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, 1995
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 August 1, 1995 was 5,297,987.
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REFAC TECHNOLOGY DEVELOPMENT CORPORATION
INDEX
Page
Part I. Financial Information
Condensed Consolidated Balance Sheets
June 30, 1995 and December 31, 1994 3
Condensed Consolidated Statements of Operations
Six and Three Months Ended June 30, 1995 and 1994
(unaudited) 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1995 and 1994
(unaudited) 5
Notes to Condensed Consolidated Financial
Statements 6
Management's Discussion and Analysis of Financial
Conditions and Results of Operations 7-8
Part II. Other Information 9
Page 2
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REFAC TECHNOLOGY DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
JUNE 30 DEC. 31
ASSETS 1995 1994
<S> <C> <C>
Current Assets (UNAUDITED) *
Cash and cash equivalents $1,138,340 $5,641,885
Marketable securities 3,243,900 2,591,415
Investments being held to maturity 4,578,328 1,168,698
Accounts receivable 1,014,476 906,369
Prepaid income taxes and other 0 228,617
Total current assets 9,975,044 10,536,984
Property and equipment, net 110,453 109,316
Securities acquired in association with licensing
activities 24,580,819 19,431,753
Investments being held to maturity 6,073,870 4,490,436
Other assets 910,753 940,977
$41,650,939 $35,509,466
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 26,447 22,542
Accrued expenses 639,717 647,918
Amounts payable under service agreements 398,158 611,756
Income taxes payable 248,801 0
Total current liabilities 1,313,123 1,282,216
Deferred income taxes 7,819,370 5,992,629
Stockholder's Equity
Common stock, $.10 par value 530,299 533,799
Additional paid in capital 8,897,218 9,131,939
Retained earnings 8,106,856 7,006,127
Unrealized gain on securities acquired in
association with licensing activites, net
of taxes 14,714,791 11,300,883
Cumulative translation adjustment 269,282 261,873
Total stockholders' equity 32,518,446 28,234,621
$41,650,939 $35,509,466
<FN>
*Derived from audited financial statements
See accompanying notes to the condensed consolidated financial statements
Page 3
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REFAC TECHNOLOGY DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Six months ended Three months ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $1,978,437 $1,849,324 $997,728 $746,700
Service revenues
Gains on securities acquired in
associaiton with licensing activities 152,968 1,726,699 0 430,913
Total revenues 2,131,405 3,576,023 997,728 1,177,613
Costs and Expenses
Service expenses 417,747 481,609 162,498 98,392
Selling, general and administrative expenses 794,397 822,895 406,728 439,876
Total operating expenses 1,212,144 1,304,504 569,226 538,268
Operating income 919,261 2,271,519 428,502 639,345
Other Income and Expenses
Gain on marketable securities transactions 5,243 43,591 1,195 (5,632)
Net change in unrealized gains (losses) on
marketable securities 158,227 (1,183,256) 76,314 (218,869)
Dividend and interest income 560,915 627,316 347,243 356,908
Loss from foreign currency transactions (1,223) (19,125) 50,984 (11,345)
Income before provision for taxes on income
and cumulative effect of accounting change 1,642,423 1,740,045 904,238 760,407
Provision for taxes on income 541,694 633,984 316,743 321,497
Income before cumulative effect of
accounting change 1,100,729 1,106,061 587,495 438,910
Cumulative effect of change in accounting for
marketable securities, net of taxes 0 245,520 0 0
Net Income 1,100,729 1,351,581 587,495 438,910
Earnings per common share
Income before cumulative effect of accounting
change $0.21 $0.20 $0.11 $0.08
Cumulative effect of change in accounting for
marketable securities 0.00 0.05 0.00 0.00
Net income $0.21 $0.25 $0.11 $0.08
Weighted average number of shares outstanding 5,323,878 5,332,727 5,310,584 5,333,960
<FN>
See accompanying notes to the condensed consolidated financial statements
Page 4
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REFAC TECHNOLOGY DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six months ended June 30,
1995 1994
<S> <C> <C>
Cash Flows from Operating Activities
Net income $1,100,729 $1,351,581
Adjustments to reconcile net income to net cash
provided by (used by) operating activities
Cumulative effect of accounting change 0 (245,520)
Depreciation and amortization 55,512 29,194
Accretion of discount on U.S. Treasury Bills (144,232) 0
Net gain on sale of securities (5,243) (1,770,290)
Net change in unrealized (gain) loss on
marketable securities (158,227) 1,183,256
Deferred income taxes 48,761 318,332
(Increase) decrease in assets:
Accounts receivable (108,107) 194,677
Prepaid income taxes and other 228,617 0
Proceeds from sale of marketable securities 777,983 2,358,697
Purchase of marketable securities (1,290,615) (2,208,567)
Other assets 42,309 (351,559)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (4,296) (235,815)
Amounts payable under service agreements (213,598) (1,111,018)
Income taxes payable 248,801 (253,704)
Net cash provided by (used in) operating activities 578,394 (740,736)
Cash Flows from Investing Activities
Proceeds from sales of securities acquired in
association with licensing activities 173,386 1,766,426
Proceeds from maturity of investments being held
to maturity 9,881,687 0
Purchase of investments being held to maturity (14,874,751) 0
Additions to property and equipment (16,631) (20,286)
Net cash (used in) provided by investing activities (4,836,309) 1,746,140
Cash Flows from Financing Activities
Acquisition and retirement of common stock (238,221) 0
Proceeds from exercise of stock options 0 17,875
Net cash (used in) provided by financing activities (238,221) 17,875
Effect of exchange rate changes on cash (7,409) 81,147
Net (decrease) increase in cash and cash equivalents (4,503,545) 1,104,426
Cash and cash equivalents at the beginning of period 5,641,885 939,818
Cash and cash equivalents at the end of period $1,138,340 $2,044,244
<FN>
See accompanying notes to the condensed consolidated financial statements
Page 5
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REFAC TECHNOLOGY DEVELOPMENT CORPORATION
Notes to Condensed Consolidated Financial Statements
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 June 30, 1995 and December 31, 1994, and the results of
its operations and its cash flows for the three and 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, 1994, which is
incorporated herein by reference.
2. The results of operations for the six months and the quarter ended
June 30, 1995 are not necessarily indicative of the results to be expected
for the full year.
3. In accordance with SFAS No. 115, which was adopted January 1, 1994,
and resulted in a cumulative effect of change in accounting for its trading
securities, the Company categorizes and accounts for its investment holdings as
follows:
Trading securities are securities bought and held for the
purpose of selling them in the near term. Unrealized gains and
losses are included in current period earnings. The Company's
investment in marketable securities (principally holdings in
preferred stocks and government agency bonds)
falls into this category.
Held to maturity securities are measured at amortized cost.
This categorization is permitted only if the Company has the
positive intent and ability to hold these securities to maturity.
The Company's investments in U.S. Treasury Bills and Notes fall
into this category.
Available for sale securities are securities which do not
qualify as either held to maturity or trading securities.
Unrealized gains and losses are reported as a separate component
of stockholders' equity, net of applicable deferred income taxes
on such unrealized gains and losses at current income tax rates.
The Company's investments in securities acquired in association
with licensing activities fall into this category. Such
securities at June 30, 1995 consisted of 337,842 shares of
Three-Five Systems, Inc. (which trades on the New York Stock
Exchange under the symbol TFS) and 798,000 shares of AutoFinance
Group, Inc. (which trades on the NASDAQ under the symbol AUFN).
These securities are recorded at quoted market value without a
discount which might be associated with such large blocks of
shares.
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
Management's Discussion and Analysis
of Financial Conditions and Results of Operations
Revenues
Total operating revenues decreased $1,445,000 for the six months ended
June 30, 1995 as compared to the corresponding period in 1994, and $180,000
for the second quarter of 1995 versus the same period in the prior year.
Service revenue accounted for 93% and 52% of operating revenues for the six
months ended June 30, 1995 and 1994, respectively. Gains on sales of
securities acquired in association with licensing activities accounted for 7%
and 48% of operating revenues for the six months ended June 30, 1995 and 1994,
respectively. The decrease in gains on sales of securities acquired in
association with licensing activities is due to a decrease in the number of
shares sold in the current period versus the corresponding period of 1994.
As deemed in the Company's interest and as future market conditions permit,
the Company intends from time to time to sell part of the portfolio of such
securities.
Service revenues increased $129,000 for the six months ended June 30, 1995
from the corresponding period in 1994 and $251,000 for the second quarter of
1995 versus the same period in the prior year. In both cases, the changes
largely resulted from an increase in the size and timing of non-recurring
revenues which are recognized upon the completion of new, single-payment
license agreements. Recurring service revenues from established licensing
relationships, which represented approximately 87% of service revenues for the
six month ended June 30, 1995, as compared to 92% in the same period of 1994,
have remained relatively stable as compared to the corresponding period in
1994.
Service expenses represents payments to licensors under contractually
stipulated terms, and hence tend to increase or decrease as a function of
service revenues. Also included in service expenses are various other costs
directly related to the development, maintenance, and enforcement of patent
and licensing programs, notably legal and other external professional fees,
and costs associated with patent research, upkeep and amortization. Service
expenses as a percentage of service revenues decreased from 26% in the
six-month period of 1994 to 21% in the corresponding period of the current
year, and increased from 13% in the three-month period of 1994 to 16% in the
corresponding period of the current year. The decrease in this ratio is
attributable to a decrease in legal fees and an increase in the profit from
sales of licensed products.
Selling, general, and administrative expenses decreased $28,000 for the
six-month period of 1995 versus the comparable period of 1994. This decrease
includes a decrease in legal fees and various administrative expenses partially
offset by an increase in compensation costs and rent expense.
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
Management's Discussion and Analysis
of Financial Conditions and Results of Operations
(Continued)
For the six-months ended June 30, 1995 the Company had gains on its
marketable securities of $163,000 consisting of realized gains of $5,000 and
unrealized gains of $158,000 as compared to realized gains of $44,000 and
unrealized losses of $1,183,000 for the corresponding period of 1994. The
increase was due to the Company's change of investment strategy from investing
primarily in preferred stocks to investing primarily in U.S. Government bonds
which has a much more stable market price than preferred stocks.
Dividend and interest income decreased by $66,000 for the six-months ended
June 30, 1995 from the corresponding period in 1994. Dividend and interest
income consist of investment income from the Company's portfolio of marketable
securities. The year-to-date decline reflects a change in the portfolio
strategy, shifting resources from preferred stocks to U.S. Treasury Bills and
Notes, which generate less dividends and interest income but are generally
subject to less market risk.
The Company's licensing and technology transfer operations are generally
not directly affected by inflation.
Liquidity and Capital Resources
The Company's liquidity position at June 30, 1995, included cash and cash
equivalents of approximately $1,138,000 and publicly-traded securities and U.S.
Treasury Bills and Notes having a market value of over $13,896,000. In
addition, the Company's long-term investment portfolio had a market value of
over $24,580,000 at June 30, 1995, representing an increase of approximately
$5,149,000 over the value at December 31, 1994. This resulted in an increase
to stockholders' equity of approximately $3,411,000, net of related deferred
income taxes.
On June 30, 1995, the Company had no non-current debt. Other than the
commitment under the headquarters premises lease, the Company has no
significant commitments. The Company believes its liquidity position is more
than adequate to meet all current and projected financial needs.
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
August 10, 1995 /s/Eugene M. Lang
E. M. Lang, Chairman and Chief
Executive Officer
August 10, 1995 /s/Robert Rescigno
Robert Rescigno, Controller and Principal
Accounting and Financial Officer
<PAGE>
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, 1994 is incorporated herein by
reference.
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<PERIOD-TYPE> 6-MOS
<CASH> 1138340
<SECURITIES> 38476917
<RECEIVABLES> 1925229
<ALLOWANCES> 10861
<INVENTORY> 0
<CURRENT-ASSETS> 9975044
<PP&E> 208622
<DEPRECIATION> 98169
<TOTAL-ASSETS> 41650939
<CURRENT-LIABILITIES> 1313123
<BONDS> 0
0
0
<COMMON> 530299
<OTHER-SE> 31988147
<TOTAL-LIABILITY-AND-EQUITY> 41650939
<SALES> 1978437
<TOTAL-REVENUES> 2131405
<CGS> 417747
<TOTAL-COSTS> 1212144
<OTHER-EXPENSES> (723162)
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 1642423
<INCOME-TAX> 541694
<INCOME-CONTINUING> 1100729
<DISCONTINUED> 0
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<NET-INCOME> 1100729
<EPS-PRIMARY> .21
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