently consolidated, were filed alleging breach of contract and violation of certain labor codes. The Company intends to vigorously defend the action. In addition, the Company and certain of its present and former executive officers have been named as defendants to two lawsuits, since consolidated, styled as class actions: On May 23, 1997, Lillian Levine filed a lawsuit in the Unites States District Court for the Northern District of California against the Company and its former Chief Financial Officer. The action was filed as a class action on behalf of all persons who purchased the Company's Common Stock from April 24, 1997 through May 20, 1997 or their successors in interest. The plaintiff alleges that during this period, the defendants disseminated materially false and misleading press releases and public statements concerning the financial results for the fiscal quarter ended March 31, 1997. The plaintiff alleges claims under the federal securities laws and seeks damages for all members of the class. The Company intends to vigorously defend the action. On June 24, 1997, Bruce and Carol Wolitarsky filed a lawsuit in the Unites States District Court for the Northern District of California against the Company, its President/Chief Executive Officer/Chairman of the Board and its former Chief Financial Officer. The action was filed as a class action on behalf of all persons who purchased the Company's Common Stock from April 24, 1997 through May 20, 1997. The plaintiffs allege that during this period, the defendants issued incorrect financial and business information about the Company, its finances, performance and reporting of its revenues and financial results for its first quarter of 1997. The plaintiffs allege that this caused the market price of the Company's Common Stock to be artificially inflated and caused them and other purchasers to pay too much for their Common Stock. The plaintiff's allege claims under the federal securities laws and seek damages for all members of the class. The Company intends to vigorously defend the action. 14 15 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On August 15, 1997, the Company sold 49,980 shares of Common Stock and warrants to purchase another 18,000 shares of Common Stock to Pirco Investment Co. for aggregate consideration of $120,000. On August 19, 1997, the Company sold an additional 32,653 shares of Common Stock and warrants to purchase another 12,000 shares of Common Stock to [Pirco] for aggregate consideration of $80,000. All of such warrants have an exercise price of $2.45 and are exercisable for a period of five years from the date of issuance. On August 18, 1997, the Company sold 81,633 shares of Common Stock and warrants to purchase another 30,000 shares of Common Stock to Nutley Investment, SA for aggregate consideration of $200,000. On September 8, 1997, the Company sold an additional 18,367 shares of Common Stock and warrants to purchase another 6,750 shares of Common Stock to [Nutley] for aggregate consideration of $45,000. All of such warrants have an exercise price of $2.45 and are exercisable for a period of five years from the date of issuance. On August 29, 1997, the Company sold 90,000 shares of Common Stock and warrants to purchase another 18,000 shares of Common Stock to Banque Prevee Edmund de Rothschild Suecursale for aggregate consideration of $252,000. All of such warrants have an exercise price of $2.80 and are exercisable for a period of five years from the date of issuance. On September 8, 1997, the Company sold 80,000 shares of Common Stock and warrants to purchase another 16,000 shares of Common Stock to Preston Assets Management, Inc. for aggregate consideration of $224,000. All of such warrants have an exercise price of $2.80 and are exercisable for a period of five years from the date of issuance. On September 15, 1997, the Company sold 12,000 shares of Common Stock and warrants to purchase another 2,400 shares of Common Stock to Lawrence R. Turel for aggregate consideration of $33,600. All of such warrants have an exercise price of $2.80 and are exercisable for a period of five years from the date of issuance. On September 19, 1997, the Company sold 50,000 shares of Common Stock and warrants to purchase another 10,000 shares of Common Stock to Xavier Roland for aggregate consideration of $140,000. All of such warrants have an exercise price of $2.80 and are exercisable for a period of five years from the date of issuance. On September 26, 1997, the Company completed a private financing with RGC International Investors, LDC (the "Investor"), which resulted in the issuance of 374,532 shares of Common Stock to the Investor for gross proceeds of $1,000,000. The shares issued to the Investor were issued upon exercise of 374,532 outstanding upon exercise of warrants issued upon conversion of shares of the Company's Series A Preferred Stock (the "Series A Warrants"), immediately following repricing of such warrants to $2.67 (equal to 100% of the average closing prices of the Company's Common Stock during the three trading days preceding the date of exercise). In addition, the exercise price of an additional 150,000 Series A Warrants issued in connection with prior conversions of the Series A Preferred was reduced from $15 to $2.80 per share (equal to 105% of the average closing prices of the Company's Common Stock during the three trading days preceding the date of exercise). 15 16 The Investor also agreed, in connection with the September 26, financing, not to exercise its right under the terms of the Series A Preferred to require the Company to redeem the remaining shares of Series A Preferred held by the Investor until after a special meeting of stockholders (the "Meeting") relating to the approval by such stockholders of the issuance of shares of Common Stock issuable upon conversion of 10,000 shares of the Company's Series A Convertible Preferred Stock issued to the Investor in December 1996/February 1997 private placement (the "Proposal"). (Substantially all of the shares of Series A Preferred currently held by the Investor currently are subject to the 19.99% limitation and may not be converted unless and until stockholder approval is obtained at the Meeting.) The Company agreed to file proxy materials with the Securities and Exchange Commission relating to the Proposal, to call and hold the Meeting and to solicit proxies in favor of the proposal. In addition, Pratap Kesav Kondamoori and the other members of the Company's Board of Directors agreed to vote in favor of the proposal. If stockholder approval of the proposal is not obtained by December 10, 1997, the exercise price of an additional 200,000 Series A Warrants issued upon conversion of Series A Preferred will be reduced from $15 to 100% of the closing bid price for Company Common Stock on December 1, 1997. The Investor also agreed as part of the September 26 financing that following stockholder approval of the proposal and until 60 days thereafter (but not later than January 30, 1998), the Investor will not convert any of the remaining shares of Series A Preferred held by it at conversion prices less than the lesser of (i) $3.50 and (ii) 100% of the average closing bid price of the Common Stock during the ten trading days prior to stockholder approval. The Investor agreed to convert no more than 50% of the remaining shares of Series A Preferred held by it within the first 90 days after stockholder approval. The limitations described in this paragraph will not apply on any conversion date on which the Company's Common Stock trades at more than $4.25 per share. Underwriters were not retained in connection with the sale of any of the securities described above. All sales were made in private placements to directors of the Company (or their affiliates) or to accredited individual investors or accredited institutional investors. The Company relied upon an exemption from registration under Section 4(2) of the Securities Act in connection with each of these transactions. 16 17 Item 5. Other Information RISK FACTORS In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, readers of this document, and any document referenced herein, are advised that this document and documents referenced herein contain both statements of historical facts and forward looking statements. Forward looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those indicated by the forward looking statements. In addition to the other information contained in the Quarterly Report, the following risk factors should be carefully considered in evaluating the Company. HISTORY OF LOSSES. Since its decision to enter the video networking market, the Company has operated at a loss because the Company's revenues have been insufficient to support the comparatively substantial expenses incurred by the Company. The Company recorded net losses of approximately $.7 million in fiscal 1994, $1.7 million is fiscal 1995, $2.0 million for the eight months ended December 31, 1995, $14.7 million in fiscal 1996 and $20.6 million for the nine months ending September 30, 1997. The Company's accumulated deficit at September 30, 1997 is approximately $39.7 million. There can be no assurance that the Company's products will be widely accepted in the marketplace or to the extent sales are made, that the volume, pricing and timing will be sufficient to permit the Company to achieve profitability in the future. INDISPENSABLE NEED FOR CAPITAL/REPORT OF INDEPENDENT ACCOUNTANTS REGARDING ABILITY TO CONTINUE AS A GOING CONCERN. Primarily because of the Company's history of operating losses, there is substantial doubt about the Company's ability to continue as a going concern unless the Company is able to obtain additional financing. The Company currently does not have any arrangements to obtain additional financing. If the Company is unable to secure sufficient financing, the Company would at a minimum be forced to revise its 1997 Operating Plan. The report of independent accountants on the Company's financial statements included in the Company's Annual Report includes an explanatory paragraph to this effect. ADDITIONAL CAPITAL REQUIREMENTS. The Company believes that it will need additional funding during the fourth quarter. The Company's capital requirements will depend on many factors, including the progress of its research and development efforts, its timely receipt of revenue from sales of its products to large customers, the need to devote resources to manufacturing operations, and the demand for the Company's products. Additional future financing may occur through the sale of unregistered stock or convertible debt. An institutional investor has a right of first refusal until February 23, 1998 to purchase securities on the same terms offered by potential investors during such period, unless such financing is by way of a firm commitment underwriting, the issuance of securities in connection with a merger, consolidation or sale of assets or the issuance of securities in connection with a strategic alliance. Such right of first refusal could impair the Company's ability to obtain needed financing on acceptable terms or could prevent the Company from obtaining such financing on any terms. There can be no assurance that new financing will be available when needed by the Company or that the terms, if available, will be satisfactory to the Company. If adequate funds are not available, the Company may be required to delay, scale back 17 18 or eliminate one or more of its research and development or manufacturing programs or to obtain funds through arrangements that may require the Company to relinquish rights to certain of its technologies or potential products or other assets that the Company would not otherwise relinquish. The inability of the Company to raise needed funds would have a material adverse effect on the Company's business, financial condition and results of operations. SHORT OPERATING HISTORY. The Company's operations are subject to all of the risks inherent in a new business enterprise, including the absence of a substantial operating history and the expense of new product development. Various problems, expenses, complications and delays may be encountered in connection with the development of the Company's products and business. Future growth beyond present capacity will require significant expenditures for expansion, marketing, research and development. These expenses must be paid out of future equity or debt financings or out of generated revenues and Company profits. The availability of funds from any of these sources cannot be assured. The Company was incorporated in the State of New York in 1968 under the name Yondata Corporation and, in October 1992, changed its name to Growers Express Corporation. In May 1994, Growers Express Corporation merged with NUKO Technologies, Inc., a California corporation, and following the merger, Growers Express changed its name to NUKO Information Systems, Inc. and commenced operations through NUKO Technologies, Inc., which survived the merger as the Company's wholly owned subsidiary. In January 1997, the Company effected a reincorporation from New York to Delaware by merging itself into its wholly-owned Delaware subsidiary. From 1970 to 1994, the Company had no operations and no revenues. The Company's management, which had no affiliation with Growers Express prior to the merger with NUKO Technologies in May 1994, has almost no knowledge of the Company's activities between its incorporation in 1968 and the merger, and very few corporate records relating to the period between 1970 and 1994 are available. As a result, while management believes that there are no material liabilities relating to the predecessor company, there can be no assurance that there are no potential liabilities relating to such period or that the Company always conducted its corporate activities during this period in accordance with the New York Business Corporations Law. UNCERTAIN ACCEPTANCE OF THE COMPANY'S PRODUCTS. Since early 1994, the Company has been primarily engaged in research and development of its technologies, product design and establishment of strategic alliances on which the Company expects to depend for manufacturing, sales and distribution of its potential products. The Company has to date sold its initial products only in limited quantities, primarily for use in development, demonstration and testing of prototypes. Certain contracts may relate to new technologies that may not have been previously deployed on a large-scale commercial basis. The Company's products are based on technologies that have not been widely deployed, and there can be no assurance that the Company will be able successfully to market its initial products to generate the increased revenues necessary to sustain full scale commercial production or that the Company's products will be well received when introduced into the marketplace on a full commercial scale. The Company's products also must interoperate effectively among a wide variety of different equipment, different protocols and different transmission speeds. While the Company believes its products interoperate effectively among the principal configurations of equipment, protocols and transmission speeds that are currently commercially deployed, there can be no assurances that the Company's products will continue to interoperate effectively among other configurations of equipment, protocols and transmission speeds which may be developed or utilized in the future. Moreover, management of the Company has limited experience with the distribution of technologically complex products in 18 19 commercial quantities and there can be no assurance that the Company will be able to make necessary adaptations to successfully move from the research and development stage to full commercial production and distribution. COMPETITION. The segments of the telecommunications industry in which the Company competes are intensely competitive and are characterized by declining average selling prices and rapid technological change. The Company competes with major domestic and international companies, virtually all of which have substantial greater financial, technical, production and marketing resources than the Company with which to pursue engineering, manufacturing, sales, marketing and distribution of their products. For example, in its compression and networking business, the Company competes with vertically integrated system suppliers including General Instrument Corporation, Scientific-Atlanta, Inc., and Philips, as well as more specialized suppliers including DMV division of News Corp., Harmonic Lightware, C-Cube Microsystems' DiviCom Inc. subsidiary, and the TV/COM subsidiary of Hyundai. In addition, some of the Company's customers are actual or potential competitors of the Company, competing against the Company with its own products. The Company believes that the principal criteria for competition in its market include cost competitiveness, flexibility, revenue generation capability, compatibility with existing networks and upgradeability, as well as customer support. There can be no assurance that the Company will be able to compete successfully with other companies on these factors or otherwise. MANAGEMENT OF GROWTH. During 1996, the Company began to experience significant growth. Such growth placed, and will continue to place, significant strain on the Company's limited personnel and other resources. The Company's ability to manage any further growth, should it occur, will require it to implement and continually expand operational and financial systems, recruit additional employees and train and manage both current and new employees. There can be no assurance that the Company will be able to find qualified personnel to fill needed positions or be able to successfully manage a broader organization. The failure of the Company to effectively expand or manage these functions consistent with any growth that may occur could have a material adverse effect on the Company's business and results of operations. DEPENDENCE ON CUSTOMER CAPITAL SPENDING REQUIREMENTS AND PURCHASING TRENDS. The Company's business is directly impacted by capital spending requirements and funding of the Regional Bell Operating Companies ("RBOCs"), other major customers in the telecommunications industry, and major customers in the cable television carrier marketplace. The capital budgets of these customers or potential customers is beyond the control of the Company and can be affected by numerous factors completely unrelated to the performance, quality and price of the Company's products. Should the Company's customers or potential customers suffer budgeting cutbacks affecting their capital purchasing plans, the Company's results of operations could be adversely affected. In addition, in recent years, the purchasing behavior of the Company's customers has increasingly been characterized by the use of large contracts with few suppliers. This trend is expected to intensify and will contribute to the variability of the Company's results. Such larger purchase contracts typically involve longer negotiating cycles, require dedication of substantial amounts of working capital and other resources and, in general, require investments that may substantially precede recognition of associated revenues. Moreover, in return for larger, longer-term purchase agreements, customers often demand more stringent acceptance criteria, which may also cause revenue recognition delays. For example, if customers ask the Company to price its products based on estimates of such customers' future requirements, and such customers fail to 19 20 take delivery of an amount comparable to the estimated amount on which the Company bases its prices, the Company may recognize lower margins on product revenue. DEPENDENCE ON SUPPLIERS. The Company purchases certain of the chips and chip sets needed in its products from single source suppliers. The Company is dependent upon such suppliers to deliver parts and components as needed for the manufacture of the Company's products, and there can be no assurance that such suppliers will continue to be able to serve the Company's needs. While there are alternative sources of supply for each of the components outsourced by the Company, the Company would incur delays if required to switch to another supplier. Any disruption of the Company's relationships with any of its key single source suppliers or manufacturers or other limitations on the availability of these products provided by such suppliers could have an adverse effect on the Company's business and operating results. PRICING PRESSURES. The markets into which the Company sells or will sell its products are characterized by extreme price competition, and the Company expects the average selling prices of its products will decrease over the life of each product. In order to partially offset declines in the selling price of its products, the Company will need to reduce the cost of its products by implementing cost reduction design changes, obtaining cost reductions as and if volumes increase and successfully managing manufacturing and subcontracting relationships. Since the Company does not operate its own manufacturing facilities and must make binding commitments to purchase products, it may not be able to reduce its costs as rapidly as companies that operate their own manufacturing facilities. The failure of the Company to design and introduce lower cost versions of its products in a timely manner or to successfully manage its manufacturing relationships would have a material adverse effect on its business and results of operations. DEPENDENCE ON SUBCONTRACTORS. The Company's reliance on subcontractors to manufacture and assemble certain products involves significant risks, including reduced control over delivery schedules, quality assurance, manufacturing yields and cost, the potential lack of adequate capacity and potential misappropriation of its intellectual property. Although the Company has not experienced material disruptions in supply to date, there can be no assurance that manufacturing or assembly problems will not occur in the future or that any such disruptions will not have a material adverse effect upon the Company's results of operations. Further, there can be no assurance that suppliers who have committed to provide product will do so, or that the Company will meet all conditions imposed by such suppliers. Failure to obtain an adequate supply of products on a timely basis would delay product delivery to the Company's customers, which would have a material adverse effect on the Company's business and results of operations. In addition, the Company's business could also be materially and adversely affected if the operations of any supplier are interrupted for a substantial period of time, or if the Company is required, as a result of capacity constraints in its industry or otherwise, to increase the proportion of goods purchased from higher cost suppliers in order to obtain adequate product volumes. FLUCTUATIONS IN QUARTERLY RESULTS; LACK OF BACKLOG. The Company has experienced, and expects to continue to experience, significant fluctuations in its quarterly results of operations. Factors that have contributed or may contribute to future fluctuations in the Company's quarterly results of operations include the size and timing of customer orders and subsequent shipments, customer order deferrals in anticipation of new products, timing of product introductions or enhancements by the Company or its competitors, market acceptance of new products, technological changes in the telecommunications industry, competitive pricing pressures, accuracy of customer forecasts of end-user demand, changes in the Company's operating expenses, personnel 20 21 changes, changes in the mix of product sales and contract and consulting fees, quality control of products sold, disruption in sources of supply, regulatory changes, capital spending, delays of payments by customers and general economic conditions. The timing and volume of customer orders are difficult to forecast. The Company does not have a material backlog of orders for its products. The Company intends to continue to make significant ongoing research and development expenditures for new products and technologies, which may have a material adverse effect on the Company's quarterly results of operations. The Company's expense levels are based in part on expectations of future revenues and are relatively fixed in the short term. The Company intends to increase operating expenditures as the Company expands its operations to develop and market its compression and networking products. Consequently, a shortfall in quarterly revenues due to a lack of sales of the Company's products or otherwise would adversely impact the Company's business, financial condition and results of operations in a given quarter due to the Company's inability to adjust expenses or inventory to match revenues for that quarter. In addition, there can be no assurance that, as the Company increases sales of its products, warranty returns will not become significant or that warranty returns, if significant, will not have a material adverse effect on the Company's business, financial condition and results of operations. GOVERNMENT REGULATION. Although the extensive regulation of telcos by Federal, state and foreign regulatory agencies, including the FCC and various state public utility and service commissions, does not directly affect the Company, the effects of such regulation on the Company's customers may have a material adverse effect on the Company's business, financial condition and results of operations. For example, FCC regulatory policies affecting the availability of telco services, and other terms on which telcos conduct their business, may impede the Company's penetration of certain markets. Although the Telecommunications Act of 1996 eliminated or modified many FCC restrictions on telcos' ability to provide interactive multimedia services, the remaining or any future restrictions may have a material adverse effect on telcos' demand for the Company's products. Cable operators, which may become another market for the Company's products, are also subject to extensive governmental regulations that may discourage them from deploying the Company's compression and networking technology. In addition, rates for telecommunications services are generally governed by tariffs of licensed carriers that are subject to regulatory approval. These tariffs could have a material adverse effect on the demand for the Company's products. The imposition of certain tariffs, duties and other import restrictions on components which the Company intends to obtain from non-domestic suppliers, the imposition of export restrictions on products which the Company intends to sell internationally or other changes in laws or regulations in the United States or elsewhere could also have a material adverse effect on the Company's business, financial condition and results of operations. POTENTIAL PRODUCT LIABILITIES. One or more of the Company's products may contain undetected component, hardware, software or mechanical defects or failures when first introduced or may develop defects or failures after commencement of commercial production or shipments. Any such defects or failures could cause loss of goodwill, if any, with distributors and with customers, prevent or delay market acceptance of the Company's products, result in cancellations or rescheduling of orders or shipments or product recalls or returns and expose the Company to claims from customers. The Company also could incur unexpected and significant costs, including product redesign costs and costs associated with customer support. The Company expects to sell its products with a limited warranty against defects in materials and workmanship. If any of the Company's products are found within the warranty period to contain such defects, the Company 21 22 could be required to repair or replace the defective products or refund the purchase price. The occurrence of any such defect or failure could have a material adverse effect on the Company's business, financial condition and results of operations. The Company does not maintain insurance to protect against claims associated with the use of its products and there can be no assurance that the Company will be able to satisfy claims that may be asserted against the Company. INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. The Company attempts to protect its technology through a combination of patents, copyrights, trade secrets, confidentiality procedures and licensing arrangements. While the Company currently has no patents, the Company has applied for certain patents and intends to continue to seek patents on its technology, when appropriate. There can be no assurance that patents will issue from any of the pending applications or that any claims allowed from pending patents will be sufficiently broad to protect the Company's technology. While the Company intends to protect its intellectual property rights vigorously, there can be no assurance that any patents issued to the Company will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide competitive advantages to the Company. The Company will endeavor to keep the results of its research and development program proprietary, but may not be able to prevent others from using some or all of such information or technology with or without compensation. The Company's ultimate success will depend to some extent on its ability to avoid infringement of patent or other proprietary rights of others. The Company is not aware that it is infringing any such rights, nor is it aware of proprietary rights of others for which it will be required to obtain a license in order to market its initial products. However, there is no assurance that the Company is not infringing proprietary rights of others or that it will be able to obtain any technology licenses it may require in the future. DEPENDENCE ON EMERGING MARKETS. The markets into which the Company is targeting its products are newly developing. The potential size of the market opportunities and the timing of their development is uncertain. In addition, the emergence of markets for certain digital video applications will be affected by a variety of factors beyond the Company's control. In particular, certain sectors of the communications market will require the development and deployment of an extensive and costly communications infrastructure. There can be no assurance that the communications providers will make the necessary investment in such infrastructure or that the creation of this infrastructure will occur in a timely manner. In addition, the deployment of such infrastructure will be subject to governmental regulatory policies, taxes and tariffs. The development of such markets could be delayed or otherwise adversely affected by new governmental regulations or changes in taxes or tariffs, or by the failure of government agencies to adopt changes to existing regulations necessary to permit new technologies to enter the market. POSSIBLE TECHNOLOGICAL ADVANCES. The market for the Company's initial products is expected to be characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. The Company's future success will depend in part upon its ability to successfully bring to market and then enhance its existing products and to introduce new products and features to meet changing customer requirements and emerging industry standards. There can be no assurance that the Company will successfully complete the development of its future products or that the Company's initial or future products will achieve market acceptance. Any delay or failure of these products to achieve market acceptance would adversely affect the Company's business. In addition, there can be no assurance that products or technologies developed by others will not render the Company's initial or future products or technologies non-competitive or obsolete. 22 23 ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS. Certain provisions of the Company's Amended and Restated Certificate of Incorporation and Bylaws could discourage potential acquisition proposals, could delay or prevent a change in control of the Company and could make removal of management more difficult. Such provisions could diminish the opportunities for a stockholder to participate in tender offers, including tender offers that are priced above the then current market value of the Common Stock. Additionally, the Board of Directors of the Company, without further shareholder approval, may issue up to 4,990,000 shares of Preferred Stock, in one or more series, with such terms as the Board of Directors may determine, including rights such as voting, dividend and conversion rights which could adversely affect the voting power and other rights of the holders of Common Stock. Preferred Stock may be issued quickly with terms which delay or prevent the change in control of the Company or make removal of management more difficult. Also, the issuance of Preferred Stock may have the effect of decreasing the market price of the Common Stock. CONTROL BY OFFICERS AND DIRECTORS. As of October 31, 1997, the officers and directors of the Company control, directly or indirectly, approximately 23.5% of the voting power of the Company's voting stock, including options and warrants immediately exercisable or exercisable within 60 days. Although management does not control a majority of the outstanding voting stock, it holds a sufficient amount to make it more difficult for an independent third party to effect a change in control of the Company than would be the case if the stock ownership were less concentrated among members of management. STOCK MARKET VOLATILITY; VOLATILITY OF THE COMPANY'S COMMON STOCK. There have been periods of extreme volatility in the stock market that, in many cases, were unrelated to the operating performance of, or announcements concerning, the issuers of the affected securities. General market price declines or volatility in the future could adversely affect the price of the Common Stock. There can be no assurance that the Common Stock will maintain its current market price. Short-term trading strategies of certain investors can have a significant effect on the price of specific securities. The price of the Company's Common Stock, in particular, has been extremely volatile. ABSENCE OF DIVIDENDS. The Company does not expect to declare or pay any cash or stock dividends in the foreseeable future, but instead intends to retain all earnings, if any, to invest in the Company's operations. The payment of future dividends is within the discretion of the Board of Directors and will depend upon the Company's future earnings, if any, its capital requirements, financial condition and other relevant factors. 23 24 NUKO Information Systems, Inc. Item 6. Exhibits and Reports on Form 8-K a) Exhibits 11.1 Calculation of Net Loss Per Share 27.1 Financial Data Schedule b) Reports on Form 8-K The Company Filed one Report on Form 8-K during the quarterly period ended September 30, 1997. Such Report on Form 8-K, filed on July 11, 1997, described certain private placements of the Company's Common Stock to two institutional investors. 24 25 NUKO Information Systems, Inc. SIGNATURE Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NUKO INFORMATION SYSTEMS, INC. DATE: November 13, 1997 By: /s/ Ramesh Sekar ----------------- -------------------------- NAME: Ramesh Sekar TITLE: Chief Financial Officer 25 26 INDEX TO EXHIBITS Exhibits Number Description - ------ ----------- 11.1 Calculation of Net Loss Per Share 27.1 Financial Data Schedule
EX-11.1 2 CALCULATION OF NET LOSS PER SHARE 1 EXHIBIT 11.1 CALCULATION OF NET LOSS PER SHARE FOR THREE MONTH PERIOD ENDED SEPTEMBER 30 Earnings per share is computed using the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares result from the assumed exercise of outstanding stock options that have a dilutive effect when applying the treasury stock method.
1997 1996 ------------ ------------ PRIMARY LOSS PER SHARE Net loss for period $ (9,653,346) $ (2,700,204) Accretion of dividends on preferred stock (165,328) -- ------------ ------------ Net loss available to common $ (9,818,674) $ (2,700,204) ============ ============ shareholders Shares outstanding at the beginning of the period 11,574,535 10,409,096 Weighted average effect of shares issued during period 1,772,250 -- Weighted average effect of warrants 281,553 14,919 and options exercised in the period Weighted average effect of share subscriptions paid in the period -- -- ------------ ------------ Weighted average shares outstanding 13,628,338 10,424,015 ============ ============ Net loss available to common shareholders per share $ (0.72) $ (0.26)
There is no difference in the per share amounts computed under the primary and the fully diluted basis. 26 2 EXHIBIT 11.1 (continued) CALCULATION OF NET LOSS PER SHARE FOR NINE MONTH PERIOD ENDED SEPTEMBER 30 Earnings per share is computed using the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares result from the assumed exercise of outstanding stock options that have a dilutive effect when applying the treasury stock method.
1997 1996 ------------ ----------- PRIMARY LOSS PER SHARE Net loss for period $(17,980,729) $(8,953,607) Accretion of dividends on preferred stock (2,580,668) -- ------------ ----------- Net loss available to common shareholders $(20,561,397) $(8,953,607) ============ =========== Shares outstanding at the beginning of the period 10,491,101 9,128,418 Weighted average effect of shares issued during period 1,069,255 701,987 Weighted average effect of warrants and options exercised in the period 178,400 218,978 Weighted average effect of share subscriptions paid in the period -- (594,068) ------------ ----------- Weighted average shares outstanding 11,738,756 9,455,315 ============ =========== Net loss available to common shareholders per share $ (1.75) $ (0.95) ============ ===========
There is no difference in the per share amounts computed under the primary and the fully diluted basis. 27
EX-27.1 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1997 JUL-01-1997 SEP-30-1997 722,647 0 1,272,577 1,081,094 2,225,894 3,576,640 5,261,213 1,998,357 8,106,231 7,510,243 0 4,866,596 0 14,960 (4,399,428) 8,106,231 186,115 186,115 5,345,580 5,345,580 3,695,788 740,311 57,782 (9,653,346) 0 (9,653,346) 0 0 0 (9,653,346) (.72) (.72)
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