-----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, WG/QYE+aC8yGGE2pWu5SEHs0BIN5Rwcn32JZ2+DVgVC/n7BQzhbK5kud05LTwF+1 x2cNOZjbJcnnWEagVZzqDw== 0000102198-99-000007.txt : 19990615 0000102198-99-000007.hdr.sgml : 19990615 ACCESSION NUMBER: 0000102198-99-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990614 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: 99645471 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 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 April 30, 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 June 1, 1999 - 5,980,228 shares Exhibit Index on sequentially numbered page 22 of 24. Page 1 of 24 sequentially numbered pages COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page No. Item 1. Condensed Financial Statements A. Financial Statements (Unaudited) Consolidated Balance Sheets at April 30, 1999 and July 31, 1998 3 Consolidated Statements of Operations for the three months ended April 30, 1999 and 1998 4 Consolidated Statements of Operations for the nine months ended April 30, 1999 and 1998 5 Consolidated Statement of Changes in Shareholders' Interest for the nine months ended April 30, 1999 6 Consolidated Statements of Cash Flows for the nine months ended April 30, 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 13-21 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 22 Item 6. Exhibits and Reports on Form 8-K 22 Signatures 23 PART I. FINANCIAL INFORMATION COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets April 30, 1999 and July 31, 1998 (Unaudited) April 30, July 31, 1999 1998 ASSETS Current assets: Cash and cash equivalents $ 210,753 $ 216,826 Short-term investments, at market 2,994,737 2,417,792 Receivables, including $302 and $20,143 receivable from related parties in April and July, respectively 2,206,348 1,491,937 Prepaid expenses and other current assets 77,670 139,780 Total current assets 5,489,508 4,266,335 Property and equipment, net 166,321 171,214 Investments 200,682 408,288 Intangible assets acquired, principally licenses and patented technologies, net 1,340,010 1,444,014 Other assets -- 12,013 TOTAL ASSETS $ 7,196,521 $ 6,301,864 LIABILITIES AND SHAREHOLDERS' INTEREST Current liabilities: Accounts payable, including $2,043 payable to related parties in July $ 173,189 $ 37,323 Accrued liabilities 2,548,344 1,794,742 Current portion of purchase obligation -- 297,386 Total current liabilities 2,721,533 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; 22,965 and 10,191 shares in April and July, respectively (119,266) (95,968) Accumulated other comprehensive loss (17,707) (21,874) Accumulated deficit (21,135,684) (21,468,333) Total shareholders' interest 4,474,988 4,172,413 TOTAL LIABILITIES AND SHAREHOLDERS' INTEREST $ 7,196,521 $ 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 April 30, 1999 and 1998 (Unaudited) 1999 1998 Revenues: Retained royalties $ 1,179,813 $ 416,771 Revenues under service contracts, including $2,500 and $10,174 from related parties in 1999 and 1998, respectively 12,693 42,796 1,192,506 459,567 Costs of technology management services 518,197 604,724 General and administration expenses, of which $1,600 and $1,411 were paid to related parties in 1999 and 1998, respectively 241,796 273,179 759,993 877,903 Operating income (loss) 432,513 (418,336) Interest income 33,553 39,704 Interest expense -- (1,803) Losses related to equity method affiliates -- (7,318) Other income (expense), net (6,803) (237) Income (loss) before taxes 459,263 (387,990) Provision for income taxes 50,000 -- Net income (loss) 409,263 (387,990) Other comprehensive income: Net unrealized holding gains (losses) on available-for-sale securities (5,208) (5,729) Comprehensive income (loss) $ 404,055 $ (393,719) Net income (loss) per share: Basic and diluted $ 0.07 $ (0.06) Weighted average number of common shares outstanding: Basic 5,981,352 5,977,433 Diluted 6,020,127 5,977,433 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations for the nine months ended April 30, 1999 and 1998 (Unaudited) 1999 1998 Revenues: Retained royalties $ 2,461,522 $ 1,686,678 Revenues under service contracts, including $2,746 and $90,307 from related parties in 1999 and 1998, respectively 143,572 160,428 2,605,094 1,847,106 Costs of technology management services 1,409,098 1,559,044 General and administration expenses, of which $4,000 and $5,192 were paid to related parties in 1999 and 1998, respectively 815,941 1,266,419 Restructuring charges 70,000 -- 2,295,039 2,825,463 Operating income (loss) 310,055 (978,357) Interest income 118,286 127,394 Interest expense (3,607) (35,885) Income (losses) related to equity method affiliates (748) 4,549 Other income (expense), net (41,337) (8,570) Income (loss) before taxes and minority interest 382,649 (890,869) Provision for income taxes 50,000 -- Income (loss) before minority interest 332,649 (890,869) Minority interest in loss of subsidiary -- 1,600 Net income (loss) 332,649 (889,269) Other comprehensive income: Net unrealized holding gains (losses) on available-for-sale securities 4,167 (5,729) Reclassification adjustment for realized gains included in net income -- (7,802) Comprehensive income (loss) $ 336,816 $ (902,800) Net income (loss) per share: Basic and diluted $ 0.06 $ (0.15) Weighted average number of common shares outstanding: Basic 5,982,552 5,965,357 Diluted 6,006,042 5,965,357 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, 1999 (Unaudited)
Preferred Stock Accumulated Shares Common Stock Capital in Other issued and Shares excess of Treasury Stock Comprehensive Accumulated outstanding Amount issued Amount par value Shares held Amount Income (Loss) Deficit 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......... 4,167 Purchase of treasury stock................ (23,400) (97,445) Net income............. 332,649 Balance - April 30, 1999 2,427 $60,675 6,003,193 $60,032 $25,626,938 (22,965) $(119,266) $ (17,707) $(21,135,684)
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, 1999 and 1998 (Unaudited) 1999 1998 Cash flow from operating activities: Income (loss) from operations $ 332,649 $ (889,269) Noncash items included in income (loss) from operations: Depreciation and amortization 149,689 174,851 Equity method affiliates 748 (4,549) Minority interest -- (1,600) Directors' stock and stock retirement plan accruals 109,794 139,927 Amortization of discount on purchase obligation 3,607 35,885 Other noncash items 11,740 33,065 Other 20 (13,054) Net changes in various operating accounts: Receivables (714,411) 655,515 Prepaid expenses and other current assets 62,110 35,571 Accounts payable and accrued liabilities 843,151 273,420 Net cash flow from operating activities 799,097 439,762 Cash flow from investing activities: Purchases of property and equipment, net (40,792) (25,768) Purchases of other short-term investments (572,778) (3,876,091) Proceeds from sales of short-term investments -- 3,165,808 Proceeds from sales of investments in affiliates 206,838 (15,000) Net cash flow from investing activities (406,732) (751,051) Cash flow from financing activities: Proceeds from issuance of common stock, net -- 199,310 Purchases of treasury stock (97,445) -- Repayment of purchase obligation (300,993) (550,567) Net cash flow from financing activities (398,438) (351,257) Net decrease in cash and cash equivalents (6,073) (662,546) Cash and cash equivalents, beginning of period 216,826 930,592 Cash and cash equivalents, end of period $ 210,753 $ 268,046 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. Nine months Quarter ended April 30, ended April 30, 1999 1998 1999 1998 Net income (loss) applicable to common stock: Basic and diluted $ 332,649 $ (889,269) $ 409,263 $ (387,990) Weighted average number of common shares outstanding 5,982,552 5,965,357 5,981,352 5,977,433 Effect of dilutive securities: Stock options 23,490 -- 38,775 -- Stock warrants -- -- -- -- Weighted average number of common shares outstanding and dilutive securities 6,006,042 5,965,357 6,020,127 5,977,433 Net income (loss) per share of common stock: Basic and diluted $ 0.06 $ (0.15) $ 0.07 $ (0.06) At April 30, 1999 and 1998, respectively, options and warrants to purchase 471,542 and 536,542 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 nine months ended April 30, 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 April 30, 1999, the Company's available-for-sale securities were as follows: Accumulated Accumulated Other Other Aggregate Comprehensive Comprehensive Security Type Fair Value Income Loss Cost Basis Equity Securities $37,499 $ -- $17,707 $55,206 For the quarters ended April 30, 1999 and 1998 and for the nine months ended April 30, 1999, there were no sales of available-for-sale securities. For the nine months ended April 30, 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 nine months ended April 30, 1999 and 1998 follows: Quarter ended Nine months ended April 30, April 30, 1999 1998 1999 1998 Accumulated other comprehensive income (loss): Accumulated net unrealized holding gains (losses) on available-for-sale securities, beginning of period $(12,499) $ -- $(21,874) $ 7,802 Other comprehensive income: Holding gains (losses) arising during the period (5,208) (5,729) 4,167 4,951 Reclassification adjustment for gains on sales of securities included in net income -- -- -- (18,482) Accumulated other comprehensive income (loss) $(17,707) $ (5,729) $(17,707) $ (5,729) No tax effect is reported on the Company's unrealized gains on securities because the Company has capital loss carryforwards. 7. Receivables Receivables comprise: April 30, July 31, 1999 1998 Royalties $2,183,329 $1,444,014 Other 23,019 47,923 $2,206,348 $1,491,937 8. Accrued Liabilities Accrued liabilities were: April 30, July 31, 1999 1998 Accrued compensation $ 196,029 $ 117,005 Royalties payable 1,964,000 982,111 Accrued contract settlement 62,077 300,000 Deferred revenues 78,641 99,160 Other 247,597 296,466 $2,548,344 $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 Court of Appeals for the Federal Circuit. 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 one current 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 April 30, 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. The Company paid all charges during the three months ended October 31, 1998. 11. Stock Repurchase Plan In October, 1998, the Board of Directors authorized CTT to repurchase 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 23,400 shares of its common stock for $97,445 in cash between October, 1998, and April 30, 1999. 12. Subsequent Events On May 4, 1999, Metabolite Laboratories, Inc. ("MLI") and Competitive Technologies, Inc. ("CTT") (collectively "plaintiffs") filed a complaint and jury demand against Laboratory Corporation of America Holdings d/b/a LabCorp ("LabCorp") in the United States District Court for the District of Colorado. The complaint alleges, among other things, that LabCorp owes plaintiffs royalties for homocysteine assays performed during and since the summer of 1998 using methods and materials falling within the claims of a patent owned by CTT. CTT licensed the patent non-exclusively to MLI and MLI sublicensed it to LabCorp. Plaintiffs claim LabCorp's actions constitute breach of contract and patent infringement. Their claim seeks an injunction ordering LabCorp to perform all its obligations under its agreement, to cure past breaches, to provide an accounting of wrongfully withheld royalties and to refrain from infringing the patent. Plaintiffs also seek unspecified money and exemplary damages and attorneys' fees, among other things. CTT is unable to estimate the related legal expenses it may incur in this suit. Effective May 28, 1999, CTT sold its 14.5% interest in NovaNET Learning, Inc. ("NLI") in connection with the acquisition of NLI by National Computer Systems, Inc., for $2,472,602 in cash. From February 15, 1995, through May 28, 1999, CTT accounted for its $159,375 investment in NLI under the cost method. CTT will recognize its $2,313,227 gain in the quarter ending July 31, 1999. Capital loss carryforwards will substantially shelter the gain from Federal and state income taxes. PART I. FINANCIAL INFORMATION (Continued) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition and Liquidity At April 30, 1999, cash and cash equivalents of $210,753 were $6,073 lower than cash and cash equivalents of $216,826 at July 31, 1998. Operating activities provided $799,097, investing activities used $406,732 and financing activities used $398,438. In addition, Competitive Technologies, Inc. ("CTT") and its majority-owned subsidiaries ("the Company") held $2,994,737 in short- term investments at April 30, 1999. These investments are available for the Company's future operating, investing and financing activities. Effective May 28, 1999, CTT sold its 14.5% interest in NovaNET Learning, Inc. ("NLI") in connection with the acquisition of NLI by National Computer Systems, Inc., for $2,472,602 in cash. From February 15, 1995, through May 28, 1999, CTT accounted for its $159,375 investment in NLI under the cost method. CTT will recognize its $2,313,227 gain in the quarter ending July 31, 1999. Capital loss carryforwards will substantially shelter the gain from Federal and state income taxes. On May 4, 1999, Metabolite Laboratories, Inc. ("MLI") and Competitive Technologies, Inc. ("CTT") (collectively "plaintiffs") filed a complaint and jury demand against Laboratory Corporation of America Holdings d/b/a LabCorp ("LabCorp") in the United States District Court for the District of Colorado. The complaint alleges, among other things that LabCorp owes plaintiffs royalties for homocysteine assays performed during and since the summer of 1998 using methods and materials falling within the claims of a patent owned by CTT. CTT licensed the patent non-exclusively to MLI and MLI sublicensed it to LabCorp. Plaintiffs claim LabCorp's actions constitute breach of contract and patent infringement. Their claim seeks an injunction ordering LabCorp to perform all its obligations under its agreement, to cure past breaches, to provide an accounting of wrongfully withheld royalties and to refrain from infringing the patent. Plaintiffs also seek unspecified money and exemplary damages and attorneys' fees, among other things. CTT is unable to estimate the related legal expenses it may incur in this suit. 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 paid all charges during the quarter ended October 31, 1998. The Company's net income for the nine-month period ended April 30, 1999, included the following noncash items: approximately $150,000 of depreciation and amortization, $4,000 amortization of discount on purchase obligation, and $122,000 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 $739,000 and royalties payable increased approximately $982,000. These changes in royalties receivable and payable reflect (a) the timing of a licensee's payment of previously underreported royalties and (b) the normal cycle of royalty collections and payments. Between July 31, 1998, and April 30, 1999, salary and benefits continuation payments and related legal expenses reduced accrued contract settlement with the Company's former chief executive officer approximately $238,000. During the nine months ended April 30, 1999, the Company purchased approximately $573,000 of other short-term investments. 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. CTT also received $7,988 from liquidation of another investee accounted for on the equity method. CTT originally invested $15,000 cash in this 50%-owned investment. During the time it held this investment, CTT recognized $7,012 as its equity in the net loss of the investee. In October, 1998, the Board of Directors authorized CTT to repurchase up to 250,000 shares of its 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 23,400 shares of its common stock for $97,445 in cash between October, 1998, and April 30, 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 April 30, 1999, the remaining amount of such contingent payments was $57,032. At April 30, 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 such opportunities are consummated, the Company may commit capital resources to them. The Company does not believe 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 and to share in the royalties from applications of MPEG-4, if and when they may be earned in the future. MPEG-4 is 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 expects its share to be approximately $5,200,000. 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.) At April 30, 1999, the Company had $3,205,490 in cash, cash equivalents and short-term investments and royalties receivable net of royalties payable of $219,329. On May 28, 1999, CTT received the $2,472,602 cash proceeds from the sale of its interest in NLI. Based on the Company's current expectations, it anticipates that currently available funds will be sufficient to finance cash needs for the foreseeable future for its current operating activities. However, expansion of the Company's business is subject to many factors outside the Company's control or that cannot currently be anticipated, including without limitation business 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, 1999 vs. Three Months Ended April 30, 1998 The Company's $432,513 operating income and $409,263 net income for the third quarter of fiscal 1999 are $850,849 and $797,253 higher, respectively, than its operating loss and net loss for the third quarter of fiscal 1998. These improvements reflect both substantially higher revenues and lower operating expenses. The third quarter of fiscal 1999 is the second to reflect the full benefit of all measures previously taken to reduce the Company's operating expenses and improve its overall operating efficiency. It is also the second consecutive quarter reporting both operating income and net income. Total revenues for the quarter ended April 30, 1999, were $732,939 (159%) higher than for the quarter ended April 30, 1998. Retained royalties for the quarter ended April 30, 1999, were $763,042 (183%) higher than for the quarter ended April 30, 1998. Approximately $542,000 of this increase was from a licensee's correction of its previously underreported royalties under Vitamin B12 assay licenses for the period from July, 1993, through July, 1998. The Company earned $189,000 on its encryption technology in the 1999 third quarter. This was from a second milestone payment toward a paid-up license. During the 1998 quarter, the Company earned $100,000 from sale of a corporate client's technology, but there was no comparable transaction during the 1999 quarter. In the third quarter of fiscal 1999 revenues from homocysteine licenses were approximately $90,000 lower than in the third quarter of fiscal 1998. This decrease resulted partially from lower license issue fees in the 1999 quarter and a sublicensee's withholding royalties on certain tests. The Company has joined with its licensee in a suit against the sublicensee as detailed above and in footnote 12 to the accompanying financial statements. Royalty revenue fluctuations also 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 April 30, 1999, were $30,103 (70%) lower than for the quarter ended April 30, 1998. These reductions reflected lower revenues from service contracts for domestic corporate and university clients. The Company earned substantially all of these revenues from contract services to domestic corporations in the fiscal 1999 quarter. Many of the Company's service contracts are one-time arrangements unique to a particular client at a particular time. Total operating expenses for the quarter ended April 30, 1999, were $759,993. This was $117,910 (13%) lower than for the quarter ended April 30, 1998. The Company reduced personnel and related expenses, consultant's fees and expenses, and VVI's research and development expenses. These reductions were partially offset by higher patent legal expenses and higher shareholders' expenses, including public and investor relations services. Higher expenses incurred in the 1999 quarter for public and investor relations services were only partially offset by a reduction in expenses incurred in connection with the annual meeting of shareholders. Costs of technology management services for the quarter ended April 30, 1999, were $86,527 (14%) lower than for the quarter ended April 30, 1998, as more fully discussed below. Costs related to licensing and retained royalties were approximately $55,000 lower in the fiscal 1999 third quarter than in the fiscal 1998 third quarter. This decrease is because the Company no longer uses subcontractors on retainer to provide certain sales and marketing services related to certain corporate technologies. Total domestic and foreign patent costs, patent litigation expenses and recoveries of foreign patent costs against university royalties were nearly the same for the third quarter of fiscal 1999 as for the third quarter of fiscal 1998. Costs related to service contracts were approximately $2,000 higher for the third quarter of fiscal 1999 than for the third quarter of fiscal 1998. Costs associated with new client development for the third quarter of fiscal 1999 (principally personnel costs, including benefits and overheads) were approximately $33,000 lower than for the third quarter of fiscal 1998. The Company had fewer employees in the fiscal 1999 quarter than it had in the fiscal 1998 quarter. Management believes that the Company's development activities are now more sharply focused on signing new clients with a higher probability of generating revenues more quickly. General and administration expenses in the fiscal 1999 quarter were $31,383 (11%) lower than in the fiscal 1998 quarter. The Company had fewer employees; however, lower personnel and related expenses were partially offset by higher shareholders' expenses, including expenses for public and investor relations services. The net effect of the $732,939 (159%) increase in operating revenues and the $117,910 (13%) reduction in operating expenses was to increase the Company's operating income by $850,849 (203%) compared with the third quarter of fiscal 1998. Interest income in the third quarter of fiscal 1999 was lower than in the third quarter of fiscal 1998. For the third quarter of fiscal 1999 the Company's average invested balance was slightly lower and its weighted average interest rate was approximately 0.65% lower than for the third quarter of fiscal 1998. Interest expense in the fiscal 1998 quarter related to the debt incurred in acquiring USET. Other expenses for the quarters ended April 30, 1999, and 1998, were legal expenses incurred in connection with a suit brought against CTT, some of its subsidiaries and directors. This suit is 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. Management is unable to estimate the related legal expenses it may incur in the remaining quarter of fiscal 1999. Unilens Corp. USA ("Unilens") made no payments in either quarter of fiscal 1999 or 1998. Since the Company carries this receivable at zero value, it will record any collections in the period collected. Through April 30, 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, the Company paid a 4% commission to Optical Associates, L.P., its joint venture partner. The Company has provided for state income taxes at its estimated effective rate for fiscal 1999. 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 - Nine Months Ended April 30, 1999 vs. Nine Months Ended April 30, 1998 The Company's $310,055 operating income and $332,649 net income for the nine months of fiscal 1999 are $1,288,412 and $1,221,918 higher, respectively, than its operating loss and net loss for the nine months of fiscal 1998. The Company increased its revenues by $757,988 (41%) and reduced its operating expenses by $530,424 (19%) compared with the nine months of fiscal 1998. Retained royalties revenues increased substantially while revenues under service contracts decreased in the nine months ended April 30, 1999, compared with the nine months ended April 30, 1998. Retained royalties for the nine months ended April 30, 1999, were $774,844 (46%) higher than for the nine months ended April 30, 1998. Approximately $542,000 of this increase was from a licensee's correction in the third quarter of fiscal 1999 of its previously underreported royalties under Vitamin B12 assay licenses for the period from July, 1993, through July, 1998. This correction was partially offset by lower royalty revenues from other Vitamin B12 assay licensees due to expiration of a U.S. Patent in April, 1998. The first encryption license revenues from milestone payments toward a paid-up license totalled $472,500 in the second and third quarters of fiscal 1999. Revenues from homocysteine licenses, including license issue fees, increased in the nine months of fiscal 1999 approximately $73,000 over the nine months of fiscal 1998. The Company had five homocysteine licenses in the fiscal 1998 nine months compared with nine homocysteine licenses in the fiscal 1999 nine months. Homocysteine royalty revenues in the fiscal 1999 period have been hurt by a sublicensee's withholding royalties on certain tests. The Company has joined with its licensee in a suit against the sublicensee as detailed above and in footnote 12 to the accompanying financial statements. In addition, royalty revenues in the fiscal 1998 period benefited from license issue fees on new homocysteine licenses. The fiscal 1998 period also included revenues from a one- time sale of a corporate client's patented technology and a one-time final royalty settlement on a patent that expired in September, 1997. Royalty revenue fluctuations also reflect changes in the timing of royalties reported by licensees and in licensees' sales of licensed products. Revenues under service contracts for the nine months ended April 30, 1999, were $16,856 (11%) lower than for the nine months ended April 30, 1998. The Company earned substantially all of these revenues from contract services to domestic corporations in the fiscal 1999 period. This includes a one-time fee for CTT's assistance in obtaining equity financing for a start-up company. The Company completed two government contracts in fiscal 1998; this accounts for most of the reduction in service contract revenues from the nine months of fiscal 1998. Total operating expenses for the nine months ended April 30, 1999, were $2,295,039. This was $530,424 (19%) lower than for the nine months ended April 30, 1998. The Company reduced personnel and related expenses, consultants' fees, legal expenses, and VVI's research and development expenses. These reductions were partially offset by higher shareholders' expenses, including public and investor 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 nine months ended April 30, 1999, were $149,946 (10%) lower than for the nine months ended April 30, 1998, as more fully discussed below. Costs related to licensing and retained royalties were approximately $46,000 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 $143,000 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 nine months of fiscal 1999 (principally personnel costs, including benefits and overheads) were approximately $52,000 lower than for the nine months of fiscal 1998. The Company has fewer employees in fiscal 1999 than it had in fiscal 1998. General and administration expenses in the fiscal 1999 nine-month period were $450,478 (36%) lower than in the fiscal 1998 nine-month period. The Company had fewer employees and lower legal expenses; however, these reductions were partially offset by higher shareholders' expenses (including public and investor relations services) and other operating expenses. Restructuring charges in the nine months ended April 30, 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 nine months ended April 30, 1998, related to the costs of closing the Company's office in Cleveland, Ohio. Management took both of these actions to reduce operating expenses and improve operating efficiency. Interest income in the nine months of fiscal 1999 was lower than in the nine months of fiscal 1998. For the nine months of fiscal 1999 the Company's average invested balance was slightly higher but its weighted average interest rate was approximately 0.5% lower than for the nine months of fiscal 1998. Interest expense in the fiscal 1999 and 1998 periods related to the debt incurred in acquiring USET. Other income for the nine months ended April 30, 1998, included approximately $18,000 gain realized from available-for-sale securities. Other expenses for the nine months ended April 30, 1999, and 1998, were legal expenses incurred in connection with a suit brought against CTT, some of its subsidiaries and directors. This suit is 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 April 30, 1999 (Third Fiscal Quarter) vs. Three Months Ended January 31, 1999 (Second Fiscal Quarter) Total revenues for the quarter ended April 30, 1999, were $199,232 (20%) higher than for the quarter ended January 31, 1999. Historically, retained royalties in the third fiscal quarter are lower than in the second fiscal quarter because of licensees who report semiannually. However, the third fiscal quarter benefited approximately $542,000 from a licensee's correction of previously underreported royalties under Vitamin B12 assay licenses for the period from July, 1993, through July, 1998. Retained royalties in the third quarter of fiscal 1999 were $214,359 (22%) higher than in the second quarter of fiscal 1999. Revenues under service contracts in the third quarter of fiscal 1999 were $15,127 (54%) lower than in the second quarter of fiscal 1999. Total operating expenses of $759,993 in the third quarter of fiscal 1999 were approximately equal to those in the second quarter of fiscal 1999. In the third quarter of fiscal 1999, costs of technology management services were approximately $57,000 (12%) higher and general and administration expenses were approximately $59,000 (20%) lower than in the second quarter of fiscal 1999. Costs related to retained royalties, costs related to service contracts and costs associated with new client development all increased. The increase in consolidated revenues and the slight reduction in operating expenses in the third quarter of fiscal 1999 increased the Company's operating income by $201,065 and its net income by $170,429. Forward-Looking Statements Statements about the Company's future expectations, including development and regulatory plans, and all other statements in this Quarterly Report on Form 10-Q other than historical facts, are "forward-looking statements" within the meaning of applicable Federal Securities Laws and are not guarantees of future performance. These statements involve risks and uncertainties related to market acceptance of and competition for the Company's licensed technologies and other risks and uncertainties inherent in the Company's business, including those set forth in Item 1 of the Company's Annual Report on Form 10-K for the year ended July 31, 1998 and other factors that may be described in its filings with the SEC, and are subject to change at any time. The Company's actual results could differ materially from these forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statement. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The results of the Company's annual meeting of stockholders held February 12, 1999, were previously reported under this Item 4 in Part II - Other Information in the registrant's Quarterly Report on Form 10-Q for the quarterly period ended January 31, 1999. 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, 1999 and 1998. 24 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: June 14, 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)
Nine months Quarter ended April 30, ended April 30, 1999 1998 1999 1998 Net income (loss) applicable to common stock: Basic and diluted $ 332,649 $ (889,269) $ 409,263 $ (387,990) Common and common equivalent shares - diluted: Weighted average number of common shares outstanding - basic 5,982,552 5,965,357 5,981,352 5,977,433 Adjustments for assumed exercise of stock options 23,490 38,948* 38,775 41,725* Adjustments for assumed exercise of stock warrants -- 4,582* -- 3,659* Weighted average number of common and common equivalent shares outstanding - diluted 6,006,042 6,008,887 6,020,127 6,022,817 Net income (loss) per share of common stock: Basic and diluted $ 0.06 $ (0.15) $ 0.07 $ (0.06)
* 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, 1999 0000102198 COMPETITIVE TECHNOLOGIES, INC. 9-MOS JUL-31-1999 APR-30-1999 210,753 2,994,737 2,206,348 0 0 5,489,508 333,814 167,493 7,196,521 2,721,533 0 0 60,675 60,032 4,354,281 7,196,521 0 2,605,094 0 2,295,039 0 0 3,607 382,649 50,000 332,649 0 0 0 332,649 0.06 0.06
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