ITEM 1. BUSINESS
DISCONTINUED OPERATIONS
On November 30, 1994, Cooper Life Sciences, Inc., a Delaware corporation (the "Company"), sold substantially all of the assets of its mortgage banking business and as of March 31, 1995 disposed of its remaining interest in the business (see Note D of Notes to Consolidated Financial Statements). The Company's mortgage banking operations were considered to be a discontinued operation as of October 31, 1994. On December 19, 1995, as the result of a merger transaction, the Company exchanged its equity interest in a development stage company named Unistar Gaming Corp. for Common and Preferred Stock of Executone Information Systems, Inc. (collectively, the "Executone Securities"). (See Note C of Notes to Consolidated Financial Statements.) As a result of these transactions, the Company is not presently engaged in any business operations. It is actively investigating new business opportunities.
COMMON STOCK OF THE COOPER COMPANIES, INC.
The Company owns shares of common stock of The Cooper Companies, Inc. (the "TCC Common Stock"), a Delaware corporation ("TCC"), the common stock of which is traded on the New York Stock Exchange. As of January 23, 1998, the Company owned 4,133 shares of TCC Common Stock (see Note B of Notes to Consolidated Financial Statements.) The Company has from time to time during the past year sold shares of TCC Common Stock in open market transactions; and subject to prevailing market conditions, it is the Company's intention to continue to do so. The proceeds of sale, were and are, being used by the Company to fund its operating expenses and to provide it with additional cash which would be available for use in connection with the acquisition of new business opportunities.
POSSIBLE INVESTMENT COMPANY STATUS
The Company's principal assets currently consist of cash, and cash equivalents and shares of the TCC Common Stock and the Executone Securities. As a result of the percentage of its assets that is currently comprised of the TCC Common Stock and the Executone Securities, the Company could be deemed to be an "investment company," as such term is defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"). Although the Company believes that it is not an investment company, there can be no assurance that the Company will not be required to register as an investment company. If it is so required to register, it would become subject to certain restrictions which could prove to be materially burdensome to the Company. However, even if the Company were deemed to be an investment company for purposes of the Investment Company Act, such status would most probably be terminated upon the subsequent acquisition by it of an operating business.
EMPLOYEES
On October 31, 1997, the Company had one full time employee.
ITEM 2.
ITEM 2. PROPERTIES.
The following is the Company's principal facility, which it currently rents on a month to month basis from a company affiliated with a director of the Company.
Approximate Approximate Floor Area Annual Location Operations (Sq. Ft.) Rent - -------- ----------------- ------------ ----------- New York, NY Executive Offices 1,500 $ 18,000
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
Not Applicable.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades on the Nasdaq Stock Market (Small Cap) under the symbol ZAPS.
The following table sets forth, for the periods indicated, the high and low sales prices for the Company's Common Stock as reported by the National Association of Securities Dealers, Inc.
High Low ---- ---
Fiscal Year ended October 31, 1996 - ----------------------------------- November 1, 1995 to January 31, 1996 9 3/4 7 3/4 February 1, 1996 to April 30, 1996 10 3/4 8 3/4 May 1, 1996 to July 31, 1996 13 3/4 10 3/8 August 1, 1996 to October 31, 1996 12 10 3/4
High Low ---- ---
Fiscal Year ended October 31, 1997 - ---------------------------------- November 1, 1996 to January 31, 1997 14 1/2 11 February 1, 1997 to April 30, 1997 16 1/2 13 3/4 May 1, 1997 to July 31, 1997 23 1/4 14 August 1, 1997 to October 31, 1997 28 1/4 19 1/2
As of the close of business on January 21, 1998, there were 2,694 holders of record of the Company's Common Stock.
DIVIDENDS
To date, the Company has not paid any dividends on its common stock. The payment of dividends, if any, in the future is within the discretion of the Board of Directors and will depend upon the Company's earnings, capital requirements, financial condition and other relevant factors. The Board does not intend to declare any dividends in the foreseeable future, but instead intends to retain all earnings, if any, for working capital and to acquire new businesses.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
FIVE YEAR FINANCIAL HIGHLIGHTS
YEAR-END FINANCIAL POSITION (DOLLARS IN THOUSANDS)
The following is a summary of certain financial information with respect to the Company's fiscal years ended October 31, 1997, 1996, 1995, 1994, and 1993. This information is derived from and should be read in conjunction with the Company's financial statements and notes thereto included elsewhere in this Form 10-K.
(1) The financial information for the fiscal year ended October 31, 1994 includes the operations of the Company's majority owned subsidiary, Second Advantage, as a discontinued operation as of October 31, 1994.
(2) The financial information for the fiscal year ended October 31, 1993 includes the operations of the Company's majority owned subsidiary, Second Advantage Mortgage Corp. ("Second Advantage"), for the period from September 1, 1993, the effective date of the acquisition by the Company, through October 31, 1993.
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES Five Year Financial Highlights Summary of Consolidated Operations (a) (In Thousands, Except Per Share Amounts)
(a) The prior years' amounts have been reclassified to conform to the current years' treatment.
(1) The financial information for the fiscal year ended October 31, 1994 includes the operations of the Company's majority owned subsidiary, Second Advantage, as a discontinued operation as of October 31, 1994.
(2) The financial information for the fiscal year ended October 31, 1993 includes the operations of the Company's majority owned subsidiary, Second Advantage, for the period from September 1, 1993, the effective date of the acquisition by the Company, through October 31, 1993.
ITEM 7.
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
References to Notes herein are references to the "Notes to Consolidated Financial Statements" of the Company located in Item 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Certified Public Accountants
Board of Directors and Stockholders Cooper Life Sciences, Inc.
We have audited the accompanying consolidated balance sheets of Cooper Life Sciences, Inc. and its subsidiaries as of October 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for the three years ended October 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cooper Life Sciences, Inc. and its subsidiaries as of October 31, 1997 and 1996, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended October 31, 1997 in conformity with generally accepted accounting principles.
We have also audited the financial statement schedule listed in the accompanying index at Item 14(a)(ii) for the years ended October 31, 1997, 1996 and 1995. In our opinion, this financial statement schedule presents fairly, in all material respects, the information required to be set forth therein.
GRANT THORNTON LLP
New York, New York January 23, 1998
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 (Dollars In Thousands)
Supplemental schedule of non cash investing activities (Notes C and D)
In 1995 the Company acquired 27.5% of the common stock of Unistar Gaming Corp. for $4.8 million. The purchase price was satisfied as follows:
Cash $2,500 Forgiveness of indebtedness for advances to UGC 475 Note payable 650 Fair value of TCC Common Stock issued to UGC 1,188 ------ $4,813 ======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1997, 1996 AND 1995
NOTE A - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
Cooper Life Sciences, Inc. (the "Company"), a Delaware corporation, owned a majority interest in a company engaged in mortgage banking from August 1993 to October 1994 (Note D). At the present time, the Company is not engaged in any operating activities.
The Company's principal assets currently consist of cash, and cash equivalents and shares of The Cooper Companies, Inc. ("TCC") common stock (the "TCC Common Stock") and Executone Information Systems, Inc. ("Executone") common stock and preferred stock (the "Executone Securities'). As a result of the percentage of its assets that is currently comprised of the TCC Common Stock and the Executone Securities, the Company could be deemed to be an "investment company," as such term is defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"). Although the Company believes that it is not an investment company, there can be no assurance that the Company will not be required to register as an investment company. If it is so required to register, it would become subject to certain restrictions which could prove to be materially burdensome to the Company. However, even if the Company were deemed to be an investment company for purposes of the Investment Company Act, such status would most probably be terminated upon the subsequent acquisition by it of an operating business.
A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cooper Life Sciences, Inc. and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. During fiscal year 1997, the Company liquidated its majority owned subsidiary, Moore Sports Ltd.
2. MARKETABLE SECURITIES
In accordance with Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities", Company management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of shareholders' equity. The cost of securities sold is based on the specific identification method. At October 31, 1997, the Company considers all of its holdings of TCC Common Stock and Executone Information Systems, Inc. common stock to be securities available for sale.
At October 31, 1997, the Company owns approximately 6.7% of the outstanding common stock of TCC and approximately 2% of the outstanding common stock of Executone. (See Note B.)
3. INVESTMENT IN UNISTAR GAMING CORP.
In 1995, the Company owned approximately 31% of the outstanding common stock of Unistar Gaming Corp. ("UGC") (see Note C). The Company sold its investment in UGC to Executone in December 1995 for shares of Executone common stock and preferred stock.
4. INCOME TAXES
The Company accounts for income taxes under the provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards ("SFAS") No. 109 - "Accounting for Income Taxes."
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1997, 1996 AND 1995
NOTE A - (CONTINUED)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments (principally consisting of cash, cash equivalents, marketable securities and investment in Executone Preferred Stock) approximate fair value. The Company determined the fair value of the marketable securities based upon the quoted market values, and determined the fair value of the investment in Executone Preferred Stock based upon estimated recoverable amounts upon the sale of the securities.
6. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is determined using the weighted average number of Common shares and dilutive common stock equivalents outstanding during the respective periods. Common stock equivalents have not been included in the determination of net loss per share as they are antidilutive or have no material effect.
7. CASH EQUIVALENTS
The Company considers all highly liquid debt investments purchased with an original maturity of three months or less, and amounts due from brokers to be cash equivalents.
On October 31, 1997, the Company entered into a repurchase agreement with Chase Securities, Inc. in the principal amount of $18,800,000, which is included in cash and cash equivalents. Such repurchase agreement bears interest at 5.45% on an annualized basis, matured on November 14, 1997, and is collateralized by a United States Treasury Bond.
8. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period. Actual results could differ from those estimates.
9. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings per Share", which is effective for financial statements for both interim and annual periods ending after December 15, 1997. Early adoption of the new standard is not permitted. The new standard eliminates primary and fully dilutive earnings per share and requires presentation of basic and dilutive earnings per share with disclosure of the methods used to compute the per share amounts.
Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average common shares outstanding for the period. Diluted earnings per share reflects the weighted-average common shares outstanding plus the potential effect of securities or contracts which are convertible to common shares, such as options, warrants, and convertible debt and preferred stock. The adoption of this standard is not expected to have a material impact on earnings per share of the Company.
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1997, 1996 AND 1995
NOTE A - (CONTINUED)
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE
In June 1997, the FASB issued SFAS No. 129, "Disclosure of Information about Capital Structure", which is effective for fiscal years beginning after December 15, 1997. SFAS No. 129 was issued for two reasons; (1) to consolidate existing guidance about disclosure of capital structure into one standard and (2) to extend the scope of the disclosure requirements to include nonpublic entities. SFAS No. 129 does not change the disclosure of capital structure for the Company.
REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income", which is effective for fiscal years beginning after December 15, 1997. The statement addresses the reporting and displaying of comprehensive income and its components. Earnings per share will only be reported for the net income and not for comprehensive income. Adoption of SFAS No. 130 relates to disclosure within the financial statements and may have a material effect on the Company's financial statements, as unrealized gains, net of applicable income taxes, on available for sale securities will be included in comprehensive income.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which is effective for fiscal years beginning after December 15, 1997. The statement changes the way public companies report information about segments of their business in their annual financial statements and requires them to report selected segment information in their quarterly reports. Adoption of SFAS No. 131 relates to disclosure within the financial statements and is not expected to have a material effect on the Company's financial statements.
10. RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 financial statements have been reclassified to conform to the current year's presentation.
NOTE B - THE COOPER COMPANIES COMMON STOCK TRANSACTIONS
At October 31, 1997 and 1996, the Company owned 993,433 shares and 2,127,533 shares, respectively of the common stock of The Cooper Companies, Inc. ("TCC"), (the "TCC Common Stock").
The following is a summary of available-for-sale securities as of October 31, 1997 and 1996:
Gross Unrealized Fair (in thousands) Cost Gains (Loss) Value ------- ------------ --------- ---- The Cooper Companies, Inc. Common Stock $ 1,091 $34,424 $35,515 Executone Information Systems, Inc. Common Stock 2,916 (364) 2,552 ------- ------- ------- $ 4,007 $34,060 $38,067 ======= ======= =======
---- The Cooper Companies, Inc. Common Stock $10,426 $20,157 $30,583 Executone Information Systems, Inc. Common Stock 2,916 73 2,989 ------- ------- ------- $13,342 $20,230 $33,572 ======= ======= =======
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1997, 1996 AND 1995
NOTE B - (CONTINUED)
The following is a summary of gross realized gains and gross realized losses on sales of TCC Common Stock for each of the three fiscal years ended October 31, 1997, 1996 and 1995:
Gross Gross Realized Realized Gains Losses -------- -------- (in thousands)
1997 $16,845 $ -- 1996 $ 772 $ -- 1995 $ -- $ (376)
From November 1, 1997 to January 23, 1998, the Company sold 989,300 shares of TCC Common Stock with proceeds of approximately $40.0 million.
In April 1997, the Company loaned $5.0 million to TCC. In August 1997 the loan was repaid with interest of approximately $126,600.
NOTE C - UNISTAR GAMING CORP. TRANSACTIONS
On February 28, 1995, Unistar Gaming Corp. ("UGC") acquired Unistar Entertainment, Inc., a privately held Colorado corporation ("Unistar"). As a result of the acquisition, approximately 27.5% of the outstanding Common Stock of UGC was owned by the Company, and approximately 72.5% of the outstanding Common Stock of UGC was owned by the former stockholders of Unistar. Unistar holds an exclusive contract with the Coeur d'Alene Indian Tribe in Idaho to develop and manage what would be the first national lottery in the United States. The shares of UGC Common Stock which are owned by the Company were purchased for approximately $5 million comprised primarily of cash, portfolio securities and a note payable. In December 1995, the Company increased its stake in UGC to approximately 31.5% by purchasing an additional 400,000 shares of UGC Common Stock from a UGC stockholder for a cash purchase price of $.50 per share.
On December 19, 1995 (the "Closing Date"), pursuant to an Agreement and Plan of Merger, Executone Information Systems, Inc., a Virginia corporation whose common stock trades on the NASDAQ National Market System, ("Executone"), acquired all of the issued and outstanding shares of UGC Common Stock, including all of the shares of UGC Common Stock owned by the Company, in exchange for 3,700,000 shares of Executone Common Stock (the "Executone Common Stock"), 250,000 shares of Executone Series A Preferred Stock (the "Executone Series A Preferred Stock") and 100,000 shares of Executone Series B Preferred Stock (the "Executone Series B Preferred Stock"), collectively (the "Executone Securities"). Each share of Executone Series A and Series B Preferred Stock has voting rights equal to a share of Executone common stock and will earn dividends equal to its proportionate share (18.5% for Series A and 31.5% for Series B) of 50% of UGC's net income. The Executone Series A and Series B Preferred Stock is redeemable at Executone's option for 4.925 million shares and 8.375 million shares, respectively, of Executone common stock, and is convertible at the holders' option, if certain revenue and profit parameters are met by UGC, for up to 4.925 million shares and 8.375 million shares, respectively, of Executone common stock. The Executone Series B Preferred Stock is subject to the approval of Executone's shareholders for redemption or conversion into Executone Common Stock. There can be no assurance, however, that UGC will earn net income sufficient to pay dividends on the Executone Series A and Series B Preferred Stock or that UGC will meet the revenue and profit parameters necessary to enable the holders to convert the Executone Series A and Series B Preferred Stock into Executone Common Stock.
In exchange for its shares of UGC Common Stock, the Company received approximately 31.5% of the Executone Securities, comprised of a) 1,166,520 shares of Executone Common Stock, b) 78,819 shares of Executone Series A Preferred Stock, and c) 31,528 shares of Executone Series B Preferred Stock. The Company has agreed that for a period of six months following the Closing Date not to sell, transfer, assign, pledge or grant a security interest in its Executone
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1997, 1996 AND 1995
NOTE C - (CONTINUED)
Securities and thereafter, through the last day of the twelfth full calendar month following the Closing Date, not to sell in any calendar month a number of shares of its Executone Securities equal to more than the sum of 16.66% of the Executone Preferred Stock or the Executone Common Stock issued to the Company on the Closing Date or thereafter and any unused amount from previous calendar months. On June 30, 1996, Executone filed with the Securities and Exchange Commission a registration statement covering the resale of all shares of the Executone Common Stock issued on the Closing Date plus all shares of Executone Common Stock issuable upon the conversion or redemption of the Executone Series A or Series B Preferred Stock. Said registration statement was declared effective on August 1, 1997. The Company has valued its shares of Executone Series A and Series B Preferred Stock at $ 0 at October 31, 1997 and 1996 based in part on an offer to purchase the stock, which transaction was not consummated, and the uncertainties described in the preceding paragraph.
NOTE D - SECOND ADVANTAGE MORTGAGE CORPORATION - SALE OF DISCONTINUED OPERATION
On October 31, 1994, management of the Company formulated a plan to discontinue its mortgage banking business. Accordingly the entire mortgage banking operations of Second Advantage Mortgage Corp. ("Second Advantage"), a 51% owned subsidiary of the Company, and its wholly owned subsidiary, Entrust Financial Corp. ("Entrust") was considered a discontinued operation as of October 31, 1994.
On November 30, 1994, pursuant to an Asset Purchase Agreement dated as of November 23, 1994 by and between The Long Island Savings Bank, FSB ("LISB") and Entrust (the "Asset Purchase Agreement"), Entrust sold to LISB its entire origination business, including mortgage loans held for sale and mortgage loans in process, a substantial portion of its rights to service loans for others, and a substantial portion of its fixed assets. Pursuant to the Asset Purchase Agreement, LISB assumed the prospective obligations and duties of Entrust under certain contracts and leases relating to the assets acquired by it.
The gross purchase price realized by Entrust from the transaction was approximately $31 million in cash, which, after repayment of indebtedness related to the business (including repayment of loans to two officers and directors of Second Advantage of approximately $1.0 million and approximately $17.8 million to its principal lender to retire its warehouse and credit facility) resulted in net sale proceeds to Entrust of approximately $11.0 million. The gain on such sale amounted to approximately $2.8 million. As of October 31, 1995, all of the purchase price proceeds had been received by Entrust, excluding approximately $375,000 which was retained in escrow (the "LISB Escrow") as security for the performance or payment of indemnification obligations of Entrust to LISB, if any, which was expected to be paid to Entrust in 1996.
Pursuant to a Redemption Agreement dated as of April 19, 1995 (but effective as of March 31, 1995), by and among Second Advantage and all of its stockholders, including the Company, Second Advantage purchased all of its outstanding capital stock held by the Company for a cash purchase price equal to (a) approximately $3,879,000 plus (b) certain contingent considerations consisting primarily of 50% of the first $763,800 to be received from the LISB Escrow. In September 1995, February 1997 and November 1997, the Company received $187,500, $68,500 and $29,100, respectively, from the LISB Escrow. At October 31, 1996, the Company recorded a reserve for the full amount of the contingent consideration described above.
NOTE E - BANK BORROWINGS
In August 1993, the Company borrowed $1,500,000 from a bank the proceeds of which were utilized in connection with the acquisition of Second Advantage (Note D). During 1996, the $1,500,000 principal amount of the loan was repaid in full.
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1997, 1996 AND 1995
NOTE E - (CONTINUED)
In November 1993 the Company arranged a $500,000 line of credit facility with the bank. During 1996, the Company utilized $200,000 of the line of credit facility which was repaid in June 1996. The loan and line of credit facility bore interest at the bank's prime rate (8.25% at October 31, 1996) plus 1.5%. Payment of the loan and line of credit were collateralized by 500,000 shares of TCC Common Stock owned by the Company.
In February 1997, the Company terminated the line of credit facility and the collateral was returned to the Company.
NOTE F - INCOME TAXES
A reconciliation of the provision for income taxes for the years ended October 31, 1997, 1996 and 1995 and the amount computed by applying the statutory Federal income tax rate to income (loss) from continuing operations follows:
1997 1996 1995 ------------ ----------- ----------- Computed expected provision (benefit) for income taxes $ 5,884,000 $ (787,000) $ 578,000) Utilization of loss carryforwards (5,884,000) -- -- Changes in valuation allowance -- 787,000 578,000 Alternative minimum taxes 100,000 -- -- ----------- ----------- --------- Actual provision for income taxes $ 100,000 $ -0- $ -0- =========== =========== =========
The tax effect of the principal temporary differences at October 31, 1997 and 1996 are as follows:
Deferred tax liabilities Unrealized gain on marketable securities $(10,176,000) $ (2,924,000)
Deferred tax assets Net operating loss carryforwards 6,616,000 10,006,000 Credit carryforwards 2,242,000 2,291,000 Accruals not currently deductible for tax purposes 339,000 287,000 ------------ ------------ (979,000) 9,660,000 Less valuation allowance (721,000) (9,660,000) ------------ ------------ Net deferred tax liability $ (1,700,000) $ -0- ============ ============
The valuation allowance on the deferred tax asset was substantially reduced in 1997, reflecting the realization of the remaining net operating loss carryforwards as a result of the sales of TCC Common Stock owned by the Company during 1998. Prior to October 31, 1996, the net deferred tax asset was fully reserved due to the uncertainty of realization.
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1997, 1996 AND 1995
NOTE F - (CONTINUED)
At October 31, 1997, the Company had carryforwards as follows:
(Dollars in Thousands) Net Operating Expiration Loss Credits Date --------- ------- ---------- $ 118 10/31/98 943 10/31/99 744 10/31/00 4 10/31/01 $ 5,253 10/31/02 335 10/31/03 6,328 10/31/04 1,922 10/31/05 520 10/31/06 10/31/07 2,109 10/31/08 1,001 10/31/09 1,039 10/31/10 732 10/31/11 98 later -------- ------- $ 18,904 $ 2,242 ======== =======
NOTE G - ESTIMATED TAX LIABILITIES
The Company is a party to a tax sharing agreement, as amended, with TCC and Cooper Development Company ("CDC") related to the Cooper Labs, Inc. ("CLI") liquidation on June 27, 1985. The above companies have agreed that: (i) in the event that the amount of tax liability, including interest and penalties, shall be ultimately determined to be greater or less than $10,000,000, then such excess or deficiency shall be shared 50%, 25%, and 25% by TCC, CDC, and the Company, respectively, and (ii) they are jointly and severally liable. TCC is coordinating the defenses for these tax examinations. In 1997, after reviewing certain documents related to the tax examinations which were provided by TCC, and after consulting with its tax advisors, the Company recorded a charge of approximately $149,000 to increase the Company's accrual for interest charges related to potential assessments.
NOTE H - STOCK PLANS
During October 1991, the Board of Directors of the Company adopted a Stock Option Plan for Non-Employee Directors (the "Stock Option Plan for Non-Employee Directors") and a 1991 Stock Incentive Plan (the "1991 Stock Incentive Plan").
A brief description of each plan is as follows:
1. STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
Up to 25,000 shares of common stock may be issued pursuant to the Stock Option Plan for Non-Employee Directors (subject to appropriate adjustment in the event of changes in the corporate structure of the Company). The Stock Option Plan for Non-Employee Directors provides that each director of the Company who is not an employee of the Company or any subsidiary (and who has not been an employee for at least one year prior to the date of grant) shall be automatically granted an option to purchase up to 500 shares of common stock of the Company on the date of each annual meeting of stockholders at which he or she is elected as a director of the Company. Only nonqualified options may be granted under the Stock Option Plan for Non-Employee Directors, and the option exercise price shall be equal to the fair market value of a share of common stock of the Company on
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1997, 1996 AND 1995
NOTE H - (CONTINUED)
the date of the grant, and the options granted become exercisable six months after issuance. At October 31, 1997, options to acquire 3,500 shares of common stock have been granted under this plan and 21,000 options are available for future grants.
2. 1991 STOCK INCENTIVE PLAN
The 1991 Stock Incentive Plan permits the granting of awards in the form of nonqualified stock options, incentive stock options, restricted stock, deferred stock, and other stock-based incentives. Up to 300,000 shares of common stock of the Company may be issued pursuant to the 1991 Stock Incentive Plan (subject to appropriate adjustment in the event of changes in the corporate structure of the Company). Officers and other key employees of the Company or any subsidiary are eligible to receive awards under the 1991 Stock Incentive Plan. The option exercise price of all options which are granted under the 1991 Stock Incentive Plan must be at least equal to 100% of the fair market value of a share of common stock of the Company on the date of grant. At October 31, 1997, options to acquire 165,000 shares of common stock have been granted under this plan and 129,918 options are available for future grants.
Financial Accounting Standard No. 123 "Accounting for Stock Based Compensation" ("SFAS No. 123"), issued in 1995, introduces a method of accounting for employee stock-based compensation plans based upon the fair value of the awards on the date they are granted. Under this fair value based method, public companies estimate the fair value of stock options using a pricing model, such as the Black Scholes model, which requires inputs such as the expected volatility of the stock price and an estimate of the dividend yield over the option's expected life. The FASB, however, does not require the use of this method. Entities that continue to account for stock option plans under the existing method (APB No. 25) are required to disclose proforma net income and earnings per share, as if the fair value method had been used. Certain additional disclosures are also required, as follows:
A summary of the activity with respect to these plans is as follows:
The following information applies to options outstanding at October 31, 1997:
Range of exercise prices $7.00 - $15.00 Weighted average exercise price $7.37 Weighted average remaining contractual life 2.5 years
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1997, 1996 AND 1995
NOTE H - (CONTINUED)
The Company's stock option plan has been accounted for under APB Opinion 25, and related interpretations. No compensation cost has been recognized for the plan. Had compensation cost for the plan been determined based upon fair value of the options at the grant dates consistent with the requirements of SFAS No. 123, the Company's net income (loss) and earnings (loss) per share would have been the pro forma amounts indicated below.
October 31, 1997 1996 --------------------- Net income (loss) ($000) As Reported: $16,710 $(2,249) Pro forma: 16,703 (2,249)
Primary earnings (loss) per share As Reported: 7.45 (1.05) Pro forma 7.45 (1.05)
Fully diluted earnings (loss) per share As Reported: 7.45 (1.05) Pro forma: 7.45 (1.05)
The fair value of each option is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions used for grants in 1997 and 1996, expected volatility of 25%, risk-free interest of 6.0%, and expected lives of 5 years.
3. WARRANTS
In 1993, the Company granted two stockholders a five-year warrant (the "1993 Warrants") to purchase up to 25,000 shares of common stock of the Company at a purchase price of $6.00 per share and registration rights, at the Company's expense, with respect to these shares.
In February 1996, to raise cash, the Company induced the exercise of the 1993 Warrants by offering a reduction in the purchase price from $6.00 per share to $5.375 per share. On April 2, 1996, the 1993 Warrants were exercised to purchase 50,000 shares of the Company's Common Stock at the reduced purchase price of $5.375 per share, or $268,750 , in cash. The Company recorded compensation expense of $31,250 to reflect the difference between the original and reduced per share price of the 1993 Warrants.
NOTE I - EMPLOYEE BENEFIT PLANS
In April 1985, the Company adopted its Retirement Income Plan (the "Retirement Plan"), a noncontributory plan covering substantially all full-time, non-union United States employees of the Company. Benefits were based upon a combination of employee compensation and years of service. The Company paid the entire cost of the plan for its employees and funded such costs as they accrued. The Company's funding policy was to make annual contributions within minimum and maximum levels required by applicable regulations. The Company's customary contributions were designed to fund normal cost on a current basis and fund over 30 years the estimated prior service cost of benefit improvements (15 years of annual gains and losses). The projected unit cost method was used to determine the annual cost. Plan assets consist principally of equities and equity and fixed income mutual funds.
Benefit accruals have been frozen as of September 15, 1988, resulting in a plan curtailment. As a result of such curtailment, the Company will not accrue benefits for future services; however, the Company will continue to contribute as necessary for the unfunded liabilities.
Assumptions used in the accounting were: 1997 1996 ---- ---- Discount rates - liability 7.50% 7.50% Long-term rate of return - assets 8.50 8.50
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1997, 1996 AND 1995
NOTE I - (CONTINUED)
A summary of the components of net periodic pension cost for 1997, 1996 and 1995 is as follows: 1997 1996 1995 -------- -------- -------- Service cost - benefits earned during the period $ - $ - $ - Interest cost on projected benefit obligation 86,342 89,319 82,884 Actual return on plan assets (94,636) (88,760) (75,242) Net amortization and deferral 24,204 21,561 24,144 -------- -------- -------- Net pension cost of defined benefit plans $ 15,910 $ 22,120 $ 31,786 ======== ========= ========
The following table sets forth the funded status and amounts recognized in the Company's balance sheet for its defined benefit plan at October 31, 1997 and 1996:
1997 1996 ---------- ------- Actuarial present value of accumulated benefit obligations, all of which is vested $ 1,216,635 $ 1,198,707 =========== ===========
Projected benefit obligations $(1,216,635) $(1,198,707) Fair value of plan assets 1,519,734 1,160,844 ----------- ----------- Lesser (excess) of projected benefit obligation over fair value of plan assets 303,099 (37,863) Unrecognized net loss 189,718 516,326 Adjustment required to recognize minimum liability 0 (516,326) ----------- ----------- Prepaid (accrued) pension cost $ 492,817 $ (37,863) =========== ===========
NOTE J - PREFERRED STOCK PURCHASE RIGHTS
On January 7, 1988, the Board of Directors of the Company declared a dividend distribution of ten rights (as adjusted for a reverse stock split) for each outstanding share of the Company's common stock, par value $.10 per share, to stockholders of record at the close of business on January 21, 1988. Each right ("Right") entitles the registered holder to initially purchase from the Company a unit consisting of one one-hundredth of a share (a "Unit") of Series A Junior Participating Preferred Stock, par value $.10 per share, at a purchase price of $5.50 per Unit, subject to adjustment and under certain circumstances, as defined in the agreements.
The Rights expired on January 7, 1998.
NOTE K - COMMITMENTS AND CONTINGENCIES
1. LEASES AND OTHER COMMITMENTS
The Company has no significant annual rental obligations under noncancellable operating leases in force at October 31, 1997. Rental expense amounted to approximately $18,000 and $29,000 in 1997 and 1996, respectively, and was paid to a company affiliated with a director of the Company.
SCHEDULE II
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS)
(A) Write-off of account receivable (B) Recovery of bad debt
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following are the current directors and executive officers of the Company:
Name Age Position(s) - ----- --- ------------------------ William L. Cohen 56 Director Moses Marx 62 Director Steven Rosenberg 49 Vice President; Director Harold L. Schneider 55 Secretary Randolph B. Stockwell 51 Director
Mr. Cohen was elected a director in July 1993. Mr. Cohen is President, Chief Executive Officer and Chairman of the Board of Andover Togs, Inc., an apparel manufacturing company, positions he has held for more than the past five years.
Mr. Marx was elected a director in May 1995. Mr. Marx has been a general partner in United Equities Company (a securities brokerage firm) since 1954 and a general partner in United Equities Commodities Company (a commodities brokerage firm) since 1972. He is also President of Momar Corp. (an investment company). Mr. Marx is a director of Bio Technology General Corp. (a developer and manufacturer of biotechnology products) and The Cooper Companies, Inc. (a developer and manufacturer of healthcare products).
Mr. Rosenberg has been Vice President and Chief Financial Officer of the Company since 1990 and since May 1995, he has also served as acting President. He also serves as chief administrative officer of the Company. Mr. Rosenberg was elected a director in May 1995. From September 1987 through April 1990, he served as President and Director of Scomel Industries, Inc., a company engaged in international marketing and consulting. Mr. Rosenberg is a director of The Cooper Companies, Inc.
Mr. Schneider was elected Secretary in April 1990. He has been a partner in the law firm Tenzer Greenblatt LLP for more than the past five years.
Mr. Stockwell was elected a director in July 1988. He has been private investor for over ten years and has served in various capacities with the Community Bank, a commercial bank, from September 1972 to January 1987.
There are no family relationship (whether by blood, marriage or adoption) among any of the Company's current directors or executive officers.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information as to all cash compensation paid by the Company to each of its executive officers whose total cash compensation exceeded $60,000 and to all executive officers of the Company as a group for services while an executive officer during the fiscal year ended October 31, 1997.
Name Capacity in Which Served Cash Compensation - ---- ------------------------ ----------------- Steven Rosenberg Acting President, Vice $90,000 President and Chief Financial Officer
All executive officers as a group (one person) $90,000
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company receives monthly fees of $1,000 for serving as a director of the Company and $1,000 for each day during which he participates in a meeting of the Board and, if on a separate day, $500 for each day during which he participates in a meeting of a committee of the Board of which is a member. In addition, see "Stock Option Plan for Non-Employee Directors" below.
1991 STOCK INCENTIVE PLAN
The 1991 Stock Incentive Plan permits the granting of awards in the forms of nonqualified stock options, incentive stock options, restricted stock, deferred stock, and other stock-based incentives. Up to 300,000 shares of common stock of the Company may be issued pursuant to the 1991 Stock Incentive Plan (subject to appropriate adjustment in the event of changes in the corporate structure of the Company). Officers and other key employees of the Company or any subsidiary are eligible to receive awards under the 1991 Stock Incentive Plan. The option exercise price of all options which are granted under the 1991 Stock Incentive Plan must be at least equal to 100% of the fair market value of a share of common stock of the Company on the date of grant.
Pursuant to the 1991 Stock Incentive Plan, on October 6, 1991, the Committee administering the Plan granted nonqualified stock options to the Company's then President to purchase up to 150,000 shares of common stock at a purchase price of $7.00 per share and to the Company's Vice President to purchase up to 15,000 shares of common stock at a purchase price of $7.00 per share. The option granted to the Company's President terminates on the eighth anniversary of its effective date and the option granted to the Company's Vice President was exercised on April 3, 1997.
On October 13, 1994, the Committee granted additional nonqualified stock options to the Company's Vice President to purchase up to 15,000 shares of common stock at a purchase price of $9.75 per share which terminates on the fifth anniversary of its effective date.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
Up to 25,000 shares of common stock may be issued pursuant to the Stock Option Plan for Non-Employee Directors (subject to appropriate adjustment in the event of changes in the corporate structure of the Company). The Stock Option Plan for Non-Employee Directors provides that each director of the Company who is not an employee of the Company or any subsidiary (and who has not been an employee for at least one year prior to the date of grant) shall be automatically granted an option to purchase up to 500 shares of common stock of the Company on the date of each annual meeting of stockholders at which he or she is elected as a director of the Company. Only nonqualified options may be granted under the Stock Option Plan for Non-Employee Directors, and the option exercise price shall be equal to the fair market value of a share of common stock of the Company on the date of the grant, and the options granted become exercisable six months after issuance.
Pursuant to the Stock Option Plan for Non-Employee Directors, on April 8, 1992, the Company granted nonqualified options to a nonemployee director of the Company to purchase 500 shares of the Company's common stock at an exercise price of $6.75 per share which options was exercised on April 3, 1997. Pursuant to the Plan, on October 13, 1994, the Company granted nonqualified options to its two current nonemployee directors to each purchase 500 shares of the Company's common stock at an exercise price of $9.75 per share which options will expire in October 1999. Pursuant to the Plan, on April 11, 1995, the Company granted nonqualified options to its two current nonemployee directors to each purchase 500 shares of the Company's common stock at an exercise price of $15.00 per share which options will expire in April 2000. Pursuant to the Plan, On April 8, 1997, the Company granted nonqualified options to three nonemployee directors of the Company to each purchase 500 shares of the Company's common stock at an exercise price of $14.25 per share which will expire in April 2002.
ITEM 12.
ITEM 12. SECURITIES HELD BY MANAGEMENT
The following table sets forth certain information as of January 13, 1998 with respect to the beneficial ownership of the Company's Common Stock by (i) each person who is known by the Company to own beneficially more than 5% of the Company's Common Stock, (ii) each of the Company's directors and executive officers, and (iii) all executive officers and directors as a group.
Number of Percent Shares of Class --------- -------- William Cohen 1,500(1) *
Moses Marx 1,156,120(2) 54.4% 160 Broadway, New York, NY 10038
Steven Rosenberg 20,082(3) 1.0%
Randolph B. Stockwell 7,000(4) *
All executive officers and directors as a group (4 persons) 1,184,702(5) 55.2%
- ---------------- * Less than 1%.
(1) Issuable upon the exercise of options which have been granted to Mr. Cohen under the Company's Stock Option Plan for Non-Employee Directors.
(2) Includes 500 shares issuable upon the exercise of options which have been granted to Mr. Marx under the Company's Stock Option Plan for Non-Employee Directors.
(3) Includes 15,000 shares issuable upon the exercise of outstanding options which have been granted to Mr. Rosenberg.
(4) Includes 1,500 shares issuable upon the exercise of options which have been granted to Mr. Stockwell under the Company's Stock Option Plan for Non-Employee Directors.
(5) Includes 18,500 shares of Common Stock which are issuable upon the exercise of outstanding options.
The foregoing information with respect to persons who are known by the Company to own beneficially more than 5% of the Company's Common Stock is based upon filings made by said persons with the Securities and Exchange Commission.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
NOT APPLICABLE
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(i) Financial Statements
Report of Independent Certified Public Accountants Consolidated Balance Sheets as of October 31, 1997 and 1996
Consolidated Statements of Operations for the Years Ended October 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the Years Ended October 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended October 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(ii) Financial Statement Schedules
Schedule Number Description -------- ----------- II. Valuation and qualifying accounts
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable and, therefore, have been omitted.
(iii) Exhibits
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 19 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1988). 3.2 Certificate of Amendment of Restated Certificate of Incorporation (incorporated by reference to Exhibit 3(d) to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1988). 3.3 By-laws of the Company (incorporated by reference to Exhibit 3(e) to the Company's Current Report on Form 8-K dated May 2, 1990). 10.1 Assignment, Assumption and Indemnification Agreement dated October 25, 1984 between Cooper Laboratories, Inc. and the Company (incorporated by reference to Exhibit 10(h) to the Company's Registration Statement on Form S-1 (Registration No. 2-97498)).
10.2 Tax Sharing Agreement between the Company and Cooper Laboratories, Inc. dated as of October 25, 1984 (incorporated by reference to Exhibit 10(j) to the Company's Registration Statement on Form S-1 (Registration No. 2-97498)). 10.3 Joint Amendment dated as of June 14, 1985, to the Tax Sharing Agreement between the Company and Cooper Laboratories, Inc. dated as of October 25, 1984 (incorporated by reference to Exhibit No. 10.3 to the Company's Quarterly Report on Form 10-Q for the Fiscal Quarter Ended April 30, 1990). 10.4 1991 Stock Incentive Plan of the Company. (incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the Fiscal Year Ended October 31, 1991). 10.5 Stock Incentive Plan for Non-Employee Directors of the Company (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the Fiscal Year Ended October 31, 1991). 10.6 Corporate Assumption of Tax Liability dated December 10, 1985 (incorporated by reference to Exhibit 10.20 to the Company's Current Report on Form 8-K dated April 20, 1992). 10.7 Registration Rights Agreement, dated as of August 31, 1993, by and between the Company and Mr. Moses Marx (incorporated by reference to Exhibit 10.37 to the Company's Quarterly Report on Form 10-Q for the Fiscal Quarter Ended July 31, 1993). 21. Subsidiaries of the Company. 27. Financial Data Schedule
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the last quarter of its fiscal year ended October 31, 1997.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
COOPER LIFE SCIENCES, INC.
BY: /s/ Steven Rosenberg ---------------------------------------- STEVEN ROSENBERG Vice President (Chief Executive Officer)
DATE: January 28, 1998 ---------------------------------------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE COMPANY AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ----
Vice President (Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer); /s/ Steven Rosenberg Director January 28, 1998 - ------------------------ STEVEN ROSENBERG
/s/ William Cohen Director January 28, 1998 - ------------------------ WILLIAM COHEN
/s/ Moses Marx Director January 28, 1998 - ------------------------ MOSES MARX
/s/ Randolph B. Stockwell Director January 28, 1998 - ------------------------- RANDOLPH B. STOCKWELL