-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PKT/tdYYGOKzsTgQQGUR9BOXvtVQKMMj5utu5Yy2cWbEzFmEX8QsPVxG8XdL1Ly8 4yf3Kz1pgggZS/fcpMuNtA== 0000102198-96-000007.txt : 19960412 0000102198-96-000007.hdr.sgml : 19960412 ACCESSION NUMBER: 0000102198-96-000007 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960131 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960411 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPETITIVE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000102198 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 362664428 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08696 FILM NUMBER: 96546250 BUSINESS ADDRESS: STREET 1: 1465 POST RD E STREET 2: PO BOX 901 CITY: WESTPORT STATE: CT ZIP: 06881-0901 BUSINESS PHONE: 2032556044 MAIL ADDRESS: STREET 1: 1465 POST ROAD EAST STREET 2: P O BOX 901 CITY: WESTPORT STATE: CT ZIP: 06881-0901 FORMER COMPANY: FORMER CONFORMED NAME: UNIVERSITY PATENTS INC DATE OF NAME CHANGE: 19920703 8-K/A 1 8-K/A January 1996 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A AMENDMENT NO. 1 AMENDMENT TO CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) January 31, 1996 COMPETITIVE TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) Commission file number 1-8696 The undersigned registrant hereby amends the following items, financial statements, exhibits or other portions of its Current Report Dated January 31, 1996 on Form 8-K as set forth in the pages attached hereto: (List all such items, financial statements, exhibits or other portions amended) Item 7. Financial Statements and Exhibits Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned hereunto duly authorized. COMPETITIVE TECHNOLOGIES, INC. Registrant Date: April 11, 1996 s/ Frank R. McPike, Jr. By: Frank R. McPike, Jr. Vice President, Finance, Treasurer, Chief Financial Officer and Authorized Signer Page 1 of 31 sequentially numbered pages Item 7. Financial Statements and Exhibits A. Financial Statements of Businesses Acquired Page USET Acquisition Partners, L.P. and Subsidiaries Report of Independent Accountant 5 Consolidated Balance Sheets as of July 31, 1995 and 1994 6-7 Consolidated Statements of Operations for the years ended July 31, 1995, 1994 and 1993 8 Consolidated Statements of Changes in Partners' Capital for the years ended July 31, 1995, 1994 and 1993 9 Consolidated Statements of Cash Flows for the years ended July 31, 1995, 1994 and 1993 10-11 Notes to Consolidated Financial Statements 12-17 USET Acquisition Partners, L.P. and Subsidiaries (unaudited) Condensed Consolidated Balance Sheet as of January 31, 1996 18 Consolidated Statements of Operations for the three months ended January 31, 1996 and 1995 19 Consolidated Statements of Operations for the six months ended January 31, 1996 and 1995 20 Consolidated Statement of Changes in Partners' Capital for the six months ended January 31, 1996 21 Consolidated Statements of Cash Flows for the six months ended July 31, 1996 and 1995 22-23 Notes to Consolidated Financial Statements 24-25 B. Pro Forma Financial Information (Unaudited) 26 Pro Forma Consolidated Statement of Operations for the year ended July 31, 1995 27-28 Pro Forma Consolidated Statement of Operations for the six months ended January 31, 1996 29 Notes to Pro Forma Consolidated Financial Statements 30 C. Exhibits 2.1 Agreement for Purchase and Sale of Partnership Interests in USET Acquisition Partners, L.P. effective January 31, 1996 by and between UPAT Services, Inc., Texas Research and Technology Foundation and United Services Automobile Association filed as Exhibit 2.1 to registrant's Form 8-K dated January 31, 1996 and hereby incorporated by reference. 2.2 Promissory Note of UPAT Services, Inc. dated January 31, 1996 in the principal amount of $983,684.21 payable to United Services Automobile Association ("USAA") filed as Exhibit 2.2 to registrant's Form 8-K dated January 31, 1996 and hereby incorporated by reference. 2.3 Promissory Note of UPAT Services, Inc. dated January 31, 1996 in the principal amount of $351,315.79 payable to Texas Research and Technology Foundation filed as Exhibit 2.3 to registrant's Form 8-K dated January 31, 1996 and hereby incorporated by reference. 2.4 Security Agreement of UPAT Services, Inc. dated January 31, 1996 to USAA and Texas Research and Technology Foundation as collateral for the related Promissory notes dated January 31, 1996 filed as Exhibit 2.4 to registrant's Form 8-K dated January 31, 1996 and hereby incorporated by reference. 2.5 USET Acquisition Partners, L.P. Assignment of Partnership Interests to UPAT Services, Inc. by Texas Research and Technology Foundation filed as Exhibit 2.5 to registrant's Form 8-K dated January 31, 1996 and hereby incorporated by reference. 2.6 USET Acquisition Partners, L.P. Assignment of Partnership Interests to UPAT Services, Inc. by USAA filed as Exhibit 2.6 to registrant's Form 8-K dated January 31, 1996 and hereby incorporated by reference. 23.1 Consent of Independent Accountant 31 REPORT OF INDEPENDENT ACCOUNTANT To the Partners of USET Acquisition Partners, L.P.: I have audited the accompanying consolidated balance sheets of USET Acquisition Partners, L.P. and Subsidiaries as of July 31, 1995 and 1994, and the related consolidated statements of operations, changes in partners' capital and cash flows for each of the three years in the period ended July 31, 1995. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial state- ments based on my audits. I conducted my audits in accordance with generally accepted auditing standards. Those standards require that I 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. I believe that my audits provide a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of USET Acquisition Partners, L.P. and Subsidiaries as of July 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 1995, in conformity with generally accepted accounting principles. s/ Michael S. Levine, CPA Michael S. Levine, CPA Monroe, Connecticut April 2, 1996 USET ACQUISITION PARTNERS, L.P. AND SUBSIDIARIES Consolidated Balance Sheets July 31, 1995 and 1994 ASSETS 1995 1994 Current assets: Cash and cash equivalents $ 238,889 $ 469,485 Receivables, including $13,680 and $31,178 receivable from CTI in 1995 and 1994, respectively 398,300 380,640 Income taxes receivable 22,341 1,095 Deferred tax benefits -- 73,430 Total current assets 659,530 924,650 Office furniture and equipment, net of accumulated depreciation of $117,887 and $100,129 in 1995 and 1994, respectively 25,876 37,457 Investment in Plasmaco, Inc., at cost 8,000 -- Deferred organization costs, net of accumulated amortization of $90,404 and $72,015 in 1995 and 1994, respectively 1,530 19,919 Intangible assets, net of accumulated amortization of $240,771 and $153,346 in 1995 and 1994, respectively 759,140 556,101 TOTAL ASSETS $ 1,454,076 $ 1,538,127 See accompanying notes USET ACQUISITION PARTNERS, L.P. AND SUBSIDIARIES Consolidated Balance Sheets July 31, 1995 and 1994 (Continued) 1995 1994 LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable, including $4,506 and $2,210 payable to CTI in 1995 and 1994, respectively $ 20,047 $ 23,658 Royalties payable, including $83,032 and $151,379 payable to CTI in 1995 and 1994, respectively 352,823 511,248 Accrued liabilities 31,033 50,331 Total current liabilities 403,903 585,237 Commitments and contingencies -- -- Partners' capital 1,050,173 952,890 TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 1,454,076 $ 1,538,127 See accompanying notes USET ACQUISITION PARTNERS, L.P. AND SUBSIDIARIES Consolidated Statements of Operations for the years ended July 31, 1995, 1994 and 1993 1995 1994 1993 Retained royalty revenues $ 720,517 $ 695,253 $ 595,268 Costs of technology management services, of which $76,371, $106,416 and $122,141 were paid to CTI in 1995, 1994 and 1993, respectively 465,569 538,369 678,950 Operating income (loss) 254,948 156,884 (83,682) Interest income 22,233 18,754 20,825 Income before income taxes 277,181 175,638 (62,857) Provision (credit) for income taxes 125,089 82,677 (20,026) Net income (loss) $ 152,092 $ 92,961 $ (42,831) See accompanying notes USET ACQUISITION PARTNERS, L.P. AND SUBSIDIARIES Consolidated Statements of Changes in Partners' Capital for the years ended July 31, 1995, 1994 and 1993 Partners' Capital Balance - July 31, 1992 $ 902,760 Net loss for the year ended July 31, 1993 (42,831) Balance - July 31, 1993 859,929 Net income for the year ended July 31, 1994 92,961 Balance - July 31, 1994 952,890 Distribution to partners (54,809) Net income for the year ended July 31, 1995 152,092 Balance - July 31, 1995 $1,050,173 See accompanying notes USET ACQUISITION PARTNERS, L.P. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended July 31, 1995, 1994 and 1993 1995 1994 1993 Cash flow from operating activities: Net income (loss) $ 152,092 $ 92,961 $ (42,831) Noncash items included in income (loss) from operations: Depreciation 17,758 17,287 23,832 Amortization of intangible assets 87,425 70,077 204,925 Amortization of deferred organization costs 18,389 18,385 18,388 Provision (credit) for deferred income taxes 73,430 79,772 (23,010) Net changes in various operating accounts: Royalties receivable (41,143) 129,008 (199,283) Related party receivables 5,985 (11,306) 3,269 Other receivables 17,498 (347) (9,511) Income taxes receivable (21,246) (1,420) -- Deferred tax benefits, current -- (73,430) (79,772) Accounts payable (3,611) (34,881) (19,510) Royalties payable (158,425) 121,584 987 Accrued liabilities (19,298) 5,418 (18,548) Change in deferred tax benefits, noncurrent -- 73,430 79,772 Net cash flow from (used in) operating activities 128,854 486,538 (61,292) Cash flow from investing activities: Contingent purchase price payments for intangible assets (290,464) (130,780) (168,984) Purchases of office furniture and equipment (6,177) (9,607) -- Purchases of investment (8,000) -- -- Net cash flow used in investing activities (304,641) (140,387) (168,984) See accompanying notes USET ACQUISITION PARTNERS, L.P. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended July 31, 1995, 1994 and 1993 (Continued) 1995 1994 1993 Cash flow from financing activities: Distribution to partners (54,809) -- -- Net cash flow used in financing activities (54,809) -- -- Net (decrease) increase in cash and cash equivalents (230,596) 346,151 (230,276) Cash and cash equivalents, beginning of year 469,485 123,334 353,610 Cash and cash equivalents, end of year $ 238,889 $ 469,485 $ 123,334 Supplemental cash flow information: Cash paid for income taxes $ 72,905 $ 4,794 $ 2,515 See accompanying notes USET ACQUISITION PARTNERS, L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Financial Statements and Principles of Consolidation The consolidated financial statements include the accounts of USET Acquisition Partners, L.P. ("UAP" or "the Partnership") and its wholly-owned subsidiaries ("the Company"). UAP's wholly-owned subsidiaries are USET Holding Co. ("Holding") and University Science, Engineering and Technology, Inc. ("USET"). Intercompany accounts and transactions have been eliminated in consolidation. UAP's principal asset is its investment in Holding. Holding's only asset is its investment in USET. USET is the operating company which manages and administers a portfolio of licenses and patented technologies. Consequently, except for approximately $18,400 amortization of deferred organization costs in each year, the results of operations presented in these consolidated financial statements are those of USET. Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenues and Expenses Royalty revenue, net of amounts collected as agent for and due to others, is included in operations in the period in which it is earned and determinable. Such retained royalties are earned principally through servicing agreements with various technology sources, primarily universities, under which the Company retains an agreed percentage of revenue derived from license or sale of technologies. Expenditures made in connection with evaluating the marketability of inventions, patenting inventions, licensing patented inventions and enforcing patents, net of amounts paid as agent for and due from others, are charged to operations as incurred. Cash Equivalents Cash equivalents include only highly liquid investments purchased with an original maturity of three months or less. The Company's bank and investment accounts are maintained with two regional financial institutions. The Company's policy is to monitor the financial strength of these institutions on an ongoing basis. Office Furniture and Equipment Office furniture and equipment are stated at cost. Those costs are charged to operations using a double-declining balance method over their estimated useful lives (5 to 7 years). The cost and related accumulated depreciation of property and equipment are removed from the accounts upon retirement or other disposition; any resulting gain or loss is reflected in earnings. Deferred Organization Costs Deferred organization costs of UAP are charged to operations on a straight-line basis over their estimated useful life of five years. Intangible Assets Costs of intangible assets, primarily interests in licenses and patented technologies, include $875,000 recorded on August 20, 1990, when Holding acquired USET and subsequent contingent purchase price payments to Macmillan, Inc. in accordance with the purchase agreement (see Note 2). Contingent purchase price payments are recorded when they are determinable. Costs of intangible assets acquired are charged to operations on a straight-line basis over the average remaining lives of the patents. Results for the year ended July 31, 1993, include $166,667 amortization of a covenant not to compete which was acquired with the technologies in August, 1990. The covenant was amortized over its three-year life. The cost and related accumulated amortization of intangible assets are removed from the accounts upon retirement or other disposition and any resulting gain or loss is reflected in operations. Income Taxes UAP is not subject to Federal or State income tax. Partnership income or loss is allocated to partners in proportion to their ownership interests and must be reported by partners in their respective income tax filings. The tax returns, the qualification of the partnership as such for tax purposes, and the amount of distributable partnership income or loss are subject to examination by Federal and State taxing authorities. If examinations result in changes to the timing and amount of partnership revenues and expenses, the tax liabilities of the partners could be changed accordingly. No income taxes have been provided in these consolidated financial statements for the Partnership. Income taxes reported in these financial statements relate to Holding and USET only. Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each balance sheet date based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Provision for income taxes is the tax payable for the year and the change during the year in deferred tax assets and liabilities. 2. Organization and Operations USET Acquisition Partners, Limited Partnership was formed on June 28, 1990 pursuant to the provisions of the Limited Partnership Law of the State of Texas. The Partnership was organized to (a) service, manage and protect patents, intellectual properties and other technologies USET acquired from Macmillan, Inc. and (b) make and administer license agreements with various users of such patents, intellectual properties and other technologies, including improvements. On August 20, 1990, the original partners of UAP contributed $1,200,000 to fund the Partnership. The net profits (losses) and property distributions of the Partnership are initially allocated to the limited partners in proportion to their percentage interests in the Partnership capital contributions. At such time as such distributions to the limited partners equal $1,200,000 (representing the return of their capital contributions), the general partner is to receive a 20% interest and the limited partners are to receive an 80% interest in the net profits of the Partnership. On July 27, 1990 the Partnership formed USET Holding Co., a Texas corporation. The Partnership purchased 10 shares of no par value common stock (100% of the outstanding shares) of USET Holding Co. for $1,000,000 paid in cash on August 20, 1990. USET Holding Co. purchased 1,000 shares of the common stock ($.01 par value per share) (100% of the outstanding shares) of USET on August 20, 1990 from Macmillan, Inc. for $1,000,000 in cash and future payments contingent upon royalties earned by USET as defined in the acquisition agreement. Contingent payments are calculated at 90% of USET's earned royalties in excess of $400,000 per year for up to five years or until Macmillan has received cumulative contingent payments of $3,750,000, whichever occurs first. USET has guaranteed such contingent payments and has pledged substantially all of its assets as collateral for them. Once contingent payments become due, they are 100% guaranteed by Competitive Technologies, Inc. ("CTI"). Cumulative contingent payments of approximately $625,000 have been made through July 31, 1995. This acquisition was accounted for as a purchase. UPAT Services, Inc. ("USI"), a wholly-owned subsidiary of CTI, is the general partner and holds a 20% partnership interest in UAP. In addition, CTI manages USET for UAP. Both USET and CTI share in amounts, primarily royalties received from optionees and licensees of the portfolio of technologies, patents and licenses which was managed by CTI prior to June 28, 1988. USET collects those receipts and distributes them according to the terms of various agreements with CTI and the sources of these technologies. Both USET and CTI also share in expenses for patent prosecution and litigation incurred to maintain this portfolio and both are entitled to recover certain of their patent costs from royalties received on the related technologies before distribution to the respective technology source. 3. Investment in Plasmaco, Inc. In June, 1995, USET purchased 4,000 shares of the common stock of Plasmaco, Inc. from CTI for $8,000 ($2 per share) in cash. USET accounts for its investment under the cost method. USET's holding is less than 1% of Plasmaco, Inc.'s outstanding common stock which is not publicly traded and there is no quoted market price for its stock. 4. Retained Royalties Retained royalties for 1995, 1994 and 1993, include $61,098, $70,930 and $46,174, respectively, from foreign sources. The only technology which contributed more than 15% of retained royalty revenues during 1995, 1994 or 1993 was the Vitamin B12 assay. It contributed $258,142 (36%), $220,108 (32%) and $257,446 (43%) to retained royalty revenues in 1995, 1994 and 1993, respectively. These Vitamin B12 assay patents expire from February, 1997 to May 2001. 5. Receivables Receivables as of July 31, 1995 and 1994 comprise: 1995 1994 Royalties $358,528 $317,385 Related parties 13,680 31,178 Other 26,092 32,077 $398,300 $380,640 6. Income Taxes Effective August 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes." As permitted by Statement No. 109, prior years' financial statements have not been restated. Adoption of Statement No. 109 had no cumulative effect on the Company's net income. The current provision (benefit) for income taxes for 1995, 1994 and 1993 is as follows: 1995 1994 1993 Federal Current $ 32,446 $ -- $ -- Deferred 57,873 57,366 (17,993) State Current 19,213 2,905 2,984 Deferred 15,557 22,406 (5,017) Total $125,089 $ 82,677 $(20,026) The provision for income taxes differs from that computed using the 34% statutory Federal income tax rate principally because of partnership items not taxed at the partnership level, state income taxes (net of their Federal benefit) and the effect of graduated Federal tax rates. The Company's current deferred tax assets as of July 31, 1994 comprise only net operating loss carryforwards which have been fully utilized in 1995. 7. Commitments Operating Leases At July 31, 1995, future minimum rental payments under operating leases with initial or remaining noncancelable lease terms in excess of one year are $27,996, $6,614, $6,614 and $6,614 for 1996, 1997, 1998 and 1999, respectively. Rental expense for all operating leases (principally for office space) was $23,009, $22,549 and $21,934 in 1995, 1994 and 1993, respectively. 8. Related Party Transactions USET leases office space in Westport, Connecticut from CTI under an operating lease expiring in August, 1996. USET paid CTI rent totalling $21,149, $20,978 and $20,388, respectively, in the years ended July 31, 1995, 1994 and 1993. During the years ended July 31, 1995, 1994 and 1993, CTI charged USET and UAP $55,222, $85,438 and $101,754, respectively, for management, legal, accounting and administrative services. Further, USET charged CTI $31,847, $12,300 and $5,280 during 1995, 1994 and 1993, respectively, for accounting and legal services. CTI's share of royalty receipts and patenting costs is reported in CTI's financial statements and excluded from these statements of operations. All amounts due and payable between USET or UAP and CTI are paid on a current basis. 9. Subsequent Events (Unaudited) On January 31, 1996, USI purchased the limited partnership interests of the other limited partners in UAP. The total purchase price was $1,835,000 with $500,000 paid in cash at the closing and the balance to be paid without interest on each succeeding January 31 in installments equal to 60% of USET's gross retained earned revenues for the preceding calendar year or the remaining unpaid balance of the purchase price, whichever is less. However, if any annual 60% installment would be less than $400,000, that installment shall be equal to the lesser of $400,000 or 80% of USET's gross retained earned revenues. CTI has guaranteed the payment of these installments when due. After the purchase, USI owns 100% of all partnership interests in UAP and as a result, UAP will be dissolved. In January, 1996, USET received $20,516 from the sale of its 4,000 shares of Plasmaco, Inc. The gain of $12,516 will be recognized in January, 1996. USET ACQUISITION PARTNERS, L.P. AND SUBSIDIARIES Condensed Consolidated Balance Sheet January 31, 1996 (Unaudited) ASSETS 1996 Current assets: Cash and cash equivalents $ 605,171 Receivables, including $30,171 receivable from CTI 75,595 Total current assets 680,766 Office furniture and equipment, net of accumulated depreciation of $124,441 26,286 Intangible assets, net of accumulated amortization of $292,324 987,686 TOTAL ASSETS $ 1,694,738 LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable, including $5,575 payable to CTI $ 65,765 Royalties payable, including $96,543 payable to CTI 353,730 Accrued liabilities 109,510 Total current liabilities 529,005 Commitments and contingencies -- Partners' capital 1,165,733 TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 1,694,738 See accompanying notes USET ACQUISITION PARTNERS, L.P. AND SUBSIDIARIES Consolidated Statements of Operations for the three months ended January 31, 1996 and 1995 (Unaudited) 1996 1995 Retained royalty revenues $ 123,715 $ 165,574 Costs of technology management services, of which $17,471 and $15,564 were paid to CTI in 1996 and 1995, respectively 117,349 120,618 Operating income 6,366 44,956 Gain on sale of investment in Plasmaco, Inc. 12,516 -- Interest income 6,760 4,506 Income before income taxes 25,642 49,462 Provision for income taxes 11,825 28,760 Net income $ 13,817 $ 20,702 See accompanying notes USET ACQUISITION PARTNERS, L.P. AND SUBSIDIARIES Consolidated Statements of Operations for the six months ended January 31, 1996 and 1995 (Unaudited) 1996 1995 Retained royalty revenues $ 421,145 $ 339,466 Costs of technology management services, of which $42,123 and $31,837 were paid to CTI in 1996 and 1995, respectively 234,987 221,590 Operating income 186,158 117,876 Gain on sale of investment in Plasmaco, Inc. 12,516 -- Interest income 15,025 10,451 Income before income taxes 213,699 128,327 Provision for income taxes 98,139 66,983 Net income $ 115,560 $ 61,344 See accompanying notes USET ACQUISITION PARTNERS, L.P. AND SUBSIDIARIES Consolidated Statement of Changes in Partners' Capital for the six months ended January 31, 1996 (Unaudited) Partners' Capital Balance - July 31, 1995 $1,050,173 Net income for the six months ended January 31, 1996 115,560 Balance - January 31, 1996 $1,165,733 See accompanying notes USET ACQUISITION PARTNERS, L.P. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the six months ended January 31, 1996 and 1995 (Unaudited) 1996 1995 Cash flow from operating activities: Net income $ 115,560 $ 61,344 Noncash items included in income from operations: Depreciation 6,554 6,720 Amortization of intangible assets 51,553 34,484 Amortization of deferred organization costs 1,530 9,192 Provision for deferred income taxes -- 57,983 Net changes in various operating accounts: Royalties receivable 358,528 (120,741) Related party receivables (18,692) (10,611) Other receivables (17,131) 5,629 Income taxes receivable 22,341 1,095 Accounts payable 45,718 17,728 Royalties payable 907 (11,848) Accrued liabilities 78,477 (10,644) Other (12,516) -- Net cash flow from operating activities 632,829 40,331 Cash flow from investing activities: Contingent purchase price payments for intangible assets (280,099) (219,547) Purchases of office furniture and equipment (6,964) (6,177) Proceeds on sale of investment 20,516 -- Net cash flow used in investing activities (266,547) (225,724) See accompanying notes USET ACQUISITION PARTNERS, L.P. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the six months ended January 31, 1996 and 1995 (Continued) (Unaudited) 1996 1995 Cash flow from financing activities: Distribution to partners -- (54,809) Net cash flow used in financing activities -- (54,809) Net increase (decrease) in cash and cash equivalents 366,282 (240,202) Cash and cash equivalents, beginning of year 238,889 469,485 Cash and cash equivalents, end of period $ 605,171 $ 229,283 Supplemental cash flow information: Cash paid for income taxes $ 62,950 $ 7,905 See accompanying notes USET ACQUISITION PARTNERS, L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. Interim Financial Statements Interim financial information presented in the accompanying financial statements and notes hereto is unaudited. In the opinion of management, all adjustments which are necessary to present the financial statements fairly in conformity with generally accepted accounting principles, consisting only of normal recurring adjustments, have been made. The interim financial statements and notes thereto should be read in conjunction with the Company's audited financial statements for the three years ended July 31, 1995. 2. Sale of Partnership Interests On January 31, 1996, UPAT Services, Inc., ("USI"), a wholly-owned subsidiary of Competitive Technologies, Inc. ("CTI"), purchased the limited partnership interests of the other limited partners in USET Acquisition Partners, L.P. ("UAP" or the "Partnership"). The total purchase price was $1,835,000 with $500,000 paid in cash at the closing and the balance to be paid without interest on each succeeding January 31 in installments equal to 60% of University Science, Engineering and Technology, Inc.'s ("USET") gross retained earned revenues for the preceding calendar year or the remaining unpaid balance of the purchase price, whichever is less. However, if any annual 60% installment would be less than $400,000, that installment shall be equal to the lesser of $400,000 or 80% of USET's gross retained earned revenues. CTI has guaranteed the payment of these installments when due. After the purchase, USI owns 100% of all partnership interests in UAP and as a result, UAP will be dissolved. 3. Sale of Investment in Plasmaco, Inc. In January, 1996, USET received $20,516 from the sale of its 4,000 shares of Plasmaco, Inc. and recognized a gain of $12,516. 4. Receivables Receivables as of January 31, 1996 comprise: Related parties $ 30,171 Other 45,424 $ 75,595 6. Accrued Liabilities Accrued liabilities as of January 31, 1996 were: Income taxes currently payable $ 45,848 Other 63,662 $109,510 COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Pro Forma Financial Information (Unaudited) The following pro forma statements of operations for the Registrant for the fiscal year ended July 31, 1995 and for the six months ended January 31, 1996 reflect the acquisition of USET Acquisition Partners, L.P. and its wholly-owned subsidiaries, USET Holding Co. and University Science, Engineering and Technology, Inc. ("USET"), as if it had occurred on August 1, 1994. The acquisition was reflected in the Registrant's balance sheet as at January 31, 1996 filed with its Quarterly Report on Form 10-Q for the quarterly period ended January 31, 1996; therefore no pro forma balance sheet is included in this pro forma financial information. The Registrant accounted for the acquisition under the purchase method and recorded the estimated present value of the purchase obligation using a 10% discount rate. The purchase price was allocated based on the estimated fair value of the assets acquired (cash of approximately $605,000, computer equipment and intangible assets, principally licenses and patented technologies) and obligations assumed (principally accounts and royalties payable). The unaudited pro forma financial information should be read in conjunction with the financial statements of the Registrant included in its Quarterly Report on Form 10-Q for the quarterly period ended January 31, 1996 and its Annual Report on Form 10-K for the year ended July 31, 1995. The unaudited pro forma statements of operations are not necessarily indicative of what the actual results of operations of the Registrant would have been if the acquisition had occurred on August 1, 1994, nor do they purport to represent the results of operations for future periods.
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Pro Forma Consolidated Statement of Operations for the year ended July 31, 1995 (Unaudited) Historical Historical USET Acquisition Competitive Partners, L.P. Pro Forma Pro Forma Technologies, Inc. and Subsidiaries Adjustments Results Revenues: Retained royalties $ 796,243 $ 720,517 $ -- $ 1,516,760 Revenues under service contracts and grants 906,952 -- -- 906,952 1,703,195 720,517 -- 2,423,712 Costs of technology management services 1,120,483 465,569 68,754 (A) 1,654,806 Marketing, general and administration expenses 1,211,538 -- 1,211,538 2,332,021 465,569 68,754 2,866,344 Operating income (loss) (628,826) 254,948 (68,754) (442,632) Interest income 151,058 22,233 (27,022) (B) 146,269 Interest expense (114,511) (C) (114,511) Losses related to equity method affiliates (103,520) -- (46,936) (D) (150,456) Other expense, net (61,700) -- -- (61,700) Income (loss) from continuing operations before income taxes and minority interest (642,988) 277,181 (257,223) (623,030) Provision for income taxes 21,373 125,089 (125,089) (E) 21,373 Income (loss) from continuing operations before minority interest (664,361) 152,092 (132,134) (644,403) Minority interest in losses of subsidiaries 23,112 -- -- 23,112 Income (loss) from continuing operations (641,249) 152,092 (132,134) (621,291) Income from operations of discontinued operation 99,468 -- -- 99,468 Net gain on disposal of discontinued operation 2,534,505 -- -- 2,534,505 Net income $ 1,992,724 $ 152,092 $ (132,134) $ 2,012,682 See accompanying notes COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Pro Forma Consolidated Statement of Operations for the year ended July 31, 1995 (Continued) (Unaudited) Historical Historical USET Acquisition Competitive Partners, L.P. Pro Forma Pro Forma Technologies, Inc. and Subsidiaries Adjustments Results Net income (loss) per share (primary and fully diluted): Continuing operations $ (0.11) $ (0.11) Operations of discontinued operation 0.02 0.02 Net gain on disposal of discontinued operation 0.43 0.43 Net income $ 0.34 $ 0.34 Weighted average number of common and common equivalent shares out- standing (primary and fully diluted) 5,814,826 5,814,826
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Pro Forma Consolidated Statement of Operations for the six months ended January 31, 1996 (Unaudited) Historical Historical USET Acquisition Competitive Partners, L.P. Pro Forma Pro Forma Technologies, Inc. and Subsidiaries Adjustments Results Revenues: Retained royalties $ 491,438 $ 421,145 $ -- $ 912,583 Revenues under service contracts and grants 217,049 -- -- 217,049 708,487 421,145 -- 1,129,632 Costs of technology management services 425,589 234,987 26,537 (A) 687,113 Marketing, general and administration expenses 838,277 -- -- 838,277 1,263,866 234,987 26,537 1,525,390 Operating income (loss) (555,379) 186,158 (26,537) (395,758) Interest income 106,577 15,025 (23,863) (B) 97,739 Interest expense (34,082) (C) (34,082) Income related to equity method affiliates 42,091 -- (24,069) (D) 18,022 Gain on sale of investment in Plasmaco, Inc. 96,907 12,516 -- 109,423 Other income, net 19,371 -- -- 19,371 Income (loss) before income taxes (290,433) 213,699 (108,551) (185,285) Provision for income taxes 15,000 98,139 (98,139) (E) 15,000 Net income (loss) $ (305,433) $ 115,560 $ (10,412) $ (200,285) Net income (loss) per share (primary and fully diluted) $ (0.05) $ (0.03) Weighted average number of common and common equivalent shares outstanding (primary and fully diluted) 5,822,271 5,822,271
See accompanying notes COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Pro Forma Consolidated Statements of Operations (Unaudited) A. These pro forma adjustments reflect additional amortization expense which would have been recognized (a) if the acquisition had occurred on August 1, 1994 and (b) if all $700,100 of contingent payments made or estimated to be made to Macmillan, Inc. between August 1, 1994 and June 10, 1996 had been accrued at August 1, 1994. If the acquisition had occurred on August 1, 1994, the value of intangible assets at August 1, 1994 would have been $2,186,500 after accruing $700,100 of contingent payments made or estimated to be made to Macmillan, Inc. between August 1, 1994 and June 10, 1996 (see Note 2 to the accompanying audited financial statements for USET Acquisition Partners, L.P.) and after recording purchase accounting adjustments to reflect the Registrant's valuation of the estimated future revenue stream from USET's intangible assets, primarily licenses and patented technologies. The pro forma adjustment for amortization has been calculated based on the difference between amortization actually recorded by USET during the respective period and amortization that would have been recorded on a straight-line basis over the average remaining lives of the patents at August 1, 1994 (approximately 14 years). B. These pro forma adjustments reflect the reduction to interest income the Registrant would have sustained if the acquisition had occurred on August 1, 1994, the $500,000 cash paid at the closing had been paid at August 1, 1994 and the second installment of the purchase price ($432,310) equal to 60% of USET's gross retained earned revenues for the preceding fiscal year ($720,517) had been paid on August 31, 1995. Compound interest for these adjustments has been calculated at the Registrant's actual rates obtained during the respective periods on a substantial portion of its invested cash and cash equivalents (4.3% to 5.8%). C. These pro forma adjustments reflect interest expense on the Registrant's purchase obligation as if the obligation had been incurred on August 1, 1994 and recorded at its estimated present value using a 10% discount rate. D. These pro forma adjustments reverse CTI's equity in UAP's net income recorded in CTI's historical financial statements. If the acquisition had accurred on August 1, 1994, UAP would not have been accounted for under the equity method. E. These pro forma adjustments reflect the estimated reduction of USET's provision for income taxes that would have resulted from offsetting USET's taxable income against the Registrant's taxable losses in consolidated Federal and state income tax filings. EX-23.1 2 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANT I consent to the incorporation by reference in the registration statements of Competitive Technologies, Inc. on Forms S-8 and the related prospectuses (No. 2-69835 and No. 33-87756) pertaining to the Key Employees' Stock Option Plan, on Form S-8 and the related prospectus (No. 33-10528) pertaining to the Key Employees' Stock Option Plan and the Directors' Stock Participation Plan, on Form S- 8 and the related prospectus (No. 33-44612) pertaining to the Key Employees' Stock Option Plan, Directors' Stock Participation Plan and Employees' Common Stock Retirement Plan and on Form S-8 and the related prospectus (No. 33-48081) pertaining to Common Stock Purchase Warrants dated October 22, 1990 of my report dated April 2, 1996 on my audits of the consolidated financial statements of USET Acquisition Partners, L.P. and Subsidiaries as of July 31, 1995 and 1994 and for each of the three years in the period ended July 31, 1995, which report is included in this Current Report on Form 8-K/A. S/ Michael S. Levine, CPA Michael S. Levine, CPA Monroe, Connecticut April 11, 1996 -----END PRIVACY-ENHANCED MESSAGE-----