Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 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 effective)
Registrant's telephone number, including area code: (203) 255-6044
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange On
Title of Each Class Which Registered
Common Stock ($.01 par value) American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicated by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securi-
ties 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 .
Exhibit Index on sequentially numbered page 53.
Page 1 of 65 sequentially numbered pages.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
As of October 21, 1997, 5,956,403 shares of the registrant's
common stock were outstanding. The aggregate market value of the
voting stock (disregarding preferred stock, for which there is no
public market) held by nonaffiliates of the registrant, based on the
mean between the high and the low price of the registrant's common
stock on the American Stock Exchange on such date, was approximately
$53,488,000.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated Document Location in Form 10-K
Registrant's definitive proxy Part III
statement for its 1997 annual
meeting of stockholders
PART I
Item 1. Business
Introduction
Competitive Technologies, Inc. ("the registrant" or "CTT"), a
Delaware corporation incorporated in 1971 to succeed an Illinois
business corporation incorporated in 1968, is engaged primarily in
providing technology management services to corporations, to federal
agencies and laboratories, and to universities with the goal of
maximizing returns on clients' investments in technology. In
December, 1994, the registrant changed its corporate name from
University Patents, Inc. to Competitive Technologies, Inc.
On January 31, 1996, UPAT Services, Inc. ("USI"), a wholly-owned
subsidiary of CTT, purchased the partnership interests of the other
limited partners in USET Acquisition Partners, L. P. ("UAP") and
thereby acquired 100% of USET Holding Co. ("Holding") and University
Science, Engineering and Technology, Inc. ("USET"). The total
purchase price was $1,835,000 with $500,000 paid in cash at the
closing and the balance to be paid without interest on each succeeding
January 31 in installments equal to 60% of USET's earned revenues for
the preceding calendar year or the remaining unpaid balance of the
purchase price, whichever is less. This transaction is more fully
described in Note 2 to Consolidated Financial Statements. Effective
January 31, 1996, CTT began to account for UAP, Holding and USET as
consolidated subsidiaries. Accordingly, their results of operations
have been included in consolidated results of operations from January
31, 1996. Through January 31, 1996, CTT accounted for its investment
in UAP, Holding and USET on the equity method and recorded 20% of
their net income.
In February, 1995, the registrant sold a significant portion of
its investment in NovaNET Learning, Inc. (formerly University
Communications, Inc.) ("NLI") to Barden Companies, Inc. As a result
of this and related transactions, as more fully described in Note 16
to Consolidated Financial Statements, the registrant received
approximately $3 million in cash and reduced its ownership in NLI from
55.1% to 14.5%. The registrant carries its remaining investment in
NLI on the cost method. Accordingly, CTT's investment in NLI prior
to February, 1995 is presented in the registrant's financial
statements as a discontinued operation.
The aggregate number of persons employed full-time by the
registrant and its subsidiaries on October 1, 1997 was approximately
23. Substantially all employees are salaried and none is represented
by a labor union. Certain of these employees also perform services
for Knowledge Solutions, Inc.
Technology Management Services
Technology Transfer Services
To Universities
The registrant and its subsidiaries, Competitive Technologies of
PA, Inc. ("CTT-PA"), USET and Competitive Technologies of Ohio, Inc.
("CTT-OH"), provide technical evaluation, patent and market assess-
ment, patent application and prosecution, patent enforcement,
licensing, license management and royalty distribution services under
agreements with Lehigh University, former university clients of the
registrant and other research institutions. In negotiating new
agreements with research institutions, the registrant seeks a
collaborative relationship with the research institution in which both
parties share the expenses of the technology transfer process on an
agreed basis. Central to this approach to maximizing return on
investments in technology is assessing the invention's patentability
and marketability as early in the process as possible to focus
investments on inventions with higher potential for success in the
marketplace.
Retained royalty revenues for the registrant and its subsidiaries
in the last five years were derived from the following portfolios (in
thousands):
1997 1996 1995 1994 1993
The USET portfolio:
Registrant's
share $ 943 $ 972 $ 752 $ 671 $ 618
USET's share 835 611 -- -- --
The CTT-PA
portfolio $ 57 $ 37 44 47 33
$1,835 $1,620 $ 796 $ 718 $ 651
In addition to retained royalties earned from services to
university clients, CTT-PA earned approximately $142,000, $59,000,
$44,000, $39,000 and $25,000 under service contracts to provide
technology management and related services to Lehigh University for
the years ended July 31, 1997, 1996, 1995, 1994 and 1993, respective-
ly. (References herein to years are to fiscal years ended July 31,
unless the context otherwise requires.)
Effective January 31, 1996, in a transaction more fully detailed
in Note 2 to Consolidated Financial Statements, a wholly-owned
subsidiary of the registrant became the sole owner of USET, Inc.
Since February 1, 1996, the registrant has managed USET as a wholly-
owned subsidiary.
Between 1991 and effective until January 31, 1996, as a result
of various agreements made by the registrant and USI, the registrant
managed the operations of USET and its portfolio of technologies,
patents and licenses. USET licenses the technologies, collects
royalties from licensees and distributes those royalties according to
the terms of various related agreements. In certain instances the
registrant or USET has initiated litigation to enforce its right to
royalties. Generally the registrant and USET each retains 20% of
royalties received from licensees although individual amounts range
from 4% to 28%. In addition, the registrant and USET each share the
same proportion of patent prosecution and litigation expenses incurred
to maintain this portfolio. The registrant and USET are entitled to
recover certain of their patenting costs from royalties received on
the related technologies before distributing them to the respective
university.
USET was obligated to pay Macmillan, Inc. 90% of its royalties
earned in excess of $400,000 per year through August 31, 1995, up to
an aggregate maximum of $3,750,000 (as specifically set forth in the
purchase agreement with Macmillan, Inc. dated August 20, 1990).
Through July 31, 1997, USET had made contingent payments which totaled
$989,000. No further contingent purchase price payments are required
to be made.
Prior to February 1, 1996, USI was the general partner and owned
20% of UAP. UAP owned 100% of the outstanding shares of USET Holding
Co. which owned 100% of the outstanding shares of USET, its only
asset. USET is the operating company whose activities are described
above. The contingent purchase price payments noted above were agreed
in August, 1990 when USET Holding Co. purchased USET from Macmillan,
Inc., successor to the interest Maxwell Communication Corporation
("Maxwell") acquired from the registrant on June 28, 1988.
The sharing between the registrant and USET of royalties
remaining after distribution of the university's share was agreed on
June 28, 1988 when the registrant sold its technology management
operations to Maxwell while retaining a 70%, 50% or 10% interest in
the revenues and certain patent expenses related to the portfolio of
technologies. The 70% technologies were seven specifically
identified inventions, including gallium arsenide semiconductors. The
50% technologies were those which were or had been licensed or
optioned prior to June 28, 1988. The 10% technologies were those
which had never been licensed or optioned on or before June 28, 1988.
The portfolio of technologies managed by USET excludes Renova in which
Macmillan, Inc. and the registrant each retains a 50% interest.
On February 12, 1993, the registrant acquired 80% of the stock
of CTT-PA, previously a wholly-owned subsidiary of Lehigh University
("Lehigh"), in exchange for $750,000 payable in 74,302 unregistered
shares of the registrant's common stock (see Note 3 to Consolidated
Financial Statements). CTT-PA has a contract to manage Lehigh's
technology portfolio through September 30, 1997, subject to certain
conditions. In addition to paying an annual fee for these services,
Lehigh provides CTT-PA office space and the services of five MBA
students. In each year of the contract, CTT-PA retains the first
$100,000 of royalties received under licenses of Lehigh technologies
and 75% of royalties received in excess of $100,000, if any. The
renewal terms of this contract are currently being negotiated.
The only two technologies that produced retained royalties equal
to or exceeding 10% of consolidated revenue for the registrant and its
subsidiaries during 1997, 1996 and 1995 were gallium arsenide
semiconductors and Vitamin B12 assay.
Inventions employing gallium arsenide to improve semiconductor
operating characteristics were developed at the University of
Illinois. U.S. patents have issued from March, 1983 to May, 1989 and
expire from May, 2001 to September, 2006. These inventions are
licensed to Mitsubishi Electric Corporation, NEC Corporation, Phoenix
Photonix, Inc., Polaroid Corporation, Spectra Diode Laboratories, Inc.
and Toshiba Corporation. These inventions are in current use
according to information received from licensees and other sources.
Retained royalties received from the gallium arsenide semiconductor
inventions were approximately $282,000 (15%), $289,000 (18%) and
$159,000 (20%) of total retained royalties in 1997, 1996 and 1995,
respectively.
The improved assay procedure for diagnosing Vitamin B12
deficiencies was developed at the University of Colorado. U.S.
patents have issued from February, 1980 to May, 1984 and expire from
February, 1997 to May, 2001. Certain of these licenses are expected
to expire in April, 1998. These expiring licenses contributed
approximately $150,000 (8%) of total retained royalties in fiscal
1997. These assay procedures are licensed to Abbott Laboratories,
Bayer Corporation, Bio-Rad Laboratories, Inc., Boehringer Mannheim,
Chiron Diagnostics Corporation, Dade International, Inc., Diagnostic
Products Corporation, ICN Biomedicals, ICN East, Inc. and Beckman
Instruments, Inc. On the basis of information received from licensees
and other sources, these assay procedures are in current use.
Retained royalties received from the Vitamin B12 assay were approxi-
mately $581,000 (32%), $562,000 (35%) and $288,000 (36%) of total
retained royalties in 1997, 1996 and 1995, respectively.
In fiscal 1998, the Company plans to implement an aggressive
program to license an assay used to determine whether an individual
has an elevated level of homocysteine and a corresponding deficiency
of folate or vitamin B12. Recent studies indicate that high levels
of homocysteine are a primary risk factor for coronary artery disease
and a risk factor for strokes and general artery damage. The
Company's patent which covers this homocysteine assay expires in 2007.
There can be no assurance that the Company will be successful in
licensing its homocysteine assay nor can the Company predict the
timing or amounts of retained royalties which may be earned from such
licensing or the timing or costs which may be incurred in licensing
this assay.
The registrant's foreign operations are limited to royalties
received from foreign sources (see Note 6 to Consolidated Financial
Statements).
The registrant is actively pursuing additional university
technology transfer relationships throughout the world. During 1997,
1996 and 1995 the registrant made agreements with five, five and two
additional universities, respectively, to provide technology
management services to them.
To Federal Agencies and Laboratories
The registrant and its subsidiaries provide technology transfer
and other research services directly or indirectly to Federal agencies
and laboratories. These contracts accounted for approximately
$171,000 (27%), $351,000 (53%)and $634,000 (70%) of revenues earned
under service contracts and grants in 1997, 1996 and 1995, respective-
ly.
On January 24, 1995, the registrant was awarded an approximately
$800,000 cost reimbursement contract by the Department of the Air
Force to develop strategic planning and operating tools for agile
enterprises. Work on the contract began in February, 1995, and was
completed in November, 1996. Through July 31, 1997, the registrant
had earned and recognized approximately $833,000 of revenue on this
contract of which approximately $479,000 was paid or payable to
subcontractors. Revenues retained by the registrant under this
contract contributed to recovering some of its personnel and overhead
costs.
In addition to the Air Force contract, the registrant and its
subsidiaries provided services indirectly to Federal agencies under
subcontracts to Lehigh University. CTT-PA earned approximately
$83,000, $96,000 and $106,000 under one of these subcontracts in 1997,
1996 and 1995, respectively. This subcontract runs through December,
1997. Since the Federal agency will not be funding the Lehigh
University contract, Lehigh University is seeking other funding for
its project. Renewal of CTT-PA's subcontract after December, 1997
depends upon whether sufficient other funding can be obtained by
Lehigh University.
In March, 1996, Vector Vision, Inc. ("VVI"), the registrant's
52.3% owned subsidiary, was awarded a Small Business Innovation
Research ("SBIR") fixed price contract totaling $99,000 for six months
of research on robust video coding techniques for wireless video
communications. Approximately $63,000 of this contract was earned and
recorded during 1996; the remaining $36,000 was earned and recorded
in the first quarter of 1997.
The registrant and its subsidiaries continue to submit proposals
for technology transfer and other research services to Federal
agencies and laboratories. However, success in winning such contracts
will depend upon many factors outside its control including continued
Federal government funding for such research, the relative strength
of the registrant's proposals compared with competing proposals, and
competing demands for the time and resources of the registrant and its
employees.
To Corporations
The registrant also provides various technical, patent and market
assessment and licensing services to corporations under contracts for
specific projects. These projects have included evaluation of
technologies for patentability, economic and technical feasibility and
commercial potential. Revenues under these contracts were approxi-
mately $350,000, $155,000 and $29,000 in 1997, 1996 and 1995, respec-
tively. The registrant and its subsidiaries have served several
corporate clients during 1997 and have agreements to provide
technology management services in 1998.
Investments in Development-Stage Companies
The registrant generally does not finance research and develop-
ment of technologies. However, in certain instances, the registrant
has been involved in forming companies to exploit specific technolo-
gies it believed were beyond the pure research and development stage.
In 1994 the registrant formed Knowledge Solutions, Inc. ("KSI")
to develop products using a multimedia training process model from
Lehigh University. The registrant participated in four rounds of
financing (see Note 4 to Consolidated Financial Statements) which
generated $465,000 in equity and $100,000 in debt funding for KSI.
In addition, KSI received a $75,000 grant to support its development
activities. At July 31, 1997, the registrant owned 33.7% of KSI's
outstanding common stock. Through July 31, 1997, the registrant had
recorded a total of $241,000 as its equity in the losses of KSI during
the development of KSI's first products. Unless KSI earns substantial
revenues from product sales or from future contracts to develop other
multimedia training products, it will not be able to continue its
operations, which are currently at a minimal level. Neither the
registrant nor KSI's other major shareholder expects or has committed
to provide additional funding to support KSI.
In 1994 the registrant established a majority-owned subsidiary,
VVI, to develop and exploit a video compression technology developed
at Lehigh University. Research and development expenditures (included
in costs of technology management services in the Consolidated
Financial Statements) of approximately $195,000, $64,000 and $86,000
were incurred by VVI in 1997, 1996 and 1995, respectively. Since its
inception VVI has obtained $252,000 in equity funding, $49,000 in
grant funding and $99,000 in a Small Business Innovation Research
contract. VVI is obligated to repay up to three times total grant
funds received (see Note 14 to Consolidated Financial Statements).
At July 31, 1997, the registrant owned 52.3% of VVI's outstanding
common stock. VVI's minority shareholders are or were employees of
VVI or CTT-PA. Unless VVI obtains additional financing, it will not
be able to continue development of its video compression technology.
VVI continues its quest to contribute to the developing video
compression standard for telecommunications. In addition, CTT-PA
continues to seek alternate possibilities for commercialization of
this technology.
In 1995 the registrant invested in Equine Biodiagnostics, Inc.
("EBI"), a company organized to provide diagnostic laboratory services
for the equine industry. EBI's initial product had already been
tested and was marketed in EBI's first month of operations. The
registrant has recorded equity in EBI's net income of $151,000 from
inception through July 31, 1997. At July 31, 1997, the registrant
owned 37.5% of EBI's outstanding stock.
In June, 1986, the registrant was instrumental in forming NovaNET
Learning, Inc. (formerly University Communications, Inc.) ("NLI") to
commercialize NovaNET, an interactive education and communication
network developed at the University of Illinois. NLI's revenues have
grown to $9,756,000 for the fiscal year ended July 31, 1997. In
February, 1995, the registrant sold the majority of its shares of NLI
common stock to Barden Companies, Inc. and recorded a $2,534,505 gain
on the sale. After the sale the registrant owned 14.5% of NLI's
outstanding common stock. See Note 16 to Consolidated Financial
Statements.
To a lesser extent the registrant was involved in forming and
financing Plasmaco, Inc. ("Plasmaco") in 1987 to develop and
manufacture high resolution, high information content AC plasma
display products. Since its inception, Plasmaco raised a total of
approximately $29 million in debt and equity. The registrant invested
a total of $3,262,000 in Plasmaco equity, of which approximately
$803,000 was paid in cash and the balance in the registrant's common
stock. The registrant recorded its equity in Plasmaco's losses until
the full amount had been written off by July 31, 1993. After a
restructuring of Plasmaco's equity in September, 1994, the registrant
sold part of its investment in Plasmaco in 1995 and the remainder in
1996 and recorded gains totaling $105,000 on these sales.
Special Factors
Losses During Past Fiscal Years. On a consolidated basis the
registrant incurred net losses from continuing operations of
$1,571,000, $588,000 and $641,000 in 1997, 1996 and 1995, respective-
ly. The registrant's share of net income from NLI's discontinued
operations was $99,000 in 1995. The registrant reported a net gain
on disposal of discontinued operations of $2,534,505 on its sale of
NLI shares to Barden Companies, Inc. in 1995. The registrant's
operating activities used $897,000, $1,228,000 and $40,000 in 1997,
1996 and 1995, respectively. The registrant's investing and financing
activities provided $1,267,000 and $1,452,000 in 1997 and 1996,
respectively, and used $501,000 1995.
Reliance on and Lack of Control of Licensees. To the extent that
the registrant and its subsidiaries share in royalties received from
licensees, the revenues from such licensees are dependent upon the
efforts and expenditures of such licensees. Retained royalties were
74%, 71% and 47% of the registrant's consolidated total revenues in
1997, 1996 and 1995, respectively. The registrant has no control over
the efforts and expenditures of such licensees. In addition,
development of new products by licensees involves high risk since many
new technologies do not become commercially profitable products
despite the application of extensive development efforts by such
licensees. Licensees are not required to advise the registrant of
problems which may be encountered in the attempt to develop commercial
products and such information is usually treated as confidential by
such licensees. It may be assumed that problems will be encountered
frequently by licensees and only if such licensees succeed in
resolving those problems will the licenses generate royalty income in
which the registrant can share.
Need for Government Approvals. Commercial exploitation of some
licensed patents may require approval of governmental regulatory
agencies; there is no assurance that such approvals will be granted.
The principal government agency involved is the United States Food and
Drug Administration ("FDA"). FDA's approval process is rigorous, time
consuming and costly, and unless and until approval is obtained by a
licensee of a product requiring such approval, sales of the product
will not be made and the registrant will receive no royalty income
based on sales of the product.
Dependence on Patents. Revenues from patent licenses are subject
to the risk that issued patents may be declared invalid, that patents
may not issue on patent applications, or that new or alternative
technologies may render licensed patents uncommercial. In addition,
upon expiration of all patents underlying a patent license, royalties
to the registrant from such license will cease, and there can be no
assurance that the registrant will be able to replace such royalties
with royalty revenues from other licenses.
Risks Pertaining to Contracts with Federal Agencies and
Laboratories. To the extent that the registrant and its subsidiaries
earn revenues under contracts and subcontracts from agencies or
laboratories of the Federal government, their revenues under such
service contracts are dependent upon continued funding of the related
activities by the Federal government. Revenues under service
contracts or subcontracts from agencies or laboratories of the Federal
government were 8%, 15% and 37% of the registrant's consolidated total
revenues in 1997, 1996 and 1995, respectively. The registrant has no
control over funding decisions of the Federal government, contract
decisions of the Federal agencies and laboratories or subcontract
decisions of other government contractors. To the extent that
government service contracts must be renewed, there can be no
assurance that they will be renewed. Although the registrant and its
subsidiaries continue to propose on such contracts as they deem
appropriate to their expertise and experience, there can be no
assurance that they will be successful in obtaining such contracts.
Risks Pertaining to Evaluating and Securing Funding for New
Business and Product Development. The registrant continues to seek
business opportunities which are synergistic with its expertise in
technology management or businesses which have the potential to
generate excess cash flow which can be used by the registrant to build
its business. There can be no assurance that the registrant will
succeed in acquiring or developing such businesses or products or that
they will be profitable. In instances where the registrant invests
its own funds, whether directly, through a subsidiary or a joint
venture or otherwise, in researching, developing, manufacturing or
marketing new products, the registrant incurs the same risks as
licensees with respect to new product development. New products may
need further funding after initial funds are exhausted and if such
funding cannot be obtained, such new products may have to be abandoned
resulting in loss of monies previously invested. There is consider-
able risk that any new product may be rendered obsolete or otherwise
not suitable for commercialization by new or alternative technologies.
Dependence on Key Personnel. The registrant believes that the
growth of its business is dependent upon the knowledge and abilities
of a small number of employees and that the loss of such persons could
have an adverse effect on future activities of the registrant. The
principal key employees are Messrs. George M. Stadler and Frank R.
McPike, Jr. Mr. Stadler, the registrant's president and chief
executive officer, has 23 years of experience in technology management
and commercialization and has been its president since September,
1992. Mr. McPike has been with the registrant for 14 years as chief
financial officer and is responsible for the registrant's financial
and administrative operations.
Competition. Competition in the technology management services
business is vigorous. Several organizations, some of which are well
established and have greater financial resources than the registrant,
provide technology management services.
Discontinued Operations
Computer-based Education Services Segment
On February 15, 1995, Barden Companies, Inc. ("Barden") exercised
its option to purchase from the registrant additional shares of
NovaNET Learning, Inc. (formerly University Communications, Inc.)
("NLI") common stock. Barden paid $3,227,372 ($1.375 per share) in
cash for 2,347,180 shares held by the registrant. In connection with
Barden's purchase, the registrant offered to purchase from all NLI
shareholders other than Barden a number of their shares of NLI common
stock to allow all NLI shareholders to participate in the sale to
Barden on a pro rata basis. Pursuant to this offer, the registrant
purchased 151,096 tendered shares for a total of $207,757 ($1.375 per
share) in cash. The registrant's net gain on these transactions was
$2,534,505 which was recorded in the third quarter of fiscal 1995.
Upon completion of these and other transactions, Barden owned 52.1%
and the registrant owned 14.5% of the outstanding common stock of NLI.
Effective February 15, 1995, the registrant began to account for
its investment in NLI of $159,375 on the cost method. Consolidated
financial statements for the registrant and its subsidiaries for all
prior periods present NLI's net assets and the registrant's equity in
NLI's net results of operations as a discontinued operation.
NLI previously comprised the computer-based education services
segment in the registrant's consolidated financial statements but is
now presented as a discontinued operation. The registrant's equity
in NLI's net income from operations for the six and one-half months
to February 15, 1995 was $99,000. At various times since NLI's
initial funding in June, 1986, the registrant had invested an
aggregate of $1,997,000 in NLI equity.
NLI's revenues were $2,764,000, for the six and one-half months
ended February 15, 1995 (date of sale). NLI markets its interactive
courseware throughout the United States principally to schools and
colleges, drop-out prevention programs, correctional and other
institutions aimed at improving teenage and adult literacy.
Item 2. Properties
Since November, 1996, the registrant and USET have occupied
approximately 9,000 square feet in an office building in Fairfield,
Connecticut under a lease which expires December 31, 2001. The
registrant has an option to renew the lease through December 31, 2006.
Subsidiaries of the registrant have offices in Bethlehem,
Pennsylvania and Cleveland, Ohio under operating leases. In October,
1997, the registrant decided to close its Cleveland, Ohio office. It
expects to negotiate either an early termination or an assignment of
the related operating lease.
The registrant believes the remaining facilities are adequate for
its current and near-term operations.
Item 3. Legal Proceedings
On November 4, 1991 a suit was filed in the Superior Court of the
Judicial District of Fairfield, Connecticut, at Bridgeport by Bruce
Arbeiter, Jeffrey A. Bigelow, Jeffrey W. Leiderman, Optical Associates
Limited Partnership ("OALP") and Optical Associates Management Corp.
("OAMC") purportedly on behalf of all the limited partners of OALP,
as plaintiffs, against Genetic Technology Management, Inc. ("GTM"),
University Optical Products Co. ("UOP"), the registrant, Jay Warren
Blaker, L.W. Miles, A. Sidney Alpert, Frank R. McPike, Jr., Michael
Behar, Bruce E. Langton, Arthur M. Lieberman and Harry Van Benschoten,
as defendants. The complaint alleges, among other things, that in
January 1989 the defendants, GTM, UOP and the registrant, sold
substantially all of the assets of OALP to Unilens Corp. USA
("Unilens") and disbursed only 4% of the sales price to OALP, all in
violation of certain agreements, representations and legal obliga-
tions; that OALP is entitled to the full proceeds of the sale to
Unilens; and that by vote of limited partners holding in excess of 80%
of the capital interests of OALP, the limited partners have removed
GTM as the general partner of OALP and replaced GTM with OAMC. The
complaint claims, among other things, money damages (in an amount not
specified in the claim for relief); treble and punitive damages (with
no amounts specified); attorneys fees; an accounting; temporary and
permanent injunctive relief; and judgment holding that OAMC was
legally substituted for GTM as the general partner of OALP. The
management of the registrant believes, based upon all of the facts
available to management, that the claims asserted in the suit are
without merit, and the registrant intends to defend the suit
vigorously. Hearings in the case have commenced before an attorney
referee; however, due to scheduling conflicts, further hearings have
been adjourned to a later date.
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 registrant was not and is not a party to this
case, the registrant had a contract with the University of Colorado
to license University of Colorado inventions to third parties, and the
registrant is entitled to a share of the judgment. If the judgment
is affirmed in full upon appeal, the registrant's share will be
approximately $5.5 million. The registrant 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
registrant predict the amount of the judgment, if any, that may
ultimately be entered following the appeal.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 4A. Executive Officers of the Registrant
Principal Occupation and Position
Name Age and Office with Registrant
George M. Stadler 50 President and Chief Executive Officer
and director since December 1993.
Prior thereto President and Chief
Operating Officer since September
1992; President, Competitive Technol-
ogies of PA, Inc. since April 1991;
Managing Partner of VenTex, a joint
venture involving Texas Research and
Technology Foundation and the regis-
trant from November 1989 to April
1991; Chief Venture Officer, Texas Re-
search and Technology Foundation from
January 1989 to April 1991.
Frank R. McPike, Jr. 48 Secretary since August 1989; Treasurer
since July 1988; Vice President, Fi-
nance, since December 1983; Director
since July 1988.
The terms of all officers of the registrant are until the first
meeting of the newly elected Board of Directors following the
forthcoming annual meeting of stockholders of the registrant and until
their respective successors shall have been duly elected and shall
have qualified, subject to employment agreements. Mr. Stadler and Mr.
McPike have employment contracts with the registrant; these contracts
will be described in the registrant's definitive proxy statement.
There is no family relationship between any director or executive
officer of the registrant.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
(a) The registrant's common stock is listed on the American
Stock Exchange. The following table sets forth the high and low sales
prices as reported by the American Stock Exchange for the periods
indicated.
Fiscal Year Ended July 31, 1997 High Low
First Quarter.................... 12 1/4 9 1/4
Second Quarter................... 12 1/2 9 1/8
Third Quarter.................... 11 1/2 8 3/8
Fourth Quarter................... 11 3/4 8 1/2
Fiscal Year Ended July 31, 1996 High Low
First Quarter.................... 8 7/8 5 3/8
Second Quarter................... 13 3/4 7 1/2
Third Quarter.................... 12 5/8 9 3/4
Fourth Quarter................... 12 7/8 9
No cash dividends were declared on the registrant's common stock
during the last two fiscal years.
At October 21, 1997 there were approximately 976 holders of
record of the registrant's common stock.
(b) As of May 1, 1997, 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 May 1, 1997 and October 31, 1997. The
warrants become exercisable in November, 1997, and expire two and one-
half 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.
COMPETITIVE TECHNOLOGIES, INC.
Selected Financial Data (1)
Years ended July 31
Item 6. Selected Financial Data
1997 1996 (3) 1995 1994 1993
Retained royalties $ 1,835,041 $ 1,619,909 $ 796,243 $ 717,514 $ 650,651
Revenues under service
contracts and grants 641,176 660,287 906,952 245,264 84,470
Total revenues $ 2,476,217 $ 2,280,196 $ 1,703,195 $ 962,778 $ 735,121
Loss from continuing
operations (2) $(1,571,045) $ (588,101) $ (641,249) $ (828,996) $(1,446,811)
Income (loss) from operations of
discontinued operation -- -- 99,468 (10,786) (449,724)
Net gain (loss) on disposal of
discontinued operations -- -- 2,534,505 221,852 (9,314)
Net income (loss) $(1,571,045) $ (588,101) $ 1,992,724 $ (617,930) $(1,905,849)
Net (loss) income per share of
common stock:
Continuing operations $ (0.27) $ (0.10) $ (0.11) $ (0.15) $ (0.27)
Operations of discontinued
operation -- -- 0.02 -- (0.08)
Net gain (loss) on disposal of
discontinued operations -- -- 0.43 0.04 --
Net income (loss) $ (0.27) $ (0.10) $ 0.34 $ (0.11) $ (0.35)
Weighted average number of common
and common equivalent shares
outstanding 5,914,868 5,853,814 5,814,826 5,761,610 5,478,082
At year end:
Cash, cash equivalents
and short-term investments $ 3,465,005 $ 4,381,630 $ 4,957,143 $ 1,939,525 $ 873,508
Total assets $ 7,203,480 $ 8,368,140 $ 6,768,942 $ 4,766,745 $ 4,454,778
Long-term obligations $ 260,265 $ 652,367 $ -- $ -- $ --
Shareholders' interest $ 5,014,746 $ 6,287,952 $ 6,289,524 $ 4,149,775 $ 4,133,093
(1) Should be read in conjunction with Consolidated Financial Statements
and Notes thereto.
(2) Includes net income (losses) related to equity method affiliates of
approximately $58,000, $34,000, ($104,000), $20,000 and ($1,013,000)
in 1997, 1996, 1995, 1994, and 1993, respectively, and gain on issuance
of shares by subsidiary of $233,000 in 1993.
(3) Includes results of USET's operations on a consolidated basis for the
six months from January 1, 1996 through July 31, 1996 (see Note 2 to
Consolidated Financial Statements).
(4) No cash dividends were declared or paid in any year presented.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition and Liquidity
Cash and cash equivalents of $930,592 at July 31, 1997 are
$369,952 higher than cash and cash equivalents of $560,640 at July 31,
1996. Operating activities used $896,712, investing activities
provided $1,584,072 and financing activities used $317,408 in the year
ended July 31, 1997.
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 will recognize
costs related to this action, which are not expected to be material,
in fiscal 1998.
CTT and its majority-owned subsidiaries' ("the Company") loss
from continuing operations of $1,571,045 for the year ended July 31,
1997 included the following noncash items: depreciation and
amortization of approximately $384,000, income related to equity
method affiliates of approximately $58,000, amortization of discount
on purchase obligation of approximately $91,000 and accrued expenses
of approximately $196,000.
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 $409,000 increase in royalties receivable and the $420,000
increase in royalties payable.
Approximately $160,000 of property and equipment purchased in the
year ended July 31, 1997 related to equipment additions and technical
upgrades for added staff and increased client service capabilities
($28,000) and improving ($55,000) and furnishing ($77,000) CTT's
principal office. CTT relocated its principal office on November 8,
1996.
Proceeds from sales of investments of approximately $6,180,000
are $4,550,000 from sales of available-for-sale securities and
$1,305,000 from sales of other short-term investments. The expiration
of the directors' escrow account on July 31, 1997 also provided
$325,000 in cash. The Company reinvested $4,494,000 in U.S.
government debt securities.
In fiscal 1997, CTT received $92,782 from stock options exercised
to purchase 14,000 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 used in partial support of VVI's development
activities during 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 CTT.
The Company has agreed to pay certain persons specified percent-
ages of Renova royalties received until certain total payments have
been made. At July 31, 1997, the remaining amount of such contingent
payments was $136,539.
At July 31, 1997, the Company had no outstanding commitments 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 development
activities will proceed at a minimum level. 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. The Company, the
inventor and others supported VVI's development activities throughout
fiscal 1997 during which time VVI improved its video compression
software product for inclusion in MPEG-4, an international standard
expected to be adopted for consumer applications such as video
teleconferencing, video databases and wireless video access.
With $3,465,000 in cash, cash equivalents and short-term
investments at July 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 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 - 1997 vs. 1996
Through January 31, 1996, the Company accounted for its invest-
ment in USET on the equity method and recorded 20% of its net income.
The Company has consolidated USET's results of operations for all
periods since February 1, 1996.
Consolidated revenues for the year ended July 31, 1997, were
$196,021 (9%) higher than for the year ended July 31, 1996.
Retained royalties were $215,132 (13%) higher than in fiscal
1996. However, excluding USET's effect, retained royalties were
$13,245 (1%) lower. Up-front license fees for a plasma display energy
recovery technology of approximately $97,000 for fiscal 1996 were non-
recurring and this decrease was partially offset by a new license fee
and increased royalties on several technologies for fiscal 1997.
There were also modest increases in royalties from sales of Renova
and Ethyol. Consolidating USET increased retained royalties for
fiscal 1997 by $223,952 (14%) as compared with fiscal 1996.
The Company's retained royalties from its Vitamin B12 assay were
approximately $581,000 (32%) and $562,000 (35%) of total retained
royalties in 1997 and 1996, respectively. Certain of the Vitamin B12
assay licenses are expected to expire in April, 1998. These expiring
licenses contributed approximately $150,000 (8%) of total retained
royalties in fiscal 1997. The remaining Vitamin B12 assay licenses
are expected to expire in May, 2001. The Company's retained royalties
from the gallium arsenide semiconductor inventions were approximately
$282,000 (15%) and $289,000 (18%) of total retained royalties in 1997
and 1996, respectively. No other technologies produced retained
royalties equal to or greater than 10% of consolidated revenue in 1997
or 1996. See Note 6 to Consolidated Financial Statements.
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. (See Item 3. Legal Proceedings.)
Revenues under service contracts and grants were $641,176 in
fiscal 1997, $19,111 (3%) lower than in fiscal 1996. Revenues from
intercorporate service contracts, including CTT's first revenue from
transferring rights to a corporate client's technology, were $349,800
in fiscal 1997, approximately $175,000 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
$225,000 in fiscal 1997 were $197,000 lower than in fiscal 1996.
VVI's SBIR contract was completed in October, 1996, and CTT's contract
with the Department of the Air Force was completed in November, 1996.
Revenues from this contract for fiscal 1997 were $175,000 lower than
for fiscal 1996.
There were no grant revenues in fiscal 1997 compared with $7,784
in support of VVI's development activities in fiscal 1996.
Costs of technology management services were approximately
$881,000 (48%) higher in fiscal 1997 than in fiscal 1996 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 $168,000 higher in 1997
than in 1996. This increase includes $139,000 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.
Costs related to service contracts and grants (including direct
charges for subcontractors' services and personnel costs associated
with service contracts) increased $328,000 compared with fiscal 1996.
This includes increased costs in connection with VVI's SBIR contract
and efforts to develop its video compression technology ($161,000),
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 $385,000 over 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 $230,000
(18%) higher in fiscal 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 increased other operating expenses in fiscal 1997.
The net effect of these increases in operating revenues and
expenses was to increase the Company's operating loss by $915,131
(111%) compared with fiscal 1997.
Interest income decreased $66,072 (32%) because of lower average
invested balances and lower average interest rates in fiscal 1997.
Interest expense of $93,371 in fiscal 1997 relates primarily to the
debt incurred in connection with the acquisition of USET.
In fiscal 1997, net income related to equity method affiliates
was principally CTT's equity in the net income of Equine Biodiagnost-
ics, Inc. ("EBI") ($70,000) partially offset by CTT's equity in net
losses of other ventures. At July 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), but has no further
obligation to provide additional funding to KSI. CTT's investment in
KSI has been reduced to zero. In fiscal 1996, net income related to
equity method affiliates included the Company's 20% equity in the net
income of USET ($30,000) for the six months ended January 31, 1996,
its equity in the net loss of KSI ($70,000) and its equity in the net
income of EBI ($76,000).
In January, 1996, CTT received $96,907 in cash for the sale of
its remaining interest in Plasmaco, Inc. Since CTT'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 fiscal 1997, includes approximately $77,000 gain
from short-term investments.
Other expenses for fiscal 1997, include legal expenses incurred
in connection with a suit brought against CTT and some of its
subsidiaries and directors as more fully detailed in Note 14 to
Consolidated Financial Statements. Further hearings in this case have
been adjourned and are expected to occur later in calendar 1997. CTT
is unable to estimate the related legal expenses which may be incurred
in fiscal 1998. Unilens made no payments in either fiscal year.
Since CTT carries this receivable at zero value, any collections will
be recorded in the period collected. Through July 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% cash commission to
Optical Associates, L. P., its joint venture partner.
Minority interest in the losses of subsidiaries in 1997 of
$81,721 was VVI's minority shareholders' additional interest in its
losses. The minority interest in VVI's losses is limited to the
minority's interest in VVI's outstanding common stock. Unless VVI
obtains additional external equity financing, no further losses may
be charged to VVI's minority interest.
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. However, so long as the Company's other
operations generate current taxable losses equal to USET's current
taxable income, Federal income taxes payable can be minimized. The
Company is likely to pay higher state income taxes because those
current taxable losses will probably be generated in states where USET
has no operations. Provision was made in each year 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 has disclosed the pro forma effects fair value accounting
would have had on net income and earnings per share in these
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 state-
ments.
In October, 1997, CTT's 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 will recognize costs related to this action, which are not
expected to be material, in fiscal 1998.
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).
Results of Operations - 1996 vs. 1995
The results of operations presented in the accompanying financial
statements present NovaNET Learning, Inc.'s (formerly University
Communications, Inc.) ("NLI") results of operations as a discontinued
operation for all periods prior to February 15, 1995. See Note 16 to
Consolidated Financial Statements.
Consolidated revenues for the year ended July 31, 1996, were
$577,001 (34%) higher than for the year ended July 31, 1995.
Excluding USET's effect, retained royalties were $212,636 (27%) higher
than in 1995 principally because of up-front license fees for a plasma
display energy recovery technology and an increased minimum payment
on a technology in development. The consolidation of USET's retained
royalties since February 1, 1996 increased retained royalties by
$611,031.
The Company's retained royalties from its Vitamin B12 assay were
approximately $562,000 (35%) and $288,000 (36%) of total retained
royalties in 1996 and 1995, respectively. Its retained royalties from
the gallium arsenide semiconductor inventions were approximately
$289,000 (18%) and $159,000 (20%) of total retained royalties in 1996
and 1995. No other technologies produced retained royalties equal to
or greater than 10% of consolidated revenue in 1996 or 1995. See Note
6 to Consolidated Financial Statements. The Company expected to
receive increased royalties from U.S. sales of two technologies
recently approved by the U.S. Food and Drug Administration, Ethyol and
Renova (Renova). Ethyol is U.S. Bioscience, Inc.'s chemo-radiotherapy
protective agent to protect patients against the harmful effect of X-
radiation. Renova is Johnson & Johnson's prescription skin cream to
reduce fine wrinkles, brown spots and surface roughness associated
with chronic sun exposure and the natural aging process. However, in
both cases the Company's royalty interest is indirect through other
licensors which may delay receipts of royalties for some months.
Revenues under service contracts were $660,287 in 1996, $169,654
(21%) lower than in 1995. CTT's contract with the Department of the
Air Force which began in February, 1995, generated $254,000 in
contract revenues in 1996 compared with $500,000 in 1995. This
$246,000 reduction reflects substantially lower activity as the
Company approached completion and delivery under the contract in
November, 1996. This and other reductions for certain service
contracts, some of which were nonrecurring, were partially offset by
more than $155,000 of contract revenues for various intercorporate
patent and licensing services in 1996. In April 1996, VVI began
working under a Small Business Innovation Research award totaling
$99,000. Approximately $63,000 of this contract was earned and
recorded during 1996.
Grant revenues in 1996 were the $7,784 remaining from the grant
in support of VVI's development activities. Grant revenues in 1995
included approximately $36,000 on Competitive Technologies of PA,
Inc.'s ("CTT-PA") grant and $25,000 from the grant to VVI. In
consideration of their grant funding, CTT-PA and VVI are obligated to
repay from certain revenues up to three times total grant funds (see
Note 14 to Consolidated Financial Statements).
Costs of technology management services were $517,737 (39%)
higher in 1996 than in 1995 as more fully discussed below.
Costs related to retained royalties were $514,000 higher in 1996
than in 1995. The increase in these costs resulted from higher
domestic and foreign patent expenses associated with the USET
portfolio, consolidation of USET's operations for six months in 1996,
and additional expenses related to intercorporate licensing services.
Costs related to service contracts (including direct charges for
subcontractors' services and employees' salaries, benefits and
overheads for services provided in connection with the related
contracts) were $132,000 lower than in 1995. CTT's contract with the
Department of the Air Force was responsible for a reduction of
approximately $168,000 which was offset by increased costs for various
intercorporate patent and licensing contract services in 1996.
Costs related to grant revenues decreased approximately $77,000
in proportion to the reduction in grant revenues.
Costs associated with new client development (principally
personnel costs) increased $212,000 over 1995. The Company's
personnel added during 1996 have not only identified new service
opportunities but they have developed several of them into agreements
with clients for services during 1996 and 1997. The time from initial
contact to signed service agreement varies substantially.
General and administration expenses were $252,198 (25%) higher
in 1996. Although USET's operations added some general and adminis-
tration expenses, most of this increase occurred in the first and
fourth quarters of 1996 and is directly related to additional
personnel and related expenses, as well as higher shareholder
relations and other operating expenses supporting the Company's
ongoing operations. In July, 1996, CTT obtained directors' and
officers' liability insurance which added $75,000 of expenses in 1997.
In addition, with the expiration of its corporate office lease in
August 1996, the Company signed a new five-year office lease beginning
in November 1996. Annual rent under the new lease, without reduction
for expected sublease rentals, is $180,000 beginning January 1, 1997.
Net rent expense under the old lease was approximately $39,000 in
1996.
The net effect of the increases in operating revenues and
expenses was to increase the Company's operating loss by $192,934
(31%).
Interest income increased $57,227 (38%) primarily due to higher
average invested balances in 1996. Interest expense of $57,258 in
1996 relates to the debt incurred in connection with the acquisition
of USET.
In 1996, net income related to equity method affiliates included
the Company's 20% equity in the net income of USET ($30,000), CTT's
equity in the net loss of KSI ($70,000) and CTT's equity in the net
income of Equine Biodiagnostics, Inc. ("EBI") ($76,000). In 1995,
losses related to equity method affiliates included CTT's equity in
the loss of KSI ($157,000), the Company's 20% equity in the net income
of USET ($47,000) and CTT's equity in the net income of EBI ($6,000)
for four months of operations.
Included in other income for both 1996 and 1995 are $62,000 and
$60,000 gains realized by CTT on its sale of available-for-sale
securities offset by legal expenses of $80,000 and $132,000 in 1996
and 1995, respectively, incurred in connection with a suit brought
against CTT, some of its subsidiaries and directors which claims that
Optical Associates, L.P. ("OALP") is entitled to the entire proceeds
from the 1989 sale of the assets of the discontinued optical products
segment (see Note 14 to Consolidated Financial Statements).
Minority interest in the losses of subsidiaries in 1995 of
$23,112 was VVI's minority shareholders' interest in its losses.
Provision was made in each year for estimated state income taxes.
Forward-Looking Statements
This Annual Report on Form 10-K 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 this Annual Report on Form 10-K for the
year ended July 31, 1997. Actual results may differ materially from
these forward-looking statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
Page
Report of Independent Accountants 25
Consolidated Balance Sheets 26-27
Consolidated Statements of Operations 28-29
Consolidated Statements of Changes
in Shareholders' Interest 30
Consolidated Statements of Cash Flows 31-32
Notes to Consolidated Financial Statements 33-50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Competitive Technologies, Inc.
We have audited the accompanying consolidated balance sheets of
Competitive Technologies, Inc. and Subsidiaries as of July 31, 1997
and 1996, and the related consolidated statements of operations,
changes in shareholders' interest and cash flows for each of the three
years in the period ended July 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Competitive Technologies, Inc. and Subsidiaries as of July 31, 1997
and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended July 31, 1997, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
October 15, 1997
Stamford, Connecticut
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 1997 and 1996
ASSETS
1997 1996
Current assets:
Cash and cash equivalents $ 930,592 $ 560,640
Short-term investments, at market 2,534,413 3,820,990
Receivables, including $19,241 and $19,910
receivable from related parties in
1997 and 1996, respectively 1,404,035 1,088,030
Prepaid expenses and other current assets 115,537 218,903
Total current assets 4,984,577 5,688,563
Property and equipment, net 228,297 144,360
Investments 394,451 321,145
Intangible assets acquired, principally
licenses and patented technologies, net
of accumulated amortization of $210,462
and $71,790 in 1997 and 1996, respectively 1,582,686 1,794,795
Directors' escrow account -- 325,000
Other assets 13,469 94,277
TOTAL ASSETS $ 7,203,480 $ 8,368,140
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 1997 and 1996
(Continued)
1997 1996
LIABILITIES AND SHAREHOLDERS' INTEREST
Current liabilities:
Accounts payable, including $4,258 and
$9,365 payable to related parties
in 1997 and 1996, respectively $ 87,644 $ 83,571
Accrued liabilities 1,290,825 794,250
Current portion of purchase obligation 550,000 550,000
Total current liabilities 1,928,469 1,427,821
Noncurrent portion of purchase obligation,
net of unamortized discount of $41,295
and $132,633 in 1997 and 1996,
respectively 260,265 652,367
Commitments and contingencies
Shareholders' interest:
5% preferred stock, $25 par value;
35,920 shares authorized; 2,427
issued and outstanding 60,675 60,675
Common stock, $.01 par value; shares
authorized: 7,964,080 in 1997 and
1996; issued: 5,951,829 in 1997 and
5,925,829 in 1996; outstanding:
5,936,483 in 1997 and 5,900,829
in 1996 59,518 59,258
Capital in excess of par value 25,218,106 24,993,926
Treasury stock (common), at cost;
15,346 shares in 1997 and 25,000
shares in 1996 (98,511) (174,713)
Net unrealized holding gains on
available-for-sale securities 7,802 10,605
Accumulated deficit (20,232,844) (18,661,799)
Total shareholders' interest 5,014,746 6,287,952
TOTAL LIABILITIES AND SHAREHOLDERS'
INTEREST $ 7,203,480 $ 8,368,140
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended July 31, 1997, 1996 and 1995
1997 1996 1995
Revenues:
Retained royalties $ 1,835,041 $ 1,619,909 $ 796,243
Revenues under service contracts
and grants, including $142,216,
$156,766 and $210,937 from
related parties in 1997, 1996
and 1995, respectively 641,176 660,287 906,952
2,476,217 2,280,196 1,703,195
Costs of technology management
services, of which $36,612, $8,759
and $5,557 were paid to related
parties in 1997, 1996 and 1995,
respectively 2,727,540 1,846,268 1,328,531
General and administration expenses,
of which $40,882, $89,618 and
$106,894 were paid to related
parties in 1997, 1996 and 1995,
respectively 1,485,568 1,255,688 1,003,490
4,213,108 3,101,956 2,332,021
Operating loss (1,736,891) (821,760) (628,826)
Interest income 142,213 208,285 151,058
Interest expense (93,371) (57,413) --
Income (loss) related to
equity method affiliates 58,325 33,808 (103,520)
Other income (expense), net 25,958 78,979 (61,700)
Loss from continuing operations
before income taxes and
minority interest (1,603,766) (558,101) (642,988)
Provision for income taxes 49,000 30,000 21,373
Loss from continuing operations
before minority interest (1,652,766) (588,101) (664,361)
Minority interest in losses of
subsidiaries 81,721 -- 23,112
Loss from continuing operations (1,571,045) (588,101) (641,249)
Income (loss) from operations of
discontinued operation -- -- 99,468
Net gain on disposal of
discontinued operations -- -- 2,534,505
Net (loss) income $(1,571,045) $ (588,101) $ 1,992,724
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended July 31, 1997, 1996 and 1995
(Continued)
1997 1996 1995
Net income (loss) per share
(primary and fully diluted):
Continuing operations $ (0.27) $ (0.10) $ (0.11)
Operations of discontinued
operation -- -- 0.02
Net gain on disposal of
discontinued operations -- -- 0.43
Net (loss) income $ (0.27) $ (0.10) $ 0.34
Weighted average number of common
and common equivalent shares
outstanding (primary and
fully diluted) 5,914,868 5,853,814 5,814,826
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Interest
For the years ended July 31, 1997, 1996 and 1995
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
Balance - July 31, 1994 2,427 $60,675 5,791,824 $57,918 $24,097,604 -- $ -- $ -- $(20,066,422)
Effect of change in
accounting for available-
for-sale securities as of
August 1, 1994 . . . . . . 11,154
Stock issued under
Directors' Stock
Participation Plan . . . . 7,545 75 49,925
Stock issued under
Employees' Common Stock
Retirement Plan. . . . . . 10,996 110 65,522
Stock issued to Knowledge
Solutions, Inc. in exchange
for 205,325 shares of KSI's
Class A common stock . . . 25,000 250 197,092 (12,208) (96,362)
Net change in unrealized
holding gains on
available-for-sale
securities . . . . . . . . (2,390)
Purchase of treasury stock
from Knowledge
Solutions, Inc . . . . . . (12,792) (78,351)
Net income. . . . . . . . . 1,992,724
Balance - July 31, 1995 2,427 60,675 5,835,365 58,353 24,410,143 (25,000) (174,713) 8,764 (18,073,698)
Exercise of common stock
warrants . . . . . . . . . 5,000 50 28,700
Stock issued under
Directors' Stock
Participation Plan . . . . 4,776 48 39,952
Stock issued under
Employees' Common Stock
Retirement Plan. . . . . . 8,688 87 88,965
Exercise of common stock
options. . . . . . . . . . 72,000 720 426,166
Net change in unrealized
holding gains on
available-for-sale
securities . . . . . . . . 1,841
Net loss. . . . . . . . . . (588,101)
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. . . . . . . . . . 14,000 140 92,642
Exercise of common stock
warrants . . . . . . . . . 6,000 60 38,190
Stock issued under 1996
Directors' stock
Participation Plan.. . . . 6,000 60 59,940
Stock issued under
Employees' Common
Stock Retirement Plan. . . 29,998 9,654 76,202
Grant of warrants to
consultants . . . . .. . . 3,410
Net change in unrealized
holding gains on
available-for-sale
securities . . . . . . . . (2,803)
Net loss . . . . . . . . . . (1,571,045)
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)
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended July 31, 1997, 1996 and 1995
1997 1996 1995
Cash flow from operating
activities:
Loss from continuing operations $(1,571,045) $ (588,101) $ (641,249)
Noncash items included in loss
from continuing operations:
Depreciation and
amortization 383,622 273,127 186,013
Equity method affiliates (58,325) (33,808) 103,520
Minority interest (81,721) -- (23,112)
Directors' stock and
stock retirement plan
accruals 183,700 123,232 121,465
Amortization of discount
on purchase obligation 91,338 57,258 --
Other noncash items (17,707) 21,657 (77,941)
Other 19 (100,517) 64,705
Net changes in various
operating accounts:
Receivables (316,005) (724,088) 172,334
Prepaid expenses and other
current assets 15,289 (132,708) (70,889)
Accounts payable and
accrued liabilities 422,688 (140,382) 124,837
Deferred revenues 51,435 16,587 --
Net cash flow used in
operating activities (896,712) (1,227,743) (40,317)
Cash flow from investing
activities:
Purchases of property and
equipment, net (160,002) (54,016) (106,223)
Proceeds from sales of:
Available-for-sale securities 4,550,000 3,694,767 2,231,629
Other short-term investments 1,304,937 -- --
Directors' escrow account 325,000 -- --
Purchases of short-term
investments (4,494,300) (2,831,180) (5,551,759)
Net cash acquired in connection
with investment in subsidiary -- 105,171 --
Investments in affiliates and
subsidiaries 58,437 81,907 (85,800)
Proceeds from disposal of dis-
continued operations, net -- -- 3,011,558
Net cash flow from (used in)
investing activities 1,584,072 996,649 (500,595)
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended July 31, 1997, 1996 and 1995
(Continued)
1997 1996 1995
Cash flow from financing activities:
Proceeds from exercise of
stock options and warrants 131,032 455,636 --
Proceeds from minority's in-
vestment in subsidiary's
common stock 35,000 -- --
Repayment of purchase
obligation (483,440) -- --
Net cash flow from financing
activities (317,408) 455,636 --
Net increase (decrease) in cash
and cash equivalents 369,952 224,542 (540,912)
Cash and cash equivalents,
beginning of year 560,640 336,098 877,010
Cash and cash equivalents, end
of year $ 930,592 $ 560,640 $ 336,098
Supplemental cash flow information:
Cash paid for income taxes $ 68,680 $ 42,067 $ 15,513
Schedule of significant noncash
investing and financing
activities:
Debt incurred for investment
in subsidiary $ -- $ 1,145,109 $ --
Stock issued for investments in
affiliates and subsidiaries -- -- 205,325
Purchase of treasury stock -- -- (174,713)
$ -- $ 1,145,109 $ 30,612
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
Competitive Technologies, Inc. ("CTT") and its majority-owned
subsidiaries ("the Company"). CTT's majority-owned subsidiaries are
Competitive Technologies of PA, Inc. ("CTT-PA"), Competitive
Technologies of Ohio, Inc. ("CTT-OH"), University Optical Products Co.
("UOP"), Genetic Technology Management, Inc. ("GTM"), UPAT Services,
Inc. ("USI") and Vector Vision, Inc. ("VVI") (see Notes 2 and 3).
Intercompany accounts and transactions have been eliminated in
consolidation.
As more fully discussed in Note 2, the Company purchased the
remaining interests in University Science, Engineering and Technology,
Inc. ("USET") on January 31, 1996. Accordingly, USET's results of
operations have been consolidated since January 31, 1996. Through
January 31, 1996, the Company accounted for its investment in USET on
the equity method and recorded 20% of its net income.
Business
The Company provides technology management services to its
clients which include corporations, federal agencies and laboratories
and universities in North America, Europe and the Far East. These
services include technical evaluations, patent and market assessments,
patent application and prosecution, patent enforcement, licensing,
license management and royalty distribution.
Management Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenues and Expenses
Royalty income, net of amounts due others, is included in income
in the period in which it is earned. Such retained royalties are
earned through servicing agreements with various technology sources
under which the Company retains an agreed percentage of income derived
from license or sale of technologies. Royalties receivable are
recorded based on royalty reports actually received and therefore no
allowance for bad debts is required.
Revenues under service contracts are recognized for technology
management, licensing and other services in the period the contractual
service is provided and the related revenue is earned.
Grant revenues, which are nonrefundable except under certain
conditions (see Note 14), are recognized in the period grant funds are
received.
Expenditures made in connection with evaluating the marketability
of inventions, patenting inventions, licensing patented inventions and
enforcing patents are charged to operations as incurred.
Cash Equivalents
Cash equivalents include only highly liquid investments purchased
with an original maturity of three months or less.
The Company's bank and investment accounts are maintained with
three financial institutions. The Company's policy is to monitor the
financial strength of these institutions on an ongoing basis.
Property and Equipment
The costs of depreciable assets are charged to operations on a
straight-line basis over their estimated useful lives (3 to 5 years
for equipment) or the terms of the related lease for leasehold
improvements. The cost and related accumulated depreciation of
property and equipment are removed from the accounts upon retirement
or other disposition; any resulting gain or loss is reflected in
earnings.
Intangible Assets Acquired
Intangible assets acquired in connection with the acquisition of
USET comprise principally licenses and patented technologies and were
recorded at their estimated fair value on January 31, 1996, which is
being amortized on a straight-line basis over their estimated
remaining lives (approximately 13 years from the date acquired).
Subsidiaries' Issuances of Shares
The Company recognizes in earnings gains or losses reflecting
increases in the value of its equity in subsidiaries' net worth re-
sulting from subsidiaries' issuances of shares to minority sharehold-
ers.
Income Taxes
Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each balance
sheet date based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized. Provision for income taxes is the tax payable for the year
and the change during the year in deferred tax assets and liabilities.
Investment tax credits are accounted for using the flow-through
method.
Net Income (Loss) Per Share
Net income (loss) per share, both primary and fully diluted, is
computed based on the weighted average number of common shares
outstanding and dilutive common share equivalents. In those periods
when a net loss is reported, common share equivalents are anti-
dilutive and therefore they are excluded from the computation. Net
income (loss) applicable to common stock is net income (loss) adjusted
for preferred stock dividends, if any.
Stock-Based Compensation
The Company adopted Financial Accounting Standards Statement No.
123, "Accounting for Stock-Based Compensation" effective August 1,
1996. The Company elected to continue accounting for employee stock-
based compensation under Accounting Principles Board Opinion No. 25
and disclose the pro forma effects that fair value accounting would
have on net income and earnings per share. In addition, the Company
adopted fair value accounting for stock options or other equity
instruments issued to nonemployee providers of goods and services.
The effect of adoption was not material to the Company's financial
statements.
Impairment of Long-lived Assets
The Company reviews long-lived and intangible assets for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the asset may not be recoverable. It requires
that an impairment loss be recognized based on the fair value of the
asset if the sum of expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the
asset.
Future Impact of Adopting Recently Issued Accounting Pronouncements
In February, 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share" which requires adoption
for both interim and annual periods ending after December 15, 1997.
This Statement replaces the presentation of primary earnings per share
with a presentation of basic earnings per share. It also requires
dual presentation of basic and diluted earnings per share on the face
of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and
denominator of the basic earnings per share computation to the
numerator and denominator of the diluted earnings per share computa-
tion. This statement requires restatement of all prior-period
earnings per share data presented. The Company will adopt this
Statement for its second fiscal quarter ending January 31, 1998. The
Company does not expect adoption to have a material effect on its
financial statements.
In February, 1997, the Financial Accounting Standards Board
issued Statement No. 129, "Disclosure of Information about Capital
Structure." This statement does not change disclosure requirements,
but it consolidates them. The Company will adopt this Statement for
its second fiscal quarter ending January 31, 1998. The Company does
not expect adoption to have a material effect on its financial
statements.
In June, 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income," which establishes
standards for reporting comprehensive income and its components in
financial statements. Comprehensive income includes all changes in
shareholders' interest that result from recognized transactions and
other economic events of the period other than transactions of
shareholders in their capacities as shareholders. The Company will
adopt this Statement on August 1, 1998. The Company does not expect
adoption to have a material effect on its financial statements.
In June, 1997, the Financial Accounting Standards Board issued
Statement No. 131 "Disclosures about Segments of an Enterprise and
Related Information", which establishes standards for public business
enterprises to report information about operating segments. The
Company will adopt this Statement on August 1, 1998. The Company does
not expect adoption to have a material effect on its financial
statements.
2. ACQUISITION OF USET
On January 31, 1996, USI purchased the limited partnership
interests of Texas Research and Technology Foundation and United
Services Automobile Association in USET Acquisition Partners, L.P.
("UAP"). The total purchase price was $1,835,000 (excluding expenses
related to the acquisition) with $500,000 paid in cash and the balance
to be paid without interest on each succeeding January 31 in
installments equal to 60% of USET's gross retained earned revenues for
the preceding calendar year or the remaining unpaid balance of the
purchase price, whichever is less. However, if any annual 60%
installment would be less than $400,000, that installment shall be
equal to the lesser of $400,000 or 80% of USET's gross retained earned
revenues. CTT guaranteed the payment of these installments when due.
The first installment payment of $483,440 was made on January 31,
1997. At July 31, 1997 and 1996, the carrying amount of the purchase
obligation approximates fair value.
After the purchase, USI owned 100% of all partnership interests
in UAP and as a result, UAP was dissolved. UAP's principal asset was
its investment in 100% of the equity of USET Holding Co. USET Holding
Co.'s only asset was its investment in 100% of the equity of USET.
In addition to cash of approximately $605,000 and computer equipment,
USET's assets consist principally of licenses and patented technolo-
gies. USI accounted for the acquisition under the purchase method and
recorded the estimated present value of the purchase obligation of
$1,145,109 using a 10% discount rate.
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 year For the year
ended ended
July 31, 1996 July 31, 1995
Total revenues $2,701 $2,242
Operating loss (622) (443)
Loss from continuing
operations (483) (621)
Per share loss from
continuing operations $(0.08) $(0.11)
3. COMPETITIVE TECHNOLOGIES OF PA, INC.
In February, 1993, CTT acquired 80% of the outstanding stock of
CTT-PA, a wholly-owned technology management subsidiary of Lehigh
University ("Lehigh"), in exchange for $750,000 payable by issuance
of 74,302 unregistered shares of CTT's common stock.
CTT accounted for the transaction as a purchase and accordingly
CTT-PA's results of operations are included in the consolidated
financial statements for all periods after February 1, 1993. The
excess of the purchase price over the net assets acquired of $314,231
is being amortized over 5 years. Such amortization of $80,808,
$62,844 and $62,844 has been charged to operations in 1997, 1996 and
1995, respectively. Accumulated amortization was $300,762 and
$219,954 at July 31, 1997 and 1996, respectively.
In connection with the acquisition, CTT-PA agreed to provide
patent management and technology licensing services to Lehigh for five
years from September 30, 1992, subject to termination after three
years under certain conditions. During the term of the agreement,
Lehigh agreed to pay CTT-PA $30,000 a year for these services and to
provide CTT-PA with office space, tuition remission for specified
individuals and services of Master of Business Administration students
for an aggregate of 40 hours per week at no charge. In addition, in
each year of the agreement CTT-PA retains the first $100,000 of net
income from transferring and licensing technology as defined in the
agreement and 75% of such net income in excess of $100,000.
4. INVESTMENTS IN EQUITY METHOD AFFILIATES
Knowledge Solutions, Inc.
In June, 1994, CTT acquired 50% of the outstanding common stock
of Knowledge Solutions, Inc. ("KSI") for $25,000 in cash. KSI was
formed in June, 1994, to develop and deliver interactive multimedia
training packages. In June, 1995, CTT acquired an additional 75,000
shares of KSI's Class A common stock for $75,000 in cash.
In June and July of 1995, CTT received 40,000 and 20,000 shares,
respectively, of KSI Class B common stock in exchange for management
and consulting services provided by the Company during fiscal 1995.
The shares were valued at $40,000 and $20,000, respectively. CTT's
ownership of KSI at July 31, 1997 and 1996 was 33.7%.
On December 31, 1995, CTT loaned $50,000 to KSI pursuant to a
secured promissory note convertible into shares of KSI's Class A
common stock at $.80 per share at CTT's option. The note bears
interest at the prime rate plus one percent and was payable on or
before December 31, 1996. Under the terms of a related security
agreement, KSI pledged all its software, furniture, fixtures and
equipment as collateral for this loan. CTT's loan is subordinate to
an otherwise identical $50,000 secured convertible loan. CTT
accounted for its loan to KSI as additional equity invested in KSI.
Effective October, 1994, CTT-PA granted KSI an exclusive ten-year
license to its process model for interactive multimedia training in
exchange for royalties on future sales.
CTT accounts for its investment in KSI on the equity method. KSI
stock is not publicly traded and there is no quoted market price for
its stock.
Equine Biodiagnostics, Inc.
In February, 1995, CTT purchased 250,000 shares of Class A common
stock of Equine Biodiagnostics, Inc. ("EBI") for $25,000 in cash. EBI
was organized to provide diagnostic laboratory services for the equine
industry. At July 31, 1997 and 1996, CTT owned 37.5% of the
outstanding common stock of EBI and accounts for its investment in EBI
on the equity method. EBI stock is not publicly traded and there is
no quoted market price for its stock.
Summary Information
Summarized information from the unaudited financial statements
of the Company's equity method affiliates follows (in thousands):
July 31, 1997 KSI EBI OTHERS Total
Current assets $ 22 $ 485 $ 33 $ 540
Noncurrent assets 14 53 15 82
Current liabilities 150 59 -- 209
Noncurrent liabilities -- 27 -- 27
Shareholders' equity
(deficit) (114) 452 48 386
Gross revenues 36 791 11 838
Gross profit (loss) (5) 715 7 717
Net income (loss) (59) 191 (23) 109
Equity in net income (loss) -- 70 (12) 58
Company's investments in
equity method affiliates -- 176 19 195
July 31, 1996 UAP KSI EBI OTHERS Total
(1)
Current assets $ -- $ 34 $ 307 $ 26 $ 367
Noncurrent assets -- 19 58 4 81
Current liabilities -- 123 64 3 190
Noncurrent liabilities -- -- 40 -- 40
Shareholders' equity
(deficit) -- (70) 261 27 218
Gross revenues 421 75 658 -- 1,154
Gross profit 382 54 608 -- 1,044
Net income (loss) 150 (188) 196 (3) 155
Equity in net income (loss) 30 (70) 76 (2) 34
Company's investments in -- -- 107 14 121
equity method affiliates
July 31, 1995 UAP KSI EBI Total
Current assets $ 637 $ 112 $ 99 $ 848
Noncurrent assets 809 22 58 889
Current liabilities 404 16 48 468
Noncurrent liabilities -- -- 44 44
Shareholders' equity 1,042 118 65 1,225
Gross revenues 721 74 93 888
Gross profit 675 -- 69 744
Net income (loss) 219 (391) 16 (156)
Equity in net income (loss) 47 (157) 6 (104)
Company's investments in
equity method affiliates 239 20 31 290
(1) Effective January 31, 1996 the Company began to account for UAP as
a consolidated subsidiary. Results reported in this note for 1996 are
for the six months ended January 31, 1996 only (see Note 2).
At July 31, 1997 and 1996, the Company's investments in equity
method affiliates exceeded its share of their underlying net assets
by approximately $38,000 and $29,000, respectively.
5. INVESTMENTS ACCOUNTED FOR UNDER THE COST METHOD
Since February 15, 1995, CTT has accounted for its $159,375
investment in NovaNET Learning, Inc. (formerly University Communica-
tions, Inc.) ("NLI") under the cost method (see Note 16). NLI stock
is not publicly traded and there is no quoted market price for its
stock.
In January, 1996, CTT received $96,907 in cash for the sale of
its remaining interest in Plasmaco, Inc. Since 1993 CTT's investment
in Plasmaco, Inc. was carried at no value and therefore, the $96,907
gain was included in other income for fiscal 1996.
In May, 1994, CTT acquired a 13.3% voting interest in Innovation
Partners International, k.k. ("IPI"), a Japanese corporation which
provides technology transfer, business development and innovation
management services to corporate clients, for approximately $40,000.
IPI stock is not publicly traded and there is no quoted market price
for its stock.
6. REVENUES
All of the Company's royalty revenues derive from its patent
rights to various technologies. Although patents may be declared
invalid, may not issue on patent applications, or new or alternative
technologies may render licensed patents uncommercial, the Company is
not aware of any such circumstances specific to its portfolio of
licensed technologies. In addition, licensees may not develop
products incorporating the Company's patented technologies or they may
be unsuccessful in obtaining governmental approvals required to sell
such products. In such cases, except for minimum fees provided in
certain license agreements, royalty revenues generally would not
accrue to the Company.
Approximately $581,000 (32%) of retained royalties (23% of total
revenues) in 1997 is from several licenses of the Vitamin B12 assay.
Certain of these licenses are expected to expire in April, 1998.
These expiring licenses contributed approximately $150,000 (8%) of
total retained royalties in fiscal 1997. The remaining Vitamin B12
assay licenses are expected to expire in May, 2001.
Retained royalties for 1997, 1996 and 1995, include $225,233,
$268,542 and $108,773, respectively, from foreign sources.
Approximately 22% of revenues under service contracts and grants
(6% of total revenues) in 1997 was earned under various contracts with
a single customer. Nearly all service contracts and grants must be
renewed at least annually or are for nonrecurring projects. There is
a reasonable possibility that some or all of these service contracts
will not be renewed in the near term. The Company expects these
potential reductions in service contract revenues to be partially
offset by new service contracts with various other clients.
7. RECEIVABLES
Receivables as of July 31, 1997 and 1996 comprise:
1997 1996
Royalties $1,288,363 $ 879,380
Government contracts -- 74,978
Other 115,672 133,672
$1,404,035 $1,088,030
8. SHORT-TERM INVESTMENTS
As of July 31, 1997 and 1996, 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
July 31, 1997:
U.S. Treasury Within 1
bills $ 1,489 8 -- 1,481 year
July 31, 1996:
U.S. Treasury Within
bills $ 1,471 $11 -- $ 1,460 1 year
Other U.S.
government
debt Within
securities 2,350 -- -- 2,350 1 year
Total $ 3,821 $11 -- $ 3,810
As of July 31, 1997 the Company also had $1,045,093 of Eurodollar
investments (U.S. dollar denominated deposits in a bank located
outside the United States).
For the years ended July 31, 1997, 1996 and 1995, respectively,
proceeds from the sale of available-for-sale securities were
$4,550,000, $3,694,767 and $2,231,629 which resulted in gross realized
gains of $76,863, $61,691 and $59,809. In addition, realized gains
on sale of short-term investments classified as cash equivalents were
$2,026 in the year ended July 31, 1995. Cost is based on specific
identification in computing realized gains.
9. PROPERTY AND EQUIPMENT
Property and equipment as of July 31, 1997 and 1996 comprise:
1997 1996
Equipment and furnishings,
at cost $ 311,807 $ 367,504
Leasehold improvements, at cost 54,632 --
366,439 367,504
Accumulated depreciation
and amortization (138,142) (223,144)
$ 228,297 $ 144,360
Depreciation expense was $76,065, $69,253 and $52,069 in 1997,
1996 and 1995 respectively.
10. DIRECTORS' ESCROW ACCOUNT
CTT entered into indemnity agreements with each of its directors
indemnifying them against certain possible claims and expenses and
created an escrow fund in the aggregate sum of $325,000 for the
indemnification of directors as authorized by shareholders. The
escrow terminated at July 31, 1997 and its entire balance, including
accumulated interest, is reported in the accompanying financial
statements as cash and cash equivalents at July 31, 1997. At July 31,
1996, the escrow fund, which was invested in U.S. Treasury securities,
amounted to $435,959 (market: $435,959). The escrow fund included
accumulated interest of $110,959 in 1996, which was not contractually
required for the fund, was available for use by CTT and is reported
in the accompanying financial statements as cash and cash equivalents.
11. ACCRUED LIABILITIES
Accrued liabilities at July 31, 1997 and 1996 were:
1997 1996
Accrued compensation $ 159,519 $ 125,256
Royalties payable 837,718 417,656
Deferred revenues 68,022 16,587
Other 225,566 234,751
$1,290,825 $ 794,250
12. INCOME TAXES
The current provision for income taxes for 1997, 1996 and 1995
is as follows:
1997 1996 1995
State taxes, primarily
minimum taxes based on
capital rather than on
income $49,000 $30,000 $21,373
There is no provision for Federal income taxes due to the
Company's net operating losses.
Components of the Company's net deferred tax assets as of July
31, 1997 and 1996 are as follows (in thousands):
1997 1996
Net operating loss carryforwards $ 5,468 $ 5,060
Net capital loss carryforwards 893 893
Installment receivable from
sale of discontinued operation 1,343 1,269
Other, net 757 631
Net deferred tax assets 8,461 7,853
Valuation allowance (8,461) (7,853)
Net deferred tax asset $ -- $ --
There is no tax effect on the disposal of discontinued operations
in 1995 due to the utilization of capital loss carryforwards.
At July 31, 1997, the Company had Federal net operating loss
carryforwards of approximately $16,082,000 which expire from 1999
through 2012. The Company also has investment tax credit carry-
forwards of approximately $65,000 which expire from 1999 through 2001.
At July 31, 1997, the Company had Connecticut net operating loss
carryforwards of approximately $519,000 which expire from 1998 through
2002 and Pennsylvania net operating loss carryforwards of approximate-
ly $618,000 which expire from 1998 through 2000.
13. SHAREHOLDERS' INTEREST
Preferred Stock
Dividends on preferred stock are noncumulative and preferred
stock is redeemable at par value at the option of CTT.
Stock-based Compensation Plans
At July 31, 1997, CTT had four stock-based compensation plans
which are described below. The Company applies Accounting Principles
Board Opinion No. 25 and related Interpretations in accounting for its
plans. Accordingly, no compensation cost has been recognized for its
Employee Stock Option Plan. The compensation cost that has been
charged against income for each of its Directors' Stock Participation
Plan, Common Stock Warrants and Employees' Common Stock Retirement
Plan is reported below. Had compensation cost for CTT's Employee
Stock Option Plan been determined based on the fair value at the grant
dates for options awarded under that plan consistent with the method
of Financial Accounting Standards Board Statement No. 123, the
Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below:
1997 1996 1995
Net income (loss) As reported $(1,571,045) $ (588,101) $ 1,992,724
Pro forma $(1,759,008) $ (820,153) $ 1,791,945
Primary and fully
diluted earnings As reported $ (0.27) $ (0.10) $ 0.34
per share Pro forma $ (0.30) $ (0.14) $ 0.31
Employee Stock Option Plan
CTT has a stock option plan which expires December 31, 2000.
Under this plan both incentive stock options and nonqualified stock
options may be granted to key employees. Incentive stock options are
granted at an exercise price equal to the fair market value of the
optioned stock on the grant date and terminate ten years after the
grant date if not terminated earlier. Nonqualified stock options may
be granted at an exercise price from 85% to 100% of the fair market
value of the optioned stock on the grant date. Options granted before
July 31, 1997 generally become exercisable six months after the grant
date and terminate ten years after the grant date if not terminated
earlier. Options to be granted in the future are expected to vest
over a substantially longer period. For nonqualified stock options,
the difference between the exercise price and the fair market value
of the optioned stock on the grant date, if any, is charged to expense
over the term of the option. Stock appreciation rights may be granted
either at the time an option is granted or any time thereafter. There
are no stock appreciation rights outstanding.
The fair value of each option grant is estimated on the grant
date using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1997, 1996 and 1995,
respectively:
1997 1996 1995
Dividend yield 0.0% 0.0% 0.0%
Expected volatility 43.4% 42.0% 42.8%
Risk-free interest rates 6.1% 6.0% 7.0%
Expected lives 5 years 5 years 5 years
A summary of the status of CTT's Employee Stock Option Plan as
of July 31, 1997, 1996 and 1995, and changes during the years then
ended is presented below:
1997 1996 1995
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Options out-
standing at
beginning of
year 429,900 $ 9.08 465,900 $ 8.78 378,706 $ 9.37
Granted 66,500 $ 9.63 86,000 $ 9.25 92,500 $ 6.56
Forfeited (2,500) $ 9.63 -- --
Exercised (14,000) $ 6.63 (72,000) $ 6.01 --
Expired or
terminated (19,000) $12.42 (50,000) $10.96 (5,306) $12.00
Options out-
standing at
end of year 460,900 $ 9.10 429,900 $ 9.08 465,900 $ 8.78
Options exercis-
able at year-
end 460,900 $ 9.10 420,900 $ 9.03 443,400 $ 8.89
Weighted-average
fair value of
options granted
during the year $2.94 $2.70 $2.17
The following table summarizes information about stock options outstanding
at July 31, 1997:
Number Weighted- Number
Range Outstanding Average Weighted- Exercisable Weighted-
of at Remaining Average at Average
Exercise July 31, Contractual Exercise July 31, Exercise
Prices 1997 Life Price 1997 Price
$ 6.50-$ 9.99 308,400 7.56 years $ 8.08 308,400 $ 8.08
10.00-$13.13 152,500 4.68 years $11.15 152,500 $11.15
Additional information related to stock options at July 31, 1997
and 1996 follows:
1997 1996
Common shares reserved for
issuance on exercise of options 592,746 606,746
Shares available for future
option grants 131,846 176,846
Directors' Stock Participation Plan
Under the terms of the 1996 Directors' Stock Participation Plan
which was approved by shareholders on December 20, 1996 and expires
January 2, 2006, on the first business day of January each year, CTT
shall issue to each outside director who has been elected by
shareholders and served at least one year as a director the lesser of
2,500 shares of CTT's common stock or shares of CTT's common stock
equal to $15,000 on the date such shares are issued. Should an
eligible director terminate as a director before January 2, CTT shall
issue such director a number of shares equal to the proportion of the
year served by that director.
Under the terms of the Directors' Stock Participation Plan which
expired in January, 1996, outside directors who served a full annual
term were eligible to receive shares of common stock of CTT. The
number of shares issuable each year to any director was the lesser of
2,000 shares or an aggregate fair market value on the date of issuance
of $10,000.
In 1997, 1996 and 1995, eligible directors were issued 6,000,
4,776, and 7,545, shares of common stock, respectively, the fair value
of which has been charged to expense.
Common Stock Warrants
From time to time CTT compensates certain of its consultants in
part by granting them warrants to purchase shares of its common stock.
Such warrants generally become exercisable six months after issuance.
In 1997, the fair value of warrants to purchase 15,000 shares of CTT's
common stock was charged to expense.
A summary of the status of CTT's common stock warrants as of July
31, 1997, 1996 and 1995, and changes during the years then ended is
presented below:
1997 1996 1995
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Warrants out-
standing
at beginning of
year 131,000 $ 7.95 171,000 $ 7.61 166,000 $ 7.59
Granted 15,000 $10.38 20,000 $ 6.23 5,000 $ 8.31
Exercised (6,000) $ 6.38 (5,000) $ 5.75 --
Expired or
terminated (106,000) $ 8.26 (55,000) $ 6.45 --
Warrants out-
standing at
end of year 34,000 $ 8.34 131,000 $ 7.95 171,000 $ 7.61
Warrants exercis-
able at year-end 28,000 $ 7.87 131,000 $ 7.95 171,000 $ 7.61
Weighted-average
fair value of
warrants granted
during the year $2.27 $1.82 $2.14
The following table summarizes information about common stock warrants
outstanding at July 31, 1997:
Number Weighted- Number
Range Outstanding Average Weighted- Exercisable Weighted-
of at Remaining Average at Average
Exercise July 31, Contractual Exercise July 31, Exercise
Prices 1997 Life Price 1997 Price
$5.44-10.50 34,000 1.52 years $ 8.34 28,000 $ 7.87
Warrant Aggregate
Price per Exercise Expiration
Issued No. Shares Share Price Date
September 1994 5,000 $ 8.310 $ 41,550 September 1997
April 1995 12,000 $ 5.438 $ 65,256 April 1998
April 1996 2,000 $10.500 $ 21,000 April 1999
September 1996 3,000 $ 9.875 $ 29,625 September 2001
November 1996 6,000 $10.500 $ 63,000 October 1999
May 1997 6,000 $10.500 $ 63,000 October 1999
34,000 $ 283,431
Employees' Stock Retirement Plan
Effective August 1, 1990, CTT adopted an Employees' Common Stock
Retirement Plan. Under the terms of this Plan, a committee of outside
directors annually recommends for full Board approval a contribution
of shares of CTT's common stock to the Plan. For the fiscal years
ended July 31, 1997, 1996 and 1995 the board authorized contributions
of 9,654, 8,688 and 10,996 shares valued at approximately $106,200,
$89,000 and $66,000, respectively, based upon year-end closing prices.
These amounts have been charged to expense in 1997, 1996 and 1995,
respectively.
14. COMMITMENTS AND CONTINGENCIES
Operating Leases
In November, 1996, CTT relocated its principal executive office
to Fairfield, Connecticut under a lease which expires December 31,
2001. CTT has the option to extend the lease term for an additional
five years.
At July 31, 1997, future minimum rental payments required under
operating leases with initial or remaining noncancelable lease terms
in excess of one year are as follows:
Years ending July 31:
1998 $ 206,796
1999 209,267
2000 223,035
2001 205,681
2002 84,375
Total minimum payments
required $ 929,154
Total rental expense for all operating leases was:
1997 1996 1995
Minimum rentals $ 148,603 $ 365,940 $ 325,109
Less: Sublease rentals (27,449) (295,944) (310,032)
$ 121,154 $ 69,996 $ 15,077
The lessor of CTT's office space during fiscal 1997 (through
November, 1996), 1996 and 1995 was a partnership comprising four
former officers of CTT.
Other Obligations
The Company has entered into a contract to employ its President
and Chief Executive Officer from August 1, 1995 through August 1, 1999
with compensation to him at a minimum of $160,000 per year. The
Company has also entered into contracts with three of its vice
presidents from January, 1997 through January, 2000 with compensation
at an aggregate minimum of $369,000 per year.
CTT-PA and VVI have contingent obligations to repay up to
$209,067 and $224,127, respectively, (three times total grant funds
received) in consideration of grant funding received in 1994 and 1995.
CTT-PA is obligated to pay at the rate of 7.5% of its revenues, if
any, from transferring rights to inventions supported by the grant
funds. VVI is obligated to pay at rates of 1.5% of its net sales of
supported products or 15% of its revenues from licensing supported
products, if any. These obligations will be recognized when such
revenues are recognized.
Litigation
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 Company predict the amount
of the judgment, if any, that may ultimately be entered following the
appeal.
In 1989 UOP, a majority-owned subsidiary of CTT which had
developed a computer-based system to manufacture specialty contact
lenses, intraocular lenses and other precision optical products, sold
substantially all its assets to Unilens Corp. USA.
The proceeds of the sale included an installment obligation for
$5,500,000 payable at a minimum of $250,000 per year beginning in
January 1992. Due to the uncertainty of the timing and amount of
future cash flows, income on the installment obligation is recorded
net of related expenses as the payments are received. Cash received
in excess of the fair value assigned to the original obligation is
recorded as other income from continuing operations. As cash proceeds
are received, CTT records a 4% commission expense payable to its joint
venture partner, Optical Associates, Limited Partnership ("OALP").
CTT recognized other expenses from continuing operations of
$50,905, $79,619 and $132,032 in 1997, 1996 and 1995, respectively,
for legal expenses related to the suit described in the following
paragraph.
In November, 1991, a suit was filed in Connecticut against CTT,
its wholly-owned subsidiary, GTM, its majority-owned subsidiary, UOP,
and several current and former directors on behalf of the 59 limited
partners of OALP. The complaint alleges, among other things, that the
January 1989 sale of UOP's assets to Unilens violated the partnership
agreement and that OALP is entitled to the full proceeds of the sale
to Unilens. The complaint claims, among other things, money damages
and treble and punitive damages in an unspecified amount and
attorneys' fees. The Company believes that the asserted claims are
without merit and intends to defend vigorously the action instituted
by plaintiffs. Hearings in the case have commenced before an attorney
referee; however, due to scheduling conflicts, further hearings have
been adjourned to a later date. Through July 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.
15. RELATED PARTY TRANSACTIONS
CTT managed USET for UAP through January 31, 1996. During fiscal
1996 (through January 31, 1996) and 1995, CTT charged USET $30,161 and
$52,490, respectively, for management, legal and administrative
services.
CTT incurred charges in connection with patent and trademark
litigation from a law firm in which a director of CTT until December,
1995, is a partner. Such charges amounted to approximately $8,000 and
$25,000 in 1996 and 1995, respectively. That firm agreed that payment
of approximately $67,000 of fees incurred during 1992 in connection
with Renova litigation would be contingent upon CTT's receipt of
proceeds from settlement of the related litigation. CTT agreed to pay
the director's firm one-half of such receipts, if any, to a limit of
three times the contingent fees incurred or approximately $202,000.
The litigation was settled in June, 1992. Through July 31, 1997, CTT
had paid cumulative contingent fees of $76,826 of which $30,417,
$8,078 and $5,557 were charged to operations in 1997, 1996 and 1995,
respectively.
During 1997, 1996 and 1995 CTT incurred charges of approximately
$41,000, $90,000 and $87,000, respectively, for consulting services
provided by its former chief executive officer who was also a
director.
CTT earned approximately $60,000 for management and accounting
services performed for KSI in 1995 (see Note 4). Since CTT accounts
for KSI on the equity method, this amount has not been eliminated in
these consolidated financial statements.
CTT-PA earned approximately $142,000, $138,000 and $211,000 in
1997, 1996 and 1995, respectively, from contracts with Lehigh
University, which owns 20% of the outstanding common stock of CTT-PA.
16. DISCONTINUED OPERATIONS
NovaNET Learning, Inc. (formerly University Communications, Inc.)
On February 15, 1995, Barden Companies, Inc. ("Barden") exercised
its option to purchase from CTT additional shares of NLI common stock.
Barden paid $3,227,372 ($1.375 per share) in cash for 2,347,180 shares
held by CTT. In connection with Barden's purchase, CTT offered to
purchase from all NLI shareholders other than Barden a number of their
shares of NLI common stock to allow all NLI shareholders to partici-
pate in the sale to Barden on a pro rata basis. Pursuant to this
offer, CTT purchased 151,096 tendered shares for a total of $207,757
($1.375 per share) in cash. CTT's net gain on these transactions was
$2,534,505. Upon completion of these and other transactions, Barden
owned 52.1% and CTT owned 14.5% of the outstanding common stock of
NLI.
Effective February 15, 1995, CTT began to account for its
investment in NLI of $159,375 on the cost method. CTT's consolidated
financial statements for periods prior to February 15, 1995 present
CTT's equity in NLI's net results of operations as a discontinued
operation.
Summarized information from NLI's unaudited financial statements
for six and one-half months ended February 15, 1995 follows (in
thousands):
1995
Gross revenues $2,764
Gross profit 1,235
Net income (loss) 181
CTT's equity in net income (loss) 99
For services CTT provided to NLI, CTT charged NLI $3,786 in 1995.
17. Subsequent Event
In October, 1997, CTT's 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 will recognize costs related to this action, which are not
expected to be material, in fiscal 1998.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
Not applicable.
PART III
Pursuant to General Instruction G(3), the information called for
by Part III (Item 10 (Directors and Executive Officers of the
Registrant), Item 11 (Executive Compensation), Item 12 (Security
Ownership of Certain Beneficial Owners and Management), and Item 13
(Certain Relationships and Related Transactions)) is incorporated by
reference, to the extent required, from the registrant's definitive
proxy statement for its 1997 annual meeting of stockholders to be
filed with the Commission pursuant to Regulation 14A not later than
120 days after the end of the fiscal year covered by this Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) List of financial statements and schedules. Page
Competitive Technologies, Inc. and Subsidiaries:
Consolidated Balance Sheets as of July 31, 1997
and 1996. 26-27
Consolidated Statements of Operations for the
years ended July 31, 1997, 1996 and 1995. 28-29
Consolidated Statements of Changes in
Shareholders' Interest for the years ended
July 31, 1997, 1996 and 1995. 30
Consolidated Statements of Cash Flows for the
years ended July 31, 1997, 1996 and 1995. 31-32
Notes to Consolidated Financial Statements. 33-50
All financial statement schedules have been omitted because the
information is not present or is not present in sufficient amounts to
require submission of the schedule or because the information required
is included in the financial statements or the notes thereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter.
(c) List of exhibits: See Exhibit Index immediately preceding
exhibits.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
COMPETITIVE TECHNOLOGIES, INC.
(Registrant)
By S/ Frank R. McPike, Jr.
Frank R. McPike, Jr.
Vice President, Finance
Date: October 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
GEORGE M. STADLER* President, Chief )
George M. Stadler Executive Officer )
and Director )
)
S/ Frank R. McPike Jr. Vice President, )
Frank R. McPike, Jr. Finance, Treasurer, )
Secretary and Director )
(Principal Financial )
and Accounting Officer) )
)
GEORGE C. J. BIGAR* Director )
George C. J. Bigar )
)
MICHAEL G. BOLTON* Director )
Michael G. Bolton )
)
BRUCE E. LANGTON* Director ) October 28, 1997
Bruce E. Langton )
)
H.S. LEAHEY* Director )
H.S. Leahey )
)
JOHN M. SABIN* Director )
John M. Sabin )
)
HARRY VAN BENSCHOTEN* Director )
Harry Van Benschoten )
)
)
* By S/ Frank R. McPike, Jr. )
Frank R. McPike, Jr., Attorney-in-Fact )
EXHIBIT INDEX
Exhibit
No. Description Page
3.1 Unofficial restated certificate of incorpora-
tion of the registrant as amended to date filed
as Exhibit 3.1 to registrant's Form 10-K for
the year ended July 31, 1995 and hereby incor-
porated by reference.
3.2 By-laws of the registrant as amended to date
filed as Exhibit 3.2 to registrant's Form 10-Q
for the quarter ended October 31, 1995 and
hereby incorporated by reference.
10.1* Registrant's Restated Key Employees' Stock
Option Plan, filed as Exhibit 4.3 to regis-
trant's Registration Statement on Form S-8,
File No. 33-87756 and hereby incorporated by
reference.
10.2* Incentive Compensation Plan of the registrant. 57-60
10.3* Registrant's Restated Directors' Stock Partici-
pation Plan filed as Exhibit 10.3 to regis-
trant's Form 10-Q for the quarter ended January
31, 1995 and hereby incorporated by reference.
10.4* Registrant's 1996 Directors' Stock Participa-
tion Plan filed as Exhibit 4.3 to registrant's
Form S-8 No. 333-18759 and hereby incorporated
by reference.
10.5 Limited Partnership Agreement of Optical Asso-
ciates, Limited Partnership dated November 3,
1983 filed as Exhibit 19.02 to registrant's
Form 10-Q for the quarter ended January 31,
1984 and hereby incorporated by reference.
10.6 Joint Venture Agreement dated April 30, 1984
between Optical Associates, Limited Partnership
and University Optical Products Co., filed as
Exhibit 19.02 to registrant's Form 10-Q for the
quarter ended April 30, 1984 and hereby incor-
porated by reference; moratorium agreement
dated July 20, 1987 between University Optical
Products Co. and Optical Associates, Limited
Partnership filed as Exhibit 10.14 to regis-
trant's Form 10-K for the fiscal year ended
July 31, 1987 and hereby incorporated by refer-
ence.
10.7 Asset Purchase Agreement among University
Optical Products Co., Unilens Corp. USA, Uni-
lens Optical Corp. and the registrant dated
January 23, 1989 filed as Exhibit 19.1 to
registrant's Form 10-Q for six months ended
January 31, 1989 and hereby incorporated by
reference.
10.8 Asset Purchase Agreement between USET, Inc. and
the registrant dated June 28, 1988 filed as
Exhibit 2.1 to registrant's Form 8-K dated June
28, 1988 and hereby incorporated by reference;
and Letter Agreement between Macmillan and the
registrant dated June 15, 1989 amending the
Purchase Agreement dated June 28, 1988 filed as
Exhibit 10.17 to registrant's Form 10-K for the
year ended July 31, 1991 and hereby incorporat-
ed by reference.
10.9 Asset Purchase Agreement between Unilens Corp.
U.S.A. and University Optical Products Co.
dated November 30, 1989 filed as Exhibit 19.1
to registrant's Form 10-Q for the three months
ended October 31, 1989 and hereby incorporated
by reference.
10.10 Employment agreement between registrant and
George M. Stadler dated August 1, 1995 filed as
Exhibit 10.19 to registrant's Form 10-K for the
year ended July 31, 1995 and hereby incorporat-
ed by reference.
10.11 Technology Management Agreement made February
12, 1993 between Lehigh University and Competi-
tive Technologies, Inc. effective September 30,
1992 filed as Exhibit 2.3 to registrant's Form
8-K dated February 12, 1993 and hereby incorpo-
rated by reference.
10.12* Employment Agreement between registrant and
Frank R. McPike, Jr. dated January 7, 1997
filed as Exhibit 10.1 to registrant's Form 10-Q
for the quarter ended January 31, 1997 and
hereby incorporated by reference.
10.13 Settlement and Forbearance Agreement dated July
15, 1993 among registrant, Unilens Corp. USA
and Unilens Vision Inc. filed as Exhibit 10.47
to registrant's Form 10-K for the year ended
July 31, 1993 and hereby incorporated by refer-
ence.
10.14 Stock Purchase Agreement dated July 15, 1993
among registrant, Unilens Corp. USA and Unilens
Vision Inc. filed as Exhibit 10.48 to regi-
strant's Form 10-K for the year ended July 31,
1993 and hereby incorporated by reference.
10.15 Amendment and Modification Agreement dated
September 27, 1993 among registrant, Unilens
Corp. USA and Unilens Vision Inc. filed as
Exhibit 10.49 to registrant's Form 10-K and
hereby incorporated by reference.
10.16 Agreement for Purchase and Sale of Partnership
Interests in USET Acquisition Partners, L.P.
effective January 31, 1996 by and between UPAT
Services, Inc., Texas Research and Technology
Foundation and United Services Automobile
Association filed as Exhibit 2.1 to regi-
strant's Form 8-K dated January 31, 1996 and
hereby incorporated by reference.
10.17 Promissory Note of UPAT Services, Inc. dated
January 31, 1996 in the principal amount of
$983,684.21 payable to United Services Automo-
bile Association ("USAA") filed as Exhibit 2.2
to registrant's Form 8-K dated January 31, 1996
and hereby incorporated by reference.
10.18 Promissory Note of UPAT Services, Inc. dated
January 31, 1996 in the principal amount of
$351,315.79 payable to Texas Research and
Technology Foundation filed as Exhibit 2.3 to
registrant's Form 8-K dated January 31, 1996
and hereby incorporated by reference.
10.19 Security Agreement of UPAT Services, Inc. dated
January 31, 1996 to USAA and Texas Research and
Technology Foundation as collateral for the
related Promissory notes dated January 31, 1996
filed as Exhibit 2.4 to registrant's Form 8-K
dated January 31, 1996 and hereby incorporated
by reference.
10.20 USET Acquisition Partners, L.P. Assignment of
Partnership Interests to UPAT Services, Inc. by
Texas Research and Technology Foundation filed
as Exhibit 2.5 to registrant's Form 8-K dated
January 31, 1996 and hereby incorporated by
reference.
10.21 USET Acquisition Partners, L.P. Assignment of
Partnership Interests to UPAT Services, Inc. by
USAA filed as Exhibit 2.6 to registrant's Form
8-K dated January 31, 1996 and hereby incorpo-
rated by reference.
10.22 Lease agreement between registrant and The
Bronson Road Group made August 28, 1996 filed
as Exhibit 10.34 to registrant's From 10-K for
the year ended July 31, 1996 and hereby incor-
porated by reference.
11.1 Schedule of computation of earnings per share
for the three years ended July 31, 1997. 61
21.1 Subsidiaries of the registrant. 62
23.1 Consent of Coopers & Lybrand. 63
24.1 Power of attorney. 64-65
27.1 Financial Data Schedule - EDGAR only.
* Management Contract or Compensatory Plan