-----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, PwJ/s6DpOrZLu9GePuy1ptR5A1aHfvre6BMQCiRa4L3hP66jJEKC9i9C+n0h4Qiz rORKk75Z2rC+0y0arkXM0w== 0000102198-99-000004.txt : 19990317 0000102198-99-000004.hdr.sgml : 19990317 ACCESSION NUMBER: 0000102198-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990316 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: 99565454 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 1999 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, 1999 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 March 1, 1999 - 5,982,228 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 January 31, 1999 and July 31, 1998 3 Consolidated Statements of Operations for the three months ended January 31, 1999 and 1998 4 Consolidated Statements of Operations for the six months ended January 31, 1999 and 1998 5 Consolidated Statement of Changes in Shareholders' Interest for the six months ended January 31, 1999 6 Consolidated Statements of Cash Flows for the six months ended January 31, 1999 and 1998 7 Notes to Consolidated Financial Statements 8-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13-20 Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 21 Item 4. Submission of Matters to a Vote of Security Holders 21 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, 1999 and July 31, 1998 (Unaudited) January 31, July 31, 1999 1998 ASSETS Current assets: Cash and cash equivalents $ 213,591 $ 216,826 Short-term investments, at market 2,070,905 2,417,792 Receivables, including $10,076 and $20,143 receivable from related parties in January and July, respectively 1,539,256 1,491,937 Prepaid expenses and other current assets 79,322 139,780 Total current assets 3,903,074 4,266,335 Property and equipment, net 135,738 171,214 Investments 208,689 408,288 Intangible assets acquired, principally licenses and patented technologies, net 1,374,678 1,444,014 Other assets -- 12,013 TOTAL ASSETS $ 5,622,179 $ 6,301,864 LIABILITIES AND SHAREHOLDERS' INTEREST Current liabilities: Accounts payable, including $291 and $2,043 payable to related parties in January and July, respectively $ 87,437 $ 37,323 Accrued liabilities 1,452,749 1,794,742 Current portion of purchase obligation -- 297,386 Total current liabilities 1,540,186 2,129,451 Commitments and contingencies Shareholders' interest: 5% preferred stock, $25 par value 60,675 60,675 Common stock, $.01 par value 60,032 60,032 Capital in excess of par value 25,626,938 25,637,881 Treasury stock (common), at cost; 20,965 and 10,190 shares in January and July, respectively (108,206) (95,968) Accumulated other comprehensive loss (12,499) (21,874) Accumulated deficit (21,544,947) (21,468,333) Total shareholders' interest 4,081,993 4,172,413 TOTAL LIABILITIES AND SHAREHOLDERS' INTEREST $ 5,622,179 $ 6,301,864 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations for the three months ended January 31, 1999 and 1998 (Unaudited) 1999 1998 Revenues: Retained royalties $ 965,454 $ 913,084 Revenues under service contracts, including $60,823 from related parties in 1998 27,820 78,072 993,274 991,156 Costs of technology management services 460,942 442,578 General and administration expenses, of which $1,200 and $2,297 were paid to related parties in 1999 and 1998, respectively 300,884 509,046 761,826 951,624 Operating income 231,448 39,532 Interest income 42,115 46,691 Interest expense (1,804) (17,041) Income (losses) related to equity method affiliates (498) 331 Other income (expense), net (32,427) 1,783 Income before minority interest 238,834 71,296 Minority interest in loss of subsidiary -- 1,600 Net income 238,834 72,896 Other comprehensive income: Net unrealized holding gains (losses) on available-for-sale securities (7,291) -- Comprehensive income $ 231,543 $ 72,896 Net income per share: Basic and diluted $ 0.04 $ 0.01 Weighted average number of common shares outstanding: Basic 5,975,286 5,964,145 Diluted 6,006,466 5,994,211 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations for the six months ended January 31, 1999 and 1998 (Unaudited) 1999 1998 Revenues: Retained royalties $ 1,281,709 $ 1,269,907 Revenues under service contracts, including $80,133 from related parties in 1998 130,879 117,632 1,412,588 1,387,539 Costs of technology management services 890,901 954,320 General and administration expenses, of which $2,400 and $3,781 were paid to related parties in 1999 and 1998, respectively 574,145 993,240 Restructuring charges 70,000 -- 1,535,046 1,947,560 Operating loss (122,458) (560,021) Interest income 84,733 87,690 Interest expense (3,607) (34,082) Income (losses) related to equity method affiliates (748) 11,867 Other income (expense), net (34,534) (8,333) Loss before minority interest (76,614) (502,879) Minority interest in loss of subsidiary -- 1,600 Net loss (76,614) (501,279) Other comprehensive income: Net unrealized holding gains (losses) on available-for-sale securities 9,375 -- Reclassification adjustment for realized gains included in net income -- (7,802) Comprehensive loss $ (67,239) $ (509,081) Net loss per share: Basic and diluted $ (0.01) $ (0.08) Weighted average number of common shares outstanding: Basic and diluted 5,983,132 5,959,515 See accompanying note PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statement of Changes in Shareholders' Interest For the six months ended January 31, 1999 (Unaudited)
Preferred Stock Accumulated Accumulated Shares Common Stock Capital in Other (Deficit) issued and Shares excess of Treasury Stock Comprehensive Retained outstanding Amount issued Amount par value Shares held Amount Income (Loss) Earnings Balance - July 31, 1998 2,427 $60,675 6,003,193 $60,032 $25,637,881 (10,190) $ (95,968) $ (21,874) $(21,468,333) Grant of warrants to consultants . . . . . . 11,740 Stock issued under 1996 Directors' Stock Participation Plan. . . (22,683) 10,625 74,147 Other comprehensive income: Net unrealized holding gains (losses) on available-for- sale securities. . . 9,375 Purchase of treasury stock. . . . . . . . . (21,400) (86,385) Net loss . . . . . . . . (76,614) Balance - January 31, 1999 2,427 $60,675 6,003,193 $60,032 $25,626,938 (20,965) $(108,206) $ (12,499) $(21,544,947)
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, 1999 and 1998 (Unaudited) 1999 1998 Cash flow from operating activities: Loss from operations $ (76,614) $ (501,279) Noncash items included in loss from operations: Depreciation and amortization 98,962 120,147 Equity method affiliates 748 (11,867) Minority interest -- (1,600) Directors' stock and stock retirement plan accruals 74,266 96,622 Amortization of discount on purchase obligation 3,607 34,082 Other noncash items 11,740 76,901 Other -- (18,482) Net changes in various operating accounts: Receivables (47,319) (717,037) Prepaid expenses and other current assets 60,458 44,041 Accounts payable and accrued liabilities (302,667) 201,168 Net cash flow from operating activities (176,819) (677,304) Cash flow from investing activities: Disposals (purchases) of property and equipment, net 5,850 (27,755) Purchases of other short-term investments -- (2,743,649) Proceeds from sales of short-term investments 356,262 3,165,808 Proceeds from sale of investment in affiliate 198,850 (15,000) Net cash flow from investing activities 560,962 379,404 Cash flow from financing activities: Proceeds from issuance of common stock, net -- 178,809 Purchases of treasury stock (86,385) -- Repayment of purchase obligation (300,993) (550,567) Net cash flow from financing activities (387,378) (371,758) Net increase (decrease) in cash and cash cash equivalents (3,235) (669,658) Cash and cash equivalents, beginning of period 216,826 930,592 Cash and cash equivalents, end of period $ 213,591 $ 260,934 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 1999. 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, 1998. 2. Comprehensive Income Competitive Technologies, Inc. and its subsidiaries ("the Company") adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," effective August 1, 1998. This Statement establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income includes all changes in shareholders' interest that result from recognized transactions and other economic events of the period other than transactions of shareholders in their capacities as shareholders. The effect of adoption was not material to the Company's financial statements. 3. Segment Information Effective August 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information." This Statement replaces the industry segment approach with the management approach for determining reportable segments. The management approach is that basis on which management of the Company makes operating decisions and assesses performance. The Company operates in a single reportable segment under either approach. The Company provides technology transfer and management services for inventions and other innovations made or owned by its clients. Adoption of SFAS No. 131 had no effect on the Company's financial statements. 4. Net Income (Loss) Per Share The following table sets forth the computations of basic and diluted net income (loss) per share. Six months Quarter ended January 31, ended January 31, 1999 1998 1999 1998 Net income (loss) applicable to common stock: Basic and diluted $ (76,614) $ (501,279) $ 238,834 $ 72,896 Weighted average number of common shares outstanding 5,983,132 5,959,515 5,975,286 5,964,145 Effect of dilutive securities: Stock options -- -- 31,180 25,806 Stock warrants -- -- -- 4,260 Weighted average number of common shares outstanding and dilutive securities 5,983,132 5,959,515 6,006,466 5,994,211 Net income (loss) per share of common stock: Basic and diluted $ (0.01) $ (0.08) $ 0.04 $ 0.01 At January 31, 1999 and 1998, respectively, options and warrants to purchase 473,542 and 410,500 shares of common stock were outstanding but were not included in the computation of earnings per share because they were anti-dilutive. 5. Investment in Affiliate During the six months ended January 31, 1999, Competitive Technologies, Inc. ("CTT") sold its investment in Equine Biodiagnostics, Inc. ("EBI") for $198,850 in cash. This selling price was also CTT's carrying value for this investment which was accounted for on the equity method. CTT's original cash investment in EBI was $25,000. During the time it held this investment in EBI, CTT recognized $173,850 as its equity in the net income of EBI. 6. Short-term Investments On January 31, 1999 the Company's available-for-sale securities are as follows: Accumulated Accumulated Other Other Aggregate Comprehensive Comprehensive Security Type Fair Value Income Loss Cost Basis Equity Securities $42,707 $ -- $12,499 $55,206 For the quarters ended January 31, 1999 and 1998 and for the six months ended January 31, 1999, there were no sales of available-for- sale securities. For the six months ended January 31, 1998 proceeds from the sale of available-for-sale securities were $1,500,000 which resulted in gross realized gains of $18,482. Cost is based on specific identification in computing realized gains. A reconciliation detailing amounts reported in net income and other comprehensive income for the quarters and six months ended January 31, 1999 and 1998 follows: Quarter ended Six months ended January 31, January 31, 1999 1998 1999 1998 Accumulated other comprehensive income (loss): Accumulated net unrealized holding gains (losses) on available-for-sale securities, beginning of period $ (5,208) $ -- $(21,874) $ 7,802 Other comprehensive income: Holding gains (losses) arising during the period (7,291) -- 9,375 10,680 Reclassification adjustment for gains on sales of securities included in net income -- -- -- (18,482) Accumulated other comprehensive income (loss) $(12,499) $ -- $(12,499) $ -- No tax effect is reported on the Company's unrealized gains on securities because the Company has capital loss carryforwards. 7. Receivables Receivables comprise: January 31, July 31, 1999 1998 Royalties $1,506,018 $1,444,014 Other 33,238 47,923 $1,539,256 $1,491,937 8. Accrued Liabilities Accrued liabilities were: January 31, July 31, 1999 1998 Accrued compensation $ 139,806 $ 117,005 Royalties payable 847,258 982,111 Accrued contract settlement 130,361 300,000 Deferred revenues 80,950 99,160 Other 254,374 296,466 $1,452,749 $1,794,742 9. 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 $5.2 million. The case is currently pending on appeal in the Federal Circuit Court of Appeals. Oral arguments were heard on December 7, 1998. 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. 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. Hearings in the case have commenced before an attorney referee; however, due to scheduling conflicts, further hearings have been adjourned and are expected to occur in calendar 1999. Through January 31, 1999, 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. 10. Restructuring In August, 1998, CTT's Board of Directors took steps to reduce future operating expenses. This restructuring included closing its office in Bethlehem, Pennsylvania, reducing the Company's staff by four full-time employees, and reassigning their operating functions among the Company's remaining staff. The Company recognized restructuring charges of $70,000 in the quarter ended October 31, 1998, for severance, related legal and other expenses of closing the office. All charges were settled during the three months ended October 31, 1998. 11. Stock Repurchase Plan In October, 1998, CTT's Board of Directors authorized the repurchase of up to 250,000 shares of CTT's common stock. The Company plans to repurchase shares on the open market or in privately negotiated transactions at times and in amounts determined by management based on its evaluation of market and economic conditions. During the six months ended January 31, 1999, the Company repurchased 21,400 shares of common stock for $86,385. 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 $213,591 at January 31, 1999 are $3,235 lower than cash and cash equivalents of $216,826 at July 31, 1998. Operating activities used $176,819, investing activities provided $560,962 and financing activities used $387,378. In addition to cash and cash equivalents, Competitive Technologies, Inc. ("CTT") and its majority-owned subsidiaries ("the Company") held $2,070,905 in short-term investments at January 31, 1999. These investments are available for the Company's future operating, investing and financing activities. In August, 1998, CTT's Board of Directors took steps to reduce future operating expenses. This restructuring included closing its office in Bethlehem, Pennsylvania, reducing the Company's staff by four full-time employees, and reassigning their operating functions among the Company's remaining staff. The Company recognized restructuring charges of $70,000 in the quarter ended October 31, 1998, for severance, related legal and other expenses of closing the office. The Company settled all charges during the quarter ended October 31, 1998. The Company's net loss for the six-month period January 31, 1999, included the following noncash items: approximately $99,000 of depreciation and amortization, $4,000 amortization of discount on purchase obligation, and $86,000 of accrued expenses. 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. Royalties receivable increased approximately $62,000 and royalties payable decreased approximately $135,000. These changes in royalties receivable and payable reflect the normal cycle of royalty collections and payments. Accrued contract settlement was reduced approximately $170,000 between July 31, 1998, and January 31, 1999, by salary and benefits continuation payments and related legal expenses. During the six months ended January 31, 1999, approximately $356,000 of other short-term investments were sold. In addition, CTT sold its investment in Equine Biodiagnostics, Inc. ("EBI") for $198,850 in cash during the quarter ended October 31, 1998. This selling price was also CTT's carrying value for this investment accounted for on the equity method. CTT's original cash investment in EBI was $25,000. During the time it held this investment in EBI, CTT recognized $173,850 as its equity in the net income of EBI. In October, 1998, CTT's Board of Directors authorized the repurchase of up to 250,000 shares of CTT's common stock. The Company may repurchase shares on the open market or in privately negotiated transactions at times and in amounts determined by management based on its evaluation of market and economic conditions. The Company repurchased 21,400 shares of its common stock for $86,385 in cash between October, 1998 and January 31, 1999. On January 31, 1999, the Company paid the remaining $301,000 of the University Science, Engineering and Technology, Inc. ("USET") purchase obligation (including interest). The entire original purchase obligation of $1,835,000 was paid from USET's cash at acquisition and retained royalties earned during the three years since January 31, 1996. USET's retained royalties are now fully available to fund future operating activities. The Company is contractually required to pay certain persons specified percentages of Renova royalties received. At January 31, 1999, the remaining amount of such contingent payments was $71,978. At January 31, 1999, the Company had no outstanding commitments for capital expenditures. 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 continues to pursue additional technology management opportunities. If and when these opportunities are consummated, the Company expects to commit capital resources to them. The Company does not believe that inflation had a significant impact on its operations during fiscal 1999 or 1998 or that it will have a significant impact on operations during the next twelve-month operating period. The Company has examined the Year 2000 computer issue. This issue concerns computer hardware and software systems' ability to recognize and process dates after December 31, 1999 properly and accurately. The Company has reviewed its computer systems and has or will modify or replace those not currently Year 2000 compliant. Management believes the greatest risk to the Company would be if its licensees were to be unable to make their licensed products Year 2000 compliant or to report their respective royalties. Accordingly, the Company requested that its licensees confirm that the Year 2000 computer issue will not prevent them from producing or reporting royalties after December 31, 1999. Based on licensees' responses and other information reported by licensees, management does not expect the Year 2000 issue to have a material effect on royalty revenues. The Company has also received confirmation from its banks and other critical vendors that their computer systems are or will be Year 2000 compliant. The Company does not expect its costs to address these Year 2000 issues to be material. This is a Year 2000 readiness disclosure entitled to protection as provided in the Year 2000 Information and Readiness Disclosure Act. Vector Vision, Inc. ("VVI"), CTT's 54.5% owned subsidiary, is currently inactive. Without additional outside financing to support further development activities, VVI is not expected to develop its product further. VVI expects its video compression software product to be included in MPEG-4, an international standard expected to be adopted for consumer applications such as video teleconferencing, video databases and wireless video access, and to share in the royalties from applications of MPEG-4, if and when they may be earned in the future. 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 expects its share 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. The Company has recorded no potential judgment proceeds in its financial statements to date. (See Note 9 in the accompanying financial statements and Item 3. Legal Proceedings in the Company's Annual Report on Form 10-K for the year ended July 31, 1998.) With $2,284,496 in cash, cash equivalents and short-term investments and its share of royalties receivable of $658,760 at January 31, 1999, the Company anticipates that currently available funds will be sufficient to finance cash needs for at least the next two years for its current operating activities and for potential additional technology management opportunities. This anticipation is based upon the Company's current expectations. However, expansion of the Company's services is subject to many factors 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 January 31, 1999 vs. Three Months Ended January 31, 1998 The Company's $231,448 operating income and $238,834 net income for this second quarter of fiscal 1999 are $191,916 and $165,938 higher, respectively, than its operating income and net income for the second quarter of fiscal 1998. The Company reduced its operating expenses by $189,798 and improved its overall operating efficiency. The second quarter of fiscal 1999 is the first quarter to reflect the full benefit of all measures previously taken to reduce the Company's operating expenses. Consolidated revenues for the quarter ended January 31, 1999, were $2,118 higher than for the quarter ended January 31, 1998, despite some sizable reductions from the prior year's quarter due to non-recurring revenues. Retained royalties for the quarter ended January 31, 1999, were $52,370 (6%) higher than for the quarter ended January 31, 1998. The first encryption license revenues from milestone payments toward a paid-up license were nearly $284,000 in the second quarter of fiscal 1999. Revenues from homocysteine licenses, including license issue fees, increased in the second quarter of fiscal 1999 approximately $85,000 over the second quarter of fiscal 1998. The Company had only three homocysteine licenses in the fiscal 1998 quarter compared with nine homocysteine licenses in the fiscal 1999 quarter. Revenues from another technology were $146,000 higher in the 1999 quarter than in the 1998 quarter primarily because of a sublicensee's catch-up payment for previously withheld royalties. These royalty revenue increases were partially offset by lower royalty revenues from the Vitamin B12 assay on which a U.S. patent expired in April, 1998. In addition, the second quarter of fiscal 1998 included revenues from a one-time sale of a corporate client's patented technology and a one-time final royalty settlement on a patent which expired in September, 1997. Other royalty revenue fluctuations reflect changes in the timing of royalties reported by licensees and in licensees' sales of licensed products. Revenues under service contracts for the quarter ended January 31, 1999, were $50,252 (64%) lower than for the quarter ended January 31, 1998. Substantially all of these revenues during the second quarter of fiscal 1999 were from contract services to domestic corporations. During the quarter ended January 31, 1999, the Company completed work on a few small service contracts. Many of the Company's service contracts are one-time arrangements unique to a particular client at a particular time. Completion of one non- recurring state government contract in June, 1998, accounts for substantially all of the reduction in the Company's service contract revenues from the second quarter of fiscal 1998. Total operating expenses for the quarter ended January 31, 1999, were $761,826. This is $189,798 (20%) lower than for the quarter ended January 31, 1998. The Company reduced personnel and related expenses, legal expenses, and VVI's research and development expenses. These reductions were partially offset by higher shareholders' expenses, including public relations services, and consultants' fees and expenses. Legal expenses were higher than usual in the quarter ended January 31, 1998, incurred in connection with restructuring CTT's Board of Directors and related matters. Costs of technology management services for the quarter ended January 31, 1999, were $18,364 (4%) higher than for the quarter ended January 31, 1998, as more fully discussed below. Costs related to licensing and retained royalties were approximately $79,000 higher in the second quarter of fiscal 1999 than in the second quarter of fiscal 1998. This increase is primarily due to higher personnel costs (including benefits and overheads) associated with patenting and licensing services. Total domestic and foreign patent costs, patent litigation expenses and recoveries of foreign patent costs against university royalties were nearly the same for the second quarter of fiscal 1999 as for the second quarter of fiscal 1998. Costs related to service contracts were approximately $62,000 lower for the second quarter of fiscal 1999 than for the second quarter of fiscal 1998. The greatest portion of this reduction was in personnel costs (including benefits and overheads) and consultants' costs associated with service contracts. Costs associated with new client development for the second quarter of fiscal 1999 (principally personnel costs, including benefits and overheads) were approximately equal to those for the second quarter of fiscal 1998. General and administration expenses in the fiscal 1999 quarter were approximately $208,000 (41%) lower than in the fiscal 1998 quarter. The Company had fewer employees and lower legal expenses; however, these reductions were partially offset by higher shareholders' expenses (including public relations services) and consultants' fees. The net effect of the $2,118 increase in operating revenues and the $189,798 reduction in operating expenses was to increase the Company's operating income by $191,916 compared with the second quarter of fiscal 1998. Interest income in the second quarter of fiscal 1999 was lower than in the second quarter of fiscal 1998. The Company's average invested balances and weighted average interest rates were both lower for the second quarter of fiscal 1999 than for the second quarter of fiscal 1998. Interest expense in the fiscal 1999 and 1998 quarters related to the debt incurred in connection with the acquisition of USET. Other expenses for the quarters ended January 31, 1999, and 1998, were legal expenses incurred in connection with a suit brought against CTT, some of its subsidiaries and directors as more fully detailed in Note 12 to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended July 31, 1998. Further hearings in this case have been adjourned and are expected to occur in calendar 1999. CTT is unable to estimate the related legal expenses which may be incurred in the remaining quarters of fiscal 1999. Unilens Corp. USA ("Unilens") made no payments in either quarter of fiscal 1999 or 1998. Since CTT carries this receivable at zero value, any collections will be recorded in the period collected. Through January 31, 1999, the Company had received aggregate cash proceeds of approximately $1,011,000 from the January 1989 sale of University Optical Products Co. assets to Unilens. As cash proceeds were received, 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. The Company's adoption of Statements of Financial Accounting Standards No. 130 and 131 did not have a material effect on its financial statements. The Company's only item of other comprehensive income is unrealized holding gains or losses on available-for-sale securities. All the Company's activities are in one operating segment, technology management services. The Company does not expect adoption of Statement of Financial Accounting Standards No. 133 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, 1998). Results of Operations - Six Months Ended January 31, 1999 vs. Six Months Ended January 31, 1998 The Company's $122,458 operating loss and $75,614 net loss for the first half of fiscal 1999 are $437,563 and $424,665 lower, respectively, than its operating loss and net loss for the first half of fiscal 1998. The Company both increased its revenues by $25,049 (6%) and reduced its operating expenses by $412,514 (21%) compared with the first half of fiscal 1998. Retained royalties revenues and revenues under service contracts contributed to the increase in consolidated revenues for the six months ended January 31, 1999, compared with the six months ended January 31, 1998. Retained royalties for the six months ended January 31, 1999, were $11,802 (1%) higher than for the six months ended January 31, 1998. The first encryption license revenues from milestone payments toward a paid-up license were nearly $284,000 in the second quarter of fiscal 1999. Revenues from homocysteine licenses, including license issue fees, increased in the first half of fiscal 1999 approximately $164,000 over the first half of fiscal 1998. The Company had only three homocysteine licenses in the fiscal 1998 half compared with nine homocysteine licenses in the fiscal 1999 half. Revenues from another technology were $131,000 higher in the 1999 half than in the 1998 half primarily because of a sublicensee's catch-up payment for previously withheld royalties. These royalty revenue increases were partially offset by lower royalty revenues from the Vitamin B12 assay on which a U.S. patent expired in April, 1998. In addition, the first half of fiscal 1998 included revenues from a one- time sale of a corporate client's patented technology and a one-time final royalty settlement on a patent which expired in September, 1997. Other royalty revenue fluctuations reflect changes in the timing of royalties reported by licensees and in licensees' sales of licensed products. Revenues under service contracts for the half year ended January 31, 1999, were $13,247 (11%) higher than for the half year ended January 31, 1998. Substantially all of these revenues during the first half of fiscal 1999 were from contract services for domestic corporations. This includes a one-time fee for CTT's obtaining equity financing for a start-up company. Completion of two government contracts in fiscal 1998 accounts for substantially all of the reduction in the Company's service contract revenues from the first half of fiscal 1998. Total operating expenses for the six months ended January 31, 1999, were $1,535,046. This is $412,514 (21%) lower than for the six months ended January 31, 1998. The Company reduced personnel and related expenses, legal expenses, and VVI's research and development expenses. These reductions were partially offset by higher shareholders' expenses, including public relations services, and other operating expenses. The Company reduced its operating expenses by closing its Cleveland, Ohio, office in January, 1998, and its Bethlehem, Pennsylvania, office in September, 1998, and by reducing its Connecticut office staff. Costs of technology management services for the six months ended January 31, 1999, were $63,419 (7%) lower than for the six months ended January 31, 1998, as more fully discussed below. Costs related to licensing and retained royalties were approximately $101,000 higher in the fiscal 1999 period than in the fiscal 1998 period. This increase is primarily due to higher personnel costs (including benefits and overheads) associated with patenting and licensing services. Costs related to service contracts were approximately $145,000 lower for the fiscal 1999 period than for the fiscal 1998 period. The greatest portion of this reduction was in personnel costs (including benefits and overheads) and consultants' costs associated with service contracts. Costs associated with new client development for the first half of fiscal 1999 (principally personnel costs, including benefits and overheads) were approximately $19,000 lower than those for the first half of fiscal 1998. General and administration expenses in the fiscal 1999 six-month period were $419,095 (42%) lower than in the fiscal 1998 six-month period. The Company had fewer employees and lower legal expenses; however, these reductions were partially offset by higher shareholders' expenses (including public relations services) and other operating expenses. Restructuring charges in the six months ended January 31, 1999, related to the costs of closing the Company's Bethlehem, Pennsylvania, office and other staff reductions made in August and September, 1998. Restructuring charges in the six months ended January 31, 1998, related to the costs of closing the Company's office in Cleveland, Ohio. Both actions were taken to reduce operating expenses and improve operating efficiency. Interest income in the first half of fiscal 1999 was lower than in the first half of fiscal 1998. The Company's average invested balances and weighted average interest rates were both lower for the first half of fiscal 1999 than for the first half of fiscal 1998. Interest expense in the fiscal 1999 and 1998 periods related to the debt incurred in connection with the acquisition of USET. Other income for the six months ended January 31, 1998, included approximately $18,000 gain realized from available-for-sale securities. Other expenses for the six months ended January 31, 1999, and 1998, were legal expenses incurred in connection with a suit brought against CTT, some of its subsidiaries and directors as more fully detailed above and in Note 12 to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended July 31, 1998. Results of Operations - Three Months Ended January 31, 1999 (Second Fiscal Quarter) vs. Three Months Ended October 31, 1998 (First Fiscal Quarter) Consolidated revenues for the quarter ended January 31, 1999, were $573,960 (137%) higher than for the quarter ended October 31, 1998. Historically, retained royalties in the second fiscal quarter are higher than in the first fiscal quarter because of licensees who report semiannually. Retained royalties in the second quarter of fiscal 1999 were $649,199 (205%) higher than in the first quarter of fiscal 1999. Revenues under service contracts in the second quarter of fiscal 1999 were $75,239 (73%) lower than in the first quarter of fiscal 1999. Total operating expenses of $761,826 in the second quarter of fiscal 1999 were $11,394 (1%) lower than in the first quarter of fiscal 1999. In the second quarter of fiscal 1999 costs of technology management services were approximately $31,000 (7%) higher and general and administration expenses were approximately $28,000 (10%) higher than in the first quarter of fiscal 1999. However, restructuring charges were $70,000 in the first quarter. Costs related to retained royalties and costs associated with new client development both increased, but costs related to service contracts decreased. The increase in consolidated revenues and the reduction in operating expenses in the second quarter of fiscal 1999 increased the Company's operating income by $585,354 and its net income by $554,282. 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, 1998. 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 January 4, 1999, pursuant to Board approval in December, 1998, the registrant issued 2,500 shares and 625 shares of its common stock to Robert H. Brown, Jr. and Samuel M. Fodale, respectively. These shares were valued at $4.84375, the mean between the high and low prices on the American Stock Exchange on January 4, 1999. The shares were issued in partial consideration for their services as directors of the registrant but as special grants outside the 1996 Directors' Stock Participation Plan since neither had served a full year. No underwriters were involved in these transactions. The shares were exempt from registration under Section 4(2) of the Securities Act of 1933 and certificates for these shares contained restrictive legends. Item 4. Submission of Matters to a Vote of Security Holders At the Company's annual meeting of stockholders held Februry 12, 1999, the following directors were elected: Name Votes For Votes Withheld George C.J. Bigar 4,243,860 1,447,158 Michael G. Bolton 4,285,125 1,405,893 Samuel M. Foldale 4,536,420 1,154,598 John M. Sabin 4,567,844 1,123,174 In addition, no votes were withheld as to all nominees and there were no broker non-votes. Robert H. Brown, Jr., a director since March 1998 and a nominee for reelection, requested to have his name removed from the ballot in order to devote his time to a new position as President and CEO of a Dallas-based securities firm. Also at the Company's annual meeting of stockholders held February 12, 1999, stockholders rejected the proposal to approve the 1999 Directors' Stock Option Plan and reserve 400,000 shares of Common Stock for options under the Plan. There were 1,116,190 shares voted for and 2,133,902 shares voted against this proposal, and 79,306 shares abstained. There were also 2,361,620 broker non-votes which were not entitled to vote on this matter. 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 six months ended January 31, 1999 and 1998. 23 27.1 Financial Data Schedule (EDGAR only). 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: March 16, 1999 By: S/ Frank R. McPike, Jr. Frank R. McPike, Jr. President, Chief Operating Officer, 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, 1999 1998 1999 1998 Net income (loss) applicable to common stock $ (76,614) $ (501,279) $ 238,834 $ 72,896 Common and common equivalent shares - diluted: Basic weighted average common shares outstanding 5,983,132 5,959,515 5,975,286 5,964,145 Adjustments for assumed exercise of stock options 16,096* 37,605* 31,180 25,806 Adjustments for assumed exercise of stock warrants -- 5,028* -- 4,260 Weighted average number of common and common equivalent shares outstanding 5,999,228 6,002,148 6,006,466 5,994,211 Net income (loss) per share of common stock: Basic and diluted $ (0.01) $ (0.08) $ 0.04 $ 0.01 * 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 January 31, 1999 0000102198 COMPETITIVE TECHNOLOGIES, INC. 6-MOS JUL-31-1999 JAN-31-1999 213,591 2,070,905 1,539,256 0 0 3,903,074 311,718 175,980 5,622,179 1,540,186 0 0 60,675 60,032 3,961,286 5,622,179 0 1,412,588 0 1,535,046 0 0 3,607 (76,614) 0 (76,614) 0 0 0 (76,614) (0.01) (0.01)
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