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FORM 10-K
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, 1993
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 registered
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 or any amendment to this
Form 10-K. /X/
As of March 15, 1994, 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
$87,454,237 based on the closing price of the Common Stock on the
American Stock Exchange on March 15, 1994. 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 15, 1994
Common Stock,
par value $.01 per share 20,299,388 shares
Class B Capital Stock,
par value $.01 per share 250,000 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its
1994 Annual Meeting of Stockholders is incorporated by reference
into Part III hereof.
TABLE OF CONTENTS
Page
PART I
Item 1. Business
(a) General Development of Business 1
(b) Financial Information About
Industry Segments 2
(c) Narrative Description of Business 2
(d) Financial Information About Foreign
and Domestic Operations and Export
Sales 16
Item 2. Properties 16
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder
Matters 17
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 20
Item 8. Financial Statements and Supplementary
Data 30
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 70
PART III
Item 10. Directors and Executive Officers of the
Registrant 70
Item 11. Executive Compensation 70
Item 12. Security Ownership of Certain Beneficial
Owners and Management 70
Item 13. Certain Relationships and Related
Transactions 70
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 71
PART I
Item 1. Business
(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 four
operating business segments: Physical Science, Distribution,
Optical Plastics and Electronics. The Company also has an
investment in two companies in the Health Care industry.
The Company's Physical Science Group consists of (i) GPS
Technologies, Inc. ("GPS"), an approximately 92% owned subsidiary
and (ii) GTS Duratek, Inc. ("Duratek"), an approximately 66%
owned subsidiary.
GPS provides a wide range of management and technical
training as well as specialized engineering services to various
commercial industries and the United States government.
Principal clients of GPS include electric utilities, process
industries, manufacturing plants, Federal agencies, and the
aerospace industries. In addition, the Company currently owns
approximately a 28% investment in General Physics Corporation
("General Physics"), which provides a wide range of personnel
training and technical support services to the domestic
commercial nuclear power industry, United States Departments of
Energy and Defense, as well as environmental engineering,
training and support services to governmental and commercial
clients.
Duratek's operations consist of two operating groups: (1)
"Environmental Services" engaged in cleanup of water and other
liquids containing radioactive and/or hazardous (mixed waste)
contaminants and minimum additive vitrification for long-term
stabilization of such waste, and (2)"Consulting and Staff
Augmentation" services. Duratek provides services for various
utility, industry, government and commercial clients.
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 Health Care Group consists of an approximately
36% investment in Interferon Sciences, Inc. ("ISI"). ISI is a
biopharmaceutical company engaged in the manufacture and sale of
ALFERON N Injection and the research and development of other
uses of ALFERON N Injection and other alpha interferon-based
formulations for the treatment of certain viral diseases,
cancers, and diseases of the immune system.
The Company currently owns approximately a 14% investment in
American White Cross, Inc. (formerly, NPM Healthcare Products,
Inc., "White Cross"). White Cross is a leading manufacturer and
marketer of private label adhesive and cotton based health and
personal care 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.
The Company's Electronics Group, through its subsidiary
Eastern Electronics Mfg. Corporation is engaged in contract
manufacturing, such as printed circuit board assembly for the
electronics industry.
(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
RECENT DEVELOPMENTS
GENERAL PHYSICS CORPORATION AND
GPS TECHNOLOGIES, INC. PROPOSED TRANSACTION
On January 13, 1994, General Physics signed a Letter of
Intent with GPS and the Company to acquire substantially all of
the operating assets of GPS and certain of its subsidiaries. The
Company currently owns approximately 92% of the outstanding
common stock of GPS and approximately 28% of the outstanding
common stock of General Physics. On March 28, 1994 the Board of
Directors of both GPS and General Physics approved the
transaction. The parties are currently negotiating the terms of
a definitive agreement and the transaction is anticipated to
close as soon as practicable in the second half of 1994, if all
necessary approvals are obtained and conditions satisfied.
The purchase price has a current present value of
approximately $36 million based on current market prices. The
purchase price will be payable to GPS as follows: $10 million
cash; 3.5 million shares of General Physics common stock valued
at approximately $13,500,000 (based upon the price per share of
General Physics common stock prior to the announcement of the
transaction which was $3.875); warrants to acquire 1,000,000
shares of General Physics common stock at $6.00 per share valued
at approximately $1,300,000; warrants to acquire up to 475,644
additional shares of General Physics common stock at $7 per share
valued at approximately $500,000; a $15 million ten-year senior
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subordinated debenture (the "Debentures") valued at approximately
$10,700,000, accruing interest at 6% per annum, interest payable
only for the first five years, with 70% of principal payable in
equal quarterly installments during the remaining five years
until maturity. The values assigned to each component of
consideration were based upon discussions with the independent
investment banker to the Independent Committee of General Physics
and the investment banker to GPS. Portions of the cash and stock
consideration of the purchase price will be (a) used to repay
outstanding bank debt of $5,650,000 (as of December 31, 1993) and
long-term debt of GPS of $8,809,000 (as of December 31, 1993) to
be repaid to the Company. In addition $1.5 million of Debentures
are held in escrow for the benefit of General Physics in
connection with certain indemnification obligations.
The transaction was recommended by an Independent Committee
of General Physics' Board of Directors and was approved by the
Board of Directors of both General Physics and GPS and is
contingent upon the occurrence of certain events, including,
without limitation: approval of the transaction by the
stockholders of both General Physics and GPS.
The Company anticipates that if the aforementioned
transaction is consummated, it will own approximately 52% of the
outstanding common stock of General Physics, and if the Company
were to exercise all of its warrants, it will own approximately
58% of the outstanding common stock of General Physics.
Although an agreement in principle has been reached, there
can be no assurance that a definitive agreement will be
successfully negotiated and signed, or that the transaction will
close as anticipated.
PHYSICAL SCIENCE GROUP
GPS TECHNOLOGIES, INC.
General
GPS Technologies, Inc. ("GPS"), provides a wide range of
management and technical training as well as specialized
engineering consulting services to various industries and the
United States Government. GPS's principal clients include
electric utilities, process industries, manufacturing plants,
Federal agencies, and the aerospace industry. As of December 31,
1993, GPS and its subsidiaries employed nearly 800 people and
maintained 27 office locations throughout the United States.
GPS is organized into three operating Business Units: the
Training and Technical Services Division Business Unit, the
Engineering and Technical Services Business Unit, and the Federal
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Systems Business Unit. The Training & Technical Services
Business Unit, and the Engineering & Technical Services Business
Unit are each comprised of several Strategic Business Units
("SBUs"), with each SBU focused on a specific customer, project,
industry, product, service, or geographic area or some
combination thereof. GPS Technologies, Inc. Federal Systems
Group, a wholly-owned subsidiary of GPS, forms the Federal
Systems Business Unit and is comprised of three divisions, each
providing services to a specifc segment of the Federal
government. GP Environmental Services, Inc. ("GPES"), General
Physics Asia Pte. Ltd., and General Physics (Malaysia) Sdn. Bhd.,
all wholly-owned subsidiaries of GPS, operate with other SBUs
within the Engineering & Technical Services Business Unit.
The Training & Technical Services Business Unit
The Training & Technical Services Business Unit focuses on
the human performance improvement needs of GPS' commercial and
government customers, providing technical training and other
technical services to customers who design, operate, and maintain
equipment and facilities. This Business Unit analyzes the human,
organizational, and technical issues confronting its customers
and recommends solutions to improve performance. Business Unit
staff possess expertise in a wide variety of subject matter and
instruction design, with a subject matter diversity frequently
allowing GPS to supplement the expertise within the customer
organization and offer comprehensive, turn-key solutions.
Customers of the Training & Technical Business Unit
represent a wide range of industries with diverse technical and
geographic needs. This Business Unit is organized into eleven
SBUs.
The Engineering & Technical Services Business Unit
The Engineering & Technical Services Business Unit provides
engineering services to the Government, utilities and
petrochemical industries. Multi-discipline capabilities include
mechanical, structural, chemical, electrical, environmental, 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 in
electric power generation including operations, maintenance and
performance engineering.
This Business Unit's engineering and technical services are
designed to increase reliability and availability of plants and
facilities, reduce probability of component failure and address
consequences of component or system failure. Components include
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pressure vessels, above and underground tanks, boilers, piping
systems, rotating equipment and associated instrumentation and
controls. This Business Unit also provides a full service
environmental analytical laboratory with certified specialization
in soils, water, and military ordinance analysis and testing.
The Engineering & Technical Services Business Unit is comprised
of seven SBUs.
The Federal Systems Business Unit
GPS Technologies, Inc. Federal Systems Group, a wholly-owned
subsidiary of GPS, is comprised of three divisions providing
technical services to a variety of commands within the Department
of the Navy and other Federal government 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, the Federal Systems Business Unit
provides services to several non-DOD agencies of the Federal
Government, including the Internal Revenue Service, the Office of
Personnel Management and the Department of Energy. The Business
Unit is organized into three divisions.
GP International Engineering and Simulation, Inc. provides
real-time, high fidelity, engineering grade modeling and
simulation of nuclear power plant systems for inclusion in new
full-scale power plant control room simulators, such as in used
in training simulators worldwide. Similar services are also
provided to upgrade existing simulators. Simulators and
engineering services are provided to a variety of domestic,
European, and far eastern clients.
Customers
GPS provides services to more than 320 customers,including
several of the largest companies in the United States. Other
significant customers include 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 46% of GPS' revenue
for the year ended December 31, 1993. However, such revenue was
derived from many separate contractors and subcontracts with a
variety of Government agencies and contractors, that are regarded
by GPS as separate customers. United States Government contracts
generally are terminable by the United States Government at any
time. However no significant terminations have occurred.
5
Contracts
GPS is currently providing services under more than 500
contracts, many of which are General Service Agreements pursuant
to which multiple purchase orders are placed. GPS' contracts
with its customers provide for charges on a time-and-materials
basis, a fixed-price basis and a cost-plus-fee basis.
Competition
The principal competitive factors in GPS's markets are the
experience and capability of technical personnel, performance,
reputation and price. GPS's principal resource is its technical
personnel.
GTS DURATEK, INC.
General
GTS Duratek, Inc. ("Duratek") was incorporated in the State
of Delaware in December 1982. At December 31, 1993 Duratek was an
approximately 66% controlled subsidiary of the Company.
Duratek's operations consist of two operating groups: (i)
"Environmental Services", engaged in cleanup of water and other
liquids containing radioactive and/or hazardous (mixed waste)
contaminants and in-furnance vitrification for long-term
stabilization of such waste, and (ii) "Consulting and Staff-
Augmentation" services. Duratek provides services for various
utility, industry, government and commercial clients.
During 1992, Environmental Services received a U.S.
Department of Energy ("DOE") funded contract called MAWS for
minimum additive waste stabilization. This agreement enabled
Environmental Services to further develop its vitrification
technology being used for processing actual mixed waste in a
demonstration at the DOE's Fernald facility.
During 1993 Duratek designed, constructed and operated a 300
kilogram per day vitrification melter ("Duramelter") at Fernald
under the first phase of the MAWS project and began the second
phase requiring processing of actual mixed waste through the
melter that it designed and built at Fernald under varying
controlled operating conditions. During 1993, Duratek was also
awarded a $1.2 million contract to study the chemical composition
of waste streams at DOE sites across the country to determine
their suitability for conversion into glass using the MAWS
technology. Additionally, at the end of 1993 Duratek was awarded
a $13.9 million three year contract to stabilize 700,000 gallons
of mixed waste sludges at the DOE's Savannah River nuclear
weapons production site. This project is Duratek's first
commercial scale project using its vitrification technology to
6
convert the nuclear weapons by-product waste materials into glass
for long term stabilization and storage.
Consulting and Staff Augmentation revenues decreased by 12%
due to lower utilization of contract services by its commercial
nuclear power customers. This decrease resulted from an overall
effort by electric utilities to reduce operating costs in
response to competitive pressures to become low cost producers of
electric power. The group continued to provide support to Duke
Power, Vermont Yankee, New York Power Authority, Tennessee Valley
Authority, GPUN, the DOE, and to a number of other utility,
commercial, and government customers. Duke Power accounted for
approximately 20% of Duratek's revenue in 1993. In addition, new
service contracts were won with Philadelphia Electric and Duke
Power. In response to the changing market conditions Duratek
implemented additional cost reduction efforts and expanded
services to include higher margin non-destructive examination
(NDE) and professional health physics training and consulting.
Environmental Services
Environmental Services provides products and services to
support the DOE and its prime contractors in research and
development, development and implementation of minimum additive
vitrification (glass making) process for long-term waste
stabilization, waste water cleanup, advanced site remediation
processes, consulting, and analysis. Environmental Services'
principal products are its proprietary DURASILR ion exchange
media, its Enhanced Volume Reduction (EVRTM) processing system,
Heat Enhanced Dewatering (HEDTM) system and Integrated Nuclear
Waste Removal System which is a combination of EVR and HED.
These systems and the DURASIL ion exchange media are similar to
those products formerly used in the domestic commercial nuclear
power plant low-level radioactive waste business sold to Chem-
Nuclear Systems, Inc. ("Chem-Nuclear") in 1990. Duratek
continues to sell DURASIL products to Chem-Nuclear. Duratek also
has the right to sell processing systems and ion exchange media
to government agencies such as the DOE and Department of Defense
("DOD") and to nuclear power plants outside the U.S. In addition
to liquid waste treatment, Environmental Services is engaged in
the development of in-furnace vitrification for long-term
stabilization of mixed waste.
DOE's Five Year Plan states that environmental cleanup and
refurbishment of inactive DOE nuclear facilities is a critical
objective. Many of the remediation tasks at these facilities
involve dealing with wastes that are both radioactive and
hazardous. Restrictions on disposal of these "mixed" wastes and
limited burial space further compound the problem. The DOE and
its prime contractors are looking for innovative new approaches
for separating the radioactive and hazardous components and for
long-term stabilization of these wastes. Management believes
7
that its experience in mixed waste streams and its newly
developed vitrification technology give Duratek an advantage in
this market.
Consulting and Staff Augmentation
Duratek's Consulting and Staff Augmentation Group
("Consulting") provides technicians, specialists, and
professionals in a wide range of consulting, training and staff
augmentation services for a broad base of utility, industrial,
commercial, and government clients.
According to the Nuclear News publication of "The World List
of Nuclear Power Plants", March 1993, there are 119 nuclear power
generating units in the United States. Of that number,
approximately 107 are operational and the remainder are in long-
term shutdown or under construction. To control costs, utilities
maintain their permanent staffs at the level needed for steady-
state power operations. They supplement their full-time staffs
during refueling and maintenance outages with skilled contract
personnel. These temporary personnel typically work under the
general supervision of members of the full-time staffs of
utilities.
Although services for operating nuclear power plants
provides a considerable market, the fact that no new plants have
been ordered in over 10 years means that the current market will
expand through incorporation of changes required by new
regulations; extensive overhaul required to extend the life of
aging plants; replacement of major components such as steam
generators; startup of newly built plants and those recovering
from long-term shutdown; and decommissioning of plants that have
reached the end of their useful lives.
Building on its solid base of nuclear power industry
clients, Duratek has expanded its services in quality
assurance/control, radiation protection, computer and
communications, and environmental technologies. Duratek's
potential client base has been expanded to include other
industries, government agencies and commercial businesses. Since
many of the skills needed for support at commercial nuclear power
plants are readily transferable to the DOE cleanup market,
Duratek is also expanding its consulting and staff augmentation
services in that area.
GENERAL PHYSICS CORPORATION
The Company currently owns approximately a 28% investment in
General Physics Corporation ("General Physics"). General Physics
provides a wide range of personnel training, engineering,
environmental and technical support services to the domestic
commercial nuclear power industry and to the DOE and DOD.
8
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 at commercial nuclear power plants and at
nuclear weapons production and waste processing sites in the
United States.
General Physics currently provides services to more than 400
clients, including eight of the largest electric power companies
in the United States and four prime contractors serving the DOE.
During 1993, Westinghouse Savannah River Company
("Westinghouse"), a prime contractor at DOE facilities, accounted
for approximately 23% of General Physics' revenue. No other
customer accounted for more than 10% of General Physics' revenue
during 1993. Prior to October, 1988, when it started its DOE
Services business, the Company derived virtually all of its
revenue from contracts with nuclear utilities.
From late 1988 through mid 1992, General Physics experienced
growth in revenue primarily from services provided to the DOE at
its Savannah River site under subcontracts with Westinghouse, and
to a lesser extent from services provided to the commercial
nuclear power industry. During 1992 and 1993, General Physics
experienced lower levels of contract activity at DOE facilities
which resulted in declining revenue. General Physics Nuclear
Services revenue was adversely affected in 1993 by cost reduction
efforts at many commercial nuclear utilities which are expected
to continue. Environmental Services revenue increased slightly
in 1993 and General Physics was recently awarded a one-year
contract with four option years to provide environmental
engineering support services at the DOD's Aberdeen Proving
Ground. This contract has a potential value of approximately $17
million if all option years are exercised.
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, systems engineering,
materials management and safety analysis services to the
commercial nuclear power industry and to the DOE.
In January 1994, General Physics also entered into a letter
of intent to acquire substantially all of the assets and
operations of GPS. GPS provides a wide range of training,
engineering, technical support and analytical services to various
commercial industries, fossil powered electric generating plants
and the DOD. Although an agreement in principle has been reached,
there can be no assurance that a definitive agreement will be
successfully negotiated or that the transaction will close as
anticipated. See "Recent Developments - General Physics'
Corporation and GPS Technologies, Inc. Proposed Transaction".
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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 three strategically located warehouses and office
locations, with approximately 380,000 square feet of space in New
Jersey, New York 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 demand 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 12% of Five
Star's sales in 1993 and its 10 largest customers accounted for
approximately 29% of such sales. No other customer accounted for
in excess of 10% of Five Star's sales in 1993. 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
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
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the distribution of its line of private-label products sold under
the "Five Star" name.
HEALTH CARE
INTERFERON SCIENCES, INC.
Interferon Sciences, Inc. ("ISI") is a biopharmaceutical
company engaged in the manufacture and sale of ALFERON N
Injection and the research and development of other uses of
ALFERON N Injection and other alpha interferon-based formulations
for the treatment of certain viral diseases, cancers,and diseases
of the immune system.
ALFERON N Injection is the only natural-source, multi-
species alpha interferon product approved by the FDA for sale in
the United States and is approved for the intralesional treatment
of refractory (resistant to other treatment) or recurring
external genital warts in patients 18 years of age or older.
On March 5, 1985, the United States Patent and Trademark
Office issued a patent to Hoffmann-La Roche Inc. ("Hoffmann")
claiming purified human alpha (leukocyte) interferon (regardless
of how it is produced). ISI obtained a non-exclusive license
from Hoffmann which allows ISI to make, use, and sell in the
United States, without a potential patent infringement claim from
Hoffmann, (i) ALFERON N Injection for the treatment of genital
warts, (ii) injectable formulations of interferon alfa-n3 (which
is the same active ingredient contained in ALFERON N Injection)
for the treatment of patients who are refractory to recombinant
interferon therapy, (iii) low dose oral formulations of alpha
interferon for the treatment of human disease, and (iv) topical
formulations of interferon alfa-n3(which is the same active
ingredient contained in ALFERON N Injection). Hoffmann presently
owns approximately 3% of the common stock of ISI.
ALFERON N Injection is marketed and distributed in the
United States exclusively by Purdue Pharma L.P. ("Purdue"),
utilizing the sales force of The Purdue Frederick Company, a
privately-held United States pharmaceutical company. In
addition, ISI has exclusive marketing and distribution agreements
with Mundipharma Pharmaceutical Company in Canada and with
Industria Farmaceutica Andromaco in Mexico. ISI has an option to
reacquire the United States, Canadian, and Mexican marketing and
distribution rights under certain terms and conditions.
Submissions for regulatory approval to sell ALFERON N Injection
have been filed in Austria, Canada, Israel, Mexico and the United
Kingdom.
At the present time, alpha interferon injectable products
are approved for 17 different medical uses in 63 countries. In
1993, the worldwide alpha interferon injectable market was
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estimated to be over $1 billion. In an effort to expand the
market for ALFERON N Injection in the United States and obtain
additional regulatory approvals around the world, ISI is
presently conducting three multi-center randomized, open dose
ranging studies with patients infected with hepatitis C virus.
In addition, based upon favorable results from an in vitro study
and a Phase 1 clinical study conducted at Walter Reed Army
Institute of Research in Bethesda, Maryland on 20 asymptomatic
HIV infected patients, ISI is planning a multi-center,
randomized, controlled clinical trial with asymptomatic HIV-
infected patients. ISI is also planning to conduct clinical
trials utilizing ALFERON N Injection for the treatment of
Kaposi's sarcoma in patients with AIDS and hepatitis B.
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. A clinical trial using ALFERON N Gel for
the treatment of patients with cervical dysplasia is currently
underway at Columbia Presbyterian Medical Center. ALFERON LDO is
a low dose oral liquid alpha interferon preparation which ISI
believes has potential for treating the symptoms of patients
infected with the HIV virus and other viral diseases. ISI
conducted two clinical trials using ALFERON LDO on patients
infected with HIV virus at New York's Mount Sinai Hospital. The
National Institute of Allergy and Infectious Disease ("NIAID") is
planning to conduct a randomized, double-blind, placebo
controlled clinical study with low dose alpha interferons
administered orally (including ALFERON LDO) to determine
interferon's effect on HIV related symptoms.
On May 28, 1993, David Blech, the Chief Executive Officer,
sole shareholder and a director of D. Blech & Company,
Incorporated ("DBC"), and ISI entered into a Purchase Agreement
(the "Purchase Agreement"), pursuant to which David Blech or his
designees purchased for $4.00 per unit, an aggregate of 2,500,000
units ("Units"), each Unit consisting of two shares of common
stock, one Class A Warrant to purchase one share of common stock
at an exercise price of $3.25 per share and one Class B Warrant
to purchase one share of common stock at an exercise price of
$5.00 per share. The Class A Warrants and the Class B Warrants
expire on August 31, 2000.
Pursuant to the Purchase Agreement, a 10-year Voting
Agreement (the "Voting Agreement") among David Blech, the
Company, Five Star and MXL became effective as of May 28, 1993
pursuant to which the Company, Five Star and MXL agreed to (a)
vote all of their shares of common stock (an aggregate of
6,985,148 shares as of the date hereof), for the election of the
Blech Nominees as directors of ISI unless Blech or his designees
dispose of more than 1,000,000 shares of Common Stock and (b)
12
restrict transfer of the Common Stock held by them for one year,
subject to certain exceptions. Pursuant to the Voting Agreement,
Mr. Blech and any other purchasers under the Purchase Agreement
agreed to vote for the election of two nominees of NPDC as
directors of the Company unless NPDC, MXL and Five Star dispose
of more than 2,000,000 shares of Common Stock.
Concurrently with the execution of the Purchase Agreement,
ISI entered into a Consulting Agreement with DBC under which ISI
agreed to pay $100,000 per year, payable monthly, to DBC for
advisory services with respect to the Company's field of interest
and business, strategic and commercial matters related to the
biotechnology industry. The term of the Consulting Agreement was
one year and commenced on June 1, 1993.
AMERICAN WHITE CROSS, INC.
The Company currently owns approximately a 14% investment in
American White Cross, Inc. (formerly, NPM Healthcare Products,
Inc.), ("White Cross"). White Cross is a leading manufacturer
and marketer of private label adhesive and cotton based health
and personal care products. White Cross' primary products
include adhesive bandages, cotton swabs, cosmetic puffs, rounds
and squares, waterproof tape, sterile cotton balls, first aid
kits and cotton coil used in the packaging of drugs and vitamins
in bottles. White Cross also sells adhesive bandages under its
own national brand products, including Mickey & Pals (marketed
under license from The Walt Disney Company) and STAT-STRIP
(patented easy opening bandages).
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
13
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 27% of MXL's total sales and another client which
accounts for approximately 16% 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.
ELECTRONICS GROUP
The Electronics Group, through Eastern Electronics Mfg.
Corporation ("Eastern") is engaged in contract manufacturing for
the electronics industry. Eastern offers a variety of services
to its customers ranging from printed circuit board assemblies,
to in-circuit testing, to functional testing, to turnkey
production and to final system production. Eastern's customers
are among the largest United States electronics companies.
There is significant competition within the electronics
industry for contract manufacturing from much larger national
companies as well as smaller companies. While the electronics
industry at large is experiencing a downturn in business, Eastern
feels that the lessening of off-shore competition and "just in
time" manufacturing requirements will enable it to compete more
effectively in the changing environment. The principal means of
competition for Eastern are its twenty two years of experience in
printed circuit board assembly, state-of-the-art automatic
insertion, surface mount equipment and state-of-the-art in
circuit test equipment.
RESEARCH AND DEVELOPMENT
For the year ended December 31, 1993, NPDC incurred
$2,847,000 as research and development costs, $2,181,000 of which
were incurred at ISI.
14
EMPLOYEES
At December 31, 1993, the Company and its subsidiaries
employed approximately 1,722 persons, including approximately 16
in the Company's headquarters, 1,257 in the Physical Science
Group, 283 in the Distribution Group, 73 in the Optical Plastics
Group and 58 in the Electronics Group. Of these, approximately 4
persons were engaged in research and development. The Company
considers its employee relations to be satisfactory.
EXECUTIVE OFFICERS
The following table sets forth the names of the
principal executive officers of the Company as of March 15, 1994
and their positions with the Company. The principal business
experience of the executive officers for the last five years is
also described below.
Name Age Position
Jerome I. Feldman 65 President, Chief Executive
Officer and a Director since 1959
Martin M. Pollak 66 Executive Vice President,
Treasurer and a Director since 1959
Scott N. Greenberg 37 Vice President, Chief Financial
Officer since 1989, and a Director
since 1987
Lawrence M. Gordon 40 General Counsel since 1986,
Vice President since 1991
Jerome I. Feldman is a founder, and since 1959 has been
President, Chief Executive Officer and a director of the Company.
Martin M. Pollak is a founder, and since 1959 has been
Executive Vice President, Treasurer and a director of the
Company.
Scott N. Greenberg has been Vice President, Chief Financial
Officer of the Company since 1989 and a Director since 1987.
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.
PATENTS AND LICENSES
The operating businesses of NPDC are not materially
dependent upon patents, or patent and know-how licenses. The
know-how and expertise gained with respect to the manufacture and
15
sale of its products, acquired as a result of its license and
ownership of patents, are of greater importance to its future
ability to manufacture and sell such products than are the
patents themselves.
(d) Financial Information about Foreign and Domestic
operations and Export Sales.
The Company has no material Foreign Operations or
Export Sales.
Item 2. Properties
The following table sets forth information with respect
to the material physical properties owned or leased by NPDC and
its subsidiaries:
Lease Square
Activity and Location Own Expires Footage Description
East Hanover, NJ No 2002 219,000 Office &
Warehouse
Port Washington, NY No 1996 49,000 Office &
Warehouse
Newington, CT No 1996 112,000 Office &
Warehouse
Optical Plastics
Lancaster, PA Yes N/A 33,000 Manufacturing,
Warehouse and
Office
Westmont, IL Yes N/A 12,594 Office,
Warehouse &
Manufacturing
Electronics
E. Hartford, CT No 1996 35,000 Office,
Warehouse &
Manufacturing
Physical Science
Columbia, MD No 1995 12,075 Office
Beltsville, MD No 1994 8,500 Office,
Manufacturing,
Warehouse &
Laboratory
16
Pittsburgh, PA No 1994 4,800 Repair Shop &
Warehouse
Groton, CT, No 1995 136,654 Office
Gaithersburg, MD &
Columbia, MD
The facilities owned or leased by NPDC are considered to be
suitable and adequate for their intended uses and are considered
to be well maintained and in good condition.
In addition to the above properties, NPDC also leases
office space in New York, New York.
Item 3. Legal Proceedings
The Company is a 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 in respect to such litigations; however, management
believes that the ultimate liability, if any, will not have a
material adverse effect on the Company's Consolidated Financial
Statements.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this
report.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock, $.01 par value, is traded
on the American Stock Exchange, Inc. and the Pacific Stock
Exchange, Inc. The following tables present its high and low
market prices for the last two years.
Quarter High Low
1993 First 3 5/8 2 1/2
Second 4 1/4 2 1/2
Third 3 3/4 2 7/8
Fourth 5 3/4 3 7/16
1992 First 5 5/8 4 1/8
Second 4 5/8 3 3/8
Third 3 3/4 2 13/16
Fourth 3 1/4 2 1/16
17
The number of shareholders of record of the Common Stock as
of March 15, 1994 was 5,275. On March 15, 1994, the closing
price of the Common Stock on the American Stock Exchange was
$4.44. In March 1989, the Company decided to discontinue payment
of its quarterly dividend because the Board of Directors believed
that the resources available for the quarterly dividend would be
better invested in operations and the reduction of long-term
debt.
18
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES Item 6. Selected Financial Dat
Operating Data (in thousands, except per share data)
Years ended December 31, 1993 1992 1991 1990 1989
Revenues $193,041 $201,986 $261,723 $293,504 $278,470
Sales 189,683 195,765 258,933 293,091 268,168
Gross margin 27,519 29,772 36,013 42,711 45,402
Research and development costs 2,847 4,645 4,651 7,892 7,196
Interest expense 8,325 11,044 15,579 20,447 19,520
Income (loss) before discontinued
operations and extraordinary
items (7,796) (13,605) 608 (37,993) (17,014)
Net income (loss) (5,977) (11,943) 2,645 (32,738) 6,797
Earnings (loss) per share
Income (loss) before discontinued
operations and extraordinary
items $ (.46) $ (.86) $ .04 $ (3.32) $ (1.20)
Net income (loss) (.35) (.76) .17 (2.86) .62
Cash dividends declared per share
Balance Sheet Data
December 31, 1993 1992 1991 1990 1989
Cash, cash equivalents, restricted
cash and marketable securities $ 10,976 $ 23,674 $ 35,968 $ 16,722 $ 39,602
Short-term borrowings 21,390 28,977 26,317 62,144 42,926
Working capital 33,224 44,877 55,560 25,316 62,533
Total assets 166,057 192,649 214,041 269,564 302,179
Long-term debt 40,858 61,441 70,787 91,888 97,249
Stockholders' equity 67,438 63,823 72,405 55,416 84,379
19
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Overview
During 1993, the Company took steps to significantly reduce its
long-term debt. The Company, through an Exchange Offer for a
large portion of its Swiss Denominated Debt (See Note 9(a) to
Notes to Consolidated Financial Statements), as well as other
repurchases from various bondholders throughout 1993, was able to
reduce its long-term debt by approximately $20,583,000. As a
result of the reduction in long-term debt, the Company will be
able to reduce its annual interest expense by approximately
$2,100,000. Due to the inclusion of a portion of the Company's
shares of common stock of Interferon Sciences, Inc. (ISI) as part
of the consideration in the Exchange Offer in the third quarter
of 1993, the Company currently owns less than 50% of ISI (36%),
and therefore now accounts for the results of ISI on the equity
basis. In 1993, the Company realized an extraordinary gain, net
of taxes, on the early extinguishment of debt of $1,819,000. In
1993, the Company also incurred reduced interest expense at the
corporate level on the Company's long-term Swiss Debt obligations
due to the Company's continuing practice of repurchasing and
reducing its Swiss Debt. In addition, the Company incurred
reduced interest relating to short-term borrowings due to reduced
borrowings at lower rates of interest.
In 1993, the loss before income taxes and extraordinary item was
$8,371,000, as compared to a loss of $13,178,000 in 1992 and
income of $1,157,000 in 1991. The decrease in the loss in 1993
is due to several factors. As a result of the Exchange Offer
discussed above, the Company realized a $3,795,000 gain from the
transfer of a portion of the Company's holdings of shares of ISI
and GTS Duratek, Inc.'s (Duratek) common stock. In addition, the
Company realized a gain of $1,353,000 on the issuance of common
stock and common stock warrants by Duratek, relating to its
acquisition of an option to acquire certain technologies relating
to the vitrification of certain medical and hazardous wastes.
The Health Care and the Electronics Groups experienced reduced
operating losses in 1993. The Health Care Group which is
comprised of the results of ISI experienced reduced operating
losses in 1993 as a result of ISI being accounted for on the
equity basis commencing in the third quarter of 1993. The
Electronics Group, which is Eastern Electronics Manufacturing
Corporation (Eastern), the Company's electronic assembly and
manufacturing subsidiary, incurred reduced operating losses as a
result of their successful efforts to reduce overhead and costs
of sales. The above improvements in 1993 were partially offset
by reduced operating profits at the Distribution and Physical
Science Groups, in addition to a foreign currency transaction
20
gain of $901,000 realized in 1993 as compared to a net foreign
currency transaction gain of $3,362,000 realized in 1992,
relating to the Company's decision not to hedge its Swiss
denominated debt. The Distribution Group, which is the Five Star
Group, Inc. (Five Star), the Company's distributor of home
decorating,hardware and finishing products had reduced operating
profits as a result of reduced gross margin percentages and
increased operating costs. The Physical Science Group, which is
comprised of GPS Technologies Inc. (GPS), a 92% owned subsidiary,
and GTS Duratek, Inc. (Duratek), a 66% owned subsidiary, had
reduced operating profits as a result of losses incurred by
Duratek due to reduced revenues and gross margin percentages
achieved. The Optical Plastics Group, which is MXL Industries,
Inc. (MXL), the Company's injection molding and coating
subsidiary, had a marginal decrease in operating profits.
During 1992, the loss before income taxes and extraordinary items
was $13,178,000 compared to income of $1,157,000 in 1991. The
change from a profit in 1991 to a loss in 1992 was primarily the
result of the public offering by General Physics Corporation (GP)
in October 1991, through which the Company sold 68% of its GP
common stock and recognized a gain on the transaction of
$18,844,000. The Company currently owns approximately 28% of GP.
The effect of the gain on GP was partially offset by improved
operating results achieved in 1992 by the remaining companies
within the Physical Science Group, GPS and Duratek. At the
corporate level, improved operating results in 1992 were
partially the result of gains recognized on the sale of certain
investments and the continuing reduction in interest expense as a
result of reduced short-term borrowings, lower rates of interest
on the Company's variable rate obligations and reduced interest
on the Company's Swiss Debt obligation due to the Company's
continuing practice of repurchasing its Swiss Debt from time to
time. The improved operating results within the Physical Science
Group were due to both GPS and Duratek achieving operating
profits in 1992 as opposed to operating losses in 1991. GPS
achieved a significant turnaround as a result of reduced losses
at its subsidiary, GP International Engineering & Simulation,
Inc. (GPI), an operating profit generated for the first time by
its subsidiary GP Environmental Services, Inc. (GPE) and an
overall improvement within the core businesses of GPS. Duratek
showed an improvement in operations during 1992 as a result of
increased sales and gross profit in both its Environmental
Services and Consulting and Staff Augmentation businesses, as
well as the impact of the effort in the latter half of 1991 to
consolidate and streamline its administrative structure. The
improvements in operations achieved by the current members of the
Physical Science Group and at the corporate level were partially
offset by an increased operating loss at the Electronics Group
and reduced operating profits at the Optical Plastics Group. The
Electronics Group, incurred increased operating losses due to
reduced sales and inceased operating costs and the effect of
21
reserves taken for obsolete inventory. The Optical Plastics
Group had a small decrease in operating profit as a result of
weakness in the precision tooling part of its business, as well
as reduced orders from a number of MXL's established customers in
the beginning of 1992. The Health Care Group's operating loss
and the Distribution Group's operating profit remained virtually
unchanged in 1992.
Sales
Consolidated sales from continuing operations decreased by
$6,082,000 in 1993 to $189,683,000 as a result of reduced sales
in the Physical Science, Health Care and Electronics Groups,
partially offset by increased sales achieved by the Distribution
Group. Sales decreased by $63,168,000 in 1992, to $195,765,000,
as a result of the transfer in April 1991 of a majority interest
in American White Cross, Inc. (AWC), formerly NPM Healthcare,
Inc., in which the Company currently has a 14% interest, and the
public offering by GP in October 1991, which resulted in GP and
AWC no longer being consolidated entities. The decrease in 1992
was partially offset by increased sales within the Distribution
Group and by the remaining companies in the Physical Science
Group.
The Physical Science Group sales decreased from $162,727,000 in
1991 to $109,303,000 in 1992 and to $102,977,000 in 1993. The
reduced sales of $6,326,000 in 1993 were primarily attributable
to reduced sales achieved by Duratek as a result of reduced
revenues generated by its consulting and staff augmentation
business, as a result of a reduced demand for services provided
to nuclear utilities. In addition, Duratek's sales decreased as
a result of reduced revenues achieved by the environmental
services business due to delays in the award of certain
technology contracts by the Department of Energy. During 1992,
sales decreased by $53,424,000, due to the public offering by GP
on October 3, 1991, from which time the results of GP were
accounted for on the equity basis, since the Company's percentage
of ownership was reduced to approximately 28%. In 1991, the
Physical Science Group included sales of $62,325,000 for GP. The
loss of GP's sales in 1992 was partially offset by increased
sales at both GPS and Duratek. Duratek generated increased sales
in 1992 as a result of work performed on two new environmental
technology projects, as well as an increase in services provided
by the consulting and staff augmentation business. GPS generated
increased revenues in new business areas such as environmental
analytical services and full scope simulation. These increases
at GPS were partially offset by a reduction in revenue for
certain subcontracts, which terminated in 1991, for construction
management services provided to the Department of the Army.
The Distribution Group sales increased from $64,788,000 in 1991
to $68,450,000 in 1992 and to $74,109,000 in 1993. The increase
22
of $5,659,000, or 8% in 1993 was due to reduced competition in
one of Five Star's geographic regions, as well as continued
growth in the hardware business, which was introduced in 1992.
The increase of $3,662,000, or 6%, in 1992 was attributable to
the introduction during the year of a new line of hardware
supplies.
The Health Care Group sales decreased from $14,607,000 in 1991 to
$4,042,000 in 1992 and to zero in 1993. The reduction in sales
in 1993 was due to ISI not having any sales of its product,
ALFERONR N Injection, in 1993. In January 1994, ISI received an
order for 45,000 vials of ALFERONR N Injection from the Purdue
Frederick Company (Purdue). As a result of the Exchange Offer,
through which the Company's interest in ISI fell below 50%, ISI
is currently being accounted for on the equity basis. The
$10,565,000 reduction in sales in 1992 was due to the transfer on
April 8, 1991 of a majority interest in AWC, partially offset by
increased sales by ISI of ALFERONR N Injection to its marketing
partner, Purdue. In December 1991, Purdue agreed to purchase an
aggregate of 45,000 vials of ALFERONR N Injection from the
Company over approximately a six month period which commenced in
March 1992 and was completed in September 1992.
The Optical Plastics Group sales decreased from $9,454,000 in
1991 to $7,862,000 in 1992 and to $7,817,000 in 1993. The
decreased sales in 1992 was due to weakness at MXL's precision
tooling division, as well as reduced orders from a number of
MXL's established customers in the beginning of 1992.
The Electronics Group sales decreased from $7,151,000 in 1991 to
$5,968,000 in 1992 and to $3,836,000 in 1993. The decreased
sales in 1992 and the continued weakness in 1993 was the result
of the weakness in the electronics industry and Eastern's plan to
concentrate its efforts on sales to customers who provide more
profitable margins.
Gross margin
Consolidated gross margin was $36,013,000 or 14% of net sales in
1991, $29,772,000 or 15% of net sales in 1992 and $27,519,000 or
15% in 1993. In 1993, the decrease in gross margin of $2,253,000
occurred within the Health Care, Distribution and Physical
Science Groups. In 1992, the decrease in gross margin of
$6,241,000 occurred primarily in the Physical Science Group as a
result of the public offering by GP in October 1991, and to a
lesser extent, in the Health Care Group due to the transfer in
April 1991 of a majority interest in AWC in which the Company
currently has a 14% interest. The reduced gross margin in 1992
was partially offset by increased gross margin achieved by the
Distribution Group as a result of increased sales.
The Physical Science Group gross margin decreased from
23
$18,370,000, or 11% of net sales in 1991 to $13,728,000 or 13% of
net sales in 1992 and to $12,941,000, or 13% of net sales in
1993. In 1993, the reduced gross margin was primarily
attributable to reduced gross margins achieved by Duratek as a
result of reduced sales as well as a decrease in the gross margin
percentage achieved within Duratek's consulting and staff
augmentation business because of increasing competitive pressures
within the industry. The reduced gross margin achieved by
Duratek was partially offset by GPS, which generated increased
gross margins as a result of an improved mix of services during
1993. In 1992, the decreased gross margin was due to the public
offering by GP in October 1991, partially offset by increased
gross margins at Duratek and GPS. The increased gross margin
dollars and percentage at GPS was due to increased sales,
significant profit improvements at GPI and GPE during 1992, as
well as an improved mix of services performed at higher margins
within the core businesses. Duratek achieved increased gross
margins in 1992 as a result of increased revenues generated by
its environmental technology projects.
The Distribution Group gross margin increased from $11,679,000 or
18% in 1991 to $12,355,000 or 18% of sales in 1992 and decreased
to $11,718,000 or 16% in 1993. In 1993, the reduced gross margin
was the result of the reduced gross margin percentage achieved in
1993. The reduced gross margin percentage in 1993 was the result
of a change in the product mix as well as competitive price
pressures within the industry. In 1994, the Group has started
taking steps to reduce its costs of sales in order to improve its
operating margins in the future. In 1992, the increased gross
margin was the result of increased sales due to the introduction
of a new line of hardware products.
The Health Care Group gross margin decreased from $2,509,000 or
17% of net sales in 1991 to $358,000 or 9% of net sales in 1992
and to $(699,000) in 1993. The negative gross margin in 1993 was
the result of facility costs incurred by ISI, notwithstanding the
suspension of production, and lack of sales of ALFERONR N
Injection during 1993. The decrease in gross margin in 1992 was
the result of the transfer on April 8, 1991 of a majority
interest in AWC, as discussed above. The reduced gross margin
percentage in 1992 is attributable to the low gross margin
percentages achieved by ISI due to the write-down of inventory to
its estimated net realizable value, as a result of increased unit
production costs caused by limited production volumes.
The Optical Plastics Group gross margin decreased from $3,231,000
or 34% of net sales in 1991 to $2,740,000 or 35% of net sales in
1992 and to $2,642,000 or 34% of net sales in 1993. The small
decrease in gross margin in 1993 was the result of marginally
reduced sales and gross margin percentage. In 1992, the reduced
gross margin was the result of reduced sales volume.
24
The Electronics Group gross margin increased from $221,000 or 3%
of net sales in 1991 to $561,000 or 9% of net sales in 1992 and
decreased to $546,000 or 14% of net sales in 1993. The small
decrease in gross margin in 1993 and increased gross margin in
1992, in spite of reduced sales at Eastern in both years, was
attributable to the continuing improvement in gross margin
percentages as a result of a better product mix, a reduction in
the fixed manufacturing costs and improved operating
efficiencies.
Investment and other income, net
Investment and other income was $2,790,000 in 1991, $6,221,000 in
1992 and $3,358,000 in 1993, respectively. In 1993 the decrease
in investment and other income, net was primarily attributable to
a net foreign currency transaction gain of $901,000 in 1993 as
compared to a gain of $3,362,000 in 1992. In addition, in 1993
the Company realized reduced revenues relating to interest
income, and in the equity in earnings of 20% to 50% owned
subsidiaries as compared to 1992. These decreases were partially
offset by reserves taken and losses realized by the Company on
certain assets and investments in 1992. In 1992, the increase in
investment and other income, net was primarily due to two
factors. In 1992, the Company realized increased gains on the
sales of certain investments, and recognized an expense for
reserves taken and losses realized on certain assets of
$1,336,000 in 1992 as compared to $4,774,000 in 1991. In 1992,
the Company realized a net foreign currency transaction gain of
$3,362,000, as compared to a gain of $3,042,000 in 1991. The
reserves were taken in 1992 and 1991 due primarily to reduced
values and impairments relating to long-term investments and
related assets accounted for on the cost basis. The Company
evaluates its long-term investments at least annually. An
investment is written down or written off if it is judged to have
sustained a decline in value which is other than temporary.
During 1991, a 19% interest in and advances to a vendor and
distributor of pay telephones was written down by $3,100,000, to
an estimated residual value of $175,000, since the telephone
company ceased marketing its principal product in 1991. This
resulted from (a) the loss by the telephone company of two major
vending accounts in 1991, which substantially reduced revenues
and (b) the telephone company's effort to sell telephones as well
as to vend them was unsuccessful in 1991. Based upon the fact
that the remaining vending revenues were insufficient to support
operations the telephone company ceased operations. In 1992, the
estimated residual value of $175,000 of this investment, which
was based upon estimated proceeds on liquidation of telephone
equipment, was written off since it was determined that such
sales could not be consummated. Additionally, in 1992, the
Company fully reserved its investment of $305,000 in a medical
blood center company. The blood center company ceased operations
in 1992 as its major investor, a large financial institution,
25
decided to no longer provide financing and working capital. In
1991 and prior years, the medical blood center company received
substantial funding for its centers and the financial institution
provided working capital and equity financing. In both 1991 and
1992, a number of other relatively small investments were written
off or written down because the Company's periodic evaluations
indicated declines in value which were judged to be other than
temporary.
At December 31, 1993, there was an aggregate of SFr. 25,398,000
of Swiss denominated indebtedness outstanding, of which SFr.
23,680,000 represents principal amount outstanding and SFr.
1,718,000 represents interest accrued thereon. Foreign currency
valuation fluctuations may adversely affect the results of
operations and financial condition of the Company. In order to
protect itself against currency valuation fluctuations, the
Company has at times swapped or hedged a portion of its obliga-
tions denominated in Swiss Francs. At December 31, 1993, the
Company had not hedged its Swiss Franc obligations. If the value
of the Swiss Franc to the U.S. Dollar increases, the Company will
recognize transaction losses on the portion of its Swiss Franc
obligations which are not hedged. On December 31, 1993, the
value of the Swiss Franc to the U.S. Dollar was 1.485 to 1.
There can be no assurance that the Company will be able to swap
or hedge obligations denominated in foreign currencies at prices
acceptable to the Company or at all. The Company will continue
to review this policy on a continuing basis.
Selling, general, and administrative expenses
Selling, general and administrative expenses (SG&A) decreased
from $38,356,000 in 1991 to $36,274,000 in 1992 and to
$35,600,000 in 1993. In 1993, the decrease in SG&A was primarily
attributable to ISI being accounted for on the equity basis
during the third quarter of 1993, as a result of the Exchange
Offer discussed above, in which the Company's interest in ISI
fell below 50%. In addition, the Electronics Group also
experienced reduced SG&A expenses as a result of reduced
personnel requirements due to reduced sales in 1993 and Eastern's
continuing effort to streamline its organization. The reduced
SG&A within the Health Care and Electronics Groups in 1993 were
partially offset by increased SG&A incurred by the Distribution
and Physical Science Groups. The increased SG&A at The Physical
Science Group was due to increased operating costs and the
increased SG&A at the Distribution Group was the result of the
large increase in sales which led to increased selling expenses,
as well as additional costs incurred by Five Star to support the
growth in sales. The Optical Plastics Group had a marginal
increase in SG&A in 1993. In 1992, the decrease in SG&A expenses
was primarily due to decreases in the Health Care Group and the
Physical Science Group as a result of the transfer on April 8,
1991 of a majority interest in AWC and the public offering by GP
26
in October 1991, respectively. The decrease was partially offset
by increased SG&A within the Distribution Group as a result of
Five Star's expansion into the hardware supply distribution
business and increased SG&A within the Electronics Group due to
costs connected with Eastern's efforts to restructure its
business operations.
Research and development costs
The Company's research and development activities are conducted
both internally and under various types of arrangements at
outside facilities. Research and development costs, which are
primarily attributable to ISI, were $4,651,000, $4,645,000 and
$2,847,000 for 1991, 1992, 1993, respectively. In 1993, the
reduced research and development costs were the result of the
Company's ownership in ISI falling below 50% in the third quarter
of 1993, due to the Exchange Offer discussed above, and
therefore, the Company began accounting for ISI on the equity
method from that time. In 1992, ISI experienced increased
research and development costs because of increased levels of
research on ALFERONR N Gel, ALFERONR LDO and other proprietary
research. The increased spending at ISI in 1992 was offset by
reduced spending on various corporate projects.
Interest expense
Interest expense aggregated $15,579,000 in 1991, $11,044,000 in
1992 and $8,325,000 in 1993. The reduced interest expense in
1992 and the further reduction in 1993, was the result of the
Company's continuing successful effort to reduce its interest
expense at the corporate level due to reduced short-term
borrowings, lower rates of interest on the Company's variable
rate obligations and reduced interest on the Company's Swiss Debt
obligations due to the Exchange Offer in 1993 and the Company's
practice of repurchasing Swiss Debt from time to time.
Income taxes and extraordinary item
Income tax benefit (expense) from operations for 1991, 1992 and
1993 was $(549,000), $(427,000) and $575,000, respectively.
In 1993, the Company recorded an income tax benefit of
$1,043,000, of which $973,000 relates to Federal income taxes, in
continuing operations as a result of the income tax expense
allocated to the extraordinary gain recognized on the early
extinguishment of debt under the provisions of FASB No. 109.
In 1992, the Company's loss before income taxes from operations
exceeded its gains from extraordinary items: therefore, pursuant
to accounting policies of the Company, then in effect under APB
No. 11, "Accounting for Income Taxes", no income tax expense
applicable to such extraordinary gains was recognized. The
27
income tax expense for 1992 of $427,000 represents state and
local income taxes.
In 1991, despite the Company's $1,157,000 income before income
taxes from operations, no Federal income tax expense was
recognized. This is due principally to significant permanent
differences between financial and tax reporting of 1991
transactions, including the elimination for tax purposes of the
$18,844,000 gain on the sale of GP stock, net of a gain
recognized only for tax purposes upon ISI ceasing to be a member
of the Company's consolidated Federal income tax return group on
May 31, 1991. The income tax expense for 1991 of $549,000
represents state and local income taxes.
As of December 31, 1993, the Company has approximately
$34,770,000 of consolidated net operating losses available for
financial statement reporting purposes.
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes," was adopted by the Company in 1993 on a
prospective basis. (See Note 15 to the Consolidated Financial
Statements). This standard requires that deferred income taxes
be recorded following the liability method of accounting and
adjusted periodically when income tax rates change. As of
December 31, 1993, the Company was not carrying any deferred tax
accounts. Adoption of the new Statement did not have a material
effect on the Company's financial condition or results of
operations.
Liquidity and capital resources
At December 31, 1993, the Company had cash, cash equivalents and
marketable securities totaling $10,976,000. GPS and Duratek had
cash, cash equivalents and marketable securities of $547,000 at
December 31, 1993. The minority interests of these 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 purpose of the parent.
The Company believes that it has sufficient cash, cash
equivalents and marketable securities and borrowing availability
under existing and potential lines of credit to satisfy its cash
requirements until the first scheduled maturity of its Swiss
Franc denominated indebtedness on March 1, 1995. However, in
order for the Company to meet its long-term cash needs, which
include the repayment of $12,757,000 of Swiss Franc denominated
indebtedness scheduled to mature in 1995 and $7,115,000 of Swiss
Franc denominated indebtedness which is scheduled to mature in
1996, the Company must obtain additional funds from among various
sources. The Company has historically reduced its long-term debt
through the issuance of equity securities in exchange for long-
28
term debt. In addition to its ability to issue equity
securities, the Company believes that it has sufficient
marketable long-term investments, as well as the ability to
obtain additional funds from its operating subsidiaries and the
potential to enter into new credit arrangements. The Company
reasonably believes that it will be able to accomplish some or
all of the above transactions in order to fund the scheduled
repayment of the Company's long-term Swiss debt in 1995.
For the year ended December 31, 1993, the Company's working
capital decreased by $11,653,000 to $33,224,000, reflecting the
effect of the Company's interest in ISI falling below 50%, and
being accounted for on the equity basis. Consolidated cash and
cash equivalents decreased by $6,945,000 to $10,976,000 at
December 31, 1993.
The decrease in cash and cash equivalents of $6,945,000 in 1993
primarily resulted from the effect of the Company's interest in
ISI falling below 50%, and being accounted for on the equity
basis as well as cash used, in operations of $2,507,000,
investing activities of $2,593,000 and financing activities of
$1,845,000. Cash used in operations was primarily required to
fund the operating loss for the year. The cash used in investing
activities was for increases in certain investments and for
investment in property, plant and equipment and intangible
assets. Financing activities consisted primarily of repayments
and reductions in short-term borrowings and repayments of long-
term debt, offset by proceeds from short-term borrowings and
long-term debt. At December 31, 1993, the Company at the parent
company level had substantially exhausted its ability to borrow
funds from its subsidiaries under their respective line of credit
arrangements.
The Company's principal manufacturing facilities were constructed
subsequent to 1976 and management does not anticipate having to
replace major facilities in the near term. As of December 31,
1993, the Company has not contractually committed itself for any
other new major capital expenditures.
29
Item 8. Financial Statements and Supplementary Data
Page
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report 31
Financial Statements:
Consolidated Balance Sheets - December 31, 1993
and 1992 32
Consolidated Statements of Operations - Years ended
December 31, 1993, 1992, and 1991 34
Consolidated Statements of Changes in Stockholders'
Equity - Years ended December 31, 1993, 1992,
and 1991 35
Consolidated Statements of Cash Flows - Years ended
December 31, 1993, 1992, and 1991 37
Notes to Consolidated Financial Statements 40
SUPPLEMENTARY DATA (Unaudited)
Selected Quarterly Financial Data 69
30
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
National Patent Development Corporation:
We have audited the consolidated financial statements of National
Patent Development Corporation and subsidiaries as listed in the
accompanying index. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of National Patent Development Corporation and
subsidiaries at December 31, 1993 and 1992, and the results of
their operations and their cash flows for each of the years in
the three-year period ended December 31, 1993, in conformity with
generally accepted accounting principles.
As discussed in Note 15 the Company has adopted SFAS No. 109,
"Accounting for Income Taxes", as of January 1, 1993.
KPMG Peat Marwick
New York, New York
March 30, 1994
31
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31, 1993 1992
Assets
Current assets
Cash and cash equivalents $ 10,976 $ 17,921
Restricted cash 1,200
Marketable securities, at lower of
aggregate cost or market 4,553
Accounts and other receivables (of which
$7,694 and $9,970 are from government
contracts) less allowance
for doubtful accounts of $1,689 and $1,581 36,285 41,171
Inventories 22,605 24,353
Costs and estimated earnings in excess of
billings on uncompleted contracts, of which
$2,913 and $5,073 relates to government
contracts 13,081 10,702
Prepaid expenses and other current assets 4,160 4,009
Total current assets 87,107 103,909
Investments and advances 28,303 23,168
Property, plant and equipment, at cost 33,873 43,583
Less accumulated depreciation and
amortization (20,035) (22,043)
13,838 21,540
Intangible assets, net of accumulated
amortization of $24,691 and $23,987
Goodwill 25,463 29,421
Patents, licenses and deferred charges 4,641 3,547
30,104 32,968
Investment in financed assets 2,797 5,507
Other assets 3,908 5,557
$166,057 $192,649
32
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except shares and par value per share)
December 31, 1993 1992
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 6,750 $ 7,067
Short-term borrowings 21,390 28,977
Accounts payable and accrued expenses 20,256 18,992
Billings in excess of costs and estimated
earnings on uncompleted contracts 5,487 3,996
Total current liabilities 53,883 59,032
Long-term debt less current maturities 36,638 57,085
Notes payable for financed assets 579 3,109
Minority interests 3,277 9,600
Commitments and contingencies
Common stock issued subject to
repurchase obligation 4,242
Stockholders' equity
Preferred stock, authorized 10,000,000
shares, par value $.01 per share, none
issued
Common stock, authorized 30,000,000
shares, par value $.01 per share,
issued 19,023,357 and 15,934,840
shares (of which 22,645
shares are held in the treasury) 190 159
Class B capital stock, authorized 2,800,000
shares, par value $.01 per share, issued
and outstanding 250,000 shares 2 2
Capital in excess of par value 106,274 96,713
Deficit (39,028) (33,051)
Total stockholders' equity 67,438 63,823
$166,057 $192,649
See accompanying notes to consolidated financial statements.
33
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years ended December 31, 1993 1992 1991
Revenues
Sales $189,683 $195,765 $258,933
Investment and other income, net
(including interest income
of $875, $1,275 and $941) 3,358 6,221 2,790
193,041 201,986 261,723
Costs and expenses
Cost of goods sold 162,164 165,993 222,920
Selling, general and
administrative 35,600 36,274 38,356
Research and development 2,847 4,645 4,651
Interest 8,325 11,044 15,579
208,936 217,956 281,506
Gain on sale of stock of
a subsidiary 18,844
Gain on disposition of stock of
a subsidiary and an affiliate 3,795
Gain on issuance of stock by a
subsidiary 1,353
Minority interests 2,376 2,792 2,096
Income (loss) before income taxes
and extraordinary item (8,371) (13,178) 1,157
Income tax benefit (expense) 575 (427) (549)
Income (loss) before
extraordinary item (7,796) (13,605) 608
Extraordinary item
Early extinguishment of debt,
net of income tax in 1993 1,819 1,662 2,037
Net income (loss) $ (5,977) $(11,943) $ 2,645
Income (loss) per share
Income (loss) before
extraordinary item $ (.46) $ (.86) $ .04
Extraordinary item .11 .10 .13
Net income (loss) per share $ (.35) $ (.76) $ .17
See accompanying notes to consolidated financial statements.
34
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders Equity
Years ended December 31, 1993, 1992, and 1991
(in thousands, except shares, par value per share and per share amounts)
Class B Capital in Total
Common capital excess Treasury stock
stock stock of par stock holders'
($.01 Par) ($.01 Par) Value Deficit at cost equity
Balance at December 31, 1990 $132 $ 2 $93,522 $(23,753) $(14,487) $55,416
Exercise of stock options and warrants 2 526 528
Issuances of treasury stock
(1,153,621 common shares) (9,907) 13,019 3,112
Conversion of 12% debentures 10 4,377 4,387
Issuance of stock in connection with
Swiss Bonds 4 1,899 1,903
Shares issuable in settlement of debt 529 529
Issuances of stock to a subsidiary 2 1,156 1,158
Issuance and sale of common stock 1 382 383
Effect of issuance and sale of
stock by a subsidiary, net 2,344
Net income 2,645 2,645
Balance at December 31, 1991 $ 151 $ 2 $94,828 $(21,108) $ (1,468) $72,405
35
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (continued)
Years ended December 31, 1993, 1992, and 1991
(in thousands, except shares, par value per share and per share amounts)
Class B Capital in Total
Common capital excess Treasury stock-
stock stock of par stock holders'
($.01 Par) ($.01 Par) value Deficit at cost equity
Balance at December 31, 1991 $ 151 $ 2 $ 94,828 $(21,108) $ (1,468) $72,405
(102,772 common shares) (1,074) 1,468 394
Net loss (11,943) (11,943)
Conversion of 12% Debentures 1 164 165
Issuance of stock in connection
with Swiss Bonds 2 911 913
Effect of exercise of warrants to
purchase the stock of a subsidiary 674 674
Shares issuable in settlement of debt 186 186
Issuance and sale of common stock 3 744 747
Balance at December 31, 1992 159 2 96,713 (33,051) 63,823
Exercise of stock options and warrants 2 410 412
Net loss (5,977) (5,977)
Conversion of 12% Debentures 82 82
Issuance of stock in connection
with Swiss Bonds 26 8,694 8,720
Issuance and sale of common stock 3 375 378
Balance at December 31, 1993 $ 190 $ 2 $106,274 $(39,028) $67,438
See accompanying notes to consolidated financial statements.
36
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31, 1993 1992 1991
Cash flows from operations:
Net income (loss) $ (5,977) $(11,943) $2,645
Adjustments to reconcile net
income (loss) to net cash used
in operating activities:
Depreciation and amortization 5,296 6,107 8,542
Income tax benefit allocated to
continuing operations (1,043)
Gain on sale of stock of
a subsidiary (18,844)
Gain from early extinguishment
of debt, net of income
tax in 1993 (1,819) (1,662) ( 2,037)
Gain on disposition of stock of a
subsidiary and an affiliate (3,795)
Gain on issuance of stock by
a subsidiary (1,353)
Changes in other operating items,
net of effect of acquisitions
and disposals:
Accounts and other receivables 4,817 1,641 (1,243)
Inventories (381) (2,223) 4,574
Costs and estimated earnings in
excess of billings on
uncompleted contracts (2,379) (2,012) 3,158
Prepaid expenses and other
current assets (44) 279 529
Accounts payable and accrued
expenses 2,680 (341) (3,040)
Billings in excess of costs and
estimated earnings on
uncompleted contracts 1,491 (1,861) 2,719
Income taxes payable (25) 452
Total adjustments 3,470 (97) (6,094)
Net cash used in operations $ (2,507) $(12,040) $(3,449)
37
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
Years ended December 31, 1993 1992 1991
Cash flows from investing activities:
Proceeds from public sale of
a subsidiary's stock $ $ $ 43,997
Proceeds from disposal of business 7,192
Proceeds from sale of an investment 4,500
Marketable securities 651 2,419 (6,743)
Additions to property, plant and
equipment, net (2,077) (3,399) (2,079)
Additions to intangible assets (303) (1,339) (705)
Reduction of (additions to)
investments and other assets (864) 3,096 1,018
Net cash provided by (used in)
investing activities (2,593) 5,277 42,680
Cash flows from financing activities:
Repayments of short-term
borrowings (28,011) (6,150) (31,827)
Proceeds from short-term borrowings 20,424 8,810
Decrease in restricted cash 1,200 3,800 10,000
Proceeds from issuance of
long-term debt 10,973 203 7,561
Reduction of long-term debt (8,515) (6,244) (15,675)
Repayments of notes payable for
financed assets (28) (207)
Proceeds from public sale of
common stock by a subsidiary 9,588
Proceeds from issuance of common stock 198 1,539
Proceeds from issuance of stock
by a subsidiary 1,473 750
Exercise of common stock options
and warrants 413 282 718
Issuance of treasury stock 15 825
Net cash provided by (used in)
financing activities (1,845) 688 (16,728)
Net (decrease) increase in cash
and cash equivalents (6,945) (6,075) 22,503
Cash and cash equivalents at
beginning of year 17,921 23,996 1,493
Cash and cash equivalents
at end of year $ 10,976 $ 17,921 $ 23,996
38
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
Years ended December 31, 1993 1992 1991
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 5,344 $ 8,324 $ 14,138
Income taxes $ 692 $ 703 $ 1,472
Supplemental schedule of
noncash transactions:
Reduction of intangibles $ $ $ (532)
Reduction of debt 21,900 1,819 7,430
Issuances of treasury stock (1,468) (2,098)
Additions to other assets
and prepaid expenses 179 130 275
Reduction of accounts payable 597
Reduction of accrued interest payable 607 1,744
Issuances of common stock (8,981) (1,078) (6,819)
Issuance of long-term debt (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)
See accompanying notes to consolidated financial statements.
39
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Summary of significant accounting policies
Principles of consolidation and investments. The consolidated
financial statements include the operations of National Patent
Development Corporation and its majority-owned subsidiaries (the