10-Q January 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8696
COMPETITIVE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-2664428
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1960 Bronson Road
P.O. Box 340
Fairfield, Connecticut 06430
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (203) 255-6044
Former name, former address and former fiscal year, if
changed since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
Common Stock outstanding as of March 1, 1997 5,919,829 shares
Exhibit Index on sequentially numbered page 21 of 26.
Page 1 of 26 sequentially numbered pages
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Condensed Financial Statements
A. Financial Statements
Consolidated Balance Sheets at
January 31, 1997 and July 31, 1996 3-4
Consolidated Statements of Operations for the
three months ended January 31, 1997 and 1996 5
Consolidated Statements of Operations for
the six months ended January 31, 1997 and 1996 6
Consolidated Statement of Changes in
Shareholders' Interest for the six
months ended January 31, 1997 7
Consolidated Statements of Cash Flows for the
six months ended January 31, 1997 and 1996 8-9
Notes to Consolidated Financial Statements 10-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13-19
PART II. OTHER INFORMATION
Item 2. Changes in Securities 20
Item 4. Submission of Matters to a Vote
of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
PART I. FINANCIAL INFORMATION
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 31, 1997 and July 31, 1996
(Unaudited)
January 31, July 31,
1997 1996
ASSETS
Current assets:
Cash and cash equivalents $ 810,059 $ 560,640
Short-term investments, at market 2,913,892 3,820,990
Receivables, including $19,037 and $19,910
receivable from related parties in
January and July, respectively 1,367,106 1,088,030
Prepaid expenses and other current assets 121,164 218,903
Total current assets 5,212,221 5,688,563
Property and equipment, net 225,166 144,360
Investments 370,463 321,145
Intangible assets acquired, principally
licenses and patented technologies, net
of accumulated amortization of $141,126
and $71,790 in January and July,
respectively 1,692,780 1,794,795
Directors' escrow account 325,000 325,000
Other assets 53,873 94,277
TOTAL ASSETS $ 7,879,503 $ 8,368,140
See accompanying notes
PART I. FINANCIAL INFORMATION
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 31, 1997 and July 31, 1996
(Unaudited)
January 31, July 31,
1997 1996
LIABILITIES AND SHAREHOLDERS' INTEREST
Current liabilities:
Accounts payable, including $1,376 and
$9,365 payable to related parties
in January and July, respectively $ 103,513 $ 83,571
Accrued liabilities, including $18,788
payable to related parties in January
1997 1,354,163 794,250
Current portion of purchase obligation 550,000 550,000
Total current liabilities 2,007,676 1,427,821
Noncurrent portion of purchase obligation,
net of unamortized discount of $75,377
and $132,633 in January and July,
respectively 226,183 652,367
Commitments and contingencies
Shareholders' interest:
5% preferred stock, $25 par value 60,675 60,675
Common stock, $.01 par value 59,423 59,258
Capital in excess of par value 25,123,573 24,993,926
25,000 shares of treasury stock, at cost (174,713) (174,713)
Net unrealized holding gains on
available-for-sale securities 10,381 10,605
Accumulated deficit (19,433,695) (18,661,799)
Total shareholders' interest 5,645,644 6,287,952
TOTAL LIABILITIES AND SHAREHOLDERS'
INTEREST $ 7,879,503 $ 8,368,140
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
for the three months ended January 31, 1997 and 1996
(Unaudited)
1997 1996
Revenues:
Retained royalties $ 617,098 $ 289,988
Revenues under service contracts
and grants, including $28,488,
and $33,586 from related parties in
1997 and 1996, respectively 141,626 99,270
758,724 389,258
Costs of technology management
services, of which $1,441 was
paid to related parties in 1996 621,460 412,598
General and administration expenses,
of which $13,973 and $27,545
were paid to related parties in 1997
and 1996, respectively 460,738 278,428
1,082,198 691,026
Operating loss (323,474) (301,768)
Interest income 38,743 51,681
Interest expense (28,628) --
Income (losses) related to equity
method affiliates 14,315 11,250
Gain on sale of investment in Plasmaco, Inc. -- 96,907
Other income (expense), net 7,722 18,705
Loss before income taxes (291,322) (123,225)
Provision for income taxes 6,300 8,000
Net loss $ (297,622) $ (131,225)
Net loss per share
(primary and fully diluted): $ (0.05) $ (0.02)
Weighted average number of common and
common equivalent shares outstanding
(primary and fully diluted) 5,908,786 5,830,591
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
for the six months ended January 31, 1997 and 1996
(Unaudited)
1997 1996
Revenues:
Retained royalties $ 858,299 $ 491,438
Revenues under service contracts
and grants, including $84,954,
and $70,971 from related parties in
1997 and 1996, respectively 402,826 217,049
1,261,125 708,487
Costs of technology management
services, of which $5,762 and $3,068
were paid to related parties in 1997
and 1996, respectively 1,275,819 675,611
General and administration expenses,
of which $35,260 and $46,913
were paid to related parties in 1997
and 1996, respectively 804,459 588,255
2,080,278 1,263,866
Operating loss (819,153) (555,379)
Interest income 79,190 106,577
Interest expense (57,256) --
Income (losses) related to equity
method affiliates 34,319 42,091
Gain on sale of investment in Plasmaco, Inc. -- 96,907
Other income (expense), net 3,804 19,371
Loss before income taxes (759,096) (290,433)
Provision for income taxes 12,800 15,000
Net loss $ (771,896) $ (305,433)
Net loss per share
(primary and fully diluted): $ (0.13) $ (0.05)
Weighted average number of common and
common equivalent shares outstanding
(primary and fully diluted) 5,905,943 5,822,271
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Interest
For the six months ended January 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Net
unrealized
holding
Preferred Stock gains (losses)
Shares Common Stock Capital in on available-
issued and Shares excess of Treasury Stock for-sale Accumulated
outstanding Amount issued Amount par value Shares held Amount securities Deficit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - July 31, 1996 2,427 $60,675 5,925,829 $59,258 $24,993,926 (25,000) $(174,713) $ 10,605 $(18,661,799)
Exercise of common
stock options . . . . 10,500 105 69,707
Stock issued under
Directors' Stock
Participation Plan. . 6,000 60 59,940
Net change in un-
realized holding
gains on available-
for-sale securities. (224)
Net loss . . . . . . . (771,896)
Balance -
January 31, 1997 2,427 $60,675 5,942,329 $59,423 $25,123,573 (25,000) $(174,713) $ 10,381 $(19,433,695)
</TABLE>
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the six months ended January 31, 1997 and 1996
(Unaudited)
1997 1996
Cash flow from operating activities:
Loss from continuing operations $ (771,896) $ (305,433)
Noncash items included in loss
from continuing operations:
Depreciation and amortization 186,426 96,145
(Income) losses related to equity
method affiliates (34,319) (42,091)
Directors' stock and stock retirement
plan accruals 85,600 48,345
Amortization of discount on purchase
obligation 57,256 --
Other noncash items (18,567) (20,266)
Other -- (68,368)
Net changes in various operating
accounts:
Receivables (279,076) 70,970
Prepaid expenses and other current
assets 54,485 (27,206)
Accounts payable and accrued
liabilities 533,178 (115,719)
Net cash flow used in operating
activities (186,913) (363,623)
Cash flow from investing activities:
Purchases of property and equipment, net (114,238) (35,349)
Proceeds from sales of short-term
investments 2,478,109 1,411,795
Purchases of short-term investments (1,531,590) (1,370,824)
Investments in affiliates and subsidiaries 17,679 96,907
Cash acquired in connection with
investment in USET, net of $500,000
cash paid -- 105,171
Net cash flow from investing activities 849,960 207,700
Cash flow from financing activities:
Proceeds from issuance of common stock, net 69,812 296,251
Repayment of debt (483,440) --
Net cash flow from financing activities (413,628) 296,251
Net increase in cash and cash
equivalents 249,419 140,328
Cash and cash equivalents, beginning
of period 560,640 336,098
Cash and cash equivalents, end of period $ 810,059 $ 476,426
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the six months ended January 31, 1997 and 1996
(Unaudited)
1997 1996
Supplemental cash flow information:
Cash paid for income taxes $ 47,900 $ 27,308
Schedule of noncash investing activities:
Investments in affiliates and subsidiaries $ -- $(1,039,938)
Schedule of noncash financing activities:
Debt incurred for investment in subsidiary $ -- $ 1,145,109
Issuance of directors' stock $ 60,000 $ 40,000
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Interim Financial Statements
Interim financial information presented in the accompanying
financial statements and notes hereto is unaudited.
The year end balance sheet data was derived from audited
financial statements but does not include all disclosures required by
generally accepted accounting principles.
In the opinion of management, all adjustments which are necessary
to present the financial statements fairly in conformity with
generally accepted accounting principles, consisting only of normal
recurring adjustments, have been made.
Certain amounts have been reclassified to conform with the
presentation in the financial statements for fiscal 1997.
The interim financial statements and notes thereto as well as the
accompanying Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended July 31,
1996.
2. Acquisition of USET
On January 31, 1996, the Company purchased the remaining
interests in USET (see Note 2 to Consolidated Financial Statements in
the Company's Annual Report on Form 10-K for the year ended July 31,
1996). The following unaudited pro forma summary information presents
the consolidated results of operations of the Company as if this
acquisition had occurred on August 1, 1994 (in thousands, except per
share amounts). The unaudited pro forma amounts are based on
assumptions and estimates the Company believes are reasonable;
however, such amounts do not necessarily represent results which would
have occurred if the acquisition had taken place on the basis assumed,
nor are they indicative of the results of future combined operations.
For the quarter For the six
ended months ended
January 31, 1996 January 31, 1996
Total revenues $ 513 $ 1,130
Operating loss (309) (396)
Net loss (140) (200)
Net loss per share $(0.02) $ (0.03)
3. Short-term Investments
As of January 31, 1997 the components of the Company's available-
for-sale securities are as follows (in thousands):
Gross Gross
Unrealized Unrealized
Aggregate Holding Holding Amortized Maturity
Security Type Fair Value Gains Losses Cost Basis Grouping
U.S. Treasury Within
Bills $ 1,542 $10 -- $ 1,532 1 year
Other U.S.
government Within
debt 1 year
securities 1,372 -- -- 1,372
Total $ 2,914 $10 -- $ 2,904
For the quarters ended January 31, 1997 and 1996, respectively,
proceeds from the sale of available-for-sale securities were
$2,113,040 and $1,121,124 which resulted in gross realized gains of
$39,645 and $30,147. For the six months ended January 31, 1997 and
1996, respectively, proceeds from the sale of available-for-sale
securities were $2,478,109 and $1,411,795 which resulted in gross
realized gains of $39,645 and $31,095. Cost is based on specific
identification in computing realized gains.
4. Receivables
Receivables comprise:
January 31, July 31,
1997 1996
Royalties $1,220,445 $ 879,380
Government contracts 26,599 74,978
Other 120,062 133,672
$1,367,106 $1,088,030
5. Accrued Liabilities
Accrued liabilities were:
January 31, July 31,
1997 1996
Accrued compensation $ 163,962 $ 125,256
Royalties payable 926,257 417,656
Deferred revenues 113,820 16,587
Other accrued liabilities 150,124 234,751
$1,354,163 $ 794,250
6. Contingencies
In November, 1991, a suit was filed in Connecticut against CTI,
its wholly-owned subsidiary, Genetic Technology Management, Inc.
("GTM"), its majority-owned subsidiary, University Optical Products
Co. ("UOP"), and several current and former directors on behalf of the
59 limited partners of Optical Associates, Limited Partnership
("OALP"). The complaint alleges, among other things, that the January
1989 sale of UOP's assets to Unilens Corp. USA ("Unilens") violated
the partnership agreement and that OALP is entitled to the full
proceeds of the sale to Unilens. The complaint claims, among other
things, money damages and treble and punitive damages in an
unspecified amount and attorneys' fees. The Company believes that the
asserted claims are without merit and intends to defend vigorously the
action instituted by plaintiffs. Through January 31, 1997, the
Company had received aggregate cash proceeds of approximately
$1,011,000 from the January 1989 sale of UOP's assets to Unilens. As
cash proceeds were received, the Company paid a 4% commission to OALP,
its joint venture partner. Further hearings in this case have been
adjourned and are expected to occur later in calendar 1997.
PART I. FINANCIAL INFORMATION (Continued)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition and Liquidity
Cash and cash equivalents of $810,059 at January 31, 1997 are
$249,419 higher than cash and cash equivalents of $560,640 at July 31,
1996. Operating activities used $186,913, investing activities
provided $849,960 and financing activities used $413,628.
Competitive Technologies, Inc. ("CTI") and its majority-owned
subsidiaries' ("the Company") net loss of $771,896 for the six months
ended January 31, 1997 included the following noncash items:
depreciation and amortization of approximately $186,000, income
related to equity method affiliates of approximately $34,000,
amortization of discount on purchase obligation of approximately
$57,000 and accruals of approximately $107,000.
In general, changes in various operating accounts result from
changes in the timing and amounts of cash flows before and after the
end of the period. Approximately $341,000 of cash used in operations
was from the increase in royalties receivable and $509,000 was
provided by the increase in royalties payable. This reflects the
normal cycle of royalty collections and payments with the
consolidation of University Science, Engineering and Technology, Inc.
("USET").
Approximately $114,000 of property and equipment purchased in the
six-month period ended January 31, 1997 relate to equipment additions
and technical updates for added staff and increased client service
capabilities ($22,000) and improving ($30,000) and furnishing
($62,000) CTI's principal office. CTI relocated its principal office
on November 8, 1996 and expects additional expenditures to complete
those improvements during the next six months.
Proceeds from sales of short-term investments of approximately
$2,478,000 are from maturities of the Company's U.S. government debt
securities. The Company reinvested nearly $1,532,000 in U.S.
government debt securities.
In the six-month period ended January 31, 1997, the Company
received $69,812 from employees' exercising stock options to purchase
10,500 shares of common stock at prices from $6.5625 to $6.75.
On January 31, 1997, the Company paid approximately $483,000 of
the USET purchase obligation. This installment was 60% of USET's
gross retained earned revenues for the preceding calendar year as
provided in the purchase agreement.
The Company carries liability insurance, directors' and officers'
liability insurance and casualty insurance for owned or leased
tangible assets. It does not carry key person life insurance. There
are no legal restrictions on payments of dividends by CTI.
At January 31, 1997, the Company had no outstanding commitments
for capital expenditures. The Company expects to pay approximately
$550,000 of the USET purchase obligation on January 31, 1998 with the
balance of $302,000 to be paid in 1999.
The Company continues to pursue additional university and
corporate technology management opportunities. If and when these
opportunities are consummated, the Company expects to commit capital
resources to these operations.
The Company does not believe that inflation had a significant
impact on its operations during 1997 or 1996 or that it will have a
significant impact on operations during the next twelve-month
operating period.
Vector Vision, Inc. ("VVI"), CTI's 52.8%-owned subsidiary,
continues to seek additional financing to support its continuing
development. Without additional outside financing, VVI's development
activities will proceed at a minimum level. The Company, the inventor
and others are committed to support VVI's development activities
through the remainder of fiscal 1997 to a total of approximately
$110,000, during which time VVI's goal is to improve its video
compression software product for MPEG-4, an international standard
expected to be adopted for consumer applications such as video
teleconferencing, video databases and wireless video access. The
Company and others have supported VVI's operating activities during
the second quarter of 1997. VVI's operating activities during the
first quarter of 1997 were funded primarily by the approximately
$36,000 remaining on its Small Business Innovation Research ("SBIR")
contract awarded in April, 1996.
With nearly $3,724,000 in cash, cash equivalents and short-term
investments at January 31, 1997, the Company anticipates that
currently available funds will be sufficient to finance cash needs
over the next two to four years for its current operating activities
as well as for expansion of its technology management business
operations, including related investments in start-up companies. This
anticipation is based upon the Company's current expectations.
However, expansion of the Company's services and related investments
in start-up companies (with resulting increases in operating expenses)
is subject to many factors which are outside the Company's control and
to currently unanticipated opportunities that may arise in the future.
Accordingly, there can be no assurance that the Company's current
expectations regarding the sufficiency of currently available funds
will prove to be accurate.
Results of Operations - Six Months Ended January 31, 1997 vs. Six
Months Ended January 31, 1996
Through January 31, 1996, the Company accounted for its
investment in USET on the equity method and recorded 20% of USET's net
income. The Company has consolidated USET's results of operations for
all periods since February 1, 1996.
Consolidated revenues for the six months ended January 31, 1997,
were $552,638 (78%) higher than for the six months ended January 31,
1996. Retained royalties were $366,861 (75%) higher than in the first
half of fiscal 1996. However, excluding USET's effect, retained
royalties were $28,888 (6%) lower. Up-front license fees for a plasma
display energy recovery technology of approximately $97,000 for the
six months ended January 31, 1996 were non-recurring and this decrease
was partially offset by increased royalties on the gallium arsenide
technology for the six months ended January 31, 1997. There were also
modest increases in royalties from sales of Renova and Ethyol (see
Item 7 in the Company's Annual Report on Form 10-K for the year ended
July 31, 1996). Consolidating USET's retained royalties increased
retained royalties for the six months ended January 31, 1997 by
$395,749 (80%).
Revenues under service contracts and grants were $402,826 in the
first half of fiscal 1997, $185,777 (85%) higher than in the first
half of fiscal 1996. This increase includes VVI's SBIR contract
($36,000) and intercorporate service contracts ($177,000) offset by
decreases in other collaborative service contracts. Approximately
$110,000 of the increase in intercorporate service contracts was from
international clients. Expansion of the Company's focus to include
providing technology management services to corporations is beginning
to generate revenues. VVI's SBIR contract was completed in October,
1996, and CTI's contract with the Department of the Air Force was
completed in November, 1996. Revenues from this contract for the six
months ended January 31, 1997 were lower than in the first half of
fiscal 1996.
There were no grant revenues in the first half of fiscal 1997
compared with approximately $8,000 in support of VVI's development
activities in the first half of fiscal 1996.
Costs of technology management services were $600,208 (89%)
higher in the first half of fiscal 1997 than in the first half of
fiscal 1996 as more fully discussed below.
Costs related to retained royalties were $214,000 higher in 1997
than in 1996. This increase reflects inclusion of USET's domestic and
foreign patent expenses ($39,000) and amortization of the cost of
intangible assets acquired $(69,000) in the fiscal 1997 period. It
also reflects increased costs for consultants retained to assist in
evaluating and marketing corporate technologies ($22,000), domestic
patent costs on a new university technology ($14,000) and lower
recoveries of foreign patent costs against university royalties
($14,000). In addition, personnel costs (including benefits and
overheads) associated with patenting and licensing services were
higher ($75,000) in fiscal 1997 as a result of hiring employees to
evaluate and market corporate technologies. These costs include
domestic and foreign patent prosecution, maintenance and litigation
expenses. The Company carefully evaluates the future revenue
potential of each technology before it incurs substantial patent or
enforcement expenses. The Company expects costs related to retained
royalties to continue to increase during fiscal 1997 as it expands its
technology management services to corporations and universities.
Costs related to service contracts (including direct charges for
subcontractors' services and personnel costs associated with service
contracts) increased $175,000 compared with the first half of fiscal
1996. This increase includes costs in connection with VVI's SBIR
contract ($36,000), direct costs related to new corporate client
service contracts ($55,000) and increased personnel costs (including
benefits and overheads) associated with corporate and collaborative
service contracts.
Costs related to grant revenues decreased approximately $8,000
in proportion to the reduction in grant revenues.
Costs associated with new client development (principally
personnel costs, including benefits and overheads) increased
approximately $219,000 over the first six months of fiscal 1996. The
Company's strategic decision to expand its focus to include providing
technology management services to corporations required hiring
experienced employees to identify and develop new opportunities into
client relationships.
General and administration expenses were approximately $216,204
(37%) higher in the six months ended January 31, 1997. This increase
includes operating expenses supporting the Company's and USET's
ongoing operations. In addition, the Company signed a new five-year
office lease beginning in November, 1996, and incurred relocation
expenses in November, 1996, which are expected to increase other
operating expenses in the second half of fiscal 1997.
The net effect of these increases in operating revenues and
expenses was to increase the Company's operating loss by $263,774
(47%) compared with the first half of fiscal 1997.
Interest income decreased $27,387 (26%) because of lower average
invested balances and lower interest rates in the six months ended
January 31, 1997. Interest expense of $57,256 in fiscal 1997 relates
to the debt incurred in connection with the acquisition of USET.
In the six months ended January 31, 1997, net income related to
equity method affiliates was principally CTI's equity in the net
income of Equine Biodiagnostics, Inc. ("EBI") ($38,000) partially
offset by CTI's equity in net losses of other ventures. At January
31, 1997, CTI owned 33.7% of the outstanding common stock of Knowledge
Solutions, Inc. ("KSI"), and has loaned KSI $50,000 under a
subordinated secured convertible note (see Note 4 to Consolidated
Financial Statements in the Company's Annual Report on Form 10-K for
the year ended July 31, 1996), but has no further obligation to
provide additional funding to KSI. CTI's investment in KSI has been
reduced to zero. In the six months ended January 31, 1996, net income
related to equity method affiliates included the Company's 20% equity
in the net income of USET ($24,000), its equity in the net loss of KSI
($19,000) and its equity in the net income of EBI ($37,000).
In January, 1996, CTI received $96,907 in cash for the sale of
its remaining interest in Plasmaco, Inc. Since CTI's investment in
Plasmaco, Inc. was carried at no value, the $96,907 was included in
income for the second quarter of fiscal 1996.
Other expenses for the six months ended January 31, 1997, were
legal expenses incurred in connection with a suit brought against CTI,
some of its subsidiaries and directors as more fully detailed in Note
16 to Consolidated Financial Statements in the Company's Annual Report
on Form 10-K for the year ended July 31, 1996. Further hearings in
this case have been adjourned and are expected to occur later in
calendar 1997. CTI is unable to estimate the related legal expenses
which may be incurred in the remaining quarters of 1997. Unilens made
no payments in either half year. Since CTI carries this receivable
at zero value, any collections will be recorded in the period
collected. Through January 31, 1997, the Company had received
aggregate cash proceeds of approximately $1,011,000 from the January,
1989, sale of UOP's assets to Unilens. As cash proceeds were
received, CTI paid a 4% cash commission to Optical Associates, L. P.,
its joint venture partner.
The Company has net operating loss carryforwards for Federal
income tax purposes. Provision was made in each period for estimated
state income taxes.
The Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," effective August
1, 1996, and will disclose the pro forma effects fair value accounting
would have had on net income and earnings per share in its
consolidated financial statements for the year ending July 31, 1997.
It has not had a material effect on the accompanying financial
statements.
The Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of," effective August 1, 1996. It
has not had a material effect on the accompanying financial
statements.
Results of Operations - Three Months Ended January 31, 1997 vs. Three
Months Ended January 31, 1996
Consolidated revenues for the quarter ended January 31, 1997,
were $369,466 (95%) higher than for the quarter ended January 31,
1996. Retained royalties were $327,110 (113%) higher. Excluding
USET's effect, retained royalties were $54,349 (19%) higher.
Increased royalties on the gallium arsenide technology were partially
offset by net reductions in other royalties. Consolidating USET's
retained royalties increased retained royalties for the quarter ended
January 31, 1997 by $272,761 (94%). Revenues under service contracts
were $42,356 (43%) higher, reflecting increased revenues from
corporate client service contracts partly offset by reduced revenues
from collaborative service contracts. There were no grant revenues
in either year's second quarter.
Costs of technology management services were $208,862 (51%)
higher in the second quarter of fiscal 1997 than in the second quarter
of fiscal 1996. Costs related to retained royalties were $45,000
higher in 1997. This reflects inclusion of USET's domestic and
foreign patent expenses ($17,000) and amortization of the costs of
intangible assets acquired ($35,000). Costs related to service
contracts were approximately $83,000 higher than in the fiscal 1996
second quarter. This increase includes direct costs and increased
personnel costs (including benefits and overheads) associated with new
corporate client service contracts partly offset by lower costs
related to collaborative service contracts. There were no costs
related to grant revenues in either second quarter.
General and administration expenses were $182,311 (65%) higher
in the quarter ended January 31, 1997. This increase includes
operating expenses supporting the Company's ongoing operations
including approximately $65,000 of additional general and
administration expenses of USET's operations.
The net effect of the increases in operating revenues and
expenses was to increase the Company's operating loss by $21,706 (7%)
compared to the second quarter of fiscal 1996.
Interest income decreased $12,938 (25%) because of lower average
invested balances and lower interest rates in the quarter ended
January 31, 1997. Interest expense of $28,628 in the fiscal 1997
quarter relates to the debt incurred in connection with the
acquisition of USET.
In the fiscal 1997 second quarter, net income related to equity
method affiliates was principally CTI's equity in the net income of
EBI offset by CTI's equity in net losses of other ventures. In the
quarter ended January 31, 1996, net income related to equity method
affiliates included the Company's 20% equity in the net loss of USET
($7,000) and CTI's equity in the net income of EBI ($18,000).
Other income in the second quarter of fiscal 1997 included a
$40,000 gain realized on CTI's sale of available-for-sale securities
offset by legal expenses in connection with the litigation detailed
in Note 16 to Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the year ended July 31, 1996. Other
income in the second quarter of fiscal 1996 included a $30,000 gain
realized on CTI's sale of available-for-sale securities offset by
legal expenses in connection with the litigation mentioned in the
preceding sentence.
In January, 1996, CTI received $96,907 in cash for the sale of
its remaining interest in Plasmaco, Inc. Since CTI's investment in
Plasmaco, Inc. was carried at no value, the $96,907 was included in
income for the second quarter of fiscal 1996.
Results of Operations - Three Months Ended January 31, 1997 (Second
Quarter) vs. Three Months Ended October 31, 1996 (First Quarter)
Consolidated revenues for the quarter ended January 31, 1997 were
$256,323 (51%) higher than for the quarter ended October 31, 1996.
Historically, retained royalties in the second fiscal quarter are
higher than in the first quarter because of licensees who report
semiannually. Retained royalties were $375,897 (156%) higher than in
the first quarter. Revenues under service contracts were $119,574
(46%) lower than in the first quarter. This reduction results from
completion of VVI's SBIR in the first quarter, completion of CTI's
contract with the Department of the Air Force in November, 1996, and
lower revenues from services under corporate and collaborative service
contracts.
Total operating expenses of $1,082,198 in the second quarter were
approximately $84,000 (8%) higher than in the first quarter. Higher
personnel costs and various costs related to the Company's annual
meeting of shareholders contributed to this increase. In the second
quarter costs of technology management services were approximately
$33,000 (5%) lower and general and administration expenses were
approximately $117,000 (34%) higher than in the first quarter. While
costs related to service contracts were higher, both costs related to
retained royalties and costs associated with new client development
were lower.
PART II - OTHER INFORMATION
Item 2. Changes In Securities
(c) As of November 1, 1996, the registrant issued to Desmond
Towey & Associates non-transferrable warrants to purchase 6,000 shares
of the registrant's common stock at $10.50 (the mean between the high
and low prices on the American Stock Exchange on November 1, 1996).
The warrants were issued in partial consideration for public relations
services to be provided between November 1, 1996 and April 30, 1997.
The warrants become exercisable in May, 1997, and expire three years
from issuance. There were no underwriters involved in the
transaction. The warrants and the common stock underlying the
warrants were exempt from registration under Section 4(2) of the
Securities Act of 1933. The warrants contained, and the shares
issuable upon exercise will contain, restrictive legends.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of stockholders held December 20,
1996, the following directors were elected:
Name Votes For Votes Withheld
George C.J. Bigar 5,063,168 48,486
Michael G. Bolton 5,065,793 45,861
Bruce E. Langton 5,063,418 48,236
H.S. Leahey 5,066,093 45,561
Frank R. McPike, Jr. 5,063,168 48,486
John M. Sabin 5,062,043 49,611
George M. Stadler 5,066,168 45,486
Harry Van Benschoten 5,063,468 48,186
In addition, no votes were withheld as to all nominees and there
were no broker non-votes.
Also at the Company's annual meeting of stockholders held
December 20, 1996, stockholders approved the 1996 Directors' Stock
Participation Plan with 4,243,428 votes for, 204,142 votes against and
37,914 votes abstained. There were no broker non-votes.
Item 6. Exhibits and Reports on Form 8-K Page
A) Exhibits
10.1* Employment Agreement between registrant and 23-25
Frank R. McPike, Jr. dated January 7, 1997.
11.1 Schedule of computation of earnings per share 26
for the three and six months ended January 31,
1997 and 1996.
27.1 Financial Data Schedule (EDGAR only).
B) Reports on Form 8-K
A report on Form 8-K dated November 8, 1996 was filed to report
under Item 5 a change in the registrant's principal executive
offices.
* Management contract or compensatory plan.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: March 14, 1997 By: S/ Frank R. McPike, Jr.
Frank R. McPike, Jr.
Vice President, Finance,
Treasurer, Chief Financial
Officer and Authorized Signer
Exhibit 11.1
COMPETITIVE TECHNOLOGIES, INC.
Schedule of Computation of Earnings Per Share
(Unaudited)
Six months Quarter
ended January 31, ended January 31,
1997 1996 1997 1996
Net income (loss)
applicable to
common stock $ (771,896) $ (305,433) $ (297,622) $ (131,225)
Common and common
equivalent shares -
primary:
Weighted average common
shares outstanding 5,905,943 5,822,271 5,908,786 5,830,591
Adjustments for assumed
exercise of stock
options 65,081* 30,664* 64,279* 57,610*
Adjustments for assumed
exercise of stock
warrants 11,293* 2,489* 11,232* 23,492*
Weighted average number of
common and common
equivalent shares
outstanding 5,982,317 5,855,424 5,984,297 5,911,693
Common and common equivalent
shares - fully diluted:
Weighted average common
shares outstanding 5,905,943 5,822,271 5,908,786 5,830,591
Adjustments for assumed
exercise of stock
options 86,115* 73,016* 86,115* 73,016*
Adjustments for assumed
exercise of stock
warrants 12,886* 7,397* 12,886* 35,385*
Weighted average number
of common and common
equivalent shares
outstanding 6,004,944 5,902,684 6,007,787 5,938,992
Net income (loss) per
share of common stock:
Primary and fully
diluted $ (0.13) $ (0.05) $ (0.05) $ (0.02)
* Anti-dilutive.
These calculations are submitted in accordance with Regulation S-K item 601
(b) (11) which differs from the requirements of paragraph 40 of Accounting
Principles Board Opinion No. 15 because they produce an anti-dilutive result.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule for Form 10-Q for January 31, 1997
</LEGEND>
<CIK> 0000102198
<NAME> COMPETITIVE TECHNOLOGIES, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 810,059
<SECURITIES> 2,913,892
<RECEIVABLES> 1,367,106
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,212,221
<PP&E> 489,444
<DEPRECIATION> 264,278
<TOTAL-ASSETS> 7,879,503
<CURRENT-LIABILITIES> 2,007,676
<BONDS> 0
0
60,675
<COMMON> 59,423
<OTHER-SE> 5,525,546
<TOTAL-LIABILITY-AND-EQUITY> 7,879,503
<SALES> 0
<TOTAL-REVENUES> 1,261,125
<CGS> 0
<TOTAL-COSTS> 2,080,278
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,256
<INCOME-PRETAX> (759,096)
<INCOME-TAX> 12,800
<INCOME-CONTINUING> (771,896)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (771,896)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
AGREEMENT dated as of January 7, 1997 between Competitive
Technologies, Inc. , a Delaware corporation (hereinafter referred
to as "CTI"), and Frank R. McPike, Jr. of Ridgefield, Connecticut
(Hereinafter referred to as "McPike").
WITNESSETH:
1. Employment and Term. CTI hereby employs McPike and
McPike hereby agrees to continue employment by CTI, for a period
commencing on January 7, 1997 and ending on January 6, 2000, unless
sooner terminated or extended as hereinafter provided.
2. Extension of Term. Subject to the provisions of
paragraph 9 hereof, the term of this Agreement shall be extended
automatically for consecutive periods of twelve (12) calendar
months, commencing after January 7, 2000, unless either party
hereto shall give written notice to the other, not later than one
hundred and twenty days prior to January 7, 2000, or January 7 of
each calendar year thereafter, that either party elects to
terminate this Agreement as of January 6 of the following year.
3. Duties. During the term hereof McPike shall serve in the
executive position of Chief Financial Officer of CTI and shall
serve on its Board of Directors. He shall perform during normal
business hours such duties as may be assigned to him from time to
time by the Chief Executive Officer. McPike shall report directly
to the Chief Executive Officer.
4. Compensation. During the term hereof, CTI shall pay
McPike compensation at the minimum rate of One Hundred Sixty-Seven
Thousand Dollars ($167,000) per year, payable in twenty-six (26)
equal payments per year during the term hereof. McPike's
compensation shall be reviewed annually by the Board of Directors
of CTI.
5. Expense Reimbursement and Fringe Benefits. CTI shall
reimburse McPike for all expenses incurred by him on behalf of or
attributable to the business of CTI. McPike shall be entitled to
receive (without cost to him) all medical and hospitalization
benefits, group life insurance coverage, term life insurance
coverage and all other benefits which CTI (or any of its associated
companies) currently provides or which may be hereafter instituted.
6. Restrictive Covenants. In the event that McPike
terminates this Agreement, McPike covenants and agrees that, for a
period of two (2) years following such termination, he will not
engage, directly or indirectly, as an owner, employee, officer,
agent, representative or otherwise, or become a principal
stockholder, in any business operating in the United States of
America which is competitive with, or substantially similar to, the
principal business engaged in by CTI.
7. Right of CTI to Injunction. If McPike violates the
provisions of paragraph 6 hereof, CTI shall be entitled to an
injunction to be issued by a court of competent jurisdiction
enjoining the breach of said provisions by McPike.
8. Safeguarding of Information. McPike agrees that (a) he
will keep in strict confidence all proprietary information which he
may acquire during his employment relating to the business or
affairs of CTI or any of its associated companies; and (b) he will
not, without prior written consent of CTI communicate, divulge,
disclose, or use such confidential information except as may be
required to perform his duties hereunder.
9. Termination. In the event of the death of McPike, this
Agreement shall terminate on the last day of the calendar month in
which such death shall occur, provided that all accrued rights of
McPike at the time of his death (including salary, stock options
and severance pay installments) shall be paid to his wife, Patricia
McPike, if and so long as she shall survive him. If his wife shall
not survive long enough to receive the benefits of all such rights,
any balance remaining thereafter shall be paid to McPike's estate.
CTI shall have the right to terminate this Agreement:
(a) at any time for cause, which for purposes hereof shall
mean any criminal act by McPike; or
(b) if McPike is personally unable to perform his duties
hereunder for a period of six (6) consecutive months due to
physical or mental illness, disability or incapacity; provided,
however, that if CTI shall have terminated this Agreement because
of such illness, disability or incapacity and such illness,
disability or incapacity shall have been cured prior to the
termination of this Agreement then, in such event, this Agreement
shall ipso facto be reinstated for the remainder of the term hereof
with the same force and effect as if CTI had never exercised its
right of termination except that McPike shall not be entitled to
compensation hereunder for the period during which this Agreement
shall have been in a state of termination, and the executive duties
to be performed by McPike hereunder shall be those as specified by
the Board of Directors of CTI.
10. Enforceability After Termination. The covenants and
agreements set forth in paragraphs 6, 7, and 8 shall survive and be
enforceable after the termination of this Agreement.
11. Complete Agreement. This Agreement constitutes the
complete agreement between CTI and McPike, no verbal or other
statements, inducement or representations have been made to or
relied upon by McPike, and no modification hereto shall be binding
on either party unless in writing and signed by both parties
hereto.
12. Severability. If any term or provision of this Agreement
shall to any extent be held invalid or unenforceable, the remaining
terms and provisions of this Agreement shall not be affected
thereby and shall be valid and enforceable to the fullest extent
permitted by law.
13. Binding Upon Successor. This Agreement shall be binding
upon and inure to the benefit of McPike and shall be binding upon
and inure to the benefit of CTI and its successors and assigns.
14. Governing Law. This Agreement shall be governed by the
laws of Connecticut as to both interpretation and performance.
IN WITNESS WHEREOF, Competitive Technologies, Inc. has caused
this Agreement to be duly executed by its authorized officers and
its corporate seal to be hereunto affixed, and Mr. McPike has duly
signed and sealed this Agreement, all as of the day any year first
written above.
COMPETITIVE TECHNOLOGIES, INC.
By: S/ George M. Stadler
George M. Stadler
Chief Executive Officer
Accepted and Agreed:
This 7TH day of January, 1997
S/ Frank R. McPike, Jr.
Frank R. McPike, Jr.
