-----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, CKAkHfbdkZHVXm7V+NExHiBlN5RMG4BSTwlyfBsGVrWuP23RZhf45PtEZPIAFG5b g8oWYPzOm6WRIRW/NoAMWQ== 0000082788-95-000004.txt : 19951119 0000082788-95-000004.hdr.sgml : 19951119 ACCESSION NUMBER: 0000082788-95-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 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: 95591076 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, 1995 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, 1995 was 5,294,887. REFAC TECHNOLOGY DEVELOPMENT CORPORATION INDEX Page Part I. Financial Information Condensed Consolidated Balance Sheets September 30, 1995 and December 31, 1994 3 Condensed Consolidated Statements of Operations Nine and Three Months Ended September 30, 1995 and 1994 (unaudited) 4 Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 1995 and 1994 (unaudited) 5 Notes to Condensed Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7-8 Part II. Other Information 9 Page 2 REFAC TECHNOLOGY DEVELOPMENT CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
SEPT 30 DEC 31 ASSETS 1995 1994 Current Assets (UNAUDITED) * Cash and cash equivalents $640,560 $5,641,885 Marketable securities 4,027,960 2,591,415 Investments being held to maturity 4,383,769 1,168,698 Accounts receivable 1,078,904 906,369 Prepaid income taxes and other 0 228,617 Total current assets 10,131,193 10,536,984 Property and equipment, net 100,461 109,316 Securities acquired in association with licensing activities 22,915,810 19,431,753 Investments being held to maturity 6,164,344 4,490,436 Other assets 1,154,765 940,977 $40,466,573 $35,509,466 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $5,679 $22,542 Accrued expenses 724,014 647,918 Amounts payable under service agreements 401,029 611,756 Income taxes payable 231,148 0 Total current liabilities 1,361,870 1,282,216 Deferred income taxes 7,253,757 5,992,629 Stockholder's Equity Common stock, $.10 par value 529,489 533,799 Additional paid in capital 8,848,441 9,131,939 Retained earnings 8,593,965 7,006,127 Unrealized gain on securities acquired in association with licensing activites, net of taxes 13,613,655 11,300,883 Cumulative translation adjustment 265,396 261,873 Total stockholders' equity 31,850,946 28,234,621 $40,466,573 $35,509,466 *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, 1995 1994 1995 1994 Revenues Service revenues $3,097,538 $2,542,561 $1,119,101 $693,237 Gains on securities acquired in associaiton with licensing activities 152,968 2,191,234 0 464,535 Total revenues 3,250,506 4,733,234 1,119,101 1,157,772 Costs and Expenses Service expenses 617,599 536,984 199,852 55,375 Selling, general and administrative expenses 1,114,843 1,129,930 320,446 307,035 Total operating expenses 1,732,442 1,666,914 520,298 362,410 Operating income 1,518,064 3,066,881 598,803 795,362 Other Income and Expenses Gains (losses) on marketable securities tranactions 27,707 (230,979) 22,464 (274,570) Net change in unrealized gains (losses) on marketable securities 150,211 (1,069,950) (8,016) 113,306 Dividend and interest income 779,874 929,590 218,959 302,274 Gains (losses) from foreign currency transactions (715) (30,336) 508 (11,211) Income before provision for taxes on income and cumulative effect of accounting change 2,475,141 2,665,206 832,718 925,161 Provision for taxes on income 887,303 855,436 345,609 221,452 Income before cumulative effect of accounting change 1,587,838 1,809,770 487,109 703,709 Cumulative effect of change in accounting for marketable securities, net of taxes 0 245,520 0 0 Net Income $1,587,838 $2,055,290 $487,109 $703,709 Earnings per common share Income before cumulative effect of accounting change $0.30 $0.34 $0.09 $0.13 Cumulative effect of change in accounting for marketable securities 0.00 0.05 0.00 0.00 Net income $0.30 $0.39 $0.09 $0.13 Weighted average number of shares outstanding 5,314,771 5,334,772 5,296,853 5,337,987 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 Sept 30, 1995 1994 Cash Flows from Operating Activities Net income $1,587,838 $2,055,290 Adjustments to reconcile net income to net cash provided by (used in) operating activities Cumulative effect of accounting change 0 (245,520) Depreciation and amortization 60,093 43,792 Accretion of discount on U.S. Treasury Bills (205,640) 0 Net gain on sale of securities (27,707) (1,960,255) Net change in unrealized (gain) loss on marketable securities (150,211) 1,069,950 Deferred income taxes 79,202 82,580 (Increase) decrease in assets: Accounts receivable (172,535) 303,622 Prepaid income taxes and other 228,617 0 Proceeds from sale of marketable securities 876,438 4,233,095 Purchase of marketable securities (2,125,398) (5,279,168) Other assets (213,788) (119,349) Increase (decrease) in liabilities: Accounts payable and accrued expenses 59,233 (168,170) Amounts payable under service agreements (210,727) (1,207,994) Income taxes payable 231,148 (438,769) Net cash provided by (used in) operating activities 16,563 (1,630,896) Cash Flows from Investing Activities Proceeds from sales of securities acquired in association with licensing activities 173,386 2,270,426 Proceeds from maturity of investments being held to maturity 10,503,385 0 Purchase of investments being held to maturity (15,331,378) 0 Additions to patents and trademarks (44,208) (55,050) Additions to property and equipment (17,751) (29,169) Net cash (used in) provided by investing activities (4,716,566) 2,186,207 Cash Flows from Financing Activities Acquisition and retirement of common stock (287,808) 0 Proceeds from exercise of stock options 0 17,875 Net cash (used in) provided by financing activities (287,808) 17,875 Effect of exchange rate changes on cash (13,514) 111,609 Net (decrease) increase in cash and cash equivalents (5,001,325) 684,795 Cash and cash equivalents at the beginning of period 5,641,885 939,818 Cash and cash equivalents at the end of period $640,560 $1,624,613 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, 1995 and December 31, 1994, and the results of its operations and its cash flows for the three and nine 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, 1994, which is incorporated herein by reference. 2. The results of operations for the nine months and the quarter ended September 30, 1995 are not necessarily indicative of the results to be expected for the full year. 3. In accordance with SFAS No. 115, which was adopted January 1, 1994, and resulted in a cumulative effect of change in accounting for its trading securities, 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 June 30, 1995 consisted of 337,842 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 New York Stock Exchange under the symbol KEY), and 99,750 shares of Patlex Corporation (which trades on the NASDAQ under the symbol PTLX). The Company previously owned shares in AutoFinance Group, Inc. ("AFG"). On September 28, 1995 KeyCorp acquired AFG and as part of the transaction spun off the Patlex Corporation shares. These securities are recorded at quoted market value without a discount which might be associated with such large blocks of shares. REFAC TECHNOLOGY DEVELOPMENT CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Total operating revenues decreased $1,483,000 for the nine months ended September 30, 1995 as compared to the corresponding period in 1994, and $39,000 for the third quarter of 1995 versus the same period in the prior year. Service revenue accounted for 95% and 54% of operating revenues for the nine months ended September 30, 1995 and 1994, respectively. Gains on sales of securities acquired in association with licensing activities accounted for 5% and 46% of operating revenues for the nine months ended September 30, 1995 and 1994, respectively. The decrease in gains on sales of securities acquired in association with licensing activities is due to a decrease in the number of shares sold in the current period versus the corresponding period of 1994. 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. Service revenues increased $555,000 for the nine months ended September 30, 1995 from the corresponding period in 1994 and $426,000 for the third quarter of 1995 versus the same period in the prior year. In both cases, the changes largely resulted from an increase in the size and timing of non-recurring revenues which are recognized upon the completion of new, single-payment license agreements. Recurring service revenues from established licensing relationships, which represented approximately 81% of service revenues for the nine months ended September 30, 1995, as compared to 92% in the same period of 1994, have remained relatively stable as compared to the corresponding period in 1994. Service expenses represents payments to licensors 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, 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 decreased from 21% in the nine month period of 1994 to 20% in the corresponding period of the current year, and increased from 8% in the three month period of 1994 to 18% in the corresponding period of the current year. The decrease in this ratio is attributable to a decrease in legal fees and an increase in the sales of products associated with a licensing program. Selling, general, and administrative expenses decreased $15,000 for the nine month period of 1995 versus the comparable period of 1994. This decrease includes a decrease in legal fees and various administrative expenses partially offset by an increase in compensation costs, depreciation and rent expense. REFAC TECHNOLOGY DEVELOPMENT CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) For the nine months ended September 30, 1995 the Company had gains on its marketable securities of $178,000 consisting of realized gains of $28,000 and unrealized gains of $150,000 as compared to realized losses of $231,000 and unrealized losses of $1,070,000 for the corresponding period of 1994. The loss in 1994 was principally attributable to the adverse impact that rising interest rates had on the value of the Company's investments in preferred stocks. In 1995 the Company changed its investment strategy from investing primarily in preferred stocks to investing primarily in U.S. Government bonds which has a much more stable market price than preferred stocks. Dividend and interest income decreased by $150,000 for the nine months ended September 30, 1995 from the corresponding period in 1994. Dividend and interest income consist of investment income from the Company's portfolio of marketable securities. The year-to-date decline reflects a change in the portfolio strategy, shifting resources from preferred stocks to U.S. Treasury Bills and Notes, which generate less dividends and interest income but are generally subject to less market risk. The Company's licensing and technology transfer operations are generally not directly affected by inflation. Liquidity and Capital Resources The Company's liquidity position at September 30, 1995, included cash and cash equivalents of approximately $641,000 and publicly-traded securities and U.S. Treasury Bills and Notes having a market value of over $14,576,000. In addition, the Company's long-term investment portfolio had a market value of over $22,915,000 at September 30, 1995, representing an increase of approximately $3,484,000 over the value at December 31, 1994. This resulted in an increase to stockholders' equity of approximately $2,313,000, net of related deferred income taxes. On September 30, 1995, 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 7, 1995 /s/Eugene M. Lang E. M. Lang, Chairman and Chief Executive Officer November 7, 1995 /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, 1994 is incorporated herein by reference. EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 3RD QTR. 10-Q
5 1 DEC-31-1995 JAN-01-1995 SEP-30-1995 9-MOS 640560 37491883 1089765 10861 0 10131193 208598 108137 40466573 1361870 0 0 0 529489 31321457 40466573 3097538 3250506 617599 1732442 (957077) 0 0 2475141 887303 1587838 0 0 0 1587838 .30 .30 -----END PRIVACY-ENHANCED MESSAGE-----