-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Koy2f7/qGMJJDl15k4zJ0KMwNbtAPlLiUSAHyl8zQKaejFnDcVYqHSwy8OVGOlDJ bXZIz9BOXCMf1WX2sCowCg== 0000102198-00-000002.txt : 20000317 0000102198-00-000002.hdr.sgml : 20000317 ACCESSION NUMBER: 0000102198-00-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000131 FILED AS OF DATE: 20000316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPETITIVE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000102198 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 362664428 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08696 FILM NUMBER: 571133 BUSINESS ADDRESS: STREET 1: 1960 BRONSON ROAD STREET 2: P.O. BOX 340 CITY: FAIRFIELD STATE: CT ZIP: 06430 BUSINESS PHONE: 2032256044 MAIL ADDRESS: STREET 1: 1960 BRONSON ROAD STREET 2: P.O. BOX 340 CITY: FAIRFIELD STATE: CT ZIP: 06430 FORMER COMPANY: FORMER CONFORMED NAME: UNIVERSITY PATENTS INC DATE OF NAME CHANGE: 19920703 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-8696 COMPETITIVE TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) Delaware 36-2664428 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1960 Bronson Road P.O. Box 340 Fairfield, Connecticut 06430 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (203) 255-6044 N/A Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . Common Stock outstanding as of March 6, 2000 - 6,108,447 shares Exhibit Index on sequentially numbered page 21 of 33. Page 1 of 33 sequentially numbered pages COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page No. Item 1. Condensed Financial Statements A. Financial Statements (Unaudited) Consolidated Balance Sheets at January 31, 2000 and July 31, 1999 3 Consolidated Statements of Operations for the three months ended January 31, 2000 and 1999 4 Consolidated Statements of Operations for the six months ended January 31, 2000 and 1999 5 Consolidated Statement of Changes in Shareholders' Interest for the six months ended January 31, 2000 6 Consolidated Statements of Cash Flows for the six months ended January 31, 2000 and 1999 7 Notes to Consolidated Financial Statements 8-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-19 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 PART II. OTHER INFORMATION Item 1. Legal Proceedings 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 6. Exhibits and Reports on Form 8-K 21 Signatures 21 PART I. FINANCIAL INFORMATION COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets January 31, 2000 and July 31, 1999 (Unaudited) January 31, July 31, 2000 1999 ASSETS Current assets: Cash and cash equivalents $ 124,663 $ 185,838 Short-term investments, at market 5,735,475 5,352,229 Receivables, including $9,800 and $2,449 receivable from related parties in January and July, respectively 2,202,184 1,726,046 Prepaid expenses and other current assets 97,615 143,171 Total current assets 8,159,937 7,407,284 Property and equipment, net 148,271 155,089 Investments 91,304 91,307 Intangible assets acquired, principally licenses and patented technologies, net 1,236,005 1,305,341 TOTAL ASSETS $ 9,635,517 $ 8,959,021 LIABILITIES AND SHAREHOLDERS' INTEREST Current liabilities: Accounts payable, including $3,309 and $2,043 payable to related parties in January and July, respectively $ 89,562 $ 109,986 Accrued liabilities, including $5,938 payable to related parties in July 1,878,503 1,668,749 Total current liabilities 1,968,065 1,778,735 Commitments and contingencies -- -- Shareholders' interest: 5% preferred stock, $25 par value 60,675 60,675 Common stock, $.01 par value 60,663 60,032 Capital in excess of par value 25,869,123 25,625,072 Treasury stock (common), at cost; 11,847 and 81 shares in January and July, respectively (76,469) (919) Accumulated other comprehensive income (loss) 14,750 (15,625) Accumulated deficit (18,261,290) (18,548,949) Total shareholders' interest 7,667,452 7,180,286 TOTAL LIABILITIES AND SHAREHOLDERS' INTEREST $ 9,635,517 $ 8,959,021 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations for the three months ended January 31, 2000 and 1999 (Unaudited) 2000 1999 Revenues: Retained royalties $1,118,229 $ 965,454 Revenues under service contracts, including $9,800 from related parties in 2000 27,840 27,820 1,146,069 993,274 Costs of technology management services 512,236 460,942 General and administration expenses, of which $30,594 and $1,200 were paid to related parties in 2000 and 1999, respectively 352,150 300,884 864,386 761,826 Operating income 281,683 231,448 Interest income 82,552 42,115 Interest expense -- (1,804) Losses related to equity method affiliates -- (498) Other income (expense), net 64,490 (32,427) Net income 428,725 238,834 Other comprehensive income: Net unrealized holding gains (losses) on available-for-sale securities 84,448 (7,291) Reclassification adjustment for realized gains included in net income (64,490) -- Comprehensive income $ 448,683 $ 231,543 Net income per share: Basic and diluted $ 0.07 $ 0.04 Weighted average number of common shares outstanding: Basic 6,009,531 5,975,286 Diluted 6,039,908 6,006,466 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations for the six months ended January 31, 2000 and 1999 (Unaudited) 2000 1999 Revenues: Retained royalties $ 1,562,959 $ 1,281,709 Revenues under service contracts including $9,800 from related parties in 2000 153,937 130,879 1,716,896 1,412,588 Costs of technology management services 1,076,320 890,901 General and administration expenses, of which $58,151 and $2,400 were paid to related parties in 2000 and 1999, respectively 580,813 574,145 Restructuring charges -- 70,000 1,657,133 1,535,046 Operating income (loss) 59,763 (122,458) Interest income 163,675 84,733 Interest expense -- (3,607) Losses related to equity method affiliates -- (748) Other income (expense), net 64,221 (34,534) Net income (loss) 287,659 (76,614) Other comprehensive income: Net unrealized holding gains (losses) on available-for-sale securities 94,865 9,375 Reclassification adjustment for realized gains included in net income (64,490) -- Comprehensive income (loss) $ 318,034 $ (67,239) Net income (loss) per share: Basic and diluted $ 0.05 $ (0.01) Weighted average number of common shares outstanding: Basic 6,006,086 5,983,132 Diluted 6,036,385 5,983,132 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statement of Changes in Shareholders' Interest for the six months ended January 31, 2000 (Unaudited)
Preferred Stock Accumulated Shares Common Stock Capital in Other issued and Shares excess of Treasury Stock Comprehensive Accumulated outstanding Amount issued Amount par value Shares held Amount Income (Loss) Deficit Balance - July 31, 1999 2,427 $60,675 6,003,193 $60,032 $25,625,072 (81) $ (919) $ (15,625) $(18,548,949) Exercise of common stock options 63,101 631 250,055 28,259 145,655 Stock issued under 1996 Directors' Stock Participation Plan . . (6,004) 9,375 55,340 Other comprehensive income: Net unrealized holding gains (losses) on available-for-sale securities . . . . 94,865 Reclassification adjustment . (64,490) Purchase of treasury stock. . . (49,400) (276,545) Net income . . . . . 287,659 Balance - January 31, 2000 2,427 $60,675 6,066,294 $60,663 $25,869,123 (11,847) $(76,469) $ 14,750 $(18,261,290)
See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows for the six months ended January 31, 2000 and 1999 (Unaudited) 2000 1999 Cash flow from operating activities: Income (loss) from operations $ 287,659 $ (76,614) Noncash items included in income (loss) from operations: Depreciation and amortization 103,895 98,962 Equity method affiliates -- 748 Directors' stock and stock retirement plan accruals 63,411 74,266 Amortization of discount on purchase obligation -- 3,607 Other noncash items 3 11,740 Gain on sale of investment (64,490) -- Net changes in various operating accounts: Receivables (476,138) (47,319) Prepaid expenses and other current assets 45,556 60,458 Accounts payable and accrued liabilities 175,255 (302,667) Net cash flow from operating activities 135,151 (176,819) Cash flow from investing activities: Purchases of property and equipment, net (27,741) 5,850 Purchases of other short-term investments (394,827) -- Proceeds from sale of: Available-for-sale securities 106,446 -- Other short-term investments -- 356,262 Proceeds from sales of investments in affiliates -- 198,850 Net cash flow from investing activities (316,122) 560,962 Cash flow from financing activities: Proceeds from exercise of stock options 396,341 -- Purchases of treasury stock (276,545) (86,385) Repayment of purchase obligation -- (300,993) Net cash flow from financing activities 119,796 (387,378) Net decrease in cash and cash equivalents (61,175) (3,235) Cash and cash equivalents, beginning of period 185,838 216,826 Cash and cash equivalents, end of period $ 124,663 $ 213,591 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) 1. Interim Financial Statements Interim financial information presented in the accompanying financial statements and notes hereto is unaudited. The year end balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments which are necessary to present the financial statements fairly in conformity with generally accepted accounting principles, consisting only of normal recurring adjustments, have been made. The interim financial statements and notes thereto as well as the accompanying Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended July 31, 1999. 2. Net Income (Loss) Per Share The following table sets forth the computations of basic and diluted net income (loss) per share.
Six months Quarter ended January 31, ended January 31, 2000 1999 2000 1999 Net income (loss) applicable to common stock: Basic and diluted $ 287,659 $ (76,614) $ 428,725 $ 238,834 Weighted average number of common shares outstanding 6,006,086 5,983,132 6,009,531 5,975,286 Effect of dilutive securities: Stock options 30,299 -- 30,377 31,180 Weighted average number of common shares outstanding and dilutive securities 6,036,385 5,983,132 6,039,908 6,006,466 Net income (loss) per share of common stock: Basic and diluted $ 0.05 $ (0.01) $ 0.07 $ 0.04
At January 31, 2000 and 1999, respectively, options and warrants to purchase 463,042 and 473,542 shares of common stock were outstanding but were not included in the computation of earnings per share because they were anti-dilutive. 3. Short-term Investments On January 31, 2000, the Company's available-for-sale securities were as follows: Accumulated Accumulated Other Other Aggregate Comprehensive Comprehensive Security Type Fair Value Income Loss Cost Basis Equity Securities $ 28,000 $ 14,750 $ -- $ 13,250 For the quarter and six months ended January 31, 2000, proceeds from the sale of available-for-sale securities were $106,446 which resulted in gross realized gains of $64,490. For the quarter and six months ended January 31, 1999, there were no sales of available-for- sale securities. Cost is based on specific identification in computing realized gains. A reconciliation detailing amounts reported in net income and other comprehensive income for the quarters and six months ended January 31, 2000 and 1999 follows: Quarter ended Six months ended January 31, January 31, 2000 1999 2000 1999 Accumulated other comprehensive income (loss): Accumulated net unrealized holding gains (losses) on available-for-sale securities, beginning of period $ (5,208) $ (5,208) $(15,625) $(21,874) Other comprehensive income: Holding gains (losses) arising during the period 84,448 (7,291) 94,865 9,375 Reclassification adjustment for gains on sales of securities included in net income (64,490) -- (64,490) -- Accumulated other comprehensive income (loss) $ 14,750 $(12,499) $14,750 $(12,499) No tax effect is reported on the Company's unrealized gains on securities because the Company has capital loss carryforwards. 4. Receivables Receivables comprise: January 31 July 31, 2000 1999 Royalties $2,143,362 $1,649,713 Other 58,822 76,333 $2,202,184 $1,726,046 5. Accrued Liabilities Accrued liabilities were: January 31, July 31, 2000 1999 Royalties payable $1,490,083 $1,072,704 Accrued compensation 157,721 172,587 Deferred revenues 26,465 153,741 Other 204,234 269,717 $1,878,503 $1,668,749 6. Contingencies Litigation On May 4, 1999, Metabolite Laboratories, Inc. (MLI) and Competitive Technologies, Inc. (CTT or the Company) (collectively plaintiffs) filed a complaint and jury demand against Laboratory Corporation of America Holdings d/b/a LabCorp (LabCorp) in the United States District Court for the District of Colorado. The complaint alleges, among other things, that LabCorp owes plaintiffs royalties for homocysteine assays performed during and since the summer of 1998 using methods falling within the claims of a patent owned by CTT. CTT licensed the patent non-exclusively to MLI and MLI sublicensed it to LabCorp. Plaintiffs claim LabCorp's actions constitute breach of contract and patent infringement. Their claim seeks an injunction ordering LabCorp to perform all its obligations under its agreement, to cure past breaches, to provide an accounting of wrongfully withheld royalties and to refrain from infringing the patent. Plaintiffs also seek unspecified money and exemplary damages and attorneys' fees, among other things. LabCorp has filed an answer and counterclaims alleging noninfringement, patent invalidity and patent misuse. The District Court has ordered the parties to attempt to settle their claims before October 1, 2000. CTT is unable to estimate the related legal expenses it may incur in this suit and has recorded no revenue for these withheld royalties. 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 a patent for an improved formulation of 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 would have been entitled to a share of the judgment. On November 19, 1999, the United States Court of Appeals for the Federal Circuit (CAFC) vacated and remanded the July 7, 1997, decision by the United States District Court for the District of Colorado. CTT's share of the vacated award would have been approximately $5.2 million. Among other findings, the CAFC ruled that the District Court used an incorrect standard to determine inventorship. The CAFC instructed the District Court to apply federal patent law standards to determine inventorship of the patent and then to determine whether damages should be awarded. On February 29, 2000, the District Court heard arguments on the plaintiffs' motion for judgment. The parties await the judgment of the District Court. The Company cannot predict the amount of the judgment, if any, that may ultimately be awarded. The Company has recorded no potential judgment proceeds in its financial statements to date. In November 1991, a lawsuit was filed in Connecticut against CTT, its wholly-owned subsidiary, Genetic Technology Management, Inc. (GTM), its majority-owned subsidiary, University Optical Products Co. (UOP), and one current and several former directors on behalf of the 59 limited partners of Optical Associates, Limited Partnership (OALP). The complaint alleges, among other things, that the January 1989 sale of UOP's assets to Unilens Corp. USA (Unilens) violated the partnership agreement and that OALP is entitled to the full proceeds of the sale to Unilens. The complaint claims, among other things, money damages and treble and punitive damages in an unspecified amount and attorneys' fees. The Company believes that the asserted claims are without merit and intends to defend vigorously the action instituted by plaintiffs. Hearings in the case have commenced before an attorney referee; however, due to scheduling conflicts, further hearings have been adjourned and are expected to occur in calendar 2000. Through January 31, 2000, 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 are received, CTT records a 4% commission expense payable to OALP, its joint venture partner. PART I. FINANCIAL INFORMATION (Continued) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition and Liquidity At January 31, 2000, cash and cash equivalents of $124,663 were $61,175 lower than cash and cash equivalents of $185,838 at July 31, 1999. Operating activities provided $135,151, investing activities used $316,122 and financing activities provided $119,796. In addition, Competitive Technologies, Inc. (CTT) and its majority-owned subsidiaries (the Company) held $5,735,475 in short- term investments at January 31, 2000. These investments are available for the Company's future operating, investing and financing activities. The Company's net income for the six-months ended January 31, 2000, included the following non-cash items: approximately $104,000 of depreciation and amortization and approximately $63,000 of accrued expenses. In general, changes in various operating accounts result from changes in the timing and amounts of cash flows before and after the end of the period. Royalties receivable increased approximately $494,000 and royalties payable increased approximately $417,000. These changes in royalties receivable and payable reflect the Company's normal cycle of royalty collections and payments. In addition, the Company recognized approximately $127,000 of deferred revenues during the six months ended January 31, 2000. During the six months ended January 31, 2000, the Company sold available-for-sale securities for proceeds of approximately $106,000 and purchased approximately $395,000 of other short-term investments. During the six months ended January 31, 2000, the Company received approximately $396,000 from stock options exercised to purchase common stock. In October 1998, the Board of Directors authorized CTT to repurchase up to 250,000 shares of its common stock. The Company may repurchase shares on the open market or in privately negotiated transactions at times and in amounts determined by management based on its evaluation of market and economic conditions. The Company repurchased 49,400 shares of its common stock for approximately $277,000 in cash in the six months ended January 31, 2000. Since October 1998, the Company has repurchased 74,800 shares of its common stock for a total of approximately $386,000. The Company is contractually required to pay certain persons specified percentages of Renovar royalties received. At January 31, 2000, the remaining amount of this contingent payment obligation was $13,894. At January 31, 2000, the Company had no outstanding commitments for capital expenditures. The Company carries liability insurance, directors' and officers' liability insurance and casualty insurance for owned or leased tangible assets. It does not carry key person life insurance. There are no legal restrictions on payments of dividends by CTT. The Company continues to pursue additional technology management opportunities. If and when such opportunities are consummated, the Company may commit capital resources to them. The Company does not believe inflation had a significant impact on its operations during fiscal 2000 or 1999 or that it will have a significant impact on operations during the next twelve-month operating period. In previous periods, the Company addressed the Year 2000 computer issue. This issue concerns computer hardware and software systems' ability to recognize and process dates after December 31, 1999, properly and accurately. The Company modified, upgraded, or replaced previously noncompliant computer systems. The Company's significant systems have performed properly and accurately in the Year 2000. To the date of this report, the Company is not aware of any Year 2000 related problems affecting its licensees in making licensed products or in reporting royalties. Nor has the Company experienced any Year 2000 related problems in its transactions with banks or other critical vendors to the date of this report. Management estimates that it spent approximately $26,000 to address Year 2000 issues, including normally recurring costs to keep its computer systems current. This is a Year 2000 readiness disclosure entitled to protection as provided in the Year 2000 Information and Readiness Disclosure Act. Vector Vision, Inc. (VVI), CTT's 52.4% owned subsidiary, is operationally inactive. The Company, the inventor and others supported VVI's video compression software development activities in the past. Certain of VVI's proprietary technology has been accepted in a portion of the MPEG-4 standard, an international standard for low bandwidth applications such as video teleconferencing, video databases and wireless video access. In connection with the case that 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 any judgment awarded to the University of Colorado. On November 19, 1999, the United States Court of Appeals for the Federal Circuit (CAFC) vacated and remanded the July 7, 1997, decision by the United States District Court for the District of Colorado. Among other findings, the CAFC ruled that the District Court used an incorrect standard to determine inventorship. The CAFC instructed the District Court to apply federal patent law standards to determine inventorship of the patent and then to determine whether damages should be awarded. On February 29, 2000, the District Court heard arguments on the plaintiffs' motion for judgment. The parties await the judgment of the District Court. The Company cannot predict the amount of the judgment, if any, that may ultimately be awarded. The Company has recorded no potential judgment proceeds in its financial statements to date. (See Note 6 to the accompanying financial statements and Item 3, Legal Proceedings in the Company's Annual Report on Form 10-K for the year ended July 31, 1999.) On May 4, 1999, Metabolite Laboratories, Inc. (MLI) and CTT (collectively plaintiffs) filed a complaint and jury demand against Laboratory Corporation of America Holdings d/b/a LabCorp (LabCorp) in the United States District Court for the District of Colorado. The complaint alleges, among other things, that LabCorp owes plaintiffs royalties for homocysteine assays performed during and since the summer of 1998 using methods and materials falling within the claims of a patent owned by CTT. CTT licensed the patent non- exclusively to MLI and MLI sublicensed it to LabCorp. Plaintiffs claim LabCorp's actions constitute breach of contract and patent infringement. Their claim seeks an injunction ordering LabCorp to perform all its obligations under its agreement, to cure past breaches, to provide an accounting of wrongfully withheld royalties and to refrain from infringing the patent. Plaintiffs also seek unspecified money and exemplary damages and attorneys' fees, among other things. LabCorp has filed an answer and counterclaims alleging noninfringement, patent invalidity and patent misuse. The District Court has ordered the parties to attempt to settle their claims before October 1, 2000. CTT is unable to estimate the related legal expenses it may incur in this suit and has recorded no revenue for these withheld royalties. At January 31, 2000, the Company had $5,860,138 in cash, cash equivalents and short-term investments. Royalties receivable, net of royalties payable, were $653,279. Based on the Company's current expectations, it anticipates that currently available funds will be sufficient to finance cash needs for the foreseeable future for its current operating activities. However, expansion of the Company's business is subject to many factors outside the Company's control or that it cannot currently anticipate, including without limitation business opportunities that may arise in the future. Accordingly, there can be no assurance that the Company's current expectations regarding the sufficiency of currently available funds will prove to be accurate. Results of Operations - Three Months Ended January 31, 2000 (Second Quarter, Fiscal 2000) vs. Three Months Ended January 31, 1999 (Second Quarter, Fiscal 1999) The Company's $281,683 operating income and $428,725 net income for the second quarter of fiscal 2000 were $50,235 and $189,891 higher, respectively, than its operating income and net income for the second quarter of fiscal 1999. Total revenues for the quarter ended January 31, 2000, were $152,795 (15%) higher than for the quarter ended January 31, 1999. Retained royalties for the quarter ended January 31, 2000, were $152,775 (16%) higher than for the quarter ended January 31, 1999. Retained royalties from the gallium arsenide semiconductor inventions, which include laser diode applications, were approximately $363,000 (166%) higher than in the second quarter of fiscal 1999. This increase includes a new license issue fee, a minimum royalty fee, and more than $350,000 in higher earned royalties based on licensees' sales of licensed products. In the second quarter of fiscal 2000, revenues from homocysteine licenses were approximately $55,000 lower than in the second quarter of fiscal 1999. This decrease resulted partially from a sublicensee's withholding royalties on certain tests. The Company has joined with its licensee in a suit against the sublicensee as detailed above and in footnote 6 to the accompanying financial statements. In addition, the second quarter of fiscal 1999 included nearly $284,000 in retained royalty revenues from milestone payments on the encryption technology and $94,000 from a sublicensee's catch-up payment for previously withheld royalties; neither of these was repeated in the fiscal 2000 second quarter. Royalty revenue fluctuations also reflect changes in the timing of royalties reported by licensees, new license issue fees and in licensees' sales of licensed products. Revenues under service contracts for the quarter ended January 31, 2000, were approximately equal to those for the quarter ended January 31, 1999. Lower revenues from service contracts for domestic corporate clients substantially offset increased revenues from service contracts for university clients. Many of the Company's service contracts are one-time arrangements unique to a particular client at a particular time. Total operating expenses for the quarter ended January 31, 2000, were $864,386. This was $102,560 (13%) higher than for the quarter ended January 31, 1999. In the second quarter of fiscal 2000, the Company incurred higher charges for direct costs related to royalties, shareholder expenses, and corporate legal expenses and lower charges for public and investor relations services than in the second quarter of fiscal 1999. Higher direct costs related to royalties include the costs associated with enforcing certain of the Company's patent and license rights. The Company held its annual meetings of stockholders in the second quarter of fiscal 2000 and in the third quarter of fiscal 1999. Shareholder expenses are usually higher in the quarter that the annual meeting is held. Costs of technology management services for the quarter ended January 31, 2000, were $51,294 (11%) higher than for the quarter ended January 31, 1999, as more fully discussed below. Costs related to licensing and retained royalties were approximately $103,000 higher in the fiscal 2000 second quarter than in the fiscal 1999 second quarter. Approximately $65,000 of this increase is in patent litigation expenses associated with enforcing certain of the Company's patent and license rights. Approximately $34,000 reflects higher personnel costs (including benefits and overheads) associated with patenting and licensing services. Costs related to service contracts were approximately $20,000 higher for the second quarter of fiscal 2000 than for the second quarter of fiscal 1999. This increase is primarily due to higher personnel costs (including benefits and overheads) associated with service contracts. Costs associated with new client development for the second quarter of fiscal 2000 (principally personnel costs, including benefits and overheads) were approximately $72,000 lower than for the second quarter of fiscal 1999. General and administration expenses in the fiscal 2000 second quarter were $51,266 (17%) higher than in the fiscal 1999 second quarter. In the fiscal 2000 second quarter, the Company's recurring charges for public and investor relations services were lower than in the fiscal 1999 second quarter. However, shareholders' expenses and corporate legal expenses were higher in the fiscal 2000 second quarter. Certain of these increases related to the Company's annual meeting of stockholders held January 27, 2000. The net effect of the $152,795 (15%) increase in operating revenues and the $102,560 (13%) increase in operating expenses was to increase the Company's operating income by $50,235 (22%) compared with the second quarter of fiscal 1999. Interest income in the second quarter of fiscal 2000 was higher than in the second quarter of fiscal 1999. For the second quarter of fiscal 2000, the Company's average invested balance was 83% higher than its average invested balance for the second quarter of fiscal 1999. In addition, its weighted average interest rate was approximately 0.36% per annum higher than for the second quarter of fiscal 1999. Interest expense in the fiscal 1999 quarter related to the debt incurred in acquiring USET. During the second quarter of fiscal 2000, the Company sold available-for-sale securities and realized gains of $64,490, which were included in other income. Other expenses for the quarters ended January 31, 2000, and 1999, were legal expenses incurred in connection with a suit brought against CTT, some of its subsidiaries and directors. This suit is more fully detailed above and in Note 13 to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended July 31, 1999. Further hearings in this case have been adjourned and are expected to occur in calendar 2000. Management is unable to estimate the related legal expenses it may incur in fiscal 2000. Unilens Corp. USA (Unilens) made no payments in either quarter of fiscal 2000 or 1999. Since the Company carries this receivable at zero value, it will record any collections in the period collected. Through January 31, 2000, the Company had received aggregate cash proceeds of approximately $1,011,000 from the January 1989 sale of University Optical Products Co. assets to Unilens. As cash proceeds were received, the Company paid a 4% commission to Optical Associates, L.P., its joint venture partner. The Company has approximately $16,481,000 of Federal net operating loss carryforwards of which approximately $3,613,000 expire in fiscal 2000. The Company does not expect adoption of Statement of Financial Accounting Standards No. 133 to have a material effect on its financial statements. See Note 1 to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended July 31, 1999. Results of Operations - Six Months Ended January 31, 2000 (First Half, Fiscal 2000) vs. Six Months Ended January 31, 1999 (First Half, Fiscal 1999) The Company's $59,763 operating income and $287,659 net income for the six months ended January 31, 2000 are $182,221 and $364,273 higher, respectively, than its operating loss and net loss for the six months ended January 31, 1999. Total revenues for the six months ended January 31, 2000, were $304,308 (22%) higher than for the six months ended January 31, 1999. Retained royalties for the six months ended January 31, 2000, were $281,250 (22%) higher than for the six months ended January 31, 1999. Retained royalties from the gallium arsenide semiconductor inventions, which include laser diode applications, were approximately $376,000 (171%) higher than in the first half of fiscal 1999. This increase includes new license issue fees, a minimum royalty fee, and more than $350,000 in higher earned royalties based on licensees' sales of licensed products. In the first half of fiscal 2000, revenues from homocysteine licenses were approximately $115,000 lower than in the first half of fiscal 1999. This decrease resulted partially from a sublicensee's withholding royalties on certain tests. The Company has joined with its licensee in a suit against the sublicensee as detailed above and in footnote 6 to the accompanying financial statements. In addition, the first half of fiscal 1999 included nearly $284,000 in retained royalty revenues from milestone payments on the encryption technology and $94,000 from a sublicensee's catch-up payment for previously withheld royalties; neither of these was repeated in the fiscal 2000 second quarter. Royalty revenue fluctuations also reflect new license issue fees and changes in the timing of royalties reported by licensees and in licensees' sales of licensed products. Revenues under service contracts for the six months ended January 31, 2000, were $23,058 (18%) higher than for the six months ended January 31, 1999. This increase reflects lower revenues from contract services for domestic corporations more than offset by higher revenues from a nonrecurring government contract. The Company earned approximately $129,000 on two contracts, one for a government agency and one for a domestic start-up corporation, in the fiscal 2000 first half. The Company earned substantially all of the revenues from contract services to domestic corporations in the fiscal 1999 first half, including a one-time fee for assisting a start-up company to obtain equity financing. Many of the Company's service contracts are one-time arrangements unique to a particular client at a particular time. Total operating expenses for the six months ended January 31, 2000, were $1,657,133. This was $122,087 (8%) higher than for the six months ended January 31, 1999. The Company incurred higher charges for direct costs related to royalties and shareholder expenses. Lower charges for public and investor relations services partially offset these increases. In addition, the Company charged $70,000 for restructuring its operations in the first half of fiscal 1999. There was no similar charge in the first half of fiscal 2000. Costs of technology management services for the six months ended January 31, 2000, were $185,419 (21%) higher than for the six months ended January 31, 1999, as more fully discussed below. Costs related to licensing and retained royalties were approximately $190,000 higher in the fiscal 2000 first half than in the six months ended January 31, 1999. This increase includes approximately $117,000 higher personnel costs (including benefits and overheads) associated with patenting and licensing services and $93,000 higher patent litigation and enforcement expenses. In the fiscal 2000 first half, domestic and foreign patent costs were lower and recoveries of foreign patent costs against university royalties were higher. Costs related to service contracts were approximately $45,000 higher for the first half of fiscal 2000 than for the first half of fiscal 1999. This increase is due to direct costs related to services for a domestic start-up corporation. Costs associated with new client development for the first half of fiscal 2000 (principally personnel costs, including benefits and overheads) were approximately $49,000 lower than for the first half of fiscal 1999. General and administration expenses in the fiscal 2000 first half were $6,668 (1%) higher than in the fiscal 1999 first half. Although shareholder expenses were higher, public and investor relations expenses were lower in the first half of fiscal 2000. Restructuring charges of $70,000 in the six months ended January 31, 1999, related to the costs of closing the Company's Bethlehem, Pennsylvania, office and other staff reductions made in August and September, 1998. Management took these actions to reduce operating expenses and improve operating efficiency. The net effect of the $304,308 (22%) increase in operating revenues and the $122,087 (8%) increase in operating expenses was to increase the Company's operating income by $182,221 (149%) compared with the first half of fiscal 1999. Interest income in the first half of fiscal 2000 was higher than in the first half of fiscal 1999. For the first half of fiscal 2000, the Company's average invested balance was 93% higher than its average invested balance for the first half of fiscal 1999. However, its weighted average interest rate was substantially equal to that for the first half of fiscal 1999. Interest expense in the fiscal 1999 first half related to the debt incurred in acquiring USET. During the first half of fiscal 2000, the Company sold available-for-sale securities and realized gains of $64,490, which were included in other income. Other expenses for the six months ended January 31, 2000, and 1999, were legal expenses incurred in connection with a suit brought against CTT, some of its subsidiaries and directors. This suit is detailed more fully above and in Note 13 to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended July 31, 1999. Forward-Looking Statements Statements about the Company's future expectations, including development and regulatory plans, and all other statements in this Quarterly Report on Form 10-Q other than historical facts, are "forward-looking statements" within the meaning of applicable Federal Securities Laws and are not guarantees of future performance. These statements involve risks and uncertainties related to market acceptance of and competition for the Company's licensed technologies and other risks and uncertainties inherent in the Company's business, including those set forth in Item 1 of the Company's Annual Report on Form 10-K for the year ended July 31, 1999, and other factors that may be described in the Company's filings with the Securities and Exchange Commission, and are subject to change at any time. The Company's actual results could differ materially from these forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statement. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. PART II - OTHER INFORMATION Item 1. Legal Proceedings The November 19, 1999 decision of the United States Court of Appeals for the Federal Circuit is more fully reported in Note 6 to the accompanying financial statements and is incorporated herein by reference. Item 4. Submission of Matters to a Vote of Security Holders At the Company's annual meeting of stockholders held January 27, 2000, the following directors were elected: Name Votes For Votes Withheld George C.J. Bigar 3,932,235 1,671,106 Richard E. Carver 4,714,359 888,982 George W. Dunbar, Jr. 4,712,371 890,970 Samuel M. Fodale 4,136,162 1,467,179 Frank R. McPike, Jr. 3,966,177 1,637,164 Charles J. Philippin 4,732,321 871,020 John M. Sabin 3,961,595 1,641,746 No votes were withheld as to all nominees and there were no broker non-votes. Also at the Company's annual meeting of stockholders held January 27, 2000, stockholders rejected the proposal to amend the Company's Restated Certificate of Incorporation to authorize 2,000,000 shares of undesignated Class A Preferred Stock. There were 955,126 shares voted for and 2,513,770 shares voted against this proposal, and 47,285 shares abstained. There were also 2,087,160 broker non-votes which were not entitled to vote on this matter. Also at the Company's annual meeting of stockholders held January 27, 2000, stockholders approved the proposal to approve the 2000 Directors Stock Option Plan and reserve 250,000 shares of Common Stock for options under the Plan. There were 3,141,299 shares voted for and 2,415,314 shares voted against this proposal, and 46,728 shares abstained. Item 6. Exhibits and Reports on Form 8-K Page A) Exhibits 10.1 Employment Agreement between registrant and Frank R. McPike, Jr. dated December 7, 1999. 22-32 11.1 Schedule of computation of earnings per share for the three and six months ended January 31, 2000 and 1999. 33 27.1 Financial Data Schedule (EDGAR only). B) Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: March 16, 2000 By: S/ Frank R. McPike, Jr. Frank R. McPike, Jr. President, Chief Operating Officer, Chief Financial Officer, Director and Authorized Signer EX-10.1 2 EXHIBIT 10.1 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement"), dated as of December 7, 1999 ("Effective Date"), is between Competitive Technologies, Inc., (the "Company") and Frank R. McPike, Jr. (the "Executive"). WHEREAS, the Company desires to continue to employ Executive as its President and Chief Operating Officer, and Executive desires to accept such employment, on the terms and conditions set forth below. NOW THEREFORE, in consideration of the mutual covenants herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Employment. The Company hereby employs the Executive, and the Executive hereby accepts such employment with the Company, upon all the terms and conditions set forth below. Executive represents and warrants that he has full power and authority to enter into this Employment Agreement and that he is not restricted in any manner whatsoever from performing the duties described below. Executive's employment with the Company shall include service for the Company's direct and indirect subsidiaries (the "Subsidiaries"). 2. Employment Term. a. Unless earlier terminated as provided below, the term of the Executive's employment under this Agreement ("Employment Term") shall commence on the Effective Date and shall continue until the date three years after the Effective Date ("Ending Date"). By agreement of the parties, the Employment Term and Ending Date may be extended from year to year thereafter in accordance with Section 2(b) below. The Company and the Executive acknowledge that the Executive's employment is at will and can be terminated by either party at any time with or without Cause (as defined below). If the Executive's employment terminates for any reason, with or without Cause, the Executive shall not be entitled to any payments, benefits, damages, awards, or compensation other than as provided in this Agreement. b. Executive agrees that not less than 180 days prior to the Ending Date, he will notify the Company in writing regarding whether he is willing to continue in the Company's employ after the Ending Date on substantially the same terms as provided in this Agreement ("Continuation Notice"). The Company agrees to respond to the Continuation Notice within 30 days of receipt and inform Executive regarding whether it will offer Executive continuing employment for the next year after the Ending Date on substantially the same terms as provided in this Agreement ("Continuation Response"). The Company shall pay to Executive continuation of his Base Compensation then in effect for a period of six months after the Ending Date if: (i) Executive provides a Continuation Notice; (ii) the Company elects not to offer Executive continued employment at the end of the Employment Term on at least substantially the same terms as provided in this Agreement unless the reason(s) for such non-renewal constitutes Cause (as defined below); and (iii) Executive remains employed by the Company through the Ending Date. 3. Position and Duties. a. Executive Officer. The Company shall employ the Executive as its President and Chief Operating Officer. Executive shall report to the Company's Board of Directors (the "Board") or its chief executive officer, if any, or other Board designee. Without any additional compensation, Executive will serve in the discretion of the Board and/or if so elected by the Company's stockholders, as a member of the Board and as an officer and/or director of any affiliated entities or Subsidiaries. Executive shall have such responsibilities and duties as are commensurate with such positions in an entity comparable to the Company, including, without limitation, development of business strategy and annual business plans, supervision of all day- to-day operations of the Company, development of the Company's organization plan, establishment of the Company's management team, and establishing and maintaining communications and relationships with the Board. The Board may assign other duties to Executive from time to time. The Board shall have the right to modify the responsibilities of the Executive from time to time as the Board may deem necessary or appropriate. b. Manner of Employment. Executive shall faithfully, diligently and competently perform his responsibilities and duties. The Executive shall devote his exclusive and full business efforts and time to the Company. This Section 3(b), however, shall not preclude the Executive, outside normal business hours, from engaging in appropriate civic or charitable activities, or from serving as a director of any not-for-profit entity, as long as such activities do not interfere or conflict with his responsibilities to the Company. With the Board's consent, Executive may serve as a director of a for-profit entity. 4. Base Compensation. The Company shall pay the Executive as compensation for his services an aggregate base compensation in the amount of $185,000 per year, subject to annual reviews and increases in the sole discretion of the Board ("Base Compensation"). Base Compensation shall be paid periodically in accordance with normal Company payroll practices. 5. Employment Benefits. Executive shall be entitled to the following benefits during the Employment Term: a. Expense Allowance. Executive shall be reimbursed for business related expenses reasonably and necessarily incurred and advanced by Executive in performing his duties for the Company, in accordance with Company policy as it exists from time to time. b. Vacation. The Executive shall be entitled to 25 days of paid vacation per calendar year to be earned and used in accordance with the Company's vacation policy as it exists from time to time. Vacations cannot be carried over from year to year and are forfeited if not taken prior to the end of the year. If Executive does not use all of Executive's vacation in any calendar year, Executive may receive pay in lieu of such vacation, up to a maximum of two weeks per year. c. Other Benefits. Executive may participate in all other employee benefit plans and programs as the Company may, from time to time, offer to its executive employees, subject to the same terms and conditions as such benefits are generally provided by the Company. All such benefits are subject to plan documents (where applicable) and the Company's policies and procedures. Nothing in this Section 5(c) guarantees that any specific benefits will be provided or offered by the Company which has the sole right to modify, add to, or terminate such benefits at any time. 6. Bonus. Executive may participate in any executive bonus plan adopted by the Company. The terms of such bonus plan and the payment of any bonuses to Executive shall be in the sole discretion of the Board or its Compensation Committee. 7. Stock Options. a. The Company shall grant to Executive certain options ("Options") for the purchase of an aggregate of 100,000 shares of the Company's common stock ("Common Stock") at the price of $5.5625 per share, the mean between the high and low price for such shares on December 7, 1999, the date the Company's Compensation Committee approved the grant. Such Options shall vest as follows: i. Options for the purchase of 25,000 shares of Common Stock, of which 7,025 shall be non-statutory stock options ("NSOs") and 17,975 shall be incentive stock options ("ISOs"), shall vest on the Effective Date; ii. Options for the purchase of 12,500 shares of Common Stock, all of which shall be ISOs, to vest on the first annual anniversary of the Effective Date; iii. Options to purchase 12,500 shares of Common Stock, all of which shall be ISOs, to vest on the second annual anniversary of the Effective Date. iv. Options for the purchase of 25,000 shares of Common Stock, all of which shall be NSOs, to vest on the ninth annual anniversary after the Effective Date; provided however that if and only if during the one year period immediately after the Effective Date, the average closing trading price for the Common Stock for any consecutive 20 trading day period shall be $8.00 per share or higher, then the vesting of such Options shall be accelerated and such Options shall vest immediately at the end of such 20 day period. v. Options for the purchase of 25,000 shares of Common Stock, all of which shall be NSOs, to vest on the ninth annual anniversary after the Effective Date; provided however that if and only if during the two year period immediately after the Effective Date, the average closing trading price for the Common Stock for any consecutive 20 trading day period shall be $10.00 per share or higher, then the vesting of such Options shall be accelerated and such Options shall vest immediately at the end of such 20 day period. b. The grant and exercisability of all Options described in Section 7(a) are subject to: (i) the terms and conditions contained in the Company's Stock Option Plan as may be amended from time to time in the Company's sole discretion ("Option Plan"); and (ii) the terms and conditions of a definitive Stock Option Agreement (the "Option Agreement") to be entered into as of the Effective Date between the parties pursuant to the Option Plan that will set forth all of the rights, duties and obligations regarding such Options. 8. Termination and Severance Benefits. a. Death. The death of Executive shall automatically terminate the Company's obligations under this Agreement; provided however, the Company shall pay to Executive's estate Executive's Base Compensation and accrued benefits through the date of termination. b. Disability. If Executive is unable, in the reasonable determination of the Board, to render services of substantially the kind and nature, and to substantially the extent, required to be rendered by Executive under this Agreement due to illness, injury, physical or mental incapacity or other disability, for 120 days, whether consecutive or not, within any 12 month period, Executive's employment may be terminated by the Company and Executive shall only be entitled to Base Compensation and accrued benefits through the date of termination. c. Resignation. If Executive resigns his employment during the Employment Term other than for Good Reason (as defined below), the Company shall have no liability to Executive except to pay Executive's Base Compensation and any accrued benefits through his last day worked, and Executive shall not be entitled to receive severance or other benefits. d. Resignation for Good Reason. If Executive resigns his employment for Good Reason, he shall be entitled to the Severance Amount (as defined below). e. Termination By Company for Cause. If the Executive's employment is terminated for Cause (as defined below), the Company shall have no liability to Executive except to pay Executive Base Compensation and any accrued benefits through his last day worked and Executive shall not be entitled to receive severance or other benefits. f. Termination By Company Without Cause. If the Company terminates Executive's employment during the Employment Term without Cause (as defined below), Executive shall be entitled to receive the Severance Amount (as defined below). g. Cause. The following acts by Executive shall constitute "Cause" for termination: i. theft or embezzlement, or attempted theft or embezzlement, of money or material tangible or intangible assets or property of the Company or its employees or business relations; ii. any felony conviction or any violation of any law or any act or acts of moral turpitude which negatively affects the interests, property, business, operations or reputation of the Company; iii. other than as a result of a disability, a material failure to carry out effectively Executive's duties and obligations to the Company, or failure to devote to the Company's business the time required in Section 3(b) above, as determined in the reasonable judgment of the Board, upon not less than ten (10) days' advance written notice of the asserted problem and a reasonable opportunity to cure; iv. gross negligence or willful misconduct in the performance of Executive's duties; v. Executive's material breach of this Agreement which, after written notice by the Company of such breach, is not cured within ten (10) days of such notice. h. Resignation for Good Reason. Resignation by Executive of his employment for "Good Reason" shall mean a resignation by Executive: i. within 2 months after the Company's determination that Executive shall no longer serve as President or Chief Operating Officer, it expressly being understood that so long as he holds at least one of those titles, Executive shall not have grounds for a resignation for Good Reason; or ii. within 6 months after a Change in Control (as defined below), and either a material reduction in Executive's total compensation package or the Company's determination the Executive shall no longer serve in either of the positions set forth in Section 8(h)(i) above. i. Change in Control. For purposes of this Agreement, a "Change in Control" shall mean the occurrence of any of the following events: i. a merger or consolidation involving the Company or any subsidiary of the Company after the completion of which: (A) in the case of a merger (other than a triangular merger) or a consolidation involving the Company, the stockholders of the Company immediately prior to the completion of such merger or consolidation beneficially own (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or comparable successor rules), directly or indirectly, outstanding voting securities representing less than fifty percent (50%) of the combined voting power of the surviving entity in such merger or consolidation, and (B) in the case of a triangular merger involving the Company or a subsidiary of the Company, the stockholders of the Company immediately prior to the completion of such merger beneficially own (within the meaning of Rule 13d- 3 promulgated under the Exchange Act, or comparable successor rules), directly or indirectly, outstanding voting securities representing less than fifty percent (50%) of the combined voting power of the surviving entity in such merger and less than fifty percent (50%) of the combined voting power of the parent of the surviving entity in such merger; ii. an acquisition by any person, entity or "group" (within the meaning of Section 13(d) or 14(d) of the Exchange Act or any comparable successor provisions), other than any employee benefit plan, or related trust, sponsored or maintained by the Company or an affiliate of the Company and other than in a merger or consolidation of the type referred to in clause "(i)" of this Section 7(b), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rules) of outstanding voting securities of the Company representing more than forty percent (40%) of the combined voting power of the Company (in a single transaction or series of related transactions); or iii. in the event that the individuals who, as of the Effective Date, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least fifty percent (50%) of the Board. (However, if the subsequent election, or nomination for election by the Company's stockholders, of any new member of the Board is approved by a vote of at least fifty percent (50%) of the Incumbent Board, such new member of the Board shall be considered as a member of the Incumbent Board.). j. Severance Amount. The "Severance Amount" shall mean the lesser of (i) one year's Base Compensation in effect immediately prior to such termination or resignation; or (ii) the Base Compensation payable over the remainder of the Employment Term, but in no event less than six months. Severance Amount shall be paid as a salary continuation to be paid on the Company's regular pay days or on an accelerated basis as determined in the Board's sole discretion. k. Resignations. Upon the end of Executive's employment for any reason, Executive shall be deemed to have resigned from any positions which he holds as a director or officer of the Company and any of its Subsidiaries or affiliates. 9. Key Executive Insurance. The Company, at its discretion, may apply for and procure in its own name for its own benefit life and/or disability insurance on Executive in any amount specified by the Company. Executive agrees to cooperate in any medical or other examination, supply information and execute such applications as may be reasonably necessary to obtain and continue such insurance at the Company's expense. Executive represents that he has no reason to believe his life is not insurable at prevailing rates for men of his age. 10. Confidential and Proprietary Information. a. Executive agrees that after the Effective Date, he will not use or disclose to any person, entity, association, firm or corporation, any of the Company's Confidential Information, except with the written authorization of the Board or as necessary to perform his duties under this Agreement. The term "Confidential Information" means information and data not generally known outside of the Company (unless as a result of Executive's breach of any of the obligations imposed by this Agreement or the duties imposed by any then existing statute, regulation, ordinance or common law) concerning the Company's business and technical information, and includes, without limitation, information relating to: (i) the identities of clients and the Company's other Business Relations (as defined below) and their purchasing habits, needs, business information, contact personnel and other information; (ii) suppliers' and vendors' costs, products, contact personnel and other information; and (iii) the Company's trade secrets, products, research and development, financial and marketing information, personnel and compensation information, and business plans. Executive understands that this Section 10 applies to computerized as well as written information and to other information, whether or not in written form. It is expressly understood, however, that the obligations of this Section 10 shall only apply for as long as and to the extent that the Confidential Information has not become generally known to or available for use by the public other than by Executive's act or omission in violation of this Agreement. b. Executive agrees that upon the end of his employment with the Company for any reason, he will not take with him any Confidential Information that is in written, computerized, machine readable, model, sample, or other form capable of physical delivery, without the prior written consent of the Board. The Executive also agrees that upon the end of his employment with the Company for any reason or at any other time that the Company may request, he will deliver promptly and return to the Company all such documents and materials in his possession or control, along with all other property and documents of the Company or relating to the Company's employees, suppliers, customers, and business. 11. Non-Solicitation. Executive agrees that he will not through the date one year after the end of his employment with the Company for any reason, directly or indirectly, on his own behalf or on behalf of any other person or entity, without the express written permission of the Board: (a) solicit or attempt to solicit any employee or representative of the Company; or (b) solicit or attempt to solicit, any client, vendor, service provider or other business relation of the Company (each a "Business Relation"), about whom he learned or with whom he came into contact during his employment with the Company on behalf of any entity or with respect to any service or products which is or may be competitive with the Company or its services or products. 12. Non-Competition. a. Executive agrees that during the Restrictive Period (as defined below), he will not, without the express written consent of the Board, be associated with or engage in, directly or indirectly, as employee, consultant, proprietor, stockholder, partner, agent, representative, officer, or otherwise, the operation of any business that is competitive with the business of the Company within the United States or any other geographic area in which the Company does material business during the Restrictive Period (the "Restricted Territory"). b. The term "Restrictive Period" shall mean the Employment Term plus a period of six months after the end of the Employment Term; provided that the six month period following the end of the Employment Term shall not apply if: (i) Executive's employment is terminated by the Company without Cause, (ii) Employee resigns his employment for Good Reason, or (iii) Employee provides the Company with a timely Continuation Notice but the Company decides not to continue Executive's employment after the Ending Date. c. The phrase "business that is competitive with the business of the Company" shall mean any business in which the Company is engaged, including, without limitation, digital, life sciences, and physical sciences technology development, management and commercialization. d. Passive investment of less than two percent of the outstanding equity securities of an entity which is listed on a national or regional securities exchange shall not, in itself, constitute a violation of this Section 12. 13. Intellectual Property Rights. Executive will, during the period of his employment, disclose to the Company promptly and fully all Intellectual Property made or conceived by Executive (either solely or jointly with others) including but not limited to Intellectual Property which relate to the business of the Company or the Company's actual or anticipated research or development, or result from work performed by him for the Company. All Intellectual Property and all records related to Intellectual Property, whether or not patentable, shall be and remain the sole and exclusive property of the Company. "Intellectual Property" means all copyrights, trademarks, trade names, trade secrets, proprietary information, inventions, designs, developments, and ideas, and all know-how related thereto. Executive hereby assigns and agrees to assign to the Company all his rights to Intellectual Property and any patents, trademarks, or copyrights which may be issued with respect to Intellectual Property. Executive further acknowledges that all work shall be work made for hire. During and after the Employment Term, Executive agrees to assist the Company, without charge to the Company but at its request and expense, to obtain and retain rights in Intellectual Property, and will execute all appropriate related documents at the request of the Company. Executive understands that this Paragraph 13 shall not apply to any Intellectual Property for which no equipment, supplies, facilities, trade secret, or other confidential information of the Company was used and which was developed entirely on his own time, and does not relate to the business of the Company, its actual or anticipated research, and does not result from any work performed by him for the Company. 14. Successors and Assignees. This Agreement may be assigned by the Company to any successor or assignee of a substantial portion of the business of the Company (whether by transfer of assets or stock, merger or other business combination). Executive may not assign his rights or obligations under this Agreement. 15. Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties and their respective heirs, successors, legal representatives and permitted assigns. 16. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and either delivered in person by reputable messenger or overnight delivery service, by telecopy (with confirmation of receipt) or sent by certified mail, postage prepaid, if to the Company at the Company's principal place of business, c/o Chairman of the Board, and if to the Executive, at his home address most recently filed with the Company, or to such other address as either party shall have designated in writing to the other party. 17. Law Governing. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut. 18. Severability and Construction. If any provision of this Agreement is declared void or unenforceable or against public policy, such provision shall be deemed severable and severed from this Agreement and the balance of this Agreement shall remain in full force and effect. If a court of competent jurisdiction determines that any restriction in this Agreement is overbroad or unreasonable under the circumstances, such restriction shall be modified or revised by such court to include the maximum reasonable restriction allowed by law. 19. Remedies. Executive and Company acknowledge and agree that damages would not adequately compensate Company if Executive were to breach any of his covenants contained in this Agreement. Consequently, Executive agrees that in the event of any such breach, Company shall be entitled to enforce this Agreement by means of an injunction or other equitable relief, in addition to any other remedies including without limitation set off against any amounts due Executive by Company and termination of Executive's employment for Cause. 20. Waiver. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition. 21. Entire Agreement; Modifications. This Agreement constitutes the entire agreement of the parties with respect to its subject matter and supersedes all prior agreements, oral and written, between the parties with respect to the subject matter of this Agreement, including without limitation the Employment Agreement dated as of January 7, 1997; provided however that any Stock Option Agreement between the parties signed on or before the Effective Date shall remain in full force and effect. This Agreement may be modified or amended only by an instrument in writing signed by both parties. 22. Employment and Income Taxes. All payments made to Executive pursuant to this Agreement will be subject to withholding of employment taxes and other lawful deductions, as applicable. COMPETITIVE TECHNOLOGIES, INC. s/Frank R. McPike, Jr. By: s/ John Sabin Frank R. McPike, Jr. Title: Chairman EX-11.1 3 Exhibit 11.1 COMPETITIVE TECHNOLOGIES, INC. Schedule of Computation of Earnings Per Share (Unaudited)
Six months Quarter ended January 31, ended January 31, 2000 1999 2000 1999 Net income (loss) applicable to common stock $ 287,659 $ (76,614) $ 428,725 $ 238,834 Common and common equivalent shares - diluted: Basic weighted average common shares outstanding 6,006,086 5,983,132 6,009,531 5,975,286 Adjustments for assumed exercise of stock options 30,299 16,096* 30,377 31,180 Weighted average number of common and common equivalent shares outstanding 6,036,385 5,999,228 6,039,908 6,006,466 Net income (loss) per share of common stock: Basic and diluted $ 0.05 $ (0.01) $ 0.07 $ 0.04 * Anti-dilutive.
These calculations are submitted in accordance with Regulation S-K item 601 (b) (11) which differs from the requirements of paragraph 13 of Statement of Financial Accounting Standards No. 128 because they produce an anti-dilutive result. EX-27.1 4
5 Financial Data Schedule for Form 10-Q for January 31, 2000 0000102198 COMPETITIVE TECHNOLOGIES, INC. 6-MOS JUL-31-2000 JAN-31-2000 124,663 5,735,475 2,202,184 0 0 8,159,937 294,091 145,820 9,635,517 1,968,065 0 0 60,675 60,663 7,546,114 9,635,517 0 1,716,896 0 1,657,133 0 0 0 287,659 0 287,659 0 0 0 287,659 0.05 0.05
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