UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1995
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: 0-13649
COOPER LIFE SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2563513
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
160 Broadway, New York, New York 10038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 791-5362
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
As of September 8, 1995, there were 2,111,695 outstanding shares of the
issuers Common Stock, $.10 par value.
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
July 31, 1995 and October 31, 1994 3
Consolidated Statements of Operations
For The Three and Nine Months Ended
July 31, 1995 and 1994 4
Condensed Statements of Consolidated
Cash Flows For The Nine Months Ended
July 31, 1995 and 1994 5
Notes to Consolidated Condensed
Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
Index of Exhibits
</TABLE>
2
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
July 31, October 31,
1995 1994
---------- -------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,018 $ 444
Marketable Securities - The Cooper
Companies, Inc. common stock 19,161 19,602
Investment in Unistar Gaming Corp. 5,000 --
Due from Second Advantage Mortgage Corp. 382 --
Prepaid expenses and other 52 53
Property and equipment, net 33 45
Net assets of discontinued operations 1 22,438
--------- ---------
$ 25,647 $ 42,582
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank borrowings - warehouse lines of credit $ -- $ 18,034
other 1,500 1,500
Notes payable - affiliates 650 2,300
Accounts payable and other accrued liabilities 1,087 1,329
--------- ---------
3,237 23,163
Stockholders' Equity
Preferred stock - $.10 par value: 6,000,000
shares authorized: none issued -- --
Common stock - $.10 par value:
Authorized -- 6,000,000 shares
Issued -- 2,516,095 shares
Outstanding --
July 31, 1995 2,111,695 shares
October 31, 1994 2,109,695 shares 251 251
Additional paid-in capital 78,283 78,283
Unrealized gain on marketable securities 6,906 5,783
Accumulated deficit (60,451) (62,293)
Less: Common stock in treasury - at cost;
July 31, 1995 404,400 shares
October 31, 1994 406,400 shares (2,104) (2,130)
Minimum pension liability adjustment (475) (475)
--------- ---------
Total Stockholders' Equity 22,410 19,419
--------- ---------
$ 25,647 $ 42,582
========= =========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
3
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Figures)
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
July 31, July 31,
--------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Gains on sales of mortgage
loans and servicing rights $ -- $ 1,119 $ -- $ 6,158
Loan servicing revenue, net of
amortization of purchased
servicing rights -- 436 -- 1,203
Mortgage interest income -- 438 -- 2,773
Unrealized gain on
marketable securities -- 2,371 -- 5,099
Loss on sales of marketable securities -- -- (188) --
Interest and other income 18 278 33 622
------- ------- ------- -------
18 4,642 (155) 15,855
------- ------- ------- -------
Expenses
General and administrative 174 4,039 677 13,950
Mortgage interest -- 354 -- 2,182
Other interest 64 79 146 224
------- ------- ------- -------
238 4,472 823 16,356
------- ------- ------- -------
Income (loss) from continuing
operations before income taxes
and minority interest (220) 170 (978) (501)
Provision for income taxes 2 -- 3 --
------- ------- ------- -------
(222) 170 (981) (501)
Minority interest -- 1,036 -- 2,372
------- ------- ------- -------
Income (loss) from continuing
operations (222) 1,206 (981) 1,871
Income (loss) from sale of discontinued
operations - net of taxes (8) -- 2,823 --
------- ------- ------- -------
Net income (loss) $ (230) $ 1,206 $ 1,842 $ 1,871
======= ======= ======= =======
Net income (loss) per share
Continuing operations $ (.11) $ .60 $ (.44) $ .93
Discontinued operations -- -- 1.27 --
------- ------- ------- -------
Net income (loss) per share $ (.11) $ .60 $ .83 $ .93
======= ======= ======= =======
Average number of shares outstanding 2,112 1,997 2,212 2,015
======= ======= ======= =======
</TABLE>
See Notes to Consolidated Condensed Financial Statements
4
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
July 31, 1995 July 31, 1994
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,842 $ 1,871
Adjustments to reconcile net income to net
cash provided by used in operating activities:
Loss on sales of marketable securities 188 --
Unrealized gain on marketable securities -- (5,099)
Depreciation and amortization 12 932
Minority interest -- (2,372)
Changes in assets and liabilities:
Decrease in mortgage loans held for sale -- 105,187
(Increase) Decrease in accrued income and receivables (382) 574
Decrease in prepaid expenses and other 1 161
Decrease in accounts payable and other
accrued liabilities (242) (2,592)
-------- --------
Net cash provided by operating activities 1,419 98,662
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment -- (301)
Proceeds from sales of The Cooper Companies, Inc.
Common Stock -- 167
Acquisition of purchased servicing rights -- (101)
Investment in Unistar Gaming Corp. (3,624) --
Sale of discontinued operations 22,437 --
-------- --------
Net cash provided by (used in) investing activities 18,813 (235)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) notes payable - affiliate (1,650) 750
Proceeds from other bank borrowing -- 500
Decrease in line of credit borrowing (18,034) (75,966)
Issuance of common stock from treasury 26 --
Proceeds from servicing secured debt -- 4,000
Decrease in drafts payable for mortgage loans -- (27,675)
-------- --------
Net cash used in financing activities (19,658) (98,391)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 574 36
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 444 1,559
-------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,018 $ 1,595
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash used to pay interest $ 146 $ 2,406
Cash used to pay taxes $ 3 $ 2
</TABLE>
See Notes to Consolidated Condensed Financial Statements
5
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
July 31, 1995 and 1994
NOTE 1. - Business Of The Company
Cooper Life Sciences, Inc., a Delaware corporation (the "Company"), as
a result of the sale of substantially all of the assets of its mortgage banking
business on November 30, 1994, is not presently engaged in any business
operations.
On February 28, 1995, Unistar Gaming Corp. ("UGC") acquired Unistar
Entertainment, Inc., a privately held Colorado corporation ("Unistar"). Unistar
holds an exclusive contract with the Coeur d'Alene Indian Tribe in Idaho to
develop and manage what would be the first national lottery in the United
States. As a result of the acquisition, approximately 27.5 percent of the
outstanding Common Stock of UGC is now owned by the Company, and approximately
72.5 percent of the outstanding Common Stock of UGC is now owned by the former
stockholders of Unistar. The shares of UGC Common Stock which are owned by the
Company were purchased for $5 million comprised primarily of cash, portfolio
securities and a note payable.
UGC is presently in various stages of discussions with several
potential vendors with respect to the development and financing of the computer/
telecommunications system upon which the lottery will be based. UGC is also
engaged in discussions with respect to a possible acquisition or joint venture
transaction. If such a transaction is not consummated, it is the present
intention of the Company that upon the completion of the Securities and Exchange
Commission ("SEC") approval process, substantially all of the shares of Common
Stock of UGC which are owned by the Company will be distributed, on a one for
one basis, to the Company's stockholders of record on the record date for the
distribution (which has not yet been determined). The distribution would be in
the form of a taxable spin-off. At that time, the shares of UGC which had been
owned by the Company would be owned by its individual stockholders. Thereafter,
UGC (which owns all of Unistar) would carry on its business as an independent
public corporation. However, it is not anticipated that final SEC approval of
the distribution will be requested until satisfactory arrangements have been
made with respect to the development and financing of the tele-lottery system.
Whether or not the Company would (or could) proceed with the aforementioned
distribution of the UGC Common Stock which is owned by it if UGC and a third
party consummate an acquisition or joint venture transaction cannot be
determined at this time. The Company has been granted the right, for a six year
period, to designate one-third of the members of the Board of Directors of UGC.
The consolidated financial statements include the accounts of Cooper
Life Sciences, Inc. and its majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Certain amounts in
the 1994 financial statements have been reclassified to conform to the current
year's presentation. Interim financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended October 31, 1994.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary to present fairly the Company's consolidated financial
position as of July 31, 1995 and October 31, 1994 and the consolidated results
of its operations for the three and nine month periods ended July 31, 1995 and
1994, and its consolidated cash flows for the nine month periods ended July 31,
1995 and 1994.
6
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements - Continued
July 31, 1995 and 1994
NOTE 2. - Significant Accounting Policies
Net income per share is determined using the weighted average number of
common and common equivalent shares outstanding during the respective periods,
including the incremental shares from the dilutive effects of warrants and stock
options. Common stock equivalents have not been included in the determination of
net loss per share as they are antidilutive.
On October 31, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). In accordance with SFAS No. 115, Company
management determines the appropriate classification of securities at the time
of purchase and reevaluates such designation as of each balance sheet date.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported in a separate component of shareholders'
equity. The cost of securities sold is based on the average cost method. At July
31, 1995, the Company considers all of its holdings of The Cooper Companies,
Inc. common stock (the "TCC Common Stock") to be available-for-sale securities.
Changes in the valuation allowance resulting from unrealized gains or losses on
the TCC Common Stock were recorded in the statement of operations prior to the
adoption of SFAS No. 115 on October 31, 1994. At July 31, 1995, the Company
owned 6,967,600 shares of TCC Common Stock.
The Company owns approximately 20% of the outstanding TCC Common Stock
and intends to liquidate its holdings of TCC Common Stock in an orderly fashion
which should result in a holding of less than 20% of the outstanding TCC Common
Stock. Accordingly, management believes that fair value is the most meaningful
method of valuing this investment.
NOTE 3. - Discontinued Operations
On October 31, 1994, management of the Company formulated a plan to
discontinue its mortgage banking business. Accordingly the entire mortgage
banking operations of the Company's majority owned subsidiary, Second Advantage
Mortgage Corp. ("Second Advantage") and its wholly owned subsidiary, Entrust
Financial Corporation ("Entrust"), have been considered a discontinued operation
as of October 31, 1994.
On November 30, 1994, Entrust sold its entire origination business to
The Long Island Savings Bank, FSB ("LISB") for approximately $31 million in
cash. Approximately $750,000 of the purchase price will be retained in an
interest bearing escrow account through 1996 as security for the performance or
payment of indemnification obligations of Entrust to LISB, if any, (the "LISB
Escrow").
Pursuant to a Redemption Agreement dated as of April 19, 1995 (but
effective as of March 31, 1995), by and among Second Advantage and all of its
stockholders, including the Company, Second Advantage purchased all of its
outstanding capital stock held by the Company for a cash purchase price equal to
(a) approximately $3,879,000 plus (b) certain contingent considerations
consisting primarily of 50% of the first $763,800 to be received from the LISB
Escrow in 1995 and 1996.
7
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements - Continued
July 31, 1995 and 1994
NOTE 4. - Borrowings
In August 1993, the Company borrowed $1,500,000 from a bank the
proceeds of which were utilized in connection with the acquisition of Second
Advantage and is payable on November 29, 1995. The Company also maintains a
$500,000 revolving line of credit facility with the bank which expires on
November 29, 1995. At July 31, 1995, there were no borrowings against the line
of credit facility. The loan and line of credit facility bear interest at the
bank's prime rate (8.75% at July 31, 1995) plus 1.5%. The loan and line of
credit facility are collateralized by 1,500,000 shares of TCC Common Stock owned
by the Company.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
General
On October 31, 1994, management of the Company formulated a plan to
discontinue its mortgage origination and servicing business which was acquired
in August 1993. On November 30, 1994 the Company sold the majority of such
business to The Long Island Savings Bank, FSB ("LISB"), and effective as of
March 31, 1995, the Company sold its remaining interest in such business (see
Note 3 of Notes to Consolidated Condensed Financial Statements). Accordingly,
the results of the entire mortgage banking operations of Entrust have been
considered a discontinued operation for the three and nine months ended July 31,
1995. References to the "Company" herein shall be deemed to refer to the Company
and its consolidated subsidiaries unless the context otherwise requires.
Results of Operations for the Three and Nine Months Ended July 31, 1995 Compared
to the Three and Nine Months Ended July 31, 1994
Discontinued Operations. For the nine months ended July 31, 1995, net
income from discontinued operations was approximately $2,823,000 and includes
the gain on the sale of the majority of the business to LISB in November 1994
offset by the loss of approximately $819,000 on the disposition by the Company
of its remaining interest in the business effective as of March 31, 1995.
Continuing Operations. General and administrative expenses of
continuing operations for the third quarter ended July 31, 1995 increased by
$6,000, or 3%, to $174,000 from $168,000 in the 1994 quarter. For the nine
months ended July 31, 1995, general and administrative expenses decreased by
$20,000, or 3%, to $677,000 from $697,000 in the year ago period. Decreases in
professional fees, insurance expense and salaries of approximately $122,000 were
offset by increases in expenses related to the annual meeting of stockholders,
the Company's frozen benefit plan and the settlement of a legal dispute.
For the three and nine months ended July 31, 1995, interest expense
amounted to $64,000 and $146,000, respectively, compared to $79,000 and $224,00,
respectively, in the year ago periods. The decrease of $15,000 and $78,000 in
interest expense for the three and nine month periods is due to the repayment of
a note payable to an affiliate and lower interest rates, offset by interest on
the note payable to Unistar Gaming Corp. The unrealized gain on marketable
securities of $5,099,000 in 1994 represents a reversal of a previously recorded
valuation allowance due to an increase in the market price of the TCC Common
Stock owned by the Company. As of October 31, 1994 with the adoption of SFAS No.
115, such unrealized gains (or unrealized losses, if any) are reported in a
separate component of shareholders' equity (see Note 2 of Notes to Consolidated
Condensed Financial Statements).
Capital Resources and Liquidity:
Due to the sale of its mortgage banking business in November 1994, the
Company's principal financing needs for the remainder of fiscal 1995 will
consist primarily of funding its general and administrative expenses.
The Company believes that cash on hand will be sufficient to finance
its general and administrative expenses during fiscal 1995. In addition, it is
the Company's intention to dispose of the shares of TCC Common Stock which are
owned by it through sales from time to time in the open market (depending upon
prevailing market conditions), through privately negotiated transactions or
otherwise.
The Company did not have any material capital commitments at July 31,
1995.
9
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Heraeus Lasersonics, Inc. v. Cooper Life Sciences, Inc.
On November 22, 1992, Heraeus Surgical, Inc., formerly known as Heraeus
Lasersonics, Inc. ("Heraeus") filed an action in Santa Clara County Superior
Court (the "California Action"). In this action, Heraeus, the successor to the
Company's medical laser business, claims that the Asset Purchase Agreement,
dated May 11, 1988, (the "Asset Purchase Agreement") between the parties
obligates the Company to indemnify Heraeus with respect to lawsuits in which the
plaintiff alleges injury caused by a laser sold by the Company prior to the date
of the Asset Purchase Agreement. Heraeus claims, in particular, that the Company
is required to indemnify it for monies expended by Heraeus in defending, and in
settlement of, an Ohio lawsuit, referred to as the Sutyak action. Heraeus also
raises claims based on the principles of equitable indemnity, fraud and breach
of contract and seeks a declaratory judgement as to the proper interpretation of
the parties' obligations under the Asset Purchase Agreement. In a proposed first
amended complaint, Heraeus seeks to add cases in addition to the Sutyak action,
a California lawsuit referred to as the Spalti action and a Montana lawsuit
referred to as the Stukey action.
The Company has filed a cross-claim asserting that it has no duty to
indemnify Heraeus under the terms of the Asset Purchase Agreement and that part
or all of the damages in the Sutyak action were caused by Heraeus' independent
negligence, breach of its duty to warn and/or its liability with respect to its
own product. The Company's counterclaims also seek indemnification from Heraeus
both under the Asset Purchase Agreement and under common law principles for
monies expended by the Company in defending and in settlement of the Sutyak
action and seeks a declaratory judgement that Heraeus is obligated to defend the
Company in products liability cases involving lasers used after the date of the
Asset Purchase Agreement. The court has scheduled a settlement conference for
February 28, 1996 and has set the California Action for trial beginning March 4,
1996. The Company intends to vigorously defend the California Action.
Other Actions
The Company is also a defendant in certain other litigation relating to
its former business operations. In the opinion of management, based on the
advice of legal counsel, the ultimate outcome of these matters should not have a
material impact on the financial position or results of operations of the
Company.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit
Number Description
27 Financial Data Schedule.
b. There were no reports filed by the Company on Form 8-K during the
quarter for which this report on Form 10-Q is filed.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COOPER LIFE SCIENCES, INC.
(Registrant)
Date: September 11, 1995 By: /s/ Steven Rosenberg
--------------------- ----------------------
Steven Rosenberg
Vice President and Chief
Financial Officer
11
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Sequential
Page Number
------- ----------- -----------
27 Financial Data Schedule 13
12
<PAGE>
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COOPER
LIFE SCIENCES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
JULY 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> JUL-31-1995
<CASH> 1,018
<SECURITIES> 19,161
<RECEIVABLES> 382
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 33
<DEPRECIATION> 12
<TOTAL-ASSETS> 25,647
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 251
0
0
<OTHER-SE> 22,159
<TOTAL-LIABILITY-AND-EQUITY> 25,647
<SALES> 0
<TOTAL-REVENUES> (155)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 677
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> 1,845
<INCOME-TAX> 3
<INCOME-CONTINUING> (978)
<DISCONTINUED> 2,823
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,842
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
<FN>
See the financial statements for an unclassified balance sheet.
</TABLE>
