-----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, UXsFIeaVGG6zTd0P/YIb9LSMYcop2p6QgYmcylZIjUL4BDr67ckOEYQm9hENARmA do/nPwucfpu/SrxFvnA3UQ== 0000070415-94-000037.txt : 19941122 0000070415-94-000037.hdr.sgml : 19941122 ACCESSION NUMBER: 0000070415-94-000037 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NONE 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: 94560094 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 September 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 November 11, 1994: Common Stock 24,610,683 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 - September 30, 1994 and December 31, 1993 1 Consolidated Condensed Statements of Operations- Three Months and Nine Months Ended September 30, 1994 and 1993 3 Consolidated Condensed Statements of Cash Flows - Nine Months Ended September 30, 1994 and 1993 4 Notes to Consolidated Condensed Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Qualification Relating to Financial Information 15 Part II. Other Information 16 Signatures 22 PART I. FINANCIAL INFORMATION NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (unaudited) (in thousands) September 30, December 31, 1994 1993 ASSETS Current assets Cash and cash equivalents $ 13,689 $ 10,976 Accounts and other receivables, of which $5,205 and $7,694 is from government contracts 56,871 36,285 Inventories 24,327 22,605 Costs and estimated earnings in excess of billings on uncompleted contracts, of which $8,957 and $2,913 relates to government contracts 13,764 13,081 Prepaid expenses and other current assets 4,639 4,160 Total current assets 113,290 87,107 Investments 14,070 28,303 Property, plant and equipment, at cost 37,775 33,873 Less accumulated depreciation (23,019) (20,035) 14,756 13,838 Intangible assets, net of amortization 37,768 30,104 Investment in financed assets 1,200 2,797 Other assets 3,469 3,908 $184,553 $166,057 See accompanying notes to the consolidated condensed financial statements. 1 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Continued) (unaudited) (in thousands) September 30, December 31, 1994 1993 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term debt $ 15,301 $ 6,750 Short-term borrowings 33,545 21,390 Accounts payable and accrued expenses 27,654 20,256 Billings in excess of costs and estimated earnings on uncompleted contracts 4,086 5,487 Total current liabilities 80,586 53,883 Long-term debt less current maturities 17,687 36,638 Notes payable for financed assets 579 Minority interests and other 11,876 3,277 Common stock issued subject to repurchase obligation 1,510 4,242 Stockholders' equity Common stock 240 190 Class B capital stock 2 2 Capital in excess of par value 119,890 106,274 Deficit (46,255) (39,028) Net unrealized loss on available-for-sale securities (983) Total stockholders' equity 72,894 67,438 $184,553 $166,057 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 Nine months ended September 30, ended September 30, 1994 1993 1994 1993 Revenues Sales $ 52,340 $ 47,250 $149,763 $ 147,328 Investment and other income, net (139) (1,163) (2,149) 2,305 52,201 46,087 147,614 149,633 Costs and expenses Costs of goods sold 44,332 39,649 124,009 124,574 Selling, general & administrative 8,654 9,042 26,021 27,237 Research & development 124 223 349 2,539 Interest 1,453 2,173 4,407 7,133 54,563 51,087 154,786 161,483 Minority interests 86 45 (18) 2,048 Gain on disposition of stock of a subsidiary and an affiliate 3,795 229 3,795 Loss before income taxes and extraordinary item (2,276) ( 1,160) (6,961) (6,007) Income tax benefit (expense) (183) 579 (301) 534 Loss before extraordinary item (2,459) (581) (7,262) (5,473) Extraordinary item Early extinguishment of debt, net of income tax 35 929 35 1,156 Net income (loss) $ (2,424) $ 348 $ (7,227) $(4,317) Income (loss) per share Loss before extraordinary item $ (.11) $(.03) $ (.35) $ (.33) Extraordinary item .05 .07 Income (loss) per share $ (.11) $ .02 $ (.35) $ (.26) 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) Nine months ended September 30, 1994 1993 Cash flows from operations: Net loss $ (7,227) $(4,317) Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 3,232 4,169 Gains from early extinguishment of debt (35) (1,156) Gain from disposition of stock in subsidiaries (3,795) Change in other operating assets and liabilities (6,989) 2,004 Total adjustments (3,792) 1,222 Net cash used for operations (11,019) (3,095) Cash flows from investing activities: Sales of certain net assets and businesses of a susidiary 4,470 Marketable securities 651 Additions to property, plant & equipment (2,266) (3,245) Additions to intangible assets (3,626) (110) Change in investments and other assets, net 2,331 (81) Net cash provided by (used for) investing activities $ 909 $(2,785) See accompanying notes to the consolidated condensed financial statements. NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued) (Unaudited) (in thousands) Nine months ended September 30, 1994 1993 Cash flows from financing activities: Proceeds from short-term borrowings $17,810 $21,624 Repayments of short-term borrowings (5,655) (28,244) Decrease in restricted cash 1,200 Increase in long-term debt 3,871 11,801 Reduction of long-term debt (3,491) (9,340) Exercise of common stock options and warrants 100 118 Proceeds from issuance of stock by a previously consolidated subsidiary 1,408 Proceeds from issuance of common stock 188 Net cash provided by (used for) financing activities 12,823 (1,433) Net increase (decrease) in cash and cash equivalents 2,713 (7,313) Cash and cash equivalents at the beginning of the periods 10,976 17,921 Cash and cash equivalents at the end of the periods $ 13,689 $ 10,608 Supplemental disclosures of cash flow information: Cash paid during the periods for: Interest $ 3,198 $ 4,615 Income taxes $ 480 $ 576 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): September 30, December 31, 1994 1993 Raw materials $ 2,842 $ 2,836 Work in process 421 675 Finished goods 18,364 16,394 Land held for resale 2,700 2,700 $ 24,327 $ 22,605 2. Long-term debt Long-term debt consists of the following (in thousands): September 30, December 31, 1994 1993 8% Swiss bonds $ 3,299 $ 4,572 Swiss convertible bonds 10,425 15,300 New 5% Swiss bonds 2,080 2,300 12% Subordinated debentures 6,788 6,829 Other 9,296 11,857 31,888 40,858 Less current maturities 14,201 4,220 $ 17,687 $ 36,638 6 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) (Unaudited) 2. Long-term debt (Continued) On June 10, 1994, 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. 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 on the Bonds accepted for exchange by the Company was 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 issued approximately 3,222,000 shares of its common stock, reduced its long-term debt by approximately $8,100,000, increased shareholders' equity by approximately $9,100,000 and will reduce its interest expense by approximately $750,000 on an annual basis. For the nine months ended September 30, 1994, the Company realized an extraordinary gain on the early extinguishment of debt, net of taxes, of $35,000. 7 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) (Unaudited) 3. General Physics Corporation On August 31, 1994, General Physics Corporation, a formerly 28% owned subsidiary, (GP) acquired substantially all of the operations and assets of SGLG, Inc. (SGLG) (formerly GPS Technologies, Inc.), a 92% owned subsidiary, and assumed certain liabilities of SGLG, related to its business of providing management and technical training services, and specialized engineering consulting services, to various commercial industries and to the United States government. However, for accounting and financial reporting purposes, the transaction will be treated as a reverse acquisition of GP by SGLG since, among other factors, the Company became the beneficial owner of approximately 54% of the outstanding shares of GP's common stock as a result of the transaction. The assets acquired by GP also included all of the outstanding common stock of four wholly-owned subsidiaries of SGLG: GPS Technologies, Inc. Federal Systems Group ("GPSTFSG"), which provides technical services to the U.S. Department of the Navy and other federal government agencies; GP Environmental Services, Inc. (GPES), which provides environmental laboratory analytical services; and General Physics Asia Pte. Ltd., located in Singapore, and General Physics (Malaysia) Sdn. Bhd., located in Malaysia, which provide operations support, engineering and technical services to power and process industries in Southeast Asia. The consideration paid by GP totalled approximately $36,000,000 and consisted of (a) $10,000,000 in cash, (b) 3,500,000 shares of GP common stock, (c) GP's 6% Senior Subordinated Debentures due 2004 in the aggregate principal amount of $15,000,000 ($1,500,000 of which was paid into escrow), (valued at $10,700,000 after a $4,300,000 discount), (d) warrants to purchase an aggregate of 1,000,000 shares of GP common stock at $6.00 per share, and (e) warrants to purchase an aggregate of 475,664 shares of GP common stock at $7.00 per share. In addition, GP entered into a lease with SGLG of certain fixed assets of SGLG for a period of 10 years for an aggregate rent of $2,000,000, payable in equal quarterly installments of $50,000. 8 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) (Unaudited) 3. General Physics Corporation (Continued) The cash portion of the purchase price for the SGLG operations and assets was derived from funds borrowed by GP under a $20,000,000 revolving credit facility secured by liens on the assets of GPC, GPSTFSG, GPES and Inventory Management Corporation, all wholly-owned subsidiaries of GPC. The revolving credit facility was established with a bank on August 31, 1994, and permits GPC to borrow funds at a rate of interest equal to the bank's prime rate or LIBOR, plus 2.5% as determined by GP. Prior to the transaction, the Company directly and indirectly owned approximately 28% of the outstanding common stock of GP, and approximately 92% of the outstanding common stock of SGLG. As a result of the transaction, the Company directly or indirectly owns approximately 54% of the outstanding common stock of GP. The Company did not recognize a gain or loss on this transaction. The following information shows on a pro-forma basis, the results of operations as if the above transactions had occurred as of January 1, 1993 (in thousands): Nine months ended September 30, 1994 1993 Revenues $184,064 $197,929 Loss before extraordinary item (7,103) (4,879) Net loss (7,068) (3,723) Loss per share before extraordinary item (.34) (.29) Loss per share (.34) (.22) 9 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) (Unaudited) 4. Adoption of new Accounting Principle - Accounting for Certain Investments in Debt and Equity Securities In 1994 the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities: ("SFAS No. 115"). The Company's marketable securities consist of corporate equity securities. Under SFAS No. 115, the Company classifies these equity securities as available-for-sale and records the securities at their fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until realized. A decline in the market value of any available-for-sale security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Realized gains and losses for securities classified as available-for-sale are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Marketable investment securities at December 31, 1993 consist of common stocks. Equity securities at that date are stated at the lower of aggregate cost or market value. The amortized cost, gross unrealized holding losses and fair value for available-for-sale securities at September 30, 1994, were as follows: Gross Amortized Unrealized Cost Holding Losses Fair Value Available-for-sale: Equity Securities $3,117,000 $(983,000) $2,134,000 10 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 $2,276,000 and $6,961,000 for the quarter and nine months ended September 30, 1994, as compared with a loss of $1,160,000 and $6,007,000 for the corresponding periods of 1993. The increase in the Company's loss before income taxes and extraordinary item is due to several factors. Included in investment and other income, net for the quarter and nine months ended September 30, 1994, is $351,000 and $2,363,000, respectively, of foreign currency transaction losses compared to losses of $1,442,000 and $61,000 for the corresponding periods of 1993. The reduced currency loss for the third quarter has been offset by increased losses incurred by Interferon Sciences, Inc. (ISI), the Company's approximately 36% owned affiliate. In addition, as a result of an Exchange Offer in July 1993 for a significant portion of its Swiss Denominated Debt, the Company realized a gain of $3,795,000 from the issuance of a portion of the Company's holdings of shares of common stock of ISI and GTS Duratek, Inc. (Duratek) during the third quarter of 1993, due to such shares being included as part of the consideration for the Exchange Offer. For the quarter and nine months ended September 30, 1994, the effect of the gain realized in 1993 was 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 Optical Plastics and Physical Science Groups. At September 30, 1994, there was an aggregate of SFr. 16,672,000 of Swiss denominated indebtedness outstanding, of which SFr. 14,630,000 represents principal amount outstanding and SFr. 2,042,000 represents interest accrued thereon. At September 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 September 30, 1994, the value of the Swiss Franc to the U.S. dollar was approximately 1.2882 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. Sales For the quarter ended September 30, 1994, consolidated sales increased by $5,090,000 to $52,340,000 from the $47,250,000 recorded in the corresponding quarter of 1993. For the nine months ended September 30, 1994, consolidated sales increased by 11 $2,435,000 to $149,763,000 from $147,328,000 recorded for the nine months ended September 30, 1993. The increased sales for the 1994 periods were primarily the result of increased sales within the Optical Plastics, Physical Science and the Distribution Groups, partially offset by reduced sales within the Electronics Group. The increased sales within the Physical Science Group were the result of the inclusion of General Physics Corporation (GP) in the consolidated results of the Company as of September 1, 1994 (see Note 3 to the Consolidated Condensed Financial Statements), offset by the end of a long-term staff augmentation contract at Duratek, which in turn was partially offset by increased Environmental Services revenues at Duratek, as well as the sale by SGLG, Inc. (SGLG), formerly GPS Technologies, Inc., 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 and nine months ended September 30, 1993, GPI had sales of $2,425,000 and $5,833,000, respectively. Gross margin Consolidated gross margin of $8,008,000, or 15%, for the quarter ended September 30, 1994 increased by $407,000 when compared to the consolidated gross margin of $7,601,000, or 16%, for the quarter ended September 30, 1993. For the nine months ended September 30, 1994, consolidated gross margin of $25,754,000 or 17% of consolidated sales increased by $3,000,000 when compared to $22,754,000 or 15% of consolidated sales earned in the nine months ended September 30, 1993. The increased gross margin for the quarter and six months ended September 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, a more profitable mix of services generated by SGLG, and the gross margin earned by GP in September 1994. Selling, general and administrative expenses For the quarter and nine months ended September 30, 1994, selling, general and administrative expenses (SG&A) of $8,654,000 and $26,021,000 were $388,000 and $1,216,000 lower than the $9,042,000 and $27,237,000 of SG&A expenses incurred during the quarter and nine months ended September 30, 1993. The decrease in SG&A for the nine months ended September 30, 1994 was due to ISI being accounted for on the equity basis since the third quarter of 1993 and reduced costs incurred at the corporate level, partially offset by increased costs incurred by the Distribution Group. 12 Research and development Research and development costs of $124,000 and $349,000 for the quarter and nine months ended September 30, 1994, were reduced significantly when compared to costs of $223,000 and $2,539,000 for the quarter and nine months ended September 30, 1993, as a result of ISI being accounted for on the equity basis since June 1993. Interest expense For the quarter and nine months ended September 30, 1994, interest expense was $1,453,000 and $4,407,000, compared to $2,173,000 and $7,133,000 for the third quarter and nine months ended September 30, 1993. The decreased interest expense for the periods was the result of reduced long-term debt. Investment and other income, net Investment and other income, net of $(139,000) and $(2,149,000) for the quarter and nine months ended September 30, 1994, increased by $1,024,000 and decreased by $4,454,000, respectively, as compared to $(1,163,000) and $2,305,000 for the corresponding periods of 1993. The change was principally due to the following factors; $(351,000) and $(2,363,000) of foreign currency transaction losses recognized during the quarter and nine months ended September 30, 1994, compared to losses of $(1,442,000) and $(61,000) for the corresponding periods of 1993. In addition, for the quarter and nine months ended September 30, 1994, the Company realized losses of $1,400,000 and $3,404,000, compared to $778,000 and $427,000 earned for the quarter and nine months ended September 30, 1993, respectively, relating to income of 20% to 50% owned subsidiaries, primarily as a result of ISI being accounted for on the equity basis since the third quarter of 1993. Adoption of new accounting principle - Accounting for certain investments in debt and equity securities In 1994 the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (see Note 4 of Notes to Consolidated Condensed Financial Statements). There was no material effect on the Company's financial condition or results of operations as a result of the adoption of this principle. 13 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 cash needs thereafter, which include the repayment of approximately $9,614,000 of Swiss Franc denominated indebtedness scheduled to mature in 1995 and approximately $4,110,000 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 September 30, 1994, the Company had cash and, cash equivalents totaling $13,689,000. GP, SGLG, American Drug Company and Duratek had cash and, cash equivalents of $560,000 at September 30, 1994. The minority interests of these four 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. 14 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES QUALIFICATION RELATING TO FINANCIAL INFORMATION September 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. 15 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION Item 5. The following information is provided in response to Item 7 in the Form 8-K filed on September 14, 1994. a. Financial statements of business acquired: The consolidated balance sheets of General Physics Corporation (GP) and subsidiaries as of December 31, 1993 and 1992, and the related statements of operations, changes in stockholders equity and cash flows for each of the years in the three-year period ended December 31, 1993, and the related notes to the consolidated financial statements, included in GP's Form 10-K dated March 29, 1994, are hereby incorporated by reference. b. Pro forma financial information: The following unaudited pro forma combined statements of operations have been prepared based upon the historical statements of operations of the Company and GP and give effect to the Transaction as if it had occurred on January 1, 1993 and January 1, 1994. The transaction has been accounted for using the purchase method. The Company owns approximately 54% of the outstanding shares of GP after the Transaction. The pro forma financial statements are not necessarily indicative of the actual financial position or results of operations that would have been achieved if the transactions had occurred as of or for the period indicated, or of future results that may be achieved. 16 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES PRO FORMA STATEMENT OF OPERATIONS (unaudited) (in thousands) Nine months ended September 30, 1994 Actual GP Adjustments Proforma Revenues Sales $149,763 $36,250 $186,013 Investment and other income, net (2,149) $200 (e) (1,949) 147,614 36,250 184,064 Costs and expenses Cost of goods sold 124,009 33,279 (952) (a) 156,336 Selling, general & administrative 26,021 4,050 (1,587) (b) 28,484 Research & development 349 349 Interest 4,407 422 (c) 4,829 154,786 37,329 189,998 Gain on disposition of a subsidiary and an affiliate 229 229 Minority interests (18) (493) (d) (511) Loss before income taxes and extraordinary item (6,961) (1,079) (6,216) Income tax benefit (expense) (301) 360 (946) (f) (887) Loss before extraordinary item (7,262) (719) (7,103) Early extinguishment of debt, net of income tax in 1993 35 35 Net loss $(7,227) $(719) $(7,068) Loss per share before extraordinary item $(.35) $(.34) Extraordinary item Net loss per share $(.35) $(.34) 17 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS Year Ended September 30, 1994 Adjustments (in thousands) (a) To adjust cost of goods for the transaction as follows: Reduce salaries and benefits for employees not retained $952 (b) To adjust selling, general and administrative expenses for the transaction as follows: Reduce salaries and benefits for employees not retained $1,010 Reduce rent and related costs for duplicate facilities 150 Reduce other administrative costs such as insurance and professional fees 327 Record amortization of excess cost over fair value of assets acquired (25) Reduce amortization of goodwill for the effect of the transaction 125 $1,587 (c) To adjust interest expense as follows: Eliminate SGLG interest $169 Record interest expense on bank borrowings assuming $10 million at 7 % (591) $(422) (d) To adjust minority interest as follows: Adjust minority interest related to businesses and assets acquired from SGLG from 8% to 46% $(149) Record minority interest of 46% pertaining to GPC (344) $(493) (e) To adjust investment and other income, net as follows: Eliminate share of loss related to investment in GP $200 (f) To adjust income tax expense $(946) 18 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) (in thousands) Year ended December 31, 1993 Actual GP Adjustments Proforma Revenues Sales $189,683 $62,402 $252,085 Investment and other income, net 3,358 $(441) (e) 2,917 193,041 62,402 255,002 Costs and expenses Cost of goods sold 162,164 55,422 (744) (a) 216,842 Selling, general & administrative 35,600 4,180 (2,016) (b) 37,764 Research & development 2,847 2,847 Interest 8,325 499 (c) 8,824 208,936 59,602 266,277 Gain on disposition of a subsidiary and an affiliate 3,795 3,795 Gain on issuance of stock of a subsidiary 1,353 1,353 Minority interests 2,376 (1,725) (d) 651 Loss before income taxes and extraordinary item (8,371) 2,800 (5,476) Income tax benefit (expense) 575 (1,037) (1,140) (f) (1,602) Income (loss) before extraordinary item (7,796) 1,763 (7,078) Early extinguishment of debt, net of income tax in 1993 1,819 1,819 Net income (loss) $(5,977) $1,763 $(5,259) Loss per share before extraordinary item $(.46) $(.42) Extraordinary item .11 .11 Net loss per share $(.35) $(.31) 19 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS Year Ended December 31, 1993 Adjustments (in thousands) (a) To adjust cost of goods for the transaction as follows: Reduce salaries and benefits for employees not retained $744 (b) To adjust selling, general and administrative expenses for the transaction as follows: Reduce salaries and benefits for employees not retained $1,340 Reduce rent and related costs for duplicate facilities 200 Reduce other administrative costs such as insurance and professional fees 339 Record amortization of excess cost over fair value of assets acquired (33) Reduce amortization of goodwill for the effect of the transaction 170 $2,016 (c) To adjust interest expense as follows: Eliminate SGLG interest $276 Record interest expense on bank borrowings assuming $10 million at 7 % (775) $(499) (d) To adjust minority interest as follows: Adjust minority interest related to businesses and assets acquired from SGLG from 8% to 46% $(260) Record minority interest of 46% pertaining to GPC (1,465) $(1,725) (e) To adjust investment and other income, net as follows: Eliminate share of income related to investment in GP $(441) (f) To adjust income tax expense $(1,140) NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION (Continued) Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits None b. Reports on Form 8-K A report on Form 8-K dated August 31, 1994 reporting event under Item 2 was filed on September 14, 1994. 21 NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES September 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: November 14, 1994 BY: Jerome I. Feldman President and Chief Executive Officer DATE: November 14, 1994 BY: Scott N. Greenberg Vice President, Chief Financial Officer 22 EX-27 2
5 1,000 QTR-3 DEC-31-1993 SEP-30-1994 13,689 0 56,871 2,220 24,327 113,290 37,775 23,019 184,553 80,586 31,888 240 0 0 72,654 184,553 149,763 147,614 124,009 150,030 349 593 4,407 (6,961) 301 (7,262) 0 35 0 (7,227) (.35) 0
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