UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended March 31,June 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 1-7234
NATIONAL PATENT DEVELOPMENT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1926739
(State or other jurisdiction of (I.R.S. Employer
incorporation or organizationorganization) Identification No.)
9 West 57th Street, New York, NY 10019
(Address of principal executive offices) (Zip code)
(212) 826-8500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange act of 1934 during the preceding 12 months
(or for such shorter period) that the registrant was required to
file such reports and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Number of shares outstanding of each of issuer's classes of
common stock as of May 10,August 6, 1996:
Common Stock 7,324,2847,375,386 shares
Class B Capital 62,500 shares
1
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets -
March 31,June 30, 1996 and December 31, 1995 1
Consolidated Condensed Statements of Operations-Operations -
Three Months and Six Months Ended March 31,June 30,
1996 and 1995 3
Consolidated Condensed Statements of Cash Flows -
ThreeSix Months Ended March 31,June 30, 1996 and 1995 4
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 78
Qualification Relating to Financial Information 1011
Part II. Other Information 1112
Signatures 12
2
13
PART I. FINANCIAL INFORMATION
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31,June 30, December 31,
1996 1995
ASSETS (unaudited) *
Current assets
Cash and cash equivalents $ 6,98823,152 $ 8,094
Marketable securities 4,063 3,563
Accounts and other receivables 44,55143,502 39,466
Inventories 22,46020,604 20,444
Costs and estimated earnings in excess
of billings on uncompleted contracts 9,2309,425 9,118
Prepaid expenses and other current assets 3,6383,591 3,640
Total current assets 90,930100,274 84,325
Investments and advances 21,77326,465 21,452
Property, plant and equipment, at cost 34,43735,168 33,367
Less accumulated depreciation (25,066)(25,793) (24,374)
9,3719,375 8,993
Intangible assets, net of amortization 32,43532,347 33,053
Other assets 3,8593,645 3,897
$158,368$172,106 $151,720
* The Consolidated Condensed Balance Sheet as of December 31,
1995 has been summarized from the Company's audited Consolidated
Balance Sheet as of that date.
See accompanying notes to the consolidated condensed financial statements.
3
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(in thousands)
March 31,June 30, December 31,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilitiesliabilities:
Current maturities of long-term debt and
notes payable $ 2,0362,171 $ 4,167
Short-term borrowings 20,16721,689 18,043
Accounts payable and accrued expenses 23,72619,846 20,865
Billings in excess of costs and estimated
earnings on uncompleted contracts 8,7348,211 8,301
Total current liabilities 54,66351,917 51,376
Long-term debt less current maturities 19,12918,405 19,765
Minority interests and other 9,7119,978 9,581
Stockholders' equity
Common stock 7273 68
Class B capital stock 1 1
Capital in excess of par value 129,259129,511 125,419
Deficit (52,056)(41,253) (52,139)
Net unrealized lossgain (loss) on
available-
for-saleavailable-for-sale securities (1,500)4,385 (1,440)
Minimum pension liability adjustment (911) (911)
Total stockholders' equity 74,86591,806 70,998
$158,368$172,106 $151,720
*The* The Consolidated Condensed Balance Sheet as of December 31,
1995 has been summarized from the Company's audited Consolidated
Balance sheet as of that date.
See accompanying notes to the consolidated condensed financial statements.
4
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three months Six months
ended March 31,June 30, ended June 30,
1996 1995 1996 1995
Revenues
Sales $ 48,15651,048 $ 46,55248,416 $ 99,204 $ 94,968
Investment and other income,
(expense), net 1,745 (134)
49,901 46,418344 812 2,089 678
Share of loss of an affiliate
due to buy back of marketing
rights (563) (563)
50,829 49,228 100,730 95,646
Costs and expenses
CostsCost of goods sold 41,064 39,28243,304 40,584 84,368 79,866
Selling, general & administrative 6,911 7,1627,269 7,387 14,180 14,549
Interest 1,001 998
48,976 47,4421,018 1,435 2,019 2,433
51,591 49,406 100,567 96,848
Minority interests (367) (204) (692) (504)
Unrealized loss on investments (4,000) (4,000)
Gain on saledisposition of
stock of a subsidiaryan affiliate 12,200 12,200 2,567
Minority interests (325) (300)Gain on issuance of stock by
an affiliate 1,938 1,938
Income (loss) before income
taxes, discontinued operation
and extraordinary item 600 1,2439,009 (382) 9,609 861
Income tax expense (517) (297)benefit (expense) 1,794 (528) 1,277 (825)
Income (loss) before discontinued
operation and extraordinary item 83 94610,803 (910) 10,886 36
Discontinued operation
Loss from discontinued operation (727)(412) (1,139)
Income (loss) before
extraordinary item 83 21910,803 (1,322) 10,886 (1,103)
Extraordinary item
Extinguishment of debt net of income tax 228(220) 8
Net income $ 83 $ 447(loss) $10,803 $(1,542) $10,886 $(1,095)
Income (loss) per share
Income (loss) before discontinued
operation and extraordinary
item $ .011.43 (.14) $ .151.49 $ .01
Discontinued operation (.12)(.06) (.18)
Extraordinary item .04(.03)
Net income (loss) per share $ .011.43 $ .07(.23) $ 1.49 $ (.17)
Dividends per share none none none none
See accompanying notes to the consolidated condensed financial statements.
5
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
ThreeSix months
ended March 31,June 30,
1996 1995
Cash flows from operations:
Net income $ 83 $ 447(loss) $10,886 $(1,095)
Adjustments to reconcile net income
to net cash provided by (used for)used for operating activities:
Provision for discontinued operation 7001,100
Depreciation and amortization 1,469 2,3192,533 2,573
Gains from early extinguishment of debt (228)(8)
Gain on saledisposition of stock of a
subsidiaryan affiliate (12,200) (2,567)
Gain on issuance of stock by an affiliate (1,938)
Unrealized gainloss on trading securities (500)investments 4,000
Reduction in valuation allowance for
deferred tax asset (2,386)
Changes in other operating items (3,865) (2,236)(6,561) 277
Net cash used for(used for) provided by operations (2,813) (1,565)(5,666) 280
Cash flows from investing activities:
Proceeds from sale of stock of a subsidiaryan affiliate 17,700 5,000
Additions to property, plant & equipment (1,070) (1,809)(1,801) (1,803)
Additions to intangible assets, (159) (427)net (408) (679)
Reduction inof (additions to) investments
and other assets, net 22 2911,360 (172)
Net cash (used for) provided by investing activities (1,207) 3,05516,851 2,346
Cash flows from financing activities:
Net proceeds from short-term borrowings 2,124 1,9473,646 2,330
Proceeds from issuance of long-term debt 400 4,910
Reduction of long-term debt (2,143) (4,503)(2,732) (8,131)
Exercise of common stock options and warrants 7
Proceeds from issuance of common stock 2,5332,552
Net cash provided by (used for) financing
activities 2,914 (2,556)
6
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
Three months
ended March 31,
1996 19953,873 (891)
Net decreaseincrease in cash and cash
equivalents $ (1,106) $ (1,066)15,058 1,735
Cash and cash equivalents at the beginning
of the periods 8,094 10,075
Cash and cash equivalents at the end of
the periods $ 6,988 $ 9,009$23,152 $11,810
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
Six months
ended June 30,
1996 1995
Supplemental disclosures of
cash flow information:
Cash paid during the periods for:
Interest $ 1,1222,274 $ 1,1372,589
Income taxes $ 155445 $ 328479
See accompanying notes to the consolidated condensed financial
statements.
7
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Inventories
Inventories are valued at the lower of cost or market,
principally using the first-in, first-out (FIFO) method.
Inventories consisting of material, labor, and overhead are
classified as follows (in thousands):
March 31,June 30, December 31,
1996 1995
Raw materials $ 786749 $ 580
Work in process 212195 219
Finished goods 21,46219,660 19,645
$ 22,460 $ 20,444$20,604 $20,444
2. Long-term debt
Long-term debt consists of the following (in thousands):
March 31,June 30, December 31,
1996 1995
8% Swiss bonds due 1995 $ $ 247
8% Swiss bonds due 2000 $ 1,772 $2,301 2,365
Swiss convertible bonds 1,751
5% convertible bonds due 1999 1,700 2,249 2,249
8% Swiss Bonds due 1995 247
12% Subordinated debentures 6,742due 1997 6,734 6,749
Term loans with banks 8,4657,968 8,713
Other 1,9371,873 1,858
21,16520,576 23,932
Less current maturities 2,0362,171 4,167
$ 19,129 $ 19,765
8
$18,405 $19,765
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company hadrealized income before income taxes, discontinued
operation and extraordinary item of $600,000$9,009,000 and $9,609,000 for
the quarter and six months ended March 31,June 30, 1996, as compared towith
income (loss) of $1,243,000$(382,000) and $861,000 for the quarter ended March 31,corresponding
periods of 1995. The reduced operatingimprovement in the Company's results were
primarily the result of the $2,567,000 gain recognized bybefore
discontinued operation and extraordinary item is due to several
factors. In April 1996, the Company on the sale of 1,666,667sold 1,000,000 shares of the
Company's GTS Duratek, Inc. (Duratek) common stock, realized
proceeds of $17,700,000 and recognized a gain of $12,200,000.
This gain was partially offset by a $4,000,000 loss recognized on
the Company's investments in American White Cross, Inc. (AWC),
due to AWC filing for protection under Chapter 11 of the United
States Bankruptcy Code in July 1996. In addition, in April 1996,
Interferon Sciences, Inc. (ISI), the Company's approximately 17%
owned affiliate, issued additional shares of common stock, which
resulted in the Company recognizing a gain of $1,938,000. For
the quarter and six months ended June 30, 1996, the Company's
share of loss of an affiliate (ISI) due to the buy back of
certain marketing rights was $563,000. In January 1995.1995, the
Company realized a $2,567,000 gain on the sale of 1,666,667
shares of the Company's Duratek common stock. As a result of
thatsuch transaction, the Company's ownership fell below 50% and
commencing in January 1995, the Company accounted for its
investment in Duratek on the equity basis. The gain recognized onAt June 30, 1996, the
saleCompany owns approximately 15% of the outstanding common stock of
Duratek stockand currently accounts for its investment as a long-term
available-for-sale equity security. Included in the
first quarter of 1995 was partially offset by ainvestment and
other income, net foreign
currency transaction loss of $(1,069,000) for the first quarter and six months ended June 30,
1996, is $80,000 of 1995. The Company realized a foreign currency transaction gain, compared
to a loss of $80,000 in$(991,000) for the first quarter of 1996.six months ended June 30, 1995.
The Company had improved operating results within the Physical
Science Group and Distribution GroupGroups in 1996 partially offset by
reduced operating profits within the Optical Plastics Group and
at the Company's Hydro Med Sciences (HMS) division. In addition,
for the six months ended June 30, 1996, the Company also achieved
reduced interest expense at the corporate level, as a result of
reduced long-term debt.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Sales
For the quarter ended March 31,June 30, 1996, consolidated sales
increased by $1,604,000$2,632,000 to $48,156,000$51,048,000 from the $46,552,000$48,416,000
recorded in the corresponding quarter of 1995. For the six
months ended June 30, 1996, consolidated sales increased by
$4,236,000 to $99,204,000 from $94,968,000 recorded for the six
months ended June 30, 1995. The increased sales for the quarter
and six months ended June 30, 1996, were the result of increased
sales within the Distribution Group and Physical Science Group,
partially offset by reduced sales within the Optical Plastics
Group and by HMS.the Company's Hydro Med Sciences division (HMS).
The increased sales within the Physical Science Group were the
result of General Physics Corporation's (GP) expansion of
managerial and technical training services in manufacturing and
process industries, partially offset by reduced activity at
commercial nuclear power utilities and U.S. Department of Energy
facilities. The increased sales within the Distribution Group,
which is comprised of the Five Star Group, Inc. (Five Star), were
the result of sales generated by a major retail chain, which was
not a customer of Five Star during the first nine months of 1995.1995,
as well as an overall increase in sales of hardware products.
The reduced sales within the Optical Plastic Group were due to a
slowdown by MXL Industries, Inc.'s (MXL) major customer as a
result of the customer's decision to reduce its inventory level.
The reduced sales within HMS were due to the timing of sales to
two customers.
Gross margin
Consolidated gross margin of $7,092,000,$7,744,000, or 15%, for the quarter
ended March 31,June 30, 1996, decreased by $178,000$88,000 when compared to the
consolidated gross margin of $7,270,000,$7,832,000, or 16%, for the 9
quarter
ended March 31,June 30, 1995. The decreasedFor the six months ended June 30, 1996,
consolidated gross margin of $14,836,000 or 15% of consolidated
sales decreased by $266,000 when compared to $15,102,000 or 16%
of consolidated sales earned in 1996
wasthe six months ended June 30,
1995. These decreases were principally the result of decreased
gross margin achieved by the Optical Plastics GroupMXL and by HMS as a result of reduced sales
levels partially offset by increased gross margin generated by
Five Star and GP, as a result of increased sales. In addition,
Five Star and MXL achieved lower gross margin percentages due to
increased sales.a change in their customer mix.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Selling, general and administrative expenses
For the threequarter and six months ended March 31,June 30, 1996, selling,
general and administrative expenses (SG&A) of $7,269,000 and
$14,180,000 were $118,000 and $369,000 lower than the $7,387,000
and $14,549,000 of SG&A expenses were $6,911,000 compared toincurred during the $7,162,000 incurred in the first quarter ofand
six months ended June 30, 1995. The decrease in SG&A for the
first quarter ofand six months ended June 30, 1996, was principally the
result of the
efforts by GP and Five Star during 1995 to consolidate
and streamline its organization.their organizations, which have been realized in
the current periods.
Interest expense
For the quarter and six months ended June 30, 1996, interest
expense was $1,018,000 and $2,019,000, compared to $1,435,000 and
$2,433,000 for the second quarter and six months ended June 30,
1995. The decreased interest expense for the quarter and six
months ended June 30, 1996, was the result of reduced long-term
debt.
Investment and other income, (expense), net
Investment and other income, (expense), net of $1,745,000$344,000 and $2,089,000 for
the quarter and six months ended March 31,June 30, 1996 improveddecreased by
$1,879,000$468,000 and increased $1,411,000, respectively, as compared to
$(134,000)$812,000 and $678,000 for the first quartercorresponding periods of 1995. The
change was principally due to the effect of the following factors: (i)
$75,000 of income earned in the quarter ended March 31, 1996, on
the share of equity income from its 20% to 50% owned
subsidiaries, compared to a loss of $(275,000) recognized in the
quarter ended March 31, 1995; (ii) aan $80,000 foreign currency
transaction gain of $80,000 forrecognized during the quartersix months ended March 31,June 30,
1996, compared to a loss of $(1,069,000) incurred in$(991,000) for the first quarter of 1995;
(iii) a $500,000 unrealized gain on trading securities, due to
the increase in their market value at March 31, 1996.six months ended
June 30, 1995.
Income tax expense
TheFor the quarter and six months ended June 30, 1996, the Company
had an income tax expensebenefit (expense) of $517,000$1,794,000 and $1,277,000,
respectively, compared to $(528,000) and $(825,000) for the
quarter ended March
31,corresponding periods of 1995. The benefit recognized in 1996 primarily relatesis
the result of the reduction of $2,386,000 in the valuation
allowance for deferred tax assets due to management's assessment
that it is more likely than not that the Company will realize the
benefits of this amount of deferred tax assets, based upon
unrealized gains on the Company's investments and other factors,
offset by state and local taxes, as well as GP's Federal income
tax expense. GP which is not included in the Company's consolidated Federal income
tax return. 10
The expense in 1995 relates primarily to state and
local taxes and GP's Federal income tax expense.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
At March 31,June 30, 1996, the Company had cash and cash equivalents
totaling $6,988,000.$23,152,000. GP, SGLG, Inc. and American Drug Company
had cash and cash equivalents of $264,000$203,000 at March 31,June 30, 1996. The
minority interests of these two companies are owned by the
general public, and therefore the assets of these subsidiaries
have been dedicated to the operations of these companies and may
not be readily available for the general corporate purposes of
the parent.
In April 1996, the Company sold 1,000,000 shares of Duratek
common stock, and realized net proceeds of $17,700,000. The
Company currently owns approximately 1,846,000 shares of Duratek
common stock. During the first quarter of 1996, the Company
completed a private placement of its common stock, totaling
approximately $2,300,000. The Company used the proceeds from
this transaction to retire long-term debt, which was currently
due. As a result of the above transaction,transactions, the Company has
sufficient cash, cash equivalents and marketable securities and
borrowing availability under existing and potential lines of
credit to satisfy its cash requirements for the repayment of
approximately $6,742,000$6,734,000 of 12% Subordinated Debentures scheduled
to mature in 1997. In addition to its ability to issue equity
securities, the Company believes that it has sufficient
marketable long-term investments, the ability to obtain
additional funds from its operating subsidiaries and the
potential to enter into new credit arrangements in order to fund
its working capital requirements.
11
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
QUALIFICATION RELATING TO FINANCIAL INFORMATION
March 31,June 30, 1996
The financial information included herein is unaudited. In
addition, the financial information does not include all
disclosures required under generally accepted accounting
principles because certain note information included in the
Company's Annual Report has been omitted; however, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management,
necessary forto a fair statement of the results for the interim
periods. The results for the 1996 interim period are not
necessarily indicative of results to be expected for the entire
year.
12
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(b) At the Annual Meeting of Stockholders held on June
18, 1996, the following individuals were elected to
serve as directors of the Company for a one-year term,
with each individual nominee receiving the following
votes from the Common Stock:
Director Votes For Votes Withheld
Jerome I. Feldman 4,799,621 103,334
Martin M. Pollak 4,801,321 101,634
Scott N. Greenberg 4,803,351 99,604
Ogden R. Reid 4,804,008 98,947
Dr. Roald Hoffmann 4,804,083 98,872
Paul A. Gould 4,804,083 98,872
Herbert R. Silverman 4,803,401 99,554
and each received 625,000 votes for and none withheld
from the Class B Capital Stock.
(c) The proposal to amend the Company's Restated
Certificate of Incorporation to decrease the total
number of authorized shares of Common Stock, Class B
Capital Stock and Preferred Stock which the Company
shall have authority to issue was withdrawn by the
Board of Directors of the Company.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a.(a) Exhibits
none
B.Exhibit I. - Copy of Notice and Proxy Statement for
Annual Meeting of Shareholders held June 19, 1996,
filed with the Securities and Exchange Commission
pursuant to Section 14 of the Securities and Exchange
Act of 1934 and incorporated herein by reference.
(b) Reports none
12
on Form 8-K
There were no reports on Form 8-K filed for the period
ended June 30, 1996.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
March 31,June 30, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed in
its behalf by the undersigned thereunto duly authorized.
NATIONAL PATENT DEVELOPMENT
CORPORATION
DATE: May 14,August 13, 1996 Jerome I. Feldman
President &
Chief Executive Officer
DATE: May 14, 1996BY: Scott N. Greenberg
Vice President and
Chief Financial Officer
DATE: August 13, 1996 BY: Jerome I. Feldman
President and Chief
Executive Officer