SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------------------------
For the Quarter Ended June 30, 2001
Commission File Number 0-7704
REFAC
(Exact name of registrant as specified in its charter)
Delaware 13-1681234
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
The Hudson River Pier
---------------------
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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the Registrant's Common Stock, par
value $.10 per share, as of August 13, 2001 was 3,795,261.
Page 1
REFAC
INDEX
-----
Page
----
Part I. Financial Information
Condensed Consolidated Balance Sheets
June 30, 2001 (unaudited) and December 31, 2000 3
Condensed Consolidated Statements of Operations
Six and Three Months Ended June 30, 2001 and 2000 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2001 and 2000 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6-9
Management's Discussion and Analysis of Financial
Conditions and Results of Operations 10-15
Part II. Other Information 16-17
Exhibit 10 1-7
Page 2
REFAC
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2001 2000
----------------------- -----------------------
(UNAUDITED)
ASSETS
- ------
Current Assets
Cash and cash equivalents $ 5,385,000 $ 5,678,000
Due from broker 645,000 --
Royalties receivable 934,000 1,114,000
Accounts receivable, net 1,406,000 1,070,000
Investments being held to maturity 2,763,000 4,649,000
Inventory 2,826,000 91,000
Prepaid expenses 301,000 651,000
----------------------- -----------------------
Total current assets 14,260,000 13,253,000
----------------------- -----------------------
Property and equipment, net 2,615,000 2,819,000
Licensing-related securities -- 2,096,000
Investments being held to maturity 443,000 442,000
Deferred income taxes 163,000 --
Other assets 350,000 262,000
Goodwill, net 5,888,000 6,031,000
----------------------- -----------------------
$23,719,000 $24,903,000
======================= =======================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Accounts payable $ 394,000 $ 289,000
Accrued expenses 436,000 501,000
Amounts payable under service agreements 167,000 435,000
----------------------- -----------------------
Total current liabilities 997,000 1,225,000
----------------------- -----------------------
Deferred income taxes -- 527,000
Other liabilities 382,000 397,000
Stockholders' Equity
Common stock, $.10 par value 545,000 545,000
Additional paid-in capital 9,984,000 9,984,000
Retained earnings 26,060,000 25,228,000
Accumulated other comprehensive income -- 1,246,000
Treasury stock, at cost (13,874,000) (13,874,000)
Receivable from issuance of common stock and warrants (375,000) (375,000)
----------------------- -----------------------
Total stockholders' equity 22,340,000 22,754,000
----------------------- -----------------------
$23,719,000 $24,903,000
======================= =======================
See accompanying notes to the unaudited condensed consolidated financial
statements
Page 3
REFAC
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
SIX MONTHS THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------------------------------------------------------
2001 2000 2001 2000
------------------------------------------------------------------------------
Revenues
Licensing-related activities $ 1,635,000 $ 2,040,000 $ 894,000 $ 978,000
Creative services fees 2,839,000 3,602,000 1,327,000 1,752,000
Consumer product sales 452,000 712,000 411,000 5,000
Realized gains on licensing-related securities 1,813,000 2,466,000 580,000 1,296,000
Dividend income from licensing-related securities 15,000 140,000 8,000 63,000
Dividend and interest income 340,000 245,000 135,000 48,000
------------------------------------------------------------------------------
Total Revenues 7,094,000 9,205,000 3,355,000 4,142,000
------------------------------------------------------------------------------
Costs and Expenses
Licensing-related activities 324,000 781,000 279,000 348,000
Creative service expenses 1,899,000 2,265,000 931,000 1,069,000
Consumer product sales costs 349,000 476,000 315,000 2,000
Selling, general and administrative expenses 3,265,000 2,959,000 1,399,000 1,365,000
------------------------------------------------------------------------------
Total costs and expenses 5,837,000 6,481,000 2,924,000 2,784,000
------------------------------------------------------------------------------
Income before provision for taxes on income 1,257,000 2,724,000 431,000 1,358,000
Provision for taxes on income 424,000 898,000 126,000 451,000
------------------------------------------------------------------------------
Net income $ 833,000 $ 1,826,000 $ 305,000 $ 907,000
==============================================================================
------------------------------------------------------------------------------
Basic earnings per share $ 0.22 $ 0.48 $ 0.08 $ 0.24
==============================================================================
------------------------------------------------------------------------------
Diluted earnings per share $ 0.22 $ 0.48 $ 0.08 $ 0.24
==============================================================================
------------------------------------------------------------------------------
Diluted weighted average shares outstanding 3,797,881 3,799,961 3,795,261 3,795,261
==============================================================================
See accompanying notes to the unaudited condensed consolidated financial
statements
Page 4
REFAC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS
ENDED JUNE 30,
----------------------------------
2001 2000
----------- -----------
Cash Flows from Operating Activities
Net income $ 833,000 $ 1,826,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 457,000 380,000
Realized gains on sale of licensing-related securities (1,813,000) (2,466,000)
Deferred income taxes (48,000) (223,000)
Other -- 3,000
(Increase) decrease in assets:
Due from broker (645,000) --
Royalties receivable 180,000 87,000
Accounts receivable (336,000) (486,000)
Prepaid expenses 428,000 (111,000)
Prepaid taxes (78,000) (716,000)
Inventory (2,735,000) (449,000)
Other assets -- (61,000)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 40,000 (45,000)
Amounts payable under service agreements (268,000) 84,000
----------- -----------
Net cash used in operating activities (3,985,000) (2,177,000)
----------- -----------
Cash Flows from Investing Activities
Proceeds from sales of licensing-related securities 2,020,000 2,742,000
Proceeds from investments being held to maturity 1,893,000 606,000
Additions to property and equipment (221,000) (569,000)
----------- -----------
Net cash provided by investing activities 3,692,000 2,779,000
----------- -----------
Net (decrease) increase in cash and cash equivalents (293,000) 602,000
Cash and cash equivalents at beginning of period 5,678,000 5,158,000
----------- -----------
Cash and cash equivalents at end of period $ 5,385,000 $ 5,760,000
=========== ===========
See accompanying notes to the unaudited condensed consolidated financial
statements
Page 5
REFAC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (all of which were
normal recurring adjustments) necessary to present fairly the consolidated
financial position of Refac (the "Company") at June 30, 2001, and the results of
its operations, its cash flows and comprehensive income for the six month
interim periods presented.
The accounting policies followed by the Company are set forth in Note l
to the Company's consolidated financial statements in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000, which is incorporated
herein by reference.
2. The results of operations for the periods presented are not indicative
of the results to be expected for the full year.
3. The following table reconciles the numerators and denominators of the
basic and diluted earnings per share computations pursuant to SFAS No. 128,
"Earnings Per Share."
Six Months Ended Three Months Ended
June 30, June 30,
- -------------------------------------------------- --------------------------------- ---------------------------------
Description 2001 2000 2001 2000
- -------------------------------------------------- ---------------- ---------------- --------------- ----------------
Basic shares 3,795,261 3,795,261 3,795,261 3,795,261
Dilution: Stock Options and Warrants 2,620 4,700 -- --
Diluted Shares 3,797,881 3,799,961 3,795,261 3,795,261
Income available to common shareholders $ 833,000 $1,826,000 $ 305,000 $ 907,000
Basic earnings per share $ 0.22 $ 0.48 $ 0.08 $ 0.24
Diluted earnings per share $ 0.22 $ 0.48 $ 0.08 $ 0.24
4. The accounting policies used to develop segment information correspond
to those described in the summary of significant accounting policies (See Note 1
of the 2000 Annual Report). Segment profit or loss is based on profit or loss
from operations before the provision or benefit for income taxes. The reportable
segments are distinct business units operating in different industries and are
separately managed.
Page 6
REFAC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following information about the business segments is for the six month
period ended June 30, 2001.
Licensing of Manufacture
Intellectual Creative and Marketing
Property Consulting of Consumer
Description Rights Services Products Total
- ------------------------------ ------------------ ----------------- ------------------ ---------------
Total revenues $3,484,000 $3,105,000 $505,000 $7,094,000
Segment profit (loss) 2,878,000 (764,000) (857,000) 1,257,000
Segment assets 7,831,000 9,125,000 6,763,000 23,719,000
Expenditure for segment 22,000 40,000 159,000 221,000
assets
The following information about the business segments is for the six month
period ended June 30, 2000
Licensing of Manufacture
Intellectual Creative and Marketing
Property Consulting of Consumer
Description Rights Services Products Total
- ------------------------------ ------------------- ----------------- ------------------- ---------------
Total revenues $4,684,000 $3,777,000 $744,000 $9,205,000
Segment profit (loss) 3,051,000 220,000 (547,000) 2,724,000
Segment assets 14,575,000 10,359,000 1,022,000 25,956,000
Expenditure for segment 281,000 231,000 57,000 569,000
assets
The following information about the business segments are for the three
month period ended June 30, 2001.
Manufacture
Licensing of Creative and Marketing
Intellectual Consulting of Consumer
Description Property Rights Services Products Total
- ------------------------------ --------------------- ------------------ -------------------- -------------------
Total revenues $1,489,000 $1,434,000 $432,000 $3,355,000
Segment profit (loss) 1,125,000 (329,000) (365,000) 431,000
Expenditure for segment 16,000 1,000 70,000 87,000
assets
Page 7
REFAC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following information about the business segments are for the three
month period ended June 30, 2000.
Manufacture
Licensing of Creative and Marketing
Intellectual Consulting of Consumer
Description Property Rights Services Products Total
- ------------------------------ --------------------- ------------------ -------------------- ------------------
Total revenues $2,292,000 $1,831,000 $19,000 $4,142,000
Segment profit (loss) 1,502,000 222,000 (366,000) 1,358,000
Expenditure for segment 31,000 20,000 46,000 97,000
assets
5. Comprehensive income (loss) 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.
The components of comprehensive income (loss), net of related tax, for
the six month periods ended June 30, 2001 and 2000 are as follows:
Description 2001 2000
- ----------------------------------------------------------------- ----------------- -----------------
Net income $833,000 $1,826,000
Less: Comprehensive losses, net of tax
Unrealized holding gains (losses), net -- (231,000)
Reclassification adjustment, net (1,197,000) (1,627,000)
Comprehensive income (loss) ($364,000) ($32,000)
The components of accumulated other comprehensive income, net of
related tax, at December 31, 2000 consist of unrealized gains on
licensing-related securities.
6. On June 30, 2001 the inventory consisted of finished goods. As of July
27, 2001, the Company had open letters of credit to purchase goods for $112,000.
Page 8
REFAC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. 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 16, 2001, the Court entered a memorandum decision and order
granting the motion of the defendant directors and the Company to dismiss the
complaint in its entirety. A judgment to that effect was entered on February 26,
2001. Plaintiff has filed a notice of appeal.
8. In June 2001, the Financial Accounting Standards Board approved the
issuance of SFAS No. 141, "Business Combinations" and SFAS 142, "Goodwill and
Other Intangible Assets" which was issued July 20, 2001. The new standards
require that all business combinations initiated after June 30, 2001 must be
accounted for under the purchase method. In addition, all intangible assets
acquired that are obtained through contractual or legal right, or are capable of
being separately sold, transferred, licensed, rented or exchanged shall be
recognized as an asset apart from goodwill. Goodwill and intangibles with
indefinite lives will no longer be subject to amortization, but will be subject
to at least an annual assessment for impairment by applying a fair value based
test.
The Company will continue to amortize goodwill existing at June 30, 2001
under its current method until January 1, 2002. Thereafter, annual and quarterly
goodwill amortization of $300,000 and $75,000, respectively, will no longer be
recognized. By June 30, 2002, the Company will perform a transitional fair value
based impairment test and if the fair value is less than the recorded value at
January 1, 2002, the Company will record an impairment loss in the March 31,
2002 quarter, as a cumulative effect of change in accounting principle.
Page 9
REFAC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
REVENUES for the six months ended June 30, 2001 were $7,094,000 as
compared to $9,205,000 for the comparable period in 2000. Of the $2,111,000
revenue decrease, $702,000 relates to a non-recurring sourcing opportunity to
sell an account open-market goods in 2000 that was not available to Refac
Consumer Products, Inc. in 2001. This amount is offset by an increase in sales
to retailers of $442,000. The balance of the revenue decrease is due to
decreases in creative consulting fees ($763,000), non-recurring patent license
fees ($249,000), trademark agency fees ($198,000) and a decrease in realized
gains and dividends on licensing-related securities ($778,000).
Revenues for the three months ended June 30, 2001 were $3,355,000 as
compared to $4,142,000 for the comparable period in 2000. The decrease of
$787,000, is principally due to decreases in revenues from creative consulting
services ($425,000), licensing-related activities ($84,000) and realized gains
and dividends on licensing-related securities ($771,000) offset by an increase
in sales of consumer products of $406,000.
Revenues for the six and three months are summarized as follows:
For the Six Months For the Three Months
Ended June 30, Ended June 30,
Description 2001 2000 2001 2000
Revenues from licensing-related activities 23% 22% 27% 24%
Realized gains on sales and dividends from 26% 28% 17% 31%
licensing-related securities
Creative consulting services 40% 39% 40% 42%
Consumer product sales 6% 8% 12% 0%
Dividends and interest 5% 3% 4% 3%
Total 100% 100% 100% 100%
Licensing of Intellectual Property Rights
- -----------------------------------------
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 patent licensing
income and trademark agency fees decreased $155,000 for the six months ended
June 30, 2001 as compared to the same period of 2000. This decrease is
attributable to a decline in trademark agency fees of $198,000 offset by an
increase in patent
Page 10
REFAC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
licensing income of $43,000. Revenues from non-recurring agreements vary from
period to period 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. Non-recurring license fees decreased by
$249,000 for the six months ended June 30, 2001 as compared to the same period
of 2000.
Recurring patent licensing income and trademark agency fees decreased
$5,000 for the three months ended June 30, 2001 as compared to the same period
of 2000. This decrease is attributable to a decline in trademark agency fees of
$85,000 and an increase in patent licensing income of $80,000. Revenues from
non-recurring agreements vary from period to period 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. Non-recurring
license fees decreased by $78,000 for the three months ended June 30, 2001 as
compared to the same period of 2000.
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 decreased by $457,000 for the six months
ended June 30, 2001. As a percentage of licensing revenues, these expenses were
20% and 38% in 2001 and 2000, respectively. The decrease in 2001 over 2000 is
principally due to a decline in client expenses related to the revenue decrease
and a decrease in licensing-related salaries and benefits as the Company focused
on managing existing relationships.
Licensing-related expenses decreased $69,000 for the three months ended
June 30, 2001, as compared to the same period of 2000. As a percentage of
licensing revenues, these expenses were 31% and 35% for the three months ended
June 30, 2001 and 2000, respectively.
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. Gains and dividends for the six and three months ended
June 30, 2001 decreased by $778,000 and $771,000, respectively. The planned
liquidation of the KeyCorp stock position is complete.
Creative Consulting Services
- ----------------------------
Creative Consulting Services consist of product development and graphic
design services provided by the Product Development Group (which was acquired by
the Company in November, 1997) and the Graphics Design Group (which was acquired
in November, 1999). In January 2001, the Company consolidated the operations of
these groups and now offers its creative services under the name RefacDesign.
Total creative consulting fees decreased by $763,000 for the six months
Page 11
REFAC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ended June 30, 2001 versus the comparable period in 2000. This decrease consists
of a decrease in the Product Development Group's services of $1,038,000 offset
by an increase in the Graphic Design Group's services of $275,000.
Total creative consulting fees decreased by $425,000 for the three
months ended June 30, 2001 versus the comparable period in 2000. This decrease
consists of a decrease in the Product Development Group's services of $559,000
offset by an increase in the Graphic Design Group's services of $134,000. For
the three and six months ended June 30, 2001, the Company continued to confront
slowdowns in its consulting services.
In addition to its traditional fee-for-service consulting, RefacDesign
seeks opportunities, in appropriate situations, to share in the cost and risk of
brand and product development in return for future royalties or venture equity.
This is the basis upon which it is providing product development and graphic
design services to its affiliate, Refac Consumer Products, Inc. ("RCP"). See
"Manufacturing and Marketing of Consumer Products" below. Accordingly, while
incurring the current expense of providing such services, RefacDesign does not
derive any inter-company royalty revenues until RCP has sales from products
covered by this arrangement. RIL is the owner of all of the intellectual
property rights relating to the RCP product line that are not licensed from
third parties. For the three and six months ended June 30, 2000, intercompany
royalties from RCP sales were $12,000.
Expenses decreased by $366,000 in the six month period ended June 30,
2001 as compared to 2000, which consist of decreases of $290,000 and $76,000
from the Product Development Group and the Graphic Design Group, respectively.
These decreases are principally due to decreases in direct payroll. As a
percentage of creative consulting fees, the cost of providing such services were
67% and 63% for the six months ended June 30, 2001 and 2000, respectively.
Expenses decreased by $138,000 for the three month period ended June
30, 2001, as compared to 2000 which consist of decreases of $99,000 and $39,000
from the Product Development Group and the Graphic Design Group, respectively.
As a percentage of creative consulting fees, the cost of providing such services
were 70% and 61% for the three months ended June 30, 2001 and 2000,
respectively. The six and three month percentage increases are due to external
revenue declines preceding corresponding staff reductions and an increase in
inter-company consulting services.
Marketing of Consumer Products
- ------------------------------
In September 1999, the Company acquired Funatik Inc. and merged it into
the newly formed RCP. Sales decreased $260,000 to $452,000 during the six months
ended June 30, 2001 from $712,000 during the same period of 2000. For the six
months ended June 30, 2000 sales principally
Page 12
REFAC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
consisted of sales of imported consumer electronics sourced by RCP for a
retailer which did not recur during the first half of 2001. Sales to this
retailer amounted to $702,000 for the six months ended June 30, 2000. Sales of
other consumer products increased by $442,000 to $452,000 for the six months
ended June 31, 2001 as compared to the same period of 2000.
As mentioned above under "Creative Consulting Services", all of RCP's
industrial design, engineering and graphic design services are provided for by
RefacDesign, without current charge, in exchange for future royalties based upon
RCP's sales. RCP has no costs for the services as they are provided, but incur
royalty expense based on actual product sales which utilize the creative work of
RefacDesign. For the three and six months ended June 30, 2000, intercompany
royalty expensed was $12,000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased by $306,000
in the six month period ended June 30, 2001 as compared to the previous year.
The increase consists primarily of a net RCP increase of $173,000 which is
mainly attributable to the launch of the MTV:MusicTelevision(TM) product line, a
net increase of $234,000 in RefacDesign offset by a net reduction of $101,000 in
Licensing of Intellectual Property Rights and general corporate expenses,
including reduced costs associated with the closing of the Refac Licensing
office in Connecticut.
Selling, General and Administrative Expenses increased by $34,000 in
the three month period ended June 30, 2001 as compared to the previous year. The
increase consists primarily of a net RCP increase of $83,000, a net increase of
$63,000 in RefacDesign offset by a net reduction of $112,000 in Licensing of
Intellectual Property Rights and general corporate expenses.
GOODWILL. In June 2001, the Financial Accounting Standards Board
approved the issuance of SFAS No. 141, "Business Combinations" and SFAS 142,
"Goodwill and Other Intangible Assets" which was issued July 20, 2001. The new
standards require that all business combinations initiated after June 30, 2001
must be accounted for under the purchase method. In addition, all intangible
assets acquired that are obtained through contractual or legal right, or are
capable of being separately sold, transferred, licensed, rented or exchanged
shall be recognized as an asset apart from goodwill. Goodwill and intangibles
with indefinite lives will no longer be subject to amortization, but will be
subject to at least an annual assessment for impairment by applying a fair value
based test.
The Company will continue to amortize goodwill existing at June 30,
2001 under its current method until January 1, 2002. Thereafter, annual and
quarterly goodwill amortization of $300,000 and $75,000, respectively, will no
longer be recognized. By June 30, 2002, the Company will perform a transitional
fair value based impairment test and if the fair value is less than the recorded
value at January 1, 2002, the Company will record an impairment loss in the
March 31, 2002 quarter, as a cumulative effect of change in accounting
principle.
Page 13
REFAC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INCOME TAX PROVISION. The Company's income tax provision of $424,000
for the six months ended June 30, 2001 reflects an effective tax rate of 34%
(the Federal statutory corporate income tax rate) increased by 1% related to the
amortization of goodwill acquired through the stock purchase of HumanFactors
Industrial Design, Inc. (now referred to as RefacDesign's Product Development
Group) which is not deductible for tax purposes and decreased by 1% as a result
of the deferred tax benefit associated with the sale of KeyCorp having been
realized. The effective tax rate for the three and six months ended June 30,
2000 was 33%.
INFLATION. The Company's income from licensing operations is not
materially affected by inflation. Likewise, while currency fluctuations can
influence licensing-related revenues, the diversity of foreign income sources
tends to offset individual changes in currency valuations.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash, cash equivalents, corporate bonds and U.S. Treasury Notes
decreased $293,000 from $5,678,000 at December 31, 2000 to $5,385,000 at June
30, 2001. The Company believes its liquidity position is adequate to meet all
current and projected financial needs.
Net cash used in operations was $3,985,000 as compared to $2,177,000
for the same period of 2000, reflecting an increase of $1,808,000. Operating
activities which used the most cash during the three months ended June 30, 2001
was the purchase of inventory.
Net cash provided by investing activities increased $913,000 to
$3,692,000 as compared with $2,779,000 for the same period of 2000. The increase
is attributable to the redemption of investments held to maturity of $1,287,000
and a decrease in additions to property and equipment of $348,000 offset by a
decrease in proceeds from sales of licensing-related securities of $722,000.
RCP shipped over $940,000 in merchandise in July and, as of the end of
July, there was a backlog of firm purchase orders for goods expected to ship
before the end of the year in excess of $2,000,000.
On July 27, 2001, the Company had open letters of credit to purchase
goods for $112,000.
The Company has commitments under leases covering its facilities and
under a Retirement Agreement with its founder and former Chief Executive Officer
(which has been provided for in the financial statements).
Page 14
REFAC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
- --------------------------
Statements about the Company's future expectations and all other
statements in this document 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 the "forward-looking statements" contained herein be subject to the
above-mentioned statutory safe harbors. 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. Moreover,
there is no assurance that the Company's profitability objectives or G&A cost
reductions will materialize or that its investment in RCP will prove profitable.
Page 15
Part II. Other Information
Item 6. Exhibit and Reports on Form 8-K
- -------------------------------------------
(a) See Exhibit Index attached hereto.
(b) Reports on Form 8-K filed during the quarter: None
Signatures
----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REFAC
August 13, 2001 /s/ Robert L. Tuchman
-----------------------------------------
Robert L. Tuchman, President and
Chief Executive Officer
August 13, 2001 /s/ Raymond A. Cardonne, Jr
-----------------------------------------
Raymond A. Cardonne, Jr, CFO
(Principal Financial Officer)
Page 16
EXHIBIT INDEX
Exhibit Page
No. No.
- ------- ----
10 Agreement, dated as of June 30, 2001, between
the Company, RIL and Bert Heinzelman
terminating his employment.
27 Note 1 to the Company's Consolidated financial
statements contained in the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 2000 is incorporated herein by
reference.
Page 17