-----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, PczfdrWvbysfASKJU60WHKcc1xPydEuRHZQK+/dJchtvBtW/qeOE1atO2iXHtbn3 RVanzc4WEXu0Hb31dqBTrw== 0000102198-97-000007.txt : 19970613 0000102198-97-000007.hdr.sgml : 19970613 ACCESSION NUMBER: 0000102198-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970430 FILED AS OF DATE: 19970612 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: 97623179 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 April 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 April 30, 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 June 1, 1997 5,926,829 shares Exhibit Index on sequentially numbered page 20 of 22. Page 1 of 22 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 April 30, 1997 and July 31, 1996 3-4 Consolidated Statements of Operations for the three months ended April 30, 1997 and 1996 5 Consolidated Statements of Operations for the nine months ended April 30, 1997 and 1996 6 Consolidated Statement of Changes in Shareholders' Interest for the nine months ended April 30, 1997 7 Consolidated Statements of Cash Flows for the nine months ended April 30, 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 6. Exhibits and Reports on Form 8-K 20 Signatures 21 PART I. FINANCIAL INFORMATION COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets April 30, 1997 and July 31, 1996 (Unaudited) April 30, July 31, 1997 1996 ASSETS Current assets: Cash and cash equivalents $ 2,176,445 $ 560,640 Short-term investments, at market 2,174,166 3,820,990 Receivables, including $15,769 and $19,910 receivable from related parties in April and July, respectively 496,339 1,088,030 Prepaid expenses and other current assets 72,611 218,903 Total current assets 4,919,561 5,688,563 Property and equipment, net 217,430 144,360 Investments 379,492 321,145 Intangible assets acquired, principally licenses and patented technologies, net of accumulated amortization of $175,794 and $71,790 in April and July, respectively 1,658,112 1,794,795 Directors' escrow account 325,000 325,000 Other assets 33,671 94,277 TOTAL ASSETS $ 7,533,266 $ 8,368,140 See accompanying notes PART I. FINANCIAL INFORMATION COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets April 30, 1997 and July 31, 1996 (Unaudited) April 30, July 31, 1997 1996 LIABILITIES AND SHAREHOLDERS' INTEREST Current liabilities: Accounts payable, including $1,998 and $9,365 payable to related parties in April and July, respectively $ 77,146 $ 83,571 Accrued liabilities, including $45,493 payable to related parties in April 1997 1,362,712 794,250 Current portion of purchase obligation 550,000 550,000 Total current liabilities 1,989,858 1,427,821 Noncurrent portion of purchase obligation, net of unamortized discount of $58,336 and $132,633 in April and July, respectively 243,224 652,367 Commitments and contingencies Shareholders' interest: 5% preferred stock, $25 par value 60,675 60,675 Common stock, $.01 par value 59,508 59,258 Capital in excess of par value 25,178,144 24,993,926 25,000 shares of treasury stock, at cost (174,713) (174,713) Net unrealized holding gains on available-for-sale securities 8,728 10,605 Accumulated deficit (19,832,158) (18,661,799) Total shareholders' interest 5,300,184 6,287,952 TOTAL LIABILITIES AND SHAREHOLDERS' INTEREST $ 7,533,266 $ 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 April 30, 1997 and 1996 (Unaudited) 1997 1996 Revenues: Retained royalties $ 359,802 $ 495,358 Revenues under service contracts and grants, including $26,437, and $38,728 from related parties in 1997 and 1996, respectively 209,049 235,485 568,851 730,843 Costs of technology management services of which $30,850 was paid to related parties in 1997 759,235 625,942 General and administration expenses, of which $3,619 and $21,158 were paid to related parties in 1997 and 1996, respectively 247,137 283,022 1,006,372 908,964 Operating loss (437,521) (178,121) Interest income 30,506 53,535 Interest expense (17,041) (28,642) Income (losses) related to equity method affiliates 9,047 (3,414) Other income (expense), net 3,346 (51,913) Loss before income taxes and minority interest (411,663) (208,555) Provision for income taxes 21,800 7,500 Loss before minority interest (433,463) (216,055) Minority interest in losses of subsidiary 35,000 -- Net loss $ (398,463) $ (216,055) Net loss per share (primary and fully diluted): $ (0.07) $ (0.04) Weighted average number of common and common equivalent shares outstanding (primary and fully diluted) 5,921,172 5,882,638 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations for the nine months ended April 30, 1997 and 1996 (Unaudited) 1997 1996 Revenues: Retained royalties $ 1,218,101 $ 986,796 Revenues under service contracts and grants, including $114,391, and $109,699 from related parties in 1997 and 1996, respectively 611,875 452,534 1,829,976 1,439,330 Costs of technology management services, of which $36,612 and $3,068 were paid to related parties in 1997 and 1996, respectively 2,035,054 1,301,553 General and administration expenses, of which $38,879 and $68,071 were paid to related parties in 1997 and 1996, respectively 1,051,596 871,277 3,086,650 2,172,830 Operating loss (1,256,674) (733,500) Interest income 109,696 160,112 Interest expense (74,297) (28,751) Income related to equity method affiliates 43,366 38,677 Gain on sale of investment in Plasmaco, Inc. -- 96,907 Other income (expense), net 7,150 (32,433) Loss before income taxes and minority interest (1,170,759) (498,988) Provision for income taxes 34,600 22,500 Loss before minority interest (1,205,359) (521,488) Minority interest in losses of subsidiary 35,000 -- Net loss $(1,170,359) $ (521,488) Net loss per share (primary and fully diluted): $ (0.20) $ (0.09) Weighted average number of common and common equivalent shares outstanding (primary and fully diluted) 5,910,907 5,842,467 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statement of Changes in Shareholders' Interest For the nine months ended April 30, 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 . . . . 13,000 130 86,088 Exercise of common stock warrants. . . . 6,000 60 38,190 Stock issued under Directors' Stock Participation Plan. . 6,000 60 59,940 Net change in unrealized holding gains on available- for-sale securities . (1,877) Net loss. . . . . . . . (1,170,359) Balance - April 30, 1997 2,427 $60,675 5,950,829 $59,508 $25,178,144 (25,000) $(174,713) $ 8,728 $(19,832,158)
See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows for the nine months ended April 30, 1997 and 1996 (Unaudited) 1997 1996 Cash flow from operating activities: Net loss $(1,170,359) $ (521,488) Noncash items included in net loss: Depreciation and amortization 285,972 187,877 Minority interest (35,000) -- Income related to equity method affiliates (43,366) (38,677) Directors' stock and stock retirement plan accruals 134,650 83,380 Amortization of discount on purchase obligation 74,297 28,629 Other noncash items (42,200) (16,015) Other 19 (44,798) Net changes in various operating accounts: Receivables 591,691 (112,722) Prepaid expenses and other current assets 79,041 (56,340) Accounts payable and accrued liabilities 392,163 260,660 Deferred revenues 79,369 16,055 Net cash flow from (used in) operating activities 346,277 (213,439) Cash flow from investing activities: Purchases of property and equipment, net (127,181) (35,358) Proceeds from sales of short-term investments 4,715,784 1,887,989 Purchases of short-term investments (3,012,782) (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 1,593,500 683,885 Cash flow from financing activities: Proceeds from issuance of common stock, net 124,468 414,556 Proceeds from minority's investment in subsidiary's common stock 35,000 -- Repayment of debt (483,440) -- Net cash flow from financing activities (323,972) 414,556 Net increase in cash and cash equivalents 1,615,805 885,002 Cash and cash equivalents, beginning of period 560,640 336,098 Cash and cash equivalents, end of period $ 2,176,445 $ 1,221,100 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows for the nine months ended April 30, 1997 and 1996 (Unaudited) 1997 1996 Supplemental cash flow information: Cash paid for income taxes $ 58,665 $ 68,767 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 nine months ended April 30, 1996 Total revenues $ 1,860 Operating loss (574) Net loss (416) Net loss per share $ (0.07) 3. Short-term Investments As of April 30, 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 $ 1,490 $ 9 -- $ 1,481 1 year Other U.S. government Within debt 1 year securities 684 -- -- 684 Total $ 2,174 $ 9 -- $ 2,165 For the quarters ended April 30, 1997 and 1996, respectively, proceeds from the sale of available-for-sale securities were $2,237,675 and $476,197 which resulted in gross realized gains of $18,410 and $1,163. For the nine months ended April 30, 1997 and 1996, respectively, proceeds from the sale of available-for-sale securities were $4,715,784 and $1,887,989 which resulted in gross realized gains of $58,055 and $32,258. Cost is based on specific identification in computing realized gains. 4. Receivables Receivables comprise: April 30, July 31, 1997 1996 Royalties $ 311,629 $ 879,380 Government contracts 26,599 74,978 Other 158,111 133,672 $ 496,339 $1,088,030 5. Accrued Liabilities Accrued liabilities were: April 30, July 31, 1997 1996 Accrued compensation $ 224,488 $ 125,256 Royalties payable 848,736 417,656 Deferred revenues 95,956 16,587 Other accrued liabilities 193,532 234,751 $1,362,712 $ 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 April 30, 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 $2,176,445 at April 30, 1997 are $1,615,805 higher than cash and cash equivalents of $560,640 at July 31, 1996. Operating activities provided $346,277, investing activities provided $1,593,500 and financing activities used $323,972. Competitive Technologies, Inc. ("CTI") and its majority-owned subsidiaries' ("the Company") net loss of $1,170,359 for the nine months ended April 30, 1997 included the following noncash items: depreciation and amortization of approximately $286,000, income related to equity method affiliates of approximately $43,000, amortization of discount on purchase obligation of approximately $74,000 and accruals of approximately $151,000. 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 $568,000 of cash provided by operations was from the decrease in royalties receivable and $431,000 was provided by the increase in royalties payable. This reflects the normal cycle of royalty collections and payments after the consolidation of University Science, Engineering and Technology, Inc. ("USET"). Higher deferred revenues also provided approximately $79,000 in cash from operations. Approximately $127,000 of property and equipment purchased in the nine-month period ended April 30, 1997 relate to equipment additions and technical upgrades for added staff and increased client service capabilities ($28,000) and improving ($30,000) and furnishing ($69,000) CTI's principal office. CTI relocated its principal office on November 8, 1996 and expects additional expenditures to complete those improvements during the next three months. Proceeds from sales of short-term investments of approximately $4,716,000 are from maturities of the Company's U.S. government debt securities. The Company reinvested more than $3,000,000 in U.S. government debt securities. In the nine-month period ended April 30, 1997, the Company received $86,218 from stock options exercised to purchase 13,000 shares of common stock at prices from $6.5625 to $6.75 and $38,250 from warrants exercised to purchase 6,000 shares of common stock at $6.375. 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. In March, 1997, a third party invested $35,000 cash in exchange for approximately 5% equity in Vector Vision, Inc. ("VVI"). These funds have been or are expected to be used in partial support of VVI's development activities through the remainder of fiscal 1997. 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 April 30, 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. VVI, CTI's 50.1%-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 and third quarters 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 more than $4,350,000 in cash, cash equivalents and short- term investments at April 30, 1997, the Company anticipates that currently available funds will be sufficient to finance cash needs over the next two to three 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 - Nine Months Ended April 30, 1997 vs. Nine Months Ended April 30, 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 nine months ended April 30, 1997, were $390,646 (27%) higher than for the nine months ended April 30, 1996. Retained royalties were $231,305 (23%) higher than in the nine months of fiscal 1996. However, excluding USET's effect, retained royalties were $17,425 (3%) lower. Up-front license fees for a plasma display energy recovery technology of approximately $97,000 for the nine months ended April 30, 1996 were non-recurring and this decrease was partially offset by a new license fee and increased royalties on several technologies for the nine months ended April 30, 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 nine months ended April 30, 1997 by $248,730 (25%) as compared with the nine months ended April 30, 1996. Revenues under service contracts and grants were $611,875 in the nine months of fiscal 1997, $159,341 (35%) higher than in the nine months of fiscal 1996. Revenues from intercorporate service contracts, including CTI's first revenue from transferring rights to a corporate client's technology, were $357,800 in fiscal 1997, approximately $221,000 higher than in fiscal 1996. Expansion of the Company's focus to include providing technology management services to corporations is beginning to generate revenues. Revenues from service contracts for various government clients of $203,000 in fiscal 1997 were $82,000 lower than in fiscal 1996. 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 nine months ended April 30, 1997 were lower than in the nine months ended April 30, 1996. There were no grant revenues in the nine months of fiscal 1997 compared with approximately $7,784 in support of VVI's development activities in the nine months of fiscal 1996. Costs of technology management services were approximately $734,000 (56%) higher in the first nine months of fiscal 1997 than in the first nine months of fiscal 1996 as more fully discussed below. The Company expects costs of technology management services to continue to increase as it expands its technology management services to corporations and universities. Costs related to retained royalties were $164,000 higher in 1997 than in 1996. This increase includes $104,000 in amortization of the cost of intangible assets acquired in connection with the purchase of USET. It also reflects increased costs for personnel and consultants retained to assist in evaluating and marketing corporate technologies, domestic patent costs on a new university technology and lower recoveries of foreign patent costs against university royalties. 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. Costs related to service contracts and grants (including direct charges for subcontractors' services and personnel costs associated with service contracts) increased $264,000 compared with the first nine months of fiscal 1996. This increase includes costs in connection with VVI's SBIR contract and efforts to develop its video compression technology ($108,000), and increased personnel (including benefits and overheads) and direct costs associated with corporate and collaborative service contracts. Costs associated with new client development (principally personnel costs, including benefits and overheads) increased approximately $305,000 over the first nine 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 $180,000 (21%) higher in the nine months ended April 30, 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 is expected to increase other operating expenses in the remaining quarter of fiscal 1997. The net effect of these increases in operating revenues and expenses was to increase the Company's operating loss by $523,174 (71%) compared with the first nine months of fiscal 1997. Interest income decreased $50,416 (31%) because of lower average invested balances and lower interest rates in the nine months ended April 30, 1997. Interest expense of $74,297 in fiscal 1997 relates to the debt incurred in connection with the acquisition of USET. In the nine months ended April 30, 1997, net income related to equity method affiliates was principally CTI's equity in the net income of Equine Biodiagnostics, Inc. ("EBI") ($51,000) partially offset by CTI's equity in net losses of other ventures. At April 30, 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 nine months ended April 30, 1996, net income related to equity method affiliates included the Company's 20% equity in the net income of USET ($30,000), its equity in the net loss of KSI ($44,000) and its equity in the net income of EBI ($53,000). 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 income for the nine months ended April 30, 1997, includes approximately $58,000 gain from short-term investments. Other expenses for the nine months ended April 30, 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 quarter of 1997. Unilens made no payments in either year's nine-month period. Since CTI carries this receivable at zero value, any collections will be recorded in the period collected. Through April 30, 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 April 30, 1997 vs. Three Months Ended April 30, 1996 Consolidated revenues for the quarter ended April 30, 1997, were $161,992 (22%) lower than for the quarter ended April 30, 1996. Retained royalties were $135,556 (27%) lower partially due to a nonrecurring effect from consolidating USET for the first time in the 1996 quarter. This effect was partially offset by the net increase in royalty revenues from the USET portfolio including a license fee on a technology under development. Revenues under service contracts were $26,436 (11%) lower, reflecting lower revenues from collaborative service contracts (primarily CTI's contract with the Department of the Air Force) partly offset by increased revenues from corporate client service contracts. There were no grant revenues in either year's third quarter. Costs of technology management services were $133,293 (21%) higher in the third quarter of fiscal 1997 than in the third quarter of fiscal 1996. Costs related to retained royalties were $51,000 lower in 1997. Costs related to service contracts were approximately $97,000 higher than in the fiscal 1996 third quarter. Most of this increase relates to VVI's efforts to develop its video compression technology. Costs associated with new client development increased approximately $87,000 compared with the third quarter of fiscal 1996. There were no costs related to grant revenues in either third quarter. General and administration expenses were $35,885 (13%) lower in the quarter ended April 30, 1997. This reflects increased focus on technology management services and new client development. The net effect of the increases in operating revenues and expenses was to increase the Company's operating loss by $259,400 (146%) compared to the third quarter of fiscal 1996. Interest income decreased $23,029 (43%) because of lower average invested balances and lower interest rates in the quarter ended April 30, 1997. Interest expense of $17,041 in the fiscal 1997 quarter relates to the debt incurred in connection with the acquisition of USET. In the fiscal 1997 third 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 April 30, 1996, net income related to equity method affiliates included CTI's equity in the net income of EBI ($18,000) and in the net loss of KSI. Other income in the third quarter of fiscal 1997 included an $18,000 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 expense in the third quarter of fiscal 1996 was primarily legal expenses in connection with the litigation mentioned in the preceding sentence. Results of Operations - Three Months Ended April 30, 1997 (Third Quarter) vs. Three Months Ended January 31, 1997 (Second Quarter) Consolidated revenues for the quarter ended April 30, 1997 were $189,873 (25%) lower than for the quarter ended January 31, 1997. Historically, retained royalties in the third fiscal quarter are lower than in the second quarter because of licensees who report semiannually. Retained royalties were $257,296 (42%) lower than in the second quarter. Revenues under service contracts were $67,423 (48%) higher than in the second quarter. This increase resulted principally from higher revenues for services to corporate clients and for transferring rights to a corporate client's technology. Total operating expenses of $1,006,372 in the third quarter were approximately $75,826 (7%) lower than in the second quarter. Higher personnel costs and various costs related to the Company's annual meeting of shareholders contributed to the higher level of expenses of the second quarter. In the third quarter costs of technology management services were approximately $138,000 (22%) higher and general and administration expenses were approximately $214,000 (46%) lower than in the second quarter. Costs related to service contracts, costs related to retained royalties and costs associated with new client development were all higher in the third quarter. PART II - OTHER INFORMATION Item 2. Changes In Securities (c) On April 4, 1997, Desmond Towey & Associates exercised warrants to purchase 6,000 shares of the registrant's common stock at $6.375 per share ($38,250 total) in cash. 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 and the shares bear restrictive legends. Item 6. Exhibits and Reports on Form 8-K Page A) Exhibits 11.1 Schedule of computation of earnings per share for the three and nine months ended April 30, 1997 and 1996. 22 27.1 Financial Data Schedule (EDGAR only). B) Reports on Form 8-K No reports on Form 8-K were filed during this quarter. 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: June 12, 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)
Nine months Quarter ended April 30 ended April 30 1997 1996 1997 1996 Net income (loss) applicable to common stock $(1,170,359) $ (521,488) $ (398,463) $ (216,055) Common and common equivalent shares - primary: Weighted average common shares outstanding 5,910,907 5,842,467 5,921,172 5,882,638 Adjustments for assumed exercise of stock options 60,552* 43,979* 54,201* 70,694* Adjustments for assumed exercise of stock warrants 6,599* 12,521* 6,146* 34,003* Weighted average number of common and common equivalent shares outstanding 5,978,058 5,898,967 5,981,519 5,987,335 Common and common equivalent shares - fully diluted: Weighted average common shares outstanding 5,910,907 5,842,467 5,921,172 5,882,638 Adjustments for assumed exercise of stock options 60,552* 73,501* 54,201* 79,567* Adjustments for assumed exercise of stock warrants 6,599* 38,597* 6,146* 38,597* Weighted average number of common and common equivalent shares outstanding 5,978,058 5,954,565 5,981,519 6,000,802 Net income (loss) per share of common stock: Primary and fully diluted $ (0.20) $ (0.09) $ (0.07) $ (0.04)
* 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 April 30, 1997 0000102198 COMPETITIVE TECHONOLGIES, INC. 9-MOS JUL-31-1997 APR-30-1997 2,176,445 2,174,166 496,339 0 0 4,919,561 483,627 266,197 7,533,266 1,989,858 0 0 60,675 59,508 5,180,001 7,533,266 0 1,829,976 0 3,086,650 0 0 74,297 (1,170,759) 34,600 (1,170,359) 0 0 0 (1,170,359) (0.20) (0.20)
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