-----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, QA0SoD9jqb2d5GUulPSetpHFSk4Gq+fqfOyuOcyHaFfHmHEL2tp9LkbuCMi75Iyv biOm3el0vva/ottFD53OHA== 0000950130-99-004682.txt : 19990812 0000950130-99-004682.hdr.sgml : 19990812 ACCESSION NUMBER: 0000950130-99-004682 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990811 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: 99683427 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 June 30, 1999 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 August 1, 1999 was 3,795,261. REFAC INDEX ----- Page ---- Part I. Financial Information Condensed Consolidated Balance Sheets June 30, 1999 (unaudited) and December 31, 1998 3 Condensed Consolidated Statements of Operations Six Months Ended June 30, 1999 and 1998 (unaudited) 4 Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 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 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31, ASSETS 1999 1998 - ------ ---------------------- -------------------- (UNAUDITED) Current Assets Cash and cash equivalents $3,593,206 $2,973,344 Royalties receivable 965,569 776,433 Accounts receivable, net 686,586 944,526 Prepaid expenses 408,606 220,895 ---------------------- -------------------- Total current assets 5,653,967 4,915,198 ---------------------- -------------------- Property and equipment, net 2,230,165 771,013 Licensing-related securities 12,112,610 15,067,535 Investments being held to maturity 4,050,000 4,093,156 Other assets 638,134 760,076 Goodwill, net 4,914,919 4,958,410 ---------------------- -------------------- $29,599,795 $30,565,388 ====================== ==================== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities Accounts payable $99,008 $140,777 Accrued expenses 289,980 236,059 Amounts payable under license agreements 201,562 240,743 Deferred revenue 150,123 216,693 Income taxes payable 194,560 75,544 ---------------------- -------------------- Total current liabilities 935,233 909,816 ---------------------- -------------------- Deferred income taxes 4,060,123 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 20,493,198 18,621,522 Accumulated other comprehensive income 7,361,808 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 24,159,381 24,160,425 ---------------------- -------------------- $29,599,795 $30,565,388 ====================== ==================== See accompanying notes to the unaudited condensed consolidated financial statements
Page 3 REFAC CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS THREE MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------------------------------------------------------------- 1999 1998 1999 1998 -------------------------------------------------------------------- C> Revenues Licensing-related activities $1,929,246 $2,475,964 $964,660 $1,678,161 Product development fees 1,326,389 1,936,607 544,750 1,062,126 Realized gains on licensing-related securities 3,044,148 3,445,071 1,588,606 1,762,915 Dividend income from licensing-related securities 213,200 314,900 91,000 150,400 -------------------------------------------------------------------- Total revenues 6,512,983 8,172,542 3,189,016 4,653,602 -------------------------------------------------------------------- Costs and Expenses Licensing-related activities 1,052,111 1,041,112 529,026 766,314 Product development fees 1,228,205 1,215,401 564,508 556,158 Selling, general and administrative expenses 1,573,846 1,660,988 888,927 1,104,404 Goodwill amortization 102,225 100,956 51,213 15,928 -------------------------------------------------------------------- Total operating expenses 3,956,387 4,018,457 2,033,674 2,442,804 -------------------------------------------------------------------- Operating income 2,556,596 4,154,085 1,155,342 2,210,798 -------------------------------------------------------------------- Other income and (expenses) Dividend and interest income 189,928 82,653 96,864 28,271 (Loss) gain from ceased operations - (72,489) - 1,040 -------------------------------------------------------------------- Income before provision for taxes on income 2,746,524 4,164,249 1,252,206 2,240,109 Provision for taxes on income 874,849 1,546,880 388,529 852,765 -------------------------------------------------------------------- Net income $1,871,675 $2,617,369 $863,677 $1,387,344 ==================================================================== Diluted earnings per common share $0.49 $0.65 $0.23 $0.35 ==================================================================== Basic earnings per common share $0.49 $0.69 $0.23 $0.37 ==================================================================== Diluted weighted average shares outstanding 3,811,865 4,000,971 3,807,202 4,016,769 ==================================================================== See accompanying notes to the unaudited condensed consolidated financial statements
Page 4 REFAC CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ----------------- ----------------- 1999 1998 ----------------- ----------------- Cash Flows from Operating Activities Net income $1,871,675 $2,617,369 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 222,116 263,196 Net gain on sale of licensing-related securities (3,044,148) (3,438,641) Deferred income taxes (176,619) (238,697) (Increase) decrease in assets: Royalties receivable (189,136) (59,372) Accounts receivable 278,575 (258,625) Prepaid expenses (187,711) (78,570) Proceeds from sale of marketable securities - 2,500,307 Other assets 121,942 102,513 Increase (decrease) in liabilities: Accounts payable and accrued expenses 78,567 (216,042) Amounts payable under service agreements (39,181) 92,305 Deferred revenue (66,570) 81,542 Income taxes payable 119,016 430,707 ----------------- ----------------- Net cash provided by (used in ) operating activities (1,011,474) 1,797,992 ----------------- ----------------- Cash Flows from Investing Activities Proceeds from sales of investments being held to maturity 1,043,156 1,130,099 Proceeds from sales of licensing-related securities 3,288,006 3,749,856 Purchase of investments being held to maturity (1,000,000) (1,409,191) Additions to property and equipment (1,699,826) (626,421) ----------------- ----------------- Net cash provided by investing activities 1,631,336 2,844,343 ----------------- ----------------- Cash Flows from Financing Activities Proceeds from exercise of stock options - 85,500 Proceeds from receivable from issuance of common stock warrants - 25,824 Repayment of notes payable - former Human Factors shareholders - (4,050,000) ----------------- ----------------- Net cash used in financing activities - (3,938,676) ----------------- ----------------- Net increase in cash and cash equivalents 619,862 703,659 Cash and cash equivalents at beginning of period 2,973,344 2,867,563 ----------------- ----------------- Cash and cash equivalents at end of period $3,593,206 $3,571,222 ================= ================= 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 June 30, 1999 and December 31, 1998, and the results of its operations, its cash flows and comprehensive income for the six 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 six months ended June 30, 1999 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."
- -------------------------------------------------------------------------------------------------- Six Months Ended Three Months Ended June 30, June 30, - -------------------------------------------------------------------------------------------------- Description 1999 1998 1999 1998 - -------------------------------------------------------------------------------------------------- Basic shares 3,795,261 3,777,963 3,795,261 3,793,761 - -------------------------------------------------------------------------------------------------- Dilution: Stock Options and Warrants 16,604 223,008 11,941 223,008 - -------------------------------------------------------------------------------------------------- Diluted Shares 3,811,865 4,000,971 3,807,202 4,016,769 - -------------------------------------------------------------------------------------------------- Income available to common shareholders $1,871,675 $2,617,369 $863,677 $1,387,344 - -------------------------------------------------------------------------------------------------- Basic earnings per share $0.49 $0.69 $0.23 $0.37 - -------------------------------------------------------------------------------------------------- Diluted earnings per share $0.49 $0.65 $0.23 $0.35 - --------------------------------------------------------------------------------------------------
4. During the six months ended June 30, 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 six month period ended June 30, 1999. Page 6 REFAC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- Licensing of Intellectual Product Property Design and Description Rights Development Total - -------------------------------------------------------------------------------- Total revenues $5,187,000 $1,326,000 $6,513,000 - -------------------------------------------------------------------------------- Depreciation and amortization* 27,000 195,000 222,000 - -------------------------------------------------------------------------------- Interest income (expense) 219,000 (29,000) 190,000 - -------------------------------------------------------------------------------- Segment profit (loss) 3,371,000 (624,000) 2,747,000 - -------------------------------------------------------------------------------- Segment assets $22,169,000 $7,431,000 $29,600,000 - -------------------------------------------------------------------------------- Expenditure for segment assets $442,000 $1,258,000 $1,700,000 - -------------------------------------------------------------------------------- * The amortization expense for the Product Design and Development segment includes $102,000 of goodwill recorded in connection with the acquisition of Human Factors. 5. 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 six month periods ended June 30, 1999 and 1998 are as follows: - -------------------------------------------------------------------------------- Description 1999 1998 - ------------------------------------------------------------------------------- Net income $1,872,000 $2,617,000 - ------------------------------------------------------------------------------- Other comprehensive income (loss), net of tax - ------------------------------------------------------------------------------- Decrease in unrealized gains on licensing-related securities (1,898,000) (2,184,000) - -------------------------------------------------------------------------------- Foreign currency translation adjustment 0 (198,000) - -------------------------------------------------------------------------------- Comprehensive income (loss) ($26,000) $235,000 - -------------------------------------------------------------------------------- Page 7 REFAC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The components of accumulated other comprehensive income, net of related tax, at June 30, 1999 and 1998 consist of unrealized gains on licensing-related securities, net of tax and amounted to $7,362,000 and $11,569,000 respectively. The components of comprehensive income (loss), net of related tax, for the three month periods ended June 30, 1999 and 1998 are as follows: - -------------------------------------------------------------------------------- Description 1999 1998 - ------------------------------------------------------------------------------- Net income $864,000 $1,387,000 - ------------------------------------------------------------------------------- Other comprehensive income (loss), net of tax - ------------------------------------------------------------------------------- Decrease in unrealized gains on licensing-related securities (755,000) (1,456,000) - -------------------------------------------------------------------------------- Comprehensive income (loss) $109,000 ($69,000) - -------------------------------------------------------------------------------- Page 8 REFAC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Total Operating Revenues for the six months ended June 30, 1999 were $6,513,000 as compared to $8,173,000 for the comparable period in 1998. The decrease of $1,660,000, or 20%, is principally due to decreases in (i) gains on the sale of licensing-related securities and dividends ($503,000), (ii) product design and development fees ($610,000) and (iii) revenues from licensing-related activities ($547,000). Operating revenues are summarized as follows: ---------------------------------------------------------------------- Description 1999 1998 ---------------------------------------------------------------------- Revenues from licensing-related activities 30% 30% ---------------------------------------------------------------------- Realized gains on sales and dividends from licensing-related securities 50% 46% ---------------------------------------------------------------------- Product design and development fees 20% 24% ---------------------------------------------------------------------- Total 100% 100% ---------------------------------------------------------------------- Royalties and Fees 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 agreements. Total patent licensing income and trademark agency fees decreased by $476,000 or 20% in the six months ended June 30,1999 as compared to the same period of 1998 and service income from royalty verifications decreased by $71,000 in the comparable period. For the six months ended June 30, 1999, patent licensing royalties, non-recurring license fees, and trademark agency fees decreased by $174,000, $271,000, and $31,000 respectively, as compared to the same period of 1998. The Company anticipates that non-recurring revenues will be a material component of royalties in 1999. 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 June 30, 1999, "licensing-related securities" consisted of 380,000 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, as of June 30, 1999 Page 9 has contracts for six successive quarterly puts and calls, each of which covers 50,000 KeyCorp shares. Product Design and Development Fees decreased by $610,000 in the six month period ended June 30, 1999 ($1,327,000) from the comparable period in 1998 ($1,937,000). 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 six months ended June 30, 1999 were $1,052,000 as compared to $1,041,000 in the same period in 1998. Product Design and Development Expenses consist of professional staff and other expenses incurred in connection with providing services to its clients. During the six months ended June 30, 1999, such expenses represented 93% of related revenue as compared with 64% in 1998. The percentage increase in 1999 expenses is attributable to the decline in product design and development revenues. Selling, General and Administrative Expenses decreased by $87,000 or 5% in the six month period ended June 30, 1999 as compared to the previous year. 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 $107,000 for the six months ended June 30, 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 six month period ended June 30, 1998, relate to a loss of $72,000 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 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 $875,000 for the six months ended June 30, 1999 reflects an effective tax rate of 32% . This compares to the rate of 37% in the same period in 1998. The decrease in the effective income tax rate is due to Human Factors not being subject to state and local income taxes and timing differences associated with the Page 10 Company's relocation to New Jersey. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash, cash equivalents, and U.S. Treasury Notes increased $577,000 from $7,066,000 at December 31, 1998 to $7,643,000 at June 30, 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 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 August 10, 1999 /s/ Robert L. Tuchman ___________________________________ Robert L. Tuchman, President and Chief Executive Officer August 10, 1999 /s/ Elliott S. Greller ___________________________________ Elliott S. Greller, Vice President, Treasurer, and Chief Financial Officer Page 12 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, 1998 is incorporated herein by reference. Page 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1999 JAN-01-1999 JUN-20-1999 3593206 16162610 1652155 0 0 5653967 2230165 0 29599795 935233 0 0 0 545090 23614291 29599705 1929246 6512983 1052111 3956387 (189928) 0 0 2746524 874849 1871675 0 0 0 1871675 0.49 0.49
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