-----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, E/nAR+HZ+ZFRS9LlbjRTynzwgtGyW1pfzTOmJqhPqyUeD3BvwbI36XUFuw8gbme2 AV6wNmyi//+wfkN6rM9flQ== 0000950130-00-002939.txt : 20000516 0000950130-00-002939.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950130-00-002939 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REFAC 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: 635424 BUSINESS ADDRESS: STREET 1: 115 RIVER ROAD CITY: EDGEWATER STATE: NJ ZIP: 07020-1099 BUSINESS PHONE: 2019434400 MAIL ADDRESS: STREET 2: 122 EAST 42ND ST STE 4000 CITY: NEW YORK STATE: NY ZIP: 10168 FORMER COMPANY: FORMER CONFORMED NAME: REFAC TECHNOLOGY DEVELOPMENT CORP DATE OF NAME CHANGE: 19920703 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 QUARTERLY REPORT 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 March 31, 2000 Commission File Number 0-7704 REFAC ----- (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.) The Hudson River Pier --------------------- 115 River Road, Edgewater, New Jersey 07020-1099 ------------------------------------------------ (Address of principal executive offices)(Zip Code) Registrant's telephone number, including area code: (201) 943-4400 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 May 1, 2000 was 3,795,261. REFAC INDEX ----- Page ---- Part I. Financial Information Condensed Consolidated Balance Sheets March 31, 2000 (unaudited) and December 31, 1999 3 Condensed Consolidated Statements of Operations Three Months Ended March 31, 2000 and 1999 (unaudited) 4 Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2000 and 1999 (unaudited) 5 Notes to Condensed Consolidated Financial Statements (unaudited) 6-8 Management's Discussion and Analysis of Financial Conditions and Results of Operations 9-12 Part II. Other Information 13-14 Page 2 REFAC CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 2000 1999 ------------------- -------------------- (UNAUDITED) ASSETS Current Assets Cash and cash equivalents $5,124,000 $5,158,000 Royalties receivable 1,038,000 1,153,000 Accounts receivable, net 1,906,000 1,425,000 Prepaid expenses 623,000 521,000 ------------------- -------------------- Total current assets 8,691,000 8,257,000 ------------------- -------------------- Property and equipment, net 2,573,000 2,232,000 Licensing-related securities 5,556,000 7,145,000 Investments being held to maturity 3,725,000 3,331,000 Other assets 636,000 583,000 Goodwill, net 6,245,000 6,299,000 ------------------- -------------------- $27,426,000 $27,847,000 =================== ==================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $758,000 $674,000 Accrued expenses 408,000 439,000 Amounts payable under service agreements 623,000 417,000 Income taxes payable 698,000 716,000 ------------------- -------------------- Total current liabilities 2,487,000 2,246,000 ------------------- -------------------- Deferred income taxes 1,741,000 2,365,000 Other liabilities-deferred compensation 445,000 445,000 Stockholders' Equity Common stock, $.10 par value 545,000 545,000 Additional paid-in capital 9,984,000 9,984,000 Retained earnings 23,218,000 22,299,000 Accumulated other comprehensive income 3,255,000 4,212,000 Treasury stock, at cost (13,874,000) (13,874,000) Receivable from issuance of common stock and warrants (375,000) (375,000) ------------------- -------------------- Total stockholders' equity 22,753,000 22,791,000 ------------------- -------------------- $27,426,000 $27,847,000 =================== ====================
See accompanying notes to the unaudited condensed consolidated financial statements Page 3 REFAC CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------------------------- 2000 1999 ------------------------------------- Revenues Licensing-related activities $1,062,000 $965,000 Creative services fees 1,850,000 782,000 Consumer product sales 707,000 - Realized gains on licensing-related securities 1,233,000 1,456,000 Dividend income from licensing-related securities 77,000 122,000 Dividend and interest income 134,000 93,000 ------------------------------------- Total Revenues 5,063,000 3,418,000 ------------------------------------- Costs and Expenses Licensing-related activities 433,000 523,000 Creative service expenses 1,196,000 664,000 Consumer product sales costs 474,000 - Selling, general and administrative expenses 1,594,000 737,000 ------------------------------------- Total costs and expenses 3,697,000 1,924,000 ------------------------------------- Income before provision for taxes on income 1,366,000 1,494,000 Provision for taxes on income 447,000 486,000 ------------------------------------- Net income $919,000 $1,008,000 ===================================== ------------------------------------- Diluted earnings per share $0.24 $0.26 ===================================== Basic earnings per share $0.24 $0.27 ===================================== ------------------------------------- Diluted weighted average shares outstanding 3,804,661 3,819,005 =====================================
See accompanying notes to the unaudited condensed consolidated financial statements Page 4 REFAC CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------------------------------- 2000 1999 ------------------- ------------------- Cash Flows from Operating Activities Net income $919,000 $1,008,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 182,000 59,000 Realized gains on sale of licensing-related securities (1,233,000) (1,456,000) Deferred income taxes (130,000) (47,000) Other 3,000 (111,000) (Increase) decrease in assets: Royalties receivable 115,000 (5,000) Accounts receivable (481,000) 279,000 Prepaid expenses (102,000) 48,000 Other assets (53,000) (50,000) Increase (decrease) in liabilities: Accounts payable and accrued expenses 53,000 (183,000) Amounts payable under service agreements 206,000 (73,000) Income taxes payable (18,000) (72,000) ------------------- ------------------- Net cash used in operating activities (539,000) (603,000) ------------------- ------------------- Cash Flows from Investing Activities Proceeds from sales of licensing-related securities 1,371,000 1,594,000 Purchase of investments being held to maturity (394,000) (313,000) Additions to property and equipment (472,000) (48,000) ------------------- ------------------- Net cash provided by investing activities 505,000 1,233,000 ------------------- ------------------- Net (decrease) increase in cash and cash equivalents (34,000) 630,000 Cash and cash equivalents at beginning of period 5,158,000 2,973,000 ------------------- ------------------- Cash and cash equivalents at end of period $5,124,000 $3,603,000 =================== ===================
See accompanying notes to the unaudited condensed consolidated financial statements Page 5 REFAC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 (the "Company") at March 31, 2000 and December 31, 1999, and the results of its operations, its cash flows and comprehensive income for the three month interim period 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, 1999, which is incorporated herein by reference. 2. The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year. 3. The following table reconciles the numerators and denominators of the basic and diluted earnings per share computations pursuant to SFAS No. 128, "Earnings Per Share." Three Months Ended March 31, - ----------------------------------------------------------------- Description 2000 1999 - ----------------------------------------------------------------- Basic shares 3,795,261 3,795,261 - ----------------------------------------------------------------- Dilution: stock options and warrants 9,400 23,744 - ----------------------------------------------------------------- Diluted shares 3,804,661 3,819,005 - ----------------------------------------------------------------- Income available to common shareholders $ 919,000 $1,008,000 - ----------------------------------------------------------------- Basic earnings per share $ 0.24 $ 0.27 - ----------------------------------------------------------------- Diluted earnings per share $ 0.24 $ 0.26 - ----------------------------------------------------------------- 4. During the three months ended March 31, 1999, the Company operated principally in two industry segments - - - "Licensing of Intellectual Property Rights" and "Product Design and Development". On September 10, 1999, the Company's Consumer Products commenced operations, thus for the three months ended March 31, 2000 the Company operated in three industry segments. The accounting policies used to develop segment information correspond to those described in the summary of significant accounting policies (See Note 1 of the 1999 Annual Report). Segment profit or loss is based on profit or loss from operations before the provision or benefit for income taxes. The reportable segments are distinct business units operating in different industries and are separately managed. The following information about the business segments are for the three month period ended March 31, 2000. Page 6 REFAC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Licensing of Manufacture Intellectual Creative and Marketing Property Consulting of Consumer Description Rights Services Products Other Total - ------------------------------------------------------------------------------------------------------------ Total revenues $ 2,372,000 $ 1,850,000 $ 707,000 $134,000 $ 5,063,000 - ------------------------------------------------------------------------------------------------------------ Segment profit (loss) 999,000 (108,000) (106,000) 134,000 919,000 - ------------------------------------------------------------------------------------------------------------ Segment assets 16,349,000 10,135,000 942,000 -- 27,426,000 - ------------------------------------------------------------------------------------------------------------ Expenditure for segment assets $ 250,000 $ 211,000 $ 11,000 -- $ 472,000 - ------------------------------------------------------------------------------------------------------------
5. Comprehensive income consists of net income or loss for the current period as well as income, expenses, gains, and losses arising during the period that are included in separate components of equity. It includes the unrealized gains and losses on the Company's licensing-related securities, net of taxes and foreign currency translation adjustments. The components of comprehensive income (loss), net of related tax, for the three month periods ended March 31, 2000 and 1999 are as follows: Description 2000 1999 - --------------------------------------------------------------------------- Net income $ 919,000 $ 1,008,000 - --------------------------------------------------------------------------- Other comprehensive income (loss), net of tax - --------------------------------------------------------------------------- Unrealized gains (losses) on licensing-related (957,000) (1,142,000) securities - --------------------------------------------------------------------------- Comprehensive income (loss) ($38,000) ($134,000) - --------------------------------------------------------------------------- The components of accumulated other comprehensive income, net of related tax, at March 31, 2000 and December 31, 1999 consist of unrealized gains on licensing-related securities, net of tax and amounted to $3,255,000 and $4,212,000 respectively. 6. On April 12, 2000, the Company had open letters of credit to purchase goods for $800,000. 7. On December 31, 1995, an action was commenced in the United States District Court for the Eastern District of New Jersey against the Company by the executrix of the estate of a former officer Page 7 REFAC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) of the Company for compensation allegedly due the deceased officer under an employment arrangement. The Company believes that the claim is without any merit. On December 20, 1999, a claim was brought against the Company, as a nominal defendant, and certain of its directors in the Supreme Court of the State of New York, New York County, by a shareholder alleging claims against the Company and certain members of the Company's Board of Directors for breach of fiduciary duty and waste arising out of a Stock Repurchase Agreement and a Retirement Agreement entered into between the Company and its then Chairman and Chief Executive Officer, Eugene Lang. On February 29, 2000, the Company, together with all other defendants, filed a motion to dismiss the Complaint in its entirety on the grounds that plaintiff's claims are time barred by the statute of limitations and that the Complaint fails to state a claim upon which relief may be granted. The Company believes that the claims against the Company and its directors are without merit. 8. Certain 1999 items have been reclassified to conform with 2000 presentations. Page 8 REFAC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- REVENUES for the three months ended March 31, 2000 were $5,063,000 as compared to $3,418,000 for the comparable period in 1999. The increase of $1,645,000, or 48%, is principally due to increases in revenues from creative consulting services ($1,068,000), licensing-related activities ($97,000), sales of consumer products ($707,000) and dividend and interest income ($41,000) offset by a decrease of $268,000 in gains on the sale of licensing-related securities and dividends. Revenues are summarized as follows: Description 2000 1999 - ----------------------------------------------------------------------- Revenues from licensing-related activities 21% 28% - ----------------------------------------------------------------------- Realized gains on sales and dividends from licensing- 26% 46% related securities - ----------------------------------------------------------------------- Creative consulting services 37% 23% - ----------------------------------------------------------------------- Consumer product sales (acquired in September, 1999) 14% 0% - ----------------------------------------------------------------------- Dividends and interest 2% 3% - ----------------------------------------------------------------------- Total 100% 100% - ----------------------------------------------------------------------- Revenues from Licensing-Related Activities consist of recurring royalty payments for the use of licensed patents and trademarks, non-recurring, lump sum license payments, agency fees and service fees. Recurring revenues from established relationships increased by $183,000 in 2000 as compared to 1999. The patent licensing income component of the 2000 recurring revenue increased by $183,000 and is attributable to the increase in (i) trademark agency fees of $181,000 and (ii) patent licensing income of $56,000 offset by (iii) a decrease in patent enforcement fees of $54,000. Revenues from non-recurring agreements vary from period to period depending upon the nature of the licensing programs pursued for various technologies in a particular year and the timing of successful completion of licensing agreements. Non-recurring license fees decreased by $97,000 as compared to the same period of 1999. Service income from royalty verifications increased by $11,000 from 2000 to 1999. Expenses from Licensing-Related Activities consist principally of amounts paid to licensors at contractually stipulated percentages of the Company's specific patent and product Page 9 REFAC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS revenues and, in addition, includes expenses related to the investigation, marketing, administration, enforcement, maintenance and prosecution of patent, trademarks and license rights and related licenses. Licensing-related expenses decreased by $90,000 for the three months ended March 31, 2000. As a percentage of licensing revenues, these expenses were 41% and 54% in 2000 and 1999, respectively. The decrease in 2000 over 1999 is principally due to a recoupment of expenses associated with one of the Company's patent licensing projects. Income from Licensing-Related Securities consist of gains on sales and dividends received on securities acquired by the Company in connection with its licensing activities. As of March 31, 2000, licensing-related securities consisted of 225,000 shares of KeyCorp common stock. The Company intends to sell an additional 150,000 of such shares during the remaining nine months of 2000, and as of March 31, 2000, held three successive quarterly put options (at $27.4262 per share) and had sold three successive quarterly call options (at prices ranging from $38.0920 to $39.3720 per share), each of which covers 50,000 shares. Creative Consulting Services Creative Consulting Services consist of product development and graphic design services provided by the Product Development Group (which operates under the name Refac HumanFactors-ID and was acquired by the Company in November, 1997) and the Graphics Design Group (which operates under the name Refac David Morris Creative and was acquired in November, 1999). Total creative consulting fees increased by $1,068,000 for the three months ended March 31, 2000 versus the comparable period in 1999, which includes an increase of $458,000 in Product Development and the inclusion of $610,000 in Graphic Design services. Expenses increased by $532,000 in the three month period ended March 31, 2000 as compared to 1999, which consists of an increase of $457,000 from the Graphics Design Group and an increase in expenses of $75,000 incurred by the Product Development Group. Marketing of Consumer Products In September, 1999 the Company acquired Funatik Inc. and merged it into the newly formed Refac Consumer Products, Inc. ("RCP"). Sales of $707,000 during the three months ended March 31, 2000 principally consist of sales of imported consumer electronics sourced by RCP for a retailer. RCP introduced its proprietary product line in January at the 2000 International Consumer Electronics Show in Las Vegas, Nevada and expects that this line will contribute to revenues during the second half of 2000. Selling, General and Administrative Expenses increased by $857,000 in the three month period ended March 31, 2000 as compared to the previous year. The increase is principally Page 10 REFAC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS attributable to the acquisition of Funatik and the formation of RCP ($432,000), the acquisition of the Graphic Design Group ($141,000), salaries ($72,000), rent ($94,000) and professional fees ($74,000). Goodwill relates to the excess of the purchase price paid over the fair market value of the tangible assets acquired in the Company's acquisitions of the Product Development Group, Graphic Design Group and Funatik, Inc. Such goodwill is being amortized over 25, 20 and 10 years, respectively, which is the expected period of benefit. Income Tax Provision. The Company's income tax provision of $447,000 for the three months ended March 31, 2000 reflects an effective tax rate of 34% (the Federal statutory corporate income tax rate), reduced by the statutory dividends received exclusion to arrive at the net effective tax rate of 33%. The net effective tax rate for 1999 was also 33%. Inflation. The Company's income from licensing operations has not in the past been materially affected by inflation. Likewise, while currency fluctuations can influence licensing- related revenues, the diversity of foreign income sources tends to offset individual changes in currency valuations. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash, cash equivalents, corporate bonds and U.S. Treasury Notes increased $360,000 from $8,489,000 at December 31, 1999 to $8,849,000 at March 31, 2000. The Company believes its liquidity position is adequate to meet all current and projected financial needs. On April 12, 2000, the Company had open letters of credit to purchase goods for $800,000. The Company has commitments under leases covering its facilities and under a Retirement Agreement with its founder and former Chief Executive Officer (which has been provided for in the financial statements). The Company has examined the Year 2000 computer issue. This issue concerns computer hardware and software systems' ability to recognize and process dates after 1999 properly and accurately. The Company utilizes purchased software which is Year 2000 compliant and does not expect Year 2000 issues to have a material impact on its business, operations or financial condition. The Company has not encountered any complications with the year 2000 issues. This is a Year 2000 readiness disclosure entitled to a protection as provided in the Year 2000 Information and Readiness Disclosure Act. Page 11 REFAC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS - -------------------------- Statements about the Company's future expectations and all other statements in this document other than historical facts are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and as that term is defined in the Private Securities Litigation Reform Act of 1995. The Company intends that such forward- looking statements involve risks and uncertainties and are subject to change at any time, and the Company's actual results could therefore differ materially from expected or inferred results. Page 12 REFAC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 May 12, 2000 /s/ Robert L. Tuchman ----------------------------------- Robert L. Tuchman, President and Chief Executive Officer May 12, 2000 /s/ David Capodanno ----------------------------------- David Capodanno, Controller (Principal Financial Officer) Page 13 EXHIBIT INDEX Exhibit Page No. No. - ------ --- 27 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, 1999 is incorporated herein by reference. EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31, 2000 FORM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 5,124,000 5,556,000 1,906,000 0 0 8,691,000 3,483,000 910,000 27,426,000 2,487,000 0 0 0 545,000 22,208,000 27,426,000 5,063,000 5,063,000 0 3,697,000 0 0 0 1,366,000 447,000 0 0 0 0 919,000 .24 .24
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