-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AT3b4fBv5TfDjldr224VFlN7b4q6XLBmUWj/zzXmrkdiMyEbmTSUhH8n1blL+XJ7 vHFcVrV5s/KilGxyzxMmWw== 0000082788-96-000006.txt : 19961113 0000082788-96-000006.hdr.sgml : 19961113 ACCESSION NUMBER: 0000082788-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: REFAC TECHNOLOGY DEVELOPMENT CORP CENTRAL INDEX KEY: 0000082788 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 131681234 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12776 FILM NUMBER: 96658161 BUSINESS ADDRESS: STREET 1: 122 EAST 42ND ST STE 4000 CITY: NEW YORK STATE: NY ZIP: 10168 BUSINESS PHONE: 2126874741 MAIL ADDRESS: STREET 2: 122 EAST 42ND ST STE 4000 CITY: NEW YORK STATE: NY ZIP: 10168 FORMER COMPANY: FORMER CONFORMED NAME: RESOURCES & FACILITIES CORP DATE OF NAME CHANGE: 19740509 FORMER COMPANY: FORMER CONFORMED NAME: REFAC INC DATE OF NAME CHANGE: 19720628 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 1996 Commission File Number 0-7704 REFAC TECHNOLOGY DEVELOPMENT CORPORATION (Exact name of registrant as specified in its charter) Delaware 13-1681234 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 122 East 42nd Street, New York, New York 10168 (Address of principal executive offices)(Zip Code) Registrant's telephone number, including area code: (2l2) 687-4741 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 The number of shares outstanding of the Registrant's Common Stock, par value $.10 per share, as of November 1, 1996 was 5,301,887. REFAC TECHNOLOGY DEVELOPMENT CORPORATION INDEX Page Part I. Financial Information Condensed Consolidated Balance Sheets September 30, 1996 and December 31, 1995 3 Condensed Consolidated Statements of Operations Nine and Three Months Ended September 30, 1996 and 1995 (unaudited) 4 Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 1996 and 1995 (unaudited) 5 Notes to Condensed Consolidated Financial Statements 6-7 Management's Discussion and Analysis of Financial Conditions and Results of Operations 8-9 Part II. Other Information 10 Page 2 REFAC TECHNOLOGY DEVELOPMENT CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
SEPT. 30 DEC. 31 ASSETS 1996 1995 Current Assets (UNAUDITED) * Cash and cash equivalents $1,528,124 $893,744 Marketable securities 7,642,789 5,276,302 Investments being held to maturity 6,276,879 5,245,365 Accounts receivable 979,799 1,290,704 Prepaid expenses 22,219 14,272 Total current assets 16,449,810 12,720,387 Property and equipment, net 146,545 151,165 Securities acquired in association with licensing activities 22,159,729 21,551,772 Investments being held to maturity 908,294 1,766,993 Other assets 1,436,458 1,162,114 $41,100,836 $37,352,431 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable 45,520 232,924 Accrued expenses 493,373 397,907 Amounts payable under service agreements 215,392 356,110 Income taxes payable 440,570 464,889 Total current liabilities 1,194,855 1,451,830 Deferred income taxes 6,949,765 6,816,020 Minority interest 24,902 0 Stockholders' Equity Common stock, $.10 par value 530,189 529,989 Additional paid in capital 8,875,274 8,870,724 Retained earnings 10,152,664 6,700,644 Unrealized gain on securities acquired in association with licensing activites, net of taxes 13,167,525 12,713,389 Cumulative translation adjustment 205,662 269,835 Total stockholders' equity 32,931,314 29,084,581 $41,100,836 $37,352,431 *Derived from audited financial statements See accompanying notes to the condensed consolidated financial statements Page 3
REFAC TECHNOLOGY DEVELOPMENT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Nine months ended Three months ended September 30, September 30, 1996 1995 1996 1995 Revenues $2,656,134 $3,097,538 $763,068 $1,119,101 Service revenues Gains on securities acquired in associaiton with licensing activities 3,085,925 152,968 588,215 0 Dividends from securities acquired in association with licensing activities 454,860 0 151,620 0 Sales 218,385 119,997 57,720 33,743 Total revenues 6,415,304 3,370,503 1,560,623 1,152,844 Costs and Expenses Service expenses 582,906 654,259 115,310 214,187 Selling, general and administrative expenses 1,335,919 1,114,843 421,563 320,446 Cost of good sold 157,497 83,337 43,405 19,408 Total operating expenses 2,076,322 1,852,439 580,278 554,041 Operating income 4,338,982 1,518,064 980,345 598,803 Other Income and Expenses Gain on marketable securities transactions 10,073 27,707 793 22,464 Net change in unrealized (losses) gains on marketable securities (142,236) 150,211 5,794 (8,016) Dividend and interest income 779,501 779,874 293,489 218,959 Gains (losses) from foreign currency transactions 2,152 (715) 1,484 508 Income before provision for taxes on income and minority interest 4,988,472 2,475,141 1,281,905 832,718 Provision for taxes on income 1,556,397 887,303 398,702 345,609 Income before minority interest Minority interest 19,945 0 7,147 0 Net Income 3,452,020 1,587,838 890,350 487,109 Earnings per common share Net income $0.65 $0.30 $0.17 $0.09 Weighted average number of shares outstanding 5,301,887 5,314,771 5,301,887 5,296,853 See accompanying notes to the condensed consolidated financial statements Page 4
REFAC TECHNOLOGY DEVELOPMENT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended September 30, 1996 1995 Cash Flows from Operating Activities Net income $3,452,020 $1,587,838 Adjustments to reconcile net income to net cash (used in) provided by operating activities Depreciation and amortization 66,021 60,093 Amortization of discount on U.S. Treasury Bills (29,619) (205,640) Net gain on sale of securities acquired in association with licensing activities (3,085,925) 0 net gain on sales of securities (10,073) (27,707) Net change in unrealized loss (gain) on marketable securities 142,236 (150,211) Deferred income taxes (13,965) 79,202 (Increase) decrease in assets: Accounts receivable 310,905 (172,535) Prepaid expenses (7,947) 228,617 Proceeds from sale of marketable securities 1,333,790 876,438 Purchase of marketable securities (3,825,683) (2,125,398) Other assets (274,344) (213,788) Increase (decrease) in liabilities: Accounts payable and accrued expenses (91,938) 59,233 Amounts payable under service agreements (140,718) (210,727) Income taxes payable (24,319) 231,148 Net cash (used in) provided by operating activities (2,199,559) 16,563 Cash Flows from Investing Activities Proceeds from sales of securities acquired in association with licensing activities 3,165,734 173,386 Proceeds from maturity of investments being held to maturity 2,310,585 10,503,385 Purchase of investments being held to maturity (2,448,457) (15,331,378) Additions to patents and trademarks (44,898) (44,208) Additions to property and equipment (89,602) (17,751) Net cash provided by (used in) investing activities 2,893,362 (4,716,566) Cash Flows from Financing Activities Acquisition and retirement of common stock 0 (287,808) Proceeds from exercise of stock options 4,750 0 Net cash provided by (used in) financing activities 4,750 (287,808) Effect of exchange rate changes on cash (64,173) (13,514) Net (decrease) increase in cash and cash equivalents 634,380 (5,001,325) Cash and cash equivalents at the beginning of period 893,744 5,641,885 Cash and cash equivalents at the end of period $1,528,124 $640,560 See accompanying notes to the condensed consolidated financial statements Page 5
REFAC TECHNOLOGY DEVELOPMENT CORPORATION Notes to Condensed Consolidated Financial Statements 1. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (all of which were normal recurring adjustments) necessary to present fairly the consolidated financial position of REFAC Technology Development Corporation (the "Company") at September 30, 1996 and December 31, 1995, and the results of its operations and its cash flows for the nine and three month interim periods presented. The accounting policies followed by the Company are set forth in Note l to the Company's consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 1995, which is incorporated herein by reference. 2. The results of operations for the nine months and the quarter ended September 30, 1996 are not necessarily indicative of the results to be expected for the full year. 3. In the ordinary course of its patent licensing and enforcement activities, the Company becomes engaged in the prosecution of infringement actions against various companies. Such actions are initiated only after the Company satisfies itself that (a) the claims of the patent have substantial merit and (b) there are specific grounds for asserting infringement. Such litigation often induces various defenses including, among others, challenging the validity of the patents and seeking reimbursement from the Company of the legal costs of defense. Such reactions are conventional aspects of the conduct of the Company's patent licensing and enforcement activities. the Company from time to time has been the target of several such actions. At September 30, 1996 and December 31, 1995 there were no such claims pending against the Company. 4. In accordance with SFAS No. 115, the Company categorizes and accounts for its investment holdings as follows: Trading securities are securities bought and held for the purpose of selling them in the near term. Unrealized gains and losses are included in current period earnings. The Company's investment in marketable securities (principally holdings in preferred stocks and government agency bonds) falls into this category. Held to maturity securities are measured at amortized cost. This categorization is permitted only if the Company has the positive intent and ability to hold these securities to maturity. The Company's investments in U.S. Treasury Bills and Notes fall into this category. Available for sale securities are securities which do not qualify as either held to maturity or trading securities. Unrealized gains and losses are reported as a separate component of stockholders' equity, net of applicable deferred income taxes on such unrealized gains and losses at current income tax rates. The Company's investments in securities acquired in association with licensing activities fall into this category. Such securities at September 30, 1996 consisted of 332,842 shares of Three-Five Systems, Inc. (which trades on the New York Stock Exchange under the symbol TFS), 399,000 shares of KeyCorp (which trades on the NYSE under the symbol KEY) and 16,100 shares of DBT Online (which trades on the NASDAQ under the symbol DBTO, previously Patlex Corporation traded on the NASDAQ under the symbol PTLX). REFAC TECHNOLOGY DEVELOPMENT CORPORATION Management's Discussion and Analysis of Financial Conditions and Results of Operations Revenues Total operating revenues increased $3,045,000 for the nine months ended September 30, 1996 as compared to the corresponding period in 1995, and by $408,000 for the third quarter of 1996 versus the same period in the prior year. Service revenue accounted for 41% and 92% of operating revenues for the nine months ended September 30, 1996 and 1995, respectively. Gains and dividends from securities acquired in association with licensing activities accounted for 55% and 5% of operating revenues for the nine months ended September 30, 1996 and 1995, respectively. The increase in income associated with securities acquired in association with licensing activities is principally due to the increase in revenues from shares sold in the current period versus the corresponding period of 1995. As deemed in the Company's interest and as future market conditions permit, the Company intends from time to time to sell part of the portfolio of such securities. the increase in sales, which totalled 4% and 3% of total revenues for the first nine months of 1996 and 1995, respectively, is principally related to sales of products by Advanced Resin Technology, Inc. ("ART"). In December 1995, the Company acquired a controlling interest in ART, a manufacturer of a patented line of thermoplastic polyurethane hot melt adhesives and elastomers. At September 30, 1996, the Company owned approximately 87% of ART. Service revenues decreased by $441,000 for the nine months ended September 30, 1996 from the corresponding period in 1995, and decrease $356,000 for the third quarter of 1996 versus the same period in the prior year. In both cases, the changes resulted from a decrease of recurring revenues from established licensing relationships due mainly to the impact of the higher U.S. dollar on foreign service revenues and a decrease of non-recurring revenues which are recognized upon the completion of new, single-payment license agreements. Recurring service revenues from established licensing relationships, represented 88% of service revenues for the nine months ended September 30, 1996, as compared to 81% in the same period of 1995. Service expenses represents payments to REFAC clients under contractually stipulated terms, and hence tend to increase or decrease as a function of service revenues. Also included in service expenses are various other costs directly related to the development, maintenance, administration and enforcement of patent and licensing programs, notably legal and other external professional fees, and costs associated with patent research, upkeep and amortization. Service expenses as a percentage of service revenues increased from 21% in the nine month period of 1995 to 22% in the corresponding period of the current year. The increase in this ratio is attributable to an increase in patent expenses and legal fees relating to recurring licensing revenue. REFAC TECHNOLOGY DEVELOPMENT CORPORATION Management's Discussion and Analysis of Financial Conditions and Results of Operations (Continued) Selling, general and administrative expenses increased by $221,000 for the nine month period of 1996 versus the comparable period of 1995. This increase is due to the acquisition of an 87% interest in ART which had approximately $264,000 in selling, general and administrative expenses for the first nine months of 1996. For the nine months ended September 30, 1996 the Company had losses on its marketable securities of $132,000 consisting of realized gains of $10,000 and unrealized losses of $142,000 as compared to realized gains of $28,000 and unrealized gains of $150,000 for the corresponding period of 1995. The loss in 1996 was principally attributable to the adverse impact that rising interest rates had on the value of the Company's investment in preferred stocks and governmental aqgency bonds. Dividend and interest income consist of investment income from the Company's portfolio of marketable securities, and was relatively stable as compared to the prior period. The Company's licensing and technology transfer operations has not in the past been materially affected by inflation. Likewise, while currency flucuations can influence service revenues, the diversity of foreign income sources tends to offset individual changes in currency valuations. Liquidity and Capital Resources The Company's liquidity position at September 30, 1996, included cash and cash equivalents of approximately $1,528,000 and publicly-traded securities and U.S. Treasury Bills and Notes having a market value of over $14,828,000. In addition, the Company's long-term investment portfolio had a market value of over $22,160,000 at September 30, 1996. On September 30, 1996, the Company had no non-current debt. Other than the commitment under the headquarters premises lease, the Company has no significant commitments. The Company believes its liquidity position is more than adequate to meet all current and projected financial needs. Part II. Other Information Item 6. Exhibit and Reports on Form 8-K (a) See exhibit index attached hereto. (b) Reports on Form 8-K filed during the quarter: None 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. REFAC Technology Development Corporation November 11, 1996 /s/Eugene M. Lang E. M. Lang, Chairman and Chief Executive Officer November 11, 1996 /s/Robert Rescigno Robert Rescigno, Controller and Principal Accounting and Financial Officer EXHIBIT INDEX Exhibit Page No. No. 28 Note 1 to the Company's Consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 is incorporated herein by reference. EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 2ND QTR. 10-Q
5 1 DEC-31-1996 JAN-01-1996 SEP-30-1996 9-MOS 1528124 36987691 979799 10861 22219 16449810 298381 151836 41100836 1194855 0 0 0 530189 32401125 41100836 2656134 6415304 582906 2076322 (649490) 0 0 4988472 1556397 3432075 0 0 0 3452020 .65 .65 -----END PRIVACY-ENHANCED MESSAGE-----