-----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, S1YfaXdl3quhP2XmBLddxJ3nRIoJHzRMLdr2ne1Lgmw3F0U8lCUErssf2l+ylEsr KW94alGxHcww7+tf8cRLaw== 0000950130-99-003026.txt : 19990517 0000950130-99-003026.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950130-99-003026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99623716 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 FORM 10-Q 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, 1999 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 May 1, 1999 was 3,795,261. REFAC TECHNOLOGY DEVELOPMENT CORPORATION INDEX ----- Page ---- Part I. Financial Information Condensed Consolidated Balance Sheets March 31, 1999 (unaudited) and December 31, 1998 3 Condensed Consolidated Statements of Operations Three Months Ended March 31, 1999 and 1998 (unaudited) 4 Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 1999 and 1998 (unaudited) 5 Notes to Condensed Consolidated Financial Statements (unaudited) 6-8 Management's Discussion and Analysis of Financial Conditions and Results of Operations 9-11 Part II. Other Information 12-13 Page 2 REFAC TECHNOLOGY DEVELOPMENT CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31 DECEMBER 31, ASSETS 1999 1998 - ------ ------------------------ ---------------------- (UNAUDITED) Current Assets Cash and cash equivalents $3,603,426 $2,973,344 Royalties receivable 781,867 776,433 Accounts receivable, net 665,829 944,526 Prepaid expenses 269,295 220,895 ------------------------ ---------------------- Total current assets 5,320,417 4,915,198 ------------------------ ---------------------- Property and equipment, net 759,960 771,013 Licensing-related securities 13,198,167 15,067,535 Investments being held to maturity 4,406,000 4,093,156 Other assets 975,763 760,076 Goodwill, net 4,817,398 4,958,410 ------------------------ ---------------------- $29,477,705 $30,565,388 ======================== ====================== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities Accounts payable $50,413 $140,777 Accrued expenses 179,158 236,059 Amounts payable under license agreements 167,359 240,743 Deferred revenue 180,208 216,693 Income taxes payable 4,032 75,544 ------------------------ ---------------------- Total current liabilities 581,170 909,816 ------------------------ ---------------------- Deferred income taxes 4,400,373 5,050,089 Other liabilities-deferred compensation 445,058 445,058 Stockholders' Equity Common stock, $.10 par value 545,090 545,090 Additional paid-in capital 9,983,773 9,983,773 Retained earnings 19,629,520 18,621,522 Accumulated other comprehensive income 8,117,209 9,259,528 Treasury stock, at cost (13,874,488) (13,874,488) Receivable from issuance of common stock (350,000) (375,000) ------------------------ ---------------------- Total stockholders' equity 24,051,104 24,160,425 ------------------------ ---------------------- $29,477,705 $30,565,388 ======================== ======================
See accompanying notes to the unaudited condensed consolidated financial statements. Page 3 REFAC TECHNOLOGY DEVELOPMENT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1999 1998 ---------------------- --------------------- (UNAUDITED) (UNAUDITED) Revenues Licensing-related activities $964,586 $797,803 Product development fees 781,639 874,481 Realized gains on licensing-related securities 1,455,542 1,682,156 Dividend income from licensing-related securities 122,200 164,500 ---------------------- --------------------- Total revenues 3,323,967 3,518,940 ---------------------- --------------------- Costs and Expenses Licensing-related activities 523,085 303,175 Product development fees 663,697 693,524 Selling, general and administrative expenses 684,919 493,926 Goodwill amortization 51,012 85,028 ---------------------- --------------------- Total operating expenses 1,922,713 1,575,653 ---------------------- --------------------- Operating income 1,401,254 1,943,287 Other income and (expenses) Dividend and interest income 93,064 54,382 Loss from ceased operations - (73,529) ----------------------------------------------- Income before provision for taxes on income 1,494,318 1,924,140 Provision for taxes on income 486,320 694,115 ---------------------- --------------------- Net income $1,007,998 $1,230,025 ---------------------- --------------------- Diluted earnings per common share $0.26 $0.32 ====================== ===================== Basic earnings per common share $0.27 $0.32 ====================== ===================== Weighted average shares outstanding 3,819,005 3,850,102 ====================== =====================
See accompanying notes to the unaudited condensed consolidated financial statements. Page 4 REFAC TECHNOLOGY DEVELOPMENT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
THREE MONTHS ENDED MARCH 31, 1999 1998 ---------------------- ---------------------- Cash Flows from Operating Activities (UNAUDITED) (UNAUDITED) Net income $1,007,998 $1,230,025 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 59,253 146,367 Net gain on sale of securities (1,455,542) (1,679,463) Deferred income taxes (47,090) 9,528 Other (110,877) 2,727 (Increase) decrease in assets: Royalties receivable (5,434) (33,903) Accounts receivable 278,697 (283,924) Prepaid expenses 48,400 (19,175) Proceeds from sale of marketable securities - 2,500,307 Other assets (49,675) (172,531) Increase (decrease) in liabilities: Accounts payable and accrued expenses (147,265) (105,220) Amounts payable under service agreements (73,384) 12,185 Deferred revenue (36,485) 93,492 Income taxes payable (71,512) 558,374 ---------------------- ---------------------- Net cash provided by (used in) operating activities (602,916) 2,258,789 ---------------------- ---------------------- Cash Flows from Investing Activities Proceeds from sales of licensing-related securities 1,594,042 1,834,591 Purchase of investments being held to maturity (312,844) 106,121 Additions to property and equipment (48,200) (344,574) ---------------------- ---------------------- Net cash provided by investing activities 1,232,998 1,596,138 ---------------------- ---------------------- Cash Flows from Financing Activities Proceeds from exercise of stock options - 85,500 Repayment of loans - (4,050,000) ------------------------------------------------ Net cash used in financing activities - (3,964,500) ------------------------------------------------ Net increase (decrease) in cash and cash equivalents 630,082 (109,573) Cash and cash equivalents at beginning of period 2,973,344 2,867,563 ---------------------- ---------------------- Cash and cash equivalents at end of period $3,603,426 $2,757,990 ====================== ======================
See accompanying notes to the unaudited condensed consolidated financial statements. Page 5 REFAC TECHNOLOGY DEVELOPMENT CORPORATION 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 Technology Development Corporation (the "Company") at March 31, 1999 and December 31, 1998, and the results of its operations, 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, 1998, which is incorporated herein by reference. 2. The results of operations for the quarter ended March 31, 1999 are not necessarily indicative of the results to be expected for the full year. 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".
March 31, - ----------------------------------------------------------------- Description 1999 1998 - ----------------------------------------------------------------- Basic shares 3,795,261 3,793,761 - ----------------------------------------------------------------- Dilution: Stock Options and Warrants 23,744 56,341 - ----------------------------------------------------------------- Diluted Shares 3,819,005 3,850,102 - ----------------------------------------------------------------- Income available to common stockholders $1,007,998 $1,230,025 - ----------------------------------------------------------------- Basic earnings per share $0.27 $0.32 - ----------------------------------------------------------------- Diluted earnings per share $0.26 $0.32 - -----------------------------------------------------------------
3. During the three month periods ended March 31, 1999 and 1998 the Company operated principally in two industry segments - - - "Licensing of Intellectual Property Rights" and "Product Design and Development". The accounting policies used to develop segment information correspond to those described in the summary of significant accounting policies (See Note 1 of the 1998 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, 1999. Page 6 REFAC TECHNOLOGY DEVELOPMENT CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------- Licensing of Intellectual Product Property Design and Description Rights Development Total - --------------------------------------------------------------------------- Total revenues $ 2,542,328 $ 781,639 $ 3,323,967 - --------------------------------------------------------------------------- Depreciation and amortization* 11,118 99,147 110,265 - --------------------------------------------------------------------------- Interest income (expense) 103,558 (10,494) 93,064 - --------------------------------------------------------------------------- Segment profit (loss) 1,659,232 (164,914) 1,494,318 - --------------------------------------------------------------------------- Segment assets 22,782,703 6,695,002 29,477,705 - --------------------------------------------------------------------------- Expenditure for segment assets 38,395 9,805 48,200 - ---------------------------------------------------------------------------
* The amortization expense for the Product Design and Development segment includes $51,012 of goodwill recorded in connection with the acquisition of Human Factors Industrial Design, Inc., in November, 1997. 4. As of January 1, 1998, the Company adopted SFAS 130. Although the adoption of SFAS 130 has no impact on the Company's net income or stockholders' equity, it does require that the Company report and display comprehensive income and its components. 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, 1999 and 1998 are as follows:
- ----------------------------------------------------------------------------------------- Description 1999 1998 - ----------------------------------------------------------------------------------------- Net income $ 1,007,998 $ 1,230,025 - ----------------------------------------------------------------------------------------- Other comprehensive income, net of tax - ----------------------------------------------------------------------------------------- Unrealized gains (losses) on licensing-related securities (1,142,319) 345,882 - ----------------------------------------------------------------------------------------- Reclassification adjustment: gains previously 0 (1,073,735) recognized for comprehensive income - ----------------------------------------------------------------------------------------- Comprehensive income (loss) $ (134,321) $ 502,172 - -----------------------------------------------------------------------------------------
Page 7 REFAC TECHNOLOGY DEVELOPMENT CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The components of accumulated other comprehensive income, net of related tax, at March 31, 1999 and December 31, 1998 consist of unrealized gains on licensing-related securities, net of tax and amounted to $8,117,209 and $9,259,528, 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 for the three months ended March 31,1999 were $3,324,000 as compared to $3,519,000 for the comparable period in 1998. The decrease of $195,000, or 6%, is principally due to a $270,000 decrease in gains on the sale of licensing-related securities, a decrease of $92,000 derived from product design and development fees offset by an increase in income from licensing-related activities of $167,000. Operating revenues are summarized as follows:
- ------------------------------------------------------------ Description 1999 1998 - ------------------------------------------------------------ Revenues from licensing-related 29% 23% activities - ------------------------------------------------------------ Realized gains on sales and dividends 47% 52% from licensing-related securities - ------------------------------------------------------------ Product design and development fees 24% 25% - ------------------------------------------------------------ Total 100% 100% - ------------------------------------------------------------
ROYALTIES FROM LICENSING-RELATED ACTIVITIES consist of recurring royalty payments for the use of licensed patents and trademarks as well as non- recurring, lump sum license payments. 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 programs. Total license fees increased by $167,000 or 21% in the quarter ended March 31, 1999 as compared to the same period of 1998. For the three months ended March 31, 1999, non-recurring license fees increased $277,000, while recurring royalties decreased $110,000 as compared to the same period of 1998. The Company anticipates that non- recurring revenues will continue to be a material component of royalties in the future. 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, 1999, "licensing-related securities" consisted of 430,000 shares of KeyCorp common stock. KeyCorp had a 2-for-1 stock split of such common stock on March 9, 1998 and all references in this Report to the number of KeyCorp shares have been adjusted to reflect such stock split. The Company intends to sell its remaining holdings of KeyCorp over a two year period and, Page 9 REFAC TECHNOLOGY DEVELOPMENT CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of March 31, 1999 had contracts for seven successive quarterly puts and calls, each of which covers 50,000 KeyCorp shares. PRODUCT DESIGN AND DEVELOPMENT FEES decreased by $93,000 in the quarter ended March 31, 1999 ($781,000) from the comparable quarter in 1998 ($874,000). LICENSING-RELATED ACTIVITIES EXPENSES consist principally of amounts paid to licensors at contractually stipulated percentages of the Company's specific patent and product revenues and, in addition, includes expenses related to the investigation, marketing, administration, enforcement, maintenance and prosecution of patent and license rights and related licenses. Licensing-related expenses for the quarter ended March 31, 1999 represented 54% of licensing- related activities revenues, compared with 38% in 1998. PRODUCT DESIGN AND DEVELOPMENT EXPENSES consist of professional staff and other expenses incurred in connection with providing services to it's clients. During the quarter ended March 31, 1999, product design and development expenses represented 85% of product design and development revenue as compared to 79% in 1998. The percentage increase in 1999 expenses is attributable to the decline in total revenues. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased by $191,000 or 39% in the first quarter of 1999 as compared to the previous year. Of this increase, $20,000 is attributable to Selective Licensing and Promotion, Ltd., (formed in January 1998). The balance of $171,000, is attributable to payments made under the Retirement Agreement with the Company's former Chairman ($38,000), general corporation expenses ($30,000), payroll costs ($40,000), costs associated with the Edgewater facility ($50,000) and sundry other costs ($13,000). GOODWILL relates to the excess of the purchase price paid for Human Factors Industrial Design, Inc., ("Human Factors"), in November 1997, over the fair market value of Human Factor's assets acquired and is being amortized over a period of 25 years. OTHER INCOME consisting of dividend and interest income increased by $39,000 for the quarter ended March 31, 1999, from the corresponding period in 1998. This increase was attributable to an increase in the Company's cash and securities. OTHER EXPENSES for the three month period ended March 31, 1998 relate to a loss of $74,000 before tax benefit, from ceased operations. 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 Page 10 REFAC TECHNOLOGY DEVELOPMENT CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS revenues, the diversity of foreign income sources tends to offset individual changes in currency valuations. INCOME TAX PROVISION. The Company's income tax provision of $486,000 for the first quarter of 1999 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%. This compares to the rate of 36% in the same quarter of 1998. Liquidity and Capital Resources Cash, cash equivalents, and U.S. Treasury notes increased $943,000 from $7,066,000 at December 31, 1998 to $8,009,000 at March 31, 1999. Except as reflected herein, the Company has no other significant commitments. The Company believes its liquidity position is adequate to meet all current and projected financial needs. The Company has examined the Year 2000 computer issue. This issue concerns computer hardware and software systems' ability to recognize and process dates after December 31, 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. This is a year 2000 readiness disclosure entitled to a protection as provided in the year 2000 Information and Readiness Disclosure Act. 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 11 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 /s/ Robert L. Tuchman May 11, 1999 ---------------------------------------- Robert L. Tuchman, President and Chief Executive Officer May 11, 1999 /s/ Elliott S. Greller ---------------------------------------- Elliott S. Greller, Vice President, Treasurer, and Chief Financial Officer Page 12 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, 1998 is incorporated herein by reference. Page 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 3,603,426 17,604,167 1,447,696 0 0 5,320,417 759,960 0 29,477,705 581,170 0 0 0 545,090 23,506,014 29,477,705 964,586 3,323,967 1,186,782 1,922,713 (93,064) 0 0 1,494,318 486,320 1,007,998 0 0 0 1,007,998 0.27 0.26
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