-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, FKwBck1emtTYwKC8n7uZEs9RWU7UYFUSw907sh7tHuGTZzh+dPySoiDBe/hYlxia tgED14+WXcWSeF3E1eRRRg== 0000070415-94-000033.txt : 19940819 0000070415-94-000033.hdr.sgml : 19940819 ACCESSION NUMBER: 0000070415-94-000033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL PATENT DEVELOPMENT CORP CENTRAL INDEX KEY: 0000070415 STANDARD INDUSTRIAL CLASSIFICATION: 8200 IRS NUMBER: 131926739 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07234 FILM NUMBER: 94544056 BUSINESS ADDRESS: STREET 1: 9 W 57TH ST STREET 2: SUITE 4170 CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2128268500 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended June 30, 1994 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: 1-7234 NATIONAL PATENT DEVELOPMENT CORPORATION (Exact Name of Registrant as Specified in its Charter) Delaware 13-1926739 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9 West 57th Street, New York, NY 10019 (Address of principal executive offices) (Zip code) (212) 826-8500 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 Number of shares outstanding of each of issuer's classes of common stock as of August 9, 1994: Common Stock 23,854,255 shares Class B Capital 250,000 shares NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS Page No. Part I. Financial Information Consolidated Condensed Balance Sheets - June 30, 1994 and December 31, 1993 1 Consolidated Condensed Statements of Operations - Three Months and Six Months Ended June 30, 1994 and 1993 3 Consolidated Condensed Statements of Cash Flows - Six Months Ended June 30, 1994 and 1993 4 Notes to Consolidated Condensed Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Qualification Relating to Financial Information 14 Part II. Other Information 15 Signatures 16 PART I. FINANCIAL INFORMATION NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands) June 30, December 31, 1994 1993 ASSETS (unaudited) * Current assets Cash and cash equivalents $ 10,475 $ 10,976 Accounts and other receivables 45,312 36,285 Inventories 24,735 22,605 Costs and estimated earnings in excess of billings on uncompleted contracts 16,919 13,081 Prepaid expenses and other current assets 3,904 4,160 Total current assets 101,345 87,107 Investments and advances 26,988 28,303 Property, plant and equipment, at cost 35,607 33,873 Less accumulated depreciation (21,388) (20,035) 14,219 13,838 Intangible assets, net of amortization 29,105 30,104 Investment in financed assets 1,521 2,797 Other assets 3,523 3,908 $176,701 $166,057 * The Consolidated Condensed Balance Sheet as of December 31, 1993 has been summarized from the Company's audited Consolidated Balance Sheet as of that date. See accompanying notes to the consolidated condensed financial statements. 1 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Continued) (in thousands) June 30, December 31, 1994 1993 LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) * Current liabilities Current maturities of long-term debt and notes payable $ 20,592 $ 6,750 Short-term borrowings 29,475 21,390 Accounts payable and accrued expenses 24,462 20,256 Billings in excess of costs and estimated earnings on uncompleted contracts 8,195 5,487 Total current liabilities 82,724 53,883 Long-term debt less current maturities 22,419 36,638 Notes payable for financed assets 199 579 Minority interests and other 3,621 3,277 Common stock issued subject to repurchase obligation 1,510 4,242 Stockholders' equity Common stock 198 190 Class B capital stock 2 2 Capital in excess of par value 109,859 106,274 Deficit (43,831) (39,028) Total stockholders' equity 66,228 67,438 $176,701 $166,057 * The Consolidated Condensed Balance Sheet as of December 31, 1993 has been summarized from the Company's audited Consolidated Balance sheet as of that date. See accompanying notes to the consolidated condensed financial statements. 2 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share data) Three months Six months ended June 30, ended June 30, 1994 1993 1994 1993 Revenues Sales $ 52,191 $ 55,114 $ 97,423 $100,078 Investment and other income, net (1,258) 1,560 (2,010) 3,468 50,933 56,674 95,413 103,546 Costs and expenses Cost of goods sold 42,692 46,154 79,677 84,925 Selling, general & administrative 9,169 9,898 17,367 18,195 Research & development 105 1,126 225 2,316 Interest 1,451 2,487 2,954 4,960 53,417 59,665 100,223 110,396 Minority interests (36) 1,083 (104) 2,003 Gain on issuance of stock by a subsidiary 229 229 Loss before income taxes and extraordinary item (2,291) (1,908) (4,685) (4,847) Income tax expense (52) (80) (118) (45) Loss before extraordinary item (2,343) (1,988) (4,803) (4,892) Extraordinary item Early extinguishment of debt, net of income tax in 1993 101 227 Net loss $(2,343) $(1,887) $(4,803) $(4,665) Loss per share Loss before extraordinary item $ (.12) $ (.13) $ (.25) $ (.31) Extraordinary item .01 .02 Net loss per share $ (.12) $ (.12) $ (.25) $ (.29) Dividends per share none none none none See accompanying notes to the consolidated condensed financial statements. 3 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six months ended June 30, 1994 1993 Cash flows provided by (used for) operations: Net loss $(4,803) $(4,665) Adjustments to reconcile net income to net cash used for operating activities: Depreciation and amortization 2,152 3,049 Gains from early extinguishment of debt (357) Changes in other operating items (7,634) (3,805) Total adjustments (5,482) (1,113) Net cash used for operations (10,285) (5,778) Cash flows provided by (used for) investing activities: Marketable securities 651 Additions to property, plant & equipment (1,734) (1,433) Additions to intangible assets, net (239) (10) Reduction of investments and other assets, net 2,332 1,053 Net cash provided by investing activities 359 261 Cash flows provided by (used for) financing activities: Net proceeds from (repayments of) short-term borrowings 8,085 (8,660) Decrease in restricted cash 1,200 Proceeds from issuance of long-term debt 3,163 17,283 Reduction of long-term debt (2,011) (7,765) Exercise of common stock options and warrants 100 91 Proceeds from issuance of common stock 88 Proceeds from stock purchase agreement entered into by a subsidiary 1,408 Net cash provided by financing activities 9,425 3,557 Net decrease in cash and cash equivalents (501) (1,960) Cash and cash equivalents at the beginning of the periods 10,976 17,921 Cash and cash equivalents at the end of the periods $10,475 $15,961 4 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued) (Unaudited) (in thousands) Six months ended June 30, 1994 1993 Supplemental disclosures of cash flow information: Cash paid during the periods for: Interest $ 2,135 $ 3,563 Income taxes $ 261 $ 352 See accompanying notes to the consolidated condensed financial statements. 5 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. Inventories Inventories are valued at the lower of cost or market, principally using the first-in, first-out (FIFO) method. Inventories consisting of material, labor, and overhead are classified as follows (in thousands): June 30, December 1994 1993 Raw materials $ 2,686 $ 2,836 Work in process 423 675 Finished goods 18,926 16,394 Land held for resale 2,700 2,700 $24,735 $22,605 2. Long-term debt Long-term debt consists of the following (in thousands): June 30, December 1994 1993 8% Swiss bonds $ 5,308 $ 4,572 Swiss convertible bonds 16,594 15,300 New 5% convertible bonds 2,080 2,300 12% Subordinated debentures 6,790 6,829 Other 10,755 11,857 41,527 40,858 Less current maturities 19,108 4,220 $22,419 $36,638 On June 10, 1993, the Company commenced an Exchange Offer for up to 60% of its Swiss denominated 8% Bonds due March 1, 1995, 6% Convertible Bonds due March 7, 1995, 5 % Convertible Bonds due May 9, 1995, 5 % Convertible Bonds due March 18, 1996 and 7% Dual Currency Bonds due March 18, 1996, ("the Bonds"). The Company offered for exchange its Common Stock with a value of $1,000 for each $1,000 principal amount of the Bonds. 6 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) (Unaudited) 2. Long-term debt (Continued) In addition, the Company offered for exchange its Common Stock with a value of SFr. 1,000 for each SFr. 1,000 principal amount of the Bonds. Accrued interest the Old Bonds accepted for exchange by the Company will be paid in Common Stock of the Company. The purpose of the Exchange Offer is to reduce the Company's long-term indebtedness and related interest expense. In July, as a result of the Exchange Offer, the Company received an aggregate of SFr. 2,569,000 principal amount of its Swiss denominated bonds and $1,377,000 of its 7% Dual Currency Convertible Bonds. In addition, the Company completed two private transactions for SFr. 6,515,000 principal amount of its Swiss denominated bonds and $45,000 of its 7% Dual Currency Convertible Bonds. As a result of the above transactions, the Company will issue approximately 3,222,000 shares of its common stock, reduce its long-term debt by approximately $8,100,000, increase shareholders' equity by approximately $9,100,000 and will reduce its interest expense by approximately $750,000 on an annual basis. 3. GPS Technologies, Inc. On April 7, 1994, General Physics Corporation (GP) entered into an agreement with GPS Technologies, Inc. (GPS) and the Company to acquire substantially all of the operating assets of GPS and certain of its subsidiaries. The Company currently owns approximately 92% of the outstanding common stock of GPS and approximately 28% of the outstanding common stock of GP. GP agreed to pay GPS a purchase price with a then present value of approximately $36 million. The purchase price will be payable to GPS as follows: $10 million in cash; 3.5 million shares of GP common stock valued at approximately $13,500,000 (based upon the price per share of GP common stock prior to the announcement of the transaction which was $3.875); warrants to acquire 1,000,000 shares of GP common stock at $6.00 per share valued at approximately $1,300,000; warrants to acquire up to 475,644 additional shares of GP common stock at $7 per share valued at approximately $500,000; and 6% Senior Subordinated Debentures due 2004 (the "Debentures"), in the aggregate principal amount of $15,000,000, valued at approximately $10,700,000. The values assigned to each component of consideration were based upon (i) 7 discussions with the independent investment banker to the Independent Committee of GP and the investment banker to GPS and (ii) negotiations between the Independent Committee of GP and the Board of Directors of GPS. Portions of the cash and stock consideration of the purchase price will be (a) used to repay outstanding bank debt, which as of June 30, 1994 was $6,800,000 and long-term debt of GPS, which as of June 30, 1994 was $9,400,000 to be repaid to the Company and (b) held in escrow. The transaction is contingent upon the occurrence of certain events, including, without limitation, the approval of the transaction by the stockholders of GP and GPS. The transaction is anticipated to close as soon as practicable in the second half of 1994, if all necessary approvals are obtained and conditions satisfied. The Company anticipates that, if the aforementioned transaction is consummated, it will own approximately 52% of the outstanding common stock of GP, and if the Company were to exercise all of its warrants, it would own approximately 58% of the outstanding common stock of GP. The Company will account for this transaction as a purchase by the Company of GP. 8 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company incurred a loss before income taxes and extraordinary item of $2,291,000 and $4,685,000 for the quarter and six months ended June 30, 1994, as compared with a loss of $1,908,000 and $4,847,000 for the corresponding periods of 1993. The increase in the Company's loss before extraordinary item is due to several factors. Included in investment and other income, net for the quarter and six months ended June 30, 1994, is $1,115,000 and $2,012,000, respectively, of foreign currency transaction losses, compared to gains of $711,000 and $1,381,000 for the corresponding periods of 1993. For the quarter and six months ended June 30, 1994, the foreign currency transaction losses were partially offset by reduced interest expense at the corporate level, as a result of reduced long-term debt, as well as increased operating profits achieved by the Physical Science and Optical Plastics Group. Foreign currency valuation fluctuations may adversely affect the results of operations and financial condition of the Company. At June 30, 1994, the Company had not hedged its Swiss franc obligations. If the value of the Swiss franc to the U.S. dollar increases, the Company will recognize transaction losses on its Swiss franc obligations. On June 30, 1994, the value of the Swiss franc to the U.S. dollar was approximately 1.3335 to 1. There can be no assurance that the Company will be able to swap or hedge obligations denominated in foreign currencies at prices acceptable to the Company or at all. The Company will continue to review this policy on a continuing basis. In July 1994, as a result of the transactions discussed in Note 2 to the Notes to the consolidated condensed financial statements, the Company had approximately SFr. 16,500,000 of Swiss denominated debt outstanding, of which approximately SFr. 15,000,000 represents principal amount outstanding and approximately SFr. 1,500,000 represents interest accrued thereon. 9 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Sales For the quarter ended June 30, 1994, consolidated sales decreased by $2,923,000 to $52,191,000 from the $55,114,000 recorded in the corresponding quarter of 1993. For the six months ended June 30, 1994, consolidated sales decreased by $2,655,000 to $97,423,000 from $100,078,000 recorded for the six months ended June 30, 1993. The decreased sales during the periods were the result of reduced sales in the Physical Science Group, partially offset by increased sales within the Optical Plastics Group. In addition, the Electronics Group also had reduced sales. The reduced sales within the Physical Science Group were the result of the end of a long-term staff augmentation contract at GTS Duratek, Inc. (Duratek), partially offset by increased Environmental Services revenues, as well as the sale by GPS Technologies, Inc. (GPS) of its interest in General Physics International Engineering and Simulation, Inc. (GPI) to a new joint venture in which GPS has a minority position, in 1994. For the quarter ended June 30, 1993, GPI had sales of $3,408,000. Gross margin Consolidated gross margin of $9,499,000, or 18%, for the quarter ended June 30, 1994, increased by $539,000 when compared to the consolidated gross margin of $8,960,000, or 16%, for the quarter ended June 30, 1993. For the six months ended June 30, 1994, consolidated gross margin of $17,746,000 or 18% of consolidated sales increased by $2,593,000 when compared to $15,153,000 or 15% of consolidated sales earned in the six months ended June 30, 1993. The increased gross margin for the quarter and six months ended June 30, 1994, was primarily the result of increased sales and gross margin percentage achieved by the Optical Plastics Group, as well increased gross margin achieved by the Physical Science Group due to the higher gross margin generated by Duratek's Environmental Services business and a more profitable mix of services generated by GPS. 10 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Selling, general and administrative expenses For the quarter and six months ended June 30, 1994, selling, general and administrative expenses (SG&A) of $9,169,000 and $17,367,000 were $729,000 and $828,000 lower than the $9,898,000 and $18,195,000 of SG&A expenses incurred during the quarter and six months ended June 30, 1993. The decrease in SG&A for the quarter and six months ended June 30, 1994, was the result of Interferon Sciences, Inc. (ISI) being accounted for on the equity method since the third quarter of 1993, partially offset by increased costs incurred by the Distribution Group. Research and development Research and development costs of $105,000 and $225,000 for the quarter and six months ended June 30, 1994, were reduced significantly when compared to costs of $1,126,000 and $2,316,000 for the quarter and six months ended June 30, 1993, as a result of ISI being accounted for on the equity basis since June 1993. Interest expense For the quarter and six months ended June 30, 1994, interest expense was $1,451,000 and $2,954,000, compared to $2,487,000 and $4,960,000 for the second quarter and six months ended June 30, 1993. The decreased interest expense for the periods was the result of reduced long-term debt. 11 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Investment and other income, net Investment and other income, net of $(1,258,000) and $(2,010,000) for the quarter and six months ended June 30, 1994, decreased by $2,818,000 and $5,478,000, respectively, as compared to $1,560,000 and $3,468,000 for the corresponding periods of 1993. The change was principally due to two factors; $1,115,000 and $2,012,000 of foreign currency transaction losses recognized during the quarter and six months ended June 30, 1994, compared to gains of $711,000 and $1,381,000 for the corresponding periods of 1993 and a loss of $1,050,000 and $1,820,000 realized in the quarter and six months ended June 30, 1994, respectively, on the share of losses of 20% to 50% owned subsidiaries, compared to $175,000 and $351,000 earned in the quarter and six months ended June 30, 1993, respectively, primarily as a result of the results of Interferon Sciences, Inc. (ISI) being accounted for on the equity basis since the third quarter of 1993. For the quarter and six months ended June 30, 1994, the Company's share of ISI's loss was $900,000 and $1,620,000, respectively. In the quarter and six months ended June 30, 1993, ISI was included in the consolidated results of the Company and its loss was therefore not reflected in Investment and other income, net. 12 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES The Company believes that it has sufficient cash, cash equivalents and borrowing availability under existing and potential lines of credit to satisfy its cash requirements until the first scheduled maturity of its Swiss Franc denominated indebtedness on March 1, 1995. However, in order for the Company to meet its long-term cash needs, which include the repayment, (after giving effect to the July 1994 transactions described in Note 2 to the Consolidated Condensed Financial Statements) of approximately $9,700,000 of Swiss Franc denominated indebtedness scheduled to mature in 1995 and approximately $4,200,000 of Swiss Franc denominated indebtedness which is scheduled to mature in 1996, the Company must obtain additional funds from among various sources. The Company has historically reduced its long-term debt through the issuance of equity securities in exchange for long- term debt. In addition to its ability to issue equity securities, the Company believes that it has sufficient marketable long-term investments, as well as the ability to obtain additional funds from its operating subsidiaries and the potential to enter into new credit arrangements. The Company reasonably believes that it will be able to continue to accomplish some or all of the above transactions in order to fund the scheduled repayment of the Company's long-term Swiss debt in 1995. At June 30, 1994, the Company had cash and, cash equivalents totaling $10,475,000. GPS and Duratek had cash and, cash equivalents of $116,000 at June 30, 1994. The minority interests of these two companies are owned by the general public, and therefore the assets of these subsidiaries have been dedicated to the operations of these companies and may not be readily available for the general corporate purpose of the parent. 13 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES QUALIFICATION RELATING TO FINANCIAL INFORMATION June 30, 1994 The financial information included herein is unaudited. In addition, the financial information does not include all disclosures required under generally accepted accounting principles because certain note information included in the Company's Annual Report has been omitted; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods. The results for the 1994 interim period are not necessarily indicative of results to be expected for the entire year. 14 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of shareholders held on June 8, 1994, the following matters were voted upon: a. Jerome I. Feldman, Scott N. Greenberg, Paul A. Gould, Roald Hoffmann, Martin M. Pollak and Ogden R. Reid were elected to serve as directors of the Registrant for a one year term. b. The proposal to amend the Company's Restated Certificate of Incorporation to increase the total number of authorized shares of Common Stock which the Company shall have authority to issue from 30,000,000 to 40,000,000 shares was adopted with a vote of 15,172,217 votes for and 454,941 votes against the adoption of this proposal c. The proposal to reappoint KPMG Peat Marwick as auditors was adopted with a vote of 15,464,198 votes for and 85,612 votes against the adoption of this proposal. Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits Copy of Notice and Proxy Statement for Annual Meeting of Shareholders held on June 18, 1994, filed with the Securities and Exchange Commission pursuant to Section 14 of the Securities Exchange Act of 1934 and incorporated herein by reference. b. Reports on Form 8-K There were no reports filed on Form 8-K for the period ended June 30, 1994. 15 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES June 30, 1994 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized. NATIONAL PATENT DEVELOPMENT CORPORATION DATE: August 12, 1994 BY: Scott N. Greenberg Vice President and Chief Financial Officer DATE: August 12, 1994 BY: Jerome I. Feldman President and Chief Executive Officer 16 -----END PRIVACY-ENHANCED MESSAGE-----