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, 1997
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, 1997 was 3,629,387.
Page 1
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
INDEX
Page
Part I. Financial Information
Condensed Consolidated Balance Sheets
March 31, 1997 (unaudited) and December 31, 1996 3
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996
(unaudited) 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996
(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 8
Page 2
<TABLE>
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
MAR. 31 DEC.31
ASSETS 1997 1996
<S> <C> <C>
Current Assets (UNAUDITED) *
Cash and cash equivalents $1,131,895 $15,412,077
Marketable securities 0 2,298,298
Royalties receivable 1,005,570 785,204
Accounts receivable, net 73,021 78,156
Prepaid expenses 82,365 70,369
Total current assets 2,292,851 18,644,104
Property and equipment, net 164,151 159,403
Securities acquired in association with
licensing activities 21,497,413 22,891,653
Other assets 1,492,465 1,974,418
$25,446,880 $43,669,578
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $123,794 $125,578
Accrued expenses 326,240 435,959
Amounts payable under license agreements 205,430 268,235
Dividends payable 0 2,700,943
Income taxes payable 178,474 131,988
Total current liabilities 833,938 3,662,703
Deferred income taxes 6,684,125 7,125,217
Other liabilities-deferred compensation 445,058 445,058
Minority interest 5,417 17,301
Stockholders' Equity
Common stock, $.10 par value 540,440 540,189
Additional paid-in-capital 9,259,128 9,251,182
Retained earnings 9,538,976 8,699,265
Unrealized gain on securities acquired in
association with licensing activities,
net of taxes 12,819,963 13,735,650
Cumulative translation adjustment 194,697 193,013
Treasury stock, at cost (14,874,862) 0
$25,446,880 $43,669,578
<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
1997 1996
<S> <C> <C>
Revenues
Service revenues $873,225 $759,088
Gains on securities acquired in association
with licensing activities 724,573 1,599,358
Dividends from securities acquired in association
with licensing activities 157,080 151,620
Sales 44,140 119,852
Total revenues 1,799,018 2,629,918
Cost and Expenses
Service expenses 185,872 168,008
Selling, general and administrative expenses 540,052 445,648
Cost of goods sold 38,195 65,160
Total operating expenses 764,119 678,816
Operating income 1,034,899 1,951,102
Other income and expenses
Gain on marketable securities transactions 19,264 7,913
Net change in unrealized (losses) gains on
marketable securities 0 (110,349)
Dividend and interest income 99,288 199,250
Gains (losses) from foreign currency transactions 10,638 149
Income before provision for taxes on income and
minority interest 1,164,089 2,048,065
Provision for taxes on income 336,262 630,153
Income before minority interest 827,827 1,417,912
Minority interest in subsidiary loss 11,884 5,326
Net income $839,711 $1,423,238
Earnings per common share $0.22 $0.27
Weighted average number of shares outstanding 3,745,220 5,301,887
<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
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities
Net income $839,711 $1,423,238
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 29,403 25,774
Accretion of premium on U.S. Treasury Bills 0 375
Net gain on sale of securities (724,520) (1,607,271)
Net change in unrealized loss (gain) on
marketable securities (26,379) 110,349
Deferred income taxes 33,603 (73,607)
(Increase) decrease in assets:
Royalties receivable (220,366) 149,729
Accounts receivable 5,135 6,094
Prepaid expenses (11,996) (54,166)
Proceeds from sales of marketable securities 2,324,677 470,485
Purchase of marketable securities 0 (853,428)
Other assets 474,659 (105,762)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (123,387) (225,109)
Amounts payable under service agreements (62,805) (4,359)
Income taxes payable 46,486 713,422
Net cash provided by (used in) operating activities 2,584,221 (24,236)
Cash Flows from Investing Activities
Proceeds from sales of securities acquired in
association with licensing activities 731,356 1,637,899
Proceeds from maturity of investments being held to
maturity 0 230,585
Purchase of investments being held to maturity 0 (1,199,594)
Additions to property and equipment (26,857) (21,332)
Net cash provided by investing activities 704,499 647,558
Cash Flows from Financing Activities
Proceeds from exercise of stock options 5,219 4,750
Proceeds from short-term borrowings 815,828 0
Repayment of short-term borrowings (815,828) 0
Dividends paid (2,700,943) 0
Acquisition of treasury stock (14,874,862) 0
Net cash (used in) provided by financing activities (17,570,586) 4,750
Effect of exchange rate changes on cash 1,684 (34,055)
Net (decrease) increase in cash and cash equivalents (14,280,182) 594,017
Cash and cash equivalents at beginning of period 15,412,077 893,744
Cash and cash equivalents at end of period $1,131,895 $1,487,761
<FN>
See accompanying notes to the condensed consolidated financial statements
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, 1997 and December 31, 1996, and 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, 1996, which is incorporated
herein by reference.
2. The results of operations for the quarter ended March 31, 1997 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.
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.
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.
Page 6
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Total operating revenues decreased by $831,000 for the three months ended
March 31, 1997 as compared to the corresponding period in 1996. Service
revenues accounted for 49% and 29% of operating revenues for the three months
ended March 31, 1997 and 1996, respectively. Income (realized gains on sales
and dividend income) from licensing related securities accounted for 49% and
67% of operating revenues for the three months ended March 31, 1997 and 1996,
respectively. The decrease in gains from licensing related securities is
principally due to the decrease in the number of shares sold in the current
period versus the corresponding period of 1996. The Company intends from time
to time to sell some of such securities.
Service revenues increased by $114,000 for the three months ended March 31,
1997 from the corresponding period in 1996. This change largely resulted from
an increase in non-recurring license revenues. Service revenues consisted of
recurring service revenues (89%) and non-recurring service revenues (11%) for
the three months ended March 31, 1997.
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 22% in the three
month period of 1996 to 21% in the corresponding period of the current year.
Selling, general, and administrative expenses increased $94,000 for the
three month period of 1997 versus the comparable period of 1996, primarily due
to increased compensation and additional staff members. Additionally, the
increase is due to public relation fees and the timing of, and recognition of
certain corporate expenses.
For the three months ended March 31, 1997 the Company had realized gains on
its marketable securities of $19,000 as compared to realized gains of $8,000 and
unrealized losses of $110,000 for the corresponding period of 1996. 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.
Page 7
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(Continued)
Dividend and interest income decreased by $100,000 for the three months
ended March 31, 1997 from the corresponding period in 1996. The year-to-date
decrease in dividends and interest income relates to a reduction in the value of
marketable securities owned by the company at during the quarter ended March
31, 1997 versus the corresponding period of 1996.
The Company's income from 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
On January 6, 1997 the Company completed the purchase of 1,775,000 shares
of common stock from Eugene M. Lang, its Chairman and former Chief Executive
Officer, and the Eugene M. Lang Foundation at $8.25 per share or an aggregate
of $14,643,750, and paid a $.50 per share dividend to shareholders of record
as of December 23, 1996. These two transactions reduced the cash, cash
equivalents and marketable securities from $17,710,000 to $1,132,000. In
addition, the Company's long-term investment portfolio had a market value of
approximately $21,500,000 at March 31, 1997.
On March 31, 1997, the Company had no long-term debt. Other than the
commitment under the lease for its principal office, and the commitment for
office and lab facilities of Advanced Resin Technology, Inc., and Mr. Lang's
retirement agreement (which has been provided for), 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 1. Legal Proceedings
Patlex - The Company's judgement for $205,609 against Patlex Corporation
was affirmed by the United States Court of Appeals.
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
Page 8
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 13, 1997 /s/Robert L. Tuchman
Robert L. Tuchman, President and
Chief Executive Officer
May 13, 1997 /s/Robert Rescigno
Robert Rescigno, Treasurer and Chief
Accounting 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, 1996 is incorporated herein by
reference.
Page 10
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<PERIOD-START> JAN-01-1997
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0
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<COMMON> 540440
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