-----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, EDmwr6ZxZ8gQ2Co7cniSRZ7L12q/bW5nVafVqgXxkXDiksI/nV89JlpL6GXsfFjr Eo62vaghVzgr9H238pw2vw== 0000950130-99-006382.txt : 19991115 0000950130-99-006382.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950130-99-006382 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99748619 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 September 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 November 1, 1999 was 3,795,261. REFAC INDEX -----
Page ---- Part I. Financial Information Condensed Consolidated Balance Sheets September 30, 1999 (unaudited) and December 31, 1998 3 Condensed Consolidated Statements of Operations Nine Months Ended September 30, 1999 and 1998 (unaudited) 4 Condensed Consolidated Statements of Cash Flows Nine Months Ended September 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)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------------- -------------------- (UNAUDITED) ASSETS - ------ Current Assets Cash and cash equivalents $5,484,457 $2,973,344 Royalties receivable 1,050,050 776,433 Accounts receivable, net 987,195 944,526 Merchandise inventory 281,490 - Prepaid expenses 458,860 220,895 ------------------- -------------------- Total current assets 8,262,052 4,915,198 ------------------- -------------------- Property and equipment, net 2,199,578 771,013 Licensing-related securities 9,224,594 15,067,535 Investments being held to maturity 3,331,080 4,093,156 Other assets 545,169 760,076 Goodwill, net 4,881,990 4,958,410 ------------------- -------------------- $28,444,463 $30,565,388 =================== ==================== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities Accounts payable $129,728 $140,777 Accrued expenses 229,022 236,059 Amounts payable under license agreements 360,989 240,743 Letters of credit payable 279,750 - Deferred revenue 125,634 216,693 Income taxes payable 585,955 75,544 ------------------- -------------------- Total current liabilities 1,711,078 909,816 ------------------- -------------------- Deferred income taxes 3,030,441 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 21,375,290 18,621,522 Accumulated other comprehensive income 5,578,221 9,259,528 Treasury stock, at cost (13,874,488) (13,874,488) Receivable from issuance of common stock and warrants (350,000) (375,000) ------------------- -------------------- Total stockholders' equity 23,257,886 24,160,425 ------------------- -------------------- $28,444,463 $30,565,388 =================== ====================
See accompanying notes to the unaudited condensed consolidated financial statements Page 3 REFAC CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS THREE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, -------------------------------------- ------------------------------- 1999 1998 1999 1998 -------------------------------------- ------------------------------- Revenues Licensing-related activities $2,967,102 $3,320,834 $1,037,856 $844,870 Product development fees 2,102,594 2,873,762 776,205 937,155 Realized gains on licensing-related securities 4,380,787 4,798,047 1,336,639 1,352,976 Dividend income from licensing-related securities 312,000 453,550 98,800 138,650 Sales 18,600 - 18,600 - -------------------------------------- ------------------------------- Total revenues 9,781,083 11,446,193 3,268,100 3,273,651 -------------------------------------- ------------------------------- Costs and Expenses Licensing-related activities 1,559,386 1,460,956 507,275 374,278 Product development expenses 1,768,044 1,875,606 557,201 614,626 Selling, general and administrative expenses 2,511,383 2,469,013 937,537 899,170 Goodwill amortization 154,698 151,229 52,473 50,273 Cost of goods sold 12,120 - 12,120 - -------------------------------------- ------------------------------- Total operating expenses 6,005,631 5,956,804 2,066,606 1,938,347 -------------------------------------- ------------------------------- -------------------------------------- ------------------------------- Operating income 3,775,452 5,489,389 1,201,494 1,335,304 -------------------------------------- ------------------------------- Other income and (expenses) Dividend and interest income 266,076 176,483 93,510 93,830 Loss from ceased operations - (100,791) - (28,302) -------------------------------------- ------------------------------- Income before provision for taxes on income 4,041,528 5,565,081 1,295,004 1,400,832 Provision for taxes on income 1,287,761 1,885,116 412,912 338,236 -------------------------------------- ------------------------------- Net income $2,753,767 $3,679,965 $882,092 $1,062,596 ====================================== =============================== -------------------------------------- ------------------------------- Diluted earnings per common share $0.72 $0.94 $0.23 $0.28 ====================================== =============================== Basic earnings per common share $0.73 $0.97 $0.23 $0.28 ====================================== =============================== -------------------------------------- ------------------------------- Diluted weighted average shares outstanding 3,805,602 3,894,094 3,795,261 3,780,625 ====================================== ===============================
See accompanying notes to the unaudited condensed consolidated financial statements Page 4 REFAC CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------------- 1999 1998 ------------------- ----------------- Cash Flows from Operating Activities Net income $2,753,767 $3,679,965 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 383,000 402,025 Net gain on sale of licensing-related securities (4,380,787) (4,798,047) Deferred income taxes (Increase) decrease in assets: Royalties receivable (273,617) (6,445) Accounts receivable (42,669) (126,218) Prepaid expenses (237,965) (49,480) Merchandise inventory (281,490) - Other assets 252,458 (300,987) Increase (decrease) in liabilities: Accounts payable and accrued expenses 10,784 (181,597) Amounts payable under service agreements 120,246 33,551 Deferred revenue (91,059) 59,691 Income taxes payable 426,114 44,420 ------------------- ----------------- Net cash provided by (used in) operating activities (1,361,218) (1,243,122) ------------------- ----------------- Cash Flows from Investing Activities Proceeds from sales of investments being held to maturity 1,762,076 2,503,000 Proceeds from sales of licensing-related securities 4,810,255 5,241,247 Purchase of investments being held to maturity (1,000,000) (1,683,146) Additions to property and equipment (1,700,000) (748,519) ------------------- ----------------- Net cash provided by investing activities 3,872,331 5,312,582 ------------------- ----------------- Cash Flows from Financing Activities Proceeds from exercise of stock options - 85,500 Proceeds from receivable from issuance of common stock warrants - 154,080 Repayment of notes payable - (4,050,000) ------------------- ----------------- Net cash used in financing activities - (3,810,420) ------------------- ----------------- Net increase in cash and cash equivalents 2,511,113 259,040 Cash and cash equivalents at beginning of period 2,973,344 2,867,563 ------------------- ----------------- Cash and cash equivalents at end of period $5,484,457 $3,126,603 =================== =================
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 September 30, 1999 and December 31, 1998, and the results of its operations, its cash flows and comprehensive income for the nine 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 nine months ended September 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."
- --------------------------------------------------------------------------------------------------------------- Nine Months Ended Three Months Ended September 30, September 30, ================================================================================================================ Description 1999 1998 1999 1998 ================================================================================================================ Basic shares 3,795,261 3,783,287 3,795,261 3,780,625 - ---------------------------------------------------------------------------------------------------------------- Dilution: stock options and warrants 10,341 110,807 0 0 - ---------------------------------------------------------------------------------------------------------------- Diluted shares 3,805,602 3,894,094 3,795,261 3,780,625 - ---------------------------------------------------------------------------------------------------------------- Income available to common shareholders $2,753,767 $3,679,965 $882,092 $1,062,956 - ---------------------------------------------------------------------------------------------------------------- Basic earnings per share $0.73 $0.97 $0.23 $0.28 - ---------------------------------------------------------------------------------------------------------------- Diluted earnings per share $0.72 $0.94 $0.23 $0.28 - ----------------------------------------------------------------------------------------------------------------
4. During the nine months ended September 30, 1999 and 1998, 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 Division commenced operations. 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 nine month period ended September 30, 1999. Page 6 REFAC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
========================================================================================================== Licensing of Product Intellectual Design and Consumer Description Property Rights Development Products Total ========================================================================================================== Total revenues $7,660,000 $2,102,000 $19,000 $9,781,000 - ---------------------------------------------------------------------------------------------------------- Depreciation and amortization* 54,000 329,000 0 383,000 - ---------------------------------------------------------------------------------------------------------- Interest income (expense) 319,000 (53,000) 0 266,000 - ---------------------------------------------------------------------------------------------------------- Segment profit (loss) 4,932,000 (859,000) (31,000) 4,042,000 - ---------------------------------------------------------------------------------------------------------- Segment assets 20,235,000 7,434,000 775,000 28,444,000 - ---------------------------------------------------------------------------------------------------------- Expenditure for segment assets $442,000 $1,258,000 $0 $1,700,000 - ----------------------------------------------------------------------------------------------------------
* The amortization expense for the Product Design and Development segment includes $155,000 of goodwill recorded in connection with the acquisition of Refac HumanFactors-ID in November, 1997. 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 nine month periods ended September 30, 1999 and 1998 are as follows:
===================================================================================================== Description 1999 1998 ===================================================================================================== Net income $2,754,000 $3,680,000 ----------------------------------------------------------------------------------------------------- Other comprehensive income (loss), net of tax ----------------------------------------------------------------------------------------------------- Decrease in unrealized gains on licensing-related securities (3,681,000) (4,007,000) ----------------------------------------------------------------------------------------------------- Foreign currency translation adjustment 0 (198,000) ----------------------------------------------------------------------------------------------------- Comprehensive income (loss) ($927,000) ($525,000) -----------------------------------------------------------------------------------------------------
Page 7 REFAC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The components of accumulated other comprehensive income, net of related tax, at September 30, 1999 and 1998 consist of unrealized gains on licensing-related securities, net of tax and amounted to $5,578,000 and $9,745,000 respectively. The components of comprehensive income (loss), net of related tax, for the three month periods ended September 30, 1999 and 1998 are as follows: ======================================================================================================== Description 1999 1998 ======================================================================================================== Net income $882,000 $1,063,000 - -------------------------------------------------------------------------------------------------------- Other comprehensive income (loss), net of tax - -------------------------------------------------------------------------------------------------------- Decrease in unrealized gains on licensing-related securities (1,784,000) (1,824,000) - -------------------------------------------------------------------------------------------------------- Comprehensive income (loss) ($902,000) ($761,000) - --------------------------------------------------------------------------------------------------------
Page 8 REFAC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- Total Operating Revenues for the nine months ended September 30, 1999 were $9,781,000 as compared to $11,446,000 for the comparable period in 1998. The decrease of $1,665,000, or 15%, is principally due to decreases in (i) gains on the sale of licensing-related securities and dividends ($559,000), (ii) product design and development fees ($752,000) and (iii) revenues from licensing-related activities ($354,000). Operating revenues are summarized as follows:
- --------------------------------------------------------------------------------- Description 1999 1998 - --------------------------------------------------------------------------------- Revenues from licensing-related activities 30% 29% - --------------------------------------------------------------------------------- Realized gains on sales and dividends from 48% 46% licensing-related securities - --------------------------------------------------------------------------------- Product design and development fees 22% 25% - --------------------------------------------------------------------------------- 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 decreased by $320,000 or 11% in the nine months ended September 30,1999 as compared to the same period of 1998 and service income from royalty verifications decreased by $82,000 in the comparable period. Trademark agency fees increased by $49,000 or 25% for the nine months ended September 30, 1999 as compared to the same period of 1998. Patent licensing royalties and non-recurring license fees decreased by $175,000 and $145,000 respectively, as compared to the same period of 1998. The Company anticipates that non-recurring revenues will not be a material component of royalties after June 30, 2000. 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 September 30, 1999, "licensing-related securities" consisted of 325,000 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 Form 10-Q 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 21 month period and, as of September 30, 1999 has contracts for five successive quarterly puts and calls, each of which covers 50,000 KeyCorp shares. Page 9 Product Design and Development Fees decreased by $771,000 in the nine month period ended September 30, 1999 ($2,874,000) from the comparable period in 1998 ($2,103,000). 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 nine months ended September 30, 1999 were $1,559,000 as compared to $1,461,000 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 nine months ended September 30, 1999, such expenses represented 84% of related revenue as compared with 65% in 1998. The percentage increase in 1999 expenses is attributable to the decline in product design and development revenues and the allocation of resources to proprietary product development. Selling, General and Administrative Expenses increased by $42,000 or 2% in the nine month period ended September 30, 1999 as compared to the previous year. The increase is attributable to the newly formed Consumer Products Division. Goodwill relates to the excess of the purchase price paid for Refac HumanFactors-ID, in November 1997, and Funatik Inc. in September 1999, over their fair market value of assets acquired with an amortization period of 25 years and 10 years respectively. Other Income consisting of dividend and interest income increased by $90,000 for the nine months ended September 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 nine month period ended September 30, 1998 relate to a loss of $101,000 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 $1,288,000 for the nine months ended September 30, 1999 reflects an effective tax rate of 32%. This compares to the statutory rate of 34% in the same period in 1998. The decrease in the effective income tax rate is due to HumanFactors-ID not being subject to state and local income taxes and timing differences associated with the Company's relocation to New Jersey. Page 10 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash, cash equivalents, and U.S. Treasury Notes increased $1,750,000 from $7,066,000 at December 31, 1998 to $8,816,000 at September 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 November 12, 1999 s/s Robert L. Tuchman --------------------------------------------------- Robert L. Tuchman, President and Chief Executive Officer November 12, 1999 s/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 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REFAC AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 5484457 12555674 2037245 0 281490 8262052 2199578 0 28944463 1711278 0 0 0 545090 22712796 28444463 18600 9781083 3339550 6005631 0 0 0 4041528 1287761 2753767 0 0 0 2753767 0.73 0.72
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