SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 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 May 1, 1995 was 5,317,987.
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
INDEX
Page
Part I. Financial Information
Condensed Consolidated Balance Sheets
March 31, 1995 and December 31, 1994 3
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1995
and 1994 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 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
<TABLE>
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
MAR. 31 DEC. 31
ASSETS 1995 1994
<S> <C> <C>
Current Assets (UNAUDITED) *
Cash and cash equivalents $646,870 $5,641,885
Marketable securities 2,680,930 2,591,415
Investments being held to maturity 6,097,806 1,168,698
Accounts receivable 948,909 906,369
Prepaid income taxes and other 26,748 228,617
Total current assets 10,401,263 10,536,984
Property and equipment, net 100,855 109,316
Securities acquired in association with licensing
activities 21,187,478 19,431,753
Investments being held to maturity 4,892,436 4,490,436
Other assets 908,715 940,977
$37,490,747 $35,509,466
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 23,797 22,542
Accrued expenses 601,022 647,918
Amounts payable under service agreements 427,458 611,756
Total current liabilities 1,052,277 1,282,216
Deferred income taxes 6,569,393 5,992,629
Stockholders' Equity
Common stock, $.10 par value 531,799 533,799
Additional paid in capital 8,991,439 9,131,939
Retained earnings 7,519,214 7,006,127
Unrealized gain on securities acquired in
association with licensing activities, net
of taxes 12,472,955 11,300,883
Cumulative translation adjustment 353,670 261,873
Total stockholders' equity 29,869,077 28,234,621
$37,490,747 $35,509,466
<FN>
*derived from audited financial statements
See accompanying notes to the condensed consolidated financial statements
Page 3
</TABLE>
<TABLE>
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three months ended Mar. 31,
1995 1994
<S> <C> <C>
Revenues
Service revenues $980,709 $1,102,624
Gains on securities acquired in association
with licensing activities 152,968 1,295,786
Total revenues 1,133,677 2,398,410
Costs and Expenses
Service expenses 255,249 383,217
Selling, general and administrative expenses 387,669 383,019
Total operating expenses 642,918 766,236
Operating income 490,759 1,632,174
Other income and expenses
Gain on marketable securities transactions 4,048 49,223
Net change in unrealized gains (losses) on
marketable securities 81,913 (964,387)
Dividend and interest income 213,672 270,408
Loss from foreign currency transactions (52,207) (7,780)
Income before provision for taxes on income
and cumulative effect of accounting change 738,185 979,638
Provision for taxes on income 224,951 310,487
Income before cumulative effect of accounting
change 513,234 669,151
Cumulative effect of change in accounting for
marketable securities, net of taxes 0 245,520
Net income $513,234 $914,671
Earnings per common share
Income before cumulative effect of accounting
change $0.10 $0.13
Cumulative effect of change in accounting for
marketable securities 0.00 0.05
Net income $0.10 $0.18
Weighted average number of shares outstanding 5,337,320 5,331,987
<FN>
See accompanying notes to the condensed consolidated financial statements.
Page 4
</TABLE>
<TABLE>
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three months ended Mar. 31,
1995 1994
<S> <C> <C>
Cash Flows From Operating Activities
Net income $513,234 $914,671
Adjustments to reconcile net income to net cash
(used in) provided by operating activities
Cumulative effect of accounting change 0 (245.520)
Depreciation and amortization 19,589 16,403
Amortization of discount on U.S. Treasury Bills (73,283) 0
Net gain on sale of securities (157,016) (1,345,009)
Net change in unrealized (gain) loss on
marketable securities (81,913) 964,387
Deferred income taxes 23,950 (322,473)
(Increase) decrease in assets:
Accounts receivable (42,540) 83,107
Prepaid income taxes and other (201,869) 0
Proceeds from sale of marketable securities 337,603 1,756,897
Purchase of marketable securities (345,924) (1,646,414)
Other assets 21,134 83,530
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (45,641) 59,121
Amounts payable under service agreements (184,298) 363,996
Income taxes payable 0 (316,953)
Net cash (used in) provided by operating activities (216,974) 365,743
Cash Flows From Investing Activities
Proceeds from sales of securities acquired in
association with licensing activities 173,386 1,364,529
Proceeds from maturity of investments being
held to maturity 4,430,000 0
Purchase of investments being held to maturity (9,269,087) 0
Additions to property and equipment 0 (1,006)
Net cash (used in) provided by investing
activities (4,665,701) 1,363,523
Cash Flows From Financing Activities
Acquisition and retirement of common stock (142,500) 0
Net cash used in financing activities (142,500) 0
Effect of exchange rate changes on cash 30,160 74,850
Net (decrease) increase in cash and cash equivalents(4,995,015) 1,804,116
Cash and cash equivalents at beginning of period 5,641,885 939,818
Cash and cash equivalents at end of period $646,870 $2,743,934
Page 5
</TABLE>
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 March 31, 1995 and December 31, 1994, the results of its operations and its
cash flows for the three month interim period presented.
The accounting policies followed by the Company are set forth in Note l
to the Company's consolidated financial statements in the Company's Annual
Report on Form 10-K for the year ended December 31, 1994, which is
incorporated herein by reference.
2. The results of operations for the quarter ended March 31, 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,
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 March 31,
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.
Page 6
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
Management's Discussion and Analysis
of Financial Conditions and Results of Operations
Results of Operations
Total operating revenues decreased $1,265,000 for the three months ended
March 31, 1995 as compared to the corresponding period in 1994. Service
revenue accounted for 87% and 46% of operating revenues for the three months
ended March 31, 1995 and 1994, respectively. Gains on sales of securities
acquired in association with licensing activities accounted for 13% and 54%
of operating revenues for the three months ended March 31, 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 decreased $122,000 for the three months ended March 31,
1995 from the corresponding period in 1994. The change largely resulted from
a decline in recurring revenues due to lower sales volume reported by its
existing customers. Recurring service revenues from established licensing
relationships represented approximately 87% of service revenues for the three
months ended March 31, 1995, as compared to 92% in the same period of 1994.
Non-recurring service revenue increased $12,000 or approximately 10% from the
corresponding period in 1994. Non-recurring service revenue is recognized
upon the completion of new, single-payment license agreements, the timing of
completing such agreements being dependent upon a number of factors.
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 35% in the three
month period of 1994 to 26% in the corresponding period of the current year.
The decrease in this ratio is attributable to the percentage increase in
recurring service revenues which do not have a corresponding service expense
associated with such revenue, relative to the increase in non recurring
service revenues which bear a higher rate of service expense than recurring
service revenues.
Selling, general, and administrative expenses increased $4,700 for the
three month period of 1995 versus the comparable period of 1994. This
increase includes an increase in compensation costs, and various
administrative expenses partially offset by a decrease in professional fees.
Page 7
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
Management's Discussion and Analysis
of Financial Conditions and Results of Operation
Other Income and Expenses
For the three months ended March 31, 1995 the Company had gains on its
marketable securities of $86,000 consisting of realized gains of $4,000 as
compared to gains of $49,000 for the corresponding period of 1994 and
unrealized gains of $82,000 as compared to unrealized losses of $964,000 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 $58,000 for the three months
ended March 31, 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 technology transfer operations are generally not directly affected
by inflation.
Liquidity and Capital Resources
The Company's liquidity position at March 31, 1995 included cash and
cash equivalents of approximately $647,000 and publicly-traded securities
and U.S. Treasury Bills and Notes having a market value of over $13,671,000
Additionally, the Company's long-term investment portfolio had a market value
of over $21,187,000 at March 31, 1995. This represented an increase of
approximately $1,756,000 from the value at December 31, 1994. Approximately
$1,172,000 of this difference is reflected as an increase to stockholders'
equity. On March 31, 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.
Swarthmore College offered the Company 20,000 shares of the Company's
stock for repurchase. In accordance with the Company's stock repurchase plan,
the shares offered by Swarthmore College were repurchased at the then current
market price. Eugene M. Lang, Chairman and Chief Executive Officer of the
Corporation, and Neil R. Austrian, a Director of the Corporation, are
Chairman Emeritus and Chairman of the Board of Managers, respectively, of
Swarthmore College.
Page 8
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
May 12, 1995 Eugene M. Lang
E. M. Lang, Chairman and
Chief Executive Officer
May 12, 1995 Robert Rescigno
Robert Rescigno, Controller and
Principal Accounting and Financial
Officer
Page 9
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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<PERIOD-TYPE> 3-MOS
<CASH> 646870
<SECURITIES> 34858650
<RECEIVABLES> 1895233
<ALLOWANCES> 10861
<INVENTORY> 0
<CURRENT-ASSETS> 10401263
<PP&E> 190040
<DEPRECIATION> 89185
<TOTAL-ASSETS> 37490747
<CURRENT-LIABILITIES> 7621670
<BONDS> 0
0
0
<COMMON> 531799
<OTHER-SE> 29337278
<TOTAL-LIABILITY-AND-EQUITY> 37490747
<SALES> 980709
<TOTAL-REVENUES> 1133677
<CGS> 255249
<TOTAL-COSTS> 642918
<OTHER-EXPENSES> (247426)
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<INCOME-PRETAX> 738185
<INCOME-TAX> 224951
<INCOME-CONTINUING> 513234
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 513234
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
