10-Q April 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8696
COMPETITIVE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-2664428
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1960 Bronson Road
P.O. Box 340
Fairfield, Connecticut 06430
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (203) 255-6044
Former name, former address and former fiscal year, if
changed since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
Common Stock outstanding as of June 1, 1997 5,926,829 shares
Exhibit Index on sequentially numbered page 20 of 22.
Page 1 of 22 sequentially numbered pages
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Condensed Financial Statements
A. Financial Statements
Consolidated Balance Sheets at
April 30, 1997 and July 31, 1996 3-4
Consolidated Statements of Operations for the
three months ended April 30, 1997 and 1996 5
Consolidated Statements of Operations for
the nine months ended April 30, 1997 and 1996 6
Consolidated Statement of Changes in
Shareholders' Interest for the nine
months ended April 30, 1997 7
Consolidated Statements of Cash Flows for the
nine months ended April 30, 1997 and 1996 8-9
Notes to Consolidated Financial Statements 10-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13-19
PART II. OTHER INFORMATION
Item 2. Changes in Securities 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
PART I. FINANCIAL INFORMATION
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, 1997 and July 31, 1996
(Unaudited)
April 30, July 31,
1997 1996
ASSETS
Current assets:
Cash and cash equivalents $ 2,176,445 $ 560,640
Short-term investments, at market 2,174,166 3,820,990
Receivables, including $15,769 and $19,910
receivable from related parties in
April and July, respectively 496,339 1,088,030
Prepaid expenses and other current assets 72,611 218,903
Total current assets 4,919,561 5,688,563
Property and equipment, net 217,430 144,360
Investments 379,492 321,145
Intangible assets acquired, principally
licenses and patented technologies, net
of accumulated amortization of $175,794
and $71,790 in April and July,
respectively 1,658,112 1,794,795
Directors' escrow account 325,000 325,000
Other assets 33,671 94,277
TOTAL ASSETS $ 7,533,266 $ 8,368,140
See accompanying notes
PART I. FINANCIAL INFORMATION
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, 1997 and July 31, 1996
(Unaudited)
April 30, July 31,
1997 1996
LIABILITIES AND SHAREHOLDERS' INTEREST
Current liabilities:
Accounts payable, including $1,998 and
$9,365 payable to related parties
in April and July, respectively $ 77,146 $ 83,571
Accrued liabilities, including $45,493
payable to related parties in April
1997 1,362,712 794,250
Current portion of purchase obligation 550,000 550,000
Total current liabilities 1,989,858 1,427,821
Noncurrent portion of purchase obligation,
net of unamortized discount of $58,336
and $132,633 in April and July,
respectively 243,224 652,367
Commitments and contingencies
Shareholders' interest:
5% preferred stock, $25 par value 60,675 60,675
Common stock, $.01 par value 59,508 59,258
Capital in excess of par value 25,178,144 24,993,926
25,000 shares of treasury stock, at cost (174,713) (174,713)
Net unrealized holding gains on
available-for-sale securities 8,728 10,605
Accumulated deficit (19,832,158) (18,661,799)
Total shareholders' interest 5,300,184 6,287,952
TOTAL LIABILITIES AND SHAREHOLDERS'
INTEREST $ 7,533,266 $ 8,368,140
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
for the three months ended April 30, 1997 and 1996
(Unaudited)
1997 1996
Revenues:
Retained royalties $ 359,802 $ 495,358
Revenues under service contracts
and grants, including $26,437,
and $38,728 from related parties in
1997 and 1996, respectively 209,049 235,485
568,851 730,843
Costs of technology management
services of which $30,850 was
paid to related parties in 1997 759,235 625,942
General and administration expenses,
of which $3,619 and $21,158 were
paid to related parties in 1997
and 1996, respectively 247,137 283,022
1,006,372 908,964
Operating loss (437,521) (178,121)
Interest income 30,506 53,535
Interest expense (17,041) (28,642)
Income (losses) related to equity
method affiliates 9,047 (3,414)
Other income (expense), net 3,346 (51,913)
Loss before income taxes and
minority interest (411,663) (208,555)
Provision for income taxes 21,800 7,500
Loss before minority interest (433,463) (216,055)
Minority interest in losses
of subsidiary 35,000 --
Net loss $ (398,463) $ (216,055)
Net loss per share
(primary and fully diluted): $ (0.07) $ (0.04)
Weighted average number of common and
common equivalent shares outstanding
(primary and fully diluted) 5,921,172 5,882,638
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
for the nine months ended April 30, 1997 and 1996
(Unaudited)
1997 1996
Revenues:
Retained royalties $ 1,218,101 $ 986,796
Revenues under service contracts
and grants, including $114,391,
and $109,699 from related parties in
1997 and 1996, respectively 611,875 452,534
1,829,976 1,439,330
Costs of technology management
services, of which $36,612 and $3,068
were paid to related parties in 1997
and 1996, respectively 2,035,054 1,301,553
General and administration expenses,
of which $38,879 and $68,071
were paid to related parties in 1997
and 1996, respectively 1,051,596 871,277
3,086,650 2,172,830
Operating loss (1,256,674) (733,500)
Interest income 109,696 160,112
Interest expense (74,297) (28,751)
Income related to equity method
affiliates 43,366 38,677
Gain on sale of investment in Plasmaco, Inc. -- 96,907
Other income (expense), net 7,150 (32,433)
Loss before income taxes and minority
interest (1,170,759) (498,988)
Provision for income taxes 34,600 22,500
Loss before minority interest (1,205,359) (521,488)
Minority interest in losses of
subsidiary 35,000 --
Net loss $(1,170,359) $ (521,488)
Net loss per share
(primary and fully diluted): $ (0.20) $ (0.09)
Weighted average number of common and
common equivalent shares outstanding
(primary and fully diluted) 5,910,907 5,842,467
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Interest
For the nine months ended April 30, 1997
(Unaudited)
<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 . . . . 13,000 130 86,088
Exercise of common
stock warrants. . . . 6,000 60 38,190
Stock issued under
Directors' Stock
Participation Plan. . 6,000 60 59,940
Net change in
unrealized holding
gains on available-
for-sale securities . (1,877)
Net loss. . . . . . . . (1,170,359)
Balance - April 30, 1997 2,427 $60,675 5,950,829 $59,508 $25,178,144 (25,000) $(174,713) $ 8,728 $(19,832,158)
</TABLE>
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the nine months ended April 30, 1997 and 1996
(Unaudited)
1997 1996
Cash flow from operating activities:
Net loss $(1,170,359) $ (521,488)
Noncash items included in net loss:
Depreciation and amortization 285,972 187,877
Minority interest (35,000) --
Income related to equity
method affiliates (43,366) (38,677)
Directors' stock and stock retirement
plan accruals 134,650 83,380
Amortization of discount on purchase
obligation 74,297 28,629
Other noncash items (42,200) (16,015)
Other 19 (44,798)
Net changes in various operating
accounts:
Receivables 591,691 (112,722)
Prepaid expenses and other current
assets 79,041 (56,340)
Accounts payable and accrued
liabilities 392,163 260,660
Deferred revenues 79,369 16,055
Net cash flow from (used in) operating
activities 346,277 (213,439)
Cash flow from investing activities:
Purchases of property and equipment, net (127,181) (35,358)
Proceeds from sales of short-term
investments 4,715,784 1,887,989
Purchases of short-term investments (3,012,782) (1,370,824)
Investments in affiliates and subsidiaries 17,679 96,907
Cash acquired in connection with
investment in USET, net of $500,000
cash paid -- 105,171
Net cash flow from investing activities 1,593,500 683,885
Cash flow from financing activities:
Proceeds from issuance of common stock, net 124,468 414,556
Proceeds from minority's investment in
subsidiary's common stock 35,000 --
Repayment of debt (483,440) --
Net cash flow from financing activities (323,972) 414,556
Net increase in cash and cash
equivalents 1,615,805 885,002
Cash and cash equivalents, beginning
of period 560,640 336,098
Cash and cash equivalents, end of period $ 2,176,445 $ 1,221,100
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the nine months ended April 30, 1997 and 1996
(Unaudited)
1997 1996
Supplemental cash flow information:
Cash paid for income taxes $ 58,665 $ 68,767
Schedule of noncash investing activities:
Investments in affiliates and subsidiaries $ -- $(1,039,938)
Schedule of noncash financing activities:
Debt incurred for investment in subsidiary $ -- $ 1,145,109
Issuance of directors' stock $ 60,000 $ 40,000
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Interim Financial Statements
Interim financial information presented in the accompanying
financial statements and notes hereto is unaudited.
The year end balance sheet data was derived from audited
financial statements but does not include all disclosures required by
generally accepted accounting principles.
In the opinion of management, all adjustments which are necessary
to present the financial statements fairly in conformity with
generally accepted accounting principles, consisting only of normal
recurring adjustments, have been made.
Certain amounts have been reclassified to conform with the
presentation in the financial statements for fiscal 1997.
The interim financial statements and notes thereto as well as the
accompanying Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended July 31,
1996.
2. Acquisition of USET
On January 31, 1996, the Company purchased the remaining
interests in USET (see Note 2 to Consolidated Financial Statements in
the Company's Annual Report on Form 10-K for the year ended July 31,
1996). The following unaudited pro forma summary information presents
the consolidated results of operations of the Company as if this
acquisition had occurred on August 1, 1994 (in thousands, except per
share amounts). The unaudited pro forma amounts are based on
assumptions and estimates the Company believes are reasonable;
however, such amounts do not necessarily represent results which would
have occurred if the acquisition had taken place on the basis assumed,
nor are they indicative of the results of future combined operations.
For the nine
months ended
April 30, 1996
Total revenues $ 1,860
Operating loss (574)
Net loss (416)
Net loss per share $ (0.07)
3. Short-term Investments
As of April 30, 1997 the components of the Company's available-
for-sale securities are as follows (in thousands):
Gross Gross
Unrealized Unrealized
Aggregate Holding Holding Amortized Maturity
Security Type Fair Value Gains Losses Cost Basis Grouping
U.S. Treasury Within
Bills $ 1,490 $ 9 -- $ 1,481 1 year
Other U.S.
government Within
debt 1 year
securities 684 -- -- 684
Total $ 2,174 $ 9 -- $ 2,165
For the quarters ended April 30, 1997 and 1996, respectively,
proceeds from the sale of available-for-sale securities were
$2,237,675 and $476,197 which resulted in gross realized gains of
$18,410 and $1,163. For the nine months ended April 30, 1997 and
1996, respectively, proceeds from the sale of available-for-sale
securities were $4,715,784 and $1,887,989 which resulted in gross
realized gains of $58,055 and $32,258. Cost is based on specific
identification in computing realized gains.
4. Receivables
Receivables comprise:
April 30, July 31,
1997 1996
Royalties $ 311,629 $ 879,380
Government contracts 26,599 74,978
Other 158,111 133,672
$ 496,339 $1,088,030
5. Accrued Liabilities
Accrued liabilities were:
April 30, July 31,
1997 1996
Accrued compensation $ 224,488 $ 125,256
Royalties payable 848,736 417,656
Deferred revenues 95,956 16,587
Other accrued liabilities 193,532 234,751
$1,362,712 $ 794,250
6. Contingencies
In November, 1991, a suit was filed in Connecticut against CTI,
its wholly-owned subsidiary, Genetic Technology Management, Inc.
("GTM"), its majority-owned subsidiary, University Optical Products
Co. ("UOP"), and several current and former directors on behalf of the
59 limited partners of Optical Associates, Limited Partnership
("OALP"). The complaint alleges, among other things, that the January
1989 sale of UOP's assets to Unilens Corp. USA ("Unilens") violated
the partnership agreement and that OALP is entitled to the full
proceeds of the sale to Unilens. The complaint claims, among other
things, money damages and treble and punitive damages in an
unspecified amount and attorneys' fees. The Company believes that the
asserted claims are without merit and intends to defend vigorously the
action instituted by plaintiffs. Through April 30, 1997, the Company
had received aggregate cash proceeds of approximately $1,011,000 from
the January 1989 sale of UOP's assets to Unilens. As cash proceeds
were received, the Company paid a 4% commission to OALP, its joint
venture partner. Further hearings in this case have been adjourned
and are expected to occur later in calendar 1997.
PART I. FINANCIAL INFORMATION (Continued)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition and Liquidity
Cash and cash equivalents of $2,176,445 at April 30, 1997 are
$1,615,805 higher than cash and cash equivalents of $560,640 at July
31, 1996. Operating activities provided $346,277, investing
activities provided $1,593,500 and financing activities used $323,972.
Competitive Technologies, Inc. ("CTI") and its majority-owned
subsidiaries' ("the Company") net loss of $1,170,359 for the nine
months ended April 30, 1997 included the following noncash items:
depreciation and amortization of approximately $286,000, income
related to equity method affiliates of approximately $43,000,
amortization of discount on purchase obligation of approximately
$74,000 and accruals of approximately $151,000.
In general, changes in various operating accounts result from
changes in the timing and amounts of cash flows before and after the
end of the period. Approximately $568,000 of cash provided by
operations was from the decrease in royalties receivable and $431,000
was provided by the increase in royalties payable. This reflects the
normal cycle of royalty collections and payments after the
consolidation of University Science, Engineering and Technology, Inc.
("USET"). Higher deferred revenues also provided approximately
$79,000 in cash from operations.
Approximately $127,000 of property and equipment purchased in the
nine-month period ended April 30, 1997 relate to equipment additions
and technical upgrades for added staff and increased client service
capabilities ($28,000) and improving ($30,000) and furnishing
($69,000) CTI's principal office. CTI relocated its principal office
on November 8, 1996 and expects additional expenditures to complete
those improvements during the next three months.
Proceeds from sales of short-term investments of approximately
$4,716,000 are from maturities of the Company's U.S. government debt
securities. The Company reinvested more than $3,000,000 in U.S.
government debt securities.
In the nine-month period ended April 30, 1997, the Company
received $86,218 from stock options exercised to purchase 13,000
shares of common stock at prices from $6.5625 to $6.75 and $38,250
from warrants exercised to purchase 6,000 shares of common stock at
$6.375.
On January 31, 1997, the Company paid approximately $483,000 of
the USET purchase obligation. This installment was 60% of USET's
gross retained earned revenues for the preceding calendar year as
provided in the purchase agreement.
In March, 1997, a third party invested $35,000 cash in exchange
for approximately 5% equity in Vector Vision, Inc. ("VVI"). These
funds have been or are expected to be used in partial support of VVI's
development activities through the remainder of fiscal 1997.
The Company carries liability insurance, directors' and officers'
liability insurance and casualty insurance for owned or leased
tangible assets. It does not carry key person life insurance. There
are no legal restrictions on payments of dividends by CTI.
At April 30, 1997, the Company had no outstanding commitments for
capital expenditures. The Company expects to pay approximately
$550,000 of the USET purchase obligation on January 31, 1998 with the
balance of $302,000 to be paid in 1999.
The Company continues to pursue additional university and
corporate technology management opportunities. If and when these
opportunities are consummated, the Company expects to commit capital
resources to these operations.
The Company does not believe that inflation had a significant
impact on its operations during 1997 or 1996 or that it will have a
significant impact on operations during the next twelve-month
operating period.
VVI, CTI's 50.1%-owned subsidiary, continues to seek additional
financing to support its continuing development. Without additional
outside financing, VVI's development activities will proceed at a
minimum level. The Company, the inventor and others are committed to
support VVI's development activities through the remainder of fiscal
1997 to a total of approximately $110,000, during which time VVI's
goal is to improve its video compression software product for MPEG-4,
an international standard expected to be adopted for consumer
applications such as video teleconferencing, video databases and
wireless video access. The Company and others have supported VVI's
operating activities during the second and third quarters of 1997.
VVI's operating activities during the first quarter of 1997 were
funded primarily by the approximately $36,000 remaining on its Small
Business Innovation Research ("SBIR") contract awarded in April, 1996.
With more than $4,350,000 in cash, cash equivalents and short-
term investments at April 30, 1997, the Company anticipates that
currently available funds will be sufficient to finance cash needs
over the next two to three years for its current operating activities
as well as for expansion of its technology management business
operations, including related investments in start-up companies. This
anticipation is based upon the Company's current expectations.
However, expansion of the Company's services and related investments
in start-up companies (with resulting increases in operating expenses)
is subject to many factors which are outside the Company's control and
to currently unanticipated opportunities that may arise in the future.
Accordingly, there can be no assurance that the Company's current
expectations regarding the sufficiency of currently available funds
will prove to be accurate.
Results of Operations - Nine Months Ended April 30, 1997 vs. Nine
Months Ended April 30, 1996
Through January 31, 1996, the Company accounted for its
investment in USET on the equity method and recorded 20% of USET's net
income. The Company has consolidated USET's results of operations for
all periods since February 1, 1996.
Consolidated revenues for the nine months ended April 30, 1997,
were $390,646 (27%) higher than for the nine months ended April 30,
1996. Retained royalties were $231,305 (23%) higher than in the nine
months of fiscal 1996. However, excluding USET's effect, retained
royalties were $17,425 (3%) lower. Up-front license fees for a plasma
display energy recovery technology of approximately $97,000 for the
nine months ended April 30, 1996 were non-recurring and this decrease
was partially offset by a new license fee and increased royalties on
several technologies for the nine months ended April 30, 1997. There
were also modest increases in royalties from sales of Renova and
Ethyol (see Item 7 in the Company's Annual Report on Form 10-K for
the year ended July 31, 1996). Consolidating USET's retained
royalties increased retained royalties for the nine months ended April
30, 1997 by $248,730 (25%) as compared with the nine months ended
April 30, 1996.
Revenues under service contracts and grants were $611,875 in the
nine months of fiscal 1997, $159,341 (35%) higher than in the nine
months of fiscal 1996. Revenues from intercorporate service
contracts, including CTI's first revenue from transferring rights to
a corporate client's technology, were $357,800 in fiscal 1997,
approximately $221,000 higher than in fiscal 1996. Expansion of the
Company's focus to include providing technology management services
to corporations is beginning to generate revenues. Revenues from
service contracts for various government clients of $203,000 in fiscal
1997 were $82,000 lower than in fiscal 1996. VVI's SBIR contract was
completed in October, 1996, and CTI's contract with the Department of
the Air Force was completed in November, 1996. Revenues from this
contract for the nine months ended April 30, 1997 were lower than in
the nine months ended April 30, 1996.
There were no grant revenues in the nine months of fiscal 1997
compared with approximately $7,784 in support of VVI's development
activities in the nine months of fiscal 1996.
Costs of technology management services were approximately
$734,000 (56%) higher in the first nine months of fiscal 1997 than in
the first nine months of fiscal 1996 as more fully discussed below.
The Company expects costs of technology management services to
continue to increase as it expands its technology management services
to corporations and universities.
Costs related to retained royalties were $164,000 higher in 1997
than in 1996. This increase includes $104,000 in amortization of the
cost of intangible assets acquired in connection with the purchase of
USET. It also reflects increased costs for personnel and consultants
retained to assist in evaluating and marketing corporate technologies,
domestic patent costs on a new university technology and lower
recoveries of foreign patent costs against university royalties.
These costs include domestic and foreign patent prosecution,
maintenance and litigation expenses. The Company carefully evaluates
the future revenue potential of each technology before it incurs
substantial patent or enforcement expenses.
Costs related to service contracts and grants (including direct
charges for subcontractors' services and personnel costs associated
with service contracts) increased $264,000 compared with the first
nine months of fiscal 1996. This increase includes costs in
connection with VVI's SBIR contract and efforts to develop its video
compression technology ($108,000), and increased personnel (including
benefits and overheads) and direct costs associated with corporate and
collaborative service contracts.
Costs associated with new client development (principally
personnel costs, including benefits and overheads) increased
approximately $305,000 over the first nine months of fiscal 1996. The
Company's strategic decision to expand its focus to include providing
technology management services to corporations required hiring
experienced employees to identify and develop new opportunities into
client relationships.
General and administration expenses were approximately $180,000
(21%) higher in the nine months ended April 30, 1997. This increase
includes operating expenses supporting the Company's and USET's
ongoing operations. In addition, the Company signed a new five-year
office lease beginning in November, 1996, (and incurred relocation
expenses in November, 1996) which is expected to increase other
operating expenses in the remaining quarter of fiscal 1997.
The net effect of these increases in operating revenues and
expenses was to increase the Company's operating loss by $523,174
(71%) compared with the first nine months of fiscal 1997.
Interest income decreased $50,416 (31%) because of lower average
invested balances and lower interest rates in the nine months ended
April 30, 1997. Interest expense of $74,297 in fiscal 1997 relates
to the debt incurred in connection with the acquisition of USET.
In the nine months ended April 30, 1997, net income related to
equity method affiliates was principally CTI's equity in the net
income of Equine Biodiagnostics, Inc. ("EBI") ($51,000) partially
offset by CTI's equity in net losses of other ventures. At April 30,
1997, CTI owned 33.7% of the outstanding common stock of Knowledge
Solutions, Inc. ("KSI"), and has loaned KSI $50,000 under a
subordinated secured convertible note (see Note 4 to Consolidated
Financial Statements in the Company's Annual Report on Form 10-K for
the year ended July 31, 1996), but has no further obligation to
provide additional funding to KSI. CTI's investment in KSI has been
reduced to zero. In the nine months ended April 30, 1996, net income
related to equity method affiliates included the Company's 20% equity
in the net income of USET ($30,000), its equity in the net loss of KSI
($44,000) and its equity in the net income of EBI ($53,000).
In January, 1996, CTI received $96,907 in cash for the sale of
its remaining interest in Plasmaco, Inc. Since CTI's investment in
Plasmaco, Inc. was carried at no value, the $96,907 was included in
income for the second quarter of fiscal 1996.
Other income for the nine months ended April 30, 1997, includes
approximately $58,000 gain from short-term investments.
Other expenses for the nine months ended April 30, 1997, were
legal expenses incurred in connection with a suit brought against CTI,
some of its subsidiaries and directors as more fully detailed in Note
16 to Consolidated Financial Statements in the Company's Annual Report
on Form 10-K for the year ended July 31, 1996. Further hearings in
this case have been adjourned and are expected to occur later in
calendar 1997. CTI is unable to estimate the related legal expenses
which may be incurred in the remaining quarter of 1997. Unilens made
no payments in either year's nine-month period. Since CTI carries
this receivable at zero value, any collections will be recorded in the
period collected. Through April 30, 1997, the Company had received
aggregate cash proceeds of approximately $1,011,000 from the January,
1989, sale of UOP's assets to Unilens. As cash proceeds were
received, CTI paid a 4% cash commission to Optical Associates, L. P.,
its joint venture partner.
The Company has net operating loss carryforwards for Federal
income tax purposes. Provision was made in each period for estimated
state income taxes.
The Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," effective August
1, 1996, and will disclose the pro forma effects fair value accounting
would have had on net income and earnings per share in its
consolidated financial statements for the year ending July 31, 1997.
It has not had a material effect on the accompanying financial
statements.
The Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of," effective August 1, 1996. It
has not had a material effect on the accompanying financial
statements.
Results of Operations - Three Months Ended April 30, 1997 vs. Three
Months Ended April 30, 1996
Consolidated revenues for the quarter ended April 30, 1997, were
$161,992 (22%) lower than for the quarter ended April 30, 1996.
Retained royalties were $135,556 (27%) lower partially due to a
nonrecurring effect from consolidating USET for the first time in the
1996 quarter. This effect was partially offset by the net increase
in royalty revenues from the USET portfolio including a license fee
on a technology under development. Revenues under service contracts
were $26,436 (11%) lower, reflecting lower revenues from collaborative
service contracts (primarily CTI's contract with the Department of the
Air Force) partly offset by increased revenues from corporate client
service contracts. There were no grant revenues in either year's
third quarter.
Costs of technology management services were $133,293 (21%)
higher in the third quarter of fiscal 1997 than in the third quarter
of fiscal 1996. Costs related to retained royalties were $51,000
lower in 1997. Costs related to service contracts were approximately
$97,000 higher than in the fiscal 1996 third quarter. Most of this
increase relates to VVI's efforts to develop its video compression
technology. Costs associated with new client development increased
approximately $87,000 compared with the third quarter of fiscal 1996.
There were no costs related to grant revenues in either third quarter.
General and administration expenses were $35,885 (13%) lower in
the quarter ended April 30, 1997. This reflects increased focus on
technology management services and new client development.
The net effect of the increases in operating revenues and
expenses was to increase the Company's operating loss by $259,400
(146%) compared to the third quarter of fiscal 1996.
Interest income decreased $23,029 (43%) because of lower average
invested balances and lower interest rates in the quarter ended April
30, 1997. Interest expense of $17,041 in the fiscal 1997 quarter
relates to the debt incurred in connection with the acquisition of
USET.
In the fiscal 1997 third quarter, net income related to equity
method affiliates was principally CTI's equity in the net income of
EBI offset by CTI's equity in net losses of other ventures. In the
quarter ended April 30, 1996, net income related to equity method
affiliates included CTI's equity in the net income of EBI ($18,000)
and in the net loss of KSI.
Other income in the third quarter of fiscal 1997 included an
$18,000 gain realized on CTI's sale of available-for-sale securities
offset by legal expenses in connection with the litigation detailed
in Note 16 to Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the year ended July 31, 1996. Other
expense in the third quarter of fiscal 1996 was primarily legal
expenses in connection with the litigation mentioned in the preceding
sentence.
Results of Operations - Three Months Ended April 30, 1997 (Third
Quarter) vs. Three Months Ended January 31, 1997 (Second Quarter)
Consolidated revenues for the quarter ended April 30, 1997 were
$189,873 (25%) lower than for the quarter ended January 31, 1997.
Historically, retained royalties in the third fiscal quarter are lower
than in the second quarter because of licensees who report
semiannually. Retained royalties were $257,296 (42%) lower than in
the second quarter. Revenues under service contracts were $67,423
(48%) higher than in the second quarter. This increase resulted
principally from higher revenues for services to corporate clients and
for transferring rights to a corporate client's technology.
Total operating expenses of $1,006,372 in the third quarter were
approximately $75,826 (7%) lower than in the second quarter. Higher
personnel costs and various costs related to the Company's annual
meeting of shareholders contributed to the higher level of expenses
of the second quarter. In the third quarter costs of technology
management services were approximately $138,000 (22%) higher and
general and administration expenses were approximately $214,000 (46%)
lower than in the second quarter. Costs related to service contracts,
costs related to retained royalties and costs associated with new
client development were all higher in the third quarter.
PART II - OTHER INFORMATION
Item 2. Changes In Securities
(c) On April 4, 1997, Desmond Towey & Associates exercised
warrants to purchase 6,000 shares of the registrant's common stock at
$6.375 per share ($38,250 total) in cash. There were no underwriters
involved in the transaction. The warrants and the common stock
underlying the warrants were exempt from registration under Section
4(2) of the Securities Act of 1933. The warrants and the shares bear
restrictive legends.
Item 6. Exhibits and Reports on Form 8-K Page
A) Exhibits
11.1 Schedule of computation of earnings per share
for the three and nine months ended April 30,
1997 and 1996. 22
27.1 Financial Data Schedule (EDGAR only).
B) Reports on Form 8-K
No reports on Form 8-K were filed during this quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: June 12, 1997 By: S/ Frank R. McPike, Jr.
Frank R. McPike, Jr.
Vice President, Finance,
Treasurer, Chief Financial
Officer and Authorized Signer
Exhibit 11.1
COMPETITIVE TECHNOLOGIES, INC.
Schedule of Computation of Earnings Per Share
(Unaudited)
<TABLE>
<CAPTION>
Nine months Quarter
ended April 30 ended April 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net income (loss) applicable to
common stock $(1,170,359) $ (521,488) $ (398,463) $ (216,055)
Common and common equivalent shares -
primary:
Weighted average common shares
outstanding 5,910,907 5,842,467 5,921,172 5,882,638
Adjustments for assumed exercise of
stock options 60,552* 43,979* 54,201* 70,694*
Adjustments for assumed exercise of
stock warrants 6,599* 12,521* 6,146* 34,003*
Weighted average number of common
and common equivalent shares
outstanding 5,978,058 5,898,967 5,981,519 5,987,335
Common and common equivalent shares -
fully diluted:
Weighted average common shares
outstanding 5,910,907 5,842,467 5,921,172 5,882,638
Adjustments for assumed exercise of
stock options 60,552* 73,501* 54,201* 79,567*
Adjustments for assumed exercise of
stock warrants 6,599* 38,597* 6,146* 38,597*
Weighted average number of common
and common equivalent shares
outstanding 5,978,058 5,954,565 5,981,519 6,000,802
Net income (loss) per share of
common stock:
Primary and fully diluted $ (0.20) $ (0.09) $ (0.07) $ (0.04)
</TABLE>
* 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 April 30, 1997
</LEGEND>
<CIK> 0000102198
<NAME> COMPETITIVE TECHONOLGIES, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> APR-30-1997
<CASH> 2,176,445
<SECURITIES> 2,174,166
<RECEIVABLES> 496,339
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,919,561
<PP&E> 483,627
<DEPRECIATION> 266,197
<TOTAL-ASSETS> 7,533,266
<CURRENT-LIABILITIES> 1,989,858
<BONDS> 0
0
60,675
<COMMON> 59,508
<OTHER-SE> 5,180,001
<TOTAL-LIABILITY-AND-EQUITY> 7,533,266
<SALES> 0
<TOTAL-REVENUES> 1,829,976
<CGS> 0
<TOTAL-COSTS> 3,086,650
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,297
<INCOME-PRETAX> (1,170,759)
<INCOME-TAX> 34,600
<INCOME-CONTINUING> (1,170,359)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,170,359)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
