10-Q 1 d10q.txt 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, 2001 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 13, 2001 was 3,795,261. Page 1 REFAC INDEX -----
Page ---- Part I. Financial Information Condensed Consolidated Balance Sheets June 30, 2001 (unaudited) and December 31, 2000 3 Condensed Consolidated Statements of Operations Six and Three Months Ended June 30, 2001 and 2000 (unaudited) 4 Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 2001 and 2000 (unaudited) 5 Notes to Condensed Consolidated Financial Statements (unaudited) 6-9 Management's Discussion and Analysis of Financial Conditions and Results of Operations 10-15 Part II. Other Information 16-17 Exhibit 10 1-7
Page 2 REFAC CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 2001 2000 ----------------------- ----------------------- (UNAUDITED) ASSETS ------ Current Assets Cash and cash equivalents $ 5,385,000 $ 5,678,000 Due from broker 645,000 -- Royalties receivable 934,000 1,114,000 Accounts receivable, net 1,406,000 1,070,000 Investments being held to maturity 2,763,000 4,649,000 Inventory 2,826,000 91,000 Prepaid expenses 301,000 651,000 ----------------------- ----------------------- Total current assets 14,260,000 13,253,000 ----------------------- ----------------------- Property and equipment, net 2,615,000 2,819,000 Licensing-related securities -- 2,096,000 Investments being held to maturity 443,000 442,000 Deferred income taxes 163,000 -- Other assets 350,000 262,000 Goodwill, net 5,888,000 6,031,000 ----------------------- ----------------------- $23,719,000 $24,903,000 ======================= ======================= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current Liabilities Accounts payable $ 394,000 $ 289,000 Accrued expenses 436,000 501,000 Amounts payable under service agreements 167,000 435,000 ----------------------- ----------------------- Total current liabilities 997,000 1,225,000 ----------------------- ----------------------- Deferred income taxes -- 527,000 Other liabilities 382,000 397,000 Stockholders' Equity Common stock, $.10 par value 545,000 545,000 Additional paid-in capital 9,984,000 9,984,000 Retained earnings 26,060,000 25,228,000 Accumulated other comprehensive income -- 1,246,000 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 22,340,000 22,754,000 ----------------------- ----------------------- $23,719,000 $24,903,000 ======================= =======================
See accompanying notes to the unaudited condensed consolidated financial statements Page 3 REFAC CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS THREE MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------------------------------------------------------------ 2001 2000 2001 2000 ------------------------------------------------------------------------------ Revenues Licensing-related activities $ 1,635,000 $ 2,040,000 $ 894,000 $ 978,000 Creative services fees 2,839,000 3,602,000 1,327,000 1,752,000 Consumer product sales 452,000 712,000 411,000 5,000 Realized gains on licensing-related securities 1,813,000 2,466,000 580,000 1,296,000 Dividend income from licensing-related securities 15,000 140,000 8,000 63,000 Dividend and interest income 340,000 245,000 135,000 48,000 ------------------------------------------------------------------------------ Total Revenues 7,094,000 9,205,000 3,355,000 4,142,000 ------------------------------------------------------------------------------ Costs and Expenses Licensing-related activities 324,000 781,000 279,000 348,000 Creative service expenses 1,899,000 2,265,000 931,000 1,069,000 Consumer product sales costs 349,000 476,000 315,000 2,000 Selling, general and administrative expenses 3,265,000 2,959,000 1,399,000 1,365,000 ------------------------------------------------------------------------------ Total costs and expenses 5,837,000 6,481,000 2,924,000 2,784,000 ------------------------------------------------------------------------------ Income before provision for taxes on income 1,257,000 2,724,000 431,000 1,358,000 Provision for taxes on income 424,000 898,000 126,000 451,000 ------------------------------------------------------------------------------ Net income $ 833,000 $ 1,826,000 $ 305,000 $ 907,000 ============================================================================== ------------------------------------------------------------------------------ Basic earnings per share $ 0.22 $ 0.48 $ 0.08 $ 0.24 ============================================================================== ------------------------------------------------------------------------------ Diluted earnings per share $ 0.22 $ 0.48 $ 0.08 $ 0.24 ============================================================================== ------------------------------------------------------------------------------ Diluted weighted average shares outstanding 3,797,881 3,799,961 3,795,261 3,795,261 ==============================================================================
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, ---------------------------------- 2001 2000 ----------- ----------- Cash Flows from Operating Activities Net income $ 833,000 $ 1,826,000 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 457,000 380,000 Realized gains on sale of licensing-related securities (1,813,000) (2,466,000) Deferred income taxes (48,000) (223,000) Other -- 3,000 (Increase) decrease in assets: Due from broker (645,000) -- Royalties receivable 180,000 87,000 Accounts receivable (336,000) (486,000) Prepaid expenses 428,000 (111,000) Prepaid taxes (78,000) (716,000) Inventory (2,735,000) (449,000) Other assets -- (61,000) Increase (decrease) in liabilities: Accounts payable and accrued expenses 40,000 (45,000) Amounts payable under service agreements (268,000) 84,000 ----------- ----------- Net cash used in operating activities (3,985,000) (2,177,000) ----------- ----------- Cash Flows from Investing Activities Proceeds from sales of licensing-related securities 2,020,000 2,742,000 Proceeds from investments being held to maturity 1,893,000 606,000 Additions to property and equipment (221,000) (569,000) ----------- ----------- Net cash provided by investing activities 3,692,000 2,779,000 ----------- ----------- Net (decrease) increase in cash and cash equivalents (293,000) 602,000 Cash and cash equivalents at beginning of period 5,678,000 5,158,000 ----------- ----------- Cash and cash equivalents at end of period $ 5,385,000 $ 5,760,000 =========== ===========
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 June 30, 2001, and the results of its operations, its cash flows and comprehensive income for the six month interim periods presented. The accounting policies followed by the Company are set forth in Note l to the Company's consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2000, which is incorporated herein by reference. 2. The results of operations for the periods presented are not 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 2001 2000 2001 2000 -------------------------------------------------- ---------------- ---------------- --------------- ---------------- Basic shares 3,795,261 3,795,261 3,795,261 3,795,261 Dilution: Stock Options and Warrants 2,620 4,700 -- -- Diluted Shares 3,797,881 3,799,961 3,795,261 3,795,261 Income available to common shareholders $ 833,000 $1,826,000 $ 305,000 $ 907,000 Basic earnings per share $ 0.22 $ 0.48 $ 0.08 $ 0.24 Diluted earnings per share $ 0.22 $ 0.48 $ 0.08 $ 0.24
4. The accounting policies used to develop segment information correspond to those described in the summary of significant accounting policies (See Note 1 of the 2000 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. Page 6 REFAC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following information about the business segments is for the six month period ended June 30, 2001.
Licensing of Manufacture Intellectual Creative and Marketing Property Consulting of Consumer Description Rights Services Products Total ------------------------------ ------------------ ----------------- ------------------ --------------- Total revenues $3,484,000 $3,105,000 $505,000 $7,094,000 Segment profit (loss) 2,878,000 (764,000) (857,000) 1,257,000 Segment assets 7,831,000 9,125,000 6,763,000 23,719,000 Expenditure for segment 22,000 40,000 159,000 221,000 assets
The following information about the business segments is for the six month period ended June 30, 2000
Licensing of Manufacture Intellectual Creative and Marketing Property Consulting of Consumer Description Rights Services Products Total ------------------------------ ------------------- ----------------- ------------------- --------------- Total revenues $4,684,000 $3,777,000 $744,000 $9,205,000 Segment profit (loss) 3,051,000 220,000 (547,000) 2,724,000 Segment assets 14,575,000 10,359,000 1,022,000 25,956,000 Expenditure for segment 281,000 231,000 57,000 569,000 assets
The following information about the business segments are for the three month period ended June 30, 2001.
Manufacture Licensing of Creative and Marketing Intellectual Consulting of Consumer Description Property Rights Services Products Total ------------------------------ --------------------- ------------------ -------------------- ------------------- Total revenues $1,489,000 $1,434,000 $432,000 $3,355,000 Segment profit (loss) 1,125,000 (329,000) (365,000) 431,000 Expenditure for segment 16,000 1,000 70,000 87,000 assets
Page 7 REFAC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following information about the business segments are for the three month period ended June 30, 2000.
Manufacture Licensing of Creative and Marketing Intellectual Consulting of Consumer Description Property Rights Services Products Total ------------------------------ --------------------- ------------------ -------------------- ------------------ Total revenues $2,292,000 $1,831,000 $19,000 $4,142,000 Segment profit (loss) 1,502,000 222,000 (366,000) 1,358,000 Expenditure for segment 31,000 20,000 46,000 97,000 assets
5. Comprehensive income (loss) 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, 2001 and 2000 are as follows:
Description 2001 2000 ----------------------------------------------------------------- ----------------- ----------------- Net income $833,000 $1,826,000 Less: Comprehensive losses, net of tax Unrealized holding gains (losses), net -- (231,000) Reclassification adjustment, net (1,197,000) (1,627,000) Comprehensive income (loss) ($364,000) ($32,000)
The components of accumulated other comprehensive income, net of related tax, at December 31, 2000 consist of unrealized gains on licensing-related securities. 6. On June 30, 2001 the inventory consisted of finished goods. As of July 27, 2001, the Company had open letters of credit to purchase goods for $112,000. Page 8 REFAC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 7. 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 purporting to state 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 in December 1996 between the Company and its then Chairman and Chief Executive Officer, Eugene Lang. On February 16, 2001, the Court entered a memorandum decision and order granting the motion of the defendant directors and the Company to dismiss the complaint in its entirety. A judgment to that effect was entered on February 26, 2001. Plaintiff has filed a notice of appeal. 8. In June 2001, the Financial Accounting Standards Board approved the issuance of SFAS No. 141, "Business Combinations" and SFAS 142, "Goodwill and Other Intangible Assets" which was issued July 20, 2001. The new standards require that all business combinations initiated after June 30, 2001 must be accounted for under the purchase method. In addition, all intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged shall be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives will no longer be subject to amortization, but will be subject to at least an annual assessment for impairment by applying a fair value based test. The Company will continue to amortize goodwill existing at June 30, 2001 under its current method until January 1, 2002. Thereafter, annual and quarterly goodwill amortization of $300,000 and $75,000, respectively, will no longer be recognized. By June 30, 2002, the Company will perform a transitional fair value based impairment test and if the fair value is less than the recorded value at January 1, 2002, the Company will record an impairment loss in the March 31, 2002 quarter, as a cumulative effect of change in accounting principle. Page 9 REFAC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS --------------------- REVENUES for the six months ended June 30, 2001 were $7,094,000 as compared to $9,205,000 for the comparable period in 2000. Of the $2,111,000 revenue decrease, $702,000 relates to a non-recurring sourcing opportunity to sell an account open-market goods in 2000 that was not available to Refac Consumer Products, Inc. in 2001. This amount is offset by an increase in sales to retailers of $442,000. The balance of the revenue decrease is due to decreases in creative consulting fees ($763,000), non-recurring patent license fees ($249,000), trademark agency fees ($198,000) and a decrease in realized gains and dividends on licensing-related securities ($778,000). Revenues for the three months ended June 30, 2001 were $3,355,000 as compared to $4,142,000 for the comparable period in 2000. The decrease of $787,000, is principally due to decreases in revenues from creative consulting services ($425,000), licensing-related activities ($84,000) and realized gains and dividends on licensing-related securities ($771,000) offset by an increase in sales of consumer products of $406,000. Revenues for the six and three months are summarized as follows:
For the Six Months For the Three Months Ended June 30, Ended June 30, Description 2001 2000 2001 2000 Revenues from licensing-related activities 23% 22% 27% 24% Realized gains on sales and dividends from 26% 28% 17% 31% licensing-related securities Creative consulting services 40% 39% 40% 42% Consumer product sales 6% 8% 12% 0% Dividends and interest 5% 3% 4% 3% Total 100% 100% 100% 100%
Licensing of Intellectual Property Rights ----------------------------------------- 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 patent licensing income and trademark agency fees decreased $155,000 for the six months ended June 30, 2001 as compared to the same period of 2000. This decrease is attributable to a decline in trademark agency fees of $198,000 offset by an increase in patent Page 10 REFAC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS licensing income of $43,000. 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 $249,000 for the six months ended June 30, 2001 as compared to the same period of 2000. Recurring patent licensing income and trademark agency fees decreased $5,000 for the three months ended June 30, 2001 as compared to the same period of 2000. This decrease is attributable to a decline in trademark agency fees of $85,000 and an increase in patent licensing income of $80,000. 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 $78,000 for the three months ended June 30, 2001 as compared to the same period of 2000. Expenses from Licensing-Related Activities 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, trademarks and license rights and related licenses. Licensing-related expenses decreased by $457,000 for the six months ended June 30, 2001. As a percentage of licensing revenues, these expenses were 20% and 38% in 2001 and 2000, respectively. The decrease in 2001 over 2000 is principally due to a decline in client expenses related to the revenue decrease and a decrease in licensing-related salaries and benefits as the Company focused on managing existing relationships. Licensing-related expenses decreased $69,000 for the three months ended June 30, 2001, as compared to the same period of 2000. As a percentage of licensing revenues, these expenses were 31% and 35% for the three months ended June 30, 2001 and 2000, respectively. 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. Gains and dividends for the six and three months ended June 30, 2001 decreased by $778,000 and $771,000, respectively. The planned liquidation of the KeyCorp stock position is complete. Creative Consulting Services ---------------------------- Creative Consulting Services consist of product development and graphic design services provided by the Product Development Group (which was acquired by the Company in November, 1997) and the Graphics Design Group (which was acquired in November, 1999). In January 2001, the Company consolidated the operations of these groups and now offers its creative services under the name RefacDesign. Total creative consulting fees decreased by $763,000 for the six months Page 11 REFAC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ended June 30, 2001 versus the comparable period in 2000. This decrease consists of a decrease in the Product Development Group's services of $1,038,000 offset by an increase in the Graphic Design Group's services of $275,000. Total creative consulting fees decreased by $425,000 for the three months ended June 30, 2001 versus the comparable period in 2000. This decrease consists of a decrease in the Product Development Group's services of $559,000 offset by an increase in the Graphic Design Group's services of $134,000. For the three and six months ended June 30, 2001, the Company continued to confront slowdowns in its consulting services. In addition to its traditional fee-for-service consulting, RefacDesign seeks opportunities, in appropriate situations, to share in the cost and risk of brand and product development in return for future royalties or venture equity. This is the basis upon which it is providing product development and graphic design services to its affiliate, Refac Consumer Products, Inc. ("RCP"). See "Manufacturing and Marketing of Consumer Products" below. Accordingly, while incurring the current expense of providing such services, RefacDesign does not derive any inter-company royalty revenues until RCP has sales from products covered by this arrangement. RIL is the owner of all of the intellectual property rights relating to the RCP product line that are not licensed from third parties. For the three and six months ended June 30, 2000, intercompany royalties from RCP sales were $12,000. Expenses decreased by $366,000 in the six month period ended June 30, 2001 as compared to 2000, which consist of decreases of $290,000 and $76,000 from the Product Development Group and the Graphic Design Group, respectively. These decreases are principally due to decreases in direct payroll. As a percentage of creative consulting fees, the cost of providing such services were 67% and 63% for the six months ended June 30, 2001 and 2000, respectively. Expenses decreased by $138,000 for the three month period ended June 30, 2001, as compared to 2000 which consist of decreases of $99,000 and $39,000 from the Product Development Group and the Graphic Design Group, respectively. As a percentage of creative consulting fees, the cost of providing such services were 70% and 61% for the three months ended June 30, 2001 and 2000, respectively. The six and three month percentage increases are due to external revenue declines preceding corresponding staff reductions and an increase in inter-company consulting services. Marketing of Consumer Products ------------------------------ In September 1999, the Company acquired Funatik Inc. and merged it into the newly formed RCP. Sales decreased $260,000 to $452,000 during the six months ended June 30, 2001 from $712,000 during the same period of 2000. For the six months ended June 30, 2000 sales principally Page 12 REFAC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS consisted of sales of imported consumer electronics sourced by RCP for a retailer which did not recur during the first half of 2001. Sales to this retailer amounted to $702,000 for the six months ended June 30, 2000. Sales of other consumer products increased by $442,000 to $452,000 for the six months ended June 31, 2001 as compared to the same period of 2000. As mentioned above under "Creative Consulting Services", all of RCP's industrial design, engineering and graphic design services are provided for by RefacDesign, without current charge, in exchange for future royalties based upon RCP's sales. RCP has no costs for the services as they are provided, but incur royalty expense based on actual product sales which utilize the creative work of RefacDesign. For the three and six months ended June 30, 2000, intercompany royalty expensed was $12,000. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased by $306,000 in the six month period ended June 30, 2001 as compared to the previous year. The increase consists primarily of a net RCP increase of $173,000 which is mainly attributable to the launch of the MTV:MusicTelevision(TM) product line, a net increase of $234,000 in RefacDesign offset by a net reduction of $101,000 in Licensing of Intellectual Property Rights and general corporate expenses, including reduced costs associated with the closing of the Refac Licensing office in Connecticut. Selling, General and Administrative Expenses increased by $34,000 in the three month period ended June 30, 2001 as compared to the previous year. The increase consists primarily of a net RCP increase of $83,000, a net increase of $63,000 in RefacDesign offset by a net reduction of $112,000 in Licensing of Intellectual Property Rights and general corporate expenses. GOODWILL. In June 2001, the Financial Accounting Standards Board approved the issuance of SFAS No. 141, "Business Combinations" and SFAS 142, "Goodwill and Other Intangible Assets" which was issued July 20, 2001. The new standards require that all business combinations initiated after June 30, 2001 must be accounted for under the purchase method. In addition, all intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged shall be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives will no longer be subject to amortization, but will be subject to at least an annual assessment for impairment by applying a fair value based test. The Company will continue to amortize goodwill existing at June 30, 2001 under its current method until January 1, 2002. Thereafter, annual and quarterly goodwill amortization of $300,000 and $75,000, respectively, will no longer be recognized. By June 30, 2002, the Company will perform a transitional fair value based impairment test and if the fair value is less than the recorded value at January 1, 2002, the Company will record an impairment loss in the March 31, 2002 quarter, as a cumulative effect of change in accounting principle. Page 13 REFAC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCOME TAX PROVISION. The Company's income tax provision of $424,000 for the six months ended June 30, 2001 reflects an effective tax rate of 34% (the Federal statutory corporate income tax rate) increased by 1% related to the amortization of goodwill acquired through the stock purchase of HumanFactors Industrial Design, Inc. (now referred to as RefacDesign's Product Development Group) which is not deductible for tax purposes and decreased by 1% as a result of the deferred tax benefit associated with the sale of KeyCorp having been realized. The effective tax rate for the three and six months ended June 30, 2000 was 33%. INFLATION. The Company's income from licensing operations is not 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 decreased $293,000 from $5,678,000 at December 31, 2000 to $5,385,000 at June 30, 2001. The Company believes its liquidity position is adequate to meet all current and projected financial needs. Net cash used in operations was $3,985,000 as compared to $2,177,000 for the same period of 2000, reflecting an increase of $1,808,000. Operating activities which used the most cash during the three months ended June 30, 2001 was the purchase of inventory. Net cash provided by investing activities increased $913,000 to $3,692,000 as compared with $2,779,000 for the same period of 2000. The increase is attributable to the redemption of investments held to maturity of $1,287,000 and a decrease in additions to property and equipment of $348,000 offset by a decrease in proceeds from sales of licensing-related securities of $722,000. RCP shipped over $940,000 in merchandise in July and, as of the end of July, there was a backlog of firm purchase orders for goods expected to ship before the end of the year in excess of $2,000,000. On July 27, 2001, the Company had open letters of credit to purchase goods for $112,000. 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). Page 14 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 the "forward-looking statements" contained herein be subject to the above-mentioned statutory safe harbors. Since these statements involve risks and uncertainties and are subject to change at any time, the Company's actual results could differ materially from expected or inferred results. Moreover, there is no assurance that the Company's profitability objectives or G&A cost reductions will materialize or that its investment in RCP will prove profitable. Page 15 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 13, 2001 /s/ Robert L. Tuchman ----------------------------------------- Robert L. Tuchman, President and Chief Executive Officer August 13, 2001 /s/ Raymond A. Cardonne, Jr ----------------------------------------- Raymond A. Cardonne, Jr, CFO (Principal Financial Officer) Page 16 EXHIBIT INDEX
Exhibit Page No. No. ------- ---- 10 Agreement, dated as of June 30, 2001, between the Company, RIL and Bert Heinzelman terminating his employment. 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, 2000 is incorporated herein by reference.
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