-----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, SOY8G/tiuxdA34w68fepTPiU/N6nKhQpCBfJ5CW1c5Si8UqGikb7/kUk7qCZ1caz 1mPtupgAPYbFbJcTE2QkwA== 0000102198-97-000003.txt : 19970317 0000102198-97-000003.hdr.sgml : 19970317 ACCESSION NUMBER: 0000102198-97-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970131 FILED AS OF DATE: 19970314 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPETITIVE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000102198 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 362664428 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08696 FILM NUMBER: 97556430 BUSINESS ADDRESS: STREET 1: 1960 BRONSON ROAD STREET 2: P.O. BOX 340 CITY: FAIRFIELD STATE: CT ZIP: 06430 BUSINESS PHONE: 2032256044 MAIL ADDRESS: STREET 1: 1960 BRONSON ROAD STREET 2: P.O. BOX 340 CITY: FAIRFIELD STATE: CT ZIP: 06430 FORMER COMPANY: FORMER CONFORMED NAME: UNIVERSITY PATENTS INC DATE OF NAME CHANGE: 19920703 10-Q 1 10-Q January 1997 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-8696 COMPETITIVE TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) Delaware 36-2664428 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1960 Bronson Road P.O. Box 340 Fairfield, Connecticut 06430 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (203) 255-6044 Former name, former address and former fiscal year, if changed since last report 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 . Common Stock outstanding as of March 1, 1997 5,919,829 shares Exhibit Index on sequentially numbered page 21 of 26. Page 1 of 26 sequentially numbered pages COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page No. Item 1. Condensed Financial Statements A. Financial Statements Consolidated Balance Sheets at January 31, 1997 and July 31, 1996 3-4 Consolidated Statements of Operations for the three months ended January 31, 1997 and 1996 5 Consolidated Statements of Operations for the six months ended January 31, 1997 and 1996 6 Consolidated Statement of Changes in Shareholders' Interest for the six months ended January 31, 1997 7 Consolidated Statements of Cash Flows for the six months ended January 31, 1997 and 1996 8-9 Notes to Consolidated Financial Statements 10-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13-19 PART II. OTHER INFORMATION Item 2. Changes in Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 6. Exhibits and Reports on Form 8-K 21 Signatures 22 PART I. FINANCIAL INFORMATION COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets January 31, 1997 and July 31, 1996 (Unaudited) January 31, July 31, 1997 1996 ASSETS Current assets: Cash and cash equivalents $ 810,059 $ 560,640 Short-term investments, at market 2,913,892 3,820,990 Receivables, including $19,037 and $19,910 receivable from related parties in January and July, respectively 1,367,106 1,088,030 Prepaid expenses and other current assets 121,164 218,903 Total current assets 5,212,221 5,688,563 Property and equipment, net 225,166 144,360 Investments 370,463 321,145 Intangible assets acquired, principally licenses and patented technologies, net of accumulated amortization of $141,126 and $71,790 in January and July, respectively 1,692,780 1,794,795 Directors' escrow account 325,000 325,000 Other assets 53,873 94,277 TOTAL ASSETS $ 7,879,503 $ 8,368,140 See accompanying notes PART I. FINANCIAL INFORMATION COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets January 31, 1997 and July 31, 1996 (Unaudited) January 31, July 31, 1997 1996 LIABILITIES AND SHAREHOLDERS' INTEREST Current liabilities: Accounts payable, including $1,376 and $9,365 payable to related parties in January and July, respectively $ 103,513 $ 83,571 Accrued liabilities, including $18,788 payable to related parties in January 1997 1,354,163 794,250 Current portion of purchase obligation 550,000 550,000 Total current liabilities 2,007,676 1,427,821 Noncurrent portion of purchase obligation, net of unamortized discount of $75,377 and $132,633 in January and July, respectively 226,183 652,367 Commitments and contingencies Shareholders' interest: 5% preferred stock, $25 par value 60,675 60,675 Common stock, $.01 par value 59,423 59,258 Capital in excess of par value 25,123,573 24,993,926 25,000 shares of treasury stock, at cost (174,713) (174,713) Net unrealized holding gains on available-for-sale securities 10,381 10,605 Accumulated deficit (19,433,695) (18,661,799) Total shareholders' interest 5,645,644 6,287,952 TOTAL LIABILITIES AND SHAREHOLDERS' INTEREST $ 7,879,503 $ 8,368,140 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations for the three months ended January 31, 1997 and 1996 (Unaudited) 1997 1996 Revenues: Retained royalties $ 617,098 $ 289,988 Revenues under service contracts and grants, including $28,488, and $33,586 from related parties in 1997 and 1996, respectively 141,626 99,270 758,724 389,258 Costs of technology management services, of which $1,441 was paid to related parties in 1996 621,460 412,598 General and administration expenses, of which $13,973 and $27,545 were paid to related parties in 1997 and 1996, respectively 460,738 278,428 1,082,198 691,026 Operating loss (323,474) (301,768) Interest income 38,743 51,681 Interest expense (28,628) -- Income (losses) related to equity method affiliates 14,315 11,250 Gain on sale of investment in Plasmaco, Inc. -- 96,907 Other income (expense), net 7,722 18,705 Loss before income taxes (291,322) (123,225) Provision for income taxes 6,300 8,000 Net loss $ (297,622) $ (131,225) Net loss per share (primary and fully diluted): $ (0.05) $ (0.02) Weighted average number of common and common equivalent shares outstanding (primary and fully diluted) 5,908,786 5,830,591 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations for the six months ended January 31, 1997 and 1996 (Unaudited) 1997 1996 Revenues: Retained royalties $ 858,299 $ 491,438 Revenues under service contracts and grants, including $84,954, and $70,971 from related parties in 1997 and 1996, respectively 402,826 217,049 1,261,125 708,487 Costs of technology management services, of which $5,762 and $3,068 were paid to related parties in 1997 and 1996, respectively 1,275,819 675,611 General and administration expenses, of which $35,260 and $46,913 were paid to related parties in 1997 and 1996, respectively 804,459 588,255 2,080,278 1,263,866 Operating loss (819,153) (555,379) Interest income 79,190 106,577 Interest expense (57,256) -- Income (losses) related to equity method affiliates 34,319 42,091 Gain on sale of investment in Plasmaco, Inc. -- 96,907 Other income (expense), net 3,804 19,371 Loss before income taxes (759,096) (290,433) Provision for income taxes 12,800 15,000 Net loss $ (771,896) $ (305,433) Net loss per share (primary and fully diluted): $ (0.13) $ (0.05) Weighted average number of common and common equivalent shares outstanding (primary and fully diluted) 5,905,943 5,822,271 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statement of Changes in Shareholders' Interest For the six months ended January 31, 1997 (Unaudited)
Net unrealized holding Preferred Stock gains (losses) Shares Common Stock Capital in on available- issued and Shares excess of Treasury Stock for-sale Accumulated outstanding Amount issued Amount par value Shares held Amount securities Deficit Balance - July 31, 1996 2,427 $60,675 5,925,829 $59,258 $24,993,926 (25,000) $(174,713) $ 10,605 $(18,661,799) Exercise of common stock options . . . . 10,500 105 69,707 Stock issued under Directors' Stock Participation Plan. . 6,000 60 59,940 Net change in un- realized holding gains on available- for-sale securities. (224) Net loss . . . . . . . (771,896) Balance - January 31, 1997 2,427 $60,675 5,942,329 $59,423 $25,123,573 (25,000) $(174,713) $ 10,381 $(19,433,695)
See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows for the six months ended January 31, 1997 and 1996 (Unaudited) 1997 1996 Cash flow from operating activities: Loss from continuing operations $ (771,896) $ (305,433) Noncash items included in loss from continuing operations: Depreciation and amortization 186,426 96,145 (Income) losses related to equity method affiliates (34,319) (42,091) Directors' stock and stock retirement plan accruals 85,600 48,345 Amortization of discount on purchase obligation 57,256 -- Other noncash items (18,567) (20,266) Other -- (68,368) Net changes in various operating accounts: Receivables (279,076) 70,970 Prepaid expenses and other current assets 54,485 (27,206) Accounts payable and accrued liabilities 533,178 (115,719) Net cash flow used in operating activities (186,913) (363,623) Cash flow from investing activities: Purchases of property and equipment, net (114,238) (35,349) Proceeds from sales of short-term investments 2,478,109 1,411,795 Purchases of short-term investments (1,531,590) (1,370,824) Investments in affiliates and subsidiaries 17,679 96,907 Cash acquired in connection with investment in USET, net of $500,000 cash paid -- 105,171 Net cash flow from investing activities 849,960 207,700 Cash flow from financing activities: Proceeds from issuance of common stock, net 69,812 296,251 Repayment of debt (483,440) -- Net cash flow from financing activities (413,628) 296,251 Net increase in cash and cash equivalents 249,419 140,328 Cash and cash equivalents, beginning of period 560,640 336,098 Cash and cash equivalents, end of period $ 810,059 $ 476,426 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows for the six months ended January 31, 1997 and 1996 (Unaudited) 1997 1996 Supplemental cash flow information: Cash paid for income taxes $ 47,900 $ 27,308 Schedule of noncash investing activities: Investments in affiliates and subsidiaries $ -- $(1,039,938) Schedule of noncash financing activities: Debt incurred for investment in subsidiary $ -- $ 1,145,109 Issuance of directors' stock $ 60,000 $ 40,000 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) 1. Interim Financial Statements Interim financial information presented in the accompanying financial statements and notes hereto is unaudited. The year end balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. 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. Certain amounts have been reclassified to conform with the presentation in the financial statements for fiscal 1997. The interim financial statements and notes thereto as well as the accompanying Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended July 31, 1996. 2. Acquisition of USET On January 31, 1996, the Company purchased the remaining interests in USET (see Note 2 to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended July 31, 1996). The following unaudited pro forma summary information presents the consolidated results of operations of the Company as if this acquisition had occurred on August 1, 1994 (in thousands, except per share amounts). The unaudited pro forma amounts are based on assumptions and estimates the Company believes are reasonable; however, such amounts do not necessarily represent results which would have occurred if the acquisition had taken place on the basis assumed, nor are they indicative of the results of future combined operations. For the quarter For the six ended months ended January 31, 1996 January 31, 1996 Total revenues $ 513 $ 1,130 Operating loss (309) (396) Net loss (140) (200) Net loss per share $(0.02) $ (0.03) 3. Short-term Investments As of January 31, 1997 the components of the Company's available- for-sale securities are as follows (in thousands): Gross Gross Unrealized Unrealized Aggregate Holding Holding Amortized Maturity Security Type Fair Value Gains Losses Cost Basis Grouping U.S. Treasury Within Bills $ 1,542 $10 -- $ 1,532 1 year Other U.S. government Within debt 1 year securities 1,372 -- -- 1,372 Total $ 2,914 $10 -- $ 2,904 For the quarters ended January 31, 1997 and 1996, respectively, proceeds from the sale of available-for-sale securities were $2,113,040 and $1,121,124 which resulted in gross realized gains of $39,645 and $30,147. For the six months ended January 31, 1997 and 1996, respectively, proceeds from the sale of available-for-sale securities were $2,478,109 and $1,411,795 which resulted in gross realized gains of $39,645 and $31,095. Cost is based on specific identification in computing realized gains. 4. Receivables Receivables comprise: January 31, July 31, 1997 1996 Royalties $1,220,445 $ 879,380 Government contracts 26,599 74,978 Other 120,062 133,672 $1,367,106 $1,088,030 5. Accrued Liabilities Accrued liabilities were: January 31, July 31, 1997 1996 Accrued compensation $ 163,962 $ 125,256 Royalties payable 926,257 417,656 Deferred revenues 113,820 16,587 Other accrued liabilities 150,124 234,751 $1,354,163 $ 794,250 6. Contingencies In November, 1991, a suit was filed in Connecticut against CTI, its wholly-owned subsidiary, Genetic Technology Management, Inc. ("GTM"), its majority-owned subsidiary, University Optical Products Co. ("UOP"), and several current and former directors on behalf of the 59 limited partners of Optical Associates, Limited Partnership ("OALP"). The complaint alleges, among other things, that the January 1989 sale of UOP's assets to Unilens Corp. USA ("Unilens") violated the partnership agreement and that OALP is entitled to the full proceeds of the sale to Unilens. The complaint claims, among other things, money damages and treble and punitive damages in an unspecified amount and attorneys' fees. The Company believes that the asserted claims are without merit and intends to defend vigorously the action instituted by plaintiffs. Through January 31, 1997, the Company had received aggregate cash proceeds of approximately $1,011,000 from the January 1989 sale of UOP's assets to Unilens. As cash proceeds were received, the Company paid a 4% commission to OALP, its joint venture partner. Further hearings in this case have been adjourned and are expected to occur later in calendar 1997. PART I. FINANCIAL INFORMATION (Continued) Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition and Liquidity Cash and cash equivalents of $810,059 at January 31, 1997 are $249,419 higher than cash and cash equivalents of $560,640 at July 31, 1996. Operating activities used $186,913, investing activities provided $849,960 and financing activities used $413,628. Competitive Technologies, Inc. ("CTI") and its majority-owned subsidiaries' ("the Company") net loss of $771,896 for the six months ended January 31, 1997 included the following noncash items: depreciation and amortization of approximately $186,000, income related to equity method affiliates of approximately $34,000, amortization of discount on purchase obligation of approximately $57,000 and accruals of approximately $107,000. In general, changes in various operating accounts result from changes in the timing and amounts of cash flows before and after the end of the period. Approximately $341,000 of cash used in operations was from the increase in royalties receivable and $509,000 was provided by the increase in royalties payable. This reflects the normal cycle of royalty collections and payments with the consolidation of University Science, Engineering and Technology, Inc. ("USET"). Approximately $114,000 of property and equipment purchased in the six-month period ended January 31, 1997 relate to equipment additions and technical updates for added staff and increased client service capabilities ($22,000) and improving ($30,000) and furnishing ($62,000) CTI's principal office. CTI relocated its principal office on November 8, 1996 and expects additional expenditures to complete those improvements during the next six months. Proceeds from sales of short-term investments of approximately $2,478,000 are from maturities of the Company's U.S. government debt securities. The Company reinvested nearly $1,532,000 in U.S. government debt securities. In the six-month period ended January 31, 1997, the Company received $69,812 from employees' exercising stock options to purchase 10,500 shares of common stock at prices from $6.5625 to $6.75. On January 31, 1997, the Company paid approximately $483,000 of the USET purchase obligation. This installment was 60% of USET's gross retained earned revenues for the preceding calendar year as provided in the purchase agreement. The Company carries liability insurance, directors' and officers' liability insurance and casualty insurance for owned or leased tangible assets. It does not carry key person life insurance. There are no legal restrictions on payments of dividends by CTI. At January 31, 1997, the Company had no outstanding commitments for capital expenditures. The Company expects to pay approximately $550,000 of the USET purchase obligation on January 31, 1998 with the balance of $302,000 to be paid in 1999. The Company continues to pursue additional university and corporate technology management opportunities. If and when these opportunities are consummated, the Company expects to commit capital resources to these operations. The Company does not believe that inflation had a significant impact on its operations during 1997 or 1996 or that it will have a significant impact on operations during the next twelve-month operating period. Vector Vision, Inc. ("VVI"), CTI's 52.8%-owned subsidiary, continues to seek additional financing to support its continuing development. Without additional outside financing, VVI's development activities will proceed at a minimum level. The Company, the inventor and others are committed to support VVI's development activities through the remainder of fiscal 1997 to a total of approximately $110,000, during which time VVI's goal is to improve its video compression software product for MPEG-4, an international standard expected to be adopted for consumer applications such as video teleconferencing, video databases and wireless video access. The Company and others have supported VVI's operating activities during the second quarter of 1997. VVI's operating activities during the first quarter of 1997 were funded primarily by the approximately $36,000 remaining on its Small Business Innovation Research ("SBIR") contract awarded in April, 1996. With nearly $3,724,000 in cash, cash equivalents and short-term investments at January 31, 1997, the Company anticipates that currently available funds will be sufficient to finance cash needs over the next two to four years for its current operating activities as well as for expansion of its technology management business operations, including related investments in start-up companies. This anticipation is based upon the Company's current expectations. However, expansion of the Company's services and related investments in start-up companies (with resulting increases in operating expenses) is subject to many factors which are outside the Company's control and to currently unanticipated opportunities that may arise in the future. Accordingly, there can be no assurance that the Company's current expectations regarding the sufficiency of currently available funds will prove to be accurate. Results of Operations - Six Months Ended January 31, 1997 vs. Six Months Ended January 31, 1996 Through January 31, 1996, the Company accounted for its investment in USET on the equity method and recorded 20% of USET's net income. The Company has consolidated USET's results of operations for all periods since February 1, 1996. Consolidated revenues for the six months ended January 31, 1997, were $552,638 (78%) higher than for the six months ended January 31, 1996. Retained royalties were $366,861 (75%) higher than in the first half of fiscal 1996. However, excluding USET's effect, retained royalties were $28,888 (6%) lower. Up-front license fees for a plasma display energy recovery technology of approximately $97,000 for the six months ended January 31, 1996 were non-recurring and this decrease was partially offset by increased royalties on the gallium arsenide technology for the six months ended January 31, 1997. There were also modest increases in royalties from sales of Renova and Ethyol (see Item 7 in the Company's Annual Report on Form 10-K for the year ended July 31, 1996). Consolidating USET's retained royalties increased retained royalties for the six months ended January 31, 1997 by $395,749 (80%). Revenues under service contracts and grants were $402,826 in the first half of fiscal 1997, $185,777 (85%) higher than in the first half of fiscal 1996. This increase includes VVI's SBIR contract ($36,000) and intercorporate service contracts ($177,000) offset by decreases in other collaborative service contracts. Approximately $110,000 of the increase in intercorporate service contracts was from international clients. Expansion of the Company's focus to include providing technology management services to corporations is beginning to generate revenues. VVI's SBIR contract was completed in October, 1996, and CTI's contract with the Department of the Air Force was completed in November, 1996. Revenues from this contract for the six months ended January 31, 1997 were lower than in the first half of fiscal 1996. There were no grant revenues in the first half of fiscal 1997 compared with approximately $8,000 in support of VVI's development activities in the first half of fiscal 1996. Costs of technology management services were $600,208 (89%) higher in the first half of fiscal 1997 than in the first half of fiscal 1996 as more fully discussed below. Costs related to retained royalties were $214,000 higher in 1997 than in 1996. This increase reflects inclusion of USET's domestic and foreign patent expenses ($39,000) and amortization of the cost of intangible assets acquired $(69,000) in the fiscal 1997 period. It also reflects increased costs for consultants retained to assist in evaluating and marketing corporate technologies ($22,000), domestic patent costs on a new university technology ($14,000) and lower recoveries of foreign patent costs against university royalties ($14,000). In addition, personnel costs (including benefits and overheads) associated with patenting and licensing services were higher ($75,000) in fiscal 1997 as a result of hiring employees to evaluate and market corporate technologies. These costs include domestic and foreign patent prosecution, maintenance and litigation expenses. The Company carefully evaluates the future revenue potential of each technology before it incurs substantial patent or enforcement expenses. The Company expects costs related to retained royalties to continue to increase during fiscal 1997 as it expands its technology management services to corporations and universities. Costs related to service contracts (including direct charges for subcontractors' services and personnel costs associated with service contracts) increased $175,000 compared with the first half of fiscal 1996. This increase includes costs in connection with VVI's SBIR contract ($36,000), direct costs related to new corporate client service contracts ($55,000) and increased personnel costs (including benefits and overheads) associated with corporate and collaborative service contracts. Costs related to grant revenues decreased approximately $8,000 in proportion to the reduction in grant revenues. Costs associated with new client development (principally personnel costs, including benefits and overheads) increased approximately $219,000 over the first six months of fiscal 1996. The Company's strategic decision to expand its focus to include providing technology management services to corporations required hiring experienced employees to identify and develop new opportunities into client relationships. General and administration expenses were approximately $216,204 (37%) higher in the six months ended January 31, 1997. This increase includes operating expenses supporting the Company's and USET's ongoing operations. In addition, the Company signed a new five-year office lease beginning in November, 1996, and incurred relocation expenses in November, 1996, which are expected to increase other operating expenses in the second half of fiscal 1997. The net effect of these increases in operating revenues and expenses was to increase the Company's operating loss by $263,774 (47%) compared with the first half of fiscal 1997. Interest income decreased $27,387 (26%) because of lower average invested balances and lower interest rates in the six months ended January 31, 1997. Interest expense of $57,256 in fiscal 1997 relates to the debt incurred in connection with the acquisition of USET. In the six months ended January 31, 1997, net income related to equity method affiliates was principally CTI's equity in the net income of Equine Biodiagnostics, Inc. ("EBI") ($38,000) partially offset by CTI's equity in net losses of other ventures. At January 31, 1997, CTI owned 33.7% of the outstanding common stock of Knowledge Solutions, Inc. ("KSI"), and has loaned KSI $50,000 under a subordinated secured convertible note (see Note 4 to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended July 31, 1996), but has no further obligation to provide additional funding to KSI. CTI's investment in KSI has been reduced to zero. In the six months ended January 31, 1996, net income related to equity method affiliates included the Company's 20% equity in the net income of USET ($24,000), its equity in the net loss of KSI ($19,000) and its equity in the net income of EBI ($37,000). In January, 1996, CTI received $96,907 in cash for the sale of its remaining interest in Plasmaco, Inc. Since CTI's investment in Plasmaco, Inc. was carried at no value, the $96,907 was included in income for the second quarter of fiscal 1996. Other expenses for the six months ended January 31, 1997, were legal expenses incurred in connection with a suit brought against CTI, some of its subsidiaries and directors as more fully detailed in Note 16 to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended July 31, 1996. Further hearings in this case have been adjourned and are expected to occur later in calendar 1997. CTI is unable to estimate the related legal expenses which may be incurred in the remaining quarters of 1997. Unilens made no payments in either half year. Since CTI carries this receivable at zero value, any collections will be recorded in the period collected. Through January 31, 1997, the Company had received aggregate cash proceeds of approximately $1,011,000 from the January, 1989, sale of UOP's assets to Unilens. As cash proceeds were received, CTI paid a 4% cash commission to Optical Associates, L. P., its joint venture partner. The Company has net operating loss carryforwards for Federal income tax purposes. Provision was made in each period for estimated state income taxes. The Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," effective August 1, 1996, and will disclose the pro forma effects fair value accounting would have had on net income and earnings per share in its consolidated financial statements for the year ending July 31, 1997. It has not had a material effect on the accompanying financial statements. The Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of," effective August 1, 1996. It has not had a material effect on the accompanying financial statements. Results of Operations - Three Months Ended January 31, 1997 vs. Three Months Ended January 31, 1996 Consolidated revenues for the quarter ended January 31, 1997, were $369,466 (95%) higher than for the quarter ended January 31, 1996. Retained royalties were $327,110 (113%) higher. Excluding USET's effect, retained royalties were $54,349 (19%) higher. Increased royalties on the gallium arsenide technology were partially offset by net reductions in other royalties. Consolidating USET's retained royalties increased retained royalties for the quarter ended January 31, 1997 by $272,761 (94%). Revenues under service contracts were $42,356 (43%) higher, reflecting increased revenues from corporate client service contracts partly offset by reduced revenues from collaborative service contracts. There were no grant revenues in either year's second quarter. Costs of technology management services were $208,862 (51%) higher in the second quarter of fiscal 1997 than in the second quarter of fiscal 1996. Costs related to retained royalties were $45,000 higher in 1997. This reflects inclusion of USET's domestic and foreign patent expenses ($17,000) and amortization of the costs of intangible assets acquired ($35,000). Costs related to service contracts were approximately $83,000 higher than in the fiscal 1996 second quarter. This increase includes direct costs and increased personnel costs (including benefits and overheads) associated with new corporate client service contracts partly offset by lower costs related to collaborative service contracts. There were no costs related to grant revenues in either second quarter. General and administration expenses were $182,311 (65%) higher in the quarter ended January 31, 1997. This increase includes operating expenses supporting the Company's ongoing operations including approximately $65,000 of additional general and administration expenses of USET's operations. The net effect of the increases in operating revenues and expenses was to increase the Company's operating loss by $21,706 (7%) compared to the second quarter of fiscal 1996. Interest income decreased $12,938 (25%) because of lower average invested balances and lower interest rates in the quarter ended January 31, 1997. Interest expense of $28,628 in the fiscal 1997 quarter relates to the debt incurred in connection with the acquisition of USET. In the fiscal 1997 second quarter, net income related to equity method affiliates was principally CTI's equity in the net income of EBI offset by CTI's equity in net losses of other ventures. In the quarter ended January 31, 1996, net income related to equity method affiliates included the Company's 20% equity in the net loss of USET ($7,000) and CTI's equity in the net income of EBI ($18,000). Other income in the second quarter of fiscal 1997 included a $40,000 gain realized on CTI's sale of available-for-sale securities offset by legal expenses in connection with the litigation detailed in Note 16 to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended July 31, 1996. Other income in the second quarter of fiscal 1996 included a $30,000 gain realized on CTI's sale of available-for-sale securities offset by legal expenses in connection with the litigation mentioned in the preceding sentence. In January, 1996, CTI received $96,907 in cash for the sale of its remaining interest in Plasmaco, Inc. Since CTI's investment in Plasmaco, Inc. was carried at no value, the $96,907 was included in income for the second quarter of fiscal 1996. Results of Operations - Three Months Ended January 31, 1997 (Second Quarter) vs. Three Months Ended October 31, 1996 (First Quarter) Consolidated revenues for the quarter ended January 31, 1997 were $256,323 (51%) higher than for the quarter ended October 31, 1996. Historically, retained royalties in the second fiscal quarter are higher than in the first quarter because of licensees who report semiannually. Retained royalties were $375,897 (156%) higher than in the first quarter. Revenues under service contracts were $119,574 (46%) lower than in the first quarter. This reduction results from completion of VVI's SBIR in the first quarter, completion of CTI's contract with the Department of the Air Force in November, 1996, and lower revenues from services under corporate and collaborative service contracts. Total operating expenses of $1,082,198 in the second quarter were approximately $84,000 (8%) higher than in the first quarter. Higher personnel costs and various costs related to the Company's annual meeting of shareholders contributed to this increase. In the second quarter costs of technology management services were approximately $33,000 (5%) lower and general and administration expenses were approximately $117,000 (34%) higher than in the first quarter. While costs related to service contracts were higher, both costs related to retained royalties and costs associated with new client development were lower. PART II - OTHER INFORMATION Item 2. Changes In Securities (c) As of November 1, 1996, the registrant issued to Desmond Towey & Associates non-transferrable warrants to purchase 6,000 shares of the registrant's common stock at $10.50 (the mean between the high and low prices on the American Stock Exchange on November 1, 1996). The warrants were issued in partial consideration for public relations services to be provided between November 1, 1996 and April 30, 1997. The warrants become exercisable in May, 1997, and expire three years from issuance. There were no underwriters involved in the transaction. The warrants and the common stock underlying the warrants were exempt from registration under Section 4(2) of the Securities Act of 1933. The warrants contained, and the shares issuable upon exercise will contain, restrictive legends. Item 4. Submission of Matters to a Vote of Security Holders At the Company's annual meeting of stockholders held December 20, 1996, the following directors were elected: Name Votes For Votes Withheld George C.J. Bigar 5,063,168 48,486 Michael G. Bolton 5,065,793 45,861 Bruce E. Langton 5,063,418 48,236 H.S. Leahey 5,066,093 45,561 Frank R. McPike, Jr. 5,063,168 48,486 John M. Sabin 5,062,043 49,611 George M. Stadler 5,066,168 45,486 Harry Van Benschoten 5,063,468 48,186 In addition, no votes were withheld as to all nominees and there were no broker non-votes. Also at the Company's annual meeting of stockholders held December 20, 1996, stockholders approved the 1996 Directors' Stock Participation Plan with 4,243,428 votes for, 204,142 votes against and 37,914 votes abstained. There were no broker non-votes. Item 6. Exhibits and Reports on Form 8-K Page A) Exhibits 10.1* Employment Agreement between registrant and 23-25 Frank R. McPike, Jr. dated January 7, 1997. 11.1 Schedule of computation of earnings per share 26 for the three and six months ended January 31, 1997 and 1996. 27.1 Financial Data Schedule (EDGAR only). B) Reports on Form 8-K A report on Form 8-K dated November 8, 1996 was filed to report under Item 5 a change in the registrant's principal executive offices. * Management contract or compensatory plan. SIGNATURES Pursuant to the requirements 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. Date: March 14, 1997 By: S/ Frank R. McPike, Jr. Frank R. McPike, Jr. Vice President, Finance, Treasurer, Chief Financial Officer and Authorized Signer EX-11.1 2 Exhibit 11.1 COMPETITIVE TECHNOLOGIES, INC. Schedule of Computation of Earnings Per Share (Unaudited) Six months Quarter ended January 31, ended January 31, 1997 1996 1997 1996 Net income (loss) applicable to common stock $ (771,896) $ (305,433) $ (297,622) $ (131,225) Common and common equivalent shares - primary: Weighted average common shares outstanding 5,905,943 5,822,271 5,908,786 5,830,591 Adjustments for assumed exercise of stock options 65,081* 30,664* 64,279* 57,610* Adjustments for assumed exercise of stock warrants 11,293* 2,489* 11,232* 23,492* Weighted average number of common and common equivalent shares outstanding 5,982,317 5,855,424 5,984,297 5,911,693 Common and common equivalent shares - fully diluted: Weighted average common shares outstanding 5,905,943 5,822,271 5,908,786 5,830,591 Adjustments for assumed exercise of stock options 86,115* 73,016* 86,115* 73,016* Adjustments for assumed exercise of stock warrants 12,886* 7,397* 12,886* 35,385* Weighted average number of common and common equivalent shares outstanding 6,004,944 5,902,684 6,007,787 5,938,992 Net income (loss) per share of common stock: Primary and fully diluted $ (0.13) $ (0.05) $ (0.05) $ (0.02) * Anti-dilutive. These calculations are submitted in accordance with Regulation S-K item 601 (b) (11) which differs from the requirements of paragraph 40 of Accounting Principles Board Opinion No. 15 because they produce an anti-dilutive result. EX-27.1 3
5 Financial Data Schedule for Form 10-Q for January 31, 1997 0000102198 COMPETITIVE TECHNOLOGIES, INC. 6-MOS JUL-31-1997 JAN-31-1997 810,059 2,913,892 1,367,106 0 0 5,212,221 489,444 264,278 7,879,503 2,007,676 0 0 60,675 59,423 5,525,546 7,879,503 0 1,261,125 0 2,080,278 0 0 57,256 (759,096) 12,800 (771,896) 0 0 0 (771,896) (0.13) (0.13)
EX-10.1 4 EXHIBIT 10.1 EMPLOYMENT AGREEMENT AGREEMENT dated as of January 7, 1997 between Competitive Technologies, Inc. , a Delaware corporation (hereinafter referred to as "CTI"), and Frank R. McPike, Jr. of Ridgefield, Connecticut (Hereinafter referred to as "McPike"). WITNESSETH: 1. Employment and Term. CTI hereby employs McPike and McPike hereby agrees to continue employment by CTI, for a period commencing on January 7, 1997 and ending on January 6, 2000, unless sooner terminated or extended as hereinafter provided. 2. Extension of Term. Subject to the provisions of paragraph 9 hereof, the term of this Agreement shall be extended automatically for consecutive periods of twelve (12) calendar months, commencing after January 7, 2000, unless either party hereto shall give written notice to the other, not later than one hundred and twenty days prior to January 7, 2000, or January 7 of each calendar year thereafter, that either party elects to terminate this Agreement as of January 6 of the following year. 3. Duties. During the term hereof McPike shall serve in the executive position of Chief Financial Officer of CTI and shall serve on its Board of Directors. He shall perform during normal business hours such duties as may be assigned to him from time to time by the Chief Executive Officer. McPike shall report directly to the Chief Executive Officer. 4. Compensation. During the term hereof, CTI shall pay McPike compensation at the minimum rate of One Hundred Sixty-Seven Thousand Dollars ($167,000) per year, payable in twenty-six (26) equal payments per year during the term hereof. McPike's compensation shall be reviewed annually by the Board of Directors of CTI. 5. Expense Reimbursement and Fringe Benefits. CTI shall reimburse McPike for all expenses incurred by him on behalf of or attributable to the business of CTI. McPike shall be entitled to receive (without cost to him) all medical and hospitalization benefits, group life insurance coverage, term life insurance coverage and all other benefits which CTI (or any of its associated companies) currently provides or which may be hereafter instituted. 6. Restrictive Covenants. In the event that McPike terminates this Agreement, McPike covenants and agrees that, for a period of two (2) years following such termination, he will not engage, directly or indirectly, as an owner, employee, officer, agent, representative or otherwise, or become a principal stockholder, in any business operating in the United States of America which is competitive with, or substantially similar to, the principal business engaged in by CTI. 7. Right of CTI to Injunction. If McPike violates the provisions of paragraph 6 hereof, CTI shall be entitled to an injunction to be issued by a court of competent jurisdiction enjoining the breach of said provisions by McPike. 8. Safeguarding of Information. McPike agrees that (a) he will keep in strict confidence all proprietary information which he may acquire during his employment relating to the business or affairs of CTI or any of its associated companies; and (b) he will not, without prior written consent of CTI communicate, divulge, disclose, or use such confidential information except as may be required to perform his duties hereunder. 9. Termination. In the event of the death of McPike, this Agreement shall terminate on the last day of the calendar month in which such death shall occur, provided that all accrued rights of McPike at the time of his death (including salary, stock options and severance pay installments) shall be paid to his wife, Patricia McPike, if and so long as she shall survive him. If his wife shall not survive long enough to receive the benefits of all such rights, any balance remaining thereafter shall be paid to McPike's estate. CTI shall have the right to terminate this Agreement: (a) at any time for cause, which for purposes hereof shall mean any criminal act by McPike; or (b) if McPike is personally unable to perform his duties hereunder for a period of six (6) consecutive months due to physical or mental illness, disability or incapacity; provided, however, that if CTI shall have terminated this Agreement because of such illness, disability or incapacity and such illness, disability or incapacity shall have been cured prior to the termination of this Agreement then, in such event, this Agreement shall ipso facto be reinstated for the remainder of the term hereof with the same force and effect as if CTI had never exercised its right of termination except that McPike shall not be entitled to compensation hereunder for the period during which this Agreement shall have been in a state of termination, and the executive duties to be performed by McPike hereunder shall be those as specified by the Board of Directors of CTI. 10. Enforceability After Termination. The covenants and agreements set forth in paragraphs 6, 7, and 8 shall survive and be enforceable after the termination of this Agreement. 11. Complete Agreement. This Agreement constitutes the complete agreement between CTI and McPike, no verbal or other statements, inducement or representations have been made to or relied upon by McPike, and no modification hereto shall be binding on either party unless in writing and signed by both parties hereto. 12. Severability. If any term or provision of this Agreement shall to any extent be held invalid or unenforceable, the remaining terms and provisions of this Agreement shall not be affected thereby and shall be valid and enforceable to the fullest extent permitted by law. 13. Binding Upon Successor. This Agreement shall be binding upon and inure to the benefit of McPike and shall be binding upon and inure to the benefit of CTI and its successors and assigns. 14. Governing Law. This Agreement shall be governed by the laws of Connecticut as to both interpretation and performance. IN WITNESS WHEREOF, Competitive Technologies, Inc. has caused this Agreement to be duly executed by its authorized officers and its corporate seal to be hereunto affixed, and Mr. McPike has duly signed and sealed this Agreement, all as of the day any year first written above. COMPETITIVE TECHNOLOGIES, INC. By: S/ George M. Stadler George M. Stadler Chief Executive Officer Accepted and Agreed: This 7TH day of January, 1997 S/ Frank R. McPike, Jr. Frank R. McPike, Jr. -----END PRIVACY-ENHANCED MESSAGE-----