-----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, WdexKd3un6YnUnQqcyGja5ry/29C7TEcCc8HfKnF5isBcGk/g3NKlsEcIBwL4l0a wIPAnQSGb89g9ROz7IWT8w== 0000082788-97-000006.txt : 19970814 0000082788-97-000006.hdr.sgml : 19970814 ACCESSION NUMBER: 0000082788-97-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 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: 97658356 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 June 30, 1997 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 August 1, 1997 was 3,634,387. REFAC TECHNOLOGY DEVELOPMENT CORPORATION INDEX Page Part I. Financial Information Condensed Consolidated Balance Sheets June 30, 1997 (unaudited) and December 31, 1996 3 Condensed Consolidated Statements of Operations Six and Three Months Ended June 30, 1997 and 1996 (unaudited 4 Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 1997 and 1996 (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 REFAC TECHNOLOGY DEVELOPMENT CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DEC. 31, ASSETS 1997 1996 Current Assets (UNAUDITED) * Cash and cash equivalents $1,522,047 $15,412,077 Marketable securities - 2,298,298 Royalties receivable 631,242 762,555 Accounts receivable 170,694 100,805 Prepaid expenses 106,444 70,369 Total current assets 2,430,427 18,644,104 Property and equipment, net 165,536 159,403 License related securities 23,089,203 22,891,653 Investments being held to maturity 1,085,224 - Other assets 1,816,202 1,974,418 $28,586,592 $43,669,578 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $91,690 $125,578 Accrued expenses 479,918 435,959 Amounts payable under service agreements 210,602 268,235 Dividend payable - 2,700,943 Income taxes payable 125,888 131,988 Total current liabilities 908,098 3,662,703 Deferred income taxes 7,375,708 7,125,217 Other liabilites-deferred compensation 445,058 445,058 Minority interest - 17,301 Stockholders' Equity Common stock, $.10 par value 540,439 540,189 Additional paid-in-capital 9,365,175 9,251,182 Retained earnings 10,856,057 8,699,265 Unrealized gain on license related securities, net of taxes 13,872,465 13,735,650 Cumulative translation adjustment 201,774 193,013 Treasury stock, at cost (14,874,862) - Receivable from issuance of common stock warrant (103,320) - Total stockholders' equity 19,857,728 32,419,299 $28,586,592 $43,669,578 *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)
Six months ended Three months ended June 30, June 30, 1997 1996 1997 1996 Revenues Service revenues $1,713,170 $1,893,066 $839,945 $1,133,978 Gains on license related securities 2,175,105 2,497,710 1,450,532 898,352 Dividends from license related securities 314,160 303,240 157,080 151,620 Sales 196,243 160,665 152,103 40,813 Total revenues 4,398,678 4,854,681 2,599,660 2,224,763 Costs and Expenses Service expenses 435,546 467,596 249,674 299,588 Selling, general and administrative expenses 1,127,812 914,356 587,760 468,708 Cost of goods sold 153,611 114,092 115,416 48,932 Total operating expenses 1,716,969 1,496,044 952,850 817,228 Operating income 2,681,709 3,358,637 1,646,810 1,407,535 Other Income and Expenses Gains on marketable securities transactions 68,915 9,280 49,651 1,367 Net change in unrealized losses on marketable securities - (148,030) - (37,681) Dividend and interest income 133,511 486,012 34,223 286,762 Gains (losses) from foreign currency transactions 10,589 668 (49) 519 Income before provision for taxes on income and minority interest 2,894,724 3,706,567 1,730,635 1,658,502 Provision for taxes on income 760,747 1,157,695 424,485 527,542 Income before minority interest 2,133,977 2,548,872 1,306,150 1,130,960 Minority interest 22,815 12,798 10,931 7,472 Net Income $2,156,792 $2,561,670 $1,317,081 $1,138,432 Earnings per common share $0.57 $0.48 $0.35 $0.21 Weighted average number of shares outstanding 3,686,956 5,301,887 3,629,332 5,301,887 See accompanying notes to the condensed consolidated financial statements Page 4
REFAC TECHNOLOGY DEVELOPMENT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, 1997 1996 Cash FLows form Operating Activities Net income $2,156,792 $2,568,262 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization 62,905 51,360 Amortization of discount on U.S. Treasury Bills - (14,331) Net gain on sales of license related securities (2,175,105) (2,497,710) Net gain on sale of securities (68,915) (9,280) Net change in unrealized (gain) loss on marketable securities (26,379) 148,030 Deferred income taxes 183,324 (85,976) (Increase) decrease in assets: Royalty receivable 131,313 - Accounts receivable (69,889) 181,387 Prepaid expenses (36,075) (5,226) Proceeds from sale of marketable securities 2,393,592 1,115,282 Purchase of marketable securities - (2,410,839) Other assets 129,211 (199,840) Increase (decrease) in liabilities: Accounts payable and accrued expenses (7,230) (130,664) Amounts payable under service agreements (57,633) (46,040) Income taxes payable (6,100) (39,339) Net cash provided by (used in) operating activities 2,609,811 (1,374,924) Cash Flows from Investing Activities Proceeds from sales of license related securities 2,181,537 2,550,902 Proceeds from maturity of investments being held to maturity - 680,585 Purchase of investments being held to maturity (1,085,224) (1,220,381) Additions to property and equipment (40,033) (12,879) Net cash provided by investing activities 1,056,280 1,998,227 Cash Flows from Financing Activities Proceeds from exercise of stock options 5,219 4,750 Proceeds from short-term borrowings 815,828 - Repayment of short-term borrowings (815,828) - Dividends paid (2,700,943) - Acquisition of treasury stock (14,874,862) - Net cash (used in) provided by financing activities (17,570,586) 4,750 Effect of exchange rate changes on cash 14,465 (46,827) Net (decrease) increase in cash and cash equivalents(13,890,030) 581,226 Cash and cash equivalents at beginning of period 15,412,077 893,744 Cash and cash equivalents at end of period $1,522,047 $1,474,970 Effective April 7, 1997, the Company issued a warrant for the issuance of common stock for $103,320 under the terms of which $103,320 was receivable at June 30, 1997. See accompanying notes to the consolidated financial statements. Page 5
REFAC TECHNOLOGY DEVELOPMENT CORPORATION Notes to Condensed Consolidated Financial Statements NOTE 1 - GENERAL 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 June 30, 1997 and December 31, 1996, and the results of its operations and its cash flows for the six 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, 1996, which is incorporated herein by reference. The results of operations for the six months and quarter ended June 30, 1997 are not necessarily indicative of the results to be expected for the full year. NOTE 2 - Marketable Securities, License Related Securities and Investments Being Held to Maturity 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. 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. 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 license related securities fall into this category. REFAC TECHNOLOGY DEVELOPMENT CORPORATION Notes to Condensed Consolidated Financial Statements (Continued) NOTE 3 - New Accounting Pronouncement In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 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 diluted earnings per share and requires presentation of basic and diluted earnings per share together with disclosure of how the per share amounts were computed. The pro forma effect on the Company of adopting the new standard would be basic earnings per share of $0.58 and $0.48, and diluted earnings per share of $0.57 and $0.48, for the six months ended June 30, 1997 and 1996, respectively, and basic earnings per share of $0.36 and $0.21, and dilutive earnings per share of $0.35 and $0.21, for the three months ended June 30, 1997 and 1996, respectively. REFAC TECHNOLOGY DEVELOPMENT CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Total operating revenues decreased by $456,000 for the six months ended June 30, 1997 as compared to the corresponding period in 1996, and increased by $375,000 for the second quarter of 1997 versus the same period in the prior year. Service revenues accounted for 39% of operating revenues for the six months ended June 30, 1997 and 1996. Investment income (gains and dividends) from license related securities accounted for 57% and 58% of operating revenues for the six months ended June 30, 1997 and 1996, respectively. Sales totaled 4% and 3% of total revenues for the first six months of 1997 and 1996, respectively. Service revenues decreased by $180,000 for the six months ended June 30, 1997 from the corresponding period in 1996, and decreased $294,000 for the second quarter of 1997 versus the same period in the prior year. The decrease in the six month period, and the second quarter, resulted from a decrease of recurring revenues from established licensing relationships. While the Company expects a decline in recurring royalties for fiscal 1997, it anticipates that it will be able to offset the decline in whole or in part by new recurring royalty agreements. Recurring service revenues from established licensing relationships, represented 82% of service revenues for the six months ended June 30, 1997 as compared to 84% in the same period of 1996. Investment income from license related securities decreased by $312,000 principally due to the decrease in revenues from shares sold in the first quarter of 1997 versus the corresponding period of 1996. Income from license related securities increased by $556,000 in the second quarter of 1997 versus the corresponding period of 1996. This increase was due to an increase in revenues from shares sold in the current period versus the corresponding period of the prior year. As deemed in the Company's interest and as future market conditions permit, the Company intends form time to time to sell part of such securities. 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 was 25% in each of the six month periods of 1997 and 1996. Selling, general, and administrative expenses increased $213,000 for the six month period of 1997 versus the comparable period of 1996, primarily due to increased compensation and additional staff members. Moreover, in the six month period of 1997, the Company incurred $27,300 in fees for public relations and a financial consultant, whereas it had no expense for such services in the corresponding six month period of 1996. REFAC TECHNOLOGY DEVELOPMENT CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) For the six months ended June 30, 1997, the Company had realized gains on its marketable securities of $69,000 as compared to realized gains of $9,000 and unrealized losses of $148,000 for the corresponding period of 1996. 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 agency bonds. Dividend and interest income decreased by $353,000 for the six months ended June 30, 1997, from the corresponding period in 1996. The year-to-date decrease in dividends and interest income is directly related to the decrease in the amount of marketable securities owned by the company during the six months ended June 30, 1997, versus the corresponding period of 1996. The Company liquidated a large portion of its marketable securities in the fourth quarter of 1996 to fund a stock repurchase from the former Chairman. The Company's income from licensing and technology transfer operations has not in the past been materially affected by inflation. Likewise, while currency fluctuations 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 June 30, 1997, included cash and cash equivalents of approximately $1,522,000 and U.S. Treasury Notes having a market value of approximately $1,085,000. In addition, the Company's license related securities had a market value of approximately $23,089,000 at June 30, 1997. On June 30, 1997, the Company had no long-term debt. Other than the commitment under the lease for its principal office, and commitments for office and lab facilities of Advanced Resin Technology, Inc. and retirement agreement for the former Chairman (which has been provided for), 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 August 12, 1997 /s/Robert L. Tuchman Robert L. Tuchman, President and Chief Executive Officer August 12, 1997 /s/Robert Rescigno Robert Rescigno, Treasurer and Chief Accounting 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, 1996 is incorporated herein by reference. EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 2ND QTR. 10-Q
5 1 DEC-31-1997 JAN-01-1997 JUN-30-1997 6-MOS 1522047 24174427 812797 10861 57768 2430427 367818 202282 28586592 908098 0 0 0 540439 19317289 28586592 1713170 4398678 435546 1716969 (213015) 0 0 2894724 760747 2133977 0 0 0 2156792 .57 .57 -----END PRIVACY-ENHANCED MESSAGE-----