FORM 10K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 19941995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7234
NATIONAL PATENT DEVELOPMENT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-1926739
(State of Incorporation) (I.R.S. Employer
Identification No.)
9 West 57th Street, New York, NY 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(212) 826-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registeredregistered:
Common Stock, $.01 Par Value American Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
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 Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K/A10-K or any amendment to this
Form 10-K/A.10-K. /X/
-1-
As of March 21, 1995,1, 1996, the aggregate market value of the
outstanding shares of the Registrant's Common Stock, par value
$.01 per share, held by non-affiliates was approximately
$45,327,419$59,058,090 based on the closing price of the Common Stock on the
American Stock Exchange on March 21, 1995.1, 1996. None of the Class B
Capital Stock, par value $.01 per share, was held by
non-affiliates.
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the most recent
practicable date.
Class Outstanding at March 21, 19951, 1996
Common Stock,
par value $.01 per share 25,734,5916,959,554 shares
Class B Capital Stock,
par value $.01 per share 250,00062,500 shares
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Business is hereby amended and restated in its entirety
as follows:
(a) General Development of Business
National Patent Development Corporation (the "Company"),
incorporated in Delaware in 1959, is primarily a holding company,
which is a legal entity separate and distinct from its various
operating subsidiaries. The Company's operations consist of
three operating business segments: Physical Science,
Distribution and Optical Plastics. The Company also has an
investment in one company in the health care industry and an
investment in one company in the environmental technology and
consulting area. In addition, the Company owns approximately 54%Portions of the outstanding shares of common stock in a company that
distributes generic pharmaceutical products in Russia.
The Company's Physical Science Group consists of (i)SGLG,
Inc. (formerly, GPS Technologies, Inc.) ("SGLG"), an
approximately 92% owned subsidiary and (ii) General Physics
Corporation ("General Physics"), an approximately 51% owned
subsidiary.
General Physics provides a wide range of personnel
training, engineering, environmental and technical support
services to commercial nuclear and fossil power utilities, the
United States Departments of Defense ("DOD") and Energy (the
"DOE"), Fortune 500 companies and other commercial and
governmental customers. SGLG is a holding company that has a 35%
interest in GSE Systems, Inc., a software simulator company and
in addition owns a small finance subsidiary.
The Company's Distribution Group, incorporated under the
name Five Star Group, Inc. ("Five Star"), is engaged in the
wholesale distribution of home decorating, hardware and finishing
products.
The Company's Optical Plastics Group, through its wholly
owned subsidiary MXL Industries, Inc. ("MXL") manufactures molded
and coated optical products, such as shields and face masks and
non-optical plastic products.
In addition, the Company has a division, Hydro Med Sciences
("HMS"), involved in the manufacture of medical devices, drugs
and cosmetic polymer products.
The Company's investment in the health care industry
currently consists of approximately 31% investment in Interferon
Sciences, Inc. ("ISI"). ISI is a biopharmaceutical company
1
engaged in the manufacture and sale of ALFERON N Injection, the
only product approved by the United States Food and Drug
Administration ("FDA") that is based upon a natural source,
multi-species alpha interferon ("Natural Alpha Interferon").
ALFERON N Injection is approved for the treatment of certain
types of genital warts. ISI also is developing its existing
injectable, topical, and/or oral formulations of Natural Alpha
Interferon for the potential treatment of HIV, hepatitis C,
hepatitis B, multiple sclerosis, cancers, and other indications.
The Company currently owns approximately 40% of the
currently outstanding shares of common stock of GTS Duratek,
Inc.("Duratek"). Duratek's operations consist of two operating
groups: (1) "Technology Group" (formerly Environmental Services)
is engaged in converting radioactive, hazardous and mixed (both
radioactive and hazardous) waste to glass, using in-furnace
vitrification processes, and removing radioactive and/or
hazardous contaminants from waste water and other liquids using
filtration and ion exchange processes, and (2) "Services Group"
(formerly Consulting and Staff Augmentation) engaged in
consulting, engineering, training and staff augmentation
services. Duratek provides services and technologies for various
utility, industrial, governmental and commercial clients.
The Company owns approximately 54% of the outstanding common
stock of American Drug Company ("ADC"), which was organized in
1993, as a wholly-owned subsidiary of the Company to initiate
marketing activities for American generic pharmaceutical and
medical pharmaceutical in Russia and the Commonwealth of
Independent states (the "CIS"). ADC's subsidiary, NPD Trading
(USA) Inc. provides consulting services to Western businesses in
Russia and Eastern Europe. ADC intends to make sales of American-
made generic pharmaceutical and health care products for sale
under its own label in Russia and the CIS.
In December 1994, the Company decided to sell its Eastern
Electronics Manufacturing Corporation subsidiary ("Eastern"),
which was the only company in the electronics group. As a result
of this decision, the Company has reflected Eastern as a
discontinued operation.
(b) Financial Information About Industry Segments
Certain financial information about business segments
classes of similar products or services) is included in Note 17
of Notes to Consolidated Financial Statements.
(c) Narrative Description of Business
PHYSICAL SCIENCE GROUP
GENERAL PHYSICS CORPORATION
General
General Physics Corporation ("General Physics") provides a
wide range of personnel training, engineering, environmental and
technical support services to commercial nuclear and fossil power
utilities, the United States Departments of Defense ("DOD") and
Energy (the "DOE"), Fortune 500 companies and other commercial
and governmental customers. General Physics believes it is a
leader in the field of developing training materials, conducting
training programs and providing support services to operators,
technical staff and management personnel.
In January 1994, General Physics acquired substantially all
of the operating businesses of Cygna Energy Services("CES"),
other than its non-nuclear seismic engineering business. CES
provides design engineering, seismic engineering, materials
management and safety analysis services to the commercial nuclear
power industry and to the DOE.
On August 31, l994, General Physics acquired substantially
all of the assets and operations of SGLG, Inc. (formerly GPS
Technologies) and certain of its subsidiaries (together the "GPST
Businesses") for approximately $34 million, consisting of $10
million cash, 3,500,000 shares of General Physics common stock,
warrants to acquire up to 1,000,000 shares of General Physics
common stock at $6.00 per share, warrants to acquire up to
475,664 shares of General Physics common stock at $7.00 per
share, and General Physics' 6% ten year senior subordinated
debentures in the aggregate principal amount of $15 million. The
senior subordinated debentures require payment of interest only
on a quarterly basis for the first five years, quarterly
installments of $525,000 principal plus interest for the next
five years and the balance of $4.3 million at maturity. The fair
value of the senior subordinated debentures was estimated to be
$10.7 million at the date of the acquisition.
The Company which owned approximately 92% of the GPST
Businesses and 28% of General Physics prior to the transaction,
owned approximately 54% of the outstanding shares of General
Physics after the acquisition.
General Physics is organized into four groups: Training and
Technology, Engineering and Applied Sciences, Federal Systems and
Department of Energy. General Physics performance is
significantly affected by the timing of performance on contracts.
Results of operations are not seasonal, since contracts are
performed throughout the year.
3
While General Physics continues to provide services to the
DOE and DOD and the commercial nuclear power industry, it is
unsure what effect cutbacks will have on future results. In
response to these factors, General Physics has begun to focus its
marketing resources on expanding management and technical
training services to the manufacturing and process industries,
and specialized engineering services to Federal agencies. During
the latter part of 1994 General Physics experienced growth in
these areas and anticipates future growth to come from these
areas. In addition, General Physics continues to take steps to
reduce costs by eliminating positions and implementing other cost
cutting activities.
The following table sets forth the approximate pro forma
revenue attributable to the categories of services provided by
General Physics for the year ended December 31, 1994 assuming 12
months revenue for each of SGLG and General Physics.
(in thousands)
Training and Technology Services $ 46,466
DOD Services 18,078
DOE Services 18,805
Engineering Services 31,781
Total Revenue $115,130
General Physics currently provides services to more than 410
clients, including eight of the largest electric power companies
in the United States and four prime contractors serving the DOE.
During 1994, no customer accounted for more than 10% of General
Physics revenue. Prior to October, 1988, when it started its DOE
services business, General Physics derived virtually all of its
revenue from contracts with nuclear utilities.
TRAINING AND TECHNOLOGY GROUP
The Training and Technology Group focuses on training and
human performance improvement needs of commercial nuclear
utilities, Fortune 500 and other commercial companies, and
government customers, providing technical training and other
technical services to customers that design, operate, and
maintain equipment and facilities. This Group analyzes the
human, organizational and technical issues confronting its
customers and recommends solutions to improve performance.
DOE SERVICES GROUP
The DOE has overall responsibility for the nation's nuclear
weapons complex. The operation of United States Government
nuclear weapons production and waste processing facilities
4
recently has, like the commercial nuclear power industry, come
under increasingly intense public scrutiny. The DOE has since the
late 1980's focused its attention upon the safe production of
nuclear weapons and, in particular, the cleanup of serious
pollution problems at active and inactive weapons plants in more
than 30 states. As a result, the DOE has begun a research and
cleanup program that it estimates could cost $200 billion or more
over the next 30 years. General Physics organized its DOE
services group in order to take advantage of the United States
Government's increased focus on environmental, health and safety
matters at DOE facilities (and the DOE's resulting desire to
improve personnel training and support services to a level
consistent with that of the commercial nuclear power industry).
The DOE typically does not itself perform many of the tasks
relating to nuclear weapons production and waste processing at
these facilities; rather, it awards large, multi-year, cost-plus-
award-fee prime contracts to companies such as Westinghouse,
Martin Marietta and EG & G. These prime contractors, in turn,
enter into a large number of contracts with firms such as General
Physics to provide a wide variety of services in support of
nuclear weapons production and waste processing facilities. The
Group at the DOE's Savannah River site, a 300-square mile nuclear
weapons production and waste processing site near Aiken, South
Carolina predominantly provides professional services in such
areas as the development and upgrade of detailed operating and
maintenance procedures, training program design, development and
accreditation assistance, maintenance engineering, technical
support and quality assurance and various other engineering and
operations support services. General Physics also has staff
augmentation contracts at many of the DOE's research laboratories
including Los Alamos National Laboratory, Princeton Plasma
Physics Laboratory, Lawrence Livermore National Laboratory, and
Brookhaven National Laboratory for similar services.
ENGINEERING AND APPLIED SCIENCES GROUP
The Engineering and Applied Sciences Group provides
engineering services to the Government, utilities and
petrochemical industries. Multi-discipline capabilities include
environmental, mechanical, structural, chemical, electrical, and
systems engineering, augmented with nondestructive examination,
industrial chemistry, and computer aided design/drafting
technical services. Specialized engineering expertise is
recognized nationally in areas of mechanical integrity programs
(including design, analysis, inspection and safety of capital
intensive and inherently hazardous facilities and systems) and
electric power generation (including operations, maintenance and
performance engineering).
FEDERAL SYSTEMS GROUP (FSG)
GPS Technologies, Inc. Federal Systems Group, a wholly-owned
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agencies. These services include program management support,
multi-media/video production, technical training, quality
assurance and independent verification and validation of weapon
systems, weapon systems life cycle support and full spectrum
integrated logistics support. Major customers include: NAVAIR,
NAVSEA, Naval Research, Development, Test and Evaluation
Laboratories, and related Naval commands. Additionally, this
Group provides services to several non-DOD agencies of the
Federal Government, including the Internal Revenue Service, the
Office of Personnel Management and the DOE, and to several
commercial clients including Electronic Data Systems Corp. and
Trane Air Conditioning.
CONTRACTS
General Physics is currently performing under approximately
700 contracts. General Physics' contracts with its clients
provide for charges on a time-and-materials basis, a fixed-price
basis or a cost-plus-fixed-fee basis. General Physics'
subcontracts with the Government have predominantly been cost-
plus-fixed-fee contracts and time-and-materials contracts. As
with all United States Government contractors, General Physics is
required to comply with the Federal Acquisition Regulations and
the Government Cost Accounting Standards with respect to all of
the services provided to the United States Government and
agencies thereof. These Regulations and Standards govern the
procurement of goods and services by the United States Government
and the nature of costs that can be charged with respect to such
goods and services. General Physics does not believe that
complying with these Regulations and Standards places it in any
competitive disadvantage. In addition, all such contracts are
subject to audit by a designated government audit agency, which
in most cases is the Defense Contract Audit Agency (the DCAA).
Although these contracts are subject to audit, General Physics
anticipates no material cost disallowances. The DCAA has audited
the General Physics contracts through 1989 without any material
disallowances. The following table illustrates the percentage of
total pro forma revenue attributable to each type of contract for
the year ended December 31, 1994 assuming 12 months for each of
SGLG and General Physics.
6
Percentage of Total Revenue
Year Ended December 31,
1994
Time-and Materials 37%
Fixed-Price 39%
Cost-plus-Fixed-Fee 24%
100%
CUSTOMERS
General Physics provides services to more than 410
customers, including several of the largest companies in the
United States. Significant customers include commercial nuclear
utilities, the Department of the Navy, the Department of the Air
Force, the Department of the Army, major automotive
manufacturers, major defense contractors, and other United States
Government agencies. Revenue from the United States Government
accounted for approximately 48% of the pro forma revenue of the
Company for 1994 assuming 12 months for each of SGLG and General
Physics. However, such revenue was derived from many separate
contracts and subcontracts with a variety of Government agencies
and contractors that are regarded by General Physics as separate
customers. In 1994 no other customer accounted for more than 10%
of General Physics revenue.
COMPETITION
The principal competitive factors in General Physics markets
are the experience and capability of technical personnel,
performance, reputation and price. A significant factor
determining the business available to General Physics and its
competitors is the ability of customers to use their own
personnel to perform services provided by General Physics and its
competitors. Another factor affecting the competitive environment
is the small, specialty companies located at or near particular
customer facilities which are dedicated solely to servicing the
technical needs of those particular facilities. In the DOE
services industry, competition comes from a number of companies,
including defense contractors, architect-engineering firms,
smaller independent service companies such as the Company and
small and disadvantaged businesses under Section 8(a) of the
Small Business Administration Act. Competition in the industries
served by the Federal Systems Group is strong and comes from
large defense contractors and other service corporations, many of
which have significantly greater resources than General Physics
as well as competition from small and disadvantaged businesses,
which receive certain preferential treatment in the awarding of
government contracts.
7
PERSONNEL
As of March 1, 1995, General Physics employed 1312 persons.
Many of General Physics' employees perform multiple functions
depending upon changes in the mix of demand for the services
provided by General Physics. None of General Physics' employees
is represented by a labor union. General Physics generally has
not entered into employment agreements with its employees, but
has employment agreements with certain officers. General Physics
believes its relations with its employees are good.
BACKLOG
As of December 31, 1994, General Physics' backlog for
services under signed contracts and subcontracts was
approximately $64,844,000 consisting of approximately $22,278,000
respectively, for the Training and Technology Group,
approximately $6,613,000, for the DOE Group, approximately
$25,392,000, for the Engineering and Applied Sciences Group and
approximately $10,561,000, for the Federal Systems Group.
General Physics anticipates that most of its backlog as of
December 31, 1994 will be recognized as revenue during 1995;
however, the rate at which services are performed under certain
contracts, and thus the rate at which backlog will be recognized,
is at the discretion of the client, and most contracts are, as
mentioned above, subject to termination by the client upon
written notice.
ENVIRONMENTAL STATUTES AND REGULATIONS
General Physics provides environmental engineering services
to its clients, including the development and management of site
environmental remediation plans. Due to the increasingly strict
requirements imposed by Federal, state and local environmental
laws and regulations (including without limitation, the Clean
Water Act, the Clean Air Act, Superfund, the Resource
Conservation and Recovery Act and the Occupational Safety and
Health Act), General Physics' opportunities to provide such
services may increase.
General Physics activities in connection with providing
environmental engineering services may also subject General
Physics itself to such Federal, state and local environmental
laws and regulations. Although General Physics subcontracts most
remediation construction activities and all removal and off-site
disposal and treatment of hazardous substances, General Physics
could still be held liable for clean-up or violations of such
laws as an "operator" or otherwise under such Federal, state and
local environmental laws and regulations with respect to a site
8
where it has provided environmental enginering and support
services. General Physics believes, however, that it is in
compliance in all material respects with such environmental
laws and regulations.
DISTRIBUTION GROUP
FIVE STAR GROUP, INC.
The Distribution Group, incorporated under the name Five
Star Group, Inc. ("Five Star"), is engaged in the wholesale
distribution of home decorating, hardware and finishing products.
Five Star has two strategically located warehouses and office
locations, with approximately 380,000 square feet of space in New
Jersey and Connecticut, which enables Five Star to service the
market from Maine to Virginia.
Five Star is the largest distributor in the U.S. of paint
sundry items, interior and exterior stains, brushes, rollers and
caulking compounds and offers products from leading manufacturers
such as Olympic, Cabot, Thompson, Dap, 3-M, Minwax and Rustoleum.
Five Star distributes its products to retail dealers which
include discount chains, lumber yards, "do-it-yourself" centers,
hardware stores and paint suppliers principally in the northeast
region. It carries an extensive inventory of the products it
distributes and provides delivery generally within 48 to 72 hours
from the placement of an order.
The primary working capital investment for Five Star is
inventory. Inventory levels will vary throughout the year
reflecting the seasonal nature of the business. Five Star's
strongest sales are typically in March through October because of
strong seasonal consumer demandRegistrant's definitive Proxy Statement for
its products. As a result,
inventory levels tend to peak in the spring and reach their
lowest levels in late fall.
The largest customer accounted for approximately 13% of Five
Star's sales in 1994 and its 10 largest customers accounted for
approximately 27% of such sales. No other customer accounted for
in excess of 10% of Five Star's sales in 1994. All such
customers are unaffiliated companies and neither Five Star nor
the Company has a long-term contractual relationship with any of
them.
Competition within the industry is intense. There are much
larger national companies commonly associated with national
franchises such as Servistar and True Value as well as smaller
regional distributors all of whom offer similar products and
services. Additionally, in some instances manufacturers will
bypass the distributor and choose to sell and ship their products
directly to the retail outlet. The principal means of
competition for Five Star are its strategically placed
9
distribution centers and its extensive inventory of quality name
brand products. Five Star will continue to focus its efforts on
supplying its products to its customers at a competitive price
and on a timely, and consistent basis. In the future, Five Star
will attempt to acquire complementary distributors and to expand
the distribution of its line of private-label products sold under
the "Five Star" name.
OPTICAL PLASTICS GROUP
The Optical Plastics Group is engaged in the manufacture of
molded and coated optical products, such as shields and face
masks and non-optical plastic products through the Company's
wholly owned subsidiary MXL Industries, Inc. ("MXL").
MXL is a state-of-the-art injection molder and precision
coater of large optical products such as shields and face masks
and non-optical plastics. MXL believes that the principal
strengths of its business are its state-of-the-art injection
molding equipment, advanced production technology, high quality
standards, and on time deliveries. Through its Woodland Mold and
Tool Division, MXL also designs and engineers state-of-the-art
injection molding tools as well as providing a commodity custom
molding shop.
As the market for optical injection molding, tooling and
coating is focused, MXL believes that the combination of its
proprietary "Anti-Fog" coating, precise processing of the "Anti-
Scratch" coatings, and precise molding and proprietary grinding
and polishing methods for its injection tools will enable it to
increase its sales in the future and to expand into related
products.
MXL uses only polycarbonate resin to manufacture shields,
face masks and lenses for over 55 clients in the safety,
recreation and military industries. For its manufacturing work
as a subcontractor in the military industry, MXL is required to
comply with various federal regulations including Military
Specifications and Federal Acquisition Regulations for military
end use applications.
MXL is dependent upon one client which accounts for
approximately 38% of MXL's total sales and another client which
accounts for approximately 14% of MXL's total sales. Over the
last several years, MXL has implemented a variety of programs
designed to reduce its overhead expenses, enhance its processing
capabilities, improve operating efficiency and expand the range
of services offered to its customers.
The Company's sales and marketing effort concentrates on
industry trade shows. In addition, the Company employs one
marketing and sales executive and one sales engineer.
10
HYDRO MED SCIENCES
Hydro Med Sciences ("HMS") is a division of the Company
involved in the manufacture of medical devices, drugs and
cosmetic polymer products. HMS was established to investigate
potential uses of a unique group of polymers called HydronR in
applications other than the soft contact lens area. These
polymers, which absorb water without dissolving, are excellent
candidates for biomedical applications.
HMS has been involved in the development of human and
veterinary drugs, as well as medical and dental devices since the
early 1970's. HMS developed the Syncro-Mate BR implant which is
presently manufactured by HMS and sold in the United States by
Sanofi Animal Health, Inc., and is used for the synchronized
breeding of bovine heifers. This product was the first veterinary
drug implant to be approved by the FDA.
HMS also commercially manufactures a solvent soluble, water
insoluble HydronR polymer for use in a series of cosmetic
products, such as hand and body lotions, facial, whole body and
fragile eye moisturizers and sunscreens.
HMS also has been collaborating with The Population Council
on the development of an implant for humans capable of delivering
luteinizing hormone releasing hormone (LHRH) at controlled
therapeutic levels for one to two years. This implant is
currently in Phase I clinical trials for the treatment of
prostatic cancer. The purpose of this study is to determine
appropriate dose and elicit any unexpected adverse reactions.
THE COMPANY'S INVESTMENTS
GTS DURATEK, INC.
GENERAL
GTS DURATEK INC. ("Duratek") was incorporated in the State
of Delaware in December 1982. At December 31, 1994, Duratek was
an approximately 61% controlled subsidiary of the Company.
However, as of March 1 1995, the Company owned approximately 40%
of the outstanding shares of common stock of Duratek.
Duratek's operations consist of two operating groups: (i)
"Technology Group" engaged in converting radioactive, hazardous
and mixed (both radioactive and hazardous waste to glass, using
in-furnace vitrification processes, and removing radioactive
and/or hazardous contaminants from waste water and other liquids
using filtration and ion exchange processes and (2) "Services
Group" (formerly Consulting and Staff Augmentation)engaged in
consulting, engineering, training, and staff augmentation
services. Duratek provides services and technologies for various
11
utility, industrial, governmental, and commercial clients.
On January 24, 1995, the Company sold 1,666,667 shares of
its Duratek common stock at a price of $3.00 per share to The
Carlyle Group ("Carlyle") in connection with a $16 million
financing by Duratek with Carlyle, a Washington, D.C. based
private merchant bank. In addition, the Company granted Carlyle
an option to purchase up to an additional 500,000 shares of the
Company's Duratek common stock over the next year at $3.75 per
share (the "Carlyle Transaction").
Duratek received $16 million from Carlyle in exchange for
160,000 shares of newly issued 8% cumulative convertible
preferred stock (convertible into 5,333,333 shares of Duratek
common stock at $3.00 per share). Duratek granted Carlyle an
option to purchase up to 1,250,000 shares of newly issued Duratek
common stock from Duratek over the next four years.
As of March 1, 1995, the Company owned 3,534,972 shares of
Duratek common stock (approximately 40% of the currently
outstanding shares of common stock). Assuming, (i) Carlyle
converted all of its cumulative convertible preferred stock into
Duratek common stock and exercised its option to purchase
additional shares of Duratek common stock from each of Duratek
and National Patent and (ii) National Patent employees exercised
their options to purchase an aggregate of 497,750 shares of
Duratek common stock, the Company would own 2,537,222 shares of
Duratek common stock (approximately 16.5% of the then outstanding
shares of common stock).
TECHNOLOGY GROUP
During 1991 and 1992, Duratek and The Catholic University of
America's Vitreous State Laboratory (VSL) jointly conducted
bench-scale vitrification research with the U.S. Department of
Energy ("DOE") waste simulants and actual DOE radioactive and
mixed waste samples. This led to the l992 award of a $3.4
million DOE-funded contract to conduct a minimum additive waste
stabilization (MAWS) demonstration, which enabled the Company to
significantly advance the development of its vitrification
technology. The MAWS project integrated soil washing, water
purification, and in-furnace vitrification to reduce waste volume
and then convert the reduced waste to a durable, leach-resistant
form (glass) for long-term storage or burial.
During the first half of l993, Duratek designed, built and
operated a l00 kilogram-per-day pilot-scale melter at the VSL to
gather test data while building a similar 300 kilogram-per-day
unit at the DOE's Fernald Environmental Management Project (FEMP)
for the MAWS demonstration. These melters were designated
DuraMelter 100 and 300, respectively.
12
Duratek engineers and operators started up the DuraMelter
300 at the FEMP in September 1993 and began conducting continuous
melt campaigns with nonradioactive waste stimulants. In August
1994, following approximately one year of nonradioactive test
melts, the Company operators processed about 7,000 gallons of
FEMP wastes consisting of soil wash concentrates , contaminated
with uranium, thorium and other heavy metals, blended with
magnesium-fluoride sludge from Pit #5. Duratek thus became the
first company to successfully complete a continuous vitrification
run with low-level radioactive waste at a DOE site.
The MAWS success led to a $1.2 million DOE-funded contract
for Duratek and the VSL to characterize and catalog the physical
and chemical properties of nationwide DOE waste streams. The
data gathered will be the basis for a compositional envelope: a
sophisticated computerized model which will be used to determine
which waste streams can be blended in a vitrification process to
achieve the MAWS goals of substantial waste volume reduction and
long-term waste form stability.
Near the end of l993, Duratek won a $13.9 million, three-
year contract in competition with companies providing traditional
waste stabilization methods- to stabilize 700,000 gallons of
uranium-contaminated sludge at the DOE's Savannah River Site.
Duratek is designing and building its first commercial-scale
melter, a DuraMelter 5,000 for the project.
In 1994, Duratek won a DOE-funded contract worth
approximately $2 million to design, build and test a high-
temperature melter and "gem" matching ( a device which converts
the molten glass discharge stream into droplets) for Fernald
Environmental Restoration Management Company's (FERMCO) CRU4
project.
SERVICES GROUP
The Services Group provides technical personnel to support
nuclear power plant outages and operation and DOE environmental
restoration projects. The group has retained its major
customers: Duke Power Company, Vermont Yankee Nuclear Power
"Corporation, New York Power Authority, Tennessee Valley
Authority, GPU Nuclear Corporation, PECO Energy Company (formerly
Philadelphia Electric Company), and FERMCO.
Through efforts to expand its higher margin professional
services business, the Services Group has increased its
consulting and training sales.
The Services Group has also aligned its services to support
and complement the Technology Group's environmental restoration
business. These include environmental safety and health
consulting and training, hazardous materials training, quality
13
assurance/quality control and radiological controls. Waste
melter operator trainees are often recruited from the Services
Group Field Work Force.
INTERFERON SCIENCES, INC.
Interferon Sciences, Inc. ("ISI"), which was incorporated in
Delaware in May 1980, commenced operations in January 1981, by
obtaining from the Company, assets relating to its programs in
human alpha (leukocyte) interferon, recombinant DNA, and
hybridoma technology.
ISI is a biopharmaceutical company engaged in the
manufacture and sale of ALFERON N Injection, the only product
approved by the United States Food and Drug Administration
("FDA") that is based upon a natural source, multi-species alpha
interferon ("Natural Alpha Interferon"). ALFERON N Injection is
approved for the treatment of certain types of genital warts. ISI
also is developing its existing injectable, topical, and/or oral
formulations of Natural Alpha Interferon for the potential
treatment of HIV, hepatitis C, hepatitis B, multiple sclerosis,
cancers, and other indications. Interferons occur naturally in
the body, in essence nature's own medicine. Interferons are a
group of proteins produced and secreted by cells to combat
diseases.
Currently, various alpha interferon products, approved for
17 different medical uses in over 60 countries, are, as a group,
one of the largest selling of all biopharmaceuticals with
estimated 1994 sales approaching $2 billion. The majority of
these sales consisted of sales of alpha interferon produced from
genetically engineered cells (recombinant alpha interferon).
ALFERON N Injection is approved for sale in the United
States for the intralesional treatment of adults with refractory
(resistant to other treatment) or recurring external genital
warts. ALFERON N Injection is marketed and distributed in the
United States exclusively by Purdue Pharma L.P. through its
affiliate, The Purdue Frederick Company (collectively,
"Purdue"). Submissions for regulatory approval to sell ALFERON N
Injection for the treatment of genital warts have been filed in
Austria, Canada, Hong Kong, Israel, Mexico, Singapore and the
United Kingdom. Regulatory approval to sell ALFERON N Injection
was recently obtained in Mexico.
Additional products under development by ISI include ALFERON
N Gel and ALFERON LDO. ALFERON N Gel is a topical interferon
preparation which ISI believes has potential in the treatment of
cervical dysplasia, recurrent genital herpes, other viral
diseases, and cancers. ALFERON LDO is a low dose oral liquid
alpha interferon formulation which ISI believes has potential for
treating certain symptoms of patients infected with the HIV virus
14
and treating other viral diseases.
CLINICAL TRIALS SUMMARY
In an effort to obtain approval to market Natural Alpha
Interferon for additional indications in the United States and
around the world, ISI is focusing its research program on
conducting and planning various clinical trials for new
indications.
The table appearing below summarizes the data concerning
clinical trials of ALFERON N Injection, ALFERON N Gel, and
ALFERON LDO being conducted or proposed to be conducted.
15
PRODUCT POTENTIAL APPLICATION/ STATUS OF CLINICALTRIAL(1) SPONSOR
INDICATIONS
ALFERON N HIV infected patients:
Injection
Asymptomatic Initial Phase 1 completed Walter
Reed(2)
Asymptomatic/Symptomatic Phase 2/3 in final stages of ISI
planning
Comparison of side effects in Phase 1 completed Purdue
healthy subjects with
recombinant alpha interferon
Hepatitis C Three multi-center Phase 2 ISI(3)
in progress
Kaposi's sarcoma Phase 2 in progress ISI
(in AID's patients)
Small cell lung cancer Phase 2 to commence shortly Investi-
gator(5)
Multiple Sclerosis Phase 2 being planned ISI
Hepatitis B Phase 2 proposed (4)
ALFERON N Cervical dysplasia Phase 2 completed ISI
Gel
16
Cervical dysplasia Phase 2 to commence shortly Investi-
(in HIV-infected patients) igator(5)
Mucocutaneous herpes in Phase 2 proposed (4)
immunocompromised patients
Recurrent genital herpes Phase 2 proposed (4)
ALFERON HIV-infected patients Initial Phase 2 completed ISI
LDO
HIV-infected patients Phase 2 in final stages of NIAID
planning
(1) Generally, clinical trials for pharmaceutical products are conducted in three
phases. In Phase 1, studies are conducted to determine safety and tolerance. In Phase
2, studies are conducted to gain preliminary evidence as to the efficacy of the
product as well as additional safety data. In Phase 3, studies are conducted to
provide sufficient data to establish safety and statistical proof of efficacy in a
specific dose. Phase 3 is the final stage of such clinical studies prior to the
submission of an application for approval of a new drug or licensure of a biological
product or for new uses of a previously-approved product.
(2) Partially funded by Purdue.
(3) Previously funded by Purdue; currently funded by ISI.
(4) The sponsor and the timing of this trial will be dependent upon future funding.
(5) Investigator-sponsored IND.
17
In March 1995, ISI entered into an amendment of the 1994
Purdue Amendments (the "1995 Purdue Amendment") pursuant to which
ISI obtained an option, exercisable until June 30, 1995, (the
"Option") to reacquire the marketing and distribution rights from
Purdue and Mundipharma. The 1995 Amendment provides for (i) the
payment of $3 million in cash upon exercise of the option and
(ii) the issuance of 2.5 million shares of Common Stock. Eighteen
months from the date of exercise of the Option by ISI (the
"Valuation Date"), the 2.5 million shares of Common Stock must
have a value of at least $9 million, which value will be
calculated using the average of the closing bid and asked prices
of the Common Stock as quoted by NASDAQ National Market System
for the ten trading days ending two days prior to the Valuation
Date. In the event of a shortfall, ISI has agreed to issue a
note, for such shortfall, if any, which will bear interest at the
prime rate, and will become due and payable 24 months from the
Valuation Date. ISI agrees that the 2.5 million shares of Common
Stock will be registered and freely tradeable 18 months from the
date of exercise of the ISI option. The 1995 Purdue Amendment, if
exercised, would replace in its entirety the royalty obligations
and the Repurchase Option contained in the 1994 Amendments with
Purdue and Mundipharma.
OTHER MARKETING AND DISTRIBUTION ARRANGEMENTS
In February 1994, ISI entered into an exclusive distribution
agreement for ALFERON N Injection in Mexico with Andromaco, a
privately-held pharmaceutical company headquartered in Mexico
City which specializes in oncology and immunology products.
Under the agreement, Andromaco applied for and recently obtained
approval from the Mexican regulatory authorities to sell ALFERON
N Injection in Mexico. As part of the agreement, Andromaco also
agreed to sponsor clinical research with ALFERON N Injection in
Mexico. The agreement also establishes performance milestones for
the maintenance of exclusive distribution rights by Andromaco in
Mexico. In addition, ISI has a buy-out option to reacquire the
marketing and distribution rights in Mexico under certain terms
and conditions.
On February 7, 1995 ISI concluded an agreement with Fujimoto
Diagnostics, Inc. ("Fujimoto") of Osaka, Japan, for the
commercialization of ALFERON N Injection in Japan (the "Fujimoto
Agreement"). Fujimoto is affiliated with Fujimoto Pharmaceutical
Company, a 60-year old company with facilities in Central Japan.
The Fujimoto Agreement grants Fujimoto exclusive rights to
develop, distribute and sell ALFERON N Injection and ALFERON N
Gel in Japan. Pursuant to the terms of the Fujimoto Agreement,
Fujimoto agreed to fund and conduct all preclinical and clinical
studies required for regulatory approval in Japan. For the
injectable product, ALFERON N Injection, Fujimoto will initially
focus on its use for the treatment of patients infected with the
hepatitis C virus. ISI will supply Fujimoto with ALFERON N
18
Injection and will also manufacture and supply Fujimoto with
ALFERON N Gel. The first indication to be developed for ALFERON N
Gel has not yet been finalized. Fujimoto will also purchase
certain quantities of ALFERON N Injection and ALFERON N Gel at
agreed-upon prices during the preclinical and clinical phases. In
connection with the Fujimoto Agreement, Fujimoto purchased
$1,500,000 of Common Stock and agreed to purchase an additional
$500,000 of Common Stock on February 6, 1996 based on the then
current market price.
Although ISI has exclusive marketing and distribution
agreements with Purdue, Mundipharma, Andromaco and Fujimoto and
has the right to sell ALFERON N Injection in the Returned
Territories, no sales of ALFERON N Injection can be made in
Canada, or the Returned Territories until such product is
approved for sale in these countries. Submissions for regulatory
approval to sell ALFERON N Injection for treatment of genital
warts have been filed in Canada, Austria, Hong Kong, Israel, and
the United Kingdom and has been obtained in Mexico. There can be
no assurance, however, that any such approval will be granted.
AMERICAN DRUG COMPANY
American Drug Company ("ADC") was organized in 1993, as a
wholly-owned subsidiary of the Company to initiate marketing
activities for American generic pharmaceutical and medical
products in Russia and the Commonwealth of Independent States
(the "CIS"). The Company's predecessor, NPD Trading (USA), Inc.
("NPD Trading"), was formed in January 1990 as a wholly-owned
subsidiary of the Company to provide consulting services to
Western businesses in Russia and Eastern Europe.
In August 1994, the Company entered into a Transfer and
Distribution Agreement (the "Distribution Agreement") with ADC
whereby the Company transferred to ADC, (the "Distribution")
immediately prior to the closing of the Distribution, all of its
interest in NPD Trading and in two newly-formed, 50% owned joint
ventures, in exchange for (i) the issuance by ADC of 6,990,990
shares of Common Stock to the Company (ii) the issuance of
approximately 6,017,775 shares of Common Stock to the Company's
stockholders and (iii) the issuance of 6,017,775 warrants to be
distributed to the Company's stockholders. Each warrant is
exercisable for a period of two years commencing on August 5,
1994, at an exercise price per share of $1.00, subject to ADC's
right to cancel unexercised warrants under certain circumstances.
Upon the consummation of this reorganization, NPD Trading became
a wholly-owned subsidiary of ADC.
The Distribution was at the rate of one share plus one
warrant to purchase one share of common stock at an exercise
price of $1.00, expiring August 5, 1996, for every four
outstanding shares of Common Stock of the Company. Upon
19
completion of the Distribution, ADC became a separate public
company.
ADC's diverse activities to date have focused on developing,
and assisting Western businesses to develop, trade, manufacturing
and investment opportunities in Russia, the Czech and Slovak
Republics and, to a lesser extent, other countries of the CIS and
Eastern Europe. ADC intends to make sales of American-made
generic pharmaceutical and health care products for sale under
its own label in Russia and the CIS.
In 1993, ADC initiated activities aimed at the export of
American-made generic pharmaceutical (prescription drugs and
over-the-counter personal care products) and other medical
products and equipment to Russia and the CIS. Among the products
anticipated to be sold by ADC are antibiotic ointments, pain
relief medication, vitamins, bandages, prescription injectable
anti-cancer drugs, antibiotics and other prescription drugs. ADC
has launched marketing operations with major Russian hospitals,
individual Russian pharmacies, and other hospitals and clinics
throughout the CIS, as well as with distributors in the region.
ADC has initiated these operations in order to enable consumers
to benefit from the superior quality and low cost of American-
made generic drug and medical products in markets in which ADC
believes demand for such products to be high and availability
limited. ADC intends to register, market and sell a wide variety
of products under its own label and to develop a distribution of
its products throughout the CIS. In October 1994, ADC's "Shiny"
brand baking soda toothpaste with fluoride and its "Aurora"
feminine maxi pads and mini shields received medical
certification by health authorities in Russia.
ADC believes that contracting for the supply of its products
enables it to avoid significant capital expenditures and the time
and expense associated with the U.S. Food and Drug Administration
(the "FDA") approval process. ADC has entered into some supply
agreements with chemical and pharmaceutical manufacturers to date
and is currently in negotiations with several others. The terms
of each of these agreements may vary, but generally provide for
the supply to ADC of approximately five or six generic
pharmaceutical products, in a variety of potency levels, for
marketing and resale under the ADC label in Russia and other
states which formerly comprised the Soviet Union. The agreements
generally carry a ten-year term with options to renew for
successive one-year periods. They prohibit price increases on
products supplied to ADC during the first year of the agreement
unless a substantial increase in the price of raw materials
occurs. The agreements also provide that ADC will pay all
foreign registration fees and labeling costs and that the
supplier will undertake the labeling and packaging of all
products sold to ADC in accordance with federal regulations. In
addition, the supplier represents that products will be
20
manufactured in accordance with the good manufacturing practices
established by the FDA and that it will name ADC as an additional
insured on product liability policies providing sufficient
coverage.
In its four years of operation, ADC has provided through its
subsidiary, NPD Trading, a broad range of business services to a
significant number of American and Western corporations. ADC's
employees have backgrounds in diverse disciplines, such as
medicine, law, engineering, physics and international economics,
which appropriately meet the industrial makeup of ADC's clients.
ADC is able to provide the contacts necessary for interested
clients to locate a venture partner and to establish viable
financing. Recognizing that successful conclusion of project
negotiations in this region often depends upon financing, ADC
works closely with the U.S. Exim-Bank, OPIC, the World Bank and
its affiliates, including the European Bank for Reconstruction
and Development, as well as private commercial banks.
Additionally, ADC advises its clients with respect to new
commercial, tax, currency and other laws of Eastern Europe, as
well as U.S. foreign government regulations and policies which
directly affect business operations.
RESEARCH AND DEVELOPMENT
For the year ended December 31, 1994, NPDC incurred $431,000
as research and development costs.
EMPLOYEES
At December 31, 1994, the Company and its subsidiaries
employed 2,368 persons, including 16 in the Company's
headquarters, 1,840 in the Physical Science Group, 340 in the
Distribution Group, 74 in the Optical Plastics Group and 51 at
Eastern Electronics, which is a discontinued operation. Of these,
4 persons were engaged in research and development. The Company
considers its employee relations to be satisfactory.
21
Item 10. Directors and Executive Officers of the Registrant is
hereby amended and restated in its entirety as follows:
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information
concerning the principal executive officers and directors of the
Company as of March 21, 1995. The principal business experience
of the executive officers and directors for the last five years
is also described below.
Name Age Position
Jerome I. Feldman 66 President, Chief Executive
Officer and a Director since
1959
Martin M. Pollak 67 Executive Vice President,
Treasurer and a Director since
1959
Scott N. Greenberg 38 Vice President, Chief
Financial Officer since 1989,
and a Director since 1987
Lawrence M. Gordon 41 General Counsel since 1986,
Vice President since 1991
Robert A. Feinberg 32 Vice President Corporate
Development, since January
1995
Paul A. Gould 49 Director
Roald Hoffmann, Ph.D. 57 Director
Ogden R. Reid 68 Director
Herbert R. Silverman 77 Director
Jerome I. Feldman is founder of, and since 1959, has been
President and Chief Executive Officer and a Director of the
Company. He has been Chairman of the Executive Committee and a
Director of Interferon, which is a biopharmaceutical company
engaged in the manufacture and sale of ALFERON N Injection since
1981; a Director since 1981 and Chairman of the Board from 1985
to January 1995 of GTS Duratek Inc, ("Duratek") a company which
provides environmental technology and consulting services to
various utilities, industrial and commercial clients; a Director
since 1987, Chairman of the Executive Committee since 1988 and
Chief Executive Officer since September 1994 of GPC, a company
22
which provides personnel training and technical support services
to the domestic commercial nuclear power industry and to the
United States Department of Energy; President since October 1994
and Chief Executive Officer, Chairman of the Executive Committee
and a Director of SGLG since 1991, a holding company; and a
director and consultant to American Drug Company ("ADC"), a
generic drug distribution company since January 1994. He has been
a Director of Hamilton Financial Services, Inc., a financial
service holding company since 1983. Mr. Feldman is also a Trustee
of the New England Colleges Fund and of Bard College.
Martin M. Pollak is founder of, and since 1959, has been
Executive Vice President, Treasurer and a Director of the
Company. He has been Chairman of the Board of Interferon since
1981; a Director of Duratek since 1983 and Chairman of the
Executive Committee from 1985 to January 1995; a Director of GPC
since 1987 and Chairman of the Board since 1988; Chairman of the
Board of SGLG since 1991; and President, Chief Executive Officer
and a director of ADC since January 1994. Mr. Pollak is Chairman
of the Czech and Slovak United States Economic Counsel and a
member of the Board of Trustees of the Worcester Foundation for
Experimental Biology and a Director of Brandon Systems
Corporation, a personnel recruiting company, since 1986.
Scott N. Greenberg has been a Director of the Company since
1987, Vice President and Chief Financial Officer since 1989 and
Vice President, Finance from 1985. He has been a Director of GPC
since 1987; a Director of SGLG since 1991; Chief Financial
Officer and a Director of ADC since January 1994 and from 1991 to
January 1995, a Director of Duratek.
Lawrence M. Gordon is Vice President, General Counsel of the
Company. Mr. Gordon has been General Counsel of the Company
since 1986 and Vice President since 1991. He has been a Director
of GPC since October 1994.
Robert A. Feinberg is Vice President, Corporate Development
of the Company since January 1995. From July 1990 to January
1995, Mr. Feinberg was an Assistant United States Attorney in the
Criminal Division of the United States Attorney's Office for the
Eastern District of New York. From October 1988 to June 1990, Mr.
Feinberg was an associate with the law firm of Debevoise &
Plimpton in New York City.
Paul A. Gould has been a Director of the Company since 1993.
He has been Managing Director since 1979 of Allen & Company
Incorporated, an investment banking firm. He has been a Director
since 1992 of Liberty Media Corp., a cable programming company
and a Director since April 1994 of Resource Recycling
Technologies, Inc., which is engaged in solid waste material
management alternatives.
23
Roald Hoffmann, Ph.D. has been a Director of the Company
since 1988 and a Director of Interferon since 1991. He has been a
John Newman Professor of Physical Science at Cornell University
since 1974. Dr. Hoffmann is a member of the National Academy of
Sciences and the American Academy of Arts and Sciences. In 1981,
he shared the Nobel Prize in Chemistry with Dr. Kenichi Fukui.
Ogden R. Reid has been a Director of the Company since 1979.
He has been a Director of Interferon since 1982; a Director of
GPC since 1988 and Vice Chairman and Director of SGLG since 1992;
from 1991 to January 1995 he was Vice Chairman of the Board of
Duratek. Mr. Reid had been Editor and Publisher of the New York
Herald Tribune and of its International Edition; United States
Ambassador to Israel; a six-term member of the United States
Congress and a New York State Environmental Commissioner.
Herbert R. Silverman has been a Director of the Company
since November 1994. Since 1975 he has been a Senior Advisor to
Bank Julius Baer (New York), Zurich, Switzerland, Chairman of the
Executive Committee of Baer American Banking Corporation since
1976 and is a member of the Board of Directors of Partners Funds,
Inc. and Focus Fund, both of which are mutual stock funds managed
by Neuberger & Berman since 1965. He is also a life trustee of
New York University and New York University Medical Center.
Section 16 Reporting
Section 16(a) of the Securities Exchange Act 1934 requires
the Company's officers and directors, and persons who own more
than 10% of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission (the "SEC") and the
American Stock Exchange, Inc. Officers, directors and greater
than 10% shareholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on its review of copies of such forms received
by it and written representations from certain reporting persons
that no Forms 5 were required for those persons, the Company
believes that during the period January 1, 1994 to March 30,
1995, all filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied
with, except for Paul A. Gould, a Director of the Company, who
filed a late report on Form 4.
Board of Directors
The Board of Directors has the responsibility for
establishing broad corporate policies and for the overall
performance of the Company, although it is not involved in
day-to-day operating details. Members of the Board are kept
informed of the Company's business by various reports and
24
documents sent to them as well as by operating and financial
reports made at Board and Committee meetings. The Board held
three meetings in 1994, at which all of the directors attended
the meetings of the Board and Committees on which they served,
except for Roald Hoffmann, who attended fewer than 75% of the
meetings.
Directors Compensation
Directors who are not employees of the Company receive a fee
of $1,500 for each meeting of the Board of Directors attended,
but do not receive any additional compensation for service on
committees of the Board of Directors. Officers of the Company do
not receive additional compensation for serving as directors.
Executive Committee
The Executive Committee, consisting of Jerome I. Feldman and
Martin M. Pollak, meets on call and has authority to act on most
matters during the intervals between Board meetings. The
committee formally acted 26 times in 1994 through unanimous
written consents.
Audit Committee
The Audit Committee reviews the internal controls of the
Company and the objectivity of its financial reporting. It meets
with appropriate Company financial personnel and the Company's
independent certified public accountants in connection with these
reviews. This committee recommends to the Board the appointment
of the independent certified public accountants, subject to the
ratification by the stockholders at the Annual Meeting to serve
as auditors for the following year in examining the books and
records of the Company. This Committee met twice in 1994. The
Audit Committee currently consists of Ogden R. Reid, Roald
Hoffmann and Paul A. Gould.
Item 11. Executive CompensationStockholders is hereby amended and restated
in its entirety as follows:
The following table and notes present the compensation paidincorporated by
the Company and subsidiaries to its Chief Executive Officer
and the Company's most highly compensated executive officers for
1994.
25
SUMMARY COMPENSATION TABLE
Annual Compensation
Salary Bonus
Name and Principal Position Year ($) ($)
Jerome I. Feldman 1994 322,3 40,000(1)
President and Chief 1993 316,526 120,000
Executive Officer 1992 326,243 -0-
Martin M. Pollak 1994 322,259 40,000(2)
Executive Vice President 1993 315,110 -0-
and Treasurer 1992 325,110 151,250
Scott N. Greenberg 1994 216,375 20,000(1)
Vice President and 1993 156,625 -0-
Chief Financial Officer 1992 151,000 -0-
Lawrence M. Gordon 1994 233,205 50,000(1)
Vice President and 1993 183,20 50,000
General Counsel 1992 183,507 -0-
(1) For 1994, Messrs. Feldman, Pollak, Greenberg and Gordon
received their respective cash bonuses for services rendered to
Interferon.
(2) For 1994, $150,000, of Mr. Pollak's compensation was paid by
ADC, as a consequence of his services to both companies.
Long Term
Compensation
Awards
Options All Other
Name and Principal Position ($) Compensation
Jerome I. Feldman -0- 3,696(1)
President and Chief -0- 3,598(l)
Executive Officer -0- 253,491(1)
Martin M. Pollak -0- 3,696(1)
Executive Vice President -0- 3,598(1)
and Treasurer -0- 253,491(1)
Scott N. Greenberg -0- 3,696(3)
Vice President and -0- 3,598
Chief Financial Officer 22,500 2,932
Lawrence M. Gordon -0- 3,696(3)
Vice President and -0- 2,937
General Counsel -0- 3,392
(1) Includes $3,696, $3,598 and $3,491 as a matching
26
contribution by the Company to the 401(k) Savings Plan, and
$250,000 in 1992 pursuant to a Non-Compete Agreement between
Messrs. Feldman and Pollak and SmithKline Beecham Corporation.
See "Employment Contracts and Termination of Employment and
Change in Control Arrangements."
(2) Constitutes matching contributions made by ADC and the
Company equally on behalf of Mr. Pollak pursuant to the Company's
401(k) Savings Plan.
(3) Matching contribution by the Company to the 401(k) Savings
Plan.
For the year ended 1994, none of the named executive
officers were granted non-qualified stock options.
The following table and notes set forth information for the
named executive officers regarding the exercise of stock options
during 1994 and unexercised options held at the end of 1994.
27
AGGREGATED OPTION EXERCISES AT DECEMBER 31, 1994
AND YEAR-END OPTION VALUES
Shares Acquired
on Exercise
(#) (1) Value Realized
($)
Name
Jerome I. Feldman -0- -0-
Martin M. Pollak -0- -0-
Scott N. Greenberg -0- -0-
Lawrence M. Gordon -0- -0-
Number of Unexercised
Options at December 31,
1994 (#)
Exercisable/Unexercisable
Name
Jerome I. Feldman 1,778,667(2) -0-
Martin M. Pollak 1,788,667(2) -0-
Scott N. Greenberg 184,700 -0-
Lawrence M. Gordon 144,100 -0-
Value of Unexercised
In-the-Money Options at
December 31, 1994 ($)
Name Exercisable/Unexercisable(3)
Jerome I. Feldman -0- -0-
Martin M. Pollak -0- -0-
Scott N. Greenberg -0- -0-
Lawrence M. Gordon -0- -0-
(1) None of the named executive officers exercised any stock
options during 1994.
(2) Includes 775,000 Class B Options, which options are
convertiblereference into shares of Common Stock on a share for share
basis.
(3) Calculated based on the closing price of the Common Stock
(1.8125) as reported by the American Stock Exchange on
December 30, 1994.
28
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1994 the Company did not
have a Compensation Committee and the entire Board of Directors
made decisions on compensation of the Company's executives. Mr.
Feldman, the Company's Chief Executive Officer and a director,
Mr. Pollak, the Company's Executive Vice President and Treasurer
and a director and Mr. Greenberg, the Company's Vice President
and Chief Financial Officer and a director participated in Board
executive compensation deliberations.
Employment Contracts
Agreements with Messrs. Feldman and Pollak. The Company
entered into an Agreement with its President and Chief Executive
Officer, Jerome I. Feldman, and with its Executive Vice President
and Treasurer, Martin M. Pollak (the "Employees"), which was
extended for an additional year by vote of the entire Board as of
January 1, 1995.
Pursuant to the Agreements, Mr. Feldman will serve as
President and Chief Executive Officer of the Company and Mr.
Pollak will serve as Executive Vice President and Treasurer of
the Company for the period through December 31, 1995. The
Agreements provide for each Employee to receive annual
compensation (a minimum base salary) of $300,000 (subject to
increase by the Board of Directors).
Item 12. Security Ownership of Certain Beneficial Owners and
Management is hereby amended and restated in its
entirety as follows:
As of March 21, 1995, no person was known to the Company to
own beneficially more than 5% of the Common Stock or Class B
Stock of the Company except as set forth below.
The following table shows as of such date the Class B Stock
beneficially owned directly by Mr. Jerome I. Feldman, President
and Chief Executive Officer and a director of the Company, and
Mr. Martin M. Pollak, Executive Vice President and Treasurer and
a director of the Company. (For information with respect to the
shares of Common Stock beneficially owned by Messrs. Feldman and
Pollak, see "Security Ownership of Directors and Named Executive
Officers"):
29
Amount of
Title of Name and Address Beneficial Percent
Class of Beneficial Owners Ownership of Class
Class B Jerome I. Feldman 900,000 shares(1) 50(2)
c/o National Patent
Development Corp.
9 West 57th Street
Suite 4170
New York, NY 10019
Class B Martin M. Pollak 900,000 shares(1) 50(2)
c/o National Patent
Development Corp.
9 West 57th Street
Suite 4170
New York, NY 10019
(1) Includes 775,000 shares each for Messrs. Feldman and Pollak
which they currently have the right to purchase pursuant to the
exercise of stock options.
(2) Percentage could increase up to approximately 88% if either
individual exercised all of his stock options and the other
individual did not exercise any.
Based upon the Common Stock and Class B Stock of the Company
outstanding at March 21, 1995, Mr. Feldman and Mr. Pollak
controlled in the aggregate approximately 10.6% of the voting
power of all voting securities of the Company. This percentage
for Mr. Feldman and Mr. Pollak would increase to approximately
45% if they exercised all the presently outstanding options to
purchase shares of the Common Stock and Class B Stock of the
Company held by them.
On March 26, 1986, Mr. Feldman and Mr. Pollak entered into
an agreement (i) granting each other the right of first refusal
over the sale or hypothecation of the Class B Stock and options
to purchase Class B Stock now owned or subsequently acquired by
each of them and (ii) in the event of the death of either of them
granting the survivor a right of first refusal over the sale or
hypothecation of the Class B Stock or options to acquire shares
of Class B Stock held by the estate of the decedent. The
aforesaid right of first refusal is for the duration of the life
of the survivor of Mr. Feldman or Mr. Pollak.
Merrill Lynch & Co., Inc., Merrill Lynch Group, Inc.,
Princeton Services, Inc., Fund Asset Management, L.P., Princeton
Services, Inc. and Merrill Lynch Phoenix Fund, Inc. filed a 13-G
which disclosed the ownership of 1,426,100 shares of the Common
Stock representing approximately 5.9% of the outstanding Common
Stock as of December 31, 1994.
30
SECURITY OWNERSHIP OF DIRECTORS AND NAMED EXECUTIVE OFFICERS
The following table sets forth, as of March 21, 1995,
beneficial ownership of shares of Common Stock of the Company and
subsidiaries by each director, each of the named executive
officers and all directors and executive officers as a group.
Total Number of
Shares Beneficially
Name Owned
Jerome I. Feldman(1)(2)(3)(4)(5) 2,161,636
Martin M. Pollak(1)(2)(3)(4)(5) 2,161,373
Scott N. Greenberg(3)(4) 201,300
Roald Hoffmann, Ph.D.(3)(4)(6) 22,800
Ogden R. Reid(3)(4)(5)(6) 17,000
Paul A. Gould(1)(4)(6) 212,600
Herbert R. Silverman 5,000
Lawrence M. Gordon(1)(3)(4) 146,612
Directors and Executive Officers as a Group
(9 persons) (1)(3)(4) 4,928,346
Percent of
Common Stock
Owned
Jerome I. Feldman (1)(2)(3)(4)(5) 7.82
Martin M. Pollak (1)(2)(3)(4)(5) 7.82
Scott N. Greenberg(3)(4) *
Ogden R. Reid(3)(4)(6) *
Roald Hoffmann, Ph.D.(3)(6) *
Paul A. Gould(1)(4)(6) *
Herbert R. Silverman *
Lawrence M. Gordon (1)(3)(4) *
Directors and Executive Officers as a Group
(9 persons)(1)(3)(4) 16.46
31
Of Total Number of
Shares Beneficially
Owned,
Shares Which May Be
Acquired Within 60 Days
Jerome I. Feldman(1)(2)(3)(4)(5) 1,778,667
Martin M. Pollak(1)(2)(3)(4)(5) 1,788,667
Scott N. Greenberg(3)(4) 184,700
Roald Hoffmann, Ph.D.(3)(6) 21,000
Ogden R. Reid(3)(6) 16,000
Paul A. Gould(1)(6) 6,000
Herbert A. Silverman -0-
Lawrence M. Gordon(1)(3)(4) 144,100
Directors and Executive Officers as a Group
(9 persons)(1)(3)(4) 3,939,134
* The number of shares owned is less than one percent of the
outstanding shares of Common Stock.
(1) Included in the table are 125,000 shares for each of Messrs.
Feldman and Pollak which they currently have the right to acquire
through the conversion of shares of Class B Stock into shares of
Common Stock which they currently own, (see "Principal Holders of
Securities"). Also included in the table are 2,904 shares for a
foundation of which Mr. Feldman is a trustee and 6,469 shares for
a foundation of which Mr. Pollak is a trustee. Also included in
the table are 4,426 shares for Mr. Feldman, 2,414 shares for Mr.
Pollak and 2,012 shares for Mr. Gordon and 8,852 shares for all
directors and executive officers as a group, issuable upon the
conversion of bonds issued with the Company's 12% Subordinated
Debentures Due 1997. Mr. Feldman disclaims beneficial ownership
of the 2,414 shares issuable upon conversion of bonds held by his
wife pursuant to the Debentures. Messrs. Feldman, Pollak and
Gould disclaim beneficial ownership of 4,691, 23,006 and 100
shares, respectively, held by members of their families which are
included in the table.
(2) Included in the table are options to purchase 775,000 shares
of Class B Options for each of Messrs. Feldman and Pollak which
they currently have the right to acquire through the exercise of
stock options, which shares are convertible into shares of Common
Stock.
(3) Of the directors and executive officers of the Company, the
following beneficially own the number of shares of common stock
of Interferon Sciences, Inc. ("Interferon") indicated: Jerome I.
Feldman 496,450 (2.16%); Martin M. Pollak 482,500 (2.10%); Scott
N. Greenberg 165,000 (.73%); Roald Hoffmann 3,000(.013%) Ogden R.
Reid 7,100 (.032%) and Lawrence M. Gordon 182,500 (.80%). These
shares include 480,000, 480,000, 165,000, 3,000, 7,000 and
182,500 shares for Messrs. Feldman, Pollak, Greenberg, Hoffmann,
32
Reid and Gordon, respectively, which are subject to currently
exercisable stock options. In addition, all directors and
executive officers as a group beneficially own 1,336,500 shares,
of which 1,317,500 shares are subject to currently exercisable
stock options. Certain members of the families of Messrs. Feldman
and Pollak hold 2,950 and 1,000 shares, respectively, as to which
Messrs. Feldman and Pollak disclaim beneficial ownership. Mr.
Feldman and Mr. Pollak through their ownership of the Company's
Common Stock, may be deemed to beneficially own an aggregate of
6,975,148 shares of Common Stock of Interferon beneficially owned
by the Company, Five Star Group, Inc. ("Five Star") and MXL
Industries, Inc. ("MXL"), wholly owned subsidiaries of the
Company. However, Mr. Feldman and Mr. Pollak disclaim beneficial
ownership of such 6,975,148 shares (7,471,598 and 7,457,648
shares in the aggregate for Mr. Feldman and Mr. Pollak,
respectively). The total number of shares owned by all directors
and executive officers of the Company as a group (other than
Messrs. Feldman and Pollak) is 1.6% of the outstanding shares of
Interferon's common stock. All such persons have sole voting and
investment power as to all shares except as indicated.
(4) Of the directors and executive officers of the Company,
the following beneficially own the number of shares of common
stock of General Physics Corporation ("GPC") indicated: Jerome I.
Feldman-58,766 (.6%), of which 56,666 are subject to currently
exercisable stock options; Martin M. Pollak-63,036 (.6%), of
which 56,666 are subject to currently exercisable stock options
and 470 are warrants to acquire 470 shares of GPC Common Stock,
Scott N. Greenberg-29,333, of which 28,333 are subject to
currently exercisable stock options (.21%) and Ogden R. Reid
5,000 (.04%), all of which are subject to currently exercisable
stock options. In addition, all directors and executive officers
as a group beneficially own 9,000 shares. Mr. Feldman and Mr.
Pollak through their ownership of the Company's Common Stock, may
be deemed to beneficially own an aggregate of 5,120,495 shares of
GPC beneficially owned by the Company, Five Star and MXL, wholly-
owned subsidiaries of the Company. However, Mr. Feldman and Mr.
Pollak disclaim beneficial ownership of such 5,120,495 shares
(5,122,595 and 5,126,395 shares in the aggregate for Mr. Feldman
and Mr. Pollak, respectively). The total number of shares owned
by all directors and executive officers of the Company as a group
(other than Messrs. Feldman and Pollak) is .01% of the
outstanding shares of GPC's common stock. All such persons have
sole voting and investment power as to all shares except as
indicated.
(5) Member of the Executive Committee.
(6) Member of the Audit Committee.
As of March 21, 1995 the Company owned 4,800,148 shares of
Interferon common stock, constituting approximately 21% of the
33
outstanding shares, Five Star owned approximately 1,359,375
shares constituting approximately 6% and MXL owned approximately
815,625 shares constituting approximately 4% of the outstanding
shares of Interferon Common Stock. Accordingly, the Company's
voting control of Interferon is approximately 31%.
As of March 21, 1995 the Company owned 3,420,495 shares of
GPC common stock, constituting approximately 34% of the
outstanding shares, Five Star owned 1,062,500 shares constituting
approximately 10% and MXL owned 637,500 shares constituting
approximately 6% of the outstanding shares of GPC common stock.
All of the shares of GPC common stock owned by the Company, Five
Star and MXL have been pledged to a bank as collateral to secure
indeptedness owed to such bank. In addition, the Company owns
warrants to purchase 1,357,355 shares of GPC common stock.
Accordingly, the Company's voting control of GPC is approximately
56.28%.
As of March 1, 1995 the Company owned 2,842,300 shares of
SGLG, Inc. ("SGLG") common stock, constituting approximately 92%
of the outstanding shares. In addition, Mr. Pollak owns 1,000
shares of SGLG common stock.
Item 13. Certain Relationships and Related Transactions is
hereby amended and restated in its entirety as follows:
GTS Duratek, Inc.
On January 24, 1995, the Company sold 1,666,667 shares of
its Duratek common stock at a price of $3.00 per share to the
Carlyle Group ("Carlyle") in connection with a $16 million
financing by Duratek with Carlyle, a Washington, D.C. based
private merchant bank. In addition, the Company granted Carlyle
an option to purchase up to an additional 500,000 shares of
Duratek common stock over the next year at $3.75 per share (the
"Carlyle Transaction").
Duratek received $16 million from Carlyle in exchange for
160,000 shares of newly issued 8% cumulative convertible
preferred stock (convertible into 5,333,333 shares of Duratek
common stock at $3.00 per share). Duratek granted Carlyle an
option to purchase up to 1,250,000 shares of newly issued Duratek
common stock from Duratek over the next four years.
As of March 1, 1995, the Company owns 3,534,972 shares of
Duratek common stock (approximately 40.4% of the currently
outstanding shares of common stock). Assuming, (i) Carlyle
converted all of its cumulative convertible preferred stock into
Duratek common stock and exercised its option to purchase
additional shares of Duratek common stock from each of Duratek
and the Company and (ii) the Company's employees exercised their
options to purchase an aggregate of 497,750 shares of Duratek
34
common stock, the Company would own 2,537,222 shares of Duratek
common stock (approximately 16.5% of the then outstanding shares
of common stock).
In connection with the Carlyle Transaction, Carlyle will
have the right, through its preferred stock, to elect a majority
of Duratek's Board of Directors. Upon conversion of the
preferred stock, Carlyle would own approximately 50% of Duratek's
common stock if all of its options are exercised.
PART IVPart III hereof.
-2-
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K is hereby amended and restated in its entirety
as follows:
(a)(1) The following financial statements are included in
Part II, Item 8. Financial Statements and
Supplementary Data:
FINANCIAL STATEMENTS OF NATIONAL PATENT DEVELOPMENT
CORPORATION AND SUBSIDIARIES:
Page
Independent Auditors' Report 3738
Financial Statements:
Consolidated Balance Sheets -
December 31, 1995 and 1994 and 1993 3839
Consolidated Statements of
Operations - Years ended
December 31, 1995, 1994 and 1993 and 1992 4041
Consolidated Statements of Changes in
Stockholders' Equity - Years ended
December 31, 1995, 1994 and 1993 and 1992 4143
Consolidated Statements of Cash
Flows - Years ended December 31,
1995, 1994 and 1993 and 1992 4345
Notes to Consolidated Financial
Statements 4648
FINANCIAL STATEMENTS OF GSE SYSTEMS, INC.: *
GSE SYSTEMS, INC. AND SUBSIDIARIES: *
Report of Independent Accountants *
Consolidated Balance Sheets as of
December 31, 1994 and 1995 *
Consolidated Statements of Operations for the
period April 14, 1994 through December 31,
1994 and for the year ended December 31,
1995 *
Consolidated Statements of Stockholders' Equity
(Deficit) for the period April 14, 1994
through December 31, 1994 and for the year
ended December 31, 1995 *
-3-
Consolidated Statements of Cash Flows for the
period April 14, 1994 through December 31,
1994 and for the year ended December 31, 1995 *
Notes to Consolidated Financial Statements *
SIMULATION SYSTEMS & SERVICES TECHNOLOGIES
COMPANY AND MSHI, INC.: *
Report of Independent Accountants *
Consolidated Statements of Operations for
the eight months ended August 31, 1993,
for the four months ended December 31, 1993,
and for the period January 1, 1994 through
April 13, 1994 *
Consolidated Statements of Stockholder's Equity
for the eight months ended August 31, 1993,
for the four months ended December 31, 1993
and for the period January 1, 1994 through
April 13, 1994 *
___________
* Incorporated herein by reference to Exhibit 99 to
the Annual Report on Form 10-K of National Patent
Development Corporation for the year ended December
31, 1995.
Consolidated Statements of Cash Flows for the
eight months ended August 31, 1993, for the
four months ended December 31, 1993 and for
the period January 1, 1994 though April 13,
1994 *
Notes to Consolidated Financial Statements *
GP INTERNATIONAL ENGINEERING & SIMULATION, INC.: *
Report of Independent Accountants *
Statements of Operations for the year ended
December 31, 1993 and for the period
January 1, 1994 through April 13, 1994 *
Statements of Stockholder's Equity (Deficit) for
the year ended December 31, 1993 and for the
period January 1, 1994 through April 13, 1994 *
Statements of Cash Flows for the year ended
December 31, 1993 and for the period
January 1, 1994 through April 13, 1994 *
Notes to Consolidated Financial Statements *
-4-
EUROSIM AB: *
Report of Independent Accountants *
Statements of Operations for the year ended
December 31, 1993 and for the period
January 1, 1994 through April 13, 1994 *
Statements of Stockholder's Equity for the
year ended December 31, 1993 and for the
period January 1, 1994 through April 13, 1994 *
Statements of Cash Flows for the year ended
December 31, 1993 and for the period
January 1, 1994 through April 13, 1994 *
Notes to Financial Statements *
__________
* Incorporated herein by reference to Exhibit 99 to
the Annual Report on Form 10-K of National Patent
Development Corporation for the year ended December
31, 1995.
(a)(2) Financial Statement Schedules
Schedule I - Condensed Financial Information of
Registrant i
Schedule II - Valuation and Qualifying Accounts iix
Independent Auditors' Report x
35xi
(a)(3) ExhibitExhibits
Consent of KPMG Peat Marwick LLP, Independent
Auditors.
Consent of Coopers & Lybrand, L.L.P., Independent
Accountants.
(b) There were no Reports on Form 8-K filed by the
Registrant during the last quarter of the period
covered by this report.
-5-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NATIONAL PATENT DEVELOPMENT
CORPORATION
BY: Jerome I. Feldman,
President and Chief
Executive Officer
Dated: May 1, 1995
36April 26, 1996
-6-
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(in thousands)
ASSETS
Current assets December 31,
1995 1994
1993(a)
Cash and cash equivalents $ 5,950 $ 9,165
$ 9,058Marketable securities 3,563
Accounts and other receivables 2,536 903
2,768
Inventories 72 2,747 2,877
Prepaid expenses and other current assets 435 937 471
Total current assets 12,556 13,752 15,174
Investments in subsidiaries 79,247 164,12264,409 69,235
Note receivable from subsidiary 10,346 10,012
Other investments and advances 12,508 7,253 14,807
Property, plant and equipment, at cost 4,718 4,684 4,655
Less accumulated depreciation (4,640) (4,540)
(4,423)78 144 232
Intangible assets, net of amortization 725 772 915
Other assets 2,690 1,877
76$103,312 $103,045
$195,326(a) The December 31, 1994 Balance Sheet has been restated for
comparative purposes.
See accompanying notes to the condensed financial statements.
i-7-
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (Continued)
CONDENSED BALANCE SHEET (Continued)
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
Current liabilities 1995 1994 1993
Current maturities of long-term debt $ 9,2752,996 $ 2059,275
Accounts payable and accrued expenses 2,976 3,526 3,626
Total current liabilities 5,972 12,801 3,831
Long-term debt, less current maturities 15,886 13,539 29,747
Amounts due subsidiaries, net 10,456 10,030 90,068
Commitments and contingencies
Common stock issued subject to
repurchase obligation 1,510
4,242
Stockholders' equity *
Preferred stock
Common stock 241 19068 60
Class B capital stock 2 21 1
Capital in excess of par value 119,856 106,274125,419 120,038
Deficit (52,139) (53,151) (39,028)
Net unrealized loss on available-for-
- -sale securities (1,440) (1,783)
Minimum pension liability adjustment (911)
Total stockholders' equity 70,998 65,165
67,438$103,312 $103,045
$195,326* Stockholders' equity has been restated to reflect the effect
of the one for four reverse stock split, which was effective
on October 6, 1995.
See accompanying notes to the condensed financial statements.
ii-8-
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (Continued)
CONDENSED STATEMENT OF OPERATIONS
(in thousands, except per share data)
Year ended December 31,
Revenues1995 1994 1993
1992Revenues
Sales $ 1,024 $ 812 $ 945 $ 915
Investment and other income
(expense), net (744) (3,899) 1,388
3,767280 (3,087) 2,333 4,682
Costs and expenses
Cost of goods sold 582 586 573 632
Selling, general and administrative 7,511 6,847 8,294 8,131
Research and development 388 431 326
301
Interest 2,511 4,086 6,414
8,76910,992 11,950 15,607 17,833
Gain on disposition of stock of
a subsidiary and an affiliate 3,768 3,795
Gain on issuance of stock of
a subsidiary and an affiliate 2,055 1,353
Unrealized gain on transfer from
long-term investments to trading
securities 3,183
Equity in earnings of subsidiaries
(including $3,857 of gain on issuance
of stock by an affiliate in 1995) 5,903 3,640 234
1,573
LossIncome (loss) before income taxes,
discontinued operation and
extraordinary item 4,197 (11,397) (7,892)
(11,578)
Income tax (expense) benefit (165) 1,043
LossIncome (loss) before discontinued
operation and extraordinary item 4,032 (11,397) (6,849) (11,578)
Discontinued operation
Loss from discontinued operation (2,941) (2,574) (947)
(2,027)
LossIncome (loss) before
extraordinary item 1,091 (13,971) (7,796)
(13,605)-9-
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (Continued)
CONDENSED STATEMENT OF OPERATIONS (Continued)
(in thousands, except per share data)
Year ended December 31,
1995 1994 1993
Extraordinary item
Gain from early extinguishmentExtinguishment of debt, net of
income tax of $1,043
in 1993expense (79) 1,819
1,662
Net lossincome (loss) $ 1,012 $(13,971) $ (5,977)$(11,943)$(5,977)
Income (loss) per share Loss*
Income (loss) before discontinued
operation and extraordinary item $ (.52).60 $ (.40)(2.10) $ (.73)(1.60)
Discontinued operation (.12) (.06) (.13)(.44) (.47) (.22)
Extraordinary item .11 .10(.01) .42
Net lossincome (loss) per share $ (.64).15 $ (.35)(2.57) $ (.76)(1.40)
* All periods have been restated to reflect the effect of the
one for four reverse stock split, which was effective on
October 6, 1995.
See accompanying notes to the condensed financial statements.
Prior years have been restated to reflect the discontinued
operation.
iiifinancialstatements.
-10-
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (Continued)
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
Year ended December 31,
1995 1994 1993 1992
Cash flows from operations:
Net lossincome (loss) $ 1,012 $(13,971) $(5,977)$(11,943)
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 208 392 798 1,332
Equity in earnings of subsidiaries (5,903) (3,640) (234) (1,573)
Provision for discontinued operation 2,460 1,570
Share of loss of discontinued
operation 481 1,004 947 2,027
Income tax benefit allocated to
continuing operations (1,043)
Gain on disposition of stock of
a subsidiary and an affiliate (3,768) (3,795)
Gain on issuance of stock of
a subsidiary and an affiliate (2,055) (1,353)
GainsUnrealized gain on transfer from
early extinguishmentlong-term investments to trading
securities (3,183)
Extinguishment of debt, net
of income tax in 199379 (1,819) (1,662)
Changes in other operating items (2,010) 994 1,662 (204)
Net cash used for operations (12,679) (13,651) (10,814) (12,023)
Cash flows from investing activities:
Proceeds from sale of an investment 4,500
(Additions to) reductionsstock of
a subsidiary 7,051
Additions to property, plant
& equipment (34) (29) (22)
34
Reduction of (additions to)Additions to intangible assets (6) (37) 477
Reduction of investments and
other assets, net 3,052 11,473 13,841 5,787
Net cash provided by investing
activities 10,063 11,407 14,296
10,321
iv-11-
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (Continued)
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
Year ended December 31,
1995 1994 1993 1992
Cash flows from financing activities:
Net repayments of short-term
borrowings $ $ $ (4,379) $(5,967)
Decrease in restricted cash 270
4,730
Reduction of long-term debt (5,753) (295) (3,450) (2,683)
Proceeds from issuance of
common stock 244 188 198
Exercise of common stock options
and warrants 99 413
282
Proceeds from issuance of
long-term debt 4,910 2,359
Issuance of treasury stock 15
Net cash provided by (used
for) financing activities (599) 2,351 (6,948)
(3,623)
NetNet(decrease) increase (decrease) in
cash and cash equivalents (3,215) 107 (3,466) (5,325)
Cash and cash equivalents
at beginning of year 9,165 9,058 12,524 17,849
Cash and cash equivalents at
end of year $ 5,950 $ 9,165 $ 9,058
$ 12,524
v-12
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (Continued)
CONDENSED STATEMENT OF CASH FLOWS (Continued)
(in thousands, except per share data)
Year ended December 31,
1995 1994 1993 1992
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 813 $ 1,009 $ 2,375
$ 6,145
Income taxes $ 98 $ 42 $ 44 $ 103
Supplemental schedule of noncash transactions:
Additions to other assets and
prepaid expenses 625 100 179 130
Reduction of accrued interest
payable 1,045 607
Reduction of debt 6,250 9,167 21,900 1,819
Reduction of accounts payable 267
597
Issuances of treasury stock (1,468)Increase in accrued pension
liability (911)
Issuances of common stock (4,535) (10,579) (8,981) (1,078)
Issuance of long-term debt (2,340) (3,006)
Common stock issued subject to
repurchase obligation (4,242)
Gain on disposition of stock
of a subsidiary and an affiliate (3,795)
Gain on exchange of debt,
before income tax effect (2,662)
Minimum pension liability
adjustment 911
See accompanying notes to the condensed financial statements.
vi-13-
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (Continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. INVENTORIES
Inventories are valued at the lower cost or market,
principally using the first-in, first-out (FIFO) method of
costing. Inventories consisting of material, labor, and overhead
are classified as follows (in thousands):
December 31,
1995 1994 1993
Raw materials $ 5040 $ 9550
Work in process 1
2
Finished goods 32 46 80
Land for resale 2,650
2,700
$ 2,747 $ 2,87772 $2,747
2. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 31,
1995 1994
19938% Swiss Bonds due 2000 $ 2,365 $
5% Convertible Bonds $2,249 2,129 $ 2,300
8% Swiss Bonds 247 2,999 $ 4,572
Old Swiss convertible bonds 1,751 10,158 15,300
12% Subordinated debentures 6,749 6,783
6,829Term loan with bank 5,000
Notes payable in connection
with settlements of litigation 521 745
95118,882 22,814 29,952
Less current maturities 2,996 9,275
205
$ 13,539 $ 29,747$15,886 $13,539
Aggregate annual maturities of long-term debt outstanding at
December 31, 19941995 for each of the next five years are as follows
(in thousands):
1995 $ 9,275
1996 4,3552,996
1997 7,0558,021
1998 1,000
1999 2,1293,249
2000 3,365
See Note 1011 of the Notes to Consolidated Financial Statements for
additional information with respect to the Company's long-term debt.
vii-14-
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (Continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
3. COMMITMENTS AND CONTINGENCIES
The Company has several noncancellable leases which cover real
property and machinery and equipment. Such leases expire at
various dates with, in some cases, options to extend their terms.
Minimum rentals under long-term operating leases are as follows
(in thousands):
Real Machinery &
property equipment Total
19951996 $ 636 $ 92 $ 728
1996 636 46 682
1997 636 29 66576 712
1998 656 15 67149 705
1999 656 10 66636 692
2000 656 20 676
After 1999 1,968 1,9682000 1,312 1,312
Total $5,188$4,552 $ 192 $5,380273 $4,825
Several of the leases contain provisions for rent escalation
based primarily on increases in real estate taxes and operating
costs incurred by the lessor.
The Company is party to several lawsuits incidental to its
business. It is not possible at the present time to estimate the
ultimate legal and financial liability, if any, of the Company
with respect to such litigation; however, management believes
that the ultimate liability, if any, will not have a material
adverse effect on the Company's Financial Statements.
viiifinancial statements.
-15-
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
SCHEDULE II
Valuation and qualifying accounts (in thousands)
Additions
Balance at Charged to Balance at
Beginning Costs & Close of
of Period Expenses Deductions(a) Period
Year ended December 31,
1995:
Allowance for doubtful
accounts $2,092 $2,077 $1,103 $3,066
Year ended December 31,
1994:
Allowance for doubtful
accounts $1,689 $1,733 $1,330 $2,092
Year ended December 31,
1993:
Allowance for doubtful
accounts 1,581 1,077 969 1,689
Year ended December 31, 1992:
Allowance for doubtful
accounts 1,795 1,287 1,501 1,581
(a) Write-off of uncollectible accounts, net of recoveries.
ix-16-
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
National Patent Development Corporation
Under date of April 3, 1995,March 28, 1996, we reported on the consolidated
balance sheet of National Patent Development Corporation and
subsidiaries as of December 31, 19941995 and 1993,1994, and the related
consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three-year
period ended December 31, 1994,1995, as contained in the annual report
on Form 10-K for the year ended 1994.1995. In connection with our
audits of the aforementioned consolidated financial statements,
we also have audited the related financial statement schedules as
listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
New York, New York
April 3, 1995
xMarch 28, 1996
-17-