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, 1997
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 9, 1997:
Common Stock 10,640,020 shares
Class B Capital 62,500 shares
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets -
March 31, 1997 and December 31, 1996 1
Consolidated Condensed Statements of Operations-
Three Months Ended March 31, 1997 and 1996 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996 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 12
Part II. Other Information 13
Signatures 14
<PAGE>
PART I. FINANCIAL INFORMATION
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
1997 1996
ASSETS (audited) *
Current assets
Cash and cash equivalents $ 19,730 $ 22,677
Marketable securities 1,375 3,250
Accounts and other receivables 45,759 40,633
Inventories 26,158 23,193
Costs and estimated earnings
in excess of billings on
uncompleted contracts 9,722 9,466
Prepaid expenses and other
current assets 3,608 3,462
-------- ---------
Total current assets 106,352 102,681
-------- --------
Investments and advances 23,667 25,108
-------- ---------
Property, plant and equipment, at cost 36,657 36,045
Less accumulated depreciation (27,540) (26,767)
-------- ---------
9,117 9,278
-------- ---------
Intangible assets, net of accumulated amortization
of $30,095 and $29,577 54,318 34,476
-------- ---------
Deferred tax asset 1,701 843
-------- ---------
Other assets 3,619 3,641
-------- ---------
$198,774 $176,027
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 1996 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
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NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(in thousands)
March 31, December 31,
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilities
Current maturities of long-term debt
and notes payable 7,041 $ 9,309
Short-term borrowings 32,816 20,281
Accounts payable and accrued expenses 27,103 22,879
Billings in excess of costs and estimated
earnings on uncompleted contracts 8,041 8,521
-------- ---------
Total current liabilities 75,001 60,990
-------- ---------
Long-term debt less current maturities 5,795 10,807
-------- --------
Minority interests and other 2 10,201
-------- --------
Stockholders' equity
Common stock 105 75
Class B capital stock 1 1
Capital in excess of par value 157,083 131,388
Deficit (41,745) (40,759)
Net unrealized gain on available-
for-sale securities 2,532 3,324
-------- -----------
Total stockholders' equity 117,976 94,029
-------- ---------
$198,774 $176,027
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 1996 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
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three months
ended March 31,
1997 1996
Sales $ 54,760 $ 48,156
Costs of goods sold 46,544 41,064
--------- --------
Gross margin 8,216 7,092
Selling, general and administrative expenses (7,411) (6,911)
--------- ---------
Operating income 805 181
--------- ----------
Interest (998) (1,001)
Investment and other income, net 773 1,245
Gain (loss) on trading securities (1,875) 500
Minority interest 25 (325)
----------- ----------
Income (loss) before income taxes (1,270) 600
Income tax benefit (expense) 284 (517)
---------- ----------
Net income (loss) $ (986) $ 83
--------- ----------
Net income (loss) per share $ (.10) $ .01
--------- ----------
Dividends per share none none
======= ======
See accompanying notes to the consolidated condensed financial statements.
3
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three months
ended March 31,
1997 1996
----------- -------
Cash flows from operations:
Net income (loss) $ (986) $ 83
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,291 1,469
Unrealized loss (gain) on trading securities 1,875 (500)
Deferred income taxes (400)
Changes in other operating items (7,657) (3,865)
-------- ---------
Net cash used for operations (5,877) (2,813)
-------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (612) (1,070)
Additions to intangible assets (2,270) (159)
Reduction in investments and other assets, net 284 22
-------- ---------
Net cash used for investing activities (2,598) (1,207)
-------- --------
Cash flows from financing activities:
Net proceeds from short-term borrowings 6,060 2,124
Proceeds from issuance of long-term debt 400
Reduction of long-term debt (532) (2,143)
Proceeds from issuance of common stock 2,533
-------- ---------
Net cash provided by financing activities 5,528 2,914
-------- --------
4
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
Three months
ended March 31,
1997 1996
Net decrease in cash and cash
equivalents $ (2,947) $ (1,106)
Cash and cash equivalents at the
beginning of the periods 22,677 8,094
--------- --------
Cash and cash equivalents at the end
of the periods $ 19,730 $ 6,988
--------- --------
Supplemental disclosures of cash
flow information:
Cash paid during the periods for:
Interest $ 1,147 $ 1,122
======== ========
Income taxes $ 498 $ 155
========= =========
Supplemental schedule of non-cash transactions:
Issuance of common stock related to the
acquisition of General Physic Corporation $(25,228)
Additions to intangible assets 15,154
Reduction of minority interest 10,074
See accompanying notes to the consolidated condensed financial statements.
5
<PAGE>
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):
March 31, December 31,
1997 1996
Raw materials $ 752 $ 793
Work in process 293 210
Finished goods 25,113 22,190
--------- --------
$ 26,158 $ 23,193
======== ========
2. Long-term debt
Long-term debt consists of the following (in thousands):
March 31, December 31,
1997 1996
8% Swiss bonds due 2000 $ 2,026 $ 2,189
5% convertible bonds due 1999 1,775 1,755
12% Subordinated debentures 6,711 6,732
Term loans with banks 6,722
7% convertible note 1,000 1,000
Other 1,324 1,718
--------- ---------
12,836 20,116
Less current maturities 7,041 9,309
--------- ---------
$ 5,795 $ 10,807
======== ========
6
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. Revolving credit agreement
On March 26, 1997, the Company and its wholly-owned subsidiaries, GP
and MXL Industries, Inc. (MXL), entered into a three year secured $25,000,000
Revolving Credit Agreement, with a syndicate of three banks. The Agreement
replaces the MXL Loan Agreement, the GP Revolving Credit Agreement and the
Company's Term Loan Agreement. The Agreement bears interest at the prime rate or
1.75% over LIBOR. The borrowing formula is based upon eligible accounts
receivable of GP and MXL, as well as various corporate assets. Under the
Agreement, the full $25,000,000 of the Revolving Credit Agreement would be
available to the Company and/or GP and/or MXL. At March 31,1997, the amount
outstanding was approximately $13,815,000.
4. General Physics Corporation
On January 24, 1997, the Company acquired the remaining 5,047,623
shares (48% of the outstanding shares) of GP that it did not already own, in
exchange for .60 shares of National Patent common stock for each share of GP.
The transaction has been accounted for as a purchase of a minority interest. The
Company issued an aggregate of 3,028,574 shares of its common stock, valued at
$25,228,000 in the transaction. The value of the Company's common stock issued
in this transaction has been reflected in Stockholders' equity as an increase to
Common stock and Capital in excess of par value.
GP provides engineering, environmental, training, analytical, and
technical support services to commercial nuclear and fossil power utilities, the
U.S. Departments of Defense and Energy, Fortune 500 companies, and other
commercial and governmental customers.
5. Subsequent event
On May 9, 1997, the Company announced that its Board of Directors had
authorized the purchase of up to approximately 7% or 750,000 shares of the
Company's common stock.
7
<PAGE>
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 of $(1,270,000) for the quarter
ended March 31, 1997 compared to income of $600,000 for the quarter ended March
31, 1996. The reduced operating results were primarily the result of a
$1,875,000 unrealized loss on certain trading marketable securities (GTS
Duratek, Inc.) in the first quarter of 1997 compared to a $500,000 gain in 1996.
In addition, included in Investment and other income, net was a $225,000 loss
recognized on the Company's equity investments for the quarter ended March 31,
1997 compared to income of $325,000 recognized for the quarter ended March 31,
1996.
The losses on the Company's investments were partially offset by improved
operating results within the Physical Science Group, Distribution Group and the
Optical Plastics Group partially mitigated by reduced operating profits within
the Company's Hydro Med Sciences (HMS) division.
Sales
For the quarter ended March 31, 1997, consolidated sales increased by
$6,604,000 to $54,760,000 from the $48,156,000 in the corresponding quarter of
1996. The increased sales were the result of increased sales within the
Distribution Group and Physical Science Group. The increased sales within the
Physical Science Group were the result of increased revenues within General
Physics Corporation's (GP) Commercial Training and Technical Services Group. The
increased sales within the Distribution Group, which is comprised of the Five
Star Group, Inc. (Five Star), were the result of significant growth in sales to
independent retail stores, primarily as a result of the expansion of Five Star's
hardware lines.
8
<PAGE>
Gross margin
Consolidated gross margin of $8,216,000, or 15%, for the quarter ended
March 31, 1997, increased by $1,124,000 compared to the consolidated gross
margin of $7,092,000, or 15%, for the quarter ended March 31, 1996. The
increased gross margin in 1997 was principally the result of increased gross
margin generated by Five Star and GP due to increased sales.
Selling, general and administrative expenses
For the three months ended March 31, 1997, selling, general and
administrative (SG&A) expenses were $7,411,000 compared to the $6,911,000
incurred in the first quarter of 1996. The increase in SG&A for the first
quarter of 1997 was the result of increased selling expenses incurred by Five
Star during 1997 as a result of increased sales.
Investment and other income (expense), net
Investment and other income was $773,000 for the quarter ended March 31,
1997, as compared to $1,245,000 for the first quarter of 1996. The change was
principally due to the effect of a $225,000 loss recognized on the Company's
equity investments in the quarter ended March 31, 1997 compared to income of
$325,000 recognized in the quarter ended March 31, 1996.
Income tax expense
In the quarter ended March 31, 1997, the Company recorded an income tax
benefit of $284,000. The current income tax provision of $116,000 represents
primarily state and local income taxes. The deferred income tax benefit of
$400,000 results from a reduction in the valuation allowance, among other
factors. The decrease in the valuation allowance in 1997 was attributable in
part to the expected utilization of the Company's net operating loss
carryforwards, and to the Company's expectation of generating sufficient taxable
income that will allow for the realization of a portion of its deferred tax
assets.
9
<PAGE>
Recent accounting pronouncement
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS No. 128), was issued. SFAS No. 128 simplifies the
standards for computing earnings per share, and makes the United States
standards for computing earnings per share more comparable to international
standards. SFAS No. 128 requires presentation of "basic" earnings per share
(which excludes dilution) and "diluted" earnings per share. The Company does not
believe the adoption of SFAS No. 128 in fiscal 1997 will have a material impact
on the Company's reported earnings per share. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997 and
requires restatement of all prior period earnings per share presented.
Forward-Looking Statements. This report contains certain forward-looking
statements reflecting management's current views with respect to future events
and financial performance. These forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements, including, but not
limited to the Company's ability to reverse its history of operating losses; the
Company's dependence on its subsidiaries and its investments as its primary
source to service outstanding debt and to fund its operations; and the Company's
ability to comply with financial covenants in connection with various loan
agreements.
10
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had cash and cash equivalents totaling
$19,730,000. SGLG and American Drug Company had cash and cash equivalents of
$295,000 at March 31, 1997. 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 purposes of the parent.
The Company has sufficient cash, cash equivalents and marketable securities and
borrowing availability under existing and potential lines of credit to satisfy
its cash requirements for the repayment of approximately $6,711,000 of 12%
Subordinated Debentures scheduled to mature in the third quarter of 1997. In
addition to its ability to issue equity securities, the Company believes that it
has sufficient marketable long-term investments, the ability to obtain
additional funds from its operating subsidiaries and the potential to enter into
new credit arrangements in order to fund its working capital requirements. At
March 31, 1997, 250,000 shares of Duratek stock valued at $1,375,000 were
classified as marketable securities due to the Company's intention to sell the
shares in 1997.
11
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
QUALIFICATION RELATING TO FINANCIAL INFORMATION
March 31, 1997
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 1997 interim period are not necessarily
indicative of results to be expected for the entire year.
12
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting of the Stockholders held on January 23, 1997, the
following matters were voted upon:
Proposal to approve and adopt an Agreement and Plan of Merger, dated as
of November 19, 1996, among General Physics Corporation, National
Patent and GPX Acquisition Inc., a wholly-owned subsidiary of National
Patent , as amended by Amendment No. 1, dated as of December 18, 1996
was adopted with a vote of 7,218,150 for, and 126,419 votes against the
adoption of this proposal.
Proposal to approve and adopt an amendment to the Restated Certificate
of Incorporation of the Registrant decreasing the total number of
authorized shares of the Registrant's Common Stock from 40,000,000
shares to 25,000,000 shares was adopted with a vote of 6,593,150 for
and 76,345 votes against.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
none
B. Reports
Form 8-K filed on January 28, 1997 reporting events under Items 2
and 7.
13
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
March 31, 1997
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, 1997 Jerome I. Feldman
President & Chief
Executive Officer
DATE: May 13, 1997 Scott N. Greenberg
Vice President &
Chief Financial Officer
<PAGE>
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<NAME> NATIONAL PATENT DEVELOPMENT CORPORATION
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<PERIOD-END> MAR-31-1997
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