-----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, Ose0R23HAVfWg4I6kNyxN6cV0EBvzlooqWg91QKgvjG4WVnP8vdgO2JERjKoBTfs //52oOG4hiSGakUEXwB5TA== 0000102198-98-000008.txt : 19980616 0000102198-98-000008.hdr.sgml : 19980616 ACCESSION NUMBER: 0000102198-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980615 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: SEC FILE NUMBER: 001-08696 FILM NUMBER: 98647888 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 1998 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, 1998 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 N/A 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, 1998 5,981,409 shares Exhibit Index on sequentially numbered page 21 of 23. Page 1 of 23 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, 1998 and July 31, 1997 3 Consolidated Statements of Operations for the three months ended April 30, 1998 and 1997 4 Consolidated Statements of Operations for the nine months ended April 30, 1998 and 1997 5 Consolidated Statement of Changes in Shareholders' Interest for the nine months ended April 30, 1998 6 Consolidated Statements of Cash Flows for the nine months ended April 30, 1998 and 1997 7 Notes to Consolidated Financial Statements 8-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-19 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 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 April 30, 1998 and July 31, 1997 (Unaudited) April 30 July 31, 1998 1997 ASSETS Current assets: Cash and cash equivalents $ 268,046 $ 930,592 Short-term investments, at market 3,249,647 2,534,413 Receivables, including $37,404 and $19,241 receivable from related parties in April and July, respectively 748,520 1,404,035 Prepaid expenses and other current assets 79,966 115,537 Total current assets 4,346,179 4,984,577 Property and equipment, net 196,686 228,297 Investments 413,982 394,451 Intangible assets acquired, principally licenses and patented technologies, net 1,478,682 1,582,686 Other assets 13,073 13,469 TOTAL ASSETS $ 6,448,602 $ 7,203,480 LIABILITIES AND SHAREHOLDERS' INTEREST Current liabilities: Accounts payable, including $1,066 and $4,258 payable to related parties in April and July, respectively $ 70,617 $ 87,644 Accrued liabilities 1,660,515 1,290,825 Current portion of purchase obligation 295,583 550,000 Total current liabilities 2,026,715 1,928,469 Noncurrent portion of purchase obligation, net of unamortized discount of $41,295 -- 260,265 Commitments and contingencies Shareholders' interest: 5% preferred stock, $25 par value 60,675 60,675 Common stock, $.01 par value 60,032 59,518 Capital in excess of par value 25,600,566 25,218,106 Treasury stock (common), at cost: 21,784 and 15,346 shares in April and July, respectively (171,544) (98,511) Net unrealized holding gains (losses) on available-for-sale securities (5,729) 7,802 Accumulated deficit (21,122,113) (20,232,844) Total shareholders' interest 4,421,887 5,014,746 TOTAL LIABILITIES AND SHAREHOLDERS' INTEREST $ 6,448,602 $ 7,203,480 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations for the three months ended April 30, 1998 and 1997 (Unaudited) 1998 1997 Revenues: Retained royalties $ 416,771 $ 459,802 Revenues under service contracts and grants, including $10,174, and $26,437 from related parties in 1998 and 1997, respectively 42,796 109,049 459,567 568,851 Costs of technology management services 604,724 759,235 General and administration expenses, of which $1,411 and $3,619 were paid to related parties in 1998 and 1997, respectively 273,179 268,937 877,903 1,028,172 Operating loss (418,336) (459,321) Interest income 39,704 30,506 Interest expense (1,803) (17,041) Income (losses) related to equity method affiliates (7,318) 9,047 Other income (expense), net (237) 3,346 Loss from continuing operations before minority interest (387,990) (433,463) Minority interest in losses of subsidiaries -- 35,000 Net loss $ (387,990) $ (398,463) Net loss per share: Basic and diluted $ (0.06) $ (0.07) Weighted average number of common shares outstanding: Basic and diluted 5,977,433 5,921,172 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations for the nine months ended April 30, 1998 and 1997 (Unaudited) 1998 1997 Revenues: Retained royalties $ 1,686,678 $ 1,318,101 Revenues under service contracts and grants, including $90,307, and $114,391 from related parties in 1998 and 1997, respectively 160,428 511,875 1,847,106 1,829,976 Costs of technology management services, of which $36,612 was paid to related parties in 1997 1,559,044 2,035,054 General and administration expenses, of which $5,192 and $38,879 were paid to related parties in 1998 and 1997, respectively 1,266,419 1,086,196 2,825,463 3,121,250 Operating loss (978,357) (1,291,274) Interest income 127,394 109,696 Interest expense (35,885) (74,297) Income related to equity method affiliates 4,549 43,366 Other income (expense), net (8,570) 7,150 Loss from continuing operations before minority interest (890,869) (1,205,359) Minority interest in losses of subsidiaries 1,600 35,000 Net loss $ (889,269) $(1,170,359) Net loss per share: Basic and diluted $ (0.15) $ (0.20) Weighted average number of common shares outstanding: Basic and diluted 5,965,357 5,910,907 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, 1998 (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, 1997 2,427 $60,675 5,951,829 $59,518 $25,218,106 (15,346) $ (98,511) $ 7,802 $(20,232,844) Stock issued under Directors' Stock Participation Plan . . 12,006 120 101,130 Exercise of common stock options . . . . 33,358 333 243,684 (6,438) (73,033) Exercise of warrants . . 6,000 61 28,265 Grants of warrants to consultants. . . . . . 9,381 Net change in unrealized holding gains (losses) on available-for-sale securities . . . . . . (13,531) Net loss . . . . . . . . (889,269) Balance - April 30, 1998 2,427 $60,675 6,003,193 $60,032 $25,600,566 (21,784) $(171,544) $ (5,729) $(21,122,113)
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, 1998 and 1997 (Unaudited) 1998 1997 Cash flow from operating activities: Loss from continuing operations $ (889,269) $(1,170,359) Noncash items included in loss from continuing operations: Depreciation and amortization 174,851 285,972 Equity method affiliates (4,549) (43,366) Minority interest (1,600) (35,000) Directors' stock and stock retirement plan accruals 139,927 134,650 Amortization of discount on purchase obligation 35,885 74,297 Other noncash items 33,065 (42,200) Other (13,054) 19 Net changes in various operating accounts: Receivables 655,515 591,691 Prepaid expenses and other current assets 35,571 79,041 Accounts payable and accrued liabilities 273,420 471,532 Net cash flow from operating activities 439,762 346,277 Cash flow from investing activities: Purchases of property and equipment, net (25,768) (127,181) Purchases of other short-term investments (3,876,091) (3,012,782) Proceeds from sales of short-term investments 3,165,808 4,715,784 Investments in affiliates and subsidiaries (15,000) 17,679 Net cash flow (used in) from investing activities (751,051) 1,593,500 Cash flow from financing activities: Proceeds from issuance of common stock, net 199,310 124,468 Proceeds from minority's investment in subsidiary's common stock -- 35,000 Repayment of purchase obligation (550,567) (483,440) Net cash flow used in financing activities (351,257) (323,972) Net (decrease) increase in cash and cash equivalents (662,546) 1,615,805 Cash and cash equivalents, beginning of period 930,592 560,640 Cash and cash equivalents, end of period $ 268,046 $ 2,176,445 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 were derived from audited financial statements but do 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 1998. 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, 1997. 2. Net Income (Loss) Per Share The Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share," effective for its fiscal quarter ended January 31, 1998. Statement No. 128 replaced primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings per share is computed based on the weighted-average number of common shares outstanding without giving any effect to potentially dilutive securities. Diluted earnings per share is computed giving effect to all potentially dilutive securities that were outstanding during the period. All earnings per share amounts for all periods presented have been conformed to the Statement No. 128 requirements. At April 30, 1998 and 1997, respectively, options and warrants to purchase 536,542 and 495,400 shares of common stock were outstanding but were not included in the computation of earnings per share because they were anti-dilutive. 3. Available-for-sale Securities As of April 30, 1998 the components of the Company's available- for-sale securities are as follows: Gross Gross Unrealized Unrealized Aggregate Holding Holding Security Type Fair Value Gains Losses Cost Basis Equity Securities $49,477 $ -- $5,729 $55,206 For the quarter ended April 30, 1998, there were no sales of available-for-sale securities. For the quarter ended April 30, 1997, proceeds from the sale of available-for-sale securities were $2,237,675 which resulted in gross realized gains of $18,410. For the nine months ended April 30, 1998 and 1997, respectively, proceeds from the sale of available-for-sale securities were $1,500,000 and $4,715,784 which resulted in realized gains of $18,482 and $58,055. Cost is based on specific identification in computing realized gains. 4. Receivables Receivables comprise: April 30, July 31, 1998 1997 Royalties $ 696,541 $1,288,363 Other 51,979 115,672 $ 748,520 $1,404,035 5. Accrued Liabilities Accrued liabilities were: April 30, July 31, 1998 1997 Accrued compensation $ 210,213 $ 159,519 Royalties payable 1,088,193 837,718 Other accrued liabilities 362,109 293,588 $1,660,515 $1,290,825 6. Contingencies On July 7, 1997, in a case previously filed in the United States District Court for the District of Colorado by University of Colorado Foundation, Inc., The University of Colorado, The Board of Regents of the University of Colorado, Robert H. Allen and Paul A. Seligman, plaintiffs, against American Cyanamid Company, defendant, judgment was entered in favor of plaintiffs and against defendant in the amount of approximately $44.4 million. The case involved an idea by professors at the University of Colorado that improved Materna, a prenatal vitamin compound sold by defendant. The District Court concluded that defendant fraudulently obtained a patent on the improvement without disclosing the patent application to plaintiffs and without naming the professors as the inventors and that the defendant was unjustly enriched. While the Company was not and is not a party to this case, the Company had a contract with the University of Colorado to license University of Colorado inventions to third parties, and the Company is entitled to a share of the judgment. If the judgment is affirmed in full upon appeal, the Company's share will be approximately $5.5 million. The Company is advised that the case is currently under appeal in the Federal Circuit Court of Appeals. There can be no assurance that plaintiffs will prevail on appeal, nor can the Company predict the amount of the judgment, if any, that may ultimately be entered following the appeal. No potential judgment proceeds have been reflected in the Company's financial statements to date. In November 1991, a suit was filed in Connecticut against CTT, its wholly-owned subsidiary, Genetic Technology Management, Inc. ("GTM"), its majority-owned subsidiary, University Optical Products Co. ("UOP"), and several 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, 1998, 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 1998. PART I. FINANCIAL INFORMATION (Continued) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition and Liquidity Cash and cash equivalents of $268,046 at April 30, 1998 are $662,546 lower than cash and cash equivalents of $930,592 at July 31, 1997. Operating activities provided $439,762, investing activities used $751,051 and financing activities used $351,257. In October, 1997, Competitive Technologies, Inc.'s ("CTT") management decided to reduce operating expenses by closing its office in Cleveland, Ohio, and dissolving Competitive Technologies of Ohio, Inc., its wholly-owned subsidiary. Operating functions previously performed in Cleveland are being performed in other Company offices and certain sales and marketing services have been contracted out. CTT recorded general and administration expenses of approximately $75,000 in connection with this action. In addition, CTT has contracted with an entity controlled by certain former Cleveland-based employees for certain sales and marketing services during the six months from February 1, 1998, through July 31, 1998, for approximately $140,000 plus a commission on such sales or licenses of certain technologies as may be procured solely through the efforts of the contractor. CTT and its majority-owned subsidiaries' ("the Company") net loss of $889,269 for the nine months ended April 30, 1998 included the following noncash items: depreciation and amortization of approximately $175,000, income related to equity method affiliates of approximately $5,000, amortization of discount on purchase obligation of approximately $36,000 and accruals of approximately $190,000. 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. The most substantial changes in operating accounts were the $591,822 decrease in royalties receivable and the $250,475 increase in royalties payable. This reflects the normal cycle of royalty collections and payments since the consolidation of University Science, Engineering and Technology, Inc. ("USET"). Approximately $26,000 of equipment and furnishings were purchased in this nine-month period to improve client service capabilities. Proceeds from sales of short-term investments of approximately $3,166,000 were from the Company's sale of U.S. government debt securities and other short-term investments. Approximately $3,876,000 was invested in other short-term investments. CTT received $199,310 during the nine months ended April 30, 1998, from stock options and warrants exercised to purchase shares of common stock. On January 31, 1998, the Company paid approximately $551,000 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 expects to pay the remaining $301,000 of the USET purchase obligation (including interest) on January 31, 1999. 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 CTT. The Company has agreed to pay certain persons specified percentages of Renova royalties received until certain total payments have been made. At April 30, 1998, the remaining amount of such contingent obligations was $92,617. At April 30, 1998, the Company had no outstanding commitments for capital expenditures other than the obligations incurred in connection with the purchase of USET. 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 fiscal 1998 or fiscal 1997 or that it will have a significant impact on operations during the next twelve-month operating period. Vector Vision, Inc. ("VVI"), CTT's 52.3% owned subsidiary, continues to seek additional financing to support its continuing development. Without additional outside financing, VVI's development activities will continue to proceed at a minimum level. The Company, the inventor and others supported VVI's development activities during the first nine months of fiscal 1998 during which time VVI improved its video compression software product for inclusion in MPEG-4, an international standard expected to be adopted for consumer applications such as video teleconferencing, video databases and wireless video access. In connection with the case which involved an idea by professors at the University of Colorado that improved a prenatal vitamin compound sold by American Cyanamid Company, the Company is entitled to a share of the judgment. If the judgment is affirmed in full upon appeal, which is currently pending, the Company's share is expected to be approximately $5,500,000. There can be no assurance that the plaintiffs will prevail on appeal, nor can the Company predict the amount of the judgment, if any, that may ultimately be entered following the appeal. No potential judgment proceeds have been reflected in the Company's financial statements to date. (See Item 3. Legal Proceedings in the Company's Annual Report on Form 10-K for the year ended July 31, 1997.) With nearly $3,518,000 in cash, cash equivalents and short- term investments at April 30, 1998, 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. This anticipation is based upon the Company's current expectations. However, expansion of the Company's services (with resulting increases in operating expenses) is subject to many factors which are outside the Company's control and to presently 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 - Three Months Ended April 30, 1998 vs. Three Months Ended April 30, 1997 Consolidated revenues for the quarter ended April 30, 1998, were $109,284 (19%) lower than for the quarter ended April 30, 1997. Retained royalties were $43,031 (9%) lower. Revenues from new licenses and sublicenses include license fees, amounts for past infringements and earned royalties. Although retained royalties from licensees covering performance of homocysteine assays were higher in the current quarter than in last year's quarter, they have not yet become material. The current quarter's royalties reported by these new licensees were lower than the Company had expected. The Company had expected the price of a homocysteine test would be in a range from $75 to $125 per test. However, licensees have reported lower discounted prices for the test. The weighted average price for homocysteine tests reported to the Company during the third fiscal quarter was $53 per test. The quantities of tests reported by these new licensees approximated expected quantities. The Company continues in its effort to license these patents to other laboratories and hospitals that are now or will in the future perform homocysteine assays. The Company expects its retained royalties from these licenses to continue to increase in future quarters. In addition, during the current quarter an exclusive licensee reported royalties of approximately $96,000 from a new sublicensee for two years of past infringing sales. During the 1997 quarter, the Company earned a $100,000 fee for the sale of rights to a corporate client's technology, but there was no comparable transaction during the 1998 quarter. In addition, retained royalty revenues for the current quarter were reduced by $111,000 because of another licensee's recalculation of royalties for the period from July, 1995 through December, 1997. This substantially offset other royalty increases. The Company is reviewing this recalculation thoroughly. The Company continues to monitor all licensees' royalty reports. Certain of the Company's Vitamin B12 assay patents and licenses, which contributed approximately $150,000 of total retained royalties in fiscal 1997, expired in April, 1998, as more fully detailed in Note 6 to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended July 31, 1997. However, since these licensees report semi-annually, the effect of these expirations will not be reflected in retained royalties until the fourth quarter of fiscal 1998. Revenues under service contracts were $66,253 (61%) lower than in the quarter ended April 30, 1997. During the quarter ended April 30, 1998, the Company earned service contract revenues from several corporate, state government and university clients. The Company does not expect to earn significant revenues in the foreseeable future from service contracts. While the Company continues to provide its technology management services to corporations and universities, its primary compensation under a growing portion of these agreements is a share of revenues, if any, from the Company's transfer of its clients' technologies. During the previous year's quarter, the Company earned revenues under nonrecurring domestic corporate, government and university service contracts. Total operating expenses for the 1998 third quarter were $150,269 (15%) lower than for the 1997 third quarter. The Company closed its office in Cleveland, effective January 31, 1998. This reduced total personnel costs and related operating expenses. These reductions were greater than related increases in consultants' fees and expenses. In the 1998 third quarter higher shareholders' expenses were incurred in connection with the annual meeting of shareholders on March 31, 1998. These expenses included proxy printing, solicitation and other expenses. An approximately equivalent expense was also incurred in the 1998 second quarter for printing materials which were not mailed because certain shareholders filed a Schedule 13D. In addition, VVI's research and development expenses were $47,005 lower and amortization expenses were $44,199 lower. Company personnel spent more total time and a higher proportion of total available time on technology management services in the current quarter. Lower total operating expenses and the higher proportion of time combined to reduce costs of technology management services by $154,511 (20%) as more fully discussed below. Costs related to retained royalties were approximately $107,000 (55%) higher in the third quarter of fiscal 1998. This reflects increased costs for subcontractors retained for certain sales and marketing services related to certain corporate technologies and higher personnel costs (including benefits and overheads) associated with patenting and licensing services, higher domestic patent costs and higher patent litigation expenses. These higher costs were partially offset by higher recoveries of foreign patent costs against university royalties. Costs related to service contracts (including direct charges for subcontractors' services and personnel costs associated with service contracts) were approximately $276,000 (82%) lower in the third quarter of fiscal 1998 than in the third quarter of fiscal 1997. This decrease results from fewer service contracts and related reductions in both direct costs and personnel costs (including benefits and overheads) associated with service contracts. Costs associated with new client development (principally personnel costs, including benefits and overheads) were approximately $14,000 (6%) higher than for the third quarter of fiscal 1997. General and administration expenses were approximately $4,000 (2%) higher in the quarter ended April 30, 1998, than in the quarter ended April 30, 1997. The net effect of the $109,284 (19%) decrease in operating revenues and the $150,269 (15%) decrease in operating expenses reduced the Company's operating loss for the quarter ended April 30, 1998 by $40,985. Interest income was approximately $9,000 (30%) higher due to higher average invested balances and higher weighted average interest rates. Interest expense of $1,803 and $17,041 in the fiscal 1998 and 1997 quarters, respectively, relates to the debt incurred in connection with the acquisition of USET. In the quarter ended April 30, 1998, net losses related to equity method affiliates comprised CTT's equity in the net income of Equine Biodiagnostics, Inc. ("EBI") which was more than offset by CTT's equity in other affiliates' net losses. In the fiscal 1997 third quarter, net income related to equity method affiliates was principally CTT's equity in the net income of EBI partially offset by CTT's equity in other net losses. Other income for the quarter ended April 30, 1997, included $18,000 gains realized on sales of short-term investments. There were no such gains in the third quarter of fiscal 1998. Other expenses for the quarter ended April 30, 1997, were legal expenses incurred in connection with a suit brought against CTT, some of its subsidiaries and former directors as more fully detailed in Note 14 to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended July 31, 1997. Further hearings in this case have been adjourned and are expected to occur later in calendar 1998. CTT is unable to estimate the related legal expenses it may incur in the remaining quarter of 1998 or fiscal 1999. Unilens made no payments in either quarter of fiscal 1998 or 1997. Since CTT carries this receivable at zero value, it will record any collections in the period collected. Through April 30, 1998, the Company had received aggregate cash proceeds of approximately $1,011,000 from the January 1989 sale of UOP's assets to Unilens. As CTT received cash proceeds, CTT paid a 4% commission to Optical Associates, L.P., its joint venture partner. The Company has substantial net operating loss carryforwards for Federal income tax purposes. These may not be used to reduce future taxable income of USET. As discussed more completely in Note 2 in the accompanying Consolidated Financial Statements in this Quarterly Report on Form 10-Q, the Company adopted Statement of Financial Accounting Standard No. 128 for the quarter ended January 31, 1998. Because the Company had losses from continuing operations for all quarters in fiscal 1996, 1997 and 1998 before adoption of this standard, the restated losses per share have not changed from previously reported losses per share. The Company does not expect adoption of Statements of Financial Accounting Standards No. 129, 130 or 131 to have a material effect on its financial statements (see Note 1 to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended July 31, 1997). The Company has examined the Year 2000 computer issue and does not expect that it will have a material impact on its business, operations or financial condition. However, the Company is requesting that its licensees confirm that the Year 2000 computer issue will not impact their ability to produce or report royalties after December 31, 1999. Results of Operations - Nine Months Ended April 30, 1998 vs. Nine Months Ended April 30, 1997 Consolidated revenues for the nine months ended April 30, 1998, were $17,130 (1%) higher than for the nine months ended April 30, 1997. Retained royalties were $368,577 (28%) higher for the fiscal 1998 period. This increase includes revenues (license fees, amounts for past infringements, and earned royalties) from new licenses and sublicenses, an option fee, a final royalty settlement on an expired patent and higher earned royalties on several licensed technologies. These increases were offset by corrections of approximately $111,000 to previously reported royalties reported by a licensee during the third quarter of fiscal 1998. Revenues under service contracts were $351,447 (69%) lower than in the nine months ended April 30, 1997. During the nine months ended April 30, 1998, the Company's service contract revenues were earned principally from a state government contract and several small corporate, government and university contracts. During the previous year's nine months, the Company earned revenues principally under several large nonrecurring international and domestic corporate, government and university service contracts. Total operating expenses for the first three quarters of 1998 were $295,787 (9%) lower than for the same period of 1997. Total personnel costs, consultants' fees and expenses, and related operating expenses were lower. VVI's research and development expenses were $48,739 lower and amortization expenses were $114,388 lower. Costs related to the acquisition of Competitive Technologies of PA, Inc. were fully amortized in September, 1997. Directors' fees and expenses and shareholders' expenses were higher. Costs of technology management services in the first nine months of fiscal 1998 were $476,010 (23%) lower than in the first nine months of fiscal 1997 as more fully discussed below. Costs related to retained royalties were approximately $35,000 (6%) higher in the nine months ended April 30, 1998, than in the nine months ended April 30, 1997. This reflects higher personnel costs (including benefits and overheads) associated with patenting and licensing services, and higher patent litigation expenses, partially offset by lower foreign patent costs, lower amortization expenses, higher recoveries of foreign patent costs against university royalties, and reduced costs for subcontractors retained for sales and marketing certain corporate technologies. Costs related to service contracts (including direct charges for subcontractors' services and personnel costs associated with service contracts) were approximately $519,000 (64%) lower in the nine months of fiscal 1998 than in the nine months of fiscal 1997. This decrease corresponds to the reduction in revenues under service contracts and results from reductions in both direct and personnel costs (including benefits and overheads) associated with service contracts. Costs associated with new client development (principally personnel costs, including benefits and overheads) were approximately equal in both nine-month periods. General and administration expenses were $180,223 (17%) higher in the nine months ended April 30, 1998, than in the nine months ended April 30, 1997. This includes approximately $75,000 which resulted from the decision to close the Company's office in Cleveland, Ohio and to consolidate that office's operating functions into operations in other Company offices. In addition, rent and other office expenses in fiscal 1998 are higher than in fiscal 1997. During the first quarter of fiscal 1998 the Company hired four new employees, including two experienced sales people, and retired two long-serving employees. Personnel spent time in related hiring, training and transition activities in addition to the necessary and ongoing administrative functions. Personnel also spent time developing and verifying information systems to support the sales function and effort. During the second quarter of fiscal 1998, the Company incurred higher legal and directors' fees and expenses in connection with restructuring its Board of Directors and related matters. The net effect of the $17,130 (1%) increase in operating revenues and the $295,787 (9%) decrease in operating expenses was to reduce the Company's operating loss by $312,917 (24%) compared with the first nine months of fiscal 1997. Interest income was $17,698 (16%) higher despite lower average invested balances. Weighted average interest rates were approximately 1.24% higher in the nine months of fiscal 1998. Interest expense of $35,885 and $74,297 in the nine months of fiscal 1998 and 1997, respectively, relates to the debt incurred in connection with the acquisition of USET. In the nine months ended April 30, 1998, net income related to equity method affiliates comprised CTT's equity in the net income of EBI ($25,900) substantially offset by CTT's equity in other net losses. In the nine months ended April 30, 1997, net income related to equity method affiliates was principally CTT's equity in the net income of EBI ($51,000) partially offset by CTT's equity in other net losses. Other income for the nine months ended April 30, 1998, includes approximately $18,000 gain realized from available-for- sale securities. Other income for the nine months ended April 30, 1997, included $58,000 gain from short-term investments. Other expenses for the nine months ended April 30, 1998 and 1997 were legal expenses incurred in connection with a suit brought against CTT, some of its subsidiaries and former directors as more fully detailed in Note 14 to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended July 31, 1997. Results of Operations - Three Months Ended April 30, 1998 (Third Quarter) vs. Three Months Ended January 31, 1998 (Second Quarter) Consolidated revenues for the third quarter were $531,589 (54%) lower than for the second quarter of fiscal 1998. Lower retained royalties account for $496,313 of this reduction and lower service contract revenues account for $35,276. Historically, retained royalties in the second quarter are higher than in the third quarter because of licensees who report semiannually. In addition, the second quarter included a sublicense fee and a final royalty settlement on an expired patent. Increased royalties from new licenses and sublicenses in the third quarter were substantially offset by another licensee's reported reductions to previously reported royalties (amounting to $111,000 covering the period July 1995 through December 1997) and the effect of a sale of rights to a corporate client's technology in the second quarter. Revenues under service contracts were lower in the third quarter principally due to a state government contract in the second quarter. Total operating expenses of $877,903 in the third quarter of fiscal 1998 were approximately $73,721 (8%) lower than in the second quarter. This reflects the Company's continuing efforts to control expenses. In the third quarter costs of technology management services were approximately $162,000 (37%) higher and general and administration expenses were approximately $236,000 (46%) lower than in the second quarter. Personnel costs (including benefits and overheads) represented 77% of third quarter costs of technology management services. In the second quarter they represented 87%. The remainder in each quarter was direct expenses, including $75,000 in the third quarter for subcontractors retained for certain sales and marketing services related to certain corporate technologies. Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements. These statements are not guarantees of future performance and should be evaluated in the context of the risks and uncertainties inherent in the Company's business, including those set forth under Special Factors in Item 1 of the Company's Annual Report on Form 10-K for the year ended July 31, 1997. Actual results may differ materially from these forward-looking statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. PART II - OTHER INFORMATION Item 2. Changes In Securities and Use of Proceeds (c) On March 20, 1998, Desmond Towey & Associates exercised warrants to purchase 6,000 shares of the registrant's common stock at $5.4375 per share ($32,625) 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 4. Submission of Matters to a Vote of Security Holders At the Company's annual meeting of stockholders held March 31, 1998, the following directors were elected: Name Votes For Votes Withheld George C.J. Bigar 5,170,764 552,480 Michael G. Bolton 4,913,766 809,478 Robert H. Brown, Jr. 5,035,834 687,410 John M. Sabin 4,864,051 859,193 George M. Stadler 4,500,507 1,222,737 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 March 31, 1998, stockholders approved amending the Company's Restated Certificate of Incorporation to increase the authorized number of shares of Common Stock from 7,964,080 to 20,000,000. There were 3,653,211 shares voted for and 1,995,943 shares voted against this proposal and 74,090 shares abstained. There were no broker non-votes. Also at the Company's annual meeting of stockholders held March 31, 1998, stockholders rejected a proposed amendment to the Company's Restated Certificate of Incorporation to authorize 5,000,000 shares of undesignated Class A Preferred Stock. There were 1,677,683 shares voted for and 2,052,927 shares voted against this proposal. In addition, 68,631 shares abstained and there were 1,924,003 broker non-votes. Also at the Company's annual meeting of stockholders held March 31, 1998, stockholders approved the 1997 Employees' Stock Option Plan and reserving 275,000 shares of Common Stock for options under the Plan. There were 3,563,773 shares voted for and 1,987,078 shares voted against this proposal. In addition, 154,666 shares abstained and there were 17,727 broker non-votes. Item 6. Exhibits and Reports on Form 8-K Page A) Exhibits 3.1 Unofficial Restated Certificate of Incorpora- tion of the registrant as amended to March 31, 1998, filed as Exhibit 4.1 to registrant's Registration Statement on Form S-8, File Number 333-49095, and hereby incorporated by reference. 10.1* Registrant's 1997 Employees' Stock Option Plan, filed as Exhibit 4.3 to registrant's Registration Statement on Form S-8, File Number 333-49095, and hereby incorporated by reference. 11.1 Schedule of computation of earnings per share for the three months and nine months ended April 30, 1998 and 1997. 23 27.1 Financial Data Schedule (EDGAR only). * Management Contract or Compensatory Plan. B) Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed. 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 15, 1998 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, 1998 1997 1998 1997 Net loss applicable to common stock $ (889,269) $(1,170,359) $ (387,990) $ (398,463) Common and common equivalent shares - diluted: Basic weighted average common shares outstanding 5,965,357 5,910,907 5,977,433 5,921,172 Adjustments for assumed exercise of stock options 38,948* 63,583* 41,725* 55,918* Adjustments for assumed exercise of stock warrants 4,582* 18,472* 3,659* 9,138* Weighted average number of common and common equivalent shares outstanding 6,008,887 5,992,962 6,022,817 5,986,228 Net loss per share of common stock: Basic and diluted $ (0.15) $ (0.20) $ (0.06) $ (0.07) * Anti-dilutive. These calculations are submitted in accordance with Regulation S-K item 601 (b) (11) which differs from the requirements of paragraph 13 of Statement of Financial Accounting Standards No. 128 because they produce an anti-dilutive result. EX-27.1 3
5 Financial Data Schedule for Form 10-Q for April 30, 1998 0000102198 COMPETITIVE TECHNOLOGIES, INC. 9-MOS JUL-31-1998 APR-30-1998 268,046 3,249,647 748,520 0 0 4,346,179 358,895 162,209 6,448,602 2,026,715 0 0 60,675 60,032 4,301,180 6,448,602 0 1,847,106 0 2,825,463 0 0 35,885 (889,269) 0 (889,269) 0 0 0 (889,269) (0.15) (0.15)
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