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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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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, 2003



Commission File Number 0-7704



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REFAC



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 13-1681234                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



One Bridge Plaza,
Fort Lee, New Jersey    07024

(Address of principal executive offices) (Zip Code)



Registrants telephone number, including area code: (201) 585-0600



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 $.001 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.   x



Indicate by check mark whether
the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes ̈No  x



The
aggregate market value of the voting stock held by non-affiliates of the registrant as of March 23, 2004was $3,114,403.



The number of shares outstanding of the registrants Common Stock, par value $.001 per share, as of March 23, 2004 was 6,993,393.



DOCUMENTS INCORPORATED BY REFERENCE



Certain information required in Part III of this Annual Report on Form 10-K
is incorporated herein by reference to the registrants Proxy Statement for its 2004 Annual Meeting of Stockholders.



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PART I



Item 1. Business



Refac was incorporated in the State of Delaware in 1952 and is referred to herein as the Company or Registrant. For most of its
history, the Company was engaged in intellectual property licensing activities. During the period from 1997 to 2002, it was also engaged in the business of product development and graphic design and had invested these creative resources, together
with its licensing skills, in certain product development ventures. On March 22, 2002, the Company announced plans to reposition itself for sale or liquidation and by the end of 2002, it had disposed of all of its operating segments with the
exception of its licensing business and it has limited the operations of that segment to managing certain existing license agreements and related contracts.



On February 28, 2003, the Company completed a merger (the Palisade Merger) with a wholly-owned subsidiary of Palisade Concentrated Equity
Partnership, L.P. (Palisade). The combined company has taken the name Refac and its new common stock trades on the American Stock Exchange under the ticker symbol REF. After the Palisade Merger, Palisade owned approximately
80% of the combined companys outstanding shares. On March 28, 2003, the Company entered into a stock purchase agreement with Palisade, which closed on May 19, 2003. Pursuant thereto, Palisade acquired an additional 3,469,387 new shares of
the Companys common stock, at a price of $4.90 per share, or an aggregate price of approximately $17 million. Following the completion of the stock purchase transaction, Palisade now owns approximately 90% of the Companys outstanding
shares. Palisade intends to use the Company as a vehicle for making acquisitions and the purpose of the stock purchase transaction was to provide the Company with additional capital for making these acquisitions.



On January 27, 2004, the Company announced that it will focus its acquisition
efforts on opportunities in the asset management sector of the financial services industry. The Company also announced that it has engaged a leading provider of executive search services to identify opportunities in this segment and to recruit
individuals and/or teams within the industry to join the Company and build this business.



Financial Information About Segments



In furtherance of its plan to reposition itself for sale or liquidation, the Company sold its Creative Consulting Services and Manufacture and Marketing of Consumer Products groups in the third quarter of 2002. As a
result, information regarding segments is not presented.



Intellectual Property Licensing



Since
1952, the Company has been performing patent and technology licensing, which includes the negotiation and administration of licenses and joint ventures involving patents, know-how and related trademarks. The Company has not undertaken any new
technology licensing projects during its last five fiscal years, during which time it focused on managing established licensing relationships. In August 2002, the Company sold its Heli-Coil and Dodge licensing rights and Gough licensing property.
Since then, the Company has limited its licensing activities to managing its remaining license agreements and related contracts.



Except for its contract with Patlex Corporation, which accounted for approximately 56% of the Companys total revenues from continuing operations in
2003, the Company does not believe that the loss or termination of any contract it has with its clients or licensees would have a material adverse effect on its business. The Companys income from its contract with Patlex is variable and is
based upon revenues derived by Patlex from the licensing of two laser patents. The more significant of the two patents licensed by Patlex Corporation is the Gas Discharge Laser Patent (U.S. Patent No. 4,704,583), which expires in November 2004. The
other patent is the Brewsters Angle Patent (U.S. Patent No. 4,746,201) which expires in May 2005. While the amount of the income is uncertain and Patlex has not provided the Company with any projections, the Company currently



1



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estimates that it will have revenues of approximately $1,000,000 in 2004. Given the expiration of the Gas Discharge Patent in November 2004 and the
Brewsters Angle Patent in May 2005, the Patlex income will significantly decline in 2005 as this program winds down.



Patents and Trademarks.    The Company does not own any patents or trademarks that it deems important to its patent and
technology licensing business.



Employees



As of December 31, 2003, the Company had a total of 4 full-time employees.



Financial Information About Foreign and Domestic Operations



The Companys current licensing business is
conducted entirely 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, 2003 is set forth in Note 9 of the Notes to the
Companys Consolidated Financial Statements, included herein.



|Item |  | 2.    Properties
|---- |  | ----------------



In May 1999, the Company relocated its corporate headquarters and creative studios to a newly-constructed leased facility located at The Hudson River
Pier, 115 River Road, Edgewater, New Jersey, which encompasses approximately 29,850 usable square feet or approximately 34,400 rentable square feet. As of December 31, 2002, the Company had subleased all of the space to three subtenants except for
approximately 9,757 rentable square feet, a portion of which it was using for its corporate offices. In February 2003, the Company and its landlord amended the real estate lease to reduce the leased premises by 9,757 rentable square feet effective
May 1, 2003.



The Company relocated its corporate office on May
1, 2003 to One Bridge Plaza, Fort Lee, New Jersey 07024 where it is occupying approximately 1,185 gross rentable square feet under a sublease with Palisade Capital Securities, L.L.C. (PCS), an affiliate of Palisade. By lease, which
became effective on January 21, 2004 and was amended on March 12, 2004, the Company entered into a direct lease with the landlord for larger space in this building encompassing 4,751 gross rentable square feet and expects to move into such premises
when construction is completed in or about June 1, 2004. At such time, its sublease with PCS will terminate.



Item 3.    Legal Proceedings



None.



Item 4.    Submission of Matters to a Vote of Security Holders



None.



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PART II



Item 5.    Market for the Companys Common Stock and Related Stockholder Matters



The Company had 459 stockholders of record as of March 23, 2004. The Company
did not pay cash dividends during the three year period ended December 31, 2003 and does not intend to pay any cash dividends to stockholders in the foreseeable future.



During 2002 and until the closing of the Palisade Merger on February 28, 2003, the Companys common stock, par value
$.10 per share (the Old Refac Common Stock), was listed on the American Stock Exchange and traded under the symbol REF. Under the terms of the Palisade Merger, the Companys stockholders received $3.60 in cash and 0.2 shares of the
combined companys post-merger common stock, par value $.001 (the Common Stock). Concurrent with the closing of the Palisade Merger, the Old Refac Common Stock was canceled and the Common Stock is now trading on the American Stock
Exchange under the symbol REF. The following table reflects the high and low closing stock prices of the Common Stock by calendar quarter from February 28, 2003 through December 31 2003.



Closing Market Price of the Companys Common Stock

|                                         |  |       |  |      
|---------------------------------------- |  | ----- |  | -----
|                                         |  | 2003 
|                                         |  | High  |  | Low  
|February 28, 2003 through March 31, 2003 |  | $4.11 |  | $3.46
|Second quarter                           |  | $5.15 |  | $4.31
|Third quarter                            |  | $5.06 |  | $4.75
|Fourth quarter                           |  | $5.25 |  | $4.76



The following table
summarizes all equity compensation plan information as of December 31, 2003, adjusted to reflect the terms of the Palisade Merger with respect to the pre-merger options granted under the 1990 and 1998 Plans. All of the Companys equity
compensation plans have been approved by stockholders.



|              |  |                                                                                           |  |                                                                          |  |                                                                                         
|------------- |  | ----------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------
|Plan Category |  | Number of securities to be issued upon exercise ofoutstanding options,warrants and rights |  | Weighted-averageexercise price ofoutstanding options,warrants and rights |  | Number of securitiesremaining availablefor future issuanceunder equitycompensation plans
|1990 Plan     |  | 25,000                                                                                    |  | $9.30                                                                    |  |                                                                                        
|1998 Plan     |  | 21,500                                                                                    |  | $3.18                                                                    |  |                                                                                        
|2003 Plan     |  | 150,000                                                                                   |  | $4.64                                                                    |  | 350,000                                                                                 
|Total         |  | 196,500                                                                                   |  | $5.07                                                                    |  | 350,000                                                                                 



On May 19, 2003, the
Company sold and issued 3,469,387 shares of its common stock to Palisade at a price of $4.90 per share, or an aggregate price of approximately $17 million, pursuant to the Stock Purchase Agreement, dated as of March 28, 2003, between the Company and
Palisade. The purpose of the stock purchase transaction was to provide the Company with additional capital for making acquisitions. The shares sold to Palisade were not registered in reliance on the exemption set forth in Section 4(2) of the
Securities Act of 1933, as amended (the Securities Act). In the Stock Purchase Agreement, Palisade made representations that: (i) it is an accredited investor within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act, (ii) Palisade acquired the shares for its own account for investment only and had no intention of selling or distributing any of such shares, (iii) Palisade reviewed all information which it deemed to be important in connection
with the transaction, recognized that the transaction involves risk and did not rely on any representation or warranty of the Company other than as specified in the Stock Purchase Agreement and (iv) Palisade recognized that the Company is
relying on such representations so that the transaction is exempt from registration under the Securities Act. The certificates representing the shares issued to Palisade pursuant to the Stock Purchase Agreement include a customary legend that the
shares are not registered under the Securities Act.



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Item 6.    Selected Financial Data



REFAC AND SUBSIDIARIES



SELECTED FINANCIAL INFORMATION



|                                                                                       |  |                         |   |  |         |   |  |         |   |  |         |   |  |         |  
|-------------------------------------------------------------------------------------- |  | ----------------------- | - |  | ------- | - |  | ------- | - |  | ------- | - |  | ------- | -
|                                                                                       |  | Year Ended December 31, |  
|(in thousands, except per share amounts)                                               |  | 2003                    |   |  | 2002    |   |  | 2001    |   |  | 2000    |   |  | 1999    |  
|Revenues                                                                               |  | $2,127                  |   |  | $6,562  |   |  | $5,489  |   |  | $9,754  |   |  | $10,619 |  
|Net income (loss) from continuing operations                                           |  | ($1,534                 | ) |  | $2,511  |   |  | $2,764  |   |  | $4,571  |   |  | $4,357  |  
|Income (loss) from discontinued operationsnet of taxes                                |  | $38                     |   |  | ($1,697 | ) |  | ($1,680 | ) |  | ($1,642 | ) |  | ($684   | )
|Loss from cumulative effect of change in accounting principlenet of taxes             |  |                        |   |  | ($2,083 | ) |  |        |   |  |        |   |  |        |  
|Net income (loss)                                                                      |  | ($1,496                 | ) |  | ($1,269 | ) |  | $1,084  |   |  | $2,929  |   |  | $3,673  |  
|Income (loss) per common share from continuing operationsbasic                        |  | ($0.27                  | ) |  | $0.66   |   |  | $0.73   |   |  | $1.20   |   |  | $1.15   |  
|Income (loss) per common share from discontinued operationsbasic                      |  | $0.01                   |   |  | ($0.44  | ) |  | ($0.44  | ) |  | ($0.43  | ) |  | ($0.18  | )
|Loss per common share from cumulative effect of change in accounting principlebasic   |  |                        |   |  | ($0.55  | ) |  |        |   |  |        |   |  |        |  
|Income (loss) per common share on net income basic                                    |  | ($0.26                  | ) |  | ($0.33  | ) |  | $0.29   |   |  | $0.77   |   |  | $0.97   |  
|Income (loss) per common share from continuing operationsdiluted                      |  | ($0.27                  | ) |  | $0.66   |   |  | $0.73   |   |  | $1.20   |   |  | $1.15   |  
|Income (loss) per common share from discontinued operationsdiluted                    |  | $0.01                   |   |  | ($0.44  | ) |  | ($0.44  | ) |  | ($0.43  | ) |  | ($0.18  | )
|Loss per common share from cumulative effect of change in accounting principlediluted |  |                        |   |  | ($0.55  | ) |  |        |   |  |        |   |  |        |  
|Income (loss) per common share on net income diluted                                  |  | ($0.26                  | ) |  | ($0.33  | ) |  | $0.29   |   |  | $0.77   |   |  | $0.97   |  
|Total assets                                                                           |  | $39,023                 |   |  | $24,292 |   |  | $24,387 |   |  | $24,903 |   |  | $27,847 |  
|Dividends                                                                              |  |                        |   |  |        |   |  |        |   |  |        |   |  |        |  
|Stockholders Equity                                                                   |  | $31,898                 |   |  | $21,340 |   |  | $22,592 |   |  | $22,754 |   |  | $22,791 |  



|Item |  | 7.Managements Discussion and Analysis of Financial Condition and Results ofOperations
|---- |  | --------------------------------------------------------------------------------------



On March 22, 2002, the Company announced plans to reposition itself for sale
or liquidation. Since that date, the Company has disposed of all of its operating segments, with the exception of its licensing business, and it has limited the operations of that segment to managing certain existing license agreements and related
contracts. On February 28, 2003, the Company completed the Palisade Merger. On March 28, 2003, the Company entered into a stock purchase agreement with Palisade, which closed on May 19, 2003. Following the completion of the stock purchase
transaction, Palisade now owns approximately 90% of Refacs outstanding shares. The purpose of the stock purchase transaction was to provide Refac with additional capital for making acquisitions.



On January 27, 2004, the Company announced that it will focus its acquisition
efforts on opportunities in the asset management sector of the financial services industry. The Company also announced that it has engaged a leading provider of executive search services to identify opportunities in this segment and to recruit
individuals and/or teams within the industry to join the Company and build this business. Accordingly, the reported financial information is not indicative of the Companys future operating results or financial condition.



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The Companys fiscal year ends on the last day of December in each year. As used in this Item 7,
references to 2003, 2002 and 2001 shall mean the Companys fiscal year ended on December 31stof such year.



Results of Continuing Operations



Revenues from continuing operations for 2003 were $2,127,000 as compared to
$6,562,000 for the same period in 2002. The $4,435,000 revenue decrease was due primarily to the fact that the Company had a $4,374,000 non-recurring gain in 2002 from the sale of its Heli-Coil, Dodge and Gough licensing properties. In addition, the
Companys recurring license fees decreased by $267,000 in 2003 as compared to 2002, which decline was offset by increases in interest and dividends of $176,000 and consulting income of $30,000.



Revenues from continuing operations for 2002 were $6,562,000 as compared to
$5,489,000 for 2001. The $1,073,000 revenue increase was due primarily to the fact that the Company had a $4,374,000 non-recurring gain in 2002 from the sale of the Companys Heli-Coil, Dodge and Gough licensing properties, which was offset by
declines in realized gains and dividends on licensing-related securities of $1,828,000, recurring license fees of $815,000, trademark agency fees of $156,000 and interest and dividends of $502,000. Since the Company completed its planned liquidation
of licensing-related securities in the second quarter of 2001, it did not realize any gains or dividends on licensing-related securities in 2002.



Revenues from continuing operations are summarized as follows:



|                                                                        |  |                                 |   |  |      |   |  |      |  
|----------------------------------------------------------------------- |  | ------------------------------- | - |  | ---- | - |  | ---- | -
|                                                                        |  | For the Years EndedDecember 31, |  
|Description                                                             |  | 2003                            |   |  | 2002 |   |  | 2001 |  
|Revenues from licensing-related activities                              |  | 83                              | % |  | 31   | % |  | 55   | %
|Realized gains on sales and dividends from licensing-related securities |  |                                |   |  |     |   |  | 33   | %
|Gains on sale of licensing rights                                       |  |                                |   |  | 67   | % |  |     |  
|Dividends and interest                                                  |  | 15                              | % |  | 2    | % |  | 12   | %
|Consulting income                                                       |  | 2                               | % |  |     |   |  |     |  
|                                                                        |  |                                 |   |  |      |   |  |      |  
|Total                                                                   |  | 100                             | % |  | 100  | % |  | 100  | %
|                                                                        |  |                                 |   |  |      |   |  |      |  



With the sale of the
Heli-Coil, Dodge and Gough licensing properties in 2002 and the termination of its agreement with OXO International (OXO) in December 2003, the Companys significant remaining licensing property is its agreement with Patlex
Corporation (Patlex). The Companys income from its contract with Patlex is variable and is based upon revenues derived by Patlex from the licensing of two laser patents. The more significant of the two patents licensed by Patlex
Corporation is the Gas Discharge Laser Patent (U.S. Patent No. 4,704,583), which expires in November 2004. The other patent is the Brewsters Angle Patent (U.S. Patent No. 4,746,201) which expires in May 2005. While the amount of the income is
uncertain and Patlex has not provided the Company with any projections, the Company currently estimates that it will have revenues of approximately $1,000,000 in 2004. Given the expiration of the Gas Discharge Patent in November 2004 and the
Brewsters Angle Patent in May 2005, the Patlex income will significantly decline in 2005 as this program winds down. Other license agreements are expected to provide gross revenues of approximately $220,000 during each of 2004 and 2005,
respectively, after which such gross revenues will decrease significantly.



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, include
expenses related to the administration of licensing relationships and contracts. These expenses decreased by $154,000 in 2003 as compared to 2002 and by $399,000 in 2002 as compared to 2001. As a percentage of licensing revenues, these expenses were
7%, 13% and 22% in 2003, 2002 and 2001, respectively. The decreases in expenses in 2003 as compared to 2002 and 2002 as compared to 2001 are principally due to the absence of license fees paid to the licensor of the Heli-Coil and Dodge licensing
rights after such properties were sold in 2002 as well as a decrease in licensing-related salaries and benefits as the Company focused on managing existing relationships.



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Selling, General and
Administrative ExpensesThese expenses increased by $1,850,000 in the year ended December 31, 2003 as compared to 2002. The increase is primarily due to an increase of management incentive compensation ($1,428,000), accelerated
depreciation of leasehold improvements that are no longer in use ($274,000) offset by a decrease in non-recurring expenses associated with the repositioning of the Company ($420,000). The balance of the increase ($568,000) is principally
attributable to the fact that the Company allocated a portion of its general and administrative expenses to discontinued operations in 2002. These expenses increased by $1,777,000 in the year ended December 31, 2002 as compared to 2001. The increase
is primarily due to expenses associated with the repositioning of the Company, which totaled approximately $813,000, management incentive compensation of $334,000 and the fact that a portion of the remaining selling, general and administrative
expense was allocated to discontinued operations in 2001.



Income TaxesIn 2003, the Company had a loss before taxes from continuing operations of $2,208,000 and a net tax benefit of $674,000 or approximately 31% of such loss. This tax benefit consists of federal income tax
refunds received ($84,000) and expected ($646,000), a decrease in deferred taxes of $96,000 and net state and local income tax refunds of $40,000. In 2002 and 2001, the effective tax rate on continuing operations was 36% and 35%, respectively. The
effective tax rates for 2003 and 2002 were affected by expenses, principally merger related, that were deducted for financial reporting purposes but are not deductible for federal income tax purposes.



During 2003, the Company received federal income tax refunds totaling
$4,254,000 resulting from carrying back a net capital loss incurred in 2002 with respect to its sale of Refac International, Ltd. (RIL) and its 2002 net operating loss. Even though the Company has received these tax refund payments, it
remains subject to Internal Revenue Service (IRS) audit with respect thereto and, should there be an assessment for any amounts determined to have been erroneously refunded, interest would be payable on the amount assessed. While the
Company believes that its tax return and refund claim are correct, the calculation of the Companys tax basis in RIL is subject to complex IRS regulations and the Company has established a reserve of approximately $275,000 as of December 31,
2003 pending the passage of the statute of limitations or the outcome of any audit that the IRS may initiate.



The Companys income tax receivable as of December 31, 2003 is based upon its ability to carry back its 2003 net operating loss for federal income
tax purposes to a prior tax year.



As of December 31, 2003, the
Company had deferred tax assets relating to the State of New Jersey aggregating $315,000 of which $169,000 is attributable to a New Jersey net operating loss carryforward of $1,881,000 which can be applied against any New Jersey taxable income the
Company might earn during the seven year period ending December 31, 2010. The Company is currently focusing its acquisition efforts in the asset management sector of the financial services industry, and at this point, it cannot determine whether
this business will generate any New Jersey taxable income. Due to such uncertainty, the Company has estimated that only $18,000 of its $315,000 New Jersey related deferred taxes assets will be realized and has established a valuation allowance to
cover the $297,000 difference. The need for a valuation allowance will continue to be reviewed periodically and adjusted as necessary.



As of December 31, 2003, the Company had federal deferred tax assets aggregating $836,000 of which $4,000 is attributable to a federal net operating loss
carryforward of $11,000 which can be used during the twenty year period ending 2023. No valuation allowance has been taken for the Companys federal deferred tax assets. The need for a valuation allowance will continue to be reviewed
periodically and adjusted as necessary.



InflationThe Companys income from licensing operations has not in the past been materially affected by inflation due to the variable nature of the majority of the payments received. Income from current licensing
activities is derived from domestic sources only.



Results of Discontinued OperationsIn furtherance of its plan to reposition itself for sale or liquidation, the Company sold its Creative Consulting Services and Manufacture and Marketing of Consumer Products groups in
the third quarter of 2002. Income from discontinued operations in 2003 was principally attributable to the receipt of variable purchase price payments in connection with the sale of the Companys Product Design Group.



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Liquidity and Capital Resources



The following table sets forth the Companys cash and cash equivalents, available for sale securities and investments
being held to maturity (exclusive of the restricted investments being held to maturity discussed below) for 2003, 2002 and 2001:



|                                   |  |      |        |      |   |        |  |   |      
|---------------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | -----
|(in thousands)                     |  | 2003 |        | 2002 |   | 2001  
|Cash and cash equivalents          |  | $    | 799    |      | $ | 3,330  |  | $ | 8,690
|Available for sale securities      |  |      | 1,000  |      |   | 0      |  |   | 0    
|Investments being held to maturity |  |      | 28,682 |      |   | 11,714 |  |   | 645  
|                                   |  |      |        |      |   |        |  |   |      
|Total                              |  | $    | 30,481 |      | $ | 15,044 |  | $ | 9,335
|                                   |  |      |        |      |   |        |  |   |      



The principal source
of net cash flows from operating activities for the year ended December 31, 2003 was the realization of income tax refunds due to the Company.



Net cash from financing activities was primarily from Palisades investment of approximately $17 million in the Company in May 2003.



Principal sources of net cash flows from operating activities for the year
ended December 31, 2002 were the liquidation of assets such as accounts receivable and inventory and the sale of the Companys Heli-Coil and Dodge licensing rights.



The cash proceeds from operations and financing activities were invested in held to maturity securities and available for
sale securities.



The Company believes its liquidity position
is adequate to meet all of its current operating needs and existing obligations. However, it is currently focusing its acquisition and business development efforts on opportunities in the asset management sector of the financial services industry
and, at this stage, the Company cannot predict what acquisition or business development opportunities will become available to it and the amount of capital resources that may be required to take advantage of any such opportunities. The Company does
not have any long-term debt and has not established any acquisition-related lines of credit.



The Companys portfolio of investments being held to maturity consists primarily of U.S. Treasury Notes bought with an original maturity of six months or less. The portfolio is invested in short-term securities
to minimize interest rate risk and facilitate rapid deployment in support of the Companys acquisition plans. The Companys available for sale securities consist of variable cumulative preferred stock from a single issuer with a dividend
rate which is determined by an auction method every forty-nine days.



Pursuant to the Companys merger agreement (the Palisade Merger Agreement) with Palisade, it has restricted $4,743,000 of its investments being held to maturity to maintain the Contingent Fund (as defined in the merger
agreement). This amount is being shown as a long-term asset on the balance sheet as the Payment Right is not determinable and payable until after June 30, 2005. This right to sell the shares is limited to stockholders who held their shares at the
completion of the Palisade Merger and continue to hold their shares until the amount of liquid distributable assets at June 30, 2005 is determined. Since the Company does not have direct access to stockholder trading information, the Company has not
reduced the Contingent Fund. The Contingent Fund will be adjusted if the Company becomes aware of any actual sales of Common Stock issued in connection with the merger. As of December 31, 2003, the price of the Payment Right was estimated to be
$7.03 per share and the closing price of Common Stock was $4.93 per share. Any Contingent Fund amounts which are not paid pursuant to the procedure in the Palisade Merger Agreement will become unrestricted on or about August 15, 2005.



The Company has commitments under leases covering its facilities (see Notes
to the Consolidated Financial Statements) and under a 1996 Retirement Agreement with its founder and former chief executive officer, which provides an annuity of $100,000 per annum during his life as well as medical and health benefits for him and
his spouse during their lives. Provision was made for amounts payable under the Retirement Agreement in the



7



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Companys 1996 financial statements based upon his then life expectancy. As of December 31, 2003, such liability was fully amortized. Starting in 2004,
such amounts payable will be expensed on a current basis in the year made.



The following table represents the Companys future material, long-term contractual obligations as of December 31, 2003:



|                                                |  |                        |  |                   |  |             |  |             |  |                  
|----------------------------------------------- |  | ---------------------- |  | ----------------- |  | ----------- |  | ----------- |  | -----------------
|                                                |  | Payments Due By Period
|(in thousands)                                  |  | Total                  |  | Less thanone year |  | 1 - 3 years |  | 3 - 5 Years |  | More than 5 years
|Contractual Obligations                         |  |                        |  |                   |  |             |  |             |  |                  
|Operating lease Obligations                     |  | $2,714                 |  | 483               |  | 941         |  | 899         |  | 390              
|Management Incentive Compensation (see Note 5B) |  | $1,346                 |  | 400               |  | 946         |  |            |  |                 



The obligation table
above does not reflect income from sublease agreements or its lease which became effective on January 21, 2004 and was amended on March 12, 2004, for 4,751 gross rentable square feet at One Bridge Plaza, Fort Lee, New Jersey. At such time, its
sublease with PCS, which is included in the above table, will terminate. The expected rent for the entire term of the new lease is $677,000, subject to escalations. In addition, the Company is required to pay $55,000 towards the construction of the
premises.



Critical Accounting Policies



Pursuant to the terms of the Palisade Merger, the Companys projected
Liquid Distributable Assets (as defined in the Palisade Merger Agreement and referred to herein as LDA) is required for the calculation of the Payment Right, and the related Contingent Fund and temporary equity account as
well as the management incentive compensation accrual. This calculation of LDA is dependent upon managements judgments and estimates as to the amount of cash that the Company realizes by June 30, 2005 with respect to certain assets of the
Company at the time of the Palisade Merger, the utilization of certain tax attributes and operating results from the time of the Palisade Merger through June 30, 2005. Management continually revises these estimates based on changes in actual results
as they occur. The LDA is reviewed quarterly and adjusted to reflect any material changes in the estimate. Any changes in the LDA will also change the related Payment Right, Contingent Fund and management incentive compensation accrual.



New Accounting Pronouncements



In May 2003, the FASB issued SFAS 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This Statement is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 does not have a current effect on the Companys financial statements.



FORWARD LOOKING STATEMENTS



This document includes certain statements of the Company that may constitute
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and which are made pursuant to the Private Securities Litigation
Reform Act of 1995. These forward-looking statements and other information relating to the Company are based upon the beliefs of management and assumptions made by and information currently available to the Company. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future events, or



8



---

performance, as well as underlying assumptions and statements that are other than statements of historical fact. When used in this document, the words
expects, anticipates, estimates, plans, intends, projects, predicts, believes, may or should, and similar expressions, are
intended to identify forward-looking statements. These statements reflect the current view of the Companys management with respect to future events and are subject to numerous risks, uncertainties, and assumptions. Many factors could cause the
actual results, performance or achievements of the Company to be materially different from any future results, performance, or achievements that may be expressed or implied by such forward-looking statements, including, among other things:



| |  |  | the inability to identify suitable acquisition opportunities in the asset management sector of the financial services industry and/or teams within the industry to join the Company
and build this business;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a material adverse change in the collectibility of amounts due and to become due under licensing related contracts, accounts receivable, notes receivable and contract rights
receivable;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the failure to realize currently projected income from the Companys remaining licensing properties;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | the possibility that IRS audits the Companys 2002 consolidated income tax return and determines that all or a material part of the refunds received in 2003 were erroneously
refunded;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the interest rate environment;
| | - |  | -----------------------------------------



| |  |  | general economic conditions, whether internationally, nationally or in the regional and local market areas in which Refac is located, may be less favorable than expected; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes may occur in the securities markets.
| | - |  | --------------------------------------------



Other factors and assumptions not identified above could also cause the actual results to differ materially from those set forth in the forward-looking
statements. Although the Company believes these assumptions are reasonable, no assurance can be given that they will prove correct. Accordingly, you should not rely upon forward-looking statements as a prediction of actual results. Further, the
Company undertakes no obligation to update forward-looking statements after the date they are made or to conform the statements to actual results or changes in the Companys expectations.



Item 7A.    Quantitative and Qualitative Disclosures About Market
Risk



As of December 31, 2003, the Company had
investments held to maturity (including restricted investments held to maturity) of $33,425,000 primarily consisting of U.S. Treasury Notes with original maturities at the date of purchase of six months or less. These highly liquid investments are
subject to interest rate and interest income risk and will decrease in value if market interest rates increase. Because the Company has the positive intent and ability to hold these investments until maturity, it does not expect any decline in value
of its investments caused by market interest rate changes. As of December 31, 2003, the Company also had $1,000,000 in variable cumulative preferred stock from a single issuer with a dividend rate which is determined by an auction method every
forty-nine days. Given the nature of this security, the Company does not believe the principal amount of this investment is subject to material risk. Declines in interest rates over time will, however, reduce our interest or dividend income. The
Company has no derivative instruments, debt, or foreign operations. We do not use derivative financial instruments in our investment portfolio.



9



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Item 8.    Financial Statements



REFAC



BALANCE SHEETS

(Amounts in thousands, except share and per share data)



|                                                                                                                                             |  |              |   |  |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | - |  | ------- | -
|                                                                                                                                             |  | December 31, |  
|                                                                                                                                             |  | 2003         |   |  | 2002    |  
|ASSETS                                                                                                                                       |  |              |   |  |         |  
|Current Assets                                                                                                                               |  |              |   |  |         |  
|Cash and cash equivalents                                                                                                                    |  | $799         |   |  | $3,330  |  
|Royalties and accounts receivable                                                                                                            |  | 478          |   |  | 667     |  
|Notes receivablecurrent portion                                                                                                             |  | 302          |   |  | 296     |  
|Investments being held to maturity                                                                                                           |  | 28,682       |   |  | 11,714  |  
|Income taxes receivable                                                                                                                      |  | 636          |   |  | 3,909   |  
|Prepaid expenses and other current assets                                                                                                    |  | 899          |   |  | 485     |  
|                                                                                                                                             |  |              |   |  |         |  
|Total current assets                                                                                                                         |  | 31,796       |   |  | 20,401  |  
|                                                                                                                                             |  |              |   |  |         |  
|Property and equipmentnet                                                                                                                   |  | 777          |   |  | 1,184   |  
|Available for sale securities                                                                                                                |  | 1,000        |   |  |        |  
|Notes receivable                                                                                                                             |  | 205          |   |  | 424     |  
|Deferred incentive compensation                                                                                                              |  | 34           |   |  | 1,666   |  
|Deferred income taxes and other assets                                                                                                       |  | 468          |   |  | 617     |  
|Restricted investments being held to maturity                                                                                                |  | 4,743        |   |  |        |  
|                                                                                                                                             |  |              |   |  |         |  
|Total Assets                                                                                                                                 |  | $39,023      |   |  | $24,292 |  
|                                                                                                                                             |  |              |   |  |         |  
|                                                                                                                                             |  |             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                         |  |              |   |  |         |  
|Current Liabilities                                                                                                                          |  |              |   |  |         |  
|Accounts payable and accrued expenses                                                                                                        |  | $1,093       |   |  | $598    |  
|Deferred revenue                                                                                                                             |  | 145          |   |  | 135     |  
|Other liabilities                                                                                                                            |  | 198          |   |  | 219     |  
|                                                                                                                                             |  |              |   |  |         |  
|Total current liabilities                                                                                                                    |  | 1,436        |   |  | 952     |  
|                                                                                                                                             |  |              |   |  |         |  
|Deferred incentive compensation                                                                                                              |  | 946          |   |  | 2,000   |  
|Commitments and Contingencies                                                                                                                |  |              |   |  |         |  
|Temporary Equity                                                                                                                             |  | 4,743        |   |  |        |  
|Stockholders Equity                                                                                                                         |  |              |   |  |         |  
|Common stock, $.10 par value; authorized 20,000,000 shares; issued 5,453,637 as of December 31, 2002                                         |  |             |   |  | 545     |  
|Common stock, $.001 par value; authorized 20,000,000 shares; issued 7,006,049 as of December 31, 2003                                        |  | 7            |   |  |        |  
|Additional paid-in capital                                                                                                                   |  | 22,742       |   |  | 9,991   |  
|Retained earnings                                                                                                                            |  | 9,673        |   |  | 25,043  |  
|Treasury stock, at cost, 22,656 shares of common stock, $.001 par value in 2003 and 1,655,626 shares of common stock, par value $.10 in
2002 |  | (159         | ) |  | (13,874 | )
|Receivable from issuance of common stock                                                                                                     |  | (365         | ) |  | (365    | )
|                                                                                                                                             |  |              |   |  |         |  
|Total stockholders equity                                                                                                                   |  | 31,898       |   |  | 21,340  |  
|                                                                                                                                             |  |              |   |  |         |  
|Total Liabilities and Stockholders Equity                                                                                                   |  | $39,023      |   |  | $24,292 |  
|                                                                                                                                             |  |              |   |  |         |  



The accompanying notes
are an integral part of these financial statements.



10



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REFAC AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except share and per share data)



|                                                                                                                        |  |                          |   |  |           |   |  |           |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | - |  | --------- | - |  | --------- | -
|                                                                                                                        |  | Years Ended December 31, |  
|                                                                                                                        |  | 2003                     |   |  | 2002      |   |  | 2001      |  
|Revenues                                                                                                                |  |                          |   |  |           |   |  |           |  
|Licensing-related activities                                                                                            |  | $1,774                   |   |  | $2,041    |   |  | $3,012    |  
|Realized gains on licensing-related securities                                                                          |  |                         |   |  |          |   |  | 1,813     |  
|Dividend income from licensing-related securities                                                                       |  |                         |   |  |          |   |  | 15        |  
|Gain on sale of licenses                                                                                                |  |                         |   |  | 4,374     |   |  |          |  
|Dividend and interest income                                                                                            |  | 323                      |   |  | 147       |   |  | 649       |  
|Related party consulting services                                                                                       |  | 30                       |   |  |          |   |  |          |  
|                                                                                                                        |  |                          |   |  |           |   |  |           |  
|Total revenues                                                                                                          |  | 2,127                    |   |  | 6,562     |   |  | 5,489     |  
|                                                                                                                        |  |                          |   |  |           |   |  |           |  
|                                                                                                                        |  |                          |  
|Costs and Expenses                                                                                                      |  |                          |   |  |           |   |  |           |  
|Licensing-related activities                                                                                            |  | 119                      |   |  | 273       |   |  | 672       |  
|Selling, general and administrative expenses                                                                            |  | 4,216                    |   |  | 2,366     |   |  | 589       |  
|                                                                                                                        |  |                          |   |  |           |   |  |           |  
|Total costs and expenses                                                                                                |  | 4,335                    |   |  | 2,639     |   |  | 1,261     |  
|                                                                                                                        |  |                          |   |  |           |   |  |           |  
|                                                                                                                        |  |                          |  
|Income (loss) before provision for taxes on income                                                                      |  | (2,208                   | ) |  | 3,923     |   |  | 4,228     |  
|Provision (benefit) for taxes on income                                                                                 |  | (674                     | ) |  | 1,412     |   |  | 1,464     |  
|                                                                                                                        |  |                          |   |  |           |   |  |           |  
|                                                                                                                        |  |                          |  
|Net income (loss) from continuing operations                                                                            |  | (1,534                   | ) |  | 2,511     |   |  | 2,764     |  
|Gain (loss) from discontinued operationsnet of provision (benefit) for taxes of $21, ($5,017) and ($756), respectively |  | 38                       |   |  | (1,697    | ) |  | (1,680    | )
|Cumulative effect of change in accounting principlenet of $1,073 tax benefit                                           |  |                         |   |  | (2,083    | ) |  |          |  
|                                                                                                                        |  |                          |   |  |           |   |  |           |  
|                                                                                                                        |  |                          |  
|Net income (loss)                                                                                                       |  | ($1,496                  | ) |  | ($1,269   | ) |  | $1,084    |  
|                                                                                                                        |  |                          |   |  |           |   |  |           |  
|                                                                                                                        |  |                          |  
|Basic earnings (loss) per share:                                                                                        |  |                          |   |  |           |   |  |           |  
|From continuing operations                                                                                              |  | ($0.27                   | ) |  | $0.66     |   |  | $0.73     |  
|From discontinued operations                                                                                            |  | $0.01                    |   |  | ($0.44    | ) |  | ($0.44    | )
|From cumulative effect in change in accounting principle                                                                |  |                         |   |  | ($0.55    | ) |  |          |  
|                                                                                                                        |  |                          |   |  |           |   |  |           |  
|Total                                                                                                                   |  | ($0.26                   | ) |  | ($0.33    | ) |  | $0.29     |  
|                                                                                                                        |  |                          |   |  |           |   |  |           |  
|                                                                                                                        |  |                          |  
|Basic weighted average shares outstanding                                                                               |  | 5,717,128                |   |  | 3,796,429 |   |  | 3,795,261 |  
|                                                                                                                        |  |                          |  
|Diluted earnings (loss) per share:                                                                                      |  |                          |   |  |           |   |  |           |  
|From continuing operations                                                                                              |  | ($0.27                   | ) |  | $0.66     |   |  | $0.73     |  
|From discontinued operations                                                                                            |  | $0.01                    |   |  | ($0.44    | ) |  | ($0.44    | )
|From cumulative effect in change in accounting principle                                                                |  |                         |   |  | ($0.55    | ) |  |          |  
|                                                                                                                        |  |                          |   |  |           |   |  |           |  
|Total                                                                                                                   |  | ($0.26                   | ) |  | ($0.33    | ) |  | $0.29     |  
|                                                                                                                        |  |                          |   |  |           |   |  |           |  
|Diluted weighted average shares outstanding                                                                             |  | 5,717,128                |   |  | 3,812,302 |   |  | 3,802,579 |  



The accompanying notes
are an integral part of the consolidated financial statements.



11



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REFAC AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Amounts in thousands)



|                                                                                              |  |                          |   |  |         |   |  |        |  
|--------------------------------------------------------------------------------------------- |  | ------------------------ | - |  | ------- | - |  | ------ | -
|                                                                                              |  | Years Ended December 31, |  
|                                                                                              |  | 2003                     |   |  | 2002    |   |  | 2001   |  
|Net income (loss)                                                                             |  | ($1,496                  | ) |  | ($1,269 | ) |  | $1,084 |  
|Other comprehensive income (loss), net of tax                                                 |  |                          |   |  |         |   |  |        |  
|Reclassification adjustment for unrealized holding gains on licensing-related securities, net |  |                         |   |  |        |   |  | (1,246 | )
|Comprehensive loss                                                                            |  | ($1,496                  | ) |  | ($1,269 | ) |  | ($162  | )









The accompanying notes are an integral part of the consolidated financial statements.





12



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REFAC AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)



|                                                                                            |  |                          |   |  |         |   |  |        |  
|------------------------------------------------------------------------------------------- |  | ------------------------ | - |  | ------- | - |  | ------ | -
|                                                                                            |  | Years ended December 31, |  
|                                                                                            |  | 2003                     |   |  | 2002    |   |  | 2001   |  
|Cash Flows from Operating Activities                                                        |  |                          |   |  |         |   |  |        |  
|Net income (loss)                                                                           |  | ($1,496                  | ) |  | ($1,269 | ) |  | $1,084 |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                          |   |  |         |   |  |        |  
|Depreciation and amortization                                                               |  | 422                      |   |  | 207     |   |  | 1,014  |  
|Realized gains on sale of licensing-related securities                                      |  |                         |   |  |        |   |  | (1,813 | )
|Loss on disposal of assets                                                                  |  |                          |   |  | 1,003   |   |  |       |  
|Cumulative effect of changing method of accounting for goodwill                             |  |                         |   |  | 3,156   |   |  |       |  
|Additional impairment of goodwill                                                           |  |                         |   |  | 2,811   |   |  |       |  
|Impairment of long-lived assets                                                             |  |                         |   |  | 115     |   |  |       |  
|Deferred income taxes and other assets                                                      |  | 149                      |   |  | (238    | ) |  | (2     | )
|Write-down of long-lived assets                                                             |  |                         |   |  |        |   |  | 28     |  
|Compensation expense related to director options                                            |  | 48                       |   |  |        |   |  |       |  
|Loss on sale of assets                                                                      |  | 6                        |   |  |        |   |  |       |  
|Loss associated with appraisal rights settlement                                            |  | 29                       |   |  |        |   |  |       |  
|(Increase) decrease in assets:                                                              |  |                          |   |  |         |   |  |        |  
|Royalties and accounts receivable                                                           |  | 189                      |   |  | 2,977   |   |  | (1,460 | )
|Prepaid expenses and other current assets                                                   |  | (414                     | ) |  | (96     | ) |  | 100    |  
|Inventory                                                                                   |  |                         |   |  | 2,140   |   |  | (2,049 | )
|Security deposit                                                                            |  |                         |   |  |        |   |  | 68     |  
|Income taxes receivable                                                                     |  | 3,273                    |   |  | (3,909  | ) |  |       |  
|Deferred incentive compensation                                                             |  | 1,632                    |   |  | (1,666  | ) |  |        |  
|Increase (decrease) in liabilities:                                                         |  |                          |   |  |         |   |  |        |  
|Accounts payable and accrued expenses                                                       |  | 495                      |   |  | (588    | ) |  | 76     |  
|Deferred revenue                                                                            |  | 10                       |   |  | (180    | ) |  |       |  
|Deferred incentive compensation                                                             |  | (1,054                   | ) |  | 2,000   |   |  |       |  
|Other liabilities                                                                           |  | (21                      | ) |  | (75     | ) |  | (191   | )
|Incomes taxes payable                                                                       |  |                         |   |  |        |   |  | 131    |  
|                                                                                            |  |                          |   |  |         |   |  |        |  
|Net cash provided by (used in) operating activities                                         |  | 3,268                    |   |  | 6,388   |   |  | (3,014 | )
|                                                                                            |  |                          |   |  |         |   |  |        |  
|                                                                                            |  |                          |  
|Cash Flows from Investing Activities                                                        |  |                          |   |  |         |   |  |        |  
|Proceeds from sales of licensing-related securities                                         |  |                         |   |  |        |   |  | 2,020  |  
|Proceeds from (purchase of) investments being held to maturity                              |  | (21,711                  | ) |  | (11,069 | ) |  | 4,448  |  
|Purchase of available for sale securities                                                   |  | (1,000                   | ) |  |        |   |  |       |  
|Payment of Human Factors Industrial Design purchase price                                   |  |                         |   |  |        |   |  | (100   | )
|Proceeds from (issuance of) Notes receivable                                                |  | 213                      |   |  | (720    | ) |  |       |  
|Proceeds on disposal of assets                                                              |  | 2                        |   |  | 72      |   |  | 18     |  
|Additions to property and equipment                                                         |  | (24                      | ) |  | (48     | ) |  | (360   | )
|                                                                                            |  |                          |   |  |         |   |  |        |  
|Net cash provided by (used in) investing activities                                         |  | (22,520                  | ) |  | (11,765 | ) |  | 6,026  |  
|                                                                                            |  |                          |   |  |         |   |  |        |  
|                                                                                            |  |                          |  
|Cash Flows from Financing Activities                                                        |  |                          |   |  |         |   |  |        |  
|Proceeds from sale of common stock                                                          |  | 16,869                   |   |  |        |   |  |       |  
|Appraisal rights settlement cost                                                            |  | (187                     | ) |  |        |   |  |       |  
|Proceeds from repayment of officer loan                                                     |  |                         |   |  | 10      |   |  |       |  
|Proceeds from exercise of stock options                                                     |  | 39                       |   |  | 7       |   |  |       |  
|                                                                                            |  |                          |   |  |         |   |  |        |  
|Net cash provided by financing activities                                                   |  | 16,721                   |   |  | 17      |   |  |       |  
|                                                                                            |  |                          |   |  |         |   |  |        |  
|                                                                                            |  |                          |  
|Net increase (decrease) in cash and cash equivalents                                        |  | (2,531                   | ) |  | (5,360  | ) |  | 3,012  |  
|                                                                                            |  |                          |  
|Cash and cash equivalents at beginning of period                                            |  | 3,330                    |   |  | 8,690   |   |  | 5,678  |  
|                                                                                            |  |                          |   |  |         |   |  |        |  
|Cash and cash equivalents at end of period                                                  |  | $799                     |   |  | $3,330  |   |  | $8,690 |  
|                                                                                            |  |                          |   |  |         |   |  |        |  
|Income taxes paid                                                                           |  |                         |   |  | $83     |   |  | $680   |  
|                                                                                            |  |                          |   |  |         |   |  |        |  



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.



13



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REFAC AND SUBSIDIARIES



CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

(Amounts in thousands, except share data)



|                                                        |  |                             |   |  |                              |   |                          |           |  |                  |  |         |                |        |         |                                      |        |            |                                     |  |          |   |  |       |   |  |        |  
|------------------------------------------------------- |  | --------------------------- | - |  | ---------------------------- | - | ------------------------ | --------- |  | ---------------- |  | ------- | -------------- | ------ | ------- | ------------------------------------ | ------ | ---------- | ----------------------------------- |  | -------- | - |  | ----- | - |  | ------ | -
|                                                        |  | Common Stock Par Value $.10 |   |  | Common Stock Par Value $.001 |   | AdditionalPaid-InCapital |           |  | RetainedEarnings |  |         | Treasury Stock |        |         | ReceivablefromIssuance ofCommonStock |        |            | AccumulatedOtherComprehensiveIncome | 
|                                                        |  | Shares                      |   |  | Amount                       |   |                          | Shares    |  | Amount           |  |         |                | Shares |         |                                      | Amount |            |                                     | 
|Balance, December 31, 2000                              |  | 5,450,887                   |   |  | $545                         |   |                          |           |  |                  |  | $9,984  |                |        | $25,228 |                                      |        | 1,655,626  |                                     |  | ($13,874 | ) |  | ($375 | ) |  | $1,246 |  
|Net income                                              |  |                             |   |  |                              |   |                          |           |  |                  |  |         |                |        | 1,084   |                                      |        |            |                                     |  |          |   |  |       |   |  |        |  
|Other comprehensive loss                                |  |                             |   |  |                              |   |                          |           |  |                  |  |         |                |        |         |                                      |        |            |                                     |  |          |   |  |       |   |  | (1,246 | )
|                                                        |  |                             |   |  |                              |   |                          |           |  |                  |  |         |                |        |         |                                      |        |            |                                     |  |          |   |  |       |   |  |        |  
|Balance, December 31, 2001                              |  | 5,450,887                   |   |  | $545                         |   |                          |           |  |                  |  | $9,984  |                |        | $26,312 |                                      |        | 1,655,626  |                                     |  | ($13,874 | ) |  | ($375 | ) |  |       |  
|Issuance of common stock upon exercise of stock options |  | 2,750                       |   |  |                             |   |                          |           |  |                  |  | 7       |                |        |         |                                      |        |            |                                     |  |          |   |  |       |   |  |        |  
|Net loss                                                |  |                             |   |  |                              |   |                          |           |  |                  |  |         |                |        | (1,269  | )                                    |        |            |                                     |  |          |   |  |       |   |  |        |  
|Repayment of note receivable from officer               |  |                             |   |  |                              |   |                          |           |  |                  |  |         |                |        |         |                                      |        |            |                                     |  |          |   |  | 10    |   |  |        |  
|                                                        |  |                             |   |  |                              |   |                          |           |  |                  |  |         |                |        |         |                                      |        |            |                                     |  |          |   |  |       |   |  |        |  
|Balance, December 31, 2002                              |  | 5,453,637                   |   |  | $545                         |   |                          |           |  |                  |  | $9,991  |                |        | $25,043 |                                      |        | 1,655,626  |                                     |  | ($13,874 | ) |  | ($365 | ) |  |       |  
|Issuance of common stock upon exercise of stock options |  | 1,500                       |   |  |                             |   |                          |           |  |                  |  | 4       |                |        |         |                                      |        |            |                                     |  |          |   |  |       |   |  |        |  
|Merger                                                  |  | (5,455,137                  | ) |  | (545                         | ) |                          | 3,512,006 |  | 4                |  | 542     |                |        | (13,874 | )                                    |        | (1,655,626 | )                                   |  | 13,874   |   |  |       |   |  |        |  
|Modification of non-employee director stock options     |  |                             |   |  |                              |   |                          |           |  |                  |  | 48      |                |        |         |                                      |        |            |                                     |  |          |   |  |       |   |  |        |  
|Appraisal rights settlement                             |  |                             |   |  |                              |   |                          |           |  |                  |  | (14     | )              |        |         |                                      |        | 22,656     |                                     |  | (159     | ) |  |       |   |  |        |  
|Issuance of common stock upon exercise of stock options |  |                             |   |  |                              |   |                          | 2,000     |  |                 |  | 35      |                |        |         |                                      |        |            |                                     |  |          |   |  |       |   |  |        |  
|Stock issuance to Palisade                              |  |                             |   |  |                              |   |                          | 3,469,387 |  | 3                |  | 16,878  |                |        |         |                                      |        |            |                                     |  |          |   |  |       |   |  |        |  
|Net Loss                                                |  |                             |   |  |                              |   |                          |           |  |                  |  |         |                |        | (1,496  | )                                    |        |            |                                     |  |          |   |  |       |   |  |        |  
|                                                        |  |                             |   |  |                              |   |                          |           |  |                  |  |         |                |        |         |                                      |        |            |                                     |  |          |   |  |       |   |  |        |  
|Balance, December 31, 2003                              |  |                            |   |  |                             |   |                          | 6,983,393 |  | $7               |  | $22,742 |                |        | $9,673  |                                      |        | 22,656     |                                     |  | ($159    | ) |  | ($365 | ) |  |       |  
|                                                        |  |                             |   |  |                              |   |                          |           |  |                  |  |         |                |        |         |                                      |        |            |                                     |  |          |   |  |       |   |  |        |  



The accompanying notes
are an integral part of the consolidated financial statements.





14



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except for share and per share data)



Note 1Business and Summary of Significant Accounting Policies



For most of its history, Refac (the Company) was engaged in
intellectual property licensing activities. During the period from 1997 to 2002, it has also engaged in product development and graphic design and has invested these creative resources, together with its licensing skills, in certain product
development ventures. The Company operates solely in the United States.



A.    Basis of Presentation



On March 22, 2002, the Company announced that it was repositioning itself for sale or liquidation. Since that date, the Company has disposed of its operating segments with the exception of its licensing business and it has limited the
operations of that segment to managing certain existing license agreements and related contracts. The balance sheet and statement of operations for the periods reflect the restatement for discontinued operations.



On August 19, 2002, the Company entered into a merger agreement with Palisade
Concentrated Equity Partnership, L.P. (Palisade), which provided for the merger (the Palisade Merger) of a Palisade subsidiary with the Company. On February 28, 2003, the Companys stockholders adopted the merger
agreement, as amended, (the Palisade Merger Agreement) and the Palisade Merger was consummated. See Note 2.



On March 28, 2003, the Company entered into a stock purchase agreement with Palisade, which closed on May 19, 2003. Pursuant thereto, Palisade acquired an
additional 3,469,387 new shares of the Companys common stock, at a price of $4.90 per share, or an aggregate price of approximately $17,000. Following the completion of the stock purchase transaction, Palisades ownership increased to
approximately 90% of the Companys outstanding shares. The purpose of the stock purchase transaction was to provide the Company with additional capital for making acquisitions.



In accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets the Creative
Consulting Services and Manufacture and Marketing of Consumer Products groups are included in the statement of operations as discontinued operations, net of taxes, as they have been sold pursuant to the Companys repositioning.



The Companys operations in the licensing of intellectual property
rights are not considered held for sale because of the Companys intent to manage certain outstanding licensing-related agreements through their termination. While the Companys licensing operations are still considered a continuing
business, it has not undertaken any new technology licensing projects during the current or preceding five fiscal years and, given the Palisade Merger, it is highly unlikely that it will undertake any such projects in the future. The statement of
operations reflects the results of the licensing of intellectual property rights in its results of continuing operations.



On January 27, 2004, the Company announced that it will focus its acquisition efforts on opportunities in the asset management sector of the financial
services industry. The Company also announced that it has engaged a leading provider of executive search services to identify opportunities in this segment and to recruit individuals and/or teams within the industry to join the Company and build
this business. See Note 12.



B.    Principles of Consolidation



The accompanying consolidated financial statements include the accounts of the Company and all of its majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. As of December 31, 2002,
the Company did not have any subsidiaries.



15



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Dollar amounts in thousands, except for share and per share data)



C.    Investments



The Company categorizes and accounts for its investment holdings as
Held to maturity securities or Available for sale securities. Held to maturity securitiesare recorded at their amortized cost. This categorization is based upon the Companys positive intent and ability to hold
these securities to maturity. Available for sale securities are recorded at cost which approximates fair value due to the nature of the instrument. Dividends from such securities are reported in dividend and interest income.



D.    Income Taxes



The Company accounts for income taxes in accordance with SFAS 109,
Accounting for Income Taxes. Deferred income taxes arise from temporary difference in the basis of assets and liabilities for financial reporting and income tax purposes. SFAS 109 requires that a valuation allowance be established when
it is more likely than not that all or a portion of a deferred tax asset will not be realized. In forming a conclusion as to a valuation allowance, the Company reviews and considers all available positive and negative evidence, including the
Companys current and past performance, the market environment in which the company operates, length of carryback and carryforward periods and existing business or acquisitions that will result in future profits.



E.    Stock Based-Compensation



The Company has adopted the disclosure provisions of SFAS No. 148,
Accounting for Stock-Based CompensationTransition and Disclosure, an amendment of FASB Statement No. 123. The Statement requires prominent disclosures in both annual and interim financial statements regarding the method of
accounting for stock-based employee compensation and the effect of the method used on reported results. The Company accounts for stock compensation awards under the intrinsic method of Accounting Principles Board (APB) Opinion No. 25
(see Note 8). Opinion No. 25 requires compensation cost to be recognized based on the excess, if any, between the quoted market price of the stock at the date of grant and the amount an employee must pay to acquire the stock. All options awarded
under all of our plans are granted with an exercise price equal to the fair market value on the date of the grant. The following table presents the effect on the Companys net earnings and earnings per share for the years ended December 31,
2003, 2002 and 2001 had it adopted the fair value method of accounting for stock-based compensation under SFAS No. 123, Accounting for Stock-Based Compensation.



|                                                                                                                                                                                     |  |         |   |  |         |   |  |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------- | - |  | ------- | - |  | ------ | -
|                                                                                                                                                                                     |  | 2003    |   |  | 2002    |   |  | 2001   |  
|Net income (loss), as reported                                                                                                                                                       |  | ($1,496 | ) |  | ($1,269 | ) |  | $1,084 |  
|Less: Total stock-based employee and director compensation expense determined under fair value based on methods for awards granted, modified,
or settled, net of related tax effects |  | (150    | ) |  | (220    | ) |  | (306   | )
|Add: Additional compensation expense for modification of non-employee director stock options, net of related tax effect                                                              |  | 48      |   |  |        |   |  |       |  
|Pro forma net income (loss)                                                                                                                                                          |  | ($1,598 | ) |  | ($1,489 | ) |  | $778   |  
|Earnings per share, as reported                                                                                                                                                      |  |         |   |  |         |   |  |        |  
|Basic                                                                                                                                                                                |  | ($0.26  | ) |  | ($0.33  | ) |  | $0.29  |  
|Diluted                                                                                                                                                                              |  | ($0.26  | ) |  | ($0.33  | ) |  | $0.29  |  
|Pro forma earnings per share                                                                                                                                                         |  |         |   |  |         |   |  |        |  
|Basic                                                                                                                                                                                |  | ($0.28  | ) |  | ($0.39  | ) |  | $0.21  |  
|Diluted                                                                                                                                                                              |  | ($0.28  | ) |  | ($0.39  | ) |  | $0.21  |  



There were no options
granted in 2002. 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



16



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Dollar amounts in thousands, except for share and per share data)



grants in 2003 and 2001, respectively: no dividend yields; expected volatility of 56 and 60 percent; risk-free interest rates of 2.5 and 4.6 percent; and
expected lives of 4.5 and 5 years. The weighted-average fair value of options granted were $2.20 and $1.39 per share for the years ended December 31, 2003 and 2001, respectively.



F.    Earnings Per Share



The following reconciles basic and diluted shares used in earnings per share computations:



|                                     |  |           |  |           |  |          
|------------------------------------ |  | --------- |  | --------- |  | ---------
|                                     |  | 2003      |  | 2002      |  | 2001     
|Basic shares                         |  | 5,717,128 |  | 3,796,429 |  | 3,795,261
|Dilution: Stock options and warrants |  |          |  | 15,873    |  | 7,318    
|Diluted shares                       |  | 5,717,128 |  | 3,812,302 |  | 3,802,579



There are 139,500
options excluded from the earnings per share computation for the twelve month period ended December 31, 2003, since their effect would be anti-dilutive. In 2002 and 2001, options to purchase 152,500 and 640,750 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 stock.



G.    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.



H.    Revenue Recognition



Royalty revenue is recognized when the licensee sells the product or as otherwise provided for in the license agreement. Nonrecurring lump sum payments that represent settlements of patent infringement claims are
recognized when the settlements occur and collectibility is reasonably assured. Consulting revenues are recognized as services are performed.



I.    Using Estimates in Financial Statements



In preparing financial statements in conformity with accounting principles generally accepted in the United States of
America, 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.



J.    Intangibles



Patents are amortized on a straight-line basis over their statutory life or expected useful life, whichever is shorter. Goodwill was 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, such as a current period operating loss combined with a history of such losses, suggest that such assets may be permanently impaired.



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 were issued July 20, 2001. The



17



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Dollar amounts in thousands, except for share and per share data)



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 amortized goodwill under its current method through December 31, 2001. Commencing January 1, 2002, it no longer
amortized goodwill. In 2001, the goodwill annual and quarterly amortization amounted to $348 and $87, respectively. As of June 30, 2002, the Company performed a transitional fair value based impairment test and recorded an impairment loss at January
1, 2002, as a cumulative effect of a change in accounting principle. In addition, the Company recorded an impairment loss in the fiscal quarter ended June 30, 2002.



As of December 31, 2003, the only intangible assets on the Companys books were patents with a net book value of $3.



K.    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 three to seven years. Leasehold improvements are amortized over the lives of the respective leases.



L.    Reclassifications



Certain reclassifications have been made to the prior period financial
statements to conform them to the current presentation.



M.    Comprehensive Loss



Comprehensive loss consists of net income or loss for the 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 the reclassification of prior year unrealized gains and losses on securities that are sold in the subsequent year.



N.    Fair Value of Financial Instruments



The Companys financial instruments principally consist of cash and
cash equivalents, notes receivable and marketable securities. The carrying amount of cash and cash equivalents approximate fair value due to the short-term maturity of the instruments. Notes Receivable are recorded at fair value due to the interest
rates on these notes approximating current market interest rates. Marketable securities include investments held to maturity and available for sale securities. Investments held to maturity are recorded at amortized cost, which approximates fair
value, because their short-term maturity results in the interest rates on these securities approximating current market interest rates. Available for sale securities are recorded at cost which approximates fair value due to the nature of the
instrument.



18



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Dollar amounts in thousands, except for share and per share data)



Note 2Palisade Merger



On February 28, 2003, the Company completed a merger with a wholly-owned subsidiary of Palisade which is referred to herein
as the Palisade Merger. Under the terms of the Palisade Merger, for each share of the Companys common stock, par value $.10 per share (Old Refac Common Stock), owned immediately prior to the effective time of the merger,
stockholders (other than Palisade and stockholders who properly exercised appraisal rights) received or are expected to receive (i) $3.60 in cash, (ii) 0.2 shares of common stock, par value $.001 per share (Common Stock), and (iii) the
non-transferable right (the Payment Right) to sell the shares of the Common Stock to the Company for a price (the Payment Amount) which depends upon the Companys liquid distributable assets (LDA) as of June
30, 2005. This right to sell the shares is limited to stockholders who held their shares at the completion of the Palisade Merger and continue to hold their shares until the amount of liquid distributable assets at June 30, 2005 is determined.



The Company has treated the Palisade Merger as a
recapitalization for accounting purposes and has adjusted the difference in the par value of the Old Refac Common Stock and the Common Stock from common stock to additional paid-in capital. Pursuant to the Palisade Merger Agreement, the treasury
stock owned by the Company at the effective time of the Palisade Merger has been cancelled with a corresponding decrease to the Companys retained earnings.



As the Payment Right represents a non-transferable right of stockholders to sell to the Company their shares of Common Stock
received in the Palisade Merger for cash, the estimated Payment Amount ($7.03 per share as of December 31, 2003) has been reflected on the balance sheet as temporary equity with a similar amount reducing additional paid-in capital. Subsequent
changes in the estimated Payment Amount through June 30, 2005, computed on a quarterly basis, will increase or decrease the temporary equity amount with an offsetting increase or decrease in additional paid-in capital.



Pursuant to the Palisade Merger Agreement, the Company has restricted a
portion of its investments being held to maturity to maintain the Contingent Fund (as defined in the merger agreement) reserved to pay the Payment Amount.



In April 2003, the Company settled a claim with dissenting stockholders who had demanded appraisal rights in connection with the Palisade Merger. Under
the terms of the settlement, the Company purchased the 113,280 shares of Old Refac Common Stock held by such dissenting stockholders for $595 or $5.25 per share. The Company then exchanged these shares for the merger consideration consisting of $408
and 22,656 shares of Common Stock. No other stockholders have appraisal rights with respect to the Palisade Merger.



Note 3Related Party Transactions



PCM on behalf of itself and/or its portfolio companies requests, from time to time, that the Corporation provide certain consulting services. In
consideration for these services, PCM pays the Company a basic monthly retainer of $5, subject to quarterly adjustment, by mutual agreement, at the end of each calendar quarter to reflect the services rendered during such quarter. Either party has
the right to terminate this agreement at any time without any prior notice. Under this arrangement, the Company has earned $30 with respect to services rendered during 2003 of which $5 is outstanding at December 31, 2003.



As of February 2004, the Corporation has agreed to provide consulting
services directly to Neurologix, Inc., a public company in which PCM beneficially owns approximately 30% of the outstanding capital stock at a basic monthly retainer of $5. Either party has the right to terminate this agreement at any time without
any prior notice.



19



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Dollar amounts in thousands, except for share and per share data)



Other related party transactions include management indebtedness (see Note 5B), a subleasing
arrangement with Palisade Capital Securities, LLC (PCS), an affiliate of Palisade and PCM, under which it is occupying approximately 1,185 gross rentable square feet (see Note 5A) and maintenance of brokerage accounts at PCS for the
Companys marketable securities (principally, treasury notes being held to maturity).



Note 4Income Taxes



Tax RefundDuring 2003, the Company received federal income tax refunds of $4,254 resulting from carrying back a net capital loss incurred in 2002 with respect to its sale of Refac International, Ltd. (RIL)
and its 2002 net operating loss. Even though the Company has received these tax refund payments, it remains subject to Internal Revenue Service (IRS) audit with respect thereto and, should there be an assessment for any amounts
determined to have been erroneously refunded, interest would be payable on the amount assessed. While the Company believes that its 2002 tax return and refund claim are correct, the calculation of the Companys tax basis in RIL is subject to
complex IRS regulations and the Company has established a reserve of approximately $275 as of December 31, 2003 pending the passage of the statute of limitations or the outcome of any audit that the IRS may initiate.



Income Taxes Receivable The Companys income
tax receivable as of December 31, 2003 is based upon its ability to carry back its 2003 net operating loss for federal income tax purposes to a prior tax year.



Income Tax ProvisionThe provision (benefit) for taxes on income from continuing operations for the years ended December 31,
2003, 2002 and 2001 were as follows:



|                    |  |       |   |  |        |   |  |        |  
|------------------- |  | ----- | - |  | ------ | - |  | ------ | -
|                    |  | 2003  |   |  | 2002   |   |  | 2001   |  
|Federal             |  | ($730 | ) |  | $2,167 |   |  | $1,564 |  
|Deferred            |  | 96    |   |  | (847   | ) |  | (143   | )
|State and local     |  | (40   | ) |  | 92     |   |  | 21     |  
|Foreign withholding |  |      |   |  |       |   |  | 22     |  
|                    |  | ($674 | ) |  | $1,412 |   |  | $1,464 |  



The provision
(benefit) for taxes on income from continuing operations for the years ended December 31, 2003, 2002 and 2001 differed from the amount computed by applying the statutory federal income tax rate of 34% as follows:



|                                        |  |      |    |  |      |   |  |      |  
|--------------------------------------- |  | ---- | -- |  | ---- | - |  | ---- | -
|                                        |  | 2003 |    |  | 2002 |   |  | 2001 |  
|Statutory rate                          |  | (34  | %) |  | 34   | % |  | 34   | %
|Permanent differences related to merger |  | 5    | %  |  |     |   |  |     |  
|State and local                         |  | (2   | %) |  | 2    | % |  | 1    | %
|                                        |  |      |    |  |      |   |  |      |  
|Provision (benefit) for taxes on income |  | (31  | %) |  | 36   | % |  | 35   | %
|                                        |  |      |    |  |      |   |  |      |  





20



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Dollar amounts in thousands, except for share and per share data)



Deferred TaxesDeferred income taxes arise from temporary differences in the basis
of assets and liabilities for financial reporting and income tax purposes. The tax effect of temporary differences that gave rise to deferred tax assets are as follows:



|                                                           |  |              |   |  |     
|---------------------------------------------------------- |  | ------------ | - |  | ----
|                                                           |  | December 31,
|                                                           |  | 2003         |   |  | 2002
|Deferred tax assets:                                       |  |              |   |  |     
|Assets transferred to the Company from former subsidiaries |  | $512         |   |  | $777
|Management incentive compensation                          |  | 391          |   |  | 113 
|Deferred rent and compensation                             |  | 75           |   |  | 71  
|Federal and state net operating loss carryforwards         |  | 173          |   |  |    
|                                                           |  |              |   |  |     
|Total deferred tax assets                                  |  | 1,151        |   |  | 961 
|Valuation allowance                                        |  | (297         | ) |  |    
|                                                           |  |              |   |  |     
|Net deferred tax assets                                    |  | $854         |   |  | $961
|                                                           |  |              |   |  |     



As of December 31,
2003, the Company had deferred tax assets relating to the State of New Jersey aggregating $315 of which $169 is attributable to a New Jersey net operating loss carryforward of $1,881 which can be applied against any New Jersey taxable income the
Company might earn during the seven year period ending December 31, 2010. The Company is currently focusing its acquisition efforts in the asset management sector of the financial services industry, and at this point, it cannot determine whether
this business will generate any New Jersey taxable income. Due to such uncertainty, the Company has estimated that only $18 of its $315 New Jersey related deferred taxes assets will be realized and has established a valuation allowance to cover the
$297 difference. The need for a valuation allowance will continue to be reviewed periodically and adjusted as necessary.



As of December 31, 2003, the Company had federal deferred tax assets aggregating $836 of which $4 is attributable to a federal net operating loss
carryforward of $11 which can be used during the twenty year period ending 2023. No valuation allowance has been taken for the Companys federal deferred tax assets. The need for a valuation allowance will continue to be reviewed periodically
and adjusted as necessary.



Note 5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 leased facilities in Edgewater, New Jersey. This lease expires on November 16, 2009 and provides for two successive five-year renewal
options. In October 2001, the Company subleased a portion of its Edgewater facility, together with furniture, for an annualized payment of $270 through May 2005. In connection with the sale of the Companys Graphic Design Group, the Company
also entered into a sublease with the acquiring company for 3,492 square feet of commercial rentable space. The sublease expires in mid-November 2009, which is co-terminus with the Companys master lease. As of December 31, 2003, the rent for
the remaining term of the sublease was $483. In connection with the sale of the Companys Product Design Group, the Company entered into a sublease with the acquiring company for 9,574 square feet of commercial rentable space. The sublease
expires in mid-November 2009, which is co-terminus with the Companys master lease. As of December 31, 2003, the rent for the remaining term of this sublease was $1,471.



In February 2003, the Company and its landlord amended the master lease to reduce the rentable square footage by 9,757
square feet and the aggregate rent payable over the remaining term of the lease by $840. Taking



21



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Dollar amounts in thousands, except for share and per share data)



this amendment into account, the annual rent due under the lease in 2004 and thereafter is $446 subject to a maximum cost of living increase of 2.5% per
annum.



The Company relocated its corporate office on May 1,
2003 to Fort Lee, New Jersey where it is occupying approximately 1,185 gross rentable square feet under a 33 month sublease with Palisade Capital Securities, LLC (PCS), an affiliate of PCM, which has a current monthly rent of $3. By
lease, which became effective on January 21, 2004 and was amended on March 12, 2004, the Company has a direct lease with the landlord for larger space in this building encompassing 4,751 gross rentable square feet and expects to move into such
premises when construction is completed on or about June 1, 2004. At such time, its sublease with PCS will terminate. The lease expires on May 31, 2009 and provides for a five-year renewal option. The expected rent for the entire term of the
sublease is $677, subject to escalations. Under the lease, the Company is required to pay $55 toward the construction of the premises.



Net rental expense (income) covering all Company facilities was approximately ($84) (net of sublease income of $592), $257 (net of sublease income of
$360) and $476 (net of sublease income of $68) for the years ended December 31, 2003, 2002 and 2001, respectively.



Future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of
December 31, 2003, for fiscal 2004 through fiscal 2008 and thereafter are $483 in 2004, $487 in 2005, $454 in 2006, $446 in 2007, $453 in 2008 and $390 thereafter. These future minimum lease payments do not include future sublease rental income for
fiscal 2004 through fiscal 2008 and thereafter of $598 in 2004, $449 in 2005, $337 in 2006, $342 in 2007, $342 in 2008 and $332 thereafter.



B.    Employment Agreements and Incentive Compensation



The Company is party to an employment contract with its President and Chief Executive Officer, which became effective upon
the completion of the Palisade Merger, and, as amended and restated, has a term ending on March 31, 2005. During the term, the officer is entitled to an annual base salary of $300. Upon completion of the Palisade Merger, the officer received a
signing bonus of $800 and is entitled to retention payments totaling $500 payable in fifteen (15) equal consecutive monthly installments of $33 each commencing on January 1, 2004. In addition, he is entitled to incentive compensation equal to an
aggregate of 16% of GLDA. GLDA is defined in the employment agreement as the sum of the following:



| |  |  | the liquid distributable assets of the Company as of June 30, 2005, as calculated under the merger agreement, plus
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | the signing bonus, retention and incentive compensation payments paid or payable to him and the signing bonus and incentive compensation payments paid or payable to the
Companys Vice President as a result of the Palisade Merger, less
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the sum of $17,844.
| | - |  | -------------------



In 1996, the officer exercised options previously granted under the Companys 1990 Stock Option Plan to purchase 100,000 shares of Old Refac Common
Stock. In connection with such exercise, the Company provided the officer with a loan of $375 (which was reduced to $365 after the officer paid back $10). The note, as modified in March 2002, bears interest at the rate of 6% per annum and is payable
in ten (10) equal annual installments commencing on December 31, 2004.



The Company is also party to an employment contract with its Vice President and Chief Financial Officer. As amended and restated, the officers current employment agreement became effective upon the completion of



22



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Dollar amounts in thousands, except for share and per share data)



the Palisade Merger, and has a term ending on March 31, 2005. During the term, the officer is entitled to an annual base salary of $175. Upon completion of
the Palisade Merger, the officer received a signing bonus of $314. In addition, he is entitled to the payment of incentive compensation equal to an aggregate of 4% of GLDA. GLDA is determined in the same manner as under the
President and Chief Executive Officers employment agreement.



As a result of such amendments to the employment agreements, these officers received signing bonuses aggregating $1,114 on February 28, 2003. Additionally, as of December 31, 2003, the Company estimated that the management incentive
compensation payable could aggregate $846. A deferred asset which was originally recorded in an amount equal to the estimated incentive compensation payable (subject to quarterly adjustment) is being amortized over the thirteen month period ending
March 31, 2004. An amendment to the President and Chief Executive Officers agreement in November 2003 extended the term from March 31, 2004 to March 31, 2005 and recast the payment schedule for the retention bonuses. Such retention payments
aggregating $500 which had been scheduled to be paid prior to March 31, 2004 are now be payable in fifteen (15) equal consecutive monthly installments of $33 with the first installment becoming due on January 1, 2004. As of October 31, 2003, the
Companys financial statements reflected an unamortized balance for such retention bonuses of $192. Commencing November 2003, this balance is being amortized over the extended employment agreement term at a monthly amortization of $11.



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, from July 1, 1997 to June 30, 2000, the former chairman acted as a consultant to the Company. The retirement
agreement also provides for an annuity of $100 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 for such retirement benefits, which represented the present value of the expected payments, following the consultancy period, based upon his then estimated life expectancy and recorded the corresponding liability.
The Company began making payments during the second half of 2000 which had the effect of reducing the liability to zero as of December 31, 2003. Starting in January 2004, any payments will be treated as a current charge in the year made.



Note 6Investments Held to Maturity, Available for Sale Securities and
Licensing-Related Securities



Investments held to maturity
at December 31, 2003 consist of U.S. Treasury Notes with an amortized cost of $33,425. All U.S. Treasury Notes mature in 2004. Pursuant to the Palisade Merger Agreement the Company has restricted $4,743 of its investments being held to maturity to
maintain the Contingent Fund (as defined in the Palisade Merger Agreement). This amount is being shown as a long-term asset on the balance sheet as the related Payment Right is not determinable and payable until after June 30, 2005 (See Note 2).
Investments held to maturity at December 31, 2002 consisted of U.S. Treasury Notes and corporate bonds with an amortized cost of $11,714.



Available for sale securities at December 31, 2003 consist of $1,000 of variable cumulative preferred stock from a single issuer with a dividend rate
which is determined by an auction method every forty-nine days. The Company completed a planned liquidation of its licensing-related securities, (i.e. KeyCorp common stock which it acquired in connection with its licensing activities) during the
quarter ended June 30, 2001. Accordingly, it did not own any licensing-related securities at December 31, 2003, 2002 and 2001. The realized gains for licensing-related securities accounted for on a first-in, first-out basis for the year ended
December 31, 2001 was $1,813.



23



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Dollar amounts in thousands, except for share and per share data)



Note 7Property and Equipment



Property and equipment consists of the following:



|                                |  |              |   |  |        |  
|------------------------------- |  | ------------ | - |  | ------ | -
|                                |  | December 31, |  
|                                |  | 2003         |   |  | 2002   |  
|Leasehold improvements          |  | $876         |   |  | $1,209 |  
|Furniture and fixtures          |  | 289          |   |  | 288    |  
|Computer software and equipment |  | 61           |   |  | 52     |  
|Office and other equipment      |  | 12           |   |  | 13     |  
|                                |  | $1,238       |   |  | $1,562 |  
|                                |  |              |   |  |        |  
|Less accumulated depreciation   |  | (461         | ) |  | (378   | )
|                                |  |              |   |  |        |  
|                                |  | $777         |   |  | $1,184 |  
|                                |  |              |   |  |        |  



Note 8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,
stockholders approved the 1990 Stock Option and Incentive Plan (the 1990 Plan) that authorized the issuance of up to 300,000 shares of the Companys pre-merger common stock, par value $.10 per share (Old Refac Common
Stock), and, in May 1997, the 1990 Plan was amended to provide for a 100,000 share increase in the number of authorized shares. As of March 14, 2000, no further grants were allowed under the 1990 Plan. Upon the closing of the Palisade Merger,
the 1990 Plan was terminated.



In May 1998, the stockholders
approved the 1998 Stock Option and Incentive Plan (the 1998 Plan) that authorized the issuance of up to 300,000 shares of Old Refac Common Stock. On January 23, 2003, the 1998 Plan was amended, effective as of the Palisade Merger, to
provide that in the event that the services of a non-employee director terminate for any reason, all director options that are outstanding and held by such non-employee director at the time of such termination shall remain exercisable by such
non-employee director for the remainder of the original term of such director option. As a result of this amendment, the options held by certain directors were remeasured and a compensation expense of approximately $48 was recorded in the year ended
December 31, 2003. Upon the closing of the Palisade Merger, the 1998 Plan was terminated.



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 Old Refac Common Stock which were canceled in
January 2002. Stock options to purchase 40,000 and 10,000 shares were granted to non-executive directors in 2001 and 2000, respectively. Warrants to purchase 200,000 shares of Old Refac Common Stock which were issued in 1997 expired in April 2002
and non-qualified stock options to purchase 165,000 shares of Old Refac Common Stock issued in 1997 have been cancelled as of December 2003.



24



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Dollar amounts in thousands, except for share and per share data)



The table below summarizes all option activity for the pre-merger options with respect to the Old
Refac Common Stock, excluding the warrant:



|                                 |  |         |   |  |                              |  |          |   |  |                              |  |          |   |  |                             
|-------------------------------- |  | ------- | - |  | ---------------------------- |  | -------- | - |  | ---------------------------- |  | -------- | - |  | ----------------------------
|                                 |  | 2003    |   |  | WeightedAverageExercisePrice |  | 2002     |   |  | WeightedAverageExercisePrice |  | 2001     |   |  | WeightedAverageExercisePrice
|Outstanding at beginning of year |  | 244,000 |   |  | $6.32                        |  | 485,750  |   |  | $6.88                        |  | 646,750  |   |  | $7.09                       
|Options granted                  |  |        |   |  |                             |  |         |   |  |                             |  | 51,500   |   |  | 2.51                        
|Options exercised                |  | (11,500 | ) |  | 3.42                         |  | (2,750   | ) |  | 2.70                         |  |         |   |  |                            
|Options canceled                 |  |        |   |  |                             |  | (239,000 | ) |  | 7.49                         |  | (212,500 | ) |  | 6.47                        
|                                 |  |         |   |  |                              |  |          |   |  |                              |  |          |   |  |                             
|Outstanding at end of year       |  | 232,500 |   |  | 6.47                         |  | 244,000  |   |  | 6.32                         |  | 485,750  |   |  | 6.88                        
|                                 |  |         |   |  |                              |  |          |   |  |                              |  |          |   |  |                             
|Exercisable at end of year       |  | 232,500 |   |  | $6.47                        |  | 244,000  |   |  | $6.32                        |  | 271,500  |   |  | $8.46                       
|                                 |  |         |   |  |                              |  |          |   |  |                              |  |          |   |  |                             



The following table
summarizes all option data for the pre-merger options with respect to the Old Refac Common Stock as of December 31, 2003:



|                  |  |         |  |                                |  |                                    |  |                              |  |                                |  |                             
|----------------- |  | ------- |  | ------------------------------ |  | ---------------------------------- |  | ---------------------------- |  | ------------------------------ |  | ----------------------------
|PriceRangeMinimum |  | Maximum |  | Outstanding atDecember 31,2003 |  | WeightedAverageContractLife(Years) |  | WeightedAverageExercisePrice |  | Exercisable atDecember 31,2003 |  | WeightedAverageExercisePrice
|$2.50             |  | $3.50   |  | 90,000                         |  | 4.81                               |  | $2.71                        |  | 90,000                         |  | $2.71                       
|$3.51             |  | $4.70   |  | 7,500                          |  | 5.96                               |  | $3.81                        |  | 7,500                          |  | $3.81                       
|$4.71             |  | $7.10   |  | 10,000                         |  | 4.96                               |  | $6.88                        |  | 10,000                         |  | $6.88                       
|$7.11             |  | $9.50   |  | 125,000                        |  | 3.20                               |  | $9.30                        |  | 125,000                        |  | $9.30                       
|                  |  |         |  |                                |  |                                    |  |                              |  |                                |  |                             
|Total             |  |         |  | 232,500                        |  | 3.99                               |  | $6.47                        |  | 232,500                        |  | $6.47                       
|                  |  |         |  |                                |  |                                    |  |                              |  |                                |  |                             



Pursuant to the
Palisade Merger Agreement, upon the exercise of any pre-merger options, the optionee is entitled to receive the following: (i) if the option is exercised on or prior to June 30, 2005, the Merger Consideration as defined in the Palisade Merger
Agreement or (ii) if the option is exercised after June 30, 2005, $3.60 in cash (from Palisade) and 0.2 shares of the Companys post-merger common stock, par value $.001 per share (Common Stock).



In June 2003, the stockholders approved the 2003 Stock Option and Incentive
Plan (the 2003 Plan) that authorizes the issuance of up to 500,000 shares of Common Stock. The 2003 Plan authorizes the issuance of various incentives to employees (including officers and directors) including stock options, stock
appreciation rights, and restricted performance stock awards. The 2003 Plan allows the Board to determine type, shares and terms of the grants. The table below summarizes all option activity for options granted after the Palisade Merger:





|                                 |  |         |  |                              |     
|-------------------------------- |  | ------- |  | ---------------------------- | ----
|                                 |  | 2003    |  | WeightedAverageExercisePrice
|Outstanding at beginning of year |  |        |  |                              |    
|Options granted                  |  | 150,000 |  |                              | 4.64
|Options exercised                |  |        |  |                              |    
|Options canceled                 |  |        |  |                              |    
|Outstanding at end of year       |  | 150,000 |  |                              | 4.64
|Exercisable at end of year       |  | 50,000  |  | $                            | 4.64





25



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Dollar amounts in thousands, except for share and per share data)



The following table summarizes the data, as of December 31, 2003, for options granted after the
Palisade Merger:



|                  |  |         |  |                                |  |                                    |  |                              |  |                               |  |                             
|----------------- |  | ------- |  | ------------------------------ |  | ---------------------------------- |  | ---------------------------- |  | ----------------------------- |  | ----------------------------
|PriceRangeMinimum |  | Maximum |  | Outstanding atDecember 31,2003 |  | WeightedAverageContractLife(Years) |  | WeightedAverageExercisePrice |  | ExercisableatDecember31, 2003 |  | WeightedAverageExercisePrice
|$3.50             |  | $4.70   |  | 110,000                        |  | 9.39                               |  | $4.50                        |  | 36,667                        |  | $4.50                       
|$4.71             |  | $5.90   |  | 40,000                         |  | 4.86                               |  | $5.02                        |  | 13,333                        |  | $5.02                       
|                  |  |         |  |                                |  |                                    |  |                              |  |                               |  |                             
|Total             |  |         |  | 150,000                        |  | 8.18                               |  | $4.64                        |  | 50,000                        |  | $4.64                       
|                  |  |         |  |                                |  |                                    |  |                              |  |                               |  |                             



The following table
summarizes all equity compensation plan information as of December 31, 2003, adjusted to reflect the terms of the Palisade Merger with respect to the pre-merger options granted under the 1990 and 1998 Plans. All of the Companys equity
compensation plans have been approved by securityholders.







|              |  |                                                                                          |  |                                                                          |  |                                                                                           
|------------- |  | ---------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------
|Plan Category |  | Number of securities to beissued upon exercise ofoutstanding options,warrants and rights |  | Weighted-averageexercise price ofoutstanding options,warrants and rights |  | Number of securities remaining available forfuture issuance underequity compensation plans
|1990 Plan     |  | 25,000                                                                                   |  | $9.30                                                                    |  |                                                                                          
|1998 Plan     |  | 21,500                                                                                   |  | $3.18                                                                    |  |                                                                                          
|2003 Plan     |  | 150,000                                                                                  |  | $4.64                                                                    |  | 350,000                                                                                   
|Total         |  | 196,500                                                                                  |  | $5.07                                                                    |  | 350,000                                                                                   



Preferred Stock



The Company has 1,000,000 shares of preferred stock,
$.001 par value per share, authorized and none issued.



Note
9Concentrations and Foreign Source Income



The
Company has a contract with Patlex Corporation which accounted for approximately 56%, 20% and 34% of the Companys total revenues from continuing operations for 2003, 2002 and 2001, respectively. The Companys income from its contract with
Patlex is variable and is based upon revenues derived by Patlex from the licensing of two laser patents. The more significant of the two patents licensed by Patlex Corporation is the Gas Discharge Laser Patent, which expires in November 2004. The
other patent expires in May 2005.



Foreign source revenues of
domestic operations from licensing-related activities amounted to:



|       |  |      |  |      |  |     
|------ |  | ---- |  | ---- |  | ----
|       |  | 2003 |  | 2002 |  | 2001
|Europe |  |     |  | $290 |  | $649
|Asia   |  |     |  | 56   |  | 194 
|       |  |      |  |      |  |     
|Total  |  |     |  | $346 |  | $843
|       |  |      |  |      |  |     



26



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Dollar amounts in thousands, except for share and per share data)



Note 10Wrench versus Taco Bell Litigation



By Agreement, dated as of January 31, 2002, the Company and Ms. Arlene Scanlan, who was then President of Refac Licensing,
Inc. (RL), agreed to a termination of her employment agreement and stock options and to a conveyance of her 19% interest in RL to the Company. This termination agreement also requires Ms. Scanlan to pay the Company 50% of the first
$3,000 that she, or any entity controlled by her, may receive relating to a certain lawsuit against Taco Bell Corp., entitled Wrench LLC, Joseph Shields and Thomas Rinks v. Taco Bell Corp. which was filed in the United States District
Court for the Western District of Michigan. On June 4, 2003, the jury awarded $30,000 to the plaintiffs and, on September 30, 2003, the Court amended the judgment to include pre-judgment interest of $12,000. Based upon Ms. Scanlans interest in
this judgment, when and if the judgment is paid, the Company would be entitled to the maximum of $1,500. While YUM! Brands, Inc. (YUM), which owns Taco Bell, has recorded a charge of $42,000 in its financial statements, it maintains that
the plaintiffs claims are without merit and has appealed the verdict to the Sixth Circuit Court of Appeals. Due to the uncertainty as to the ultimate outcome of this litigation, the Company has not accrued any income with respect thereto.



Note 11Accounts Payable and Accrued Expenses



Accounts payable and accrued expenses consist of the following:



|                                                |  |                         |  |     
|----------------------------------------------- |  | ----------------------- |  | ----
|                                                |  | Years EndedDecember 31,
|                                                |  | 2003                    |  | 2002
|Accounts payable                                |  | $11                     |  | $109
|Amounts payable under service agreements        |  | 26                      |  | 78  
|Deferred incentive compensationcurrent portion |  | 400                     |  |    
|Accounting and auditing                         |  | 77                      |  | 210 
|Deferred rent                                   |  | 87                      |  | 152 
|Legal                                           |  | 46                      |  |    
|Payroll                                         |  | 100                     |  |    
|Tax reserve                                     |  | 275                     |  |     
|Other                                           |  | 71                      |  | 49  
|                                                |  |                         |  |     
|Total                                           |  | $1,093                  |  | $598
|                                                |  |                         |  |     



Note 12Asset Management



On January 27, 2004, the Company announced that it will
focus its acquisition efforts on opportunities in the asset management sector of the financial services industry. The Company also announced that it has engaged a leading provider of executive search services to identify opportunities in this
segment and to recruit individuals and/or teams within the industry to join the Company and build this business. The agreement provides for a non-refundable retainer of $300, which is payable in four consecutive, equal monthly payments starting on
January 27, 2004 and is creditable against a success-based fee based upon the first year total cash compensation of the team members recruited. The amounts paid to the executive search firm will be amortized over a five month period, which is the
expected service period for the executive search firm, beginning February 1, 2004.



The Company also granted to the principal of the search firm an option to purchase 25,000 shares of the Companys common stock at a per share exercise price equal to the fair market value of the Companys
common



27



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Dollar amounts in thousands, except for share and per share data)



stock on the date of grant of $5.02. The option vests upon the first anniversary date of the closing of the transaction contemplated in the engagement
agreement and has a term of five years from the date of grant.



Note
13Business Combinations and Intangible AssetsAccounting for Goodwill



In June 2001, the Financial Accounting Standards Board approved the issuance of SFAS No. 141, Business Combinations and in July 2001, SFAS 142, Goodwill and Other Intangible Assets. 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 are no longer subject to amortization, but are now subject to at least an annual
assessment for impairment by applying a fair value based test. The Company adopted SFAS 142 as of January 1, 2002 and in compliance with this new standard discontinued the amortization of goodwill. With the sale of the Companys Creative
Consulting Services and Manufacture and Marketing of Consumer Products groups in the third quarter of 2002, the Company no longer has goodwill on its balance sheet.



During the quarter ended June 30, 2002, the Company completed the steps required to value the carrying value of goodwill
existing at January 1, 2002. As a result, a non-cash charge of $2,083, net of tax, or ($0.55) per share was recorded as a cumulative effect of change in accounting principle in the statement of operations for the six months ended June 30, 2002. At
June 30, 2002, the Company designated the Creative Consulting Services and Manufacture and Marketing of Consumer Products segments as Assets Held for Sale under provisions of SFAS 144. Based on actual terms of the sale of the Graphic Design Group
(see Note 15A), which took place on August 5, 2002, and terms that were then being discussed with Product Genesis, LLC (see Note 15D), the Company determined the fair value of the reporting units were less than the book values and recorded a
goodwill impairment charge of $2,811. The Company has recorded this impairment charge, net of tax benefits, in losses from discontinued operations in the fiscal quarter ended June 30, 2002. The Company subsequently sold the Product Design Group on
September 20, 2002.



The following pro forma table shows the
effect of amortization expense and the cumulative effect of change in accounting principle on the Companys net income (loss) recorded, as follows:



|                                                                                     |  |                          |   |  |       
|------------------------------------------------------------------------------------ |  | ------------------------ | - |  | ------
|                                                                                     |  | Years Ended December 31,
|                                                                                     |  | 2002                     |   |  | 2001  
|Reported net income (loss)                                                           |  | ($1,269                  | ) |  | $1,084
|Cumulative effect of change in accounting principle, net of tax                      |  | (2,083                   | ) |  |      
|Amortization expense                                                                 |  |                         |   |  | 309   
|Adjusted net income                                                                  |  | $814                     |   |  | $1,393
|Reported income (loss) per shareBasic and Diluted                                   |  | ($0.33                   | ) |  | $0.29 
|Adjustment for cumulative effect of change in accounting principleBasic and Diluted |  | (0.55                    | ) |  |      
|Adjustment for amortization expenseBasic and Diluted                                |  |                         |   |  | $0.08 
|Adjusted income per shareBasic and Diluted                                          |  | $0.22                    |   |  | $0.37 



Note 14Accounting for the
Impairment or Disposal of Long-lived Assets



The Company
has historically estimated the recoverability of its long-term assets by consideration of the estimated future undiscounted cash flow from the operations of the business segments to which those long-term assets relate.



28



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Dollar amounts in thousands, except for share and per share data)



As of January 1, 2002, the Company adopted the provisions of SFAS 144, and now evaluates the
recoverability of its long-term assets under the provisions of SFAS 144. While such provisions retain the considerations the Company has previously made in evaluating the recoverability of its long-term assets as discussed above, SFAS 144 provides
an additional triggering event to require an impairment testa current expectation that, more likely than not, a long-term asset or asset group will be sold or disposed of significantly before the end of its previously estimated useful life.
Assets that are considered to be held for sale are measured at the lower of carrying amount or fair value, less the costs to sell. Once an asset is determined to be held for sale, depreciation on such asset ceases. Long-term
assets to be disposed of by sale may not be classified as held for sale, however, until the period in which all of the following criteria are met:



| |  |  | management commits to a plan to sell the asset or group,
| | - |  | --------------------------------------------------------



| |  |  | the asset or group is available for immediate sale in its present condition,
| | - |  | ----------------------------------------------------------------------------



| |  |  | actions to complete the plan to sell have been initiated,
| | - |  | ---------------------------------------------------------



| |  |  | it is probable the sale will be completed within one year,
| | - |  | ----------------------------------------------------------



| |  |  | the asset or group is being actively marketed at a reasonable price, and
| | - |  | ------------------------------------------------------------------------



| |  |  | it is unlikely that significant change will be made to the plan or that it will be withdrawn.
| | - |  | ---------------------------------------------------------------------------------------------



Based upon the above criteria, the assets of the Creative Consulting Services and the Manufacture and Marketing of Consumer
Products Groups became considered held for sale during the second quarter of 2002 and evaluated under SFAS 144. In such valuation, the actual terms of the sale of the Graphic Design Group were used (see Note 11 below) and terms that were then being
discussed with Product Genesis, LLC for the Product Design Group were used.



In connection with SFAS 144, the following tables summarize the revenues and pretax income (loss) of the reported discontinued operations of the Assets Held for Sale:



|                             |  |                     |   |  |                     |   |  |                       |   |  |                              |  
|---------------------------- |  | ------------------- | - |  | ------------------- | - |  | --------------------- | - |  | ---------------------------- | -
|Year Ended December 31, 2002 |  | GraphicDesign Group |   |  | ProductDesign Group |   |  | ConsumerProductsGroup |   |  | Total DiscontinuedOperations |  
|Revenues                     |  | $785                |   |  | $1,469              |   |  | $2,168                |   |  | $4,422                       |  
|Pretax loss                  |  | (1,148              | ) |  | (3,639              | ) |  | (1,927                | ) |  | (6,714                       | )



|                             |  |                     |  |                     |   |  |                       |   |  |                              |  
|---------------------------- |  | ------------------- |  | ------------------- | - |  | --------------------- | - |  | ---------------------------- | -
|Year Ended December 31, 2001 |  | GraphicDesign Group |  | ProductDesign Group |   |  | ConsumerProductsGroup |   |  | Total DiscontinuedOperations |  
|Revenues                     |  | $2,500              |  | $2,679              |   |  | $3,531                |   |  | $8,710                       |  
|Pretax income (loss)         |  | 201                 |  | (1,268              | ) |  | (1,369                | ) |  | (2,436                       | )



Note 15Business and Asset
Dispositions



A.    Sale of the
Graphic Design Group



On November 1, 1999, the Company
acquired certain assets and assumed certain liabilities of David Morris Creative, Inc. (the Graphic Design Group) for $1,525 in cash. The excess of the aggregate purchase price over the net tangible assets acquired was allocated to
goodwill. As a result of achieving certain earnings targets during the two year period ended December 31, 2001, the Company was required to make a $250 contingent purchase price payment to the former shareholder of David Morris Creative, Inc. This
payment was accounted for as additional purchase price consideration. The operating results of the Graphic Design Group have been included



29



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Dollar amounts in thousands, except for share and per share data)



in the Companys consolidated financial statements from the date of acquisition to August 1, 2002, the effective date of its sale.



In furtherance of its plan to reposition itself for sale or liquidation, the
Company sold certain assets, including certain accounts receivable, furniture and equipment, customer lists and goodwill, subject to certain liabilities, of the Graphic Design Group to a company formed by its president and former owner. The
transaction was effective as of August 1, 2002 and the purchase price was $371 consisting of a lump-sum payment due on or before August 31, 2002 of $54 and a 6% promissory note for $317, which is payable in sixty (60) equal consecutive monthly
installments of $6 commencing January 1, 2003. There was no additional loss booked, in excess of the charges taken under SFAS 142 and SFAS 144 (see Note 13).



As part of this transaction, as of July 31, 2002, the employment agreement with the President of the Graphic Design Group and stock options granted to him
to purchase 30,000 shares of the Companys stock were terminated in consideration of a lump-sum payment of $96. The Company also entered into a sublease with the acquiring company for 3,492 square feet of commercial rentable space. The sublease
expires in mid-November 2009, which is co-terminus with the Companys master lease. As of December 31, 2003, the rent for the remaining term of the sublease was $483.



B.    Sale of Licensing-Related Assets



On August 19, 2002, Refac International, Ltd. (RIL) sold its
Gough licensing property and royalties receivable to Gough Holdings (Engineering), Ltd. (GHE) for $450, payable in five semi-annual installments, without interest, commencing September 30, 2002. GHE paid the first two installments
aggregating $140 but asked the Company for an accommodation on the $100 third installment which was due on September 30, 2003. The Company agreed to accept payment of $30 in cash and GHEs promissory note for the balance of $70. This note is
payable in seven (7) equal consecutive monthly installments of $10 each, with interest at the rate of 10% per annum, with the first installment becoming due on November 1, 2003. As of December 31, 2003, the unpaid principal balance on this note was
$40.



As of December 31, 2003, the unpaid balance of the
original note receivable is reflected on the Companys financial statements at $201, which represents its present value using a 6% discount rate.



On August 19, 2002, RIL sold its Heli-Coil and Dodge licensing rights, related sublicense agreements and monies due thereunder after June 30, 2002 to
Newfrey LLC (formerly Emhart LLC) for $4,000. The proceeds from this sale were received in August 2002.



C.    OXO International



On September 20, 2002, RIL amended its agreement with OXO International (OXO), a division of World Kitchen, Inc. This amendment, which was
approved by the court overseeing OXOs bankruptcy, provides for payments to the Company of $550 of which $10 is for past due royalties; $180 for royalties for the six month period ending December 31, 2002 and $360 for royalties for the year
ending December 31, 2003. As of December 31, 2003, the unpaid balance due the Company was $178, which was paid in February 2004.



D.    Sale of the Product Design Group



On September 20, 2002, RIL sold its Product Design Group to Product Genesis, LLC (PG) for a variable purchase
price based upon 21⁄2% of net revenues up to an aggregate of $300. Due to the uncertainties of collection



30



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Dollar amounts in thousands, except for share and per share data)



of the purchase price, the Company has not allocated any cost basis to this contract right and recorded the $36 received in 2003 from PG as income from such
discontinued operations. In December 2003, PG notified the Company that it was discontinuing its product design operations effective as of December 31, 2003 and that it was negotiating with a former employee of PG to purchase the goodwill and
certain assets of its business. See Note 17 for subsequent event.



The Company also entered into a sublease with PG for 9,574 square feet of commercial rentable space. The sublease expires in mid-November 2009, which is co-terminus with the Companys master lease. On December 22, 2003, by lease
amendment, the Company released its security interest in PGs machinery, equipment, furniture, fixtures and chattels located at the leased premises in consideration of a cash security deposit in the sum of $75. As of December 31, 2003, the rent
for the remaining term of the sublease was $1,471. The due and timely performance of PGs obligations under the sublease has been guaranteed by its affiliated companies, Product Genesis, Inc. and Product Genesis Business Trust. PGs sale
of the business referred to in the preceding paragraph does not include this sublease and PG intends to sublease these premises.



E.    Sale of Refac International, Ltd. (RIL)



On September 30, 2002, the Company completed the transfer of the assets and assumption of the liabilities of its subsidiary,
RIL, to the Company, excluding the capital stock of Refac Consumer Products, Inc. (RCP), a manufacturer of a line of consumer electronics products, and certain trademarks, patents and a patent application relating to RCPs business.
After such transfer, the Company sold RIL to RCP Products, LLC, a limited liability company established by a former employee, for $50 plus a variable purchase price based upon 21⁄2% of the revenues received in excess of $1,000 from the sale of
its consumer electronics products during the eight year period commencing January 1, 2003, up to a maximum of $150 in any given year and a cumulative total of $575. Due to the uncertainties of collection of the purchase price, the Company has not
allocated any cost basis to this contract right and will record any monies that it may receive from RCP Products, LLC with respect thereto as income from such discontinued operations. As of December 31, 2003, the Company had not received any
variable purchase price payments and based upon information provided by the purchaser, it does not expect to receive any such payments in the future.



31



---

REFAC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Dollar amounts in thousands, except for share and per share data)



Note 16Unaudited Selected Quarterly Financial Data



|                                                                                                                                       |  |              |   |  |               |   |  |              |   |  |               |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | - |  | ------------- | - |  | ------------ | - |  | ------------- | -
|                                                                                                                                       |  | 2003         |  
|                                                                                                                                       |  | FirstQuarter |   |  | SecondQuarter |   |  | ThirdQuarter |   |  | FourthQuarter |  
|Total revenues                                                                                                                         |  | $510         |   |  | $603          |   |  | $448         |   |  | $566          |  
|Cost of revenues                                                                                                                       |  | 29           |   |  | 28            |   |  | 30           |   |  | 32            |  
|Net loss from continuing operations                                                                                                    |  | (1,256       | ) |  | (102          | ) |  | (96          | ) |  | (80           | )
|Net loss                                                                                                                               |  | ($1,247      | ) |  | ($83          | ) |  | ($92         | ) |  | ($74          | )
|Net loss from continuing operations per basic and diluted shares                                                                       |  | ($0.34       | ) |  | ($0.02        | ) |  | ($0.01       | ) |  | ($0.01        | )
|Net loss per basic and diluted shares                                                                                                  |  | ($0.34       | ) |  | ($0.02        | ) |  | ($0.01       | ) |  | ($0.01        | )
|                                                                                                                                       | 
|                                                                                                                                       |  | 2002         |  
|                                                                                                                                       |  | FirstQuarter |   |  | SecondQuarter |   |  | ThirdQuarter |   |  | FourthQuarter |  
|Total revenues                                                                                                                         |  | $627         |   |  | $715          |   |  | $4,840       |   |  | $380          |  
|Cost of revenues                                                                                                                       |  | 105          |   |  | 111           |   |  | 73           |   |  | (16           | )
|Net income (loss) from continuing operations before cumulative effect of a change in accounting principle                              |  | 216          |   |  | 266           |   |  | 2,420        |   |  | (391          | )
|Net income (loss)                                                                                                                      |  | ($135        | ) |  | ($2,520       | ) |  | $1,572       |   |  | $1,897        |  
|Net income (loss) from continuing operations before cumulative effect of a change in accounting principle per basic and diluted
shares |  | $0.06        |   |  | $0.07         |   |  | $0.63        |   |  | ($0.10        | )
|Net income (loss) per basic and diluted shares                                                                                         |  | ($0.04       | ) |  | ($0.66        | ) |  | $0.41        |   |  | $0.50         |  

---



|Note: |  | Pursuant to SFAS 142, the Company recorded as of January 1, 2002 an impairment loss of $2,083 ($0.55 per share), net of expected tax benefit, as a cumulative effect of a change in
accounting principle.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Note 17Subsequent Event



Reference is made to Note 15D which describes the terms
of sale of the Companys Product Design Group to Product Genesis, LLC (referred to herein as PG). In December 2003, PG notified the Company that it was discontinuing its product design operations and, in January 2004, it advised the
Company that it had entered into an agreement with Factors NY, LLC, a company wholly-owned by a former employee of PG, to purchase the goodwill and certain assets of PG. By agreement, dated February 10, 2004, the Company agreed to accept the fixed
payment of $30, payable in four equal payments during 2004, in full settlement of the contingent balance of the variable purchase price provided for in the purchase agreement pursuant to which the Company sold its product design business to PG.



32



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INDEPENDENT AUDITORS REPORT



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



To the Stockholders and Board of Directors of Refac:



We have audited the accompanying balance sheets of Refac as of December 31,
2003 and 2002, and the related statements of operations, comprehensive loss, cash flows and stockholders equity for the year ended December 31, 2003, and the related consolidated statements of operations, comprehensive loss, cash flows and
stockholders equity for Refac and Subsidiaries for each of the two years in the period ended December 31, 2002. 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 of America. 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 financial statements referred to above present fairly, in all material respects, the financial position of Refac at December 31, 2003
and 2002, the results of its operations and its cash flows for the year ended December 31, 2003, and the consolidated results of operations and consolidated cash flows for Refac and Subsidiaries for each of the two years in the period ended December
31, 2002, in conformity with accounting principles generally accepted in the United States of America.



As discussed in Notes 13 and 14 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, and Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, respectively, on January 1, 2002.



GRANT THORNTON LLP



New York, New York

March 22, 2004



33



---

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure



None.



Item 9A.    Controls and Procedures



Evaluation of Disclosure Controls and Procedures



Within 90 days prior to the filing of this Annual Report on Form 10-K the
Registrants principal executive officer and principal financial officer evaluated the effectiveness of the design and operation of Registrants disclosure controls and procedure (as defined in Rules 13a-14 (c) and 15d-14 (c) under the
Securities Exchange Act of 1934, as amended (the Exchange Act) ) and concluded that the Registrants disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that
it files or submits under the Exchange Act is accumulated and communicated to Registrants management, including its officers, as appropriate to allow timely decisions regarding required disclosure, and are effective to ensure that such
information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.



Changes in Internal Controls



The Registrants principal executive officer and principal financial officer have also concluded there were no significant changes in the
Registrants internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



34



---

PART III



Item 10.    Directors and Executive Officers of the Registrant



Under the by-laws of the Company, the Board of Directors is divided into
three classes: Class 1 directors, Class 2 directors and Class 3 directors. The members of one of the three classes of directors are elected each year for a three-year term or until their successors have been elected and qualified, or until the
earliest of their death, resignation or retirement. The Board is currently comprised of six directors.



There are no family relationships between any of the directors or executive officers of the Registrant nor were there any special arrangements or
understandings regarding the selection of any director or executive officer.



Information with respect to the executive officers of the Company is set forth below.



|                         |  |     |  |                                                    |  |                                                                     
|------------------------ |  | --- |  | -------------------------------------------------- |  | --------------------------------------------------------------------
|Name                     |  | Age |  | Served in SuchPosition or Office Continually Since |  | Position (1)                                                        
|Robert L. Tuchman        |  | 61  |  | 1991                                               |  | President, Chief Executive Officer and General Counsel (2)          
|Raymond A. Cardonne, Jr. |  | 37  |  | 1997                                               |  | Vice President, Chief Financial Officer, Treasurer and Secretary (3)



---

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.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Mr. Tuchman has served as the Companys President since August 1, 1991. 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 Chief Operating Officer. From May 1994 to March 1997 he held the position of
Treasurer of the Company. After the Palisade Merger, Mr. Meskin was elected as non-executive Chairman of the Board of Directors and Mr. Tuchman continues to serve as the Companys President, Chief Executive Officer and General Counsel.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Mr. Cardonne became Chief Financial Officer and Treasurer of the Company in August 2000. He has served as Secretary of the Company since November 1998 and as Vice President
responsible for the licensing and commercialization of technologies since December 1997. Prior to joining the Company, 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.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The additional information
required by this item will be included in the Companys definitive Proxy Statement in connection with the 2004 Annual Meeting of Stockholders and is hereby incorporated herein by reference.



Item 11.    Executive Compensation



The information required by this item will be included in the Companys
definitive Proxy Statement in connection with the 2004 Annual Meeting of Stockholders and is hereby incorporated herein by reference.



35



---

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholders Matters



The information required by this
item will be included in the Companys definitive Proxy Statement in connection with the 2004 Annual Meeting of Stockholders and is hereby incorporated herein by reference.



Item 13.    Certain Relationships and Related Transactions



The information required by this item will be included in the Companys
definitive Proxy Statement in connection with the 2004 Annual Meeting of Stockholders and is hereby incorporated herein by reference.



Item 14.    Principal Accounting Fees and Services



The information required by this item will be included in the Companys definitive Proxy Statement in connection with
the 2004 Annual Meeting of Stockholders and is hereby incorporated herein by reference.



PART IV



Item
15.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K



(a)(1)  Financial Statements



Included within.



(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



Date Filed



November 12, 2003



36



---

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                       |  |  |  |       |  |                          |  |                                                                          
|---------------------- |  |  |  | ----- |  | ------------------------ |  | -------------------------------------------------------------------------
|                       |  |  |  | Refac
|                       |  |  | 
|Dated:  March 30, 2004 |  |  |  | By:   |  | /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.



|                       |  |                                                                                                                                                        
|---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|Dated:  March 30, 2004 |  | /S/    ROBERT L. TUCHMANRobert L. Tuchman, President, Chief Executive Officer, General Counsel and Director (Principal Executive
Officer)              
|                       | 
|Dated:  March 30, 2004 |  | /S/    RAYMOND A. CARDONNE,
JR.Raymond A. Cardonne, Jr., Vice President,
Secretary, Chief Financial Officer and Treasurer (Principal Financial Officer)
|                       | 
|Dated:  March 30, 2004 |  | /S/    MARK S. HOFFMANMark S. Hoffman, Director                                                                                                        
|                       | 
|Dated:  March 30, 2004 |  | /S/    CLARK A. JOHNSONClark A. Johnson, Director                                                                                                      
|                       | 
|Dated:  March 30, 2004 |  | /S/    MARK N. KAPLANMark N. Kaplan, Director                                                                                                          
|                       | 
|Dated:  March 30, 2004 |  | /S/    MELVIN MESKINMelvin Meskin, Chairman                                                                                                            
|                       | 
|Dated:  March 30, 2004 |  | /S/    JEFFREY D. SERKESJeffrey D. Serkes, Director                                                                                                    



37



---

EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                                                                                                            
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit                                                                                                                                                                                                                                                                                                                                    
|            | 
|3(a)        |  | Restated Certificate of Incorporation of the Company. Incorporated by reference to Exhibit 1 to the Companys Registration Statement on Form 8-A filed with the SEC on February 28, 2003,
SEC file number 001-12776.                                                                                                                       
|            | 
|3(b)        |  | By-laws of the Company. Incorporated by reference to Exhibit 2 to the Companys Registration Statement on Form 8-A filed with the SEC on February 28, 2003, SEC file number
001-12776.                                                                                                                                                     
|            | 
|10(a)       |  | Agreement and Plan of Merger, dated as of August 19, 2002, by and among Palisade Concentrated Equity Partnership, L.P., Palisade Merger Corp. and Refac. Incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed with the SEC on August 21, 2002, SEC file number 001-12776.                           
|            | 
|10(b)       |  | Amendment No. 1 to the Agreement and Plan of Merger, dated as of October 21, 2002, by and among Palisade Concentrated Equity Partnership, L.P., Palisade Merger Corp. and Refac. Incorporated
by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the SEC on October 24, 2002, SEC file number 001-12776.  
|            | 
|10(c)       |  | Amendment No. 2 to the Agreement and Plan of Merger, dated as of December 12, 2002, by and among Palisade Concentrated Equity Partnership, L.P., Palisade Merger Corp. and Refac. Incorporated
by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the SEC on December 16, 2002, SEC file number 001-12776.
|            | 
|10(d)       |  | Amendment No. 3 to the Agreement and Plan of Merger, dated as of January 23, 2003, by and among Palisade Concentrated Equity Partnership, L.P., Palisade Merger Corp. and Refac. Incorporated
by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the SEC on January 24, 2003, SEC file number 001-12776.  
|            | 
|10(e)       |  | Fifth Amended and Restated Employment Agreement between Robert L. Tuchman and Refac, dated as of November 7, 2003. Incorporated by reference to Exhibit 10 (a) to the Companys Quarterly
Report on Form 10-Q filed with the SEC on November 12, 2003, SEC file number 001-12776.*                                                         
|10(f)       |  | Amended and Restated Employment Agreement between Raymond A. Cardonne, Jr. and Refac, dated as of November 7, 2003. Incorporated by reference to Exhibit 10 (b) to the Companys Quarterly
Report on Form 10-Q filed with the SEC on November 12, 2004, SEC file number 001-12776.*                                                        
|            | 
|10(g)       |  | 2003 Stock Incentive Plan. Incorporated by reference to Exhibit B to the Companys Proxy Statement for its 2003 Annual Meeting of Stockholders, filed with the SEC on April 22, 2003, SEC
file number 001-12776.*                                                                                                                          
|            | 
|10(h)       |  | 1998 Stock Incentive Plan. Incorporated by reference to Exhibit A to the Companys Proxy Statement for its 1998 Annual Meeting of Stockholders, filed with the SEC on March 31, 1998, SEC
file number 001-12776.*                                                                                                                          
|            | 
|10(i)       |  | First Amendment to the Refac Technology Development Corporation 1998 Stock Incentive Plan, dated as of January 23, 2003. Incorporated by reference to Exhibit 10.6 to the Companys
Current Report on Form 8-K filed with the SEC on January 24, 2003, SEC file number 001-12776.*                                                         
|            | 
|10(j)       |  | 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, filed with the SEC on April 23,
1990, SEC file number 0-7704.*                                                                                                                  
|            | 
|10(k)       |  | Stock Purchase Agreement, dated as of March 28, 2003, by and among Refac and Palisade Concentrated Equity Partnership, L.P. Incorporated by reference to Exhibit D to the Companys Proxy
Statement for its 2003 Annual Meeting of Stockholders, filed with the SEC on April 22, 2003, SEC file number 001-12776.                          



38



---

|     |  |                                                                          
|---- |  | -------------------------------------------------------------------------
|     |  |                                                                          
|     | 
|14.1 |  | Code of Ethics for Senior Financial Officers.**                          
|     | 
|14.2 |  | Code of Conduct and Ethics.**                                            
|     | 
|21.  |  | List of subsidiaries of the Company.**                                   
|     | 
|23.  |  | Consent of Grant Thornton LLP.**                                         
|     | 
|31.1 |  | Rule 13a-15(e)/15(d)-15(e) Certification, Chief Executive Officer.**     
|     | 
|31.2 |  | Rule 13a-15(e)/15(d)-15(e) Certification, Chief Financial Officer.**     
|     | 
|32.1 |  | Section 1350 Certification, Chief Executive & Chief Financial Officers.**

---

|* |  | Management or compensatory plan.
|- |  | --------------------------------

|** |  | Filed herewith
|-- |  | --------------



39