<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
---------------------------------------------------
For the Fiscal Year Ended December 31, 1999
Commission File Number 0-7704
Delaware REFAC 13-1681234
- ---------------------------------- ----- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
115 River Road, Edgewater, New Jersey 07020-1099
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 943-4400
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
--------------------------------------
(Title of Class)
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 _____
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K._____
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 23, 2000 was $15,892,655.
The number of shares outstanding of the registrant's Common Stock, par
value $.10 per share, as of March 23, 2000 was 3,795,261.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
PART I Item 1 Annual Report to Stockholders of Refac for the year ended
PART II Item 5 December 31, 1999, except for the inside front and back
Item 6 cover and pages 2 through 12 thereof.
Item 7
Item 8
PART III Item 10 Definitive Proxy Statement of Refac in connection with the
Item 11 Annual Meeting of Stockholders to be held on May 12, 2000.
Item 12
Item 13
PART I
------
Item 1. Business
- ----------------
General
- -------
Refac, a Delaware corporation incorporated in 1952 (the "Company" or
"Registrant"), is engaged, through certain of its subsidiaries, in (i) new
product development; (ii) graphic design and communications; (iii) brand,
trademark and patent licensing; and (iv) the marketing of consumer electronic
products.
New Product Development
- -----------------------
In November 1997, the Company acquired Human Factors Industrial Design,
Inc. ("HFID"), an industrial design and engineering firm based in New York City.
In December 1998, the Company merged HFID into its wholly-owned subsidiary,
Refac International, Ltd. ("RIL"), and it now operates as Refac HumanFactors-ID
("HumanFactors-ID"), a division of RIL. Founded in 1974, HumanFactors-ID is a
product development company that offers a broad range of research, design and
engineering services to create innovative products for its clients.
HumanFactors-ID merges the disciplines of applied human factors, industrial
design and engineering and is known for its expertise in designing and/or
engineering (i) consumer products, (ii) medical-surgical devices and (iii)
medical and other industrial equipment.
Prior to its acquisition by the Company, HumanFactors-ID primarily operated
as a fee-for-service consultant. Now, in the appropriate circumstances, it will
forego current fee income for a participation in the future success of a project
on a royalty basis. As used herein, "product licensing" refers to products
and/or product concepts developed by HumanFactors-ID which are then licensed to
manufacturers. In situations where HumanFactors-ID does not own the intellectual
-2-
<PAGE>
property rights and simply develops the products in exchange for a royalty fee,
the income is treated as part of its product design and development activities.
Competition. The industrial design industry is highly fragmented, with a
-----------
lack of dominant market leaders. Since the barriers to entry, including capital
requirements, are relatively low, there are a large number of small regional
firms. HumanFactors-ID faces strong competition from other industrial design
firms and its ability to attract clients is dependent upon its reputation and
ability to deliver distinctive products that meet its clients' requirements in a
timely fashion. In addition, the industrial design business is dependent on the
ability to attract and retain personnel.
Graphic Design and Communications
- ---------------------------------
On November 1, 1999, RIL acquired David Morris Creative, Inc., David Morris
Associates, Inc., and David Morris Creative Associates Ltd., which businesses
are now being operated as a division of RIL under the name of Refac David Morris
Creative ("RDMC"). RDMC has designed graphic communications and marketing
solutions for a wide variety of clients since 1990. Its array of graphic design
services include brochures and collateral materials, brand and communications
strategy, corporate identity, packaging and multimedia design.
Competition. The graphic design industry is highly fragmented, with a
------------
lack of dominant market leaders. Since the barriers to entry, including capital
requirements, are relatively low, there are a large number of small regional
firms. RDMC faces strong competition from other graphic design firms and its
ability to attract clients is dependent upon its reputation and ability to
deliver distinctive graphics and communications services that meet its clients'
requirements in a timely fashion.
Licensing
- ---------
Brand and Trademark Licensing
-----------------------------
In January 1998, the Company broadened its licensing business through the
formation of Refac Licensing, Inc. (formerly known as Selective Licensing &
Promotion, Ltd. and referred to herein as "RL"). RL is a full service trademark
licensing agency and consultancy for brand and character licensing properties.
The Company owns 81% of RL and Ms. Arlene Scanlan, the President and Chief
Executive Officer of RL, owns the remaining 19%. RL currently acts as the
licensing agent for the following properties: Autobytel.com/(R)/, Class of
2000/(R)/, Dr. Denton/(R)/, JoeCartoon, Psycho Chihuahua/(R)/, Rambling
Ted/(R)/, Rocket Girl and Rockwell/(R)/. The Company has made a $1 million line
of credit available to RL through December, 31, 2001, at the prime rate plus 2%,
of which $646,635 had been drawn down as of December 31, 1999.
Competition. Success in the trademark licensing agency business is
-----------
principally dependent upon the strength of the properties that the agency
represents. With respect to character or juvenile licensing, most of the movie
and television production companies have their own licensing divisions
-3-
<PAGE>
to license their properties. Thus, RL typically competes with other independent
agencies for properties that have not yet become well-known but which it
believes have the potential to be popular. It also competes with other agencies
in brand licensing for the rights to well-known corporate trademarks. The
Company believes that its product development and graphic design capabilities
give it a distinct advantage in this area.
Patent Licensing Operations
----------------------------
The Company's patent and technology licensing includes "New Technology
Licensing" and "Patent Enforcement Licensing" projects. In both classes, the
Company generally acquires from its clients ("Clients") the exclusive right to
grant a license to third parties ("Licensees") to manufacture, use and/or sell,
throughout the world or in specific markets, specific Client products and
processes under their respective patents and/or in accordance with related
technical know-how. The Company did not undertake any New Technology Licensing
or Patent Enforcement Licensing projects during 1999.
In recent years, a typical Client has been an individual or a small company
for whom licensing offers important opportunities for accelerated product
development, broadened commercialization and income. The Company also offers
larger corporations a facility for exploiting idle patents, unused or abandoned
products and technological developments. As a general policy, the Company
shares equally with Clients the gross amount of revenues received from its
licenses. Occasionally, in addition to or in lieu of money payments, the Company
may receive equity considerations.
New Technology Licensing. New Technology Licensing includes technologies
------------------------
that have not yet been successfully commercialized. These technologies
generally offer certain benefits such as new features, improved performance,
cost savings and/or favorable environmental, health or safety features. In
order for the Company to attract Licensees for this type of technology, it has
to present evidence that persuasively "proves the concept" of the invention,
which often involves monetary investments. The Company currently prefers to
limit its New Technology Licensing to projects in which it can have an equity
position.
The Company is selective in the products for which it undertakes licensing
projects. It attempts to locate consumer and industrial technologies having
distinctively advantageous features that are protected by patents and
confidential know-how. Sometimes, the Company has the added right to license
the Client's trademarks. However, historically, most of the Company's licensing
opportunities have been referred to the Company by others due to the Company's
professional reputation. All such opportunities are evaluated on the basis of
their proprietary features, innovative merit, technological significance,
competitive conditions and earning potential. Licensing and technology transfer
strategies are studied with due consideration of the Client's objectives. The
actual licensing process usually starts with the identification and
qualification of suitable prospects. Information packages and license proposals
are prepared subject to the Client's approval. When suitable prospective
Licensees are identified, negotiations proceed with the goal of creating
-4-
<PAGE>
income-producing agreements. Agreements may provide for single lump sum payments
or, as is generally preferred, ongoing royalty payments based on sales of
licensed products over an extended period of years.
There is usually a substantial interval between the time license rights are
acquired and the actual realization of license revenue. The interval is seldom
less than two years, often longer. Not infrequently, licensing efforts prove
unsuccessful. A licensing program may result in a succession of many non-
exclusive agreements or a limited number of exclusive agreements covering
defined areas of technology, fields of product application and marketing
territories. The terms and conditions of these licenses and related agreements
may vary depending upon whether they principally cover patent rights,
trademarks, developments and improvements, exclusivity, trade secrets and/or
copyrights. From time to time, licensing programs may result in the creation of
new companies in which the Company and the Client may acquire or have the option
to acquire equity or joint venture interests.
Patent Enforcement Licensing. A prospective Client often notifies the
----------------------------
Company of its belief that its patents are being infringed by various
manufacturers or other entities. In such event, before accepting a licensing
responsibility, the Company intensively investigates relevant issues regarding
the validity of the client's patent and the alleged infringement circumstances.
If the Company concludes that there exists (i) substantial merit in the Client's
patent position, (ii) a strong basis for concluding that infringement exists,
(iii) substantial economic value to be gained and (iv) an opportunity to grant a
license which will not conflict or interfere with the Client's business
relationships, serious efforts are then made to license the patents to the
putatively infringing party. If the Company is not successful in its efforts to
enter into a licensing arrangement, which is often the case, the Company may
consider it appropriate, with the Client as co-plaintiff, to initiate
infringement litigation against the alleged infringer. Such litigation is often
costly and lengthy with an uncertain outcome.
Except for its contracts with Patlex Corporation and Emhart Fastening
Teknologies, Inc. which accounted for 9.8% and 5.4%, respectively, of the
Company's total revenues in 1999, the Company does not believe that the loss or
termination of any contract it has with Clients would have a materially adverse
effect on its business. The most commercially significant patent owned by Patlex
Corporation is the Gas Discharge Laser Patent (U.S. Patent No. 4,704,583) which
expires in November 2004.
With respect to any patents or group of related patents that are now the
subject of one or more income-producing licenses, the Company does not believe
that there is any currently foreseeable circumstance under which the Company
would lose its rights to grant licenses.
Patents and Trademarks. The Company does not own any patents or trademarks
----------------------
that it deems important to its patent licensing business.
-5-
<PAGE>
Competition. Success in the technology licensing business is
-----------
principally dependent upon the ability of a technology to create a competitive
advantage or solve a recognized problem in the marketplace and the availability
of the financial and technical resources necessary to "prove the concept" and
demonstrate the benefits of the invention to prospective Licensees. The Company
competes against individuals, agents, universities, corporations and patent
counsel in patent licensing and enforcement activities. The Company believes
that its product design and development expertise gives it an advantage in this
area for consumer products, medical devices and business equipment.
Consumer Products
- -----------------
In September 1999, the Company formed Refac Consumer Products, Inc. ("RCP")
to develop and market a line of proprietary consumer electronics products and
also acquired Funatik Inc. which was subsequently merged into RCP. The Funatik
acquisition was primarily motivated by the sales and marketing expertise and
capability of its two principals.
This product line was introduced in January 2000 at the International
Consumer Electronics Show in Las Vegas, Nevada. The product line, which will be
manufactured in Asia, has been developed in-house by HumanFactors-ID and
includes a Volkswagen New Beetle(TM) branded AM/FM digital stereo and
multifunction CD player, travel clock, clock radio and sport radio; a
RefacDesign(TM) branded MP3 Player, Universal MP3 Car Adapter, Digital Radio and
Hand-Crank Emergency Radio and a Funatik(TM) branded Star Trek/(R)/ Lamp and a
Golf Lamp. The Company established Refac (H.K.) Limited, a Hong Kong subsidiary,
to facilitate the sourcing, manufacturing and quality control of the product
line and to distribute the products outside of North America.
Government Regulations
- ----------------------
Federal, state and local environmental laws have had no material effect on
capital expenditures, earnings or the competitive position of the Company.
Employees
- ---------
As of December 31, 1999, the Company had a total of 59 full time employees.
Financial Information About Foreign and Domestic Operations and Product Sales
- -----------------------------------------------------------------------------
The Company's business is principally conducted in the United States.
Information concerning the aggregate of the Company's foreign source revenues
from domestic operations for the three years ended December 31, 1999 is set
forth in Note 7 of the Notes to the Company's Consolidated Financial Statements
found on pages 25 and 26 of the Company's 1999 Annual Report to Stockholders,
which pages are incorporated herein by reference. The Company is subject to the
usual risks of doing business abroad, particularly currency fluctuations and
foreign exchange controls.
-6-
<PAGE>
Item 2. Properties
- -------------------
In May, 1999, the Company relocated its corporate headquarters and creative
studios to 30,000-square-feet of newly constructed premises located at The
Hudson River Pier, 115 River Road, Edgewater, New Jersey 07020. The lease for
these new premises terminates in November 2009 and the Company has two
successive five-year renewal options. These premises are occupied and used as
the corporate offices and creative studios for the Company and its domestic
subsidiaries, other than RL and Refac Financial Corporation ("RFC").
In connection with this relocation, the Company terminated, without
liability, its lease for its corporate offices in New York City and subleased
the offices and studio previously occupied by HumanFactors-ID (10,000 square
feet located at 575 Eighth Avenue, New York, New York) for the remaining term of
the lease.
RL leases approximately 1,450 square feet in an office building located at
107 John Street, Southport, Connecticut under a lease which expires in 2003.
RFC leases office facilities in Las Vegas, Nevada, which it considers to be
suitable and adequate for its present needs.
During 1999, RDMC occupied approximately 3,000 square feet of office and
studio space in an office building located in Jersey City, New Jersey. In
February 2000, RDMC relocated to the corporate headquarters and creative center
in Edgewater and terminated its Jersey City lease without any liability.
Item 3. Legal Proceedings
- --------------------------
Suit by Former Officer. In December 1995, an action was commenced in
----------------------
the United States District Court for the Eastern District of New Jersey against
the Company by the executrix of the estate of a former officer of the Company
for compensation allegedly due the deceased officer under an employment
arrangement. The Company believes that the claim is without any merit and
intends to vigorously defend the claim against it.
Suit by Shareholder. On December 20, 1999, a claim was brought against
-------------------
the Company, as a nominal defendant, and certain of its directors in the Supreme
Court of the State of New York, New York County, by a shareholder purporting to
state claims against the Company and certain members of the Company's board of
directors for breach of fiduciary duty and waste arising out of a Stock
Repurchase Agreement and a Retirement Agreement entered into in December 1996
between the Company and its then Chairman and Chief Executive Officer, Eugene
Lang. On February 29, 2000, the Company, together with all other defendants,
filed a motion to dismiss the Complaint in its entirety on the grounds that
plaintiff's claims are time barred by the statute of limitations and that the
Complaint fails to state a claim upon which relief may be granted. The Company
believes that the claims against the Company and its directors are without
merit, and it intends to vigorously
-7-
<PAGE>
defend all claims against it.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1999.
Executive Officers of the Registrant
- ------------------------------------
Information with respect to the executive officers of the Registrant is set
forth below.
Under the by-laws of the Registrant, each executive officer holds office
from his election until the Board of Directors' meeting after the annual meeting
of shareholders next following his election or until his successor is elected
and qualified, or his earlier death, resignation or removal by the Board.
There are no family relationships between any of the executive officers of
the Registrant nor were there any special arrangements or understandings
regarding the selection of any officer.
<TABLE>
<CAPTION>
Served in Such
Position or Office
Name Age Continually Since Position (1)
- ------------------------------------- --- ----------------- ---------------------------------------
<S> <C> <C> <C>
Robert L. Tuchman 57 1991 Chairman, President, Chief Executive
Officer and General Counsel (2)
Douglas M. Spranger 52 1998 Senior Vice President (3)
Raymond A. Cardonne, Jr. 33 1997 Vice President and Secretary (4)
Elliott S. Greller 57 1998 Vice President, Chief Financial Officer
and Treasurer (5)
- ----------
</TABLE>
NOTES:
(1) Each executive officer's term of office is until the next organizational
meeting of the Board of Directors of the Company (traditionally held
immediately after the Annual Meeting of Stockholders of the Company) and
until the election and qualification of his or her successor. However, the
Company's Board of Directors has the discretion to replace officers at any
time.
-8-
<PAGE>
(2) Mr. Tuchman succeeded Eugene M. Lang as Chief Executive Officer of the
Company on January 6, 1997 and as Chairman of the Board of Directors on
June 30, 1997. He also serves as General Counsel. From August 1, 1991
until January 6, 1997, Mr. Tuchman served as the Company's President and
Chief Operating Officer. From May, 1994 to March, 1997 he held the position
of Treasurer of the Company.
(3) Mr. Spranger was Chief Executive Officer of HFID from its formation in
1974. HFID, which was acquired by the Company in November, 1997, was merged
into RIL on December 31, 1998. Mr. Spranger became Senior Vice President
of the Company and RIL in December 1998. His employment with the Company
and stock options were terminated by mutual agreement as of December 31,
1999. See Exhibit 10(d).
(4) Mr. Cardonne joined the Company in December 1997 as Vice President
responsible for the licensing and commercialization of technologies and was
elected to the additional position of Secretary in November 1998. Prior to
joining Refac, from December 1994 through November 1997, Mr. Cardonne was a
Vice President at Technology Management & Funding, L.P. From August 1993
to December 1994, he worked for NEPA Venture Funds, an early stage venture
capital firm, and the Lehigh Small Business Development Center. He
previously worked at Ford Electronics & Refrigeration Corporation from
January 1990 to July 1993.
(5) Mr. Greller joined the Company in March 1, 1998 as President of the Royalty
Control Division of Refac Services Corporation, a wholly-owned subsidiary
of the Company, that was merged into RIL on December 31, 1998. He became
the Company's Vice President, Chief Financial Officer and Treasurer in
September 1998. Prior to joining the Company, for more than fifteen years,
Mr. Greller worked as an accountant and was the Chief Executive Officer and
sole owner of the Royalty Control Group Company which provided royalty
audit services to licensors. Mr. Greller's employment by the Company was
terminated by mutual agreement as of March 3, 2000.
PART II
-------
Item 5. Market for the Company's Common Stock and Related Stockholder Matters
- ------------------------------------------------------------------------------
The Company had 701 stockholders of record as of March 23, 2000. Other
information required by this item is included on page 28 of the Company's Annual
Report to Stockholders for the year ended December 31, 1999, which page is
hereby incorporated by reference.
Item 6. Selected Financial Data
- --------------------------------
The information required by this item is included on page 28 of the
Company's Annual
-9-
<PAGE>
Report to Stockholders for the year ended December 31, 1999, which page is
hereby incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
The information required by this item is included on pages 13 and 14 of the
Company's Annual Report to Stockholders for the year ended December 31, 1999,
which pages are hereby incorporated by reference.
Item 8. Financial Statements
- -----------------------------
The information required by this item is included on pages 15 through 19 of
the Company's Annual Report to Stockholders for the year ended December 31,
1999, which pages are hereby incorporated by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
None.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
The information required by this item, except for certain information
regarding executive officers included in Part I of this report, is included on
pages 4 through 6 in the Company's definitive Proxy Statement in connection with
the Annual Meeting of Stockholders to be held on May 12, 2000 and is hereby
incorporated herein by reference.
Item 11. Executive Compensation
- --------------------------------
The information required by this item is included on page 7 in the
Company's definitive Proxy Statement in connection with the Annual Meeting of
Stockholders to be held on May 12, 2000 and is hereby incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information required by this item is included on pages 2 through 4 in
the Company's definitive Proxy Statement in connection with the Annual Meeting
of Stockholders to be held on May 12, 2000 and is hereby incorporated herein by
reference.
-10-
<PAGE>
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is included on pages 13 and 14 in the
Company's definitive Proxy Statement in connection with the Annual Meeting of
Stockholders to be held on May 12, 2000 and is hereby incorporated herein by
reference.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a)(1) Financial Statements
- ---------------------------
See index to financial statements on the inside cover of the Company's
Annual Report to Stockholders for the year ended December 31, 1999, which is
hereby incorporated by reference.
(a)(2) Schedules
- -----------------
See index to financial statements on the inside cover of the Company's
Annual Report to Stockholders for the year ended December 31, 1999, which is
hereby incorporated by reference.
(a)(3) Exhibits
- ----------------
See the Exhibit Index attached hereto for a list of the exhibits filed or
incorporated by reference as a part of this report.
(b) Reports on Form 8-K
- ------------------------
Current report on Form 8-K, dated November 1, 1999, with respect to RIL
entering into an Asset Purchase Agreement with David Morris Creative, Inc.,
David Morris Associates, Inc., and David Morris Creative Associates Ltd.
(collectively, the "Sellers"), and David M. Annunziato, President of each of the
Sellers.
-11-
<PAGE>
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
Dated: March 23, 2000 /s/ Robert L. Tuchman
------------------------------------
Robert L. Tuchman, President, Chief
Executive Officer and General Counsel
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
March 23, 2000 /s/ Robert L. Tuchman
------------------------------------
Robert L. Tuchman, President, Chief
Executive Officer, General Counsel and Director
(Principal Executive Officer)
March 23, 2000 /s/ David Capodanno
------------------------------------
David Capodanno, Controller
(Principal Financial Officer)
March 23, 2000 /s/ Neil R. Austrian
------------------------------------
Neil R. Austrian, Director
March 23, 2000 /s/ Robin L. Farkas
------------------------------------
Robin L. Farkas, Director
-12-
<PAGE>
Signatures
----------
(Continued)
March 23, 2000 /s/ Mark N. Kaplan
------------------------------------
Mark N. Kaplan, Director
March 23, 2000 /s/ Herbert W. Leonard
------------------------------------
Herbert W. Leonard, Director
March 23, 2000 /s/ Ira T. Wender
------------------------------------
Ira T. Wender, Director
-13-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Exhibit
- ----------- -------
3(a) Restated Certificate of Incorporation and Certificate of Amendment
thereto. Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1988, SEC file
number 0-7704.
3(b) The By-laws of the Company. Incorporated by reference to Exhibit
3 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, SEC file number 0-7704.
10 (a) Amended and Restated Employment Agreement dated December 13, 1996
between the Company and Robert L. Tuchman (the "Tuchman Employment
Agreement"). Incorporated by reference to Exhibit 10 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, SEC
file number 0-7704.
10 (b) Amendment, dated January 20, 1999, extending the term of the Tuchman
Employment Agreement is incorporated herein by reference to Exhibit 10
(b) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
10 (c) Employment Agreement, dated November 25, 1997 between the Company and
Douglas M. Spranger and an Amendment thereto, dated January 14, 1999,
is incorporated herein by reference to Exhibit 10 (b) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
10 (d) Agreement, dated as of December 31, 1999, between the Company, RIL and
Douglas M. Spranger terminating his employment.*
10 (e) 1998 Stock Incentive Plan. Incorporated by reference to Exhibit A to
the Company's Proxy Statement for its 1998 Annual Meeting of
Stockholders, SEC file number 0-7704.
10 (f) 1990 Stock Option and Incentive Plan. Incorporated by reference to
Exhibit A to the Company's Proxy Statement for its 1990 Annual Meeting
of Stockholders, SEC file number 0-7704.
13. 1999 Annual Report to Stockholders of the Company.*
<PAGE>
21 List of subsidiaries of the Company.*
23. Consent of Grant Thornton LLP. *
_____________________
* Filed herewith.
<PAGE>
EXHIBIT 10(d)
AGREEMENT
---------
AGREEMENT made as of the 31/st/ day of December, 1999 by and among:
Refac International Ltd., a Nevada corporation having executive offices at
The Hudson River Pier, 115 River Road, Edgewater, New Jersey 07020-
1099 (hereinafter referred to as "RIL");
Refac, a Delaware corporation having executive offices at The Hudson River
Pier, 115 River Road, Edgewater, New Jersey 07020-1099 (formerly known
as Refac Technology Development Corporation and referred to herein as
"Refac"); and
Douglas M. Spranger, an individual residing at 142 East 37th Street, New
York, New York 10016 (hereinafter referred to as "Spranger").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Spranger has been employed by RIL and Refac pursuant to the
Employment Agreement (as hereinafter defined); and
WHEREAS, Spranger has a 30% interest in certain contingent payments
provided for in Section 6.12 of a Merger Agreement (as hereinafter defined); and
WHEREAS, in connection with the Employment Agreement and the Merger
Agreement, Refac has granted to Spranger options to acquire 45,000 shares of its
common stock pursuant to a Stock Option Agreement (as hereinafter defined); and
WHEREAS, the parties want to provide for (i) the termination of the
Employment Agreement, (ii) the termination of the Stock Option Agreement, (iii)
the sale, transfer and assignment by Spranger to Refac of his interest in such
contingent payments, (iv) a release of restrictions on Spranger engaging in
professional consulting services relating to control rooms and (v) sales
representation services that Spranger may provide to Refac HumanFactors-ID:
NOW, THEREFORE, in consideration of the premises and the respective
agreements of the parties herein contained, the parties hereto, intending to be
legally bound, agree as follows:
<PAGE>
1. Definition of Terms.
--------------------
As used herein, the following terms shall have the following meanings:
1.1 "Agreement" means this agreement.
1.2 "Contingent Payment" means the 30% interest that Spranger holds in the
contingent payments provided for in Section 6.12 of the Merger Agreement.
1.3 "Employment Agreement" means the Employment Agreement between HFID
(as defined below) and Spranger, dated November 25, 1997, as amended by
Agreement, dated as of January 1, 1999.
1.4 "HFID" means the product development business previously conducted by
Human Factors Industrial Design, Inc. (which corporation was merged into RIL as
of December 31, 1998) and which is currently being conducted by RIL under the
name Refac HumanFactors-ID.
1.5 "Merger Agreement" means the Agreement and Plan of Merger by and among
Refac, HFID Acquisition Corporation, Human Factors Industrial Design, Inc., and
the principal stockholders of Human Factors Industrial Design, Inc., dated as of
November 25, 1997.
1.6 "Stock Option Agreement" means the Stock Option Agreement, dated
November 25, 1997, and amended on March 18, 1998, between Refac and Spranger
providing for the grant to Spranger of an option to acquire 45,000 shares of
Refac's common stock.
2. Termination of the Employment Agreement.
----------------------------------------
The parties hereby agree that the Employment Agreement shall be deemed
terminated as of December 31, 1999.
3. Resignation from the Board of Directors of Refac and RIL.
---------------------------------------------------------
Simultaneously with the execution of this Agreement, Spranger resigns as an
officer and director of RIL and Refac and as the Chairman of HFID.
4. Termination of the Stock Option Agreement.
------------------------------------------
Simultaneously with the execution of this Agreement, the Stock Option
Agreement shall terminate and be of no further force and effect whatsoever and
Spranger shall deliver to Refac any original executed copies of the Stock Option
Agreement (including the amendment thereto) in his possession to Refac.
5. Purchase of the Contingent Interest.
------------------------------------
<PAGE>
5.1 Spranger hereby represents and warrants to Refac that he has not
sold, transferred or assigned all or any part of his interest in the Contingent
Payment and has not granted any security interest or encumbered same in any
manner whatsoever.
5.2 Spranger hereby sells, transfers and assigns all of his right, title
and interest in and to the Contingent Payment to Refac in consideration of the
sum of One Hundred Twenty-Five Thousand Dollars ($125,000.00), the receipt of
which Spranger hereby acknowledges.
6. Control Room Consulting Services
--------------------------------
6.1 Refac and RIL hereby agree to release Spranger from any and all
restrictions in the Merger Agreement and Employment Agreement that prohibit
Spranger from soliciting or performing professional consulting services relating
to the design of control rooms including, but not limited to, the Bapco project.
6.2 During the period commencing January 1, 2000 and ending December 31,
2001, HFID agrees to support any project that Spranger undertakes to design
control rooms by providing staffing, if available and requested by Spranger, to
work on the project. In such event, HFID shall bill Spranger for its staff time
at HFID's regular hourly rates in effect at the time the services are rendered.
6.3 In consideration for the release of the restrictive covenants
regarding the design of control rooms, Spranger agrees to pay HFID 25% of the
amount that he, directly or indirectly, charges clients for the time that he
personally devotes to this activity in year 2000 up to a maximum of $50,000. In
year 2001, Spranger agrees to pay HFID 15% of the amount that he charges clients
for the time that he personally devotes to this activity up to a maximum of
$50,000. Thereafter, Refac and RIL would not have any interest in any control
room design work performed by Spranger.
6.4 As used in this Paragraph 6, the term "Spranger" shall include any
entity in which Spranger owns a 25% or greater interest or which he controls, it
being understood and agreed that Spranger personally guarantees the performance
of any and all obligations such entity may have to HFID.
6.5 During the period commencing January 1, 2000 and ending December 31,
2001, HFID agrees that it will not undertake any projects to design control
rooms and agrees to refer any inquiries from prospective or past clients
regarding such services to Spranger.
6.6 During the period commencing January 1, 2000 and ending December 31,
2001, Spranger agrees that he will refer to HFID, without compensation, all non-
control room project inquiries from any company that was an HFID client during
the period commencing January 1, 1995 and ending December 31, 1999.
<PAGE>
6.7 HFID agrees that Spranger shall take possession of the original
historical control room materials for his free and unencumbered use. Spranger
agrees to provide HFID with an itemized list of all of such original historical
control room materials. He further agrees that at any time and/or from time to
time to give access to such materials to HFID and to permit HFID to make copies
of all or part of such materials. This covenant shall continue during the five
(5) year period ending December 31, 2004.
6.8 During the period commencing January 1, 2000 and terminating December
31, 2000, Refac shall make available to Spranger, without charge, an office at
its corporate headquarters in Edgewater, New Jersey for his use in performing
the services contemplated by this Paragraph 6 and the sales representation
services provided for in Paragraph 7 hereof.
7. Sales Representative Services.
------------------------------
7.1 RIL hereby retains Spranger as an independent sales representative for
HFID on the following terms and conditions:
7.1.1 Period. The agency shall commence on the date hereof and shall be
-------
terminable at any time and for any reason by RIL.
7.1.2 Compensation. Should Spranger introduce HFID to a prospective
------------
client that has not been an active HFID client during the period
commencing January 1, 1995 and ending December 31, 1999 and which
has not been specifically identified by HFID as a targeted
prospect, HFID will pay Spranger a 7 1/2% commission on the first
$100,000 of collected project fees and 5% of such collected project
fees in excess of $100,000. Such commission will be payable within
thirty (30) days after the end of the month in which the client
makes payment to HFID.
If any such client retains HFID for an additional project(s) within
two (2) years from the commencement of the initial project, HFID
shall also pay Spranger a 5% fee on such project(s). This right to
compensation on additional projects shall continue even if RIL
terminates this sales representation agency under Paragraph 7.1.1
above.
All clients solicited by Spranger shall be subject to the fees and
other terms and conditions established by HFID from time to time.
Spranger understands and agrees that HFID shall not be obligated to
accept any clients introduced by him and that HFID shall have the
sole and absolute discretion to set credit limits, make
adjustments, terms, allowances, and discounts, and to accept or
reject any projects, as it may determine. Spranger shall not have
any right or authority to create any obligation on behalf of HFID
or to bind HFID in any manner.
<PAGE>
7.1.3 Expenses. Spranger shall have the entire responsibility for and
--------
shall pay all costs and
expenses of doing business in connection with his sales
representation activities hereunder.
7.1.4 Definition of Clients. As used in this Paragraph 7, the term
---------------------
"clients" shall mean the business entities for which HFID
performed services but shall not include any of the individuals
employed by such entities.
8. Confidentiality, Non-Competition, etc.
--------------------------------------
8.1 As used in this Paragraph 8, "Refac Companies" means Refac and all
of its subsidiary companies and "Confidential Information" means any
confidential or proprietary information relating to the identity of customers
of any of the Refac Companies, the identity of representatives of customers with
whom any of the Refac Companies has dealt, the kinds of services provided by the
Refac Companies to customers, the manner in which such services are performed or
offered to be performed, the service needs of actual or prospective customers,
pricing information, information concerning the creation, acquisition or
disposition of products and services, customer maintenance listings, computer
software applications, research and development data, knowhow, personnel
information, corporate finance information, and other proprietary information
and trade secrets. Notwithstanding the above, Confidential Information shall not
include any information that:
(i) is generally available to the public without conducting a
substantial search of published literature; or
(ii) is subject to disclosure pursuant to any order or regulation
of any governmental, regulatory or administrative agency or
authority or court of judicial authority.
If a particular portion or aspect of Confidential Information becomes subject to
either of the foregoing exceptions, all other portions or aspects of such
information shall remain subject to this Paragraph 8.
8.2 Spranger acknowledges that (i) during the course of his
employment he has had, and will continue to have, access to and knowledge of
Confidential Information, (ii) the disclosure of any such Confidential
Information to existing or potential competitors of HFID would place HFID at a
competitive disadvantage and would do damage, monetary or otherwise, to HFID's
business, and (iii) the trade secret status of the Confidential Information and
that the Confidential Information constitutes a protectable business interest of
HFID. Accordingly, Spranger agrees as follows:
(i) During the five (5) year period commencing January 1, 2000,
he shall not, directly or indirectly, whether individually,
as a director, stockholder, owner, partner, employee,
principal or agent of any business, or in any other
capacity, make known, disclose, furnish,
<PAGE>
make available or utilize any of the Confidential
Information, other than in the proper performance of the
duties as a sales representation and/or consultant
hereunder.
(ii) Within thirty (30) days after the execution of this
Agreement, Spranger agrees to return to Refac all
Confidential Information, including all photocopies,
extracts and summaries thereof, and any such information
stored electronically on tapes, computer disks or in any
other manner that he does not deem necessary for the
rendition of the sales representation services provided for
herein. Upon the termination of the sales representation
services, the Confidential Information then in his
possession shall be returned to the Refac Companies.
8.3 During the period that Spranger provides the sales representation
services provided for herein and for a period of twenty-four (24) months
thereafter, Spranger agrees that he will not, directly or indirectly, for his
benefit or for the benefit of any other person, firm or entity, solicit the
employment or services of, or hire, any person who was known to be employed by
or was a known consultant to any of the Refac Companies during the course of his
employment by HFID and sales representation services hereunder.
8.4 The provisions of this Paragraph 8 are in addition to any other
obligations that Spranger may have to Refac under or by reason of the Employment
Agreement and/or the Merger Agreement for confidentiality or non-competition.
9. Arbitration.
------------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in New York, New York, in accordance with the rules
of the American Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction. The arbitrators, in
their discretion, may direct that the successful party in any such arbitration
shall be entitled to be reimbursed by the other party for reasonable attorneys'
fees and expenses incurred in connection with such dispute or controversy.
10. Miscellaneous.
--------------
10.1 Section headings. Section headings contained in this Agreement
-----------------
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
10.2 Governing Law and Jurisdiction. This Agreement shall be governed by
-------------------------------
and interpreted in accordance with the internal laws of the State of New York
applicable to agreements entered into and to be performed wholly in New York,
irrespective of such State's rules pertaining
<PAGE>
to conflicts of laws.
10.3 Waiver. No failure or delay by either party in exercising any
-------
right, power, or remedy under this Agreement shall operate as a waiver of any
such right, power, or remedy. No waiver of any provision of this Agreement shall
be effective unless in writing and signed by the party against whom such waiver
is sought to be enforced. Any waiver by either party of any provision of this
Agreement shall not be construed as a waiver of any other provision of this
Agreement, nor shall such waiver operate as or be construed as a waiver of such
provision respecting any future event or circumstance.
10.4 Modification. No modification of any provision hereof shall be
-------------
effective unless in writing and signed by both of the parties to this Agreement.
10.5 Severability. In the event any provision of this Agreement (or
-------------
portion thereof) is determined by a court of competent jurisdiction to be
invalid or otherwise unenforceable, such provision (or part thereof) shall be
enforced to the extent possibly consistent with the stated intention of the
parties, or, if incapable of such enforcement, shall be deemed to be deleted
from this Agreement, while the remainder of this Agreement shall continue in
full force and remain in effect according to its stated terms and conditions.
10.6 Further Action. The parties agree, upon the other party's request,
---------------
to execute any and all documents and do all acts necessary to carry out the
terms of this Agreement.
10.7 Entire Agreement. This Agreement, including the Exhibits hereto,
-----------------
sets forth the entire agreement and understanding between the parties with
respect to the subject matter hereof. This Agreement supersedes all prior and
contemporaneous agreements, negotiations, and understandings between the
parties, both oral and written.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
written below.
Refac
By: /s/ Robert L. Tuchman
-----------------------
Robert L. Tuchman
Title: President & CEO
Date: January 11, 2000
-----------------------
Refac International, Ltd.
By: /s/ Robert L. Tuchman
-----------------------
Robert L. Tuchman
Title: President & CEO
Date: January 11, 2000
-----------------------
/s/ Douglas M. Spranger
-----------------------
Douglas M. Spranger
Date: January 11, 2000
-----------------------
<PAGE>
EXHIBIT 13
REFAC AND SUBSIDIARIES
----------------------
FINANCIAL STATEMENTS OF
ANNUAL REPORT ON FORM 10-K TO
THE SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED DECEMBER 31, 1999
INDEX TO FINANCIAL STATEMENTS
-----------------------------
1. Financial Statements
--------------------
The Consolidated Financial Statements to be included in Part II, Item 8 of
this report are incorporated by reference to the Annual Report to
Stockholders of Refac for the year ended December 31, 1999, copies of which
are attached to this report.
All schedules required by Item 14(a)(2) of this report have been omitted
because they are inapplicable, not required, or the information is included
elsewhere in the financial statements or accompanying notes.
<PAGE>
EXHIBIT 13
----------
1999 ANNUAL FINANCIAL REPORT
================================================================================
[LOGO OF REFAC]
www.refac.com
<PAGE>
(2)
____
LETTER TO STOCKHOLDERS
(6)
____
REFAC'S BUSINESSES
(13)
____
MANAGEMENT'S DISCUSSION AND ANALYSIS
(15)
____
CONSOLIDATED STATEMENTS
(20)
____
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(27)
____
INDEPENDENT AUDITOR'S REPORT
(29)
____
DIRECTORS AND OFFICERS
<PAGE>
AT A GLANCE
For almost 50 years, Refac has been a recognized
international leader in intellectual property management.
[LOGO OF REFAC] Today, our expertise includes: new product development;
graphic design and communications; brand and trademark
licensing; technology and patent licensing; and intellectual
venture capital.
[GRAPHIC]
www.refac.com
<PAGE>
CHAIRMAN'S LETTER
- --------------------------------------------------------------------------------
TO OUR STOCKHOLDERS:
Over the past two years, your Company has changed considerably. In 1997, we were
known principally as a patent licensing and enforcement organization. Today,
after a series of strategic acquisitions and a refining of our corporate image,
we are becoming recognized globally for our expertise in all phases of the
product evolution cycle--from concept to research, design, engineering,
manufacturing, branding, packaging, licensing and patenting.
1999'S HIGHLIGHTS
Among our major achievements in 1999 was the formation of Refac Consumer
Products, Inc. (RCP) and the successful introduction at the January 2000
Consumer Electronics Show (CES) of our initial proprietary product
line--consisting of a Volkswagen New Beetle(TM) branded AM/FM digital radio and
multifunction CD player stereo, sport radio, travel clock and clock radio; a
RefacDesign branded MP3 Player, MP3 Player Car Adapter, Digital Sport Radio and
Hand-Cranked Emergency Radio with Dual Mode Flashlight; a Star Trek(R) Lamp; and
a Funatik branded novelty Golf Lamp.
Our investment in RCP is a good example of how we use our integrated creative
and business expertise to build enterprise value. All of these products, with
the exception of the lamps, were developed in-house by our Product Development
Group. Our recently acquired Graphic Design Group is creating the packaging and
collateral sales materials and the patenting, branding and licensing aspects are
being handled by our Licensing Group. We have also established a Hong Kong
subsidiary to facilitate the sourcing, manufacturing and quality control of the
product line. Given the favorable reaction to the line at CES and the
enthusiastic interest our sales force is experiencing with buyers, our next
hurdle is to demonstrate that we can deliver quality goods in a timely manner.
We shortened our corporate name to Refac, and introduced a new corporate logo
and identity system to more accurately reflect the broadening of our services
and capabilities and the future direction of our operations.
We unveiled our new logo and corporate image in June 1999 at the New York
Licensing Show, where our exhibit booth generated substantial interest not just
for our licensing clients' properties, but also for the display of our Product
Development Group's innovative designs.
We relocated our corporate headquarters and creative center to a modern,
state-of-the-art facility encompassing 30,000 square feet located on the banks
of the Hudson River in Edgewater, New Jersey. This physical consolidation of the
Refac companies enhances the integration of our core businesses, provides an
inspiring environment for employees and clients and is strategic to our
continued growth.
Another major accomplishment was our November acquisition of David Morris
Creative (DMC), a top regional graphic design firm that has created powerful
graphic communications and marketing solutions for a wide variety of clients
since 1990. DMC offers an array of graphic services including brand and
communications strategy, corporate identity, packaging and multimedia design.
Its roster of blue chip clients includes Sharp Electronics, Canon USA, Chubb
Group of Insurance Companies, IBM, Siemens Medical Systems and Sony Electronics,
Inc. Last month, we relocated DMC's operations to our corporate headquarters and
creative center.
PAGE
- ----
2
www.refac.com
<PAGE>
[PHOTO]
PHOTOGRAPHED AT THE NEW EDGEWATER FACILITY, PICTURED LEFT TO RIGHT: BERT D.
HEINZELMAN, SENIOR VICE PRESIDENT, REFAC AND PRESIDENT, REFAC HUMANFACTORS-ID;
DAVID ANNUNZIATO, PRESIDENT AND CREATIVE DIRECTOR, REFAC DAVID MORRIS CREATIVE;
ROBERT L. TUCHMAN, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, REFAC; STANLEY
REIFF, PRESIDENT, REFAC CONSUMER PRODUCTS, INC.; ARLENE J. SCANLAN, PRESIDENT,
REFAC LICENSING, INC.
<PAGE>
CHAIRMAN'S LETTER CONTINUED
- --------------------------------------------------------------------------------
Late in the year, OXO introduced its Good Grips(R) and @Hand(R) hand tool lines,
which we developed on a royalty basis. Each of these product lines consists of
19 SKUs and includes screwdrivers, hammers, pliers, tape measures and a utility
knife. We captured a Good Design award from The Chicago Athenaeum: Museum of
Architecture for these products which were also chosen as one of Today's
Homeowner Magazine's Best New Products for 2000.
Our Product Development Group has undertaken a confidential product design and
development program with a leading manufacturer covering a new category for our
proprietary work. This program includes a development fee and royalties based
upon sales and joint ownership of the intellectual property rights. The product
line is expected to be marketed late in 2001, at which time we will generate
royalty based revenues.
Our Licensing Group acquired the exclusive agency rights for the commercial
development and promotion of The Joe Cartoon Co. and its www.joecartoon.com
website, which has become one of the leading independent entertainment sites on
the Internet and is known for its edgy animations and interactive games. Spurred
by the viral distribution of its "Frog in a Blender," "Gerbil in a Microwave, "
"Lump" and "Lemmings" animations, traffic to www.joecartoon.com grew at an
explosive rate during 1999. For the month of February 2000, PC Data Online gave
the www.joecartoon.com website an overall ranking of 519 (reporting 1.1 million
unique users), and a 1.6% reach.
FINANCIAL RESULTS
Our consolidated net income for the year ended December 31, 1999 was $3,673,000,
or $.97 per share (on a fully diluted basis), compared to $4,735,000, or $1.21
per share, in 1998. Revenues for 1999 were $14,452,000, down from 1998's
$15,272,000. The decreases in net income and revenues were due largely to a
decline in gains and dividends on licensing-related securities. These results
are discussed in more detail under "Management's Discussion and Analysis"
starting on page 13 of this Annual Report.
THE YEAR AHEAD
We believe that great design reinforces and builds the strength, recognition and
equity of valuable brands. To maximize the fusion of great design and great
brands, we compiled a team of award-winning product designers, talented graphic
designers, skilled brand builders and experienced consumer product marketers.
During 2000, we will leverage these uniquely combined strengths to drive revenue
growth from our design services and licensing activities while capitalizing on
the growth potential of our consumer products division. We will continue to
review opportunities to invest our creative and business capital--which we call
Intellectual Venture Capital--in appropriate new product ventures.
We expect that RCP's sales will accelerate significantly during the second half
of 2000 as the first New Beetle and RefacDesign products reach the marketplace.
We will continue to invest creative and financial resources in RCP and have
already begun developing an equally exciting 2001 product line.
PAGE
- ----
4
www.refac.com
<PAGE>
The Volkswagen New Beetle Program combined our strengths in product development,
brand building and consumer products. We have already begun discussions with new
potential partners for similar programs, and will continue to seek additional
opportunities to extend our proprietary product development program into new
product categories.
We expect the Joe Cartoon web site to become an increasingly valuable property
and we will seek other Internet-related opportunities. Of course, our quest for
the agency rights to other valuable properties and brands is ongoing.
We plan to continue our work with the pilot study started last year to determine
the efficacy of the Pyloricide compound to eliminate the H.pylori bacteria, a
leading cause of peptic ulcers, but caution that the results to date have not
been encouraging.
We are more aggressively marketing our array of services to a wider range of
industries. Our product designs and services will be displayed at no fewer than
three major industry trade shows in 2000. We began the year by not only
successfully introducing our consumer products line at the January CES, but we
also generated valuable new business opportunities for our Product Development
Group. We will also attend the Medical Design and Manufacturing East 2000 Show
and Licensing 2000 and are exploring other opportunities to expand awareness of
our design and licensing services as well as our product line.
With our independent and integrated core competencies, Refac is well-positioned
to make significant strides in year 2000 and we expect our consulting,
manufacturing and marketing operations to provide a strong platform for building
recurring income when the planned liquidation of our licensing-related
securities position in KeyCorp (NYSE-KEY) is completed in 2001.
An area of obvious concern to you, as well as to your Board of Directors and the
management and employees of Refac, is our stock price. Our market
value--probably the most important measure of our progress to you--did not fare
well over the past year. While the overall market has been strong, there has
been a marked lack of investor interest in micro-cap stocks. Yet, we are
fundamentally more sound than we were a year ago with a clear direction and
abundance of opportunity. Our management and key employees hold a considerable
stake in your Company's success and we are committed to do everything in our
power to grow our business and enhance stockholder value.
Sincerely,
/s/ Robert L. Tuchman
Robert L. Tuchman
Chairman & Chief Executive Officer
PAGE
----
5
<PAGE>
Opportunities
INTELLECTUAL
VENTURE CAPITAL
Refac seeks opportunities to invest its creative and business capital in new
product development ventures that have long-term potential. Unlike our
traditional fee-for-service consulting, we share in the cost and risk of brand
and product development in appropriate situations in return for future royalties
or venture equity. Our interest in providing this novel form of venture capital
is stimulated by our confidence that we will help our partners bring superior
products to the marketplace. Examples of our intellectual venture capital
investments include the formation of Refac Consumer Products, Inc. and our
royalty based development of the OXO hand tool product lines.
NEW BEETLE/TM/ PRODUCTS
- --------------------------------------------------------------------------------
[GRAPHIC]
PORTABLE STEREO
- --------------------------------------------------------------------------------
PAGE
- ----
6
<PAGE>
SPORT RADIO
[GRAPHIC]
TRAVEL CLOCK
[GRAPHIC]
CLOCK RADIO
[GRAPHIC]
All products shown here were designed by Refac HumanFactors-ID
www.refac.com
PAGE
----
7
<PAGE>
PRODUCT DESIGN
& DEVELOPMENT
Refac's Product Development Group, which operates under the name Refac
HumanFactors-ID, has created innovative, award-winning products for some of the
most important and prestigious companies in the world.
[GRAPHIC] [GRAPHIC]
SCHICK(R) FX RAZOR OXO(R) JUICER
We are a recognized leader in industrial design, human factors and engineering
consulting. For more than 25 years, we have helped our clients bring hundreds of
successful products to market, many representing major breakthroughs in
innovation, technology and category positioning. Our talented product
development team creates extraordinary solutions for our clients.
www.refac.com
All products shown here were designed by Refac HumanFactors-ID.
PAGE
- ----
8
<PAGE>
REFAC
- --------------------------------------------------------------------------------
[GRAPHIC]
- --------------------------------------------------------------------------------
HAND-CRANKED EMERGENCY RADIO/FLASHLIGHT
- --------------------------------------------------------------------------------
PAGE
----
9
<PAGE>
Visual
GRAPHIC DESIGN &
COMMUNICATIONS
Great visual communication is clear and concise telling the whole story at a
glance. Refac's Graphic Design Group, which operates under the name Refac David
Morris Creative, has been creating powerful graphic communications and marketing
solutions for a wide variety of clients since 1990. As consultants, we offer a
wide range of graphic and new media design services from brand and
communications strategy, corporate identity and packaging to implementation.
[GRAPHIC]
- --------------------------------------------------------------------------------
MINOLTA PACKAGING BY REFAC DAVID MORRIS CREATIVE
- --------------------------------------------------------------------------------
PAGE
- ----
10
<PAGE>
BRAND & TRADEMARK
LICENSING
[GRAPHIC]
-------------------
WWW.JOECARTOON.COM
-------------------
Refac Licensing is a unique brand and trademark licensing agency. We create,
develop, and execute long-term strategic programs that promote the valuable
property of our clients. Our primary objective is to make sure that the brand's
credentials are extended to new product categories, while helping to support and
build brand awareness and generate royalty income. Unlike any other licensing
agency in the world, Refac brings its integrated services together to explore
just the right opportunities for licensors. We work with our clients and their
licensees to develop new products and promotions, and follow each program
through to completion. This unique approach ensures that end-products live up
to the brand promise of value and quality.
PATENT & TECHNOLOGY
LICENSING
[GRAPHIC]
---------------------------
OFFICIAL SEAL OF THE
PATENT & TRADEMARK OFFICE
---------------------------
Refac's technology and patent licensing business includes the negotiation and
administration of licenses and joint ventures involving patents, know-how and
trademarks. We transform the potential value of partially developed or
unutilized technologies and intellectual properties into revenue-bearing
licensing agreements and enterprises. Our business process is one of
discovering, assessing, protecting, licensing, managing and commercializing
technologies throughout the world.
www.refac.com
PAGE
----
11
<PAGE>
OUR ENVIRONMENT
With the Manhattan skyline as its backdrop, Refac's new corporate headquarters
and creative center is located on The Hudson River Pier in Edgewater, New
Jersey. This magnificent facility is the home of our core business units
including:
Refac International, Ltd.
Refac HumanFactors-ID
Refac David Morris Creative
Refac Licensing, Inc.
Refac Consumer Products, Inc.
[GRAPHIC]
www.refac.com
PAGE
- ----
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REFAC AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Results of Operations
REVENUES were $14,452,000 in 1999 as compared to $15,272,000 in 1998 and
$11,440,000 in 1997. The decrease from 1998 to 1999 of $820,000, or 5%, is
principally due to decreases in (i) gains on sales of licensing-related
securities and dividends ($1,003,000), (ii) creative consulting fees ($352,000)
and (iii) revenues from licensing-related activities ($135,000) offset by sales
of consumer products of $495,000, a new business segment started in September
1999, and dividend and interest income of $175,000. The increase from 1997 to
1998 of $3,832,000, or 33%, is due to the inclusion of $3,562,000, in revenues
derived by the Company's Product Development Group (acquired in November 1997)
and an increase of $971,000 in income from licensing-related activities, offset
by a decrease in income from licensing-related securities ($551,000) and a
decrease in dividends, interest and other income ($150,000). See Notes to the
Consolidated Financial Statements.
Revenues are summarized as follows:
<TABLE>
<CAPTION>
Description 1999 1998 1997
---------------------------
<S> <C> <C> <C>
Revenues from licensing-related activities 29% 28% 29%
Realized gains on sales and dividends from
licensing-related securities 42% 46% 66%
Creative consulting services
(Product Development and Graphic Design Groups
acquired in November 1997 and 1999, respectively 23% 25% 2%
Consumer product sales (acquired in September 1999) 3% -- --
Dividend, interest and other income 3% 1% 3%
---------------------------
Total 100% 100% 100%
---------------------------
</TABLE>
Licensing-Related Activities
REVENUES FROM LICENSING-RELATED ACTIVITIES consist of recurring royalty payments
for the use of licensed patents and trademarks, non-recurring, lump sum license
payments, agency fees and service fees. Recurring revenues from established
relationships decreased by $41,000 in 1999 as compared to 1998, and increased by
$303,000 in 1998 as compared to 1997. The patent licensing income component of
the 1999 recurring revenue increased by $49,000 and is attributable the increase
in (i) trademark agency fees of $135,000 and (ii) patent enforcement fees of
$115,000 offset by a decrease in patent licensing income of $201,000. Revenues
from non-recurring agreements vary from year-to-year depending upon the nature
of the licensing programs pursued for various technologies in a particular year
and the timing of successful completion of licensing agreements. During 1999,
1998 and 1997, non-recurring licensing revenues amounted to $880,000, $974,000
and $307,000, respectively. Service income from royalty verifications, which the
Company first offered in March 1998, decreased by $90,000 from 1999 to 1998.
EXPENSES FROM LICENSING-RELATED ACTIVITIES consist principally of amounts paid
to licensors at contractually stipulated percentages of the Company's specific
patent and product revenues and, in addition, includes expenses related to the
investigation, marketing, administration, enforcement, maintenance and
prosecution of patent, trademarks and license rights and related licenses.
Licensing-related expenses for 1999 increased by $140,000 over 1998 and $845,000
over 1997. As a percentage of licensing revenues, these expenses were 51%, 46%
and 34% in 1999, 1998 and 1997, respectively. The increase in 1999 over 1998 is
principally due to an increase in licensing-related salaries and the increase in
1998 over 1997 was attributable to the inclusion of Refac Licensing, Inc.
(formerly known as Selective Licensing & Promotion, Inc.), a brand and character
licensing agency, which was formed in January 1998.
Licensing-Related Securities
INCOME FROM LICENSING-RELATED SECURITIES consist of gains on sales and dividends
received on securities acquired by the Company in connection with its licensing
activities. As of December 31, 1999, licensing-related securities consisted of
275,000 shares of KeyCorp common stock. KeyCorp had a 2-for-1 stock split of
such common stock on March 9, 1998 and all references in this Report to the
number of KeyCorp shares have been adjusted to reflect such stock split. The
Company intends to sell 200,000 of such shares during 2000 and, as of December
13
<PAGE>
31, 1999, had bought four successive quarterly put options (at $27.4262 per
share) and had sold four successive quarterly call options (at prices ranging
from $37.4825 to $39.3720 per share), each of which covers 50,000 shares. See
Notes to the Consolidated Financial Statements for additional details concerning
such securities.
CREATIVE CONSULTING SERVICES consist of product development and graphic design
services provided by the Product Development Group (which operates under the
name Refac HumanFactors-ID and was acquired by the Company in November 1997) and
the Graphics Design Group (which operates under the name Refac David Morris
Creative and was acquired in November 1999). Total creative consulting income
decreased by $352,000 in 1999 as compared to 1998 which consists of a decrease
of $798,000 in Product Development and the inclusion of $446,000 in Graphic
Design services. The reduction in Product Development fees is due, in part, to
the Company's development of its own line of consumer electronic products which
were introduced in January 2000 at the Consumer Electronics Show and performing
some work on a royalty as opposed to a fee-for-service basis.
EXPENSES increased by $258,000 in 1999 as compared to 1998, consisting of an
increase of $315,000 from the Graphics Design Group and a decrease in expenses
of $57,000 incurred by the Product Development Group.
MARKETING OF CONSUMER PRODUCTS. In September 1999 the Company acquired Funatik
Inc. and merged it into the newly formed Refac Consumer Products, Inc. ("RCP").
Sales of $495,000 during 1999 principally consists of sales of imported consumer
electronic products sourced by RCP for a retailer. RCP introduced its initial
proprietary product line at the January 2000 Consumer Electronics Show in Las
Vegas, Nevada. The product line, which will be manufactured in Asia, was
developed in-house by the Company's Product Development Group and includes a
Volkswagen New Beetle(TM) licensed AM/FM Digital Stereo and Multifunction CD
Player, Travel Clock, Clock Radio and Sport Radio, a RefacDesign(TM) branded
MP3 Player, MP3 Player Car Adapter, Hand-Cranked Emergency Radio/Flashlight and
Digital Radio. Refac also established a Hong Kong subsidiary to facilitate the
sourcing, manufacturing and quality control of the product line.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased by $443,000 in 1999 over
1998, which increase is principally attributable to the acquisition of Funatik
and the formation of RCP ($317,000) and the acquisition of the Graphic Design
Group ($53,000). The increase in 1998 over 1997 of $1,946,000 is attributable to
the inclusion in 1998 of the newly formed divisions of (i) Refac HumanFactors-ID
(ii) Refac Licensing and (iii) Refac Biochemics Corporation.
GOODWILL relates to the excess of the purchase price paid over the fair market
value of the tangible assets acquired in the Company's acquisitions of the
Product Development Group ($4,936,000), Graphic Design Group ($1,344,000) and
Funatik Inc. ($19,000). Such goodwill is being amortized over 25, 20 and 10
years, respectively, which is the expected period of benefit. Such amortization
aggregated $219,000, $204,000 and $28,000 for 1999, 1998 and 1997,
respectively, and is included in selling, general and administration expenses.
INCOME TAX PROVISION. The Company's income tax provision of $1,657,000 in 1999
reflected an effective tax rate of 31%, compared with rates of 34% and 33% in
the two previous years. The decrease of 3% from the effective statutory income
tax rate of 34% is due to the consolidated group not being subject to state and
local income taxes, other than statutory minimums and timing differences
associated with the Company's relocation to New Jersey.
INFLATION. The Company's income from licensing-related operations has not in the
past been materially affected by inflation. Likewise, while currency
fluctuations can influence licensing-related revenues, the diversity of foreign
income sources tends to offset individual income changes in currency valuations.
LIQUIDITY AND CAPITAL RESOURCES. Cash, cash equivalents, corporate bonds and
U.S. Treasury Notes increased by $1,423,000 to $8,489,000 at December 31, 1999
from $7,066,000 at December 31, 1998. The Company believes its liquidity
position is adequate to meet all current and projected financial needs.
The Company has commitments under leases covering its facilities (see Notes
to the accompanying Consolidated Financial Statements), and under a Retirement
Agreement with its founder and former Chief Executive Officer (which has been
provided for in the financial statements). For information on leaseholds and
other commitments and contingencies see Notes to the accompanying Consolidated
Financial Statements.
The Company has examined the Year 2000 computer issue. This issue concerns
computer hardware and software systems'ability to recognize and process dates
after December 31, 1999 properly and accurately. The Company utilizes purchased
software which is Year 2000 compliant and does not expect Year 2000 issues to
have a material impact on its business, operations or financial condition. The
Company has not encountered any complications with the year 2000 issues. This is
a Year 2000 readiness disclosure entitled to protection as provided in the Year
2000 Information and Readiness Disclosure Act.
14
<PAGE>
CONSOLIDATED BALANCE SHEETS
REFAC AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1999 1998
----------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 5,158,000 $ 2,973,000
Royalties receivable 1,153,000 776,000
Accounts receivable 1,425,000 945,000
Prepaid expenses and other current assets 521,000 221,000
----------------------------------
Total current assets 8,257,000 4,915,000
----------------------------------
Property and equipment - net 2,232,000 771,000
Licensing-related securities 7,145,000 15,068,000
Investments being held to maturity 3,331,000 4,093,000
Other assets 583,000 760,000
Goodwill, net of accumulated amortization of $451,000 in 1999
and $232,000 in 1998 6,299,000 4,958,000
----------------------------------
$27,847,000 $30,565,000
----------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 674,000 $ 354,000
Accrued expenses 439,000 236,000
Amounts payable under service agreements 417,000 240,000
Income taxes payable 716,000 75,000
----------------------------------
Total current liabilities 2,246,000 905,000
----------------------------------
Deferred income taxes 2,365,000 5,050,000
Other liabilities - deferred compensation 445,000 445,000
----------------------------------
Commitments and Contingencies
Stockholders' Equity
Common stock, $.10 par value; authorized -
20,000,000 shares; issued 5,450,887 in 1999
and in 1998 545,000 545,000
Additional paid-in capital 9,984,000 9,984,000
Retained earnings 22,299,000 18,626,000
Accumulated other comprehensive income 4,212,000 9,259,000
Treasury stock, at cost 1,655,626 shares in 1999 and 1998 (13,874,000) (13,874,000)
Receivable from issuance of common stock and warrants (375,000) (375,000)
----------------------------------
Total stockholders' equity 22,791,000 24,165,000
----------------------------------
$27,847,000 $30,565,000
----------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
15
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
REFAC AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
--------------------------------------
<S> <C> <C> <C>
Revenues
Licensing-related activities $4,156,000 $ 4,291,000 $ 3,320,000
Creative services fees 3,396,000 3,748,000 186,000
Consumer product sales 495,000 -- --
Realized gains on licensing-related securities 5,614,000 6,435,000 6,936,000
Divided income from licensing-related securities 396,000 578,000 628,000
Divided and interest income 395,000 220,000 275,000
Realized gains on marketable securities -- -- 84,000
Gains from foreign currency transactions -- -- 1l,000
--------------------------------------
Total Revenues 14,452,000 15,272,000 11,440,000
--------------------------------------
Costs and Expenses
Licensing-related activities $ 2,125,000 $ 1,985,000 $ 1,140,000
Creative service expenses 2,819,000 2,561,000 187,000
Consumer product sales costs 320,000 -- --
Selling, general and administrative expenses 3,858,000 3,415,000 1,469,000
Loss from ceased operations -- 121,000 846,000
Realized losses on marketable securities -- 2,000 --
--------------------------------------
Total costs and expenses 9,122,000 8,084,000 3,642,000
--------------------------------------
Income before provision for taxes on income 5,330,000 7,188,000 7,798,000
--------------------------------------
Provision for taxes on income 1,657,000 2,453,000 2,607,000
--------------------------------------
Net income $ 3,673,000 $ 4,735,000 $ 5,191,000
--------------------------------------
Basic earnings per share $ .97 $1.25 $1.42
Diluted earnings per share $ .97 $1.21 $1.36
--------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
REFAC AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
------------------------------------------
<S> <C> <C> <C>
Net income $ 3,673,000 $ 4,735,000 $ 5,191,000
Other comprehensive income, net of tax:
Unrealized holding (losses) gain (5,047,00) (4,492,000) 18,000
Foreign currency translation adjustment -- (200,000) 5,000
------------------------------------------
Comprehensive (loss) income ($1,374,000) $ 43,000 $ 5,214,000
------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidaled financial
statements
16
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
REFAC AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
------------------------------------------
<S> <C> <C> <C>
Cash flows from Operating Activities
Net Income $3,673,000 $4,735,000 $5,191,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 557,000 320,000 141,000
Realized gains on sale of licensing-related-services (5,614,000) (6,429,000) (7,003,000)
Decrease (increase) in security deposit 100,000 (100,000) --
Deferred income taxes (191,000) 339,000 241,000
Write-down of long-term assets -- -- 450,000
(Increase) decrease in assets, net of effect of purchases:
Accounts receivable (795,000) (409,000) 312,000
Prepaid expenses and other current assets (325,000) -- --
Proceeds from sale of marketable securities -- 2,503,000 2,392,000
Purchase of marketable securities -- -- (2,503,000)
Other assets 212,000 (68,000) 421,000
Increase (decrease) in liabilities, net of effect of purchases:
Accounts payable and accrued expenses 289,000 (189,000) (65,000)
Amounts payable under service agreements 176,000 6,000 (33,000)
Income taxes payable 640,000 (183,000) (123,000)
------------------------------------------
Net cash (used in) provided by operating activities (1,278,000) 525,000 (579,000)
------------------------------------------
Cash flows from Investing Activities
Proceeds from sales of licensing-related securities 6,182,000 7,045,000 6,959,000
Proceeds from (purchase of) investments being held to maturity 762,000 (2,864,000) (856,000)
Payment for purchase of HumanFactors-ID
Industrial Design, Inc., net cash of acquired (275,000) -- (428,000)
Payment for purchase of David Morris Creative, Inc.,
net of cash acquired (1,357,000) -- --
Payment for purchase of Funatik, Inc., net of cash acquired (50,000) -- --
Additional to property and equipment (1,799,000) (645,000) (88,000)
------------------------------------------
Net cash provided by investing activities 3,463,000 3,536,000 5,587,000
------------------------------------------
Cash flows from Financing Activities
Repayment of Note Payable-former Human Factors-ID shareholders -- (4,050,000) --
Repayment of loan -- (53,000) (60,000)
Dividends paid -- -- (2,701,000)
Proceeds from exercise of stock options and purchase of warrants -- 147,000 78,000
Acquisition of treasury stock -- -- (14,875,000)
------------------------------------------
Net Cash used in financing activities -- (3,956,000) (17,558,000)
------------------------------------------
Effect of exchange rate changes on cash -- -- 6,000
------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,185,000 105,000 (12,544,000)
Cash and cash equivalents at beginning of period 2,973,000 2,868,000 15,412,000
------------------------------------------
Cash and cash equivalents at end of period $5,158,000 $2,973,000 $2,868,000
------------------------------------------
Income taxes paid $1,257,000 $2,496,000 $2,408,000
------------------------------------------
</TABLE>
For supplemental disclosure of non-cash investing and financing activities, see
Notes to the consolidated financial statements. The accompanying notes are an
integral part of the consolidated financial statements.
17
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
REFAC AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Common Stock
-------------------------
Years ended December 31, 1999, 1998, and 1997 Shares Amount
-------------------------
Balance, December 31, 1996 5,401,887 $ 540,000
Net Income
Shares issued on exercise of stock options 11,500 1,000
Issuance of compensatory stock options
Other comprehensive income
Issuance of stock for HumanFactors-ID acquisition
Purchase of Treasury Stock
-------------------------
Balance, December 31, 1997 5,413,387 541,000
Net Income
Shares issued on exercise of stock options 37,500 4,000
Issuance of compensatory stock options
Other comprehensive income
Collection of warrants receivable
Issuance of stock for HumanFactors-ID acquisition
-------------------------
Balance, December 31, 1998 5,450,887 545,000
Net Income
Other comprehensive income
-------------------------
Balance, December 31, 1999 5,450,887 $545,000
-------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
<TABLE>
<CAPTION>
Receivable Accumulated
From Issuance of Additional Other
Treasury Stock Common Stock Paid-In Retained Comprehensive
Shares Amount and Warrants Capital Earnings Income
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-- -- ($375,000) $9,252,000 $8,700,000 $13,928,000
5,191,000
(52,000) 128,000
11,000
23,000
(12,000) 101,000 50,000
1,775, 000 (14,875,000)
- ------------------------------------------------------------------------------------------------------------------------
1,763,000 (14,774,000) (427,000) 9,441,000 13,891,000 13,951,000
4,735,000
91,000
3,000
(4,692,000)
52,000
(107,374) 900,000 449,000
- ------------------------------------------------------------------------------------------------------------------------
1,655,626 (13,874,000) (375,000) 9,984,000 18,626,000 9,259,000
3,673,000
(5,047,000)
- ------------------------------------------------------------------------------------------------------------------------
1,655,626 ($13,874,000) ($375,000) $9,984,000 $22,299,000 $4,212,000
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REFAC AND SUBSIDIARIES
- --------------------------------------------------------------------------------
1
Business and summary of significant accounting policies
Refac, a Delaware corporation organized in 1952, is engaged directly and through
certain of its subsidiaries in the business of new product development; graphic
design and communications; brand and trademark licensing; technology and patent
licensing; and the manufacture and marketing of consumer electronic products. In
May 1999, the Company changed its name from REFAC Technology Development
Corporation to Refac.
A. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Refac
and all of its majority-owned subsidiaries. All intercompany balances and
transactions have been eliminated.
B. Securities Acquired in Association with Licensing Activities and Securities
Held to Maturity The Company categorizes and accounts for its investment
holdings as follows:
o Held to maturity securities are recorded at amortized cost. This
categorization is used only if the Company has the positive intent and
ability to hold these securities to maturity.
o 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 investment in
licensing-related securities are included in this category.
C. Derivatives
The Company purchased put and wrote call options to hedge against market
fluctuations in its holdings of KeyCorp common stock. The Company records these
derivative financial instruments at fair value and reports them as available for
sale securities.
D. Income Taxes
Deferred income taxes arise from temporary differences in the basis of assets
and liabilities for financial reporting and income tax purposes.
E. Earnings Per Share
The following reconciles basic and diluted shares used in earnings per share
computations.
1999 1998 1997
-----------------------------------
Basic shares 3,795,261 3,787,220 3,661,983
Dilution: Stock options and warrants 9,012 141,742 166,564
-----------------------------------
Diluted shares 3,804,273 3,928,962 3,828,547
-----------------------------------
In 1999, 1998 and 1997, options to purchase 859,250, 69,500 and 170,000
shares of common stock, respectively, were not included in the computation of
diluted net income per share because the exercise prices of those options were
greater than the average market price of the common stocks.
F. Consolidated Statement of Cash Flows
The Company considers all highly liquid investments and debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
G. Revenue Recognition
Royalty revenue is recognized when the licensee sells the product and service
revenues are recognized as services are performed. Non-recurring lump sum
payments that represent settlements of patent infringement claims are recognized
when the settlements occur and collectibility is reasonably assured.
20
<PAGE>
H. Using Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amount of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements as
well as revenues and expenses during the reporting period. Actual results could
differ from those estimates.
I. Intangibles
Patents are amortized on a straight-line basis over their statutory life or
expected useful life, whichever is shorter. Goodwill is amortized on a
straight-line basis over periods from 10 years to 25 years.
The carrying values of the long-lived assets (including goodwill) are
reviewed if the facts and circumstances suggest that such assets may be
permanently impaired. If the expected future undiscounted cash flows derived
from such assets is less than their carrying value, such value would be reduced
accordingly. During 1997, the Company wrote down $128,000 of goodwill originally
recorded in connection with its acquisition of Advanced Resin Technology, Inc.
J. Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided for on a straight-line basis with the
estimated useful lives ranging from 3 to 7 years. Leasehold improvements are
amortized over the lives of the respective leases.
K. Reclassifications
Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform them to the current presentation.
L. Comprehensive Income
Comprehensive income consists of net income or loss for the current period as
well as income, expenses, gains, and losses arising during the period that are
included in separate components of equity. It includes the unrealized gains and
losses on the Company's licensing-related securities, net of taxes and foreign
currency translation adjustments.
2
Licensing-related securities and securities held to maturity
SECURITIES HELD TO MATURITY at December 31, 1999 and 1998 consisted of
U.S. Treasury Notes and corporate bonds with an amortized cost of $3,331,000 and
$4,093,000, respectively.
Licensing-related securities are as follows:
<TABLE>
<CAPTION>
Fair Carrying Unrealized
December 31, 1999 Value Cost Value Gain/(Loss)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Keycorp (NYSE-KEY) $ 6,084,000 $ 762,000 $ 6,084,000 $ 5,322,000
KeyCorp Put Options 1,072,000 600,000 1,072,000 472,000
Keycorp Call Options (11,000) (600,000) (11,000) 589,000
---------------------------------------------------------------
$ 7,145,000 $ 762,000 $ 7,145,000 $ 6,383,000
---------------------------------------------------------------
December 31, 1998
---------------------------------------------------------------
Keycorp (NYSE-KEY) $ 15,360,000 $ 1,330,000 $ 15,360,000 $ 14,030,000
KeyCorp Put Options 758,000 1,112,000 758,000 (354,000)
KeyCorp Call Options (1,050,000) (1,112,000) (1,051,000) 62,000
---------------------------------------------------------------
$ 15,068,000 $ 1,330,000 $ 15,067,000 $ 13,738,000
---------------------------------------------------------------
</TABLE>
In 1998, there was a 2-for-1 stock split of KeyCorps common stock. All
references to the number of KeyCorp shares and put and call strike prices in the
Notes to the Consolidated Financial Statements have been adjusted to reflect
such stock split.
At December 31, 1999, the Company held 275,000 shares of KeyCorp. The
Company also had bought and sold 200,000 put and call options, respectively
(50,000 of each option expiring quarterly in 2000).
21
<PAGE>
At December 31, 1998, the Company held 480,000 shares of KeyCorp. The realized
gains for licensing related securities accounted for on a first-in, first-out
basis for the years ended December 31, 1999, 1998 and 1997 are summarized as
follows:
1999 1998 1997
-----------------------------------------------
KeyCorp $5,614,000 $6,435,000 $1,438,000
DBT Online, Inc. - - 293,000
Three-Five Svstems, Inc. - - 5,205,000
-----------------------------------------------
$5,614,000 $6,435,000 $6,936,000
-----------------------------------------------
In order to minimize the Company's exposure against a decline in the value of
KeyCorp, on September 12, 1997, the Company entered into thirteen (13)
individual derivative contracts with Union Bank of Switzerland (UBS) providing
for both put options and call options. The put options give the Company the
right to sell the KeyCorp stock covered by the option to UBS at the agreed upon
option price even if the market price is lower on the settlement date. The call
options gives UBS the right to require the Company to sell the KeyCorp common
stock covered by the option at the agreed upon option price even if the market
price is higher on the settlement date. If the price is between the put and call
option prices on the settlement date both options lapse. Thirteen individual
contracts were entered into, the first contract covering 48,000 shares and the
remaining 12 contracts covering 50,000 shares of KeyCorp. The first contract
expired on December 31, 1997 and each of the remaining contracts expires at the
end of each calendar quarter until December 31, 2000. Each put option has a
strike price per share of $27.4262 and aggregates $1,372,000. Each call option
has strike prices per share which range from $35.349 to $39.372 and aggregates
from $1,874,000 to $1,969,000.
3
Income Taxes
The provision for taxes on income for the years ended December 31, 1999, 1998
and 1997 are as follows:
1999 1998 1997
--------------------------------------------
Federal
Current $1,910,000 $2,482,000 $2,338,000
Deferred (289,000) (114,000) 203,000
State and local 5,000 57,000 34,000
Foreign withholding taxes 31,000 28,000 32,000
--------------------------------------------
$1,657,000 $2,453,000 $2,607,000
--------------------------------------------
The provision for taxes on income for the years ended December 31, 1999, 1998
and 1997 differed from the amount computed by applying the statutory Federal
income tax rate of 34% as follows:
1999 1998 1997
--------------------------------------------
Statutory rate 34% 34% 34%
Dividend received exclusion (2%) (2%) (2%)
Other (1%) 2% 1%
--------------------------------------------
Provision for taxes on income 31% 34% 33%
--------------------------------------------
The tax effect of temporary differences which gave rise to deferred tax assets
and liabilities as of December 31, 1999 and 1998 are as follows:
Assets 1999 1998
--------------------
Deferred rent and compensation/retirement $121,000 $185,000
Write-down of long term investments and other/net -- 1,000
KeyCorp put and call options basis differences -- 100,000
--------------------
121,000 286,000
--------------------
22
<PAGE>
<TABLE>
<CAPTION>
Liabilities
<S> <C> <C>
KeyCorp common stock basis difference 2,429,000 5,221,000
Cash to accrual basis adjustment for the acquisition
of Refac HumanFactors-ID 57,000 115,000
---------------------------------
2,486,000 5,336,000
---------------------------------
Net Liability $2,365,000 $5,050,000
---------------------------------
</TABLE>
4
Property and Equipment consists of the following:
DECEMBER 31,
---------------------------------
1999 1998
---------------------------------
Leasehold improvements $ 1,046,000 $ 111,000
Furniture and fixtures 718,000 175,000
Computer software and equipment 1,068,000 747,000
Automobile 29,000 --
Telephone system 45,000 --
Office equipment 57,000 130,000
Other equipment 102,000 --
---------------------------------
3,065,000 1,163,000
Less accumulated depreciation (833,000) (392,000)
---------------------------------
$2,232,000 $771,000
---------------------------------
5
Stockholders' Equity
Stock Option Plans
The Company measures compensation using the intrinsic value approach under
Accounting Principles Board (APB) Opinion No. 25.
In May 1990, shareholders approved the 1990 Stock Option and Incentive Plan
(the "1990 Plan") which authorizes the issuance of up to 300,000 shares of
common stock and, in May 1997, the 1990 Plan was amended to provide for a
100,000 increase in the authorized shares. In May 1998, the shareholders
approved the 1998 Stock Option and Incentive Plan (the 1998 Plan) which
authorizes the issuance of up to 300,000 shares of common stock. Both Plans
authorize the issuance of various incentives to employees (including officers
and directors who are employees), including stock options, stock appreciation
rights, and restricted performance stock awards. The Plans allow the stock
option committee to determine type, shares and terms of the grants. Grants may
be made at any time through March 14, 2000 under the 1990 Plan and May 10, 2008
under the 1998 Plan.
In addition to the 1990 Plan and the 1998 Plan outlined above, on January
21, 1998, the Company granted an employee, options to purchase 50,000 shares of
common stock at an exercise price of $10.625. In 1996 stock options to purchase
50,000 shares were granted to directors at an exercise price of $5.8125. On
April 7, 1997, the Company sold a warrant to Palisade Capital, L.L.C. for a
price of $103,320 to purchase 200,000 shares of common stock at $8.25 per share.
On November 25, 1997, the Company issued non-qualified stock options to eleven
employees to purchase 165,000 shares of common stock at an exercise price of $14
per share. On March 18, 1998, the exercise prices of 190,000 employee options
were reduced to $9.50 per share.
23
<PAGE>
The table below summarizes all option activity, excluding the warrant sale to
Palisade Capital, L.L.C.:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
average average average
exercise exercise exercise
1999 price 1998 price 1997 price
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 711,500 $8.67 541,000 $9.55 332,500 $ 6.79
Options granted 145,500 4.56 284,000 9.14 220,00 13.34
Options exercised -- -- (37,500) 2.53 (11,500) 2.27
Options canceled (157,250) 9.48 (76,000) 8.00 -- --
-------------------------------------------------------------------------
Outstanding at end of year 699,750 7.64 711,500 8.67 541,000 9.55
-------------------------------------------------------------------------
Exercisable at end of year 317,070 $8.28 266,400 $8.05 341,000 $ 6.97
-------------------------------------------------------------------------
The following table summarizes option data, excluding the warrant sale to Palisade Capital, L.L.C.
as of December 31, 1999:
<CAPTION>
Weighted Weighted Weighted
Price average average average
Range Outstanding at contract exercise Exercisable at exercise
Minimum Maximum December life price December price
31, 1999 (years) 31, 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$3.81 $5.88 245,500 7.80 $5.08 40,000 $5.81
$6.38 $8.00 133,500 7.18 $7.29 171,450 $7.77
$9.25 $12.00 320,750 7.76 $9.74 105,620 $10.05
- ---------------------------------------------------------------------------------------------------------
699,750 317,070
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The exercise prices of all the options granted (qualified and non-qualified) are
at fair value of common stock at date of grant. The fair value of each option
grant is estimated as of the date of grant using the Black-Scholes option-
pricing model with the following weighted-average assumptions used for grants in
1999, 1998 and 1997, respectively: no dividend yields; expected volatility of
54, 42 and 60 percent; risk-free interest rates of 6.5, 5.3 and 5.9 percent; and
expected lives of 5, 5 and 10 years. The weighted-average fair value of options
granted was $2.48, $3.96 and $9.97 for the years ended December 31, 1999, 1998
and 1997, respectively.
The pro forma amounts had options been recorded at fair value, are indicated
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
------------------------------------------------
<S> <C> <C> <C>
Pro forma net income $ 3,527,000 $ 4,098,000 $ 5,098,000
Pro forma earnings per share
Basic $ .93 $ 1.08 $1.39
Diluted $ .93 $ 1.04 $1.33
</TABLE>
6
Commitments and Contingent Liabilities
A. Commitments
The Company has commitments under leases covering its facilities. In May 1999,
the Company relocated its corporate offices and creative studio to newly
constructed facilities in Edgewater, New Jersey. The lease has an initial term
of 10 years, which commenced upon the completion of construction in May 1999.
The Company has two successive five year renewal options. The total expected
annual payments due under the lease are $184,387 during 1999, $471,917 during
2000 and $567,750 per annum, thereafter, with a maximum cost of living increase
of 2.5% per annum starting in the fourth lease year. In connection with the
relocation, the Company terminated its lease for its corporate offices in New
York City and subleased the offices and studio previously occupied by Refac
HumanFactors-ID for the remainder of the lease term. Rent expense covering all
Company facilities was approximately $445,000, $382,000 and $189,000 for the
years ended December 31, 1999, 1998 and 1997, respectively. In addition, the
Company is liable for escalations as provided in the lease agreements.
24
<PAGE>
B. Employment Agreement
The Company's employment agreement with its President and Chief Executive
Officer extends through December 31, 2003. The agreement provides for minimum
annual compensation, and bonus as determined by the Board of Directors. The
officer was also granted options to purchase 100,000 shares of common stock
pursuant to the Company's 1990 Stock Option Plan. In 1996, the officer exercised
previously granted options to purchase 100,000 shares of common stock. In
connection with such exercise, the Company provided the officer with a loan of
$375,000, bearing interest at the Long-Term Applicable Federal Rate and maturing
December 13, 2006. On December 16, 1998, the Company granted the officer an
additional option to purchase 50,000 shares. The officer contributed these
options back to the Company in December 1999.
C. Deferred Compensation/Post-Retirement Benefits
On December 13, 1996, the Company entered into a retirement agreement with its
then Chairman and Chief Executive Officer. For a period of three years
commencing on July 1, 1997, the Chairman has agreed to act as a consultant. The
retirement agreement also provides for an annuity of $100,000 per annum during
his life; medical and health benefits for him and his spouse during their lives;
and office facilities, equipment and personnel support for two years following
his consulting services. In 1996, the Company expensed $445,000 for such
retirement benefits, which represented the present value of the expected
payments, following the consultancy period, based upon his then estimated life
expectancy.
D. Legal Proceedings
On December 31, 1995, an action was commenced in the United States District
Court for the Eastern District of New Jersey against the Company by the
executrix of the estate of a former officer of the Company for compensation
allegedly due the deceased officer under an employment arrangement. The Company
believes that the claim is without any merit.
On December 20, 1999, a claim was brought against the Company, as a nominal
defendant, and certain of its directors in the Supreme Court of the State of New
York, New York County, by a shareholder alleging claims against the Company and
certain members of the Company's Board of Directors for breach of fiduciary duty
and waste arising out of a Stock Repurchase Agreement and a Retirement Agreement
entered into in December 1996 between the Company and its then Chairman and
Chief Executive Officer, Eugene Lang. On February 29, 2000, the Company,
together with all other defendants, filed a motion to dismiss the Complaint in
its entirety on the grounds that plaintiff's claims are time barred by the
statute of limitations and that the Complaint fails to state a claim upon which
relief may be granted. The Company believes that the claims against the Company
and its directors are without merit.
E. Contingent Letter of Credit
At December 31, 1999, the Company had an open letter of credit to purchase goods
for $438,000.
7
Segments and concentrations
For 1996 and through November 25, 1997, the principal industry segment in which
the Company operated was licensing of intellectual property rights. The
accounting policies of the segments are the same as those disclosed in the
summary of significant accounting policies.
With its November 25, 1997 acquisition of HumanFactors-ID Industrial
Design, Inc. (now referred to as Refac HumanFactors-ID), the Company began to
provide product design and development and consulting services. The Company does
not view Refac HumanFactors-ID's revenues for one month in 1997 as being
significant to its 1997 results. On November 1, 1999, the Company acquired the
graphic design and communication business of David Morris Creative, Inc. (now
known as Refac David Morris Creative). Operations of the product design and
development business of Refac HumanFactors-ID and the graphic design business of
Refac David Morris Creative are reported as creative consulting services.
With the purchase of the assets and assumption of the liabilities of
Funatik, Inc. on September 10, 1999 and subsequent merger into the newly formed
Refac Consumer Products, Inc., the Company is now also engaged in the
manufacture and marketing of consumer products.
25
<PAGE>
The reportable segments are distinct business units operating in different
industries and are separately managed. The following information about the
business segments are for the year ended December 31, 1999.
<TABLE>
<CAPTION>
Manufacture
Licensing of Creative and Marketing
Intellectual Consulting of Consumer
Description Property Rights Services Products Other Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $10,166,000 $3,396,000 $495,000 $395,000 $14,452,000
Segment profit (loss) 5,934,000 (857,000) (142,000) 395,000 $5,330,000
Segment assets 17,599,000 9,403,000 845,000 $27,847,000
Expenditure for segment assets 548,000 1,230,000 21,000 $1,799,000
--------------------------------------------------------------------------------
The following information about the business segments are for the year ended
December 31, 1998.
<CAPTION>
Description Licensing of Creative
Intellectual Consulting
Property Rights Services Other Total
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $11,304,000 $3,748,000 $220,000 $15,272,000
Segment profit (loss) 7,208,000 (119,000) 99,000 $7,188,000
Segment assets 23,706,000 6,859,000 -- $30,565,000
Expenditure for segment assets 157,000 488,000 -- $645,000
------------------------------------------------------------------
</TABLE>
Foreign source revenues of domestic operations amounted to:
1999 1998 1997
-------------------------------------------------
Europe $682,000 $844,000 $682,000
Asia 191,000 172,000 $234,000
-------------------------------------------------
$873,000 $1,016,000 $916,000
-------------------------------------------------
8
Human Factors Industrial Design, Inc. Acquisition
On November 25, 1997, the Company completed the purchase of the outstanding
stock of Human Factors Industrial Design, Inc. (now called Refac HumanFactors-
ID) for $6,000,000, of which $4,500,000 was payable in cash and $1,500,000 in
Company stock (valued at $12.565 per share). The excess of the aggregate
purchase price over the net tangible assets acquired was allocated to goodwill
and is being amortized over 25 years. On December 30, 1998, Refac HumanFactors-
ID was merged into Refac International, Ltd. The Company may also be required to
make a contingent purchase price payment to the former Refac HumanFactors-ID
shareholders if certain earnings targets, as defined in the purchase agreement,
are met. Any contingent purchase price payment will be accounted for as
additional purchase price consideration. In 1999, the Company agreed to pay an
additional $275,000 to certain of the original shareholders who relinquished
their rights to an additional contingent purchase price payment.
9
David Morris Creative Acquisition
On November 1, 1999, the Company acquired certain assets and assumed certain
liabilities of David Morris Creative, Inc. (now known as Refac David Morris
Creative) for $1,525,000 in cash. The excess of the aggregate purchase price
over the net tangible assets acquired was allocated to goodwill and is being
amortized over 20 years. The operating results of Refac David Morris Creative
have been included in the Company's consolidated financial statements since the
date of acquisition. The proforma effect of results of operations for Refac
David Morris Creative, for 1999 and 1998 are not material to the consolidated
financial statements.
10
Preferred Stock
The 6% noncumulative preferred stock of $100 par value is redeemable at $105
with 5,000 shares authorized and none issued. The serial preferred stock of $5
par value has 100,000 shares authorized and none issued.
26
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors Refac and Subsidiaries
We have audited the accompanying consolidated balance sheets of Refac and
Subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, comprehensive (loss) income, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Refac and Subsidiaries at December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Grant Thornton LLP
New York, New York
February 29, 2000
27
<PAGE>
UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
REFAC AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter
------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $3,417,000 $3,286,000 $3,362,000 $4,387,000
Net income $1,008,000 $864,000 $882,000 $919,000
Net income per diluted common share $.26 $.23 $.23 $.24
------------------------------------------------------
1998
------------------------------------------------------
Total revenues $3,573,000 $4,683,000 $3,367,000 $3,649,000
Net income $1,230,000 $1,389,000 $1,063,000 $1,053,000
Net income per diluted common share $.32 $.35 $.28 $.27
------------------------------------------------------
The 1999 and 1998 unaudited selected quarterly financial data has been
reclassified to conform with year-end presentations.
<CAPTION>
1999 1998
------------------------------------------------------
Market Price of Common Stock High Low High Low
------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter 8 5/8 5 5/8 12 3/8 9 1/4
Second Quarter 7 3/8 6 13 7/16 8 7/8
Third Quarter 6 5/8 4 1/4 14 15/16 8 3/4
Fourth Quarter 4 5/8 3 1/2 9 3/4 6 11/16
</TABLE>
The Company's common stock is listed on the American Stock Exchange under the
symbol REF.
28
<PAGE>
DIRECTORS AND OFFICERS
REFAC AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Refac Directors Refac Officers
Neil R. Austrian Robert L. Tuchman
Chairman Chairman, Chief Executive Officer &
iWon, Inc. General Counsel
Robin L. Farkas Bert D. Heinzelman
Private Investor Senior Vice President, Refac &
President, Refac HumanFactors-ID
Mark N. Kaplan
Of Counsel Raymond A. Cardonne, Jr.
Skadden, Arps, Slate, Meagher & Flom LLP Vice President & Secretary
Herbert W. Leonard Counsel
President Skadden, Arps, Slate, Meagher & Flom LLP
Hamilton Associates New York, New York
Robert L.Tuchman Independent Auditors
Chairman, Chief Executive Officer & Grant Thornton LLP
General Counsel, Refac New York, New York
Ira T.Wender Transfer Agent
Of Counsel ChaseMellon Shareholder Services
Patterson, Belknap, Webb & Tyler LLP Ridgefield Park, New Jersey
</TABLE>
Statements about the Company's future expectations and all other statements in
this Annual Report other than historical facts are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, Section 21E of
the Securities Exchange Act of 1934, and as that term is defined in the Private
Securities Litigation Reform Act of 1995. The Company intends that such forward
looking statements are subject to the safe harbors created thereby. Since these
statements involve risks and uncertainties and are subject to change at any
time, the Company's actual results could differ materially from expected or
inferred results.
DESIGNED BY REFAC DAVID MORRIS CREATIVE
29
<PAGE>
[LOGO] REFAC Corporate Headquarters
The Hudson River Pier
115 River Road
Edgewater, NJ 07020-1099
Ph (201) 943-4400
Fx (201) 943-7400
[email protected]
Branch Offices
Southport, Connecticut
Las Vegas, Nevada
Hong Kong
www.refac.com
30
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction
Name (l, 2) of Incorporation
---------------- ----------------
Advanced Resin Technology, Inc. (3) New Hampshire
Refac International, Ltd. Nevada
Refac Biochemics Corporation (4) Delaware
Refac Consumer Products, Inc. Delaware
Refac (H.K.) Limited Hong Kong
Refac Financial Corporation Delaware
Refac Licensing, Inc. (5) Delaware
(1) The Consolidated Financial Statements, incorporated herein, include the
accounts of the Registrant and all of the above subsidiaries.
(2) Subsidiaries of subsidiaries are indented; unless otherwise indicated
below, direct and indirect subsidiaries are 100% owned.
(3) The Company owned approximately 87% and 93% of the outstanding capital
stock of Advanced Resin Technology, Inc. as of December 31, 1997 and 1998,
respectively. This subsidiary is inactive and is in the process of being
liquidated.
(4) The Company owned approximately 92% of the outstanding capital stock of
Refac Biochemics Corporation as of December 31, 1999.
(5) The Company owned approximately 81% of the outstanding capital stock of
Refac Licensing, Inc. (formerly known as Selective Licensing & Promotion,
Ltd.) as of December 31, 1999.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 29, 2000 accompanying the consolidated
financial statements included in the Annual Report of Refac and Subsidiaries on
Form 10-K for the year ended December 31, 1999. We hereby consent to the
incorporation by reference of said report in the Registration Statement (Form S-
8 No. 333-76085) pertaining to the Stock Option and Incentive Plans of Refac and
Subsidiaries.
GRANT THORNTON LLP
New York, New York
February 29, 2000
