-----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, Ql4F5OoYlV9H7IkZbMsGUPTezIzq/fbuECjfrdtP8tKTn/Fw3GFQpuYCO9SGydH2 bu9QlmBJmz52I4RXnL+j6g== 0000082788-97-000007.txt : 19971117 0000082788-97-000007.hdr.sgml : 19971117 ACCESSION NUMBER: 0000082788-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 001-12776 FILM NUMBER: 97721488 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, 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 November 1, 1997 was 3,634,887. REFAC TECHNOLOGY DEVELOPMENT CORPORATION INDEX Page Part I. Financial Information Condensed Consolidated Balance Sheets September 30, 1997 (unaudited) and December 31, 1996 3 Condensed Consolidated Statements of Operations Nine and Three Months Ended September 30, 1997 and 1996 (unaudited) 4 Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 1997 and 1996 (unaudited) 5 Notes to Condensed Consolidated Financial Statements 6-8 Management's Discussion and Analysis of Financial Conditions and Results of Operations 9-10 Part II. Other Information 11 REFAC TECHNOLOGY DEVELOPMENT CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
SEPT. 30, DEC. 31, ASSETS 1997 1996 Current Assets (UNAUDITED) * Cash and cash equivalents $1,492,420 $15,412,077 Marketable securities - 2,298,298 Royalties receivable 734,703 762,555 Accounts receivable 513,350 100,805 Prepaid expenses 74,197 70,369 Total current assets 2,814,670 18,644,104 Property and equipment, net 158,026 159,403 License related securities 23,952,696 22,891,653 Investments being held to maturity 3,342,073 - Other assets 1,733,344 1,974,418 $32,000,809 $43,669,578 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $87,925 $125,578 Accrued expenses 468,335 435,959 Amounts payable under service agreements 224,993 268,235 Dividend payable - 2,700,943 Income taxes payable 285,396 131,988 Total current liabilities 1,066,649 3,662,703 Deferred income taxes 7,994,899 7,125,217 Other liabilites-deferred compensation 445,058 445,058 Minority interest - 17,301 Stockholders' Equity Common stock, $.10 par value 540,939 540,189 Additional paid-in-capital 9,379,277 9,251,182 Retained earnings 13,033,894 8,699,265 Unrealized gain on license related securities, net of taxes 14,282,290 13,735,650 Cumulative translation adjustment 184,325 193,013 Treasury stock, at cost (14,874,862) - Receivable from issuance of common stock warrant (51,660) - Total stockholders' equity 22,494,203 32,419,299 $32,000,809 $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)
Nine months ended Three months ended Sept. 30, Sept. 30, 1997 1996 1997 1996 Revenues Service revenues $2,688,555 $2,656,134 $975,385 $ 763,068 Gains on license related securities 4,738,010 3,085,925 2,562,905 588,215 Dividends from license related securities 471,240 454,860 157,080 151,620 Sales 345,402 218,385 149,159 57,720 Total revenues 8,243,207 6,415,304 3,844,529 1,560,623 Costs and Expenses Service expenses 578,239 582,906 142,693 115,310 Selling, general and administrative expenses 1,674,135 1,335,919 546,323 421,563 Cost of goods sold 276,575 157,497 122,964 43,405 Total operating expenses 2,528,949 2,076,322 811,980 580,278 Operating income 5,714,258 4,338,982 3,032,549 980,345 Other Income and Expenses Gains on marketable securities transactions 67,331 10,073 (1,584) 793 Net change in unrealized losses on marketable securities - (142,236) - 5,794 Dividend and interest income 208,962 779,501 75,451 293,489 Gains from foreign currency transactions 11,611 2,152 1,022 1,484 Income before provision for taxes on income and minority interest 6,002,162 4,988,472 3,107,438 1,281,905 Provision for taxes on income 1,697,741 1,556,397 936,994 398,702 Income before minority interest 4,304,421 3,432,075 2,170,444 883,203 Minority interest 30,208 19,945 7,393 7,147 Net Income $4,334,629 $3,452,020 $2,177,837 $ 890,350 Earnings per common share $1.13 $0.65 $0.57 $0.17 Weighted average number of shares outstanding 3,851,383 5,301,887 3,816,025 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)
Nine Months Ended Sept. 30, 1997 1996 Cash FLows from Operating Activities Net income $4,334,629 $3,452,020 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization 95,748 66,021 Amortization of discount on U.S. Treasury Bills - (29,619) Net gain on sales of license related securities (4,738,010) (3,085,925) Net gain on sale of securities (67,331) (10,073) Net change in unrealized (gain) loss on marketable securities (27,963) 142,236 Deferred income taxes 508,963 (13,965) (Increase) decrease in assets: Royalty receivable 27,852 - Accounts receivable (360,921) 310,905 Prepaid expenses (3,828) (7,947) Proceeds from sale of marketable securities 2,393,592 1,333,790 Purchase of marketable securities - (3,825,683) Other assets 196,840 (274,344) Increase (decrease) in liabilities: Accounts payable and accrued expenses (22,578) (91,938) Amounts payable under service agreements (43,242) (140,718) Income taxes payable 153,408 (24,319) Net cash provided by (used in) operating activities 2,447,159 (2,199,559) Cash Flows from Investing Activities Proceeds from sales of license related securities 4,738,010 3,165,734 Proceeds from maturity of investments being held to maturity - 2,310,585 Purchase of investments being held to maturity (3,495,721) (2,448,457) Additions to patents and trademarks - (44,898) Additions to property and equipment (50,137) (89,602) Net cash provided by investing activities 1,192,152 2,893,362 Cash Flows from Financing Activities Proceeds from exercise of stock options 17,344 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 (17,558,461) 4,750 Effect of exchange rate changes on cash (507) (64,173) Net (decrease) increase in cash and cash equivalents(13,919,657) 634,380 Cash and cash equivalents at beginning of period 15,412,077 893,744 Cash and cash equivalents at end of period $1,492,420 $1,528,124 Effective April 7, 1997, the Company issued a warrant for the issuance of common stock for $103,320 under the terms of which $51,660 was receivable on September 30, 1997. See accompanying notes to the condensed 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 September 30, 1997 and December 31, 1996, 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, 1996, which is incorporated herein by reference. The results of operations for the nine months and quarter ended September 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 used 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 - Derivatives The Company owns 374,000 shares of KeyCorp Common Stock (NYSE-KEY) which, as of September 30, 1997 had a market value of $23,796,000 representing 70% of the Company's net worth (after the appropriate tax provision). In order to minimize the Company's exposure against a decline in the value of KeyCorp, on September 12, 1997 the Company entered into thirteen (13) individual derivative contracts with Union Bank of Switzerland ("UBS") providing for both put options and call options. The "put options" give the Company the right to sell the KeyCorp stock covered by the option to UBS at the agreed upon option price even if the market price is lower on the settlement date. The call options give UBS the right to require the Company to sell the KeyCorp common stock covered by the option at the agreed upon option price even if the market price is higher on the settlement date. If the price is between the put and call option prices on the settlement date both options lapse. Thirteen individual contracts were entered into, the first contract covering 24,000 shares and the remaining 12 contracts covering 25,000 shares of KeyCorp. The first contract expires on December 31, 1997 and each of the remaining contracts expires at the end of each calendar quarter until December 31, 2000. The schedule below details the expiration dates and the pricing for each of the contracts.
Expiration Number Put Value of Call Value of Date of Shares Option Put Option Option Call Option Price Price 12/31/97 24,000 $54.8523 $1,316,455 $65.457 $1,570,968 03/31/98 25,000 $54.8523 $1,371,308 $66.371 $1,659,275 06/30/98 25,000 $54.8523 $1,371,308 $67.773 $1,694,325 09/30/98 25,000 $54.8523 $1,371,308 $68.870 $1,721,750 12/31/98 25,000 $54.8523 $1,371,308 $70.028 $1,750,700 03/31/99 25,000 $54.8523 $1,371,308 $70.698 $1,767,450 06/30/99 25,000 $54.8523 $1,371,308 $71.917 $1,797,925 09/30/99 25,000 $54.8523 $1,371,308 $73.136 $1,828,400 12/31/99 25,000 $54.8523 $1,371,308 $74.355 $1,858,875 03/31/00 25,000 $54.8523 $1,371,308 $74.965 $1,874,125 06/30/00 25,000 $54.8523 $1,371,308 $76.184 $1,904,600 09/30/00 25,000 $54.8523 $1,371,308 $77.403 $1,935,075 12/31/00 25,000 $54.8523 $1,371,308 $78.744 $1,968,600
Page 7 REFAC TECHNOLOGY DEVELOPMENT CORPORATION Notes to Condensed Consolidated Financial Statements (Continued) NOTE 4 - 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 $1.18 and $0.65, and diluted earnings per share of $1.13 and $0.65, for the nine months ended September 30, 1997 and 1996, respectively, and basic earnings per share of $0.59 and $0.17, and dilutive earnings per share of $0.57 and $0.17, for the three months ended September 30, 1997 and 1996, respectively. Page 8 REFAC TECHNOLOGY DEVELOPMENT CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Total operating revenues increased by $1,828,000 for the nine months ended September 30, 1997 as compared to the corresponding period in 1996, and increased by $2,284,000 for the third quarter of 1997 versus the same period in the prior year. Service revenues accounted for 33% and 41% of operating revenues for the nine months ended September 30, 1997 and 1996, respectively. Gains and dividends from license related securities accounted for 63% and 55% of operating revenues for the nine months ended September 30, 1997 and 1996, respectively. Sales totaled 4% of total revenues for the first nine months of 1997 and 1996. Service revenues increased by $32,000 for the nine months ended September 30, 1997 from the corresponding period in 1996, and increased $212,000 for the third quarter of 1997 versus the same period in the prior year. The increase in the nine month period, and the third quarter, resulted from an increase of recurring revenues from new licensing relationships. Recurring service revenues from established licensing relationships, represented 89% of service revenues for the nine months ended September 30, 1997 and 1996. Income from license related securities increased by $1,668,000 principally due to the increase in revenues from shares sold in the nine months ended September 30, 1997 versus the corresponding period of 1996. Income from license related securities increased by $2,070,000 in the third 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. See Note 3 regarding certain put and call options covering most of the Company's license related securities. With respect to license related securities that are not covered by such options, as deemed in the Company's interest and as future market conditions permit, the Company intends from 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 22% in each of the nine month periods of 1997 and 1996. Selling, general, and administrative expenses increased $338,000 for the nine month period of 1997 versus the comparable period of 1996, primarily due to increased compensation and additional staff members. Moreover, in the nine month period of 1997, the Company incurred $46,300 in fees for public relations and a financial consultant, whereas it had no expense for such services in the corresponding nine month period of 1996. Page 9 REFAC TECHNOLOGY DEVELOPMENT CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) For the nine months ended September 30, 1997, the Company had realized gains on its marketable securities of $67,000 as compared to realized gains of $10,000 and unrealized losses of $142,000 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, which has since been liquidated. Dividend and interest income decreased by $571,000 for the nine months ended September 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 nine months ended September 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 its former Chairman in January of 1997. 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 September 30, 1997, included cash and cash equivalents of approximately $1,492,000 and U.S. Treasury Notes, maturing in 1999, having a market value of approximately $3,342,000. In addition, the Company's license related securities, which consisted of principally common stock and options of KeyCorp (NYSE-KEY), had a market value of approximately $23,953,000 at September 30, 1997. The Company has established a line-of-credit for approximately $12,300,000 with Union Bank of Switzerland. This line-of credit is collateralized by the Company's holdings in KeyCorp. As of September 30, 1997, the Company has not used this credit facility. On September 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., a majority owned subsidiary, and retirement agreement with its former Chairman (which has been provided for in the Company's financial statements), the Company has no significant commitments. The Company believes its liquidity position is more than adequate to meet all current and projected financial needs. Page 10 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 14, 1997 /s/Robert L. Tuchman Robert L. Tuchman, President and Chief Executive Officer November 14, 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 3RD QTR. 10-Q
5 1 DEC-31-1997 JAN-01-1997 SEP-30-1997 9-MOS 1492420 27294769 1258914 10861 74197 2814670 382817 224791 32000809 1066649 0 0 0 540939 21953264 32000809 2688555 8243207 578239 2528949 (287904) 0 0 6002162 1697741 4304421 0 0 0 4334629 1.13 1.13 -----END PRIVACY-ENHANCED MESSAGE-----