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, 1996
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, 1996 was 5,301,887.
<PAGE>
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
INDEX
Page
Part I. Financial Information
Condensed Consolidated Balance Sheets
June 30, 1996 (unaudited) and December 31, 1995 3
Condensed Consolidated Statements of Operations
Six and Three Months Ended June 30, 1996 and 1995
(unaudited) 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995
(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>
JUNE 30 DEC. 31
ASSETS 1996 1995
<S> <C> <C>
Current Assets (UNAUDITED) *
Cash and cash equivalents $1,474,970 $ 893,744
Marketable securities 6,423,125 5,276,302
Investments being held to maturity 6,213,499 5,245,365
Accounts receivable 1,109,317 1,290,704
Prepaid expenses 19,498 14,272
Total current assets 15,240,409 12,720,387
Property and equipment, net 142,229 151,165
Securities acquired in association with licensing
activities 20,030,525 21,551,772
Investments being held to maturity 1,358,310 1,766,993
Other assets 1,339,002 1,162,114
$38,110,475 $37,352,431
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $50,407 $232,924
Accrued expenses 449,760 397,907
Amounts payable under service agreements 310,070 356,110
Income taxes payable 425,550 464,889
Total current liabilities 1,235,787 1,451,830
Deferred income taxes 6,200,543 6,816,020
Minority interest 32,050 0
Stockholder's Equity
Common stock, $.10 par value 530,189 529,989
Additional paid in capital 8,875,274 8,870,724
Retained earnings 9,268,906 6,700,644
Unrealized gain on securities acquired in
association with licensing activites, net
of taxes 11,744,718 12,713,389
Cumulative translation adjustment 223,008 269,835
Total stockholders' equity 30,642,095 29,084,581
$38,110,475 $37,352,431
<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,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $1,893,066 $1,978,437 $1,133,978 $997,728
Service revenues
Gains on securities acquired in
association with licensing activities 2,497,710 152,968 898,352 0
Dividends from securities acquired in
association with licensing activities 303,240 0 151,620 0
Sales 160,665 86,254 40,813 45,289
Total revenues 4,854,681 2,217,659 2,224,763 1,043,017
Costs and Expenses
Service expenses 467,596 440,050 299,588 170,901
Selling, general and administrative expenses 914,356 794,397 468,708 406,728
Cost of goods sold 114,092 63,951 48,932 36,886
Total operating expenses 1,496,044 1,298,398 817,228 614,515
Operating income 3,358,637 919,261 1,407,535 428,502
Other Income and Expenses
Gain on marketable securities transactions 9,280 5,243 1,367 1,195
Net change in unrealized (losses) gains on
marketable securities (148,030) 158,227 (37,681) 76,314
Dividend and interest income 486,012 560,915 286,762 347,243
Gains (losses) from foreign currency transactions 668 (1,223) 519 50,984
Income before provision for taxes on income
and minority interest 3,706,567 1,642,423 1,658,502 904,238
Provision for taxes on income 1,157,695 541,694 527,542 316,743
Income before minority interest 2,548,872 1,100,729 1,130,960 587,495
Minority interest 12,798 0 7,472 0
Net Income $2,561,670 $1,100,729 $1,138,432 $587,495
Earnings per common share
Net income $0.48 $0.21 $0.21 $0.11
Weighted average number of shares outstanding 5,301,887 5,323,878 5,301,887 5,310,584
<FN>
See accompanying notes to the condensed consolidated financial statements
Page 4
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<TABLE>
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six months ended June 30,
1996 1995
<S> <C> <C>
Cash Flows from Operating Activities
Net income $2,568,262 $1,100,729
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 51,360 55,512
Amortization of discount on U.S. Treasury Bills (14,331) (144,232)
Net gain on sales of securities acquired in
association with licensing activities (2,497,710) 0
Net gain on sales of securities (9,280) (5,243)
Net change in unrealized loss (gain) on
marketable securities 148,030 (158,227)
Deferred income taxes (85,976) 48,761
(Increase) decrease in assets:
Accounts receivable 181,387 (108,107)
Prepaid expenses (5,226) 228,617
Proceeds from sale of marketable securities 1,115,282 777,983
Purchase of marketable securities (2,410,839) (1,290,615)
Other assets (199,840) 42,309
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (130,664) (4,296)
Amounts payable under service agreements (46,040) (213,598)
Income taxes payable (39,339) 248,801
Net cash (used in) provided by operating activities (1,374,924) 578,394
Cash Flows from Investing Activities
Proceeds from sales of securities acquired in
association with licensing activities 2,550,902 173,386
Proceeds from maturity of investments being held
to maturity 680,585 9,881,687
Purchase of investments being held to maturity (1,220,381) (14,874,751)
Additions to property and equipment (12,879) (16,631)
Net cash provided by (used in) investing activities 1,998,227 (4,836,309)
Cash Flows from Financing Activities
Acquisition and retirement of common stock 0 (238,221)
Proceeds from exercise of stock options 4,750 0
Net cash provided by (used in) financing activities 4,750 (238,221)
Effect of exchange rate changes on cash (46,827) (7,409)
Net increase (decrease) in cash and cash equivalents 581,226 (4,503,545)
Cash and cash equivalents at the beginning of period 893,744 5,641,885
Cash and cash equivalents at the end of period $1,474,970 $1,138,340
<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, 1996 and December 31, 1995, 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, 1995, which is
incorporated herein by reference.
2. The results of operations for the six months and quarter ended
June 30, 1996 are not necessarily indicative of the results to be expected
for the full year.
3. In accordance with SFAS No. 115, 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, 1996 consisted of 332,842 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 NYSE under the symbol KEY) and 30,750 shares of
Patlex Corporation (which trades on the NASDAQ under the symbol
PTLX).
Page 6
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Revenues
Total operating revenues increased $2,637,000 for the six months ended
June 30, 1996 as compared to the corresponding period in 1995, and $1,182,000
for the second quarter of 1996 versus the same period in the prior year.
Service revenue accounted for 39% and 89% of operating revenues for the six
months ended June 30, 1996 and 1995, respectively. Investment income (gains
and dividends) from securities acquired in association with licensing activities
accounted for 58% and 7% of operating revenues for the six months ended June 30,
1996 and 1995, respectively. The increase in investment income from securities
acquired in association with licensing activities is principally due to the
increase in revenues from shares sold in the current period versus the
corresponding period of 1995. 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. The increase in sales, which totalled
3% and 4% of total revenues for the first six months of 1996 and 1995,
respectively, is principally related to sales of products by Advanced Resin
Technology, Inc. ("ART"). In December 1995, the Company acquired a controlling
interest in ART, a manufacturer of a patented line of thermoplastic polyurethane
hot melt adhesives and elastomers. At June 30, 1996, the Company owned
approximately 87% of ART.
Service revenues decreased $85,000 for the six months ended June 30, 1996
from the corresponding period in 1995, and increased $136,000 for the second
quarter of 1996 versus the same period in the prior year. The decrease in the
six month period resulted from a decrease of recurring revenues from established
licensing relationships. The increase in the second quarter resulted from a
license agreement which was completed in May. Recurring service revenues from
established licensing relationships, represented 84% of service revenues for the
six month ended June 30, 1996, as compared to 87% in the same period of 1995.
Service expenses represents payments to REFAC clients 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, administration 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 increased from 22% in the
six month period of 1995 to 25% in the corresponding period of the current
year. The increase in this ratio is attributable to an increase in patent
expenses and legal fees relating to non-recurring licensing revenue which
generally bears a higher rate of service expenses than recurring licensing
revenue.
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
Management's Discussion and Analysis
of Financial Conditions and Results of Operations
(Continued)
Selling, general, and administrative expenses increased $120,000 for the
six-month period of 1996 versus the comparable period of 1995. This increase
is principally due to the recent acquisition of an 87% interest in ART. The
selling, general and administrative expenses of ART totalled approximately
$178,000 for the first six months of 1996.
For the six months ended June 30, 1996 the Company had losses on its
marketable securities of $139,000 consisting of realized gains of $9,000 and
unrealized losses of $148,000 as compared to realized gains of $5,000 and
unrealized gains of $158,000 for the corresponding period of 1995. The loss
in 1996 was principally attributable to the adverse impact that rising interest
rates had on the value of the Company's investment in preferred stocks and
governmental agency bonds.
Dividend and interest income decreased by $75,000 for the six months ended
June 30, 1996 from the corresponding period in 1995, primarily as a result of
fluctuations in interest rates. Dividend and interest income consist of
investment income from the Company's portfolio of marketable securities.
The Company's income from licensing and technology transfer operations has
not in the past been materially affected by inflation. Likewise, while currency
fluctuations can influence service revenues, the diversity of foreign income
sources tends to offset individual changes in currency valuations.
Liquidity and Capital Resources
The Company's liquidity position at June 30, 1996, included cash and cash
equivalents of approximately $1,475,000 and publicly-traded securities and U.S.
Treasury Bills and Notes having a market value of approximately $13,995,000.
In addition, the Company's long-term investment portfolio had a market value of
approximately $20,031,000 at June 30, 1996.
On June 30, 1996, the Company had no long-term debt. Other than the
commitment under the lease for its principal office, 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 12, 1996 /s/Eugene M. Lang
E. M. Lang, Chairman and Chief
Executive Officer
August 12, 1996 /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, 1995 is incorporated herein by
reference.
<TABLE> <S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<PERIOD-TYPE> 6-MOS
<CASH> 1474970
<SECURITIES> 34025459
<RECEIVABLES> 1120178
<ALLOWANCES> 10861
<INVENTORY> 19498
<CURRENT-ASSETS> 15240409
<PP&E> 281341
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<BONDS> 0
0
0
<COMMON> 530189
<OTHER-SE> 30111906
<TOTAL-LIABILITY-AND-EQUITY> 38110475
<SALES> 1893066
<TOTAL-REVENUES> 4854681
<CGS> 467596
<TOTAL-COSTS> 1496044
<OTHER-EXPENSES> (360728)
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<INCOME-TAX> 1157695
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<EPS-PRIMARY> .48
<EPS-DILUTED> .48
