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, 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 November 1, 1995 was 5,294,887.
<PAGE>
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
INDEX
Page
Part I. Financial Information
Condensed Consolidated Balance Sheets
September 30, 1995 and December 31, 1994 3
Condensed Consolidated Statements of Operations
Nine and Three Months Ended September 30, 1995 and 1994
(unaudited) 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1994
(unaudited) 5
Notes to Condensed Consolidated Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition 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>
SEPT 30 DEC 31
ASSETS 1995 1994
<S> <C> <C>
Current Assets (UNAUDITED) *
Cash and cash equivalents $640,560 $5,641,885
Marketable securities 4,027,960 2,591,415
Investments being held to maturity 4,383,769 1,168,698
Accounts receivable 1,078,904 906,369
Prepaid income taxes and other 0 228,617
Total current assets 10,131,193 10,536,984
Property and equipment, net 100,461 109,316
Securities acquired in association with licensing
activities 22,915,810 19,431,753
Investments being held to maturity 6,164,344 4,490,436
Other assets 1,154,765 940,977
$40,466,573 $35,509,466
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $5,679 $22,542
Accrued expenses 724,014 647,918
Amounts payable under service agreements 401,029 611,756
Income taxes payable 231,148 0
Total current liabilities 1,361,870 1,282,216
Deferred income taxes 7,253,757 5,992,629
Stockholder's Equity
Common stock, $.10 par value 529,489 533,799
Additional paid in capital 8,848,441 9,131,939
Retained earnings 8,593,965 7,006,127
Unrealized gain on securities acquired in
association with licensing activites, net
of taxes 13,613,655 11,300,883
Cumulative translation adjustment 265,396 261,873
Total stockholders' equity 31,850,946 28,234,621
$40,466,573 $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>
Nine months ended Three months ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues
Service revenues $3,097,538 $2,542,561 $1,119,101 $693,237
Gains on securities acquired in
associaiton with licensing activities 152,968 2,191,234 0 464,535
Total revenues 3,250,506 4,733,234 1,119,101 1,157,772
Costs and Expenses
Service expenses 617,599 536,984 199,852 55,375
Selling, general and administrative expenses 1,114,843 1,129,930 320,446 307,035
Total operating expenses 1,732,442 1,666,914 520,298 362,410
Operating income 1,518,064 3,066,881 598,803 795,362
Other Income and Expenses
Gains (losses) on marketable securities
tranactions 27,707 (230,979) 22,464 (274,570)
Net change in unrealized gains (losses) on
marketable securities 150,211 (1,069,950) (8,016) 113,306
Dividend and interest income 779,874 929,590 218,959 302,274
Gains (losses) from foreign currency transactions (715) (30,336) 508 (11,211)
Income before provision for taxes on income
and cumulative effect of accounting change 2,475,141 2,665,206 832,718 925,161
Provision for taxes on income 887,303 855,436 345,609 221,452
Income before cumulative effect of
accounting change 1,587,838 1,809,770 487,109 703,709
Cumulative effect of change in accounting for
marketable securities, net of taxes 0 245,520 0 0
Net Income $1,587,838 $2,055,290 $487,109 $703,709
Earnings per common share
Income before cumulative effect of accounting
change $0.30 $0.34 $0.09 $0.13
Cumulative effect of change in accounting for
marketable securities 0.00 0.05 0.00 0.00
Net income $0.30 $0.39 $0.09 $0.13
Weighted average number of shares outstanding 5,314,771 5,334,772 5,296,853 5,337,987
<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>
Nine months ended Sept 30,
1995 1994
<S> <C> <C>
Cash Flows from Operating Activities
Net income $1,587,838 $2,055,290
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Cumulative effect of accounting change 0 (245,520)
Depreciation and amortization 60,093 43,792
Accretion of discount on U.S. Treasury Bills (205,640) 0
Net gain on sale of securities (27,707) (1,960,255)
Net change in unrealized (gain) loss on
marketable securities (150,211) 1,069,950
Deferred income taxes 79,202 82,580
(Increase) decrease in assets:
Accounts receivable (172,535) 303,622
Prepaid income taxes and other 228,617 0
Proceeds from sale of marketable securities 876,438 4,233,095
Purchase of marketable securities (2,125,398) (5,279,168)
Other assets (213,788) (119,349)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 59,233 (168,170)
Amounts payable under service agreements (210,727) (1,207,994)
Income taxes payable 231,148 (438,769)
Net cash provided by (used in) operating activities 16,563 (1,630,896)
Cash Flows from Investing Activities
Proceeds from sales of securities acquired in
association with licensing activities 173,386 2,270,426
Proceeds from maturity of investments being held
to maturity 10,503,385 0
Purchase of investments being held to maturity (15,331,378) 0
Additions to patents and trademarks (44,208) (55,050)
Additions to property and equipment (17,751) (29,169)
Net cash (used in) provided by investing activities (4,716,566) 2,186,207
Cash Flows from Financing Activities
Acquisition and retirement of common stock (287,808) 0
Proceeds from exercise of stock options 0 17,875
Net cash (used in) provided by financing activities (287,808) 17,875
Effect of exchange rate changes on cash (13,514) 111,609
Net (decrease) increase in cash and cash equivalents (5,001,325) 684,795
Cash and cash equivalents at the beginning of period 5,641,885 939,818
Cash and cash equivalents at the end of period $640,560 $1,624,613
<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 September 30, 1995 and December 31, 1994, and the results of
its operations and its cash flows for the three and nine 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 nine months and the quarter ended
September 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),399,000 shares of KeyCorp (which
trades on the New York Stock Exchange under the symbol KEY), and
99,750 shares of Patlex Corporation (which trades on the NASDAQ
under the symbol PTLX). The Company previously owned shares in
AutoFinance Group, Inc. ("AFG"). On September 28, 1995 KeyCorp
acquired AFG and as part of the transaction spun off the Patlex
Corporation shares. 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 Condition and Results of Operations
Results of Operations
Total operating revenues decreased $1,483,000 for the nine months ended
September 30, 1995 as compared to the corresponding period in 1994, and $39,000
for the third quarter of 1995 versus the same period in the prior year.
Service revenue accounted for 95% and 54% of operating revenues for the nine
months ended September 30, 1995 and 1994, respectively. Gains on sales of
securities acquired in association with licensing activities accounted for 5%
and 46% of operating revenues for the nine months ended September 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 $555,000 for the nine months ended September 30,
1995 from the corresponding period in 1994 and $426,000 for the third 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 81% of service revenues for the
nine months ended September 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 21% in the
nine month period of 1994 to 20% in the corresponding period of the current
year, and increased from 8% in the three month period of 1994 to 18% 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 sales of
products associated with a licensing program.
Selling, general, and administrative expenses decreased $15,000 for the
nine 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, depreciation and rent expense.
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(Continued)
For the nine months ended September 30, 1995 the Company had gains on its
marketable securities of $178,000 consisting of realized gains of $28,000 and
unrealized gains of $150,000 as compared to realized losses of $231,000 and
unrealized losses of $1,070,000 for the corresponding period of 1994. The loss
in 1994 was principally attributable to the adverse impact that rising interest
rates had on the value of the Company's investments in preferred stocks. In
1995 the Company changed its 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 $150,000 for the nine months
ended September 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 September 30, 1995, included cash and
cash equivalents of approximately $641,000 and publicly-traded securities and
U.S. Treasury Bills and Notes having a market value of over $14,576,000. In
addition, the Company's long-term investment portfolio had a market value of
over $22,915,000 at September 30, 1995, representing an increase of
approximately $3,484,000 over the value at December 31, 1994. This resulted
in an increase to stockholders' equity of approximately $2,313,000, net of
related deferred income taxes.
On September 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
November 7, 1995 /s/Eugene M. Lang
E. M. Lang, Chairman and Chief
Executive Officer
November 7, 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> SEP-30-1995
<PERIOD-TYPE> 9-MOS
<CASH> 640560
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<RECEIVABLES> 1089765
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0
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<COMMON> 529489
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<SALES> 3097538
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<TOTAL-COSTS> 1732442
<OTHER-EXPENSES> (957077)
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