10-Q October 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 October 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
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 December 1, 1997 5,960,403 shares
Exhibit Index on sequentially numbered page 15 of 27.
Page 1 of 27 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
October 31, 1997 and July 31, 1997 3
Consolidated Statements of Operations for the
three months ended October 31, 1997 and 1996 4
Consolidated Statement of Changes in
Shareholders' Interest for the three
months ended October 31, 1997 5
Consolidated Statements of Cash Flows for the
three months ended October 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
PART I. FINANCIAL INFORMATION
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, and July 31, 1997
(Unaudited)
October 31, July 31,
1997 1997
ASSETS
Current assets:
Cash and cash equivalents $ 423,841 $ 930,592
Short-term investments, at market 3,733,536 2,534,413
Receivables, including $14,480 and $19,241
receivable from related parties in
October and July, respectively 547,608 1,404,035
Prepaid expenses and other current assets 90,114 115,537
Total current assets 4,795,099 4,984,577
Property and equipment, net 234,363 228,297
Investments 405,986 394,451
Intangible assets acquired, principally
licenses and patented technologies, net 1,548,018 1,582,686
Other assets -- 13,469
TOTAL ASSETS $ 6,983,466 $ 7,203,480
LIABILITIES AND SHAREHOLDERS' INTEREST
Current liabilities:
Accounts payable, including $1,978 and
$4,258 payable to related parties
in October and July, respectively $ 102,306 $ 87,644
Accrued liabilities 1,503,453 1,290,825
Current portion of purchase obligation 550,000 550,000
Total current liabilities 2,155,759 1,928,469
Noncurrent portion of purchase obligation,
net of unamortized discount 277,306 260,265
Commitments and contingencies
Shareholders' interest:
5% preferred stock, $25 par value 60,675 60,675
Common stock, $.01 par value 59,781 59,518
Capital in excess of par value 25,408,508 25,218,106
21,784 and 15,346 shares of treasury stock,
at cost, in October and July,
respectively (171,544) (98,511)
Net unrealized holding gains on
available-for-sale securities -- 7,802
Accumulated deficit (20,807,019) (20,232,844)
Total shareholders' interest 4,550,401 5,014,746
TOTAL LIABILITIES AND SHAREHOLDERS'
INTEREST $ 6,983,466 $ 7,203,480
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
for the three months ended October 31, 1997 and 1996
(Unaudited)
1997 1996
Revenues:
Retained royalties $ 356,823 $ 241,201
Revenues under service contracts
and grants, including $19,310,
and $56,466 from related parties in
1997 and 1996, respectively 39,560 261,200
396,383 502,401
Costs of technology management
services, of which $5,762 was
paid to related parties in 1996 511,742 654,359
General and administration expenses,
of which $1,484 and $21,287
were paid to related parties in 1997
and 1996, respectively 484,194 350,221
995,936 1,004,580
Operating loss (599,553) (502,179)
Interest income 40,999 40,447
Interest expense (17,041) (28,628)
Income (losses) related to equity
method affiliates 11,536 20,004
Other income (expense), net (10,116) (3,918)
Net loss $ (574,175) $ (474,274)
Net loss per share
(primary and fully diluted): $ (0.10) $ (0.08)
Weighted average number of common and
common equivalent shares outstanding
(primary and fully diluted) 5,954,886 5,903,100
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Interest
For the three months ended October 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, 1997 2,427 $60,675 5,951,829 $59,518 $25,218,106 (15,346) $ (98,511) $ 7,802 $(20,232,844)
Exercise of common
stock options . . . . 26,358 263 189,629 (6,438) (73,033)
Grant of warrants to
consultants . . . . 773
Net change in unrealized
holding gains on available-
for-sale securities. . (7,802)
Net loss . . . . . . . (574,175)
Balance - October 31, 1997 2,427 $60,675 5,978,187 $59,781 $25,408,508 (21,784) $(171,544) $ -- $(20,807,019)
</TABLE>
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the three months ended October 31, 1997 and 1996
(Unaudited)
1997 1996
Cash flow from operating activities:
Loss from continuing operations $ (574,175) $ (474,274)
Noncash items included in loss
from continuing operations:
Depreciation and amortization 66,512 92,668
Equity method affiliates (11,536) (20,004)
Directors' stock and stock retirement
plan accruals 51,966 41,550
Accrual for closing Ohio office 75,301 --
Amortization of discount on purchase
obligation 17,041 28,628
Other noncash items (17,709) 5,414
Net changes in various operating
accounts:
Receivables 856,427 495,143
Prepaid expenses and other current
assets 25,423 14,201
Accounts payable and accrued
liabilities 100,023 560,230
Net cash flow from operating activities 589,273 743,556
Cash flow from investing activities:
Purchases of property and equipment, net (24,440) (40,644)
Purchases of other short-term investments (2,688,443) --
Proceeds from sales of available-for-
sale securities 1,500,000 365,069
Investments in affiliates and subsidiaries -- (9,342)
Net cash flow (used in) from investing
activities (1,212,883) 315,083
Cash flow from financing activities:
Proceeds from issuance of common stock, net 116,859 29,687
Net cash flow from financing activities 116,859 29,687
Net (decrease) increase in cash and cash
cash equivalents (506,751) 1,088,326
Cash and cash equivalents, beginning
of period 930,592 560,640
Cash and cash equivalents, end of period $ 423,841 $ 1,648,966
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 1998.
The interim financial statements and notes thereto as well as the
accompanying Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended July 31,
1997.
2. Short-term Investments
As of October 31, 1997 the Company had no available-for-sale
securities.
For the quarter ended October 31, 1997 proceeds from the sale of
available-for-sale securities were $1,500,000 which resulted in gross
realized gains of $18,482. For the quarter ended October 31, 1996
proceeds from the sale of available-for-sale securities were $365,069
with no gain or loss realized. Cost is based on specific
identification in computing realized gains.
3. Receivables
Receivables comprise:
October 31, July 31,
1997 1997
Royalties $458,767 $1,288,363
Other 88,841 115,672
$547,608 $1,404,035
4. Accrued Liabilities
Accrued liabilities were:
October 31, July 31,
1997 1997
Accrued compensation $ 217,091 $ 159,519
Royalties payable 946,362 837,718
Other accrued liabilities 340,000 293,588
$1,503,453 $1,290,825
5. Contingencies
On July 7, 1997, in a case previously filed in the United States
District Court for the District of Colorado by University of Colorado
Foundation, Inc., The University of Colorado, The Board of Regents of
the University of Colorado, Robert H. Allen and Paul A. Seligman,
plaintiffs, against American Cyanamid Company, defendant, judgment was
entered in favor of plaintiffs and against defendant in the amount of
approximately $44.4 million. The case involved an idea by professors
at the University of Colorado that improved Materna, a prenatal
vitamin compound sold by defendant. The District Court concluded that
defendant fraudulently obtained a patent on the improvement without
disclosing the patent application to plaintiffs and without naming the
professors as the inventors and that the defendant was unjustly
enriched. While the Company was not and is not a party to this case,
the Company had a contract with the University of Colorado to license
University of Colorado inventions to third parties, and the Company
is entitled to a share of the judgment. If the judgment is affirmed
in full upon appeal, the Company's share will be approximately $5.5
million. The Company is advised that the case is currently awaiting
final decision by the trial court on post trial motions filed by the
plaintiffs and that the defendant has filed a notice of appeal in the
Federal Circuit Court of Appeals. There can be no assurance that
plaintiffs will prevail on appeal, nor can the Company predict the
amount of the judgment, if any, that may ultimately be entered
following the appeal. No potential judgment proceeds have been
reflected in the Company's financial statements to date.
In November 1991, a suit was filed in Connecticut against 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 October 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 in calendar 1998.
PART I. FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition and Liquidity
Cash and cash equivalents of $423,841 at October 31, 1997 are
$506,751 lower than cash and cash equivalents of $930,592 at July
31, 1997. Operating activities provided $589,273, investing
activities used $1,212,883 and financing activities provided
$116,859.
In October, 1997, Competitive Technologies, Inc.'s ("CTT")
management decided to reduce operating expenses by closing its
office in Cleveland, Ohio, and dissolving Competitive Technologies
of Ohio, Inc., its wholly-owned subsidiary. The plan is for
operating functions previously performed in Cleveland to be
performed in other Company offices. Certain Cleveland employees
may be relocated to the Company's principal executive office. The
Company recorded general and administration expenses of approxi-
mately $75,000 in connection with this action in the quarter ended
October 31, 1997.
CTT and its majority-owned subsidiaries' ("the Company") net
loss of $574,175 for the three months ended October 31, 1997
included the following noncash items: depreciation and amortiza-
tion of approximately $67,000, income related to equity method
affiliates of approximately $12,000, amortization of discount on
purchase obligation of approximately $17,041 and accruals of
approximately $128,000.
In general, changes in various operating accounts result from
changes in the timing and amounts of cash flows before and after
the end of the period. The most substantial changes in operating
accounts were the $830,000 decrease in royalties receivable and the
$109,000 increase in royalties payable. This reflects the normal
cycle of royalty collections and payments since the consolidation
of University Science, Engineering and Technology, Inc. ("USET").
Approximately $24,000 of equipment and furnishings were
purchased in this quarter for added staff and increased client
service capabilities in CTT's principal office.
Proceeds from sales of available-for-sale securities of
approximately $1,500,000 were from the Company's sale of U.S.
government debt securities. Approximately $2,688,000 was reinvest-
ed in other short-term investments.
CTT received $116,859 during the quarter from stock options
exercised to purchase shares of common stock.
The Company carries liability insurance, directors' and
officers' liability insurance and casualty insurance for owned or
leased tangible assets. It does not carry key person life
insurance. There are no legal restrictions on payments of
dividends by CTT.
The Company has agreed to pay certain persons specified
percentages of Renova royalties received until certain total
payments have been made. At October 31, 1997, the remaining amount
of such contingent payments was $125,042.
At October 31, 1997, the Company had no outstanding commit-
ments for capital expenditures other than the obligations incurred
in connection with the purchase of USET. The Company expects to
pay approximately $550,000 of the USET purchase obligation on
January 31, 1998 with the balance of $302,000 (including interest)
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"), CTT's 52.3% owned subsidiary,
continues to seek additional financing to support its continuing
development. Without additional outside financing, VVI's develop-
ment activities will proceed at a minimum level. The Company, the
inventor and others supported VVI's development activities during
the first quarter of 1998 during which time VVI improved its video
compression software product for inclusion in MPEG-4, an interna-
tional standard expected to be adopted for consumer application
such as video teleconferencing, video databases and wireless video
access.
In connection with the case which involved an idea by
professors at the University of Colorado that improved a prenatal
vitamin compound sold by American Cyanamid Company, the Company is
entitled to a share of the judgment. If the judgment is affirmed
in full upon appeal, which is currently pending, the Company's
share is expected to be approximately $5,500,000. There can be no
assurance that the plaintiffs will prevail on appeal, nor can the
Company predict the amount of the judgment, if any, that may
ultimately be entered following the appeal. No potential judgment
proceeds have been reflected in the Company's financial statements
to date. (See Item 3. Legal Proceedings in the Company's Annual
Report on Form 10-K for the year ended July 31, 1997.)
With $4,157,000 in cash, cash equivalents and short-term
investments at October 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 activi-
ties 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 invest-
ments in start-up companies (with resulting increases in operating
expenses) is subject to many factors which are outside the
Company's control and to presently unanticipated opportunities that
may arise in the future. Accordingly, there can be no assurance
that the Company's current expectations regarding the sufficiency
of currently available funds will prove to be accurate.
Results of Operations - Three Months Ended October 31, 1997 vs.
Three Months Ended October 31, 1996
Consolidated revenues for the quarter ended October 31, 1997
were $106,018 (21%) lower than for the quarter ended October 31,
1996. Retained royalties were $115,622 (48%) higher principally
because of the timing of royalties reported by licenses.
Revenues under service contracts were $221,640 (85%) lower
than in the quarter ended October 31, 1996. During the quarter
ended October 31, 1997, the Company completed work on a few small
service contracts. The Company continues to provide technology
management services to a growing base of corporations and universi-
ties. Its compensation under a growing portion of these service
agreements is limited to a share of its clients' revenues, if any,
from the Company's technology transfer services. The Company
earned no such revenues during the current quarter. During the
previous year's quarter, the Company earned revenues under
nonrecurring international and domestic corporate service con-
tracts. In addition, VVI completed its SBIR contract in October,
1996 and the Company had nearly completed its $800,000 contract
with the Department of the Air Force in October, 1996.
Costs of technology management services were $142,617 (22%)
lower in fiscal 1998 than in fiscal 1997 as more fully discussed
below. The Company expects costs of technology management services
to be reduced by the closing of its office in Cleveland, Ohio,
noted above.
Costs related to retained royalties were approximately $33,000
lower in the first quarter of fiscal 1998. This reflects reduced
costs for consultants retained to assist in evaluating and
marketing corporate technologies ($29,000), lower domestic patent
costs ($21,000) and higher recoveries of foreign patent costs
against university royalties ($25,000) offset in part by higher
patent litigation expenses ($13,000). Personnel costs (including
benefits and overheads) associated with patenting and licensing
services were approximately equal in both quarters. These costs
include domestic and foreign patent prosecution, maintenance and
litigation expenses.
Costs related to service contracts (including direct charges
for subcontractors' services and personnel costs associated with
service contracts) were approximately $80,000 lower in the first
quarter of fiscal 1998 than in the first quarter of fiscal 1997.
This decrease results primarily from the reduction in direct costs
associated with revenues under service contracts. Personnel costs
(including benefits and overheads) associated with corporate and
collaborative service contracts were approximately equal in both
quarters.
Costs associated with new client development (principally
personnel costs, including benefits and overheads) were approxi-
mately $30,000 lower than for the first quarter of fiscal 1997.
General and administration expenses were approximately
$134,000 (38%) higher in the fiscal 1998 quarter. Approximately
$75,000 of this increase results from the decision to close the
Company's office in Cleveland, Ohio and to consolidate that
office's operating functions into operations in other Company
offices. Management expects this action to reduce operating
expenses of future periods. In addition, rent and other office
expenses in fiscal 1998 are higher than in fiscal 1997. During the
fiscal 1998 quarter the Company hired four new employees, including
two experienced sales people, and retired two long-serving
employees. Personnel spent time in related hiring, training and
transition activities in addition to the necessary and ongoing
administrative functions. Personnel also spent time developing and
verifying information systems to support the sales function and
effort.
The net effect of these decreases in operating revenues and
expenses was to increase the Company's operating loss by $97,374
(19%) compared with the first quarter of fiscal 1997.
Interest income was approximately the same in both quarters
despite lower average invested balances. Weighted average interest
rates were approximately 1.4% higher in the fiscal 1998 quarter.
Interest expense of $17,041 and $28,628 in the fiscal 1998 and 1997
quarters, respectively, relates to the debt incurred in connection
with the acquisition of USET.
In the fiscal 1998 first quarter, net income related to equity
method affiliates was principally CTT's equity in the net income of
Equine Biodiagnostics, Inc. ("EBI") ($14,000) offset by CTT's
equity in other net losses. At October 31, 1997, CTT 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,
1997), but has no further obligation to provide additional funding
to KSI. CTT's investment in KSI has been reduced to zero. In the
fiscal 1997 first quarter, net income related to equity method
affiliates was principally CTT's equity in the net income of Equine
Biodiagnostics, Inc. ("EBI") ($22,000) offset by CTT's equity in
other net losses.
Other income for the quarter ended October 31, 1997 includes
approximately $18,000 gain realized from available-for-sale
securities.
Other expenses for the quarters ended October 31, 1997 and
1996 were legal expenses incurred in connection with a suit brought
against CTT, some of its subsidiaries and directors as more fully
detailed in Note 14 to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended July 31,
1997. Further hearings in this case have been adjourned and are
expected to occur in calendar 1998. CTT is unable to estimate the
related legal expenses which may be incurred in the remaining
quarters of 1998. Unilens made no payments in either quarter of
fiscal 1998 or 1997. Since CTT carries this receivable at zero
value, any collections will be recorded in the period collected.
Through October 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, CTT paid
a 4% commission to Optical Associates, L.P., its joint venture
partner.
The Company has substantial net operating loss carryforwards
for Federal income tax purposes. These may not be used to reduce
future taxable income of USET.
The Company does not expect adoption of Statements of
Financial Accounting Standards No. 128, 129, 130 or 131 to have a
material effect on its financial statements (see Note 1 to
Consolidated Financial Statements in the Company's Annual Report on
Form 10-K for the year ended July 31, 1997).
Results of Operations - Three Months Ended October 31, 1997 vs.
Three Months Ended July 31, 1997
Consolidated revenues for the quarter ended October 31, 1997
were $249,858 (39%) lower than for the quarter ended July 31, 1997.
Historically, retained royalties in the first fiscal quarter are
lower than in the fourth quarter because of licensees who report
semiannually. Retained royalties were $260,117 (42%) lower than in
the fourth quarter of fiscal 1997. Revenues under service
contracts were $10,259 (35%) higher in the first quarter of fiscal
1998.
Total operating expenses of $995,936 in the first quarter of
fiscal 1998 were $144,922 (13%) lower than in the fourth quarter of
fiscal 1997. In the first quarter costs of technology management
services were approximately $181,000 (26%) lower and general and
administration expenses were approximately $36,000 (8%) higher than
in the fourth quarter. Costs related to retained royalties, costs
related to service contracts and costs associated with new client
development all decreased as the Company continued its efforts to
control expenses.
The reduction in consolidated revenues exceeded the reduction
in operating expenses in the first quarter of fiscal 1998 and the
combined result was an increased operating loss of approximately
$105,000.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking
statements. These statements are not guarantees of future
performance and should be evaluated in the context of the risks and
uncertainties inherent in the Company's business, including those
set forth under Special Factors in Item 1 of the Company's Annual
Report on Form 10-K for the year ended July 31, 1997. Actual
results may differ materially from these forward-looking state-
ments.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(c) As of August 1, 1997, the registrant issued to James
Huerta non-transferrable warrants to purchase 2,500 shares of the
registrant's common stock at $11.094 (the closing price on the
American Stock Exchange on August 1, 1997). The warrants were
issued in consideration of Mr. Huerta's investor relations services
to the registrant. The warrants become exercisable 10% on each
August 1, 1998, 1999 and 2000 and 70% on August 1, 2001. The
warrants expire five years from issuance. There were no under-
writers 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 con-
tained, and the shares issuable upon exercise will contain,
restrictive legends.
Item 6. Exhibits and Reports on Form 8-K Page
A) Exhibits
3.1 By-laws of the registrant as amended to
December 1, 1997. 17-26
11.1 Schedule of computation of earnings per share
for the three months ended October 31,
1997 and 1996. 27
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: December 15, 1997 By: s/ Frank R. McPike, Jr.
Frank R. McPike, Jr.
Vice President, Finance,
Treasurer, Chief Financial
Officer and Authorized Signer
Exhibit 3.1
BY-LAWS
OF
COMPETITIVE TECHNOLOGIES, INC.
As Amended November 23, 1997
ARTICLE I
MEETING OF SHAREHOLDERS
SECTION 1.01. Annual Meetings. The annual meeting of
shareholders for the election of Directors and for the transaction
of such other proper business, notice of which is given in the
notice of the meeting, shall be held on such date and at such time
and place, within or without the State of Delaware, as shall be
designated by the Board of Directors and set forth in the notice of
such meeting.
SECTION 1.02. Special Meetings. Special meetings of the
shareholders may be called at any time by the Chairman of the Board
of Directors or by the President of the Corporation or by the Board
of Directors. Special meetings shall be held at such place within
or without the State of Delaware and at such hour as may be
designated in the notice of such meeting and the business
transacted shall be confined to the object stated in the notice of
the meeting.
SECTION 1.03. Notice of Shareholders' Meetings. The notice
of all meetings of shareholders shall be in writing and shall state
the place, date and hour of the meeting. The notice of an annual
meeting shall state that the meeting is called for the election of
the Directors to be elected at such meeting and for the transaction
of such other business as is stated in the notice of the meeting.
The notice of a special meeting shall state the purpose or purposes
for which the meeting is called and shall also indicate that it is
being issued by or at the direction of the person or persons
calling the meeting.
A copy of the notice of each meeting of shareholders shall be
given, personally or by mail, not less than ten days nor more than
fifty days before the date of the meeting, to each shareholder
entitled to vote at such meeting at his record address or at such
other address as he may have furnished by request in writing to the
Secretary of the Corporation. If a meeting is adjourned to another
time or place, and, if any announcement of the adjourned time or
place is made at the meeting, it shall not be necessary to give
notice of the adjourned meeting unless the adjournment is for more
than thirty days or the Directors, after adjournment, fix a new
record date for the adjourned meeting.
Notice of a meeting need not be given to any shareholder who
submits a signed waiver of notice, in person or by proxy, whether
before or after the meeting. The attendance of a shareholder at a
meeting, in person or by proxy, without protesting prior to the
conclusion of the meeting the lack of notice of such meeting shall
constitute a waiver of notice of the meeting.
SECTION 1.04. Quorum at Shareholders' Meetings: Vote
Required. At any meeting of the shareholders the holders of a
majority of the outstanding shares entitled to vote thereat shall
constitute a quorum. If there shall be less than a quorum at any
meeting of the shareholders a majority of those present in person
or by proxy may adjourn the meeting.
Directors shall be elected by a plurality of the votes cast at
a meeting of shareholders by the holders of shares entitled to vote
in the election. Whenever any corporate action, other than the
election of Directors, is to be taken by vote of the shareholders,
it shall, except as otherwise required by the General Corporation
Law, be authorized by a majority of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote thereon.
SECTION 1.05. Inspectors at Shareholders' Meetings. The
Board of Directors, in advance of any shareholders meeting, may
appoint one or more inspectors to act at the meeting or any
adjournment thereof. If inspectors are not so appointed, the
person presiding at the shareholders' meeting may, and on the
request of any shareholder entitled to vote thereat shall, appoint
one or more inspectors. In case any person appointed fails to
appear or act, the vacancy may be filled by appointment made by the
Board of Directors in advance of the meeting or at the meeting by
the person presiding thereat. Each inspector, before entering upon
the discharge of his duties, shall take and sign an oath faithfully
to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability.
The inspectors shall determine the number of shares
outstanding and the voting power of each, the shares represented at
the meeting, the existence of a quorum, the validity and effect of
proxies, and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with
the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all shareholders. On
request of the person presiding at the meeting or any shareholder
entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, question or matter determined by them and
execute a certificate of any fact found by them. Any report or
certificate made by them shall be prima facie evidence of the facts
stated and of the vote as certified by them.
ARTICLE II
DIRECTORS
SECTION 2.01. Qualifications and Number; Vacancies. A
Director need not be a shareholder, a citizen of the United States,
or a resident of the State of Delaware. The number of Directors
constituting the entire Board is hereby fixed at such number as may
be specified by resolution of the Board of Directors adopted by the
same vote which is necessary under Article VII hereof to amend
these by-laws. The number of Directors may be increased or
decreased by amendment of these by-laws duly adopted by either the
shareholders or the vote of a majority of the entire Board of
Directors, provided that the number of Directors constituting the
entire Board shall not be less than three. No decrease shall
shorten the term of any incumbent Director. Any Director may be
removed for cause by the shareholders.
Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a
majority of the directors then in office, through less than a
quorum, or by a sole remaining director.
SECTION 2.02. Term. Each director shall hold office until
the next annual meeting of shareholders and until his successor has
been elected and qualified.
SECTION 2.03. Place and Time of Meetings of the Board.
Regular and special meetings of the Board shall be held at such
places (within or without the State of Delaware) and at such times
as may be fixed by the Board or upon call of the President of the
Corporation or of the executive committee or of any two Directors,
provided that the Board of Directors shall hold at least four
meetings a year.
SECTION 2.04. Quorum and Manner of Acting. A majority of the
entire Board of Directors shall constitute a quorum for the
transaction of business, but if there shall be less than a quorum
at any meeting of the Board, a majority of those present (or if
only one be present, then that one) may adjourn the meeting from
time to time and the meeting may be held as adjourned without
further notice. At all meetings of Directors, a quorum being
present, all matters shall be decided by the vote of a majority of
the Directors present at the time of the vote.
SECTION 2.05. Remuneration of Directors. In addition to
reimbursement for his reasonable expenses incurred in attending
meetings or otherwise in connection with his attention to the
affairs of the Corporation, each Director as such, and as a member
of any committee of the Board, shall be entitled to receive such
remuneration as may be fixed from time to time by the Board.
SECTION 2.06. Notice of Meetings of the Board. Regular
meetings of the Board may be held without notice if the time and
place of such meetings are fixed by the Board. All regular
meetings of the Board, the time and place of which have not been
fixed by the Board, and all special meetings of the Board shall be
held upon twenty-four hours' notice to the Directors given by
letter or telegraph. No notice need specify the purpose of the
meeting. Any requirement of notice shall be effectively waived by
any Director who signs a waiver of notice before or after the
meeting or who attends the meeting without protesting (prior
thereto or at its commencement) the lack of notice to him.
SECTION 2.07. Executive Committee and Other Committees. The
Board of Directors, by resolution adopted by a majority of the
entire Board, may designate from among its members an Executive
Committee and other committees to serve at the pleasure of the
Board. Each committee shall consist of three or more Directors.
During the intervals between the meetings of the Board, the
Executive Committee shall have all of the authority of the Board of
Directors. Each other committee shall be empowered to perform such
functions as may, by resolution, be delegated to it by the Board.
The Board of Directors may designate one or more Directors as
alternate members of any such committee, who may replace any absent
member or members at any meetings of such committee. Vacancies in
any committee, whether caused by resignation or by increase in the
number of members constituting said committee, shall be filled by
a majority of the entire Board of Directors. The Executive
Committee may fix its own quorum. In the absence or
disqualification of any member of any such committee, the member or
members thereof present at any meeting and not disqualified from
voting whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member.
SECTION 2.08. Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting, if prior
to such action a written consent thereto is signed by all members
of the board, or of such committee as the case may be, and such
written consent is filed with the minutes of proceedings of the
board or committee.
ARTICLE III
OFFICERS
SECTION 3.01. Officers. The Board of Directors, at its first
meeting held after the annual meeting of shareholders in each year
shall elect a Chairman of the Board, Chairman of the Executive
Committee, a President, one or more Vice Presidents, a Secretary
and a Treasurer and may, in its discretion, also appoint from time
to time such other officers or agents as it may deem proper. The
Chairman of the Board, Chairman of the Executive Committee and the
President shall be elected from among the members of the Board of
Directors.
Any two or more offices may be held by the same person.
Unless otherwise provided in the resolution of election or
appointment or in the employment agreement with an officer, each
officer shall hold office until the meeting of the Board of
Directors following the next annual meeting of shareholders and
until his successor has been elected and qualified; provided,
however, that the Board of Directors may, unless otherwise provided
in such resolution or agreement, remove any officer for cause or
without cause at any time.
SECTION 3.02. Chairman of the Board. The Chairman shall, if
present, preside at all meetings of the shareholders and Board of
Directors. The Chairman shall do and perform all other acts and
duties which may be assigned to him from time to time by the Board
of Directors.
SECTION 3.03. Chairman of Executive Committee. The Chairman
of the Executive Committee shall, if present, preside at all
meetings of the Executive Committee and shall do and perform all
other acts and duties which may be assigned to him from time to
time by the Board of Directors.
SECTION 3.04. President. In the absence of the Chairman of
the Board or his inability to act, the President shall preside at
all meetings of the shareholders and of the Board of Directors.
The President shall do and perform all other acts and duties which
may be assigned to him from time to time by the Board of Directors
or the Chairman of the Board.
SECTION 3.04A. Vice Presidents. The Vice Presidents shall do
and perform such acts and duties as may be assigned to them from
time to time by the Board of Directors, the Chairman of the Board
or the President.
SECTION 3.04B. Designations of CEO and COO. The Board of
Directors shall from time to time designate the persons, whether by
name or title, who shall be the Chief Executive Officer ("CEO") and
Chief Operating Officer ("COO") of the Corporation. The CEO shall
have general supervision of the affairs of the Corporation subject
to the control of the Board of Directors. Both the CEO and the COO
shall have the power on behalf of the Corporation to execute and
deliver all contracts, instruments, conveyances or documents and to
affix the corporate seal thereto."
SECTION 3.05. Secretary. The Secretary shall keep minutes of
the proceedings and the resolutions adopted at all meetings of the
shareholders and the Board of Directors, and shall give due notice
of the meetings of the shareholders and the Board of Directors. He
shall have charge of the seal and all books and papers of the
Corporation, and shall perform all duties incident to his office.
In case of the absence or disability of the Secretary, his duties
and powers may be exercised by such person as may be appointed by
the Board of Directors or the Executive Committee.
SECTION 3.06. Treasurer. The Treasurer shall receive all the
monies belonging to the Corporation, and shall forthwith deposit
the same to the credit of the Corporation in such financial
institution as may be selected by the Board of Directors or the
Executive Committee. He shall keep books of account and vouchers
for all monies disbursed. He shall also perform such other duties
as may be prescribed by the Board of Directors or Executive
Committee or the President and in case of the absence or disability
of the Treasurer, his duties and powers may be exercised by such
person as may be appointed by the Board of Directors or Executive
Committee.
ARTICLE IV
INDEMNIFICATION
SECTION 4.01. Indemnification. (a) The Corporation shall
indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that
his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation unless
and only to the extent that the Court of Chancery of Delaware or
the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such
Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent
of the Corporation has been successful on the merits or otherwise
in defense of any action, suit or proceeding referred to in
subsections (a) and (b), or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under subsections (a) and (b) (unless
ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is
proper in the circumstances because he has met the applicable
standard of conduct set forth in subsections (a) and (b). Such
determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum
is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
(e) Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding
as authorized by the Board of Directors in the manner provided in
subsection (d) upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay such amount
unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation as authorized in this Article IV.
(f) The indemnification provided by this Article IV shall not
be deemed exclusive of any other rights to which those indemnified
may be entitled under any by-law, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure
to the benefit of the heirs, executors and administrators of such
a person.
(g) The Board of Directors may authorize, by a vote of a
majority of the full Board, the Corporation to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under
the provisions of this Article IV.
ARTICLE V
CAPITAL STOCK
SECTION 5.01. Share Certificates. Each certificate
representing shares of the Corporation shall be in such form as may
be approved by the Board of Directors and, when issued, shall
contain upon the face or back thereof the statements prescribed by
the General Corporation Law and by any other applicable provision
of law. Each such certificate shall be signed by the Chairman or
President or a Vice President and by the Secretary or Treasurer or
an Assistant Secretary or Assistant Treasurer. The signatures of
said officers upon a certificate may be facsimile if the
certificate is countersigned by a transfer agent or registered by
a registrar other than the Corporation itself or its employee. In
case any officer who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer
before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the
date of issue.
SECTION 5.02. Lost, Destroyed or Stolen Certificates. No
certificate representing shares shall be issued in place of any
certificate alleged to have been lost, destroyed or stolen, except
on production of evidence of such loss, destruction or theft and on
delivery to the Corporation, if the Board of Directors shall so
require, of a bond of indemnity in such amount, upon such terms and
secured by such surety as the Board of Directors may in its
discretion require.
SECTION 5.03. Transfer of Shares. The shares of stock of the
Corporation shall be transferable or assignable on the books of the
Corporation only by the person to whom they have been issued or his
legal representative, in person or by attorney, and only upon
surrender of the certificate or certificates representing such
shares properly assigned. The person in whose name shares of stock
shall stand on the record of shareholders of the Corporation shall
be deemed the owner thereof for all purposes as regards the
Corporation.
SECTION 5.04. Record Dates. For the purpose of determining
the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any
other action, the Board may fix, in advance, a date as the record
date for any such determination of shareholders. Such date shall
not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Signing of Instruments. All checks, drafts,
notes, acceptances, bills of exchange, and orders for the payment
of money shall be signed in such manner and by such person or
persons as may be authorized from time to time by the Board of
Directors or the Executive Committee or by the by-laws.
SECTION 6.02. Corporate Seal. The seal of the Corporation
shall be in such form and shall have such content as the Board of
Directors shall from time to time determine.
ARTICLE VII
AMENDMENTS OF BY-LAWS
SECTION 7.01. Amendments. These by-laws may be altered,
amended or repealed at any meeting, by vote of a majority of the
Board of Directors, provided that notices of the proposed
amendments shall have been sent by mail to all the Directors not
less than three days before the meeting at which they are to be
acted upon, or at any regular meeting of the Directors, by the
unanimous vote of all the Directors present.
Exhibit 11.1
COMPETITIVE TECHNOLOGIES, INC.
Schedule of Computation of Earnings Per Share
(Unaudited)
Quarter
ended October 31,
1997 1996
Net loss applicable to common stock $ (574,175) $ (474,274)
Common and common equivalent shares -
primary:
Weighted average common shares
outstanding 5,954,886 5,903,100
Adjustments for assumed exercise of
stock options 48,941* 68,006*
Adjustments for assumed exercise of
stock warrants 5,391* 22,685*
Weighted average number of common and
common equivalent shares outstanding 6,009,218 5,993,791
Common and common equivalent shares -
fully diluted:
Weighted average common shares
outstanding 5,954,886 5,903,100
Adjustments for assumed exercise of
stock options 48,941* 81,214*
Adjustments for assumed exercise of
stock warrants 5,391* 27,609*
Weighted average number of common and
common equivalent shares outstanding 6,009,218 6,011,923
Primary and fully diluted $ (0.10) $ (0.08)
* 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 October 31, 1997
</LEGEND>
<CIK> 0000102198
<NAME> COMPETITIVE TECHNOLOGIES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 423,841
<SECURITIES> 3,733,536
<RECEIVABLES> 547,608
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,795,099
<PP&E> 390,879
<DEPRECIATION> 156,516
<TOTAL-ASSETS> 6,983,466
<CURRENT-LIABILITIES> 2,155,759
<BONDS> 0
0
60,675
<COMMON> 59,781
<OTHER-SE> 4,429,945
<TOTAL-LIABILITY-AND-EQUITY> 6,983,466
<SALES> 0
<TOTAL-REVENUES> 396,383
<CGS> 0
<TOTAL-COSTS> 995,936
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,041
<INCOME-PRETAX> (574,175)
<INCOME-TAX> 0
<INCOME-CONTINUING> (574,175)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (574,175)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
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