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 March 31, 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 May 12, 1994:
Common Stock 20,310,706 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 -
March 31, 1994 and December 31, 1993 1
Consolidated Condensed Statements of Operations-
Three Months Ended March 31, 1994 and 1993 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1994 and 1993 4
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Qualification Relating to Financial Information 11
Part II. Other Information 12
Signatures 13
PART I. FINANCIAL INFORMATION
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
1994 1993
ASSETS (unaudited) *
Current assets
Cash and cash equivalents $ 9,848 $ 10,976
Accounts and other receivables 37,667 36,285
Inventories 26,616 22,605
Costs and estimated earnings
in excess of billings on
uncompleted contracts 15,528 13,081
Prepaid expenses and other
current assets 3,613 4,160
Total current assets 93,272 87,107
Investments and advances 27,282 28,303
Property, plant and equipment, at cost 35,255 33,873
Less accumulated depreciation (20,786) (20,035)
14,469 13,838
Intangible assets, net of amortization 29,607 30,104
Investment in financed assets 2,246 2,797
Other assets 3,226 3,908
$170,102 $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.
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NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(in thousands)
March 31, December 31,
1994 1993
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilities
Current maturities of long-term debt
and notes payable $ 17,281 $ 6,750
Short-term borrowings 26,537 21,390
Accounts payable and accrued expenses 22,492 20,256
Billings in excess of costs and
estimated earnings on
uncompleted contracts 4,693 5,487
Total current liabilities 71,003 53,883
Long-term debt less current maturities 25,778 36,638
Notes payable for financed assets 579
Minority interests and other 3,287 3,277
Common stock issued subject to
repurchase obligation 3,876 4,242
Stockholders' equity
Common stock 192 190
Class B capital stock 2 2
Capital in excess of par value 107,452 106,274
Deficit (41,488) (39,028)
Total stockholders' equity 66,158 67,438
$170,102 $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
ended March 31,
1994 1993
Revenues
Sales $ 45,232 $ 44,964
Investment and other income, net (752) 1,908
44,480 46,872
Costs and expenses
Costs of goods sold 36,985 38,771
Selling, general & administrative 8,198 8,297
Research & development 120 1,190
Interest 1,503 2,473
46,806 50,731
Minority interests (68) 920
Loss before income tax
expense and extraordinary item (2,394) (2,939)
Income tax benefit (expense) (66) 35
Loss before extraordinary item (2,460) (2,904)
Extraordinary item
Early extinguishment of debt,
net of income tax in 1993 126
Net loss $ (2,460) $ (2,778)
Income (loss) per share
Loss before extraordinary
item $ (.13) $ (.18)
Extraordinary item .01
Net loss per share $ (.13) $ (.17)
Dividends per share 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)
Three months
ended March 31,
1994 1993
Cash flows from operations:
Net loss $ (2,460) $ (2,778)
Adjustments to reconcile net loss
to net cash provided by (used for)
operating activities:
Depreciation and amortization 1,248 1,579
Income tax benefit allocated to
continuing operations (73)
Gains from early extinguishment of debt (126)
Changes in other operating items (5,680) (3,232)
Total adjustments (4,432) (1,852)
Net cash used for operations (6,892) (4,630)
Cash flows from investing activities:
Reduction in marketable securities 299
Additions to property, plant & equipment (1,382) (673)
Additions to intangible assets (387)
Reduction in (additions to) investments
and other assets, net 1,685 (1,322)
Net cash provided by (used for)
investing activities 303 (2,083)
Cash flows from financing activities:
Net proceeds from (repayments of)
short-term borrowings 5,147 (204)
Proceeds from issuance of long-term debt 924 626
Reduction of long-term debt (778) (1,769)
Proceeds from issuance of common stock 88
Exercise of common stock options
and warrants 80 36
Net cash provided by (used for)
financing activities 5,461 (1,311)
Net decrease in cash and cash equivalents (1,128) (8,024)
Cash and cash equivalents at the
beginning of the periods 10,976 17,921
Cash and cash equivalents at the end
of the periods $ 9,848 $ 9,897
4
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
Three months
ended March 31,
1994 1993
Supplemental disclosures of cash
flow information:
Cash paid during the periods for:
Interest $ 919 $ 2,603
Income taxes $ 143 $ 212
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 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):
March 31, December 31,
1994 1993
Raw materials $ 2,682 $ 2,836
Work in process 675 675
Finished goods 20,559 16,394
Land held for resale 2,700 2,700
$ 26,616 $ 22,605
2. Long-term debt
Long-term debt consists of the following (in thousands):
March 31, December 31,
1994 1993
8% Swiss bonds $ 4,910 $ 4,572
Swiss convertible bonds 15,887 15,300
New 5% convertible bonds 2,300 2,300
12% Subordinated debentures 6,790 6,829
Other 10,582 11,857
40,469 40,858
Less current maturities 14,691 4,220
$ 25,778 $ 36,638
6
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. Subsequent event
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 current present value of
approximately $36 million based on current market prices. 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 discussions with the independent
investment banker to the Independent Committee of GP and the
investment banker to GPS. Portions of the cash and stock
consideration of the purchase price will be (a) used to repay
outstanding bank debt of $5,650,000 and long-term debt of GPS of
$8,809,000 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.
7
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company had a loss before income taxes and extraordinary
item of $(2,394,000) for the quarter ended March 31, 1994
compared to $(2,939,000) for the quarter ended March 31, 1993.
During the first quarter of 1994, the Company realized net
foreign currency transaction losses of $(897,000), as compared to
a gain of $670,000 for the first quarter of 1993 as a result of
the weakness of the U.S. dollar relative to the Swiss Franc and
the Company's decision not to hedge its Swiss currency
obligations. At March 31, 1994, there was an aggregate of SFr.
26,318,000 of Swiss denominated indebtedness outstanding, of
which SFr. 23,823,000 represents principal amount outstanding and
SFr. 2,495,000 represents interest accrued thereon. Foreign
currency valuation fluctuations may adversely affect the results
of operations and financial condition of the Company. In order
to protect itself against currency valuation fluctuations, the
Company has at times swapped or hedged a portion of its
obligations denominated in Swiss Francs. At March 31, 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
March 31, 1994, the value of the Swiss Franc to the U.S. dollar
was 1.4120 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.
The foreign currency transaction loss was offset by reduced
interest expense due to a reduction in long-term debt, as well as
improved operating results within the Optical Plastics and
Physical Science Groups. The Optical Plastics Group achieved
improved operating results due to increased sales and gross
margin percentages. The Physical Science Group achieved improved
results due to a favorable change in the mix of products and
services provided to its customers.
Sales
For the quarter ended March 31, 1994, consolidated sales
increased by $268,000 to $45,232,000 from the $44,964,000 in the
corresponding quarter of 1993. The increased sales were the
result of increased sales within the Distribution and Optical
Plastics Groups, offset by reduced sales by the Physical Science
Group due to the end of a long-term staff augmentation contract
at GTS Duratek, Inc. (Duratek).
8
Gross margin
Consolidated gross margin of $8,247,000, or 18%, for the
quarter ended March 31, 1994, increased by $2,054,000 compared to
the consolidated gross margin of $6,193,000, or 14%, for the
quarter ended March 31, 1993. The increased gross margin in 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 Technologies, Inc.
Selling, general and administrative expenses
For the three months ended March 31, 1994, selling, general
and administrative (SG&A) expenses were $8,198,000 compared to
the $8,297,000 incurred in the first quarter of 1993. The
decrease in SG&A for the first quarter of 1994 was the result of
ISI being accounted for on the equity method since the third
quarter of 1993, partially offset by increased costs incurred by
the Distribution, Optical Plastics and Physical Sciences Groups.
Interest expense
For the three months ended March 31, 1994, interest expense
was $1,503,000 compared to $2,473,000 for the three months ended
March 31, 1993. The decreased interest expense for the quarter
was the result of reduced long-term debt.
Investment and other income, net
Investment and other income, net of $(752,000) for the quarter
ended March 31, 1994, decreased by $2,660,000 as compared to
$1,908,000 for the first quarter of 1993. The reduced investment
and other income was principally due to the effect of the
following two factors; $(897,000) and $670,000 of foreign
currency transaction gains (losses), for the quarters ended March
31, 1994 and 1993, respectively, and a loss of $(770,000)
realized in the quarter ended March 31, 1994, on the share of
losses of 20% to 50% owned subsidiaries, compared to $175,000
earned in the quarter ended March 31, 1993, 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 ended March 31, 1994, the Company's share of ISI's loss
was $845,000. In the quarter ended March 31, 1993, ISI was
included in the consolidated results of the Company and its loss
was therefore not reflected in Investment and other income, net.
9
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 of
$13,518,000 of Swiss Franc denominated indebtedness scheduled to
mature in 1995 and $7,279,000 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 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 March 31, 1994, the Company had cash and, cash equivalents
totaling $9,848,000. GPS Technologies, Inc. and GTS Duratek,
Inc. had cash and, cash equivalents of $392,000 at March 31,
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.
10
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
QUALIFICATION RELATING TO FINANCIAL INFORMATION
March 31, 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 for 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.
11
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
none
b. Reports
none
12
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
March 31, 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: May 13, 1994 BY: Jerome I. Feldman
President and Chief
Executive Officer
DATE: May 13, 1994 BY: Scott N. Greenberg
Vice President,
Chief Financial Officer
13
