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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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 number)
160 Broadway, New York, New 10038
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (212) 791-5362
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
(Title of Class)
Preferred Stock Purchase Rights
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of voting (common) stock held by non-affiliates of the
Registrant as of January 17, 1996: $9,816,914.
Number of shares outstanding of each of the Registrant's classes of Common Stock
as of January 17, 1996: 2,111,695.
DOCUMENTS INCORPORATED BY REFERENCE:
The Proxy Statement for the Registrant's 1996 Annual Meeting of Stockholders is
incorporated by reference into Part III of this Form 10-K.
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PART I
ITEM 1. Business
On November 30, 1994, Cooper Life Sciences, Inc., a Delaware
corporation (the "Company"), sold substantially all of the assets of its
mortgage banking business and as of March 31, 1995 disposed of its remaining
interest in the business (see Note B of Notes to Consolidated Financial
Statements). As a result of this sale, the Company is not presently engaged in
any business operations. The Company's mortgage banking operations were
considered to be a discontinued operation as of October 31, 1994. The Company is
currently investigating new business opportunities.
On February 28, 1995, Unistar Gaming Corp., a newly organized, wholly
owned subsidiary of the Company, ("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 Common Stock which are owned by the Company were purchased by it for
approximately $5 million comprised primarily of cash, portfolio securities and a
note payable. In December 1995, the Company increased its stake in UGC to
approximately 31.5% by purchasing an additional 400,000 shares of UGC Common
Stock from a UGC stockholder for a cash purchase price of $.50 per share.
On December 19, 1995, pursuant to an Agreement and Plan of Merger,
Executone Information Systems, Inc., a Virginia corporation whose common stock
trades on the NASDAQ National Market System, ("Executone"), acquired all of the
issued and outstanding shares of UGC Common Stock, including all of the shares
of UGC Common Stock owned by the Company, in exchange for 3,700,000 shares of
Executone Common Stock (the "Executone Common Stock"), 250,000 shares of
Executone Series A Preferred Stock (the "Executone Series A Preferred Stock")
and 100,000 shares of Executone Series B Preferred Stock (the "Executone Series
B Preferred Stock"), collectively (the "Executone Securities"). The Company
received approximately 31.5% of the Executone Securities, comprised of a)
1,166,520 shares of Executone Common Stock, b) 78,819 shares of Executone Series
A Preferred Stock, and c) 31,528 shares of Executone Series B Preferred Stock.
(See Note C of Notes to Consolidated Financial Statements for more information
on the acquisition and disposition of UGC).
As a result of the death of Mr. Mel Schnell, the Company's President
and a member of its Board of Directors, a number of management changes were
instituted during May 1995. The number of persons comprising the Board of
Directors of the Company was increased from three to four, and Messrs. Moses
Marx (a principal stockholder of the Company) and Steven Rosenberg (Vice
President- Finance of the Company) were appointed by the continuing members of
the Board of Directors to fill the vacancies created by the death of Mr. Schnell
and the creation of an additional directorship. Each of such persons was
appointed to serve until the next annual meeting of stockholders and until his
successor has been elected and qualified. Mr. Marx was also designated by the
Company to replace Mr. Schnell as one of the Company's three designees on the
Board of Directors of The Cooper Companies, Inc.
Unless the context otherwise requires, all references contained herein
to the "Company" are to the Company and its consolidated subsidiaries.
Employees
On October 31, 1995, the Company had 1 employee.
Securities of The Cooper Companies, Inc.
Currently, the Company owns shares of common stock of The Cooper
Companies, Inc. (the "TCC Common Stock"), a Delaware corporation ("TCC"), the
common stock of which is traded on the New York Stock Exchange. As of January
15, 1996, the Company owned 2,322,533 shares of TCC Common Stock after giving
effect to a one- for-three reverse stock split which became effective on
September 21, 1995 (see
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Note D of Notes to Consolidated Financial Statements). Subject to prevailing
market conditions, it is the Company's intention to sell or otherwise dispose of
these assets and use the proceeds thereof to acquire new businesses. The Company
utilized 166,666 post-split shares of TCC Common Stock as part of the purchase
price of its UGC Common Stock.
ITEM 2. Properties.
The following is the Company's principal facility, which it currently rents on a
month to month basis.
<TABLE>
<CAPTION>
Approximate Approximate
Floor Area Annual
Location Operations (Sq. Ft.) Rent
- -------- ---------- --------- ----
<S> <C> <C> <C>
New York, NY Executive Offices 1,600 $ 29,000
</TABLE>
ITEM 3. Legal Proceedings.
Berlex Laboratories, Inc. v. Cooper Life Sciences, Inc., et al.
In June 1988, Berlex Laboratories, Inc. filed a number of related
actions naming as defendants, the Company and others. On April 17, 1995 a final
settlement agreement was reached, to which the Company contributed approximately
$21,000.
Spalti v. Cooper Life Sciences, Inc.
Gerald H. Spalti and his spouse brought an action in March 1992 against
the Company in the Superior Court of California, Contra Costa County, for
personal injuries allegedly suffered during a surgical procedure using laser
equipment manufactured by the Company. In May of 1993, at the conclusion of the
presentation of evidence at trial, the Court, as a matter of law, found in favor
of the Company ruling that Mr. Spalti's injuries were not caused by a
malfunction of the laser equipment. Thereafter, Spalti appealed the case and in
November 1995, the appellate court upheld the judgement in favor of the Company.
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 cross-claim 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 plans to vigorously defend the California Action.
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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. The Company accrued $250,000 for legal matters which the Company
believes to be an adequate provision.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock trades on the Nasdaq Stock Market under the
symbol ZAPS.
The following table sets forth, for the periods indicated, the high and
low sales prices for the Company's Common Stock as reported by the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal Year ended October 31, 1994
November 1, 1993 to January 31, 1994 8 1/2 7 1/2
February 1, 1994 to April 30, 1994 8 3/4 7
May 1, 1994 to July 31, 1994 7 1/2 6 1/4
August 1, 1994 to October 31, 1994 11 3/4 6 1/2
<CAPTION>
High Low
Fiscal Year ended October 31, 1995
November 1, 1994 to January 31, 1995 14 10
February 1, 1995 to April 30, 1995 18 3/4 11
May 1, 1995 to July 31, 1995 12 1/4 8 3/4
August 1, 1995 to October 31, 1995 11 7 1/2
</TABLE>
As of the close of business on January 17, 1996, there were 2,960
holders of record of the Company's Common Stock.
Dividends
To date, the Company has not paid any dividends on its common stock.
The payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon the Company's earnings, capital
requirements, financial condition and other relevant factors. The Board does not
intend to declare any dividends in the foreseeable future, but instead intends
to retain all earnings, if any, for working capital and to acquire new
businesses.
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ITEM 6. Selected Financial Data.
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Five Year Financial Highlights
Year-End Financial Position
(Dollars in Thousands)
The following is a summary of certain financial information with
respect to the Company's fiscal years ended October 31, 1995, 1994, 1993, 1992,
and 1991. This information is derived from and should be read in conjunction
with the Company's financial statements and notes thereto included elsewhere in
this Form 10-K.
<TABLE>
<CAPTION>
October 31,
-------------
1995 1994(1) 1993(2) 1992 1991
-------- ---- ------ ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total Assets $19,102 $42,582 $145,053 $ 15,124 $ 34,572
Long Term Debt -- 2,300 3,650 1,250 1,250
Total Liabilities 2,812 23,163 136,313 3,920 4,703
Stockholders' Equity 16,290 19,419 5,579 11,204 29,869
</TABLE>
(1) The financial information for the fiscal year ended October 31, 1994
includes the operations of the Company's majority owned subsidiary, Second
Advantage, as a discontinued operation as of October 31, 1994.
(2) The financial information for the fiscal year ended October 31, 1993
includes the operations of the Company's majority owned subsidiary, Second
Advantage Mortgage Corp. ("Second Advantage"), for the period from September 1,
1993, the effective date of the acquisition by the Company, through October 31,
1993.
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COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Five Year Financial Highlights
Summary of Consolidated Operations (a)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
For The Years Ended October 31,
1995 1994 (1) 1993 (2) 1992 1991
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<S> <C> <C> <C> <C> <C>
Revenues
Dividend income in kind $-- $-- $ 298 $ 2,135 $ 3,547
Dividend income -- 89 -- -- --
Realized and unrealized gain
(loss) on marketable securities (376) 9,320 (3,334) (8,528) --
Loss and write-down on The Cooper
Companies, Inc. Preferred Stock -- -- -- (12,611) --
Insurance recovery -- -- -- -- 752
Gain on settlement agreement -- -- -- 913 153
Interest and other income - net 51 176 163 347 243
------- ------- ------- -------- -------
(325) 9,585 (2,873) (17,744) 4,695
------- ------- ------- -------- -------
Expenses
General and administrative 1,132 979 2,086 3,353 2,538
Interest 193 283 149 165 8
------- ------- ------- -------- -------
Total Expenses 1,325 1,262 2,235 3,518 2,546
Income (loss) from continuing
operations before income taxes (1,650) 8,323 (5,108) (21,262) 2,149
Provision (benefit) from
income taxes -- -- (520) (935) (417)
------- ------- ------- -------- -------
Income (loss) from continuing
operations (1,650) 8,323 (4,588) (20,327) 2,566
Gain (loss) from discontinued
operations 2,823 (3,084) (35) 103 234
------ ------- ------- -------- -------
Income (loss) before cumulative
effect of change in accounting
principle and extraordinary item 1,173 5,239 (4,623) (20,224) 2,800
Extraordinary item - Utilization of
net operating loss carryforward -- -- -- 54 138
Cumulative effect of change in
accounting principle -- 2,009 -- -- --
------- ------- ------- -------- -------
Net income (loss) $ 1,173 $ 7,248 $(4,623) $(20,170) $ 2,938
======= ======= ======= ======== =======
Net income (loss) per share Fully Diluted:
Continuing operations $ (.75) $ 4.01 $ (2.17) $ (9.83) $ 1.27
Discontinued operations 1.28 (1.49) (.02) .05 .12
------- ------- ------- -------- -------
.53 2.52 (2.19) (9.78) 1.39
Extraordinary item -- -- -- .03 .06
Cumulative effect of change
in accounting principle -- .97 -- -- --
------- ------- ------- -------- -------
Net income (loss) per share $ .53 $ 3.49 $ (2.19) $ (9.75) $ 1.45
======= ======= ======= ======== =======
Cash dividends per common share $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======== =======
Weighted average number of
shares outstanding 2,206 2,076 2,113 2,067 2,023
======= ======= ======= ======== =======
</TABLE>
(a) The prior years' amounts have been reclassified to conform to the current
years' treatment.
(1) The financial information for the fiscal year ended October 31, 1994
includes the operations of the Company's majority owned subsidiary, Second
Advantage, as a discontinued operation as of October 31, 1994.
(2) The financial information for the fiscal year ended October 31, 1993
includes the operations of the Company's majority owned subsidiary, Second
Advantage, for the period from September 1, 1993, the effective date of the
acquisition by the Company, through October 31, 1993.
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ITEM 7. Managements' Discussion and Analysis of Financial Condition and Results
of Operations.
References to Notes herein are references to the "Notes to Consolidated
Financial Statements" of the Company located in Item 8 herein. Reference is also
made to Part I, Item 1 "Business" herein.
Capital Resources and Liquidity:
The Company anticipates that during fiscal 1996, its principal
financing needs will consist primarily of funding its general and administrative
expenses and the acquisition price of one or more new business activities. It
may be anticipated that any such acquisition will require the use by the Company
of shares of the common stock of The Cooper Companies, Inc. (the "TCC Common
Stock") which are owned by it. During the fiscal year ended October 31, 1995,
the Company sold its remaining interest in its mortgage banking business and is
not presently engaged in any business operations.
Management believes that cash on hand and internally generated funds
will not be sufficient to meet its corporate general and administrative, working
capital and other cash requirements during fiscal 1996, however, the Company may
raise cash by sales of shares of TCC Common Stock which are owned by it,
depending upon prevailing market conditions. The Company may obtain additional
cash by sales of its own debt and/or equity securities, and/or by the
utilization of the proceeds of borrowings.
The Company did not have any material capital commitments at the end of
fiscal 1995.
In 1995, the Company used cash primarily to acquire its interest in
Unistar Gaming Corp. ("UGC") (see Note C). During fiscal 1994, the Company's
principal financing needs consisted of funding its mortgage loans held for sale
and the ongoing net cost of mortgage loan originations.
Cash Flows
Operating Activities In fiscal 1995, the Company's operating activities
used cash primarily to fund its general and administrative expenses. Such cash
was provided by cash flow from investing activities as discussed below.
Investing Activities Net cash provided by investing activities in
fiscal 1995 was $18.8 million as a result of the sale by the Company of its
mortgage banking business offset by the investment of $3.6 million in UGC.
Financing Activities Net cash used in financing activities in fiscal
1995 amounted to $20.3 million due to the decrease in notes payable to
affiliates of $2.3 million and the decrease in line of credit borrowings of
$18.0 million used to finance mortgage banking operations.
Results of Operations
Comparison of each of the years in the three-year period ended October 31, 1995:
1995 vs. 1994
General.
On October 31, 1994, management of the Company formulated a plan to
discontinue its majority owned 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 all of its remaining interest in the
business (see Note B). Accordingly, the entire mortgage banking operations of
Second Advantage and its wholly owned subsidiary, Entrust Financial Corp.
("Entrust") have been considered a discontinued operation as of October 31,
1994.
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Discontinued Operations. The net income of $2,823,000 from discontinued
operations in 1995 includes the Company's share of the gain on the sale of the
majority of the mortgage banking 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.
Marketable Securities. The realized loss on marketable securities of
$376,000 in 1995 represents the loss incurred on the utilization of shares of
TCC Common Stock as part of the acquisition price of the Company's interest in
UGC (see Note C). The unrealized gains on marketable securities of $9,300,000 in
1994 were the result of an increase in the market price of the TCC Common Stock
owned by the Company offset by the realized loss of approximately $500,000 on
shares of TCC Common Stock sold during 1994 as the Company began the orderly
process of liquidating its holdings in TCC Common Stock. Through October 31,
1994, the Company accounted for its marketable securities under FASB No. 12, and
recognized unrealized gains and losses through a valuation allowance. On October
31, 1994, the Company adopted the provisions of FASB No. 115. The effect of
adopting FASB No. 115 was the recording of income relating to the cumulative
effect of a change in accounting principle of $2,009,000 representing the
remaining unrecorded balance in the valuation allowance (see Note D). Change in
the market value of the available for sale securities after October 31, 1994 are
not reflected in the statement of operations, but rather in the unrealized gain
(loss) on marketable securities account, which is a component of stockholders'
equity on the balance sheet.
Interest and Other Income. Interest and other income decreased by
$125,000 to $51,000 in 1995 from $176,000 in 1994 due to a one time gain in 1994
of $159,000 on the elimination of an estimated liability.
Interest Expense. Interest expense decreased by $90,000 to $193,000 in
1995 from $283,000 due to reduced borrowings.
1994 vs. 1993
Discontinued Operations. The loss from discontinued operations of
$3,084,000 and $35,000 in 1994 and 1993, respectively, represents the Company's
share of the losses of Second Advantage and Entrust.
The sharp increase in mortgage loan interest rates which began in late
1993 caused a significant decrease in mortgage loan demand, particularly for
refinancings. As a result of this rapid decline in overall origination volumes,
there existed a significant overcapacity within the mortgage banking industry,
leading to intense price competition and increased production costs. During this
industry wide transition period, Entrust's operating results were negatively
impacted by these market conditions.
Entrust derived virtually all of its revenue from the origination and
sale of mortgage loans and the servicing of its loan portfolio. The results of
its operations are primarily affected by the level of demand for mortgage
credit, the movement and level of interest rates and the spread between mortgage
loan interest rates and its cost of funds. Consequently, Entrust made various
types of commitments to, among other things, originate loans, sell loans and, in
addition, utilizes put options and other optional commitments to mitigate the
interest rate risk inherent in the business.
Mortgage Origination Revenue. Mortgage origination revenue, primarily
mortgage-related revenues and net secondary marketing gains other than net
interest income and servicing income for the fiscal year ended October 31, 1994
and the period from September 1, 1993 (date of inception of operations) to
October 31, 1993 were approximately $7,577,000 and $2,867,000, respectively.
Such revenues are directly impacted by the volume in mortgage loan demand which
declined dramatically during 1994 due primarily to the sharp rise in interest
rates.
Net secondary marketing gains depend, in part, upon the direction and
timing of interest rate movements. Entrust attempted to minimize the impact of
such movements through an actively managed hedging program. Net secondary
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marketing gains are also affected by competitive pricing policies employed by
Entrust from time to time in order to stimulate loan originations.
Servicing Income. Servicing income included income derived from
company-owned servicing rights (a long-term servicing contract with the owner of
the loan) and income from subservicing rights (generally a shorter term
servicing contract usually entered into with another servicer who has a direct
servicing contract with the owner of the loan). Servicing income, net of
amortization of purchased servicing rights, for the fiscal year ended October
31, 1994 and the period from September 1, 1993 to October 31, 1993 were
approximately $2,382,000 and $189,000, respectively.
The rate at which the Company amortized its capitalized servicing
depended, in part, on the rate at which loans in the servicing portfolio prepay.
Prepayments in Entrust's servicing portfolio as of October 31, 1994 was
approximately 12% on an annualized basis.
Growth of Entrust's owned servicing portfolio had been a key component
of the Company's overall business strategy with management's expectation of
increased servicing income as the servicing portfolio grows. Additions to the
portfolio during fiscal 1994 amounted to approximately $241 million. At October
31, 1994, Entrust's owned servicing portfolio was approximately $915 million as
compared to approximately $674 million at October 31, 1993.
Sale of Servicing Rights. Although the Company's ongoing business
strategy had been to increase its servicing portfolio by retaining most of its
originated servicing, the Company implemented a strategy to increase revenues by
selling virtually all production on a servicing released basis during the second
half of 1994. For the fiscal year ended October 31, 1994, Entrust recorded
revenue of approximately $2,500,000 on the sale of loans servicing released on
mortgage loans with an aggregate principal balance of approximately $276 million
as compared to revenue of $538,000 on loan sales with an aggregate principal
balance of $45 million in 1993. The prices at which servicing rights may be sold
vary over time depending upon, among other things, prevailing interest rates and
prepayment rates. The Company's decision to sell its loan production on a
servicing released basis, thereby increasing revenues, was based on market
conditions as well as the Company's financial needs.
Mortgage Interest Income. The level of Entrust's net interest income
depends primarily upon the extent to which interest income on Entrust's mortgage
loans held for sale exceeds interest expense on the mortgage warehouse line of
credit borrowings used to fund such mortgage loans pending receipt of the
proceeds from their sale. Ordinarily, the short-term interest rates on Entrust's
warehouse borrowings are lower than long-term interest rates on the mortgage
loans held for sale and Entrust benefits from this difference or spread during
the period mortgage loans are held. The sharp rise in short-term interest rates
during 1994 have narrowed this difference resulting in reduced levels of net
interest income. In 1994, Entrust's net interest income was approximately
$526,000 as compared to approximately $307,000 for the two months ended October
31, 1993.
Income From Continuing Operations
Marketable Securities. Unrealized gains on marketable securities
amounted to approximately $9.8 million in 1994 resulting from an increase in the
market price of the TCC Common Stock owned by the Company as compared to the
unrealized loss of approximately $3.3 million in 1993. Realized losses in 1994
were approximately $500,000.
Dividend Income. Dividend income of $89,000 in 1994 represents
dividends paid on the TCC Series B Preferred Stock through September 26, 1994,
the date on which the TCC Series B Preferred Stock was converted into TCC Common
Stock. Dividend income of $298,000 in 1993 represents dividends received on the
TCC Preferred Stock (see Note D).
Interest Expense. Interest expense increased by $134,000 to $283,000 in
1994 from $149,000 in 1993 due to other bank borrowings.
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Net Sales and Cost of Products. Net sales generated by the Company's
80% owned subsidiary, Moore Sports Ltd. ("Moore Sports"), were $ 0, $3,800 and
$167,000 in 1995, 1994 and 1993 respectively. The cost of products sold were $
0, $6,700 and $294,000 in 1995, 1994 and 1993 respectively. Moore Sports was
substantially inactive in 1995.
General and Administrative Expense
The Company's G&A increased by $153,000 to $1,132,000 in 1995 from
$979,000 in 1994. The increase is due to an accrual of $250,000 for certain
legal matters partially offset by reductions in legal expenses associated with
litigation and other matters which were resolved during 1994 and reductions in
other overhead expenses including salaries, insurance costs and professional
fees. G&A declined significantly in 1994 vs. 1993 due primarily to the
downsizing of Moore Sports. G&A in 1993 includes all of the expenses of Moore
Sports including salaries, marketing, advertising, and a one time charge of
$105,000 relating to the termination of certain agreements.
Inflation and Changing Prices
The Company has not been materially affected by inflation.
Impact of New Accounting Standards
On October 31, 1994, the Company implemented Financial Accounting
Standard No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). The effect of adopting FASB No. 115 was the
recording of income relating to the cumulative effect of the change in
accounting totaling $2,009,000. This amount represents the remaining unrealized
valuation allowance at October 31, 1994.
Gross realized gains on sales of available-for-sale securities totaled
$54,000 for the year ended October 31, 1994. Gross realized losses on sales of
available-for-sale securities totaled $376,000 and $548,000 for the years ended
October 31, 1995 and 1994, respectively. Cost of securities sold was determined
by the average cost method.
Changes in the valuation allowance resulting from unrealized gains or
losses on the TCC Common Stock have been recorded in the statement of operations
prior to the adoption of SFAS No. 115 on October 31, 1994.
Financial Accounting Standard No. 123 "Accounting for Stock Based
Compensation", issued in 1995, introduces a method of accounting for employee
stock-based compensation plans based upon the fair value of the awards on the
date they are granted. Under this fair value based method, public companies
estimate the fair value of stock options using a pricing model, such as the
Black Scholes model, which requires inputs such as the expected volatility of
the stock price and an estimate of the dividend yield over the option's expected
life. The FASB, however, does not require the use of this method. Entities that
continue to account for stock option plans under the existing method (APB No.
25) are required to disclose proforma net income and earnings per share, as if
the fair value method had been used. Certain additional disclosures are also
required. The Company expects to disclose the proforma net income, earnings per
share and other information as of the effective date of this pronouncement for
the year ended October 31, 1997.
ITEM 8. Financial Statements and Supplementary Data.
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Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Cooper Life Sciences, Inc.
We have audited the accompanying consolidated balance sheets of Cooper Life
Sciences, Inc. and its subsidiaries as of October 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the three years ended October 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cooper Life
Sciences, Inc. and its subsidiaries as of October 31, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended October 31, 1995 in conformity with
generally accepted accounting principles.
We have also audited the financial statement schedule listed in the accompanying
index at Item 14(a)(ii) for the years ended October 31, 1995, 1994 and 1993. In
our opinion, this financial statement schedule presents fairly, in all material
respects, the information required to be set forth therein.
As discussed in Note D to the consolidated financial statements, the Company
changed its method of accounting for investments on October 31, 1994.
GRANT THORNTON LLP
New York, New York
January 2, 1996
11
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
October 31,
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 341 $ 444
Marketable Securities - The Cooper Companies, Inc.
Common Stock 13,645 19,602
Due from Second Advantage Mortgage Corp. 194 --
Prepaid expenses and other 81 53
Investment in Unistar Gaming Corp. 4,812 --
Furniture, fixtures and equipment, net of
accumulated depreciation of $62 in 1995
and $46 in 1994 29 45
Net assets of discontinued operations -- 22,438
-------- --------
$ 19,102 $ 42,582
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank borrowings - line of credit for mortgage operations $ -- $ 18,034
other 1,500 1,500
Notes payable - affiliates -- 2,300
Accounts payable and accrued liabilities 1,312 1,329
-------- --------
2,812 23,163
Commitments and contingencies
Stockholders' equity
Preferred stock - $.10 par value: 6,000,000
shares authorized: none issued -- --
Common stock - $.10 par value:
6,000,000 shares authorized:
2,516,095 shares issued 251 251
Additional paid-in capital 78,283 78,283
Unrealized gain on marketable securities 1,389 5,783
Accumulated deficit (61,120) (62,293)
Less: Common stock in treasury - at cost;
404,400 shares and 406,400 shares at
October 31, 1995 and 1994, respectively (2,104) (2,130)
Minimum pension liability adjustment (409) (475)
-------- --------
Total stockholders' equity 16,290 19,419
-------- --------
$19,102 $42,582
======== ========
</TABLE>
The accompanying notes are an integral part of
these statements.
12
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
For The Years Ended October 31,
1995 1994 1993
----- ----- ----
<S> <C> <C> <C>
Revenues
Dividend income $ -- $ 89 $ 298
Realized and unrealized gain (loss)
on marketable securities (376) 9,320 (3,334)
Interest income and other income - net 51 176 163
------- ------- -------
(325) 9,585 (2,873)
------- ------- -------
Expenses
General and administrative 1,132 979 2,086
Interest 193 283 149
------- ------- -------
Total expenses 1,325 1,262 2,235
------- ------- -------
Income (loss) from continuing operations
before income taxes (1,650) 8,323 (5,108)
Provision (benefit) from income taxes -- -- (520)
------- ------- --------
Income (loss) from continuing operations (1,650) 8,323 (4,588)
Gain (loss) from discontinued operations 2,823 (3,084) (35)
------- ------- -------
Income (loss) before cumulative effect of
change in accounting principle 1,173 5,239 (4,623)
Cumulative effect of change
in accounting principle -- 2,009 --
------- ------- -------
Net income (loss) $ 1,173 $ 7,248 $(4,623)
======= ======= =======
Net income (loss) per share
Primary:
Continuing operations $ (.75) $ 4.04 $ (2.17)
Discontinued operations 1.28 (1.50) (.02)
------- ------- -------
.53 2.54 (2.19)
Cumulative effect of change
in accounting principle -- .98 --
------- ------- -------
Net income (loss) per share $ .53 $ 3.52 $ (2.19)
======= ======= =======
Weighted average number of shares outstanding 2,201 2,058 2,113
======= ======= =======
Fully Diluted:
Continuing operations $ (.75) $ 4.01 $ (2.17)
Discontinued operations 1.28 (1.49) (.02)
------- ------- -------
.53 2.52 (2.19)
Cumulative effect of change
in accounting principle -- .97 --
------- ------- -------
Net income (loss) per share $ .53 $ 3.49 $ (2.19)
======= ======= =======
Weighted average number of shares outstanding 2,206 2,076 2,113
======= ======= =======
</TABLE>
The accompanying notes are an integral part of
these statements.
13
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years Ended October 31, 1995, 1994 and 1993
(Dollars In Thousands)
<TABLE>
<CAPTION>
Minimum
pension
Addi- Unrealized liabil-
Common stock tional gain on Accumu- ity
Par paid-in marketable lated Treasury adjust-
Shares value capital securities deficit stock ment Total
------ ----- ------- ---------- ------- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1992 2,391 239 77,419 (64,918) (1,088) (448) 11,204
Net loss (4,623) (4,623)
Treasury shares acquired (1,000) (1,000)
Issuance of common
stock warrants 25 25
Excess of additional pension
liability over unrecognized
prior service cost (27) (27)
----- ----- ------- ---------- -------- ------- ------ -------
Balance at October 31, 1993 2,391 239 77,444 (69,541) (2,088) (475) 5,579
Net income 7,248 7,248
Treasury shares acquired (74) (74)
Exercise of common
stock warrants 125 12 847 859
Treasury shares issued
for pension plan contribution (8) 32 24
Effect of accounting
change due to increase in
market value of marketable
securities 5,783 5,783
----- ----- ------- ---------- -------- ------- ------ -------
Balance at October 31, 1994 2,516 $ 251 $78,283 $ 5,783 $(62,293) $(2,130) $ (475) $ 19,419
Net income 1,173 1,173
Treasury shares issued
for pension plan contribution 26 26
Reduction in value of
marketable securities (4,394) (4,394)
Reduction in pension
liability over unrecognized
prior service cost 66 66
----- ----- ------- ---------- -------- ------- ------ --------
Balance at October 31, 1995 2,516 $ 251 $78,283 $ 1,389 $(61,120) $(2,104) $ (409) $ 16,290
===== ===== ======= ========== ======== ======= ====== ========
</TABLE>
The accompanying notes are an integral part
of this statement.
14
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For The Years Ended October 31,
1995 1994 1993
-------- -------- ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,173 $ 7,248 $ (4,623)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Cumulative effect of change in accounting principle -- (2,009) --
Realized and unrealized (gain) loss on
marketable securities 376 (9,320) 3,334
Gain (loss) from discontinued operations (2,823) 3,084 --
Dividends received in kind -- -- (298)
Issuance and exercise of common stock warrants -- 109 25
Reduction of estimated other tax liabilities -- -- (554)
Depreciation and amortization 16 17 279
Minority interest -- -- (98)
Changes in assets and liabilities:
Increase in mortgage loans held for sale, net -- -- (33,590)
Increase in accrued income and receivables (194) -- (87)
Decrease (increase) in prepaid expenses and other (27) 296 (1)
(Decrease) increase in accounts payable and other
accrued liabilities 75 (688) (572)
-------- -------- --------
Net cash used in operating activities (1,404) (1,263) (36,185)
-------- -------- --------
Cash flows from investing activities:
Sale of discontinued operations 25,260 -- --
Investment in Unistar Gaming Corp. (3,625) -- --
Cash received on sale of The Cooper
Companies, Inc. common stock -- 2,107 --
Cash of discontinued operations -- (1,409) --
Cash received in exchange of The Cooper
Cooper Companies, Inc. preferred stock -- -- 4,000
Purchase of property and equipment -- -- (145)
Decrease in notes receivable - affiliate -- -- 60
Cash used in acquisition of affiliate, net of
cash acquired -- -- (2,204)
-------- -------- --------
Net cash provided by investing activities 21,635 698 1,711
-------- -------- --------
Cash flows from financing activities:
(Decrease) increase in notes payable - affiliates (2,300) (500) 900
Increase in other bank borrowings -- -- 1,500
Payments on notes payable -- -- (1,269)
Increase (decrease) in line of credit borrowings (18,034) -- 23,797
Increase in drafts payable -- -- 9,138
Acquisition of treasury stock -- (50) --
Proceeds from capital contributed by minority
stockholders to subsidiary -- 150
-------- -------- --------
Net cash provided by (used in) financing activities (20,334) (550) 34,216
-------- -------- --------
Net decrease in cash and cash equivalents (103) (1,115) (258)
Cash and cash equivalents at beginning of year 444 1,559 1,817
-------- -------- --------
Cash and cash equivalents at end of year $ 341 $ 444 $ 1,559
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 192 $ 283 $ 1,024
Income Taxes $ 22 $ 35 $ 19
</TABLE>
15
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(IN THOUSANDS)
Supplemental schedule of non cash investing activities (Notes B, C and F)
The Company initially acquired 27.5% of the common stock of Unistar
Gaming Corp. for $4.8 million. The purchase price was satisfied as follows:
<TABLE>
<S> <C>
Cash $2,500,000
Forgiveness of indebtedness
for advances to UGC 475,000
Note payable 650,000
Fair value of TCC Common Stock
issued to UGC 1,188,000
----------
$4,813,000
==========
</TABLE>
During 1994, a stockholder exercised warrants for the purchase of
125,000 shares of common stock for $750,000. The exercise price was provided by
a reduction in the note payable to the shareholder.
The Company acquired 51% of the voting securities of Second Advantage
Mortgage Corporation for $4.7 million in 1993.
<TABLE>
<S> <C>
Fair value of assets acquired $ 108,800
Liabilities assumed (104,100)
---------
Cash used in acquisition $ 4,700
=========
</TABLE>
The accompanying notes are an integral part of these
statements.
16
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1995, 1994 and 1993
NOTE A - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
Cooper Life Sciences, Inc. (the "Company"), a Delaware corporation,
owned a majority interest in a company engaged in mortgage banking from August
1993 to October 1994 (Note B). At the present time, the Company is not engaged
in any operating activities.
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows:
1. Principles of Consolidation
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.
2. Marketable Securities
On October 31, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities." In accordance with Statement 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. Marketable
equity securities not held as trading assets in anticipation of short-term
market movements are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with the unrealized gains and losses, net
of tax, reported as a separate component of shareholders' equity. The cost of
securities sold is based on the average cost method. At October 31, 1995, the
Company considers all of its holdings of The Cooper Companies, Inc. ("TCC")
common stock to be securities available for sale.
The Company owns approximately 20% of the outstanding common stock of
TCC. The Company's intent is 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.
3. Investment in Unistar Gaming Corp.
The Company owns approximately 31% of the outstanding common stock of
Unistar Gaming Corp. ("UGC") (see Note C). The Company sold its investment in
UGC in December 1995. Accordingly, management believes that fair value is the
most meaningful method of valuing this investment.
4. Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets
ranging from 3 to 20 years. Leasehold improvements are amortized over the
shorter of the economic life of the improvements or the remaining terms of the
applicable leases.
17
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
October 31, 1995, 1994 and 1993
NOTE A - (continued)
5. Income Taxes
During the year ended October 31, 1993, the Company adopted Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 109
("SFAS No. 109") - Accounting for Income Taxes. The adoption of SFAS No. 109 did
not have a significant effect on the financial position or results of operations
of the Company.
6. Net Income (Loss) Per Share
Net income (loss) per share is determined using the weighted average
number of Common shares and dilutive common stock equivalents outstanding during
the respective periods. Common stock equivalents have not been included in the
determination of net loss per share as they are antidilutive or have no material
effect.
7. Cash Equivalents
The Company considers all highly liquid debt investments purchased with
an original maturity of three months or less to be cash equivalents.
8. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the period. Actual results could differ from those
estimates. The principal estimates and assumptions used by the Company are the
valuation of the investment in Unistar Gaming Corp. (Note C), the tax liability
reserve (Note H), long-term assumptions used for the employee benefit plan (Note
J) and the litigation reserve (Note L).
9. Reclassifications
Certain amounts in the 1994 and 1993 financial statements have been
reclassified to conform to the current year's presentation.
NOTE B - SECOND ADVANTAGE MORTGAGE CORPORATION
Disposition
On October 31, 1994, management of the Company formulated a plan to
discontinue its mortgage banking business. Accordingly the entire mortgage
banking operations of Second Advantage Mortgage Corp. ("Second Advantage"), a
51% owned subsidiary of the Company, and its wholly owned subsidiary, Entrust
Financial Corp. ("Entrust") was considered a discontinued operation as of
October 31, 1994.
On November 30, 1994, pursuant to an Asset Purchase Agreement dated as
of November 23, 1994 by and between The Long Island Savings Bank, FSB ("LISB")
and Entrust (the "Asset Purchase Agreement"), Entrust sold to LISB its entire
origination business, including mortgage loans held for sale and mortgage loans
in process, a substantial portion of its rights to service loans for others, and
a substantial portion of its fixed assets. Pursuant to the Asset Purchase
18
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
October 31, 1995, 1994 and 1993
NOTE B - (continued)
Agreement, LISB assumed the prospective obligations and duties of Entrust under
certain contracts and leases relating to the assets acquired by it.
The gross purchase price realized by Entrust in the transaction was
approximately $31 million in cash, which after repayment of indebtedness related
to the business (including repayment to two officers and directors of Second
Advantage of approximately $1.0 million principal amount of indebtedness for
borrowed money and approximately $17.8 million to its principal lender to retire
its warehouse and credit facility secured indebtedness) will result in net sale
proceeds to Entrust of approximately $11.0 million. The gain on such sale
amounted to approximately $2.8 million. As of October 31, 1995, all of the
purchase price proceeds had been received by Entrust, $18.8 million of which was
used to retire indebtedness, excluding approximately $375,000 which was retained
in escrow (the "LISB Escrow") as security for the performance or payment of
indemnification obligations of Entrust to LISB, if any, which is expected to be
paid to Entrust in 1996.
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. In September 1995, the Company received $187,500 from
the LISB Escrow.
The net assets of the discontinued operations at October 31, 1994 are
summarized as follows:
<TABLE>
<S> <C>
Mortgage loans held for sale, net of discount $19,711,000
Purchased mortgage servicing rights, net of
accumulated amortization of $885,000 4,734,000
Other assets 3,860,000
Drafts payable issued for
mortgage loan closings (5,250,000)
Other liabilities (617,000)
-----------
$22,438,000
===========
</TABLE>
The results of the discontinued operations for the years ended October
31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
Year Year
ended ended
1995 1994
------------ --------
<S> <C> <C>
Revenue $ - $ 11,024,000
Net loss - (6,017,000)
Loss allocable
to the Company - (3,084,000)
Loss per share $ - $ (1.54)
</TABLE>
19
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
October 31, 1995, 1994 and 1993
NOTE B - (continued)
Entrust had a $63 million warehouse bank line of credit (the
"Warehousing Agreement") to fund its mortgage loan activity which was fully paid
and terminated effective November 30, 1994. This line of credit bore interest at
various rates, primarily the Euro-dollar rate, including a rate adjusted for
compensating balances. The weighted average cost of funds under this line of
credit was 4.95% for the fiscal year ended October 31, 1994. Borrowings under
this line were collateralized by mortgage loans held for sale and were
guaranteed by Entrust. At October 31, 1994, borrowings under this facility
totaled approximately $14.2 million. These borrowings were repaid when Entrust
received payment from the sale of the underlying mortgage loan collateral.
Entrust was to comply with certain covenants provided in its loan agreements,
including requirements relating to maintenance of net worth, liabilities to net
worth, current assets to current liabilities, loan servicing portfolio and
dividend restrictions.
Entrust also made use of a Servicing Secured Credit Agreement, which
was fully paid and terminated effective November 30, 1994, which provided for a
line of credit for up to $6.0 million, secured by servicing contracts of
approximately $915 million principal amount, and subject to covenants
substantially the same as those under the Warehousing Agreement. The weighted
average cost of funds under this line of credit was 8.51% for the fiscal year
ended October 31, 1994. At October 31, 1994, borrowings under this line of
credit amounted to $3.8 million.
At October 31, 1994, Entrust was not in compliance with certain
covenants related to its line of credit arrangements. However, the line of
credit was repaid on November 30, 1994 in connection with the sale of the
mortgage banking operations to LISB.
Interest expense and related fees on Entrust's line of credit
borrowings for the fiscal year ended October 31, 1994 and the period from
September 1, 1993 to October 31, 1993 were approximately $2.2 million and
$645,000, respectively, were specifically related to the mortgage operations,
and are included in the loss from discontinued operations in the accompanying
consolidated statement of income.
Entrust had approximately $5.3 million and $35.2 million in drafts
payable at October 31, 1994 and 1993, respectively, issued to facilitate the
closing of mortgage loan originations. Drafts payable represented mortgage loans
for which closings have occurred prior to October 31, 1994, for which the drafts
have not cleared the bank line-of-credit. Upon clearing the bank, the drafts
were funded by line of credit borrowings.
Acquisition
On August 31, 1993, the Company, through its newly organized,
wholly-owned subsidiary, Greater American Finance Group, Inc., acquired 51% of
the outstanding voting securities of Second Advantage Mortgage Corporation
("Second Advantage") which simultaneously acquired all of the issued and
outstanding capital stock of Leader Financial Corporation ("Leader") in exchange
for 49% of the voting securities of Second Advantage. Leader is primarily
engaged in the business of servicing residential mortgages. At the same time,
Leader acquired the assets and properties comprising the mortgage origination
businesses of two other companies, First Advantage Mortgage Corporation and
EnTrust Funding Company for approximately $6.1 million. Leader then changed its
name to First Advantage Mortgage Corporation who subsequently changed its name
to Entrust Financial
20
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
October 31, 1995, 1994 and 1993
NOTE B - (continued)
Corporation ("Entrust"). Such operations were sold in November 1994 and is
considered as a discontinued operation as of October 31, 1994.
The purchase price for the Company's investment in Second Advantage was
$4.7 million. The Company also loaned $650,000 to Second Advantage. The sources
of funds utilized by the Company in this transaction were available working
capital (approximately $4.0 million) and the proceeds of a $1.5 million bank
loan.
The acquisition of Second Advantage was accounted for as a purchase and
the results of the operations of Second Advantage are included in the
accompanying statement of operations from the date of the acquisition. The
excess of the purchase price over carrying value of net mortgage banking assets
purchased was allocated to purchased servicing rights amounting to approximately
$1,300,000. Because the transfer of Leader's net assets was to a commonly
controlled entity, Leader's assets and liabilities were recorded at their
respective book values, which approximated $1.8 million in net assets on the
date of acquisition.
The following is an unaudited summary of the results of operations for
the years ended October 31, 1993 and 1992 as if the acquisition had taken place
as of the beginning of the year. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations for the periods specified had the transaction actually been completed
at the beginning of each respective period or of the results which may occur in
the future.
<TABLE>
<CAPTION>
1993 1992
------------ --------
<S> <C> <C>
Revenues $15,595,000 $ (480,000)
Loss from operations $(5,459,000) $(19,985,000)
Net loss $(5,391,000) $(19,828,000)
Loss per share $ (2.55) $ (9.59)
</TABLE>
NOTE C - Unistar Gaming Corp.
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% of the outstanding
Common Stock of UGC is now owned by the Company, and approximately 72.5% 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 approximately $5 million comprised primarily of cash, portfolio
securities and a note payable. In December 1995, the Company increased its stake
in UGC to approximately 31.5% by purchasing an additional 400,000 shares of UGC
Common Stock from a UGC stockholder for a cash purchase price of $.50 per share.
On December 19, 1995 (the "Closing Date"), pursuant to an Agreement and
Plan of Merger, Executone Information Systems, Inc., a Virginia corporation
whose common stock trades on the NASDAQ National Market System, ("Executone"),
acquired all of the issued and outstanding shares of UGC Common Stock, including
all of the shares of UGC Common Stock owned by the Company, in exchange for
3,700,000 shares of Executone Common Stock (the "Executone Common Stock"),
250,000 shares of Executone Series A Preferred Stock (the "Executone Series A
Preferred Stock") and 100,000 shares of Executone Series B Preferred Stock (the
"Executone Series
21
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
October 31, 1995, 1994 and 1993
NOTE C - (continued)
B Preferred Stock"), collectively (the "Executone Securities"). Each share of
Executone Series A and Series B Preferred Stock has voting rights equal to a
share of Executone common stock and will earn dividends equal to its
proportionate share (18.5% for Series A and 31.5% for Series B) of 50% of UGC's
net income. The Executone Series A and Series B Preferred Stock is redeemable at
Executone's option for 4.925 million shares and 8.375 million shares,
respectively, of Executone common stock and is convertible at the holders'
option, if certain revenue and profit parameters are met by UGC, for up to 4.925
million shares and 8.375 million shares, respectively, of Executone common
stock. The Executone Series B Preferred Stock is subject to the approval of
Executone's shareholders for redemption or conversion into Executone Common
Stock. There can be no assurance, however, that UGC will earn net income
sufficient to pay dividends on the Executone Series A and Series B Preferred
Stock or that UGC will meet the revenue and profit parameters necessary to
enable the holders to convert the Executone Series A and Series B Preferred
Stock into Executone Common Stock.
In exchange for its shares of UGC Common Stock, the Company received
approximately 31.5% of the Executone Securities, comprised of a) 1,166,520
shares of Executone Common Stock, b) 78,819 shares of Executone Series A
Preferred Stock, and c) 31,528 shares of Executone Series B Preferred Stock. The
Company has agreed that for a period of six months following the Closing Date
not to sell, transfer, assign, pledge or grant a security interest in its
Executone Securities and thereafter, through the last day of the twelfth full
calendar month following the Closing Date, not to sell in any calendar month a
number of shares of its Executone Securities equal to more than the sum of
16.66% of the Executone Preferred Stock or the Executone Common Stock issued to
the Company on the Closing Date or thereafter and any unused amount from
previous calendar months. Not later than August 31, 1996, Executone is obligated
to file with the Securities and Exchange Commission a registration statement
covering the resale of all shares of the Executone Common Stock issued on the
Closing Date plus all shares of Executone Common Stock issuable upon the
conversion or redemption of the Executone Series A or Series B Preferred Stock.
NOTE D - THE COOPER COMPANIES COMMON AND PREFERRED STOCK
At October 31, 1995 and 1994, the Company owned 2,322,533 shares and
2,489,200 shares, respectively of the common stock of The Cooper Companies, Inc.
("TCC"), (the "TCC Common Stock"),(after giving effect to a one-for-three
reverse stock split which became effective on September 21, 1995) At October 31,
1993, the Company owned 345 shares of TCC series B preferred stock (the "TCC
Series B Preferred Stock") which represented all of the issued and outstanding
shares of TCC Series B Preferred Stock. On September 26, 1994, the 345 shares of
TCC Series B Preferred Stock were converted into 3,450,000 shares of TCC Common
Stock.
The following is a summary of available-for-sale securities as of
October 31, 1995 and 1994:
<TABLE>
<CAPTION>
Gross
Unrealized Fair
(in thousands) Cost Gains Value
---- ----- -----
<S> <C> <C> <C> <C>
The Cooper Companies, Inc.
Common Stock
1995 $12,256 $1,389 $13,645
======= ====== =======
1994 $13,819 $5,783 $19,602
======= ====== =======
</TABLE>
22
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
October 31, 1995, 1994 and 1993
NOTE D - (continued)
Gross realized losses on the disposition of available-for-sale
securities totaled $376,000 for the year ended October 31, 1995. Gross realized
gains on sales of available-for-sale securities totaled $54,000 for the year
ended October 31, 1994. Gross realized losses on sales of available-for-sale
securities totaled $548,000 for the year ended October 31, 1994. Cost of
securities sold was determined by the average cost method.
Through October 31, 1994, changes in the valuation allowance resulting
from unrealized gains or losses on the TCC Common Stock have been recorded in
the statement of operations prior to the adoption of SFAS No. 115.
The effect of adopting FASB No. 115 was the recording of income
relating to the cumulative effect of the change in accounting totaling
$2,009,000. This amount represents the remaining unrealized valuation allowance
at October 31, 1994. Change in the market value of the available for sale
securities after October 31, 1994 are reflected in the unrealized gain (loss) on
marketable securities account, which is a component of stockholders' equity on
the balance sheet.
On June 14, 1993, a series of transactions between the Company and TCC
was consummated, pursuant to which: (i) TCC reacquired from the Company 160,600
of the shares of TCC Senior Exchangeable Redeemable Preferred Stock which had
been owned by the Company; and (ii) the Company received from TCC: (1) $4.0
million in cash, (2) 345 shares of a new class of Series B Preferred Stock of
TCC which is convertible under certain circumstances into an aggregate of
3,450,000 shares of TCC Common Stock, (3) 200,000 shares of the Company's Common
Stock which had been owned by TCC, and (4) the right to designate three
directors to the Board of Directors of TCC (out of an entire Board comprised of
8 or 9 directors). Also as part of the series of transactions, among other
things: (A) TCC and the Company exchanged General Releases (with specified
exceptions), (B) TCC agreed to register the TCC Common Stock which may be
issuable upon the conversion of the TCC Series B Preferred Stock, at TCC's
expense, and (C) the Company agreed to vote its shares of TCC Common Stock for
TCC management's slate of directors at the 1993 and 1994 annual meetings of
stockholders, and to so vote its shares at the 1995 and 1996 annual meetings of
stockholders if the public trading price of TCC Common Stock meets specified
levels or if the Company is granted the right to designate one additional
director in each of such years in which the price criteria is not met (in which
case there would be a corresponding increase in the size of the TCC Board). The
transaction did not result in any gain or loss for the Company.
NOTE E - BANK 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 (Note B) and is currently payable on March 29, 1996. In November 1993
the Company arranged a $500,000 line of credit facility with the bank which
expires on March 29, 1996. At October 31, 1995, there were no borrowings against
the revolving line of credit facility. The loan and line of credit facility bear
interest at the bank's prime rate (8.75% at October 31, 1995) plus 1.5%. Payment
of the loan and revolving line of credit are collateralized by 500,000 shares of
TCC Common Stock owned by the Company. The Company expects to renew the loan and
line of credit facility for additional periods subsequent to March 29, 1996.
23
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
October 31, 1995, 1994 and 1993
NOTE F - NOTES PAYABLE - AFFILIATES
Notes payable to affiliates consist of the following:
<TABLE>
<CAPTION>
October 31,
1995 1994
---- ----
<S> <C> <C>
Note payable to officers, directors
and affiliates of Second Advantage (1) -- $1,650,000
Note payable to Greater American Finance
Group, Inc., a wholly owned subsidiary
of the Company (2) -- 650,000
---- ----------
-- $2,300,000
==== ==========
</TABLE>
(1) Second Advantage had $350,000 in notes payable to an officer and director of
Second Advantage and $300,000 in notes payable to an immediate family member of
an officer and director of Second Advantage at October 31, 1994. These notes
carried an option which allowed the holders to convert the principal amount of
the notes into Class B (non-voting) common stock of Second Advantage. The notes
were to mature and the option to convert to Class B common stock of Second
Advantage was to expire on August 31, 1998. The notes accrued interest at a rate
of 10%. The loans were repaid in November 1994.
As of October 31, 1994, Second Advantage also had $1,000,000 in notes
payable to two of its officers and directors. The notes accrued interest at 10%.
Interest expense recorded on these notes was approximately $86,000 for the year
ended October 31, 1994. These notes were originally issued on February 28, 1994,
and were repaid in full on December 2, 1994.
At October 31, 1993, Second Advantage also had $250,000 in notes
payable to an officer and director of Second Advantage accruing interest at a
rate of 10%. The note was repaid in February 1994.
(2) The corresponding receivable of Greater American is included in net assets
of discontinued operations in the accompanying balance sheet, and was repaid
during 1995.
(3) In October 1991, the Company borrowed $1,250,000 from a corporation owned by
one of the Company's principal shareholders ("Payee") (the "Promissory Note").
The Promissory Note was due on November 1, 1996 and bears interest at an annual
rate of 10.875% through November 1, 1994 and at the rate of 12% per year
thereafter. The Promissory Note was issued pursuant to an Investment Agreement
dated as of October 31, 1991 between the Company and the Payee, pursuant to
which: (i) the Company issued to the Payee a warrant to purchase up to 125,000
shares of the Company's common stock at $8.00 per share, which was subsequently
reduced to $6.875 per share on June 12, 1992 in consideration of certain
consulting services rendered to the Company by the principal stockholder of the
payee, (the "Warrant") and (ii) the Company and the Payee entered into an
agreement (the "Registration Rights Agreement") whereby, subject to certain
terms and conditions, the Company is obliged to register the shares of common
stock issuable upon exercise of the warrant.
On September 9, 1994, the Company offered the Payee the opportunity to
exercise the Warrant in full at an exercise price of $6.00 per share during the
ten day period from September 9 to September 19, 1994; provided, however, that
the aggregate purchase price, $750,000, must be paid to the Company by the
24
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
October 31, 1995, 1994 and 1993
NOTE F - (continued)
surrender to the Company, to the extent of $750,000, of the Promissory Note. On
September 12, 1994, the Payee, pursuant to the Warrant and the Company's offer,
simultaneously exercised the Warrant in full and paid the aggregate exercise
price of $750,000 by the partial surrender of the Promissory Note. A charge to
operations of $109,000 was recorded in 1994 reflecting the decrease in the
exercise price. On September 16, 1994, the Company, at its option, paid the
balance of the principal ($500,000) and accrued interest on the Promissory Note.
NOTE G - INCOME TAXES
A reconciliation of the provision for income taxes for the years ended
October 31, 1995, 1994 and 1993 and the amount computed by applying the
statutory Federal income tax rate to (loss) income from continuing operations
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -------
<S> <C> <C> <C>
Computed expected provision
(benefit) for income taxes $ (578,000) $ 2,830,000 $(1,805,000)
Increase (decrease) in taxes
resulting from 70%
dividend exclusion -- -- (71,000)
State and local taxes -
net of Federal income
tax benefit -- -- 6,000
Losses not available for
carryback -- -- 1,904,000
Reduction of estimated
other tax liabilities -- -- (554,000)
Changes in valuation
allowance 578,000 (2,830,000) --
----------- ----------- -----------
Actual benefit from
income taxes $ -0- $ -0- $ (520,000)
=========== =========== ===========
</TABLE>
The tax effect of the principal temporary differences at October 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Deferred tax assets 1995 1994
----------- --------
<S> <C> <C>
Allowance for decline in market value
of common stock $ 2,942,000 $ 2,646,000
Net operating loss and credit carryforwards 11,846,000 10,838,000
Accruals not currently deductible for
tax purposes 374,000 287,000
Other 530,000
----------- -----------
15,162,000 14,301,000
Less valuation allowance (15,162,000) (14,301,000)
----------- -----------
Net deferred taxes $ -0- $ -0-
=========== ===========
</TABLE>
The deferred tax asset and valuation allowance was increased by
$861,000 during 1995 to reflect the additional capital losses generated for tax
purposes upon the disposition of Second Advantage and TCC Common Stock, and was
reduced by $8,278,000 during 1994 to reflect the reduction in capital losses
carryforward which expired in 1994.
25
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
October 31, 1995, 1994 and 1993
NOTE G - (continued)
At October 31, 1995, the Company had net operating loss carryforwards
as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Net
Operating Capital Expiration
Loss Loss Other Date
---- ---- ----- ----
<S> <C> <C> <C>
10/31/96
$ 40 $ 43 10/31/97
118 10/31/98
$ 1,886 943 10/31/99
440 744 10/31/00
211 4 10/31/01
7,502 51 10/31/02
335 10/31/03
6,328 27 10/31/04
1,922 19 10/31/05
520 10/31/06
10/31/07
2,109 10/31/08
1,001 2,378 10/31/09
1,016 1,946 10/31/10
-------- ------- ------
$ 22,935 $ 4,364 $2,284
======== ======= ======
</TABLE>
NOTE H - REDUCTION OF ESTIMATED TAX LIABILITIES
The Company is a party to a tax sharing agreement, as amended, with TCC
and Cooper Development Company ("CDC") related to the Cooper Labs, Inc. ("CLI")
liquidation on June 27, 1985. In 1985 the Company received a distribution of
$2,500,000 and recorded it as a liability for potential assessments resulting
from tax examinations (TCC received $5,000,000 and CDC received $2,500,000). The
above companies have agreed that: (i) in the event that the amount of tax
liability, including interest and penalties, shall be ultimately determined to
be greater or less than $10,000,000, then such excess or deficiency shall be
shared 50%, 25%, and 25% by TCC, CDC, and the Company, respectively, and (ii)
they are jointly and severally liable. TCC is coordinating the defenses for
these tax examinations. After reviewing certain documents related to the tax
examinations which were provided by TCC, and after consulting with its tax
advisors, management concluded that a reduction of the liability of
approximately $550,000 was appropriate in fiscal 1993. Based upon ongoing
evaluation, management believes the amount accrued is adequate and no adjustment
was recorded in fiscal 1995 and 1994.
NOTE I - STOCK PLANS
During October 1991, the Board of Directors of the Company adopted a
Stock Option Plan for Non-Employee Directors (the "Stock Option Plan for
Non-Employee Directors") and a 1991 Stock Incentive Plan (the "1991 Stock
Incentive Plan").
Financial Accounting Standard No. 123 "Accounting for Stock Based
Compensation", issued in 1995, introduces a method of accounting for employee
stock-based compensation plans based upon the fair value of the awards on the
date they are granted. Under this fair value based method, public companies
estimate the fair value of stock options using a pricing model, such as the
Black Scholes model, which requires inputs such as the expected volatility of
the stock price and an estimate of the dividend yield over the option's expected
life. The
26
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
October 31, 1995, 1994 and 1993
NOTE I - (continued)
FASB, however, does not require the use of this method. Entities that continue
to account for stock option plans under the existing method (APB No. 25) are
required to disclose proforma net income and earnings per share, as if the fair
value method had been used. Certain additional disclosures are also required.
The Company expects to disclose the proforma net income, earnings per share and
other information as of the effective date of this pronouncement for the year
ended October 31, 1997.
A brief description of each plan is as follows:
1. Stock Option Plan for Non-Employee Directors
Up to 25,000 shares of common stock may be issued pursuant to the Stock
Option Plan for Non-Employee Directors (subject to appropriate adjustment in the
event of changes in the corporate structure of the Company). The Stock Option
Plan for Non-Employee Directors provides that each director of the Company who
is not an employee of the Company or any subsidiary (and who has not been an
employee for at least one year prior to the date of grant) shall be
automatically granted an option to purchase up to 500 shares of common stock of
the Company on the date of each annual meeting of stockholders at which he or
she is elected as a director of the Company. Only nonqualified options may be
granted under the Stock Option Plan for Non-Employee Directors, and the option
exercise price shall be equal to the fair market value of a share of common
stock of the Company on the date of the grant, and the options granted become
exercisable six months after issuance.
Pursuant to the Stock Option Plan for Non-Employee Directors, on April
8, 1992, the Company granted nonqualified options to two nonemployee directors
of the Company to each purchase 500 shares of the Company's common stock at an
exercise price of $6.75 per share which will expire in April 1997. On October
13, 1994, the Company granted nonqualified options to two nonemployee directors
of the Company to each purchase 500 shares of the Company's common stock at an
exercise price of $9.75 per share which will expire in October 1999. On April
11, 1995, the Company granted nonqualified options to two nonemployee directors
of the Company to each purchase 500 shares of the Company's common stock at an
exercise price of $15.00 per share which will expire in April 2000.
2. 1991 Stock Incentive Plan
The 1991 Stock Incentive Plan permits the granting of awards in the
form of nonqualified stock options, incentive stock options, restricted stock,
deferred stock, and other stock-based incentives. Up to 300,000 shares of common
stock of the Company may be issued pursuant to the 1991 Stock Incentive Plan
(subject to appropriate adjustment in the event of changes in the corporate
structure of the Company). Officers and other key employees of the Company or
any subsidiary are eligible to receive awards under the 1991 Stock Incentive
Plan. The option exercise price of all options which are granted under the 1991
Stock Incentive Plan must be at least equal to 100% of the fair market value of
a share of common stock of the Company on the date of grant.
Pursuant to the 1991 Stock Incentive Plan, on October 6, 1991, the
Committee granted nonqualified stock options to the Company's President to
purchase up to 150,000 shares of common stock at a purchase price of $7.00 per
share, and to the Company's Vice President to purchase up to 15,000 shares of
common stock at a purchase price of $7.00 per share. The option which was
granted to the Company's President terminates on April 8, 2000 and the option
27
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
October 31, 1995, 1994 and 1993
NOTE I - (continued)
which was granted to the Company's Vice President terminates on April 8, 1997.
On October 13, 1994, the Committee granted additional nonqualified stock options
to the Company's Vice President to purchase up to 15,000 shares of common stock
at a purchase price of $9.75 per share, which terminate on April 13, 2000.
A summary of the activity with respect to these plans is as follows:
<TABLE>
<CAPTION>
Non-
employee Per Per
Directors' Share 1991 Share
Stock Option Stock Option
Option Purchase Incentive Purchase
Plan Price Plan Price
---- ----- ---- -----
<S> <C> <C> <C> <C>
Balance at October 31, 1992
and October 31, 1993 1,000 $ 6.75 165,000 $ 7.00
Granted 1,000 $ 9.75 15,000 $ 9.75
-----
Cancelled
-------
Balance at October 31, 1994 2,000 180,000
Granted 1,000 $15.00
Cancelled
----- -------
Balance at October 31, 1995 3,000 180,000
===== =======
Currently exercisable 3,000 180,000
===== =======
</TABLE>
During the year ended October 31, 1993, there was no activity with
respect to these plans. At October 31, 1995, shares available for future grant
are 22,000 under the Non-Employee Stock Option Plan and 120,000 under the 1991
Stock Incentive Plan.
3. Warrants
In 1993, the Company granted two stockholders a five-year warrant to
purchase up to 25,000 shares of common stock of the Company at a purchase price
of $6.00 per share and registration rights, at the Company's expense, with
respect to these shares. These warrants were issued in consideration for a
guarantee of payment of the bank loan (Note E) by these two principal
stockholders of the Company. The Company recorded compensation expense of
$25,000 in 1993 which represented the estimated fair value of these warrants.
NOTE J - EMPLOYEE BENEFIT PLANS
In April 1985, the Company adopted its Retirement Income Plan (the
"Retirement Plan"), a noncontributory plan covering substantially all full-time,
non-union United States employees of the Company. Benefits were based upon a
combination of employee compensation and years of service. The Company paid the
entire cost of the plan for its employees and funded such costs as they accrued.
The Company's funding policy was to make annual contributions within minimum and
maximum levels required by applicable regulations. The Company's customary
contributions were designed to fund normal cost on a current basis and fund over
30 years the estimated prior service cost of benefit improvements (15 years of
annual gains and losses). The projected unit cost method was used to determine
the annual cost. Plan assets consist principally of equity and fixed income
mutual funds.
28
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
October 31, 1995, 1994 and 1993
NOTE J - (continued)
Benefit accruals have been frozen as of September 15, 1988, resulting
in a plan curtailment. As a result of such curtailment, the Company will not
accrue benefits for future services; however, the Company will continue to
contribute as necessary for the unfunded liabilities.
The Company has recorded liability for the excess of its accumulated
benefit obligation over plan assets. The amount has been recorded as a
noncurrent liability with an offsetting amount reported as a separate reduction
of stockholders' equity.
Assumptions used in the accounting were:
<TABLE>
1995 1994
---- ----
<S> <C> <C>
Discount rates - liability 8.25% 8.50%
Long-term rate of return - assets 8.50 8.50
</TABLE>
A summary of the components of net periodic pension cost for 1995, 1994
and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -----
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ - $ - $ -
Interest cost on projected
benefit obligation 82,884 81,278 82,121
Actual return on plan assets (75,242) (4,471) (70,900)
Net amortization and deferral 24,144 (52,626) 15,070
-------- -------- --------
Net pension cost of defined
benefit plans $ 31,786 $ 24,181 $ 26,291
======== ========= ========
</TABLE>
The following table sets forth the funded status and amounts recognized
in the Company's balance sheet for its defined benefit plan at October 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- -------
<S> <C> <C>
Actuarial present value of
accumulated benefit obligations,
all of which is vested $ 1,040,710 $ 1,045,334
=========== ===========
Projected benefit obligations $(1,040,710) $(1,045,334)
Fair value of plan assets 981,763 909,964
----------- -----------
Excess of projected benefit
obligation over fair value
of plan assets (58,947) (135,370)
Unrecognized net loss 408,900 475,469
Adjustment required to recognize
minimum liability (408,900) (475,469)
----------- -----------
Accrued pension cost $ (58,947) $ (135,370)
=========== ===========
</TABLE>
NOTE K - PREFERRED STOCK PURCHASE RIGHTS
On January 7, 1988, the Board of Directors of the Company declared a
dividend distribution of ten rights (as adjusted for a reverse stock split) for
each outstanding share of the Company's common stock, par value $.10 per share,
to stockholders of record at the close of business on January 21, 1988. Each
right ("Right") entitles the registered holder to initially purchase from the
Company a unit consisting of one one-hundredth of a share (a "Unit") of Series A
Junior Participating Preferred Stock, par value $.10 per share, at a purchase
price of $5.50 per Unit, subject to adjustment. The rights will be exercisable
only if a person or group acquires beneficial ownership of 30% or more of the
29
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
October 31, 1995, 1994 and 1993
NOTE K - (continued)
Company's common stock or commences a tender or exchange offer upon consummation
of which a person or group would beneficially own 30% or more of the Company's
common stock. Upon the occurrence of such event, each holder who is not a party
to the transaction may be entitled to purchase, under certain circumstances, at
the Right's then current exercise price, shares of the Company's common stock
having a value of twice the Right's then current exercise price. A committee of
the Company's Board of Directors, comprised exclusively of Continuing Directors
or Independent Directors, as defined in the Rights Agreement, pursuant to which
the Rights were issued, is entitled to redeem the Rights if the committee
determines that such event is in the best interest of the Company's
stockholders.
The Rights expire on January 7, 1998.
NOTE L - COMMITMENTS AND CONTINGENCIES
1. Leases and Other Commitments
The Company has no significant annual rental obligations under
noncancellable operating leases in force at October 31, 1995. Rental expense
amounted to approximately $29,000 for the Company in 1995 and 1994, net of
subleased income of $237,000 in 1994.
2. Legal Proceedings
Berlex Laboratories, Inc. v. Cooper Life Sciences, Inc., et al.
In June 1988, Berlex Laboratories, Inc. ("Berlex") filed a number of
related actions naming as defendants, the Company and others. On April 17, 1995
a final settlement agreement was reached, to which the Company contributed
approximately $21,000.
Spalti v. Cooper Life Sciences, Inc.
Gerald H. Spalti and his spouse brought an action in March 1992 against
the Company in the Superior Court of California, Contra Costa County, for
personal injuries allegedly suffered during a surgical procedure using laser
equipment manufactured by the Company. In May of 1993, at the conclusion of the
presentation of evidence at trial, the Court, as a matter of law, found in favor
of the Company ruling that Mr. Spalti's injuries were not caused by a
malfunction of the laser equipment. Thereafter, Spalti appealed the case and in
November 1995, the appellate court upheld the judgement in favor of the Company.
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
30
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
October 31, 1995, 1994 and 1993
NOTE L - (continued)
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 cross-claims 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 plans 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. The Company accrued $250,000 for legal matters which the Company
believes to be an adequate provision.
3. Employment Agreements
The Company entered into employment contracts with its President and
Vice President commencing November 1, 1994. The contracts provide for a minimum
annual salary of $120,000 for its President and $90,000 for its Vice President,
each through 1997, plus an annual bonus at the discretion of the Board of
Directors. The Company's employment contract with its President was terminated
upon his death in May 1995.
31
<PAGE>
<PAGE>
SCHEDULE II
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars In Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
(1) (2)
Charged to
Balance at Charged to other Deduc- Balance at
beginning costs and accounts - tions - end of
Description of period expenses describe describe period
----------- --------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Valuation allowance
for marketable
securities at
October 31, 1995 $ -0- $ -0-
-------- ------
Valuation allowance
for marketable
securities at
October 31, 1994 $ 11,822 $ (9,813) $ (2,009)(A) $ -0-
-------- --------- -------- ------
Valuation allowance
for marketable
securities at
October 31, 1993 $ 8,488 $ 3,334 $ 11,822
-------- --------- -------
</TABLE>
(A) Recorded as cumulative effect of change in accounting principle on October
31, 1994 when Statement of Financial Accounting Standards No. 115 was adopted.
32
<PAGE>
<PAGE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
Not Applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information required by this Item 10 is hereby incorporated by
reference to the Company's definitive proxy statement relating to its 1996
annual meeting of stockholders, to be filed pursuant to Regulation 14A within
120 days after the end of the fiscal year.
ITEM 11. Management Remuneration and Transactions
The information required by this Item 11 is hereby incorporated by
reference to the Company's definitive proxy statement relating to its 1996
annual meeting of stockholders, to be filed pursuant to Regulation 14A within
120 days after the end of the fiscal year.
ITEM 12. Security Ownership of Certain Beneficial Owners and Managers
The information required by this Item 12 is hereby incorporated by
reference to the Company's definitive proxy statement relating to its 1996
annual meeting of stockholders, to be filed pursuant to Regulation 14A within
120 days after the end of the fiscal year.
ITEM 13. Certain Relationships and Related Transactions
The information required by this Item 13 is hereby incorporated by
reference to the Company's definitive proxy statement relating to its 1996
annual meeting of stockholders, to be filed pursuant to Regulation 14A within
120 days after the end of the fiscal year.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as part of this Report:
(i) Financial Statements
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of October 31, 1995 and 1994
Consolidated Statements of Operations for the Years Ended October 31,
1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity for the Years Ended
October 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended October 31,
1995, 1994 and 1993
Notes to Consolidated Financial Statements
(ii) Financial Statement Schedules
Schedule
Number Description
------ -----------
II. Valuation and qualifying accounts
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are not applicable and, therefore, have been omitted.
33
<PAGE>
<PAGE>
(iii) Exhibits
Exhibit
Number Description
- ------ -----------
3.1 Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 19 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended July 31, 1988).
3.2 Certificate of Amendment of Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3(d) to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1988).
3.3 Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock (incorporated by reference to Exhibit
3(b) to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1987).
3.4 By-laws of the Company (incorporated by reference to Exhibit 3(e) to
the Company's Current Report on Form 8-K dated May 2, 1990).
4.1 Rights Agreement dated as of January 7, 1988, between the Company and
The First National Bank of Boston (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated January
7, 1988).
4.2 Amendment No. 1 to Rights Agreement effective as of December 20, 1990,
between the Company and The First National Bank of Boston
(incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K dated January 17, 1991).
4.3 Amendment No. 2 to Rights Agreement, dated as of April 8, 1992,
between the Company and American Stock Transfer & Trust Company, as
Rights Agent (incorporated by reference to Exhibit 10.19 to the
Company's Current Report on Form 8-K dated April 20, 1992).
10.1 Assignment, Assumption and Indemnification Agreement dated October 25,
1984 between Cooper Laboratories, Inc. and the Company (incorporated
by reference to Exhibit 10(h) to the Company's Registration Statement
on Form S-1 (Registration No. 2-97498)).
10.2 Tax Sharing Agreement between the Company and Cooper Laboratories,
Inc. dated as of October 25, 1984 (incorporated by reference to
Exhibit 10(j) to the Company's Registration Statement on Form S-1
(Registration No. 2-97498)).
10.3 Joint Amendment dated as of June 14, 1985, to the Tax Sharing Agreement
between the Company and Cooper Laboratories, Inc. dated as of October
25, 1984 (incorporated by reference to Exhibit No. 10.3 to the
Company's Quarterly Report on Form 10-Q for the Fiscal Quarter Ended
April 30, 1990).
10.4 1991 Stock Incentive Plan of the Company. (incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K for the
Fiscal Year Ended October 31, 1991).
10.5 Stock Incentive Plan for Non-Employee Directors of the Company
(incorporated by reference to Exhibit 10.15 to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended October 31, 1991).
10.6 Registration Rights Agreement, dated as of October 31, 1991, between
the Company and Momar Corp. (incorporated by reference to Exhibit
10.18 to the Company's Annual Report on Form 10-K for the Fiscal Year
Ended October 31, 1991).
10.7 Corporate Assumption of Tax Liability dated December 10, 1985
(incorporated by reference to Exhibit 10.20 to the Company's Current
Report on Form 8-K dated April 20, 1992).
10.8 Settlement Agreement, dated as of June 14, 1993, between the Company
and The Cooper Companies, Inc. (incorporated by reference to Exhibit
10.25 to the Company's Quarterly Report on Form 10-Q for the Fiscal
Quarter Ended April 30, 1993).
10.9 Exchange Agreement, dated as of June 14, 1993, between the Company and
The Cooper Companies, Inc. (incorporated by reference to Exhibit 10.26
to the Company's Quarterly Report on Form 10-Q for the Fiscal Quarter
Ended April 30, 1993).
10.10 Common Stock Purchase Warrant, dated as of August 31, 1993, granting
Mr. Mel Schnell the right to purchase up to 25,000 shares of Common
Stock of the Company at any time and from time to time during the
five-year period ending August 31, 1998 (incorporated by reference to
Exhibit 10.34 to the Company's Quarterly Report on Form 10-Q for the
Fiscal Quarter Ended July 31, 1993).
34
<PAGE>
<PAGE>
Exhibit
Number Description
- ------ -----------
10.11 Common Stock Purchase Warrant, dated as of August 31, 1993, granting
Mr. Moses Marx the right to purchase up to 25,000 shares of Common
Stock of the Company at any time and from time to time during the
five-year period ending August 31, 1998 (incorporated by reference to
Exhibit 10.35 to the Company's Quarterly Report on Form 10-Q for the
Fiscal Quarter Ended July 31, 1993).
10.12 Registration Rights Agreement, dated as of August 31, 1993, by and
between the Company and Mr. Mel Schnell (incorporated by reference to
Exhibit 10.36 to the Company's Quarterly Report on Form 10-Q for the
Fiscal Quarter Ended July 31, 1993).
10.13 Registration Rights Agreement, dated as of August 31, 1993, by and
between the Company and Mr. Moses Marx (incorporated by reference to
Exhibit 10.37 to the Company's Quarterly Report on Form 10-Q for the
Fiscal Quarter Ended July 31, 1993).
10.14 Asset Purchase Agreement, dated as of November 23, 1994, by and
between The Long Island Savings Bank, FSB and Entrust Financial
Corporation (incorporated by reference to Exhibit 10.38 to the
Company's Current Report on Form 8-K dated December 13, 1994).
10.15 Employment Agreement, dated as of November 1, 1994, between the
Company and Mel Schnell. (incorporated by reference to Exhibit 10.18
to the Company's Annual Report on Form 10-K for the Fiscal Year Ended
October 31, 1994).
10.16 Employment Agreement, dated as of November 1, 1994, between the
Company and Steven Rosenberg. (incorporated by reference to Exhibit
10.19 to the Company's Annual Report on Form 10-K for the Fiscal Year
Ended October 31, 1994).
10.17 Amendment No. 1 to the Settlement Agreement between the Company and
The Cooper Companies, Inc., dated January 16, 1995. (incorporated by
reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended October 31, 1994).
10.18 Promissory Note of the Company in the principal amount of $1.5
million, payable to the order of Commercial Bank of New York, dated
January 31, 1995. (incorporated by reference to Exhibit 10.22 to the
Company's Quarterly Report on Form 10-Q for the Fiscal Quarter Ended
January 31, 1995).
10.19 Redemption Agreement, dated as of April 19, 1995 (but effective as of
March 31, 1995), by and among Second Advantage Mortgage Corporation,
Emanuel Nadler, Efraim Nadler, Greater American Finance Group, Inc.,
Albert C. Kocourek, James W. Raker, H. Franklin Green III and the
Company. (incorporated by reference to Exhibit 10.24 to the Company's
Quarterly Report on Form 10-Q for the Fiscal Quarter Ended April 30,
1995).
21. Subsidiaries of the Company.
27. Financial Data Schedule
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the last
quarter of its fiscal year ended October 31, 1995.
35
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COOPER LIFE SCIENCES, INC.
By: /s/ Steven Rosenberg
----------------------------
Steven Rosenberg
Acting President (Chief Executive Officer)
Date: January 29, 1996
----------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- -----
<S> <C> <C>
Acting
President (Chief
Executive Officer and
Principal Financial and
Accounting Officer);
/s/ Steven Rosenberg Director January 29, 1996
- -----------------------------
Steven Rosenberg
/s/ William Cohen Director January 29, 1996
- -----------------------------
William Cohen
/s/ Moses Marx Director January 29, 1996
- -----------------------------
Moses Marx
/s/ Randolph B. Stockwell Director January 29, 1996
- -----------------------------
Randolph B. Stockwell
</TABLE>
36
<PAGE>
<PAGE>
Exhibit 21
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
- ---- --------------
<S> <C>
Moore Sports Ltd. Delaware
Greater American Finance Group, Inc. Delaware
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COOPER
LIFE SCIENCES, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER
31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<CASH> 341
<SECURITIES> 13,645
<RECEIVABLES> 194
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 91
<DEPRECIATION> 62
<TOTAL-ASSETS> 19,102
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 251
0
0
<OTHER-SE> 16,039
<TOTAL-LIABILITY-AND-EQUITY> 19,102
<SALES> 0
<TOTAL-REVENUES> (325)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,132
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 193
<INCOME-PRETAX> 1,173
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,650)
<DISCONTINUED> 2,823
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,173
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
<FN>
See the financial statements for an unclassified balance sheet.
</TABLE>
