-----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, BGQNG+ISBTJ8wTJ/xbv+L+YrXrD7xqkzolWcQFYawpJRYuBjITei8XtugRaxMTeA licaBpDeiPed6enLo7ANbQ== 0000102198-95-000018.txt : 19951027 0000102198-95-000018.hdr.sgml : 19951027 ACCESSION NUMBER: 0000102198-95-000018 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19951026 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPETITIVE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000102198 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 362664428 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08696 FILM NUMBER: 95584295 BUSINESS ADDRESS: STREET 1: 1465 POST RD E STREET 2: PO BOX 901 CITY: WESTPORT STATE: CT ZIP: 06881-0901 BUSINESS PHONE: 2032556044 MAIL ADDRESS: STREET 1: 1465 POST ROAD EAST STREET 2: P O BOX 901 CITY: WESTPORT STATE: CT ZIP: 06881-0901 FORMER COMPANY: FORMER CONFORMED NAME: UNIVERSITY PATENTS INC DATE OF NAME CHANGE: 19920703 10-K405 1 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 [Fee Required] For the fiscal year ended July 31, 1995. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] 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) 1465 Post Road East, P.O. Box 901 Westport, Connecticut 06881 (Address of principal executive (Zip Code) offices) 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 62. Page 1 of 102 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. [X] As of October 20, 1995, 5,815,365 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 $42,600,000. DOCUMENTS INCORPORATED BY REFERENCE Incorporated Document Location in Form 10-K Registrant's definitive proxy Part III statement for its 1995 annual meeting of stockholders PART I Item 1. Business Introduction Competitive Technologies, Inc. ("the registrant" or "CTI"), a Delaware Corporation incorporated in 1971 to succeed an Illinois business corporation incorporated in 1968, is engaged primarily in providing technology management services to universities, to federal agencies and laboratories, and to corporations 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. In February, 1995, the registrant sold a significant portion of its investment in University Communications, Inc. ("UCI") 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 UCI from 55.1% to 14.5%. The registrant carries its remaining investment in UCI on the cost method. Accordingly, CTI's investment in UCI prior to February, 1995 is presented in the registrant's financial statements as a discontinued operation and financial information for all prior periods has been reclassified. In addition, the registrant's financial statements for 1993 reflect its equity in losses of Plasmaco, Inc., a company engaged in developing, manufacturing and selling AC plasma panels (see page 8 for a discussion of Plasmaco, Inc.). The aggregate number of persons employed full-time by the registrant and its subsidiaries on October 1, 1995 was approximately 18. Substantially all employees are salaried and none is represented by a labor union. Certain of these employees also perform services for Knowledge Solutions, Inc. and USET, Inc. Technology Management Services Technology transfer services To Universities The registrant, its subsidiary, Competitive Technologies of PA, Inc. ("CTI-PA") and its equity method affiliate, University Science, Engineering and Technology, Inc. ("USET") provide technical evalua- tion, patent and market assessment, patent application and prosecu- tion, 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. In 1995 and 1994 the registrant derived 94% of its retained royalty revenues from its share of royalties earned by the USET portfolio and 6% from royalties earned by the CTI-PA portfolio. In 1993 the registrant derived 95% of its retained royalty revenues from its share of royalties earned by the USET portfolio and 5% from royalties earned by the CTI-PA portfolio which was included in consolidated revenues for only 6 months of 1993. In 1995, 1994 and 1993 the registrant, through its subsidiary, CTI-PA, also earned approximately $44,000, $39,000 and $25,000 under contracts to provide technology management and related services to Lehigh University. (References herein to years are to fiscal years ended July 31, unless the context otherwise requires.) As a result of various agreements made between 1988 and 1991 by the registrant and its wholly-owned subsidiary, UPAT Services, Inc. ("USI"), the registrant manages 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 retains 20% of royalties received from licensees although individual amounts range from 4% to 28%. In addition, the registrant shares 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 is obligated to pay Macmillan, Inc. 90% of its royalties earned in excess of $400,000 per year for earning years through August 31, 1995, up to an aggregate maximum of $3,750,000 (as specifically set forth in the purchase agreement from Macmillan, Inc. dated August 20, 1990). Through July 31, 1995, USET had made all contingent payments due which totaled $625,000. The registrant guarantees USET's contingent purchase price obligations to Macmillan, Inc. once they become due. Although contingent purchase price payments may be required through 1996 because USET may not receive royalties earned through August 31, 1995 (as defined in the purchase agreement) until April or May 1996, the registrant expects USET to continue to pay those earned obligations as they become due. USI is the general partner and owns 20% of USET Acquisition Partners, L.P. ("UAP"). UAP owns 100% of the outstanding shares of USET Holding Co. which owns 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 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 aluminum 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 Retin-A in which Macmillan, Inc. and the registrant each retains a 50% interest. On February 12, 1993, the registrant acquired 80% of the stock of CTI-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 2 to Consolidated Financial Statements). CTI-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 CTI-PA office space and the services of five MBA students. In each year of the contract, CTI-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 only two technologies that produced at least $100,000 in retained royalties for the registrant during 1995 and 1994 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 $159,000 (20%) and $150,000 (21%) of total retained royalties in 1995 and 1994, 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. These assay procedures are licensed to Abbott Laboratories, Becton Dickinson and Company, Bio-Rad Laborato- ries, Inc., Ciba-Corning Diagnostics Corporation, Dade International, Inc., Diagnostic Products Corporation, ICN Biomedicals, Microgenics Corporation, Miles, Inc., and Sanofi Diagnostics Pasteur, 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 approximately $288,000 (36%), $260,000 (36%) and $289,000 (44%) of total retained royalties in 1995, 1994 and 1993, respectively. No other technology contributed 15% or more of retained royalties during 1995, 1994 or 1993. 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. During 1995 the registrant made agreements with two additional universities 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 $634,000 (70%) and $121,000 (49%) of revenues earned under service contracts and grants in 1995 and 1994, respectively. 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. The registrant expects to retain approximately $400,000 of the contract revenues with the remainder to be paid to subcontrac- tors for specific contract tasks. Work on the contract began in February, 1995, and is expected to continue for approximately 15 months. Through July 31, 1995, the registrant had earned and recognized approximately $500,000 of revenue on this contract of which approximately $302,000 was paid or payable to subcontractors. The remaining approximately $300,000 of revenue under this contract is expected to be earned over the first nine months of fiscal 1996. Revenues retained by the registrant under this contract contribute to recovery of 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. CTI-PA earned approximately $106,000 and $114,000 under one of these subcontracts in 1995 and 1994, respectively. This subcontract runs through April 30, 1996, when it must be renegotiated with Lehigh and the Federal agency. The registrant expects to submit proposals in the future for contracts that follow from the current Air Force contract and other technology and research contracts. However, the registrant's 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 $29,000 and $18,000 in 1995 and 1994, respectively. The registrant recently agreed to assist IBM in identifying and commer- cializing technologies that are outside IBM's core competencies. The registrant is currently discussing opportunities to assist other corporations in commercializing shelved technologies. In fiscal 1996 the registrant has established and expects to staff a wholly-owned subsidiary, CTI-Intercorporate Licensing, Inc., to serve the corporate market. 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 three rounds of financing (see Note 4 to Consolidated Financial Statements) which generated $465,000 in equity funding for KSI. In addition, KSI received a $75,000 grant to support its development activities. At July 31, 1995, the registrant owned 35.9% of KSI's outstanding common stock. Through July 31, 1995, the registrant had recorded a total of $171,000 as its equity in the losses of KSI during the development of KSI's first product. Both the registrant and KSI's other major shareholder expect KSI to support its continuing operation either from sales of its product or from contracts to develop other multimedia training products. In 1994 the registrant established a majority-owned subsidiary, Vector Vision, Inc. ("VVI"), to develop and exploit a video compres- sion technology from Lehigh University. Research and development expenditures (included in costs of technology management services in the Consolidated Financial Statements) of approximately $36,000 and $86,000 were incurred by VVI in 1994 and 1995, respectively. Since its inception VVI has obtained $72,000 in equity funding and $49,000 in grant funding. VVI is obligated to repay up to three times total grant funds received (see Note 3 to Consolidated Financial State- ments). At July 31, 1995, the registrant owned 51.5% of VVI's outstanding common stock. VVI's minority shareholders are employees of VVI or CTI-PA. Unless VVI obtains additional equity financing, it will not be able to continue development of its video compression technology. CTI-PA is currently exploring 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 being marketed in EBI's first month of operations. The registrant recorded equity in EBI's net income of $6,000 in 1995. At July 31, 1995, the registrant owned 37.5% of EBI's outstanding stock. In June, 1986, the registrant was instrumental in forming University Communications, Inc. ("UCI") to commercialize NovaNET, an interactive education and communication network developed at the University of Illinois. UCI's revenues have grown to $5,120,000 for the fiscal year ended July 31, 1995. In February, 1995, the registrant sold the majority of its shares of UCI common stock to Barden Companies, Inc. and recorded a $2,534,505 gain on the disposal. After the sale the registrant continued to own 14.5% of UCI's outstanding common stock. See note 16 to Consolidated Financial Statements for further information about UCI's operations and their effect on the registrant and its financial statements. Although UCI may use outside sources to fund its new market and system development activities, its ongoing operations are now self-supporting. 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, and the registrant's sale of part of its investment in Plasmaco, the registrant owns approximately 1% of Plasmaco's outstanding common stock and accounts for it under the cost method. Plasmaco is developing its color AC plasma display. Special Factors Losses During Past Fiscal Years. On a consolidated basis the registrant incurred net losses from continuing operations of $641,000, $829,000 and $1,447,000 in 1995, 1994 and 1993, respectively. The registrant's share of net income from UCI's discontinued operations was $99,000 in 1995 and its share of net losses from UCI's discontin- ued operations was $11,000 and $450,000 in 1994 and 1993, respective- ly. The registrant reported a net gain on disposal of discontinued operations of $2,534,505 on its sale of UCI shares to Barden Companies, Inc. in 1995 and a net gain of $222,000 and a net loss of $9,000 on its sale of the assets of its optical products segment to Unilens in 1994 and 1993, respectively. The registrant's operating activities used $40,000, $475,000 and $729,000 in 1995, 1994 and 1993, respectively. The registrant's investing and financing activities provided $1,795,000 in 1993 and used $501,000 and $148,000 in 1995 and 1994, respectively. Reliance on and Lack of Control of Licensees. To the extent that the registrant and CTI-PA share in royalties received from licensees, the revenues from such licensees are dependent upon the efforts and expenditures of such licensees. Retained royalties were 47%, 75% and 89% of the registrant's consolidated total revenues in 1995, 1994 and 1993, 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 licensees are subject to the risk that issued patents will be declared invalid, that patents will not issue on patent applications, or that new or alternative technologies will render licensed patents uncommercial. Risks Pertaining to Contracts with Federal Agencies and Laboratories. To the extent that the registrant and CTI-PA earn revenues under contracts and subcontracts from agencies or laborato- ries 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 37% and 13% of the registrant's consolidated total revenues in 1995 and 1994, 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 at least annually, there can be no assurance that they will be renewed. Although the registrant and CTI-PA will continue to propose on all such contracts 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 21 years of experience in technology management and commercialization and has been its president since September, 1992. Mr. McPike has been with the registrant for 12 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 University Communications, Inc. ("UCI") 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 UCI shareholders other than Barden a number of their shares of UCI common stock to allow all UCI sharehold- ers 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 UCI. With a holding of 14.5% and no representation on UCI's board of directors, the registrant no longer exerts significant influence over UCI's operations. Therefore, effective February 15, 1995, the registrant began to account for its investment in UCI of $159,375 on the cost method. Consolidated financial statements for the registrant and its subsidiaries for all prior periods, which previously included UCI as a consolidated subsidiary, have been reclassified to present UCI's net assets and the registrant's equity in UCI's net results of operations as a discontinued operation. UCI 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 UCI's net income from operations for the six and one-half months to February 15, 1995 was $99,000; its equity in UCI's net loss from operations was $11,000 and $450,000 in 1994 and 1993, respectively. At various times since UCI's initial funding in June, 1986, the registrant had invested an aggregate of $1,997,000 in UCI equity. UCI's revenues from interactive computer-based education services were $2,764,000, for the six and one-half months ended February 15, 1995 and $3,753,000 and $2,183,000 in 1994 and 1993, respectively. UCI markets its interactive courseware throughout the United States to schools and colleges, drop-out prevention programs, correctional and other institutions aimed at improving teenage and adult literacy. Optical Products Segment Prior to January 31, 1989, the registrant was engaged in the manufacture and sale of bifocal contact lenses through its 89%-owned subsidiary, University Optical Products Co. ("UOP"). Effective January 31, 1989, UOP sold the contact lens portion of its optical products segment for a total of $6 million payable in installments (see Note 16 to Consolidated Financial Statements), assumption by the purchaser of certain UOP liabilities and 200,000 warrants to purchase shares of the common stock of Unilens Optical Corp. ("Unilens Canada"), the parent of Unilens Corp. USA ("Unilens"), the purchaser. Unilens Canada guaranteed the obligations of Unilens. In November, 1989, UOP sold substantially all of its intraocular lens ("IOL") product line assets to Unilens for $1,056,000 in cash. The registrant used the $1,056,000 in cash to exercise the warrants to purchase 200,000 shares of common stock of Unilens Canada and then exchanged those unregistered shares for registered shares of Unilens Canada held by Pineridge Capital Corp., then owner of 45% of the outstanding stock of Unilens Canada. The net effect of these transactions was that UOP disposed of its IOL assets and the registrant obtained 153,600 shares of Unilens Canada which it sold during 1990 for approximately $768,000. As a result of UOP's sales of both the contact lens and IOL portions of its operations, the registrant has presented its optical products segment as a discontinued operation for all periods presented in the Consolidated Financial Statements. For additional information, see Items 3 - Legal Proceedings, 6 - Selected Financial Data and Note 16 to Consolidated Financial Statements. Due to the uncertainty of the timing and amount of future cash flows, income on Unilens' installment obligation is recorded net of related expenses as the payments are received. Such amounts were recorded as gain on discontinued operations until the fair value assigned to the original obligation was received. Cash received in excess of the fair value assigned to the original obligation is recorded as other income from continuing operations. Expenses of collecting the installment obligation and of legal expenses related to the suit detailed in Item 3 - Legal Proceedings are recorded as other expenses from continuing operations. The registrant has paid 4% commissions on all sales proceeds received from Unilens since November, 1989, to UOP's joint venture partner, Optical Associates, Limited Partnership. The registrant recognized net gain of $222,000 and net loss of $9,000 on disposal of UOP's discontinued operations in 1994 and 1993, respectively. The registrant also recorded other expenses from continuing operations of $132,000 in 1995 and other income from continuing operations of $38,000 in 1994. Item 2. Properties The registrant's principal executive offices occupy approximately 3,500 square feet in Westport, Connecticut under a five-year lease which expires in August 1996. These offices are part of 17,500 square feet leased by the registrant. Approximately 14,000 square feet is sublet by the registrant, including 1,000 square feet leased to USET at current market rates. The lessor is a partnership consisting of a director of the registrant and three unrelated individuals (who were former officers of the registrant). The registrant believes that this facility is adequate for its current operations. Item 3. Legal Proceedings On November 4, 1991 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. In August 1994 the defendants filed a motion for summary judgment for dismissal of the case. The motion for summary judgment was denied. The court has not yet set a date to hear the case. 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 48 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. 46 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 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, 1995 High Low First Quarter.................... 8 3/4 6 Second Quarter................... 7 1/8 5 3/4 Third Quarter.................... 6 7/8 4 1/2 Fourth Quarter................... 7 5 3/8 Fiscal Year Ended July 31, 1994 First Quarter.................... 8 5/8 6 1/2 Second Quarter................... 7 5 3/4 Third Quarter.................... 7 1/8 5 5/8 Fourth Quarter................... 7 7/8 5 5/8 No cash dividends were declared on the registrant's common stock during the last two fiscal years. At October 20, 1995 there were approximately 1,118 holders of record of the registrant's common stock. COMPETITIVE TECHNOLOGIES, INC. Selected Financial Data (1) Years ended July 31
Item 6. Selected Financial Data 1995 1994 1993 1992 1991 Retained royalties $ 796,243 $ 717,514 $ 650,651 $ 504,143 $ 450,578 Revenues under service contracts and grants 906,952 245,264 84,470 -- -- Total revenues $ 1,703,195 $ 962,778 $ 735,121 $ 504,143 $ 450,578 Loss from continuing operations (2) $ (641,249) $ (828,996) $(1,446,811) $ (690,697) $ (862,041) Income (loss) from operations of discontinued operation 99,468 (10,786) (449,724) (476,318) (434,163) Net gain (loss) on disposal of discontinued operations 2,534,505 221,852 (9,314) 180,504 -- Net income (loss) $ 1,992,724 $ (617,930) $(1,905,849) $ (986,511) $(1,296,204) Net (loss) income per share of common stock: Continuing operations $ (0.11) $ (0.15) $ (0.27) $ (0.13) $ (0.17) Operations of discontinued operation 0.02 -- (0.08) (0.09) (0.09) Net gain (loss) on disposal of discontinued operations 0.43 0.04 -- 0.03 -- Net income (loss) $ 0.34 $ (0.11) $ (0.35) $ (0.19) $ (0.26) Weighted average number of common and common equivalent shares outstanding 5,814,826 5,761,610 5,478,082 5,170,041 4,997,622 At year end: Total assets $ 6,768,942 $ 4,766,745 $ 4,454,778 $ 2,914,518 $ 3,178,933 Shareholders' interest $ 6,289,524 $ 4,149,775 $ 4,133,093 $ 2,486,255 $ 2,797,264
(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 ($104,000), $20,000, ($1,013,000), ($286,000) and ($1,288,000) in 1995, 1994, 1993, 1992 and 1991, respectively, gain on issuance of shares by subsidiary of $233,000 and $44,000 in 1993 and 1992, respectively, and gain on reversal of accrued rent liability of $960,400 in 1991. (3) Registrant had no long-term obligations at July 31 of any year presented. (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 On February 15, 1995, Barden Companies, Inc. ("Barden") exercised its option to purchase from Competitive Technologies, Inc. ("CTI") additional shares of University Communications, Inc. ("UCI") common stock. Barden paid $3,227,372 ($1.375 per share) in cash for 2,347,180 shares held by CTI. In connection with Barden's purchase, CTI offered to purchase from all UCI shareholders other than Barden a number of their shares of UCI common stock to allow all UCI shareholders to participate in the sale to Barden on a pro rata basis. Pursuant to this offer, CTI purchased 151,096 tendered shares for a total of $207,757 ($1.375 per share) in cash. CTI's net gain on these transactions was $2,534,505 which was recorded in the third quarter of 1995. Upon completion of these and other transactions, Barden owned 52.1% and CTI owned 14.5% of the outstanding common stock of UCI. With a holding of 14.5% and no representation on UCI's board of directors, CTI no longer exerts significant influence over UCI's operations. Therefore, effective February 15, 1995, CTI accounts for its $159,375 investment in UCI on the cost method. Financial statements for Competitive Technologies, Inc. and subsidiaries ("the Company") for all prior periods, which previously included UCI as a consolidated subsidiary, have been reclassified to present CTI's interest in UCI's net assets and CTI's equity in UCI's net results of operations as a discontinued operation. Since UCI previously comprised one of the Company's two segments but is now presented as a discontinued operation, the Company's reclassified financial statements reflect a single business segment, technology management services. Cash and cash equivalents of $336,098 at July 31, 1995, are $540,912 lower than at July 31, 1994. Financing activities provided $13,000 while operating activities used $40,317 and investing activities used $513,595. The Company's net loss from continuing operations of $641,249 for 1995 included the following noncash items: depreciation and amortiza- tion expenses ($186,000), losses related to equity method affiliates ($104,000), minority shareholders' interest in losses of consolidated subsidiaries ($23,000), accruals ($121,000) and other ($78,000). Net changes in various operating accounts were $226,000 for 1995. In general, these result from changes in the timing and amounts of cash flows before and after the end of the period. In addition, at July 31, 1994, the Company had no receivables or liabilities from services performed under the government contract described below which began in February, 1995, or other government contracts. CTI's sale of its majority holding in UCI, net of purchases and expenses, discussed above provided approximately $3,012,000 in cash. Proceeds from sales of short-term investments provided approximately $2,232,000 and purchases of short-term investments used $5,552,000. The Company used approximately $106,000 to purchase computer and other equipment for its continuing operations. In addition, CTI invested approximately $99,000 in cash in equity of affiliates. In September, 1994, CTI exchanged 25,000 unregistered shares of its common stock for 205,325 shares of Class A common stock of Knowledge Solutions, Inc. ("KSI"). In June, 1995, CTI participated in a restructuring and additional financing of KSI by reacquiring the 25,000 shares of its common stock, returning the 205,325 shares of KSI's Class A common stock and purchasing 75,000 shares of KSI's Class A common stock for $75,000 in cash. In addition to CTI's investment, Safeguard Scientifics, Inc. ("SSI") has invested $300,000 in cash in KSI and KSI has received a $75,000 grant to support its development activities. KSI is expected to complete development of its first multimedia training product without further funding from CTI or SSI. KSI is expected to support its continuing operation either from sales of its product or from contracts to develop other multimedia training products. CTI's equity in the losses of KSI since its inception in 1994 through July 31, 1995, totals $171,000. At July 31, 1995, CTI owns 35.9% of KSI's outstanding common stock and accounts for its investment under the equity method. In February, 1995, CTI purchased 250,000 shares of Class A common stock of Equine Biodiagnostics, Inc. ("EBI") for $25,000 in cash. EBI was organized by Kentucky Technology Incorporated, a technology management company wholly-owned by the University of Kentucky, to provide diagnostic laboratory services for the equine industry. EBI's initial product is a test for equine protozoal myeloencephalitis, a neurological disease. At July 31, 1995, CTI owned 37.5% of the outstanding common stock of EBI and accounted for its investment in EBI under the equity method. CTI's equity in the income of EBI in 1995, was $6,000. On January 24, 1995, CTI 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. Approximately $400,000 of the contract revenues are expected to be retained by CTI with the remainder to be paid to subcontractors for specific tasks. Work on the contract began in February, 1995, and is expected to continue for approximately 15 months. CTI recognizes revenues under this contract in the period the contractual service is provided and the related revenue is earned. Through July 31, 1995, CTI had earned and recognized approximately $500,000 of revenue on this contract of which approximately $302,000 was paid or payable to subcontractors. In August, 1995, CTI formed a wholly-owned subsidiary and purchased 2,000 shares of CTI-Intercorporate Licensing, Inc. ("CTI- ILI") common stock for $100,000 in cash to provide licensing and technology management services to corporations. CTI expects CTI-ILI to require additional cash of approximately $250,000 to fund its first year of operations. CTI expects to provide that cash in exchange for additional equity in CTI-ILI. The Company carries liability insurance and casualty insurance for owned or leased tangible assets. It does not carry key person life insurance. There are no legal restrictions on payments of dividends by CTI. At July 31, 1995, the Company had no outstanding commitments for capital expenditures. The Company is currently pursuing additional university and corporate technology management opportunities. If and when these opportunities are consummated, the Company expects to commit capital resources to fund their acquisition or startup operations. The Company's adoption of Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective August 1, 1994, did not have a material effect on its financial statements. The Company does not believe that inflation had a significant impact on its operations during 1995 or 1994 or that it will have a significant impact on operations during the next twelve-month operating period. Vector Vision, Inc. ("VVI"), CTI's 51.5% owned subsidiary, continues to seek additional financing to support its continuing development in its second year of operations. Without additional outside financing, VVI's development activities will not be able to continue. The Company is not obligated to provide additional funding to VVI. With more than $4,950,000 in cash, cash equivalents and short- term investments at July 31, 1995, the Company anticipates that currently available funds will be sufficient to finance cash needs over the next two to five years for its current operating activities as well as for expansion of its technology management services and investments in startup companies. This anticipation is based upon the Company's current expectations. However, expansion of the Company's services and investments in startup companies (with resulting increases in operating expenses) are 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 - 1995 vs. 1994 The results of operations for fiscal 1994 presented in the accompanying financial statements have been reclassified to present UCI's results of operations as a discontinued operation. See discussion above and Notes 1 and 16 to Consolidated Financial Statements. Consolidated revenues in 1995 were $740,000 higher than in 1994, an increase of 77%. Retained royalties increased $79,000 (11%). One- time, up-front license fees from new licenses in 1994 were higher than in 1995. Royalties received in settlement of a license dispute in 1995 were higher than a settlement of prior infringement in 1994. Other changes in retained royalties were from increased earned royalties on some younger technologies, lower earned royalties on some more mature technologies, and changes in minimum royalties as provided in the respective license agreements. Royalties from Retin-A in 1995 were approximately the same as in 1994. In both years both the gallium arsenide and the Vitamin B12 assay technologies generated retained royalties in excess of $100,000. Licenses for the Vitamin B12 assay and gallium arsenide extend to the expiration of the patents, between 1997 and 2001 and between 2001 and 2006, respective- ly. Retained royalties earned by Competitive Technologies of PA, Inc. ("CTI-PA") were nearly the same in both years. Revenues under service contracts and grants were $662,000 (270%) higher in 1995 as a result of additional contracts, services and grants. CTI's $800,000 contract with the Department of the Air Force which began in February, 1995, accounted for $500,000 of the increase. The remaining $300,000 of revenue under this contract is expected to be earned over at least nine months of fiscal 1996. While revenues earned under other services contracts also increased in 1995, nearly all such contracts either must be renewed at least annually or are for nonrecurring projects. The Company continues to propose on all such contracts it deems appropriate to its expertise and experience. Grant revenues in 1995 totaled $85,000 including the remaining approximately $36,000 on Competitive Technologies of PA, Inc.'s ("CTI-PA") grant and $49,000 from a grant to VVI. In consideration of their grant funding, CTI-PA and VVI are obligated to repay up to three times total grant funds received (see Notes 2 and 3 to Consolidated Financial State- ments). The Company has not applied for grants to support any of its operations during 1996. Costs of technology management services were $580,000 (107%) higher than in 1994. Costs related to retained royalties were $114,000 (42%) lower in 1995 than in 1994. These costs include domestic and foreign patent prosecution, maintenance and litigation expenses related to both the USET and CTI-PA portfolios. The Company carefully evaluates the future revenue potential of each technology before it incurs substantial patent or enforcement expenses. The Company expects costs related to retained royalties to increase in 1996 principally as a result of expanding technology management services to corporations and universities in 1996. 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) increased $643,000 (320%) compared with 1994. CTI's contract with the Department of the Air Force is responsible for $501,000 of this increase, including $302,000 of amounts paid or payable to subcontractors on the project team and $26,000 of contract related travel expenses. Other increases related to increased levels of service under CTI-PA's technology management contract for Lehigh University and other nonrecurring service contracts. In addition, costs related to grant revenues increased in proportion to the revenues. The amount of research and development expenses included in costs of technology management services was unchanged from 1994. General and administration expenses were $208,000 lower in 1995 than in 1994. Included in 1994 were investment bankers fees of $50,000. The remainder of this reduction results from using current personnel to provide service under various contracts. If the Company is able to continue servicing contracts with current staff or reduces personnel costs, such expenses may continue at similar levels. However the Company plans certain increases in staffing to expand its technology management services to corporations and universities in 1996 with related increases in general and administration expenses. The net effect of the increases in operating revenues and expenses was to reduce the Company's operating loss by $369,000 (37%). Although $51,000 of the improvement was from increased grant revenues, the remainder reflects the positive effect of the Company's use of personnel to provide contract services as part of its strategy to fund current operations while it develops additional technology management opportunities. Interest income increased primarily due to interest earned on the investment of CTI's proceeds from its sale of shares of UCI common stock to Barden. In addition, interest rates have increased slightly in the two years. In 1995 net losses related to equity method affiliates included CTI's equity in the net loss of KSI ($157,000), UPAT Services, Inc.'s ("USI") 20% equity in the net income of USET Acquisition Partners, L.P. ("UAP") ($47,000) and CTI's equity in the net income of Equine Biodiagnostics, Inc. ("EBI") ($6,000) for four months of operations. In 1994 net income related to equity method affiliates included CTI's equity in the net loss of KSI ($15,000) and USI's equity in the net income of UAP ($35,000). In fiscal 1994 KSI had less than 2 months of operations. Other income (expense), net, includes gross realized gains from sales of short-term investments of $60,000 and $7,000 in 1995 and 1994, respectively. 1995 also includes $132,000 of legal expenses incurred in connection with a suit brought against CTI, 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 16 to Consolidated Financial Statements). CTI believes that the asserted claims are without merit and intends to defend the action vigorously. The suit is expected to be tried during fiscal 1996. CTI is unable to estimate the related legal expenses which may be incurred in 1996. 1994 includes $38,000 proceeds in excess of the fair value assigned to the installment obligation receivable from Unilens Corp. USA ("Unilens"). Unilens has made no payments in 1995 and CTI is currently trying to collect amounts Unilens previously agreed to pay in 1995. Since CTI carries this receivable at zero value, any collections will be recorded in the period collected. The Company has substantial net operating loss carryforwards for Federal and state income tax purposes. CTI utilized capital loss carryforwards and reduced the related deferred tax valuation allowance in 1995; therefore no provision has been made for taxes on CTI's sale of shares of UCI common stock. Provision was made in each year for estimated state income taxes. Minority interest in the losses of subsidiaries in both 1995 and 1994 is VVI's minority shareholders' share of VVI's net loss in each respective year. The minority interest in VVI's losses is limited to the minority's interest in VVI's outstanding common stock. Unless VVI obtains additional equity financing, no further losses may be charged to VVI's minority shareholders. In 1995, income from discontinued operations is CTI's equity in UCI's net income for the six and one-half months ending February 15, 1995. In 1994 and 1993 CTI's equity was in UCI's net loss for the full years. In the future, CTI will record revenue from its investment in UCI only for dividends declared by UCI, if any. In 1995, the $2,534,505 net gain on disposal of discontinued operations is from CTI's sale of shares of UCI common stock. In 1994 such gain is from amounts received from Unilens, net of related expenses, on CTI's disposal of the discontinued operations of its former optical products segment. Due to the uncertainty of the timing and amount of future cash flows from the installment obligation received in 1989 as part of the proceeds of the sale to Unilens, income on installment payments is recorded net of related expenses as the payments are received (see Note 16 to Consolidated Financial Statements). The 1994 gain brought CTI's cumulative net gain on this disposal to the $470,000 loss it had recognized on the disposal in 1990. Cash received in excess of this amount is recorded as other income from continuing operations. Through July 31, 1995, the Company had received aggregate cash proceeds of approximately $1,011,000 from the January 1989 sale of UOP's assets to Unilens. As cash proceeds were received, the Company paid a 4% commission to OALP, its joint venture partner. The Company does not expect the 1992 settlement of its legal suit in connection with Retin-A to have a material effect on its revenues or financial position unless and until U.S. FDA approval is obtained for use of Retin-A to retard the effects of aging of the skin and significant sales volume of the compound is achieved. Results of Operations - 1994 vs. 1993 The results of operations for fiscal 1994 and 1993 presented in the accompanying financial statements have been reclassified to present UCI's results of operations as a discontinued operation. See discussion above and Notes 1 and 16 to Consolidated Financial Statements. Consolidated revenues for 1994 were $228,000 higher than for 1993, an increase of 31%. Retained royalties increased by $67,000 or 10%. This increase includes an increase of $137,000 in royalties from new licenses and earned royalties on gallium arsenide technologies which was partially offset by decreases in royalties from other licensed technologies. Royalties from Retin-A were lower than in 1993 because 1993 included $35,000 from nonrecurring up-front royalty payments after settlement of the Retin-A litigation. In 1994 both gallium arsenide and Vitamin B12 assay technologies produced retained royalties in excess of $100,000. The Vitamin B12 assay is the only licensed technology that produced annual retained royalties in excess of $100,000 in 1993. In addition, CTI-PA earned retained royalties of $46,000 in the full year of 1994 compared with $33,000 in the 10 months of 1993 under its technology management agreement with Lehigh University. Revenues under service contracts and grants increased $161,000 or 190% compared to 1993. In 1994 CTI-PA's services to Lehigh University and its affiliates generated total revenues of $179,000 for twelve months including $30,000 under the technology management agreement and $114,000 under an agreement with the Center for Advanced Technology for Large Structural Systems. In 1993 such services generated total revenues of $84,000 for six months including $30,000 and $54,000, respectively, under the same or similar agreements. In 1994 CTI and CTI-PA also earned revenues under other service contracts including ones for technical, patent and market assessment projects. During 1994 CTI-PA received approximately $34,000 in grant revenues. Costs of technology management services increased $223,000 (70%) compared with 1993. Costs related to retained royalties were $40,000 higher in 1994 than in 1993. This increase included higher patent litigation expenses and CTI-PA's costs for a full year in 1994 compared with only six months in 1993. Costs related to service contracts in 1994 were $113,000 higher than in 1993. In addition to $68,000 of increased expenses on CTI-PA's contracts due to a full year of operations compared with six months in 1993, CTI-PA also incurred expenses in servicing new subcontracts for technical, patent and market assessment and other projects. Costs related to grant revenues increased in 1994 as a result of CTI-PA's grant. In addition, VVI incurred $36,000 of expenses for equipment and staff in 1994 to develop its video compression software. General and administration expenses were $213,000 higher in 1994 than in 1993. In addition to $50,000 for investment bankers fees in 1994, other increases resulted from including a full twelve months of CTI-PA's operations in 1994 compared with six months in 1993. In 1993, CTI recorded gains of $232,594 on UCI's issuance of shares for cash to minority shareholders. These gains represent the increase in CTI's equity in UCI's net worth resulting from UCI's issuance of shares to minority shareholders. Interest income in 1994 was $8,000 (8%) higher than in 1993 reflecting lower interest rates more than offset by higher average invested balances. CTI's equity in the net losses of Plasmaco was $1,004,000 in 1993, including the fourth quarter charge of approximately $450,000 to write down its remaining investment in Plasmaco to zero and its equity in the losses of Plasmaco of approximately $550,000. The remainder of losses related to equity method affiliates in 1993 related to USI's equity in the loss of UAP. Minority interest in the losses of subsidiaries in 1993 was $23,000 in CTI-PA's losses since its acquisition in February, 1993. The minority's share of CTI-PA's balance sheet at acquisition was reduced to zero in 1993. The adoption of Statement of Financial Accounting Standards No. 109 effective August 1, 1993, did not have a material effect on the Company's financial statements. In 1993 the Company's estimated state income taxes were charged against estimated tax liabilities of previous years. Item 8. Financial Statements and Supplementary Data Page Report of Independent Accountants 24 Consolidated Balance Sheets 25-26 Consolidated Statements of Operations 27-28 Consolidated Statements of Changes in Shareholders' Interest 29 Consolidated Statements of Cash Flows 30-32 Notes to Consolidated Financial Statements 33-48 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, 1995 and 1994, 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, 1995. 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 audit 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 1995, in conformity with generally accepted accounting principles. S/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. September 29, 1995 Stamford, Connecticut COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets July 31, 1995 and 1994 ASSETS 1995 1994 Current assets: Cash and cash equivalents $ 336,098 $ 877,010 Short-term investments, at market, July 31, 1995; at cost, July 31, 1994 (market: $1,243,494) 4,621,045 1,232,341 Receivables, including $34,768 and $46,074 receivable from related parties in 1995 and 1994, respectively 490,324 348,666 Receivables from UCI -- 313,992 Prepaid expenses and other current assets 128,429 128,640 Total current assets 5,575,896 2,900,649 Property and equipment, net 133,833 79,679 Investments 489,786 255,148 Net noncurrent assets of discontinued operation -- 826,840 Directors' escrow account 325,000 325,000 Other assets 244,427 379,429 TOTAL ASSETS $ 6,768,942 $ 4,766,745 See accompanying notes COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets July 31, 1995 and 1994 (Continued) 1995 1994 LIABILITIES AND SHAREHOLDERS' INTEREST Current liabilities: Accounts payable, including $4,219 and $7,781 payable to related parties in 1995 and 1994, respectively $ 126,606 $ 75,350 Accrued liabilities 352,812 251,741 Net current liabilities of discontinued operation -- 289,879 Total current liabilities 479,418 616,970 Commitments and contingencies -- -- Shareholders' interest: 5% preferred stock, $25 par value; 60,675 60,675 35,920 shares authorized; 2,427 issued and outstanding Common stock, $.01 par value; shares authorized: 7,964,080 in 1995 and 1994; issued: 5,835,365 in 1995 and 5,791,824 in 1994; outstanding: 5,810,365 in 1995 and 5,791,824 in 1994 58,353 57,918 Capital in excess of par value 24,410,143 24,097,604 25,000 shares of treasury stock, at cost (174,713) -- Net unrealized holding gains on available-for-sale securities 8,764 -- Accumulated deficit (18,073,698) (20,066,422) Total shareholders' interest 6,289,524 4,149,775 TOTAL LIABILITIES AND SHAREHOLDERS' INTEREST $ 6,768,942 $ 4,766,745 See accompanying notes COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations for the years ended July 31, 1995, 1994 and 1993 1995 1994 1993 Revenues: Retained royalties $ 796,243 $ 717,514 $ 650,651 Revenues under service contracts and grants, including $210,937, $178,976 and $84,470 from related parties in 1995, 1994 and 1993, respectively 906,952 245,264 84,470 1,703,195 962,778 735,121 Costs of technology management services, of which $5,557, $6,010 and $26,764 were paid to related parties in 1995, 1994 and 1993, respectively 1,120,483 540,884 317,750 General and administration expenses, of which $106,894, $105,889 and $29,308 were paid to related parties in 1995, 1994 and 1993, respectively 1,211,538 1,420,004 1,206,916 2,332,021 1,960,888 1,524,666 Operating loss (628,826) (998,110) (789,545) Gain on issuance of shares by subsidiary -- -- 232,594 Interest income 151,058 108,151 99,948 (Losses) income related to equity method affiliates (103,520) 20,395 (1,012,583) Other income (expense), net (61,700) 45,008 -- Loss from continuing operations before income taxes and minority interest (642,988) (824,556) (1,469,586) Provision for income taxes 21,373 18,440 -- Loss from continuing operations before minority interest (664,361) (842,996) (1,469,586) Minority interest in losses of subsidiaries 23,112 14,000 22,775 Loss from continuing operations (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) $ 1,992,724 $ (617,930) $(1,905,849) See accompanying notes COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations for the years ended July 31, 1995, 1994 and 1993 (Continued) 1995 1994 1993 Net income (loss) per share (primary and fully diluted): Continuing operations $ (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) $ 0.34 $ (0.11) $ (0.35) Weighted average number of common and common equivalent shares outstanding (primary and fully diluted) 5,814,826 5,761,610 5,478,082 See accompanying notes COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Shareholders' Interest For the years ended July 31, 1995, 1994 and 1993
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, 1992. 2,427 $60,675 5,236,661 $52,367 $19,915,856 -- $ -- $ -- $(17,542,643) Stock issued under Directors' Stock Participation Plan.. 3,856 39 39,967 Stock issued for Plasmaco, Inc. preferred stock..... 100,371 1,004 998,997 Stock issued under Employees' Common Stock Retirement Plan................ 10,244 101 97,324 Stock issued in private placement... 250,000 2,500 1,662,755 Stock issued for common stock of Competitive Techno- logies of PA, Inc..... 74,302 743 749,257 Net loss................ (1,905,849) Balance - July 31, 1993 2,427 60,675 5,675,434 56,754 23,464,156 -- -- -- (19,448,492) Stock issued under Directors' Stock Participation Plan.... 9,798 97 59,902 Stock issued in private placement............. 100,000 1,000 523,757 Stock issued under Employees' Common Stock Retirement Plan ...... 6,592 67 49,789 Net loss................ (617,930) 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 25,000 shares of treasury stock from Knowledge Solutions, Inc., excluding 12,208 considered treasury stock at issuance...... (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)
See accompanying notes COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended July 31, 1995, 1994 and 1993 1995 1994 1993 Cash flow from operating activities: Loss from continuing operations $ (641,249) $ (828,996) $(1,446,811) Noncash items included in loss from continuing operations: Depreciation and amortization 186,013 174,560 132,387 (Income) losses related to equity method affiliates 103,520 (20,395) 1,012,583 Minority interest (23,112) (14,000) (22,775) Accrual for issuance of directors' stock 55,833 54,167 57,506 Accrual for stock retire- ment plan 65,632 49,861 44,053 Gain on issuance of shares by subsidiary -- -- (232,594) Other noncash items (77,941) 28,093 9,393 Other 64,705 81,324 120,837 Net changes in various operating accounts (see schedule) 226,282 288 (403,674) Net cash flow used in operating activities (40,317) (475,098) (729,095) Cash flow from investing activities: Purchases of property and equipment, net (106,223) (43,837) (10,476) Proceeds from sales of short- term investments 2,231,629 240,493 -- Purchases of short-term investments (5,551,759) (1,026,067) -- Cash acquired in connection with investment in subsidiary -- -- 166,660 Investments in affiliates and subsidiaries (98,800) (89,880) (19,013) Proceeds from disposal of dis- continued operations, net 3,011,558 221,852 (9,314) Net cash flow (used in) from investing activities (513,595) (697,439) 127,857 See accompanying notes COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended July 31, 1995, 1994 and 1993 (Continued) 1995 1994 1993 Cash flow from financing activities: Proceeds from subsidiaries' issuances of stock 13,000 25,000 2,000 Proceeds from issuance of common stock, net -- 524,757 1,665,255 Net cash flow from financing activities 13,000 549,757 1,667,255 Net (decrease) increase in cash and cash equivalents (540,912) (622,780) 1,066,017 Cash and cash equivalents, beginning of year 877,010 1,499,790 433,773 Cash and cash equivalents, end of year $ 336,098 $ 877,010 $ 1,499,790 See accompanying notes COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended July 31, 1995, 1994 and 1993 1995 1994 1993 Schedule of net changes in various operating accounts: Receivables $ 172,334 $ 36,038 $ (145,914) Prepaid expenses and other current assets (70,889) (32,128) (72,828) Accounts payable 51,256 (5,480) (7,946) Accrued liabilities 73,581 1,858 (176,986) Net changes in various operating accounts $ 226,282 $ 288 $ (403,674) Supplemental cash flow information: Cash paid for income taxes $ 15,513 $ 17,254 $ 14,383 Schedule of noncash investing and financing activities: Investing activities: Investments in affiliates and subsidiaries $ (205,325) $ -- $ 1,750,000 Disposal of investment in affiliate 205,325 -- -- $ -- $ -- $ 1,750,000 Financing activities: Stock issued for investments in affiliates and subsidiaries $ 205,325 $ -- $ 1,750,000 Purchase of treasury stock (174,713) -- -- Issuance of directors' stock 50,000 59,999 40,006 Issuance of stock to retirement plan 65,632 49,856 97,425 $ 146,244 $ 109,855 $ 1,887,431 See accompanying notes COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Statements and Principles of Consolidation The consolidated financial statements include the accounts of Competitive Technologies, Inc. ("CTI") and its majority-owned subsidiaries ("the Company"). CTI's majority-owned subsidiaries are Competitive Technologies of PA, Inc. ("CTI-PA"), 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 16, CTI sold a controlling interest in University Communications, Inc. ("UCI") to Barden Companies, Inc. and reduced its holding in UCI to 14.5%. Effective February 15, 1995, CTI accounts for its investment in UCI on the cost method. Accordingly, UCI is presented in these financial statements as a discontinued operation and financial information for prior periods has been reclassified. Since UCI previously comprised one of the Company's two segments, the Company's reclassified financial statements reflect a single business segment, technology management services. 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 principally through servicing agreements with various technology sources, primarily universities, under which the Company retains an agreed percentage of income derived from license or sale of technologies. See Note 4 regarding USET Acquisition Partners, L.P., and USET, Inc. 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 Notes 2 and 3), 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. Short-term Investments Effective August 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities." As required by Statement No. 115, prior years' financial statements have not been restated. Adoption of Statement No. 115 did not have a material effect on the Company's financial statements. 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. Excess of Purchase Price over Net Assets Acquired Costs in excess of net assets purchased are amortized on a straight-line basis over their estimated useful lives (5 years). The Company assesses the recoverability of these amounts at each balance sheet date by determining that intangible assets can be recovered through estimated future undiscounted operating income over their estimated useful lives. 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. Reclassification Certain amounts have been reclassified to conform with the presentation in the financial statements for 1995. 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. 2. COMPETITIVE TECHNOLOGIES OF PA, INC. In February, 1993, CTI acquired 80% of the outstanding stock of CTI-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 CTI's common stock. Lehigh has no registration rights with respect to the shares of CTI's common stock. CTI accounted for the transaction as a purchase and accordingly CTI-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 $62,844, $62,844 and $31,422 has been charged to operations in 1995, 1994 and 1993, respectively. Accumulated amortization was $157,110 and $94,266 at July 31, 1995 and 1994, respectively. In connection with the acquisition, CTI-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 will pay CTI-PA $30,000 a year for these services and will provide CTI-PA with office space, tuition remission for specified individuals and services of Master of Business Administration students for 40 hours per week at no charge. In addition, in each year of the agreement CTI-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. 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, 1991. 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 ended July 31, 1993 Total revenues $ 851,695 Loss from continuing operations (1,545,259) Per share loss from continuing operations $ (.28) CTI-PA was awarded a grant to support its entrepreneurial activities from September 1, 1993, through August 31, 1994. In consideration of the grant funding, CTI-PA has a contingent obligation to repay up to three times total grant funds received at the rate of 7.5% of CTI-PA's revenues, if any, from transferring rights to inventions supported by the grant funds. CTI-PA will recognize such obligations when it recognizes revenues from transferring rights to such inventions. 3. VECTOR VISION, INC. In June, 1994, CTI purchased 250,000 shares of Class B common stock of VVI for $25,000 in cash. VVI was formed in April, 1994, to develop and exploit a video compression technology. During fiscal 1995 CTI purchased an additional 52,000 shares of Class B common stock of VVI for $13,000 in cash and sold 29,000 shares of VVI Class B common stock for $2,900 in cash. CTI recognized no gain or loss on the sale. At July 31, 1995, CTI owned 51.5% of the outstanding common stock of VVI. The remaining 48.5% of VVI stock is owned by employees of the Company. CTI accounts for VVI as a consolidated subsidiary and VVI's results of operations from its acquisition are included in the consolidated results of operations. VVI was awarded a grant to support its development activities from September 1, 1994, through August 31, 1995. In consideration of the grant funding, VVI has a contingent obligation to repay up to three times total grant funds received at rates of 1.5% of VVI's net sales of supported products or 15% of VVI's revenues from licensing supported products, if any. VVI will recognize such obligations when it recognizes revenues from such sales or licenses. 4. INVESTMENTS IN EQUITY METHOD AFFILIATES USET Acquisition Partners, L.P. UPAT Services, Inc. ("USI"), a wholly-owned subsidiary of CTI, is the general partner and holds a 20% limited partnership interest in USET Acquisition Partners, L.P. ("UAP"). UAP acquired all the stock of USET, Inc. ("USET") from Macmillan, Inc. ("Macmillan") in August, 1990, for $1,000,000 in cash and future payments contingent upon royalties earned by USET as defined in the acquisition agreement. Contingent payments are calculated at 90% of USET's earned royalties in excess of $400,000 per year for up to five years or until Macmillan has received cumulative contingent payments of $3,750,000, whichever occurs first. Once contingent payments become due, they are 100% guaranteed by CTI. Cumulative contingent payments of approximately $625,000 have been made through July 31, 1995. USI accounts for its investment in UAP using the equity method. CTI manages USET for UAP. During fiscal 1995, 1994 and 1993, CTI charged USET $52,490, $84,484 and $102,198, respectively, for management, legal and administrative services. At July 31, 1995 and 1994, the following amounts were receivable from and payable to USET: 1995 1994 Royalties receivable $275,690 $229,266 Other receivables 8,074 56,848 Accounts payable 10,944 26,834 Knowledge Solutions, Inc. In June, 1994, CTI 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 September, 1994, CTI acquired 205,325 shares of KSI's Class A common stock in exchange for 25,000 shares of its common stock valued at $205,325 and incurred $7,983 of costs in connection with the acquisition. In addition, Safeguard Scientifics, Inc. ("SSI"), an unaffiliated company, purchased 200,000 shares of Class A common stock of KSI for $200,000 in cash. SSI also received warrants to purchase an additional 133,333 shares of Class A common stock at $1.50 per share through December 31, 1995. No warrants have been exercised as of July 31, 1995. In June, 1995, CTI reacquired the 25,000 shares of its common stock from KSI in exchange for the 205,325 shares of KSI Class A common stock. The 25,000 shares are included in the consolidated balance sheet as treasury stock at July 31, 1995 at cost ($174,713). Also in June, 1995, CTI acquired an additional 75,000 shares of KSI's Class A common stock for $75,000 in cash and SSI purchased 100,000 shares of Class A common stock of KSI for $100,000 in cash. In June and July of 1995 CTI 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 $20,000 and $40,000, respectively. CTI's ownership of KSI at July 31, 1995, is 35.9%. Effective October, 1994, CTI-PA granted KSI an exclusive ten-year license to its process model for interactive multimedia training in exchange for royalties on future sales. CTI accounts for its investment in KSI on the equity method. Although KSI's fiscal year ends on June 30, CTI records its equity in KSI's losses in each CTI fiscal year from August 1 through the following July 31. KSI stock is not publicly traded and there is no quoted market price for its stock. Equine Biodiagnostics, Inc. In February, 1995, CTI purchased 250,000 shares of Class A common stock of Equine Biodiagnostics, Inc. ("EBI") for $25,000 in cash. EBI was organized by Kentucky Technology Incorporated, a technology management company wholly-owned by the University of Kentucky, to provide diagnostic laboratory services for the equine industry. EBI's initial product is a test for equine protozoal myeloencephalitis, a neurological disease. At July 31, 1995, CTI 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 at July 31, 1995 and 1994, and for the years ended July 31, 1995, 1994 and 1993 follows (in thousands): July 31, 1995 UAP KSI EBI Total (1) Current assets $ 639 $ 112 $ 99 $ 850 Noncurrent assets 809 22 58 889 Current liabilities 404 16 45 465 Noncurrent liabilities -- -- 43 43 Shareholders' equity 1,042 118 64 1,224 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 July 31, 1994 UAP KSI Plasmaco Total (2) Current assets $ 850 $ 21 $ 572 $1,443 Noncurrent assets 618 -- 3,987 4,605 Current liabilities 585 -- 5,693 6,278 Noncurrent liabilities -- -- 4,509 4,509 Shareholders' equity (deficit) 883 21 (5,643) (4,739) Gross revenues 695 -- 802 1,497 Gross profit (loss) 585 -- (1,574) (989) Net income (loss) 175 (29) (3,152) (3,006) Equity in net income (loss) 35 (15) -- 20 Company's investments in equity method affiliates 205 10 -- 215 July 31, 1993 UAP Plasmaco Total (2) Gross revenues $ 595 $ 983 $ 1,578 Gross profit (loss) 493 (3,587) (3,094) Net loss (67) (5,669) (5,736) Equity in net loss (9) (1,004) (1,013) (1) KSI's revenues comprise grants received to support its product development. (2) CTI's investment in Plasmaco was zero at July 31, 1993, after a $450,000 writedown in 1993. CTI recognized no equity in the losses of Plasmaco during fiscal 1994. In fiscal 1995 CTI accounts for its investment in Plasmaco under the cost method (see Note 5). At July 31, 1995 and 1994, the Company's investments in equity method affiliates exceeded its share of their underlying net assets by approximately $38,000 and $25,000, respectively. 5. INVESTMENTS ACCOUNTED FOR UNDER THE COST METHOD University Communications, Inc. Since February 15, 1995, CTI has accounted for its $159,375 investment in University Communications, Inc. under the cost method (see Note 16). Plasmaco, Inc. In various transactions between August, 1989, and February, 1993, CTI invested a total of $3,262,000 in Plasmaco, Inc. ("Plasmaco") common and preferred stock. Of this amount, approximately $803,000 was paid in cash and the balance was in exchange for CTI's common stock. CTI accounted for its investment under the equity method and as a result of Plasmaco's operating losses, the full amount of the investment had been written off by July 31, 1993. In September, 1994, Plasmaco and the holders of its Series A through D preferred stock, including CTI, entered into an Exchange Agreement under which all shares of preferred stock were exchanged for Plasmaco common stock. Simultaneously, Plasmaco's shareholders authorized a reverse 50-1 common stock split. As a result of these and other transactions, CTI's voting interest was reduced significant- ly. At July 31, 1995, CTI's voting interest in Plasmaco is approxi- mately 1%. Plasmaco stock is not publicly traded and there is no quoted market price for its stock. Innovation Partners International, k.k. In May, 1994, CTI 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. FOREIGN ROYALTIES Retained royalties for 1995, 1994 and 1993, include $108,773, $107,427 and $55,693, respectively, from foreign sources. 7. RECEIVABLES Receivables as of July 31, 1995 and 1994 comprise: 1995 1994 Royalties $275,690 $229,266 Government contracts 103,574 -- Other 111,060 119,400 $490,324 $348,666 8. SHORT-TERM INVESTMENTS Effective August 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities." As required by Statement No. 115, prior years' financial statements have not been restated. The cumulative unrealized holding gain for securities classified as available-for-sale as of August 1, 1994, has been reported as an adjustment of the balance of net unrealized holding gains on available-for-sale securities in shareholders' interest. As of July 31, 1995, the components of the Company's available- for-sale securities are as follows (in thousands): Gross Gross Unrealized Unrealized Aggregate Holding Holding Amortized Maturity Security Type Fair Value Gains Losses Cost Basis Grouping U.S. Treasury Within bills $ 1,078 $ 7 -- $ 1,071 1 year Other U.S. government debt Within securities 3,434 -- -- 3,434 1 year Mortgaged backed Present securities 109 2 -- 107 through 2018 Total $ 4,621 $ 9 -- $ 4,612 For the year ended July 31, 1995, proceeds from the sale of available-for-sale securities were $2,231,629 which resulted in gross realized gains of $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 identifica- tion in computing realized gains. During 1994 and 1993, the Company recognized gains of $7,032 and $28,037, respectively, on sales of short-term investments. Gains were calculated on a specific identification basis. 9. PROPERTY AND EQUIPMENT Property, plant and equipment as of July 31, 1995 and 1994 comprise: 1995 1994 Equipment $ 178,518 $ 99,472 Leasehold improvements 168,096 165,129 346,614 264,601 Accumulated depreciation and amortization (212,781) (184,922) $ 133,833 $ 79,679 Depreciation expense was $52,069, $38,552 and $33,092 in 1995, 1994 and 1993 respectively. 10. DIRECTORS' ESCROW ACCOUNT CTI 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 terminates at July 31, 1997. CTI does not presently maintain a policy of directors' liability insurance. At July 31, 1995 and 1994, the escrow fund, which is invested in U.S. Treasury securities, amounted to $412,114 (market: 412,114) and $394,568 (market: $394,568), respectively. The escrow fund includes accumulated interest of $87,114 and $69,568 in 1995 and 1994, respectively, which is not contractually required for the fund, is available for use by CTI and is reported in the accompanying financial statements as cash and cash equivalents. 11. ACCRUED LIABILITIES Accrued liabilities at July 31, 1995 and 1994 were: 1995 1994 Accrued compensation $ 115,010 $ 84,453 Other 237,802 167,288 $ 352,812 $ 251,741 12. INCOME TAXES Effective August 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes." As permitted by Statement No. 109, prior years' financial statements have not been restated. Adoption of Statement No. 109 had no cumulative effect on the Company's net income. The current provision for income taxes for 1995, 1994 and 1993 is as follows: 1995 1994 1993 State taxes $21,373 $18,440 $ -- The provision for income taxes from continuing operations differs from that computed using the 34% statutory federal income tax rate as a result of the following factors: 1995 1994 1993 Expected tax benefit at federal statutory rate $(218,616) $(280,349) $(499,659) State income taxes, net of Federal benefit 14,106 12,170 -- Goodwill amortization -- -- 10,683 Effect of net operating loss not utilized 172,916 280,349 225,312 Losses related to equity method affiliates 51,155 4,994 344,278 Gain on issuance of shares by subsidiary -- -- (79,082) Other 1,812 1,276 (1,532) Provision for income taxes $ 21,373 $ 18,440 $ -- Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the Company's deferred tax assets and liabilities as of July 31, 1995 and 1994 are as follows (in thou- sands): 1995 1994 Deferred tax assets: Current Accrued stock compensation $ 34 $ 25 Noncurrent Discontinued operations 1,187 1,098 Investments in affiliates 981 1,114 Depreciation 20 9 Excess of purchase price over net assets acquired 124 57 Net operating loss carryforwards 4,908 4,838 Net capital loss carryforwards -- 276 Investment tax credit carryforwards 65 65 Other -- 10 Total deferred tax assets 7,319 7,492 Deferred tax liabilities: 1995 1994 Noncurrent Discontinued operations (124) (115) Other (14) (5) Total deferred tax liabilities (138) (120) Net deferred tax assets 7,181 7,372 Valuation allowance (7,181) (7,372) Net deferred tax asset $ -- $ -- There is no tax effect on the disposal of discontinued operations due to the utilization of capital loss carryforwards. At July 31, 1995, the Company had Federal net operating loss carryforwards of approximately $14,500,000 which expire from 1999 through 2010. The Company also has investment tax credit carry- forwards of approximately $65,000 which expire from 1999 through 2001. At July 31, 1995, the Company had Connecticut net operating loss carryforwards of approximately $1,290,000 which expire from 1997 through 2000 and Pennsylvania net operating loss carryforwards of approximately $290,000 which expire from 1996 through 1998. 13. SHAREHOLDERS' INTEREST Outstanding Shares Dividends on preferred stock are noncumulative and preferred stock is redeemable at par value at the option of CTI. In September, 1993, CTI sold 100,000 shares of its common stock under Regulation S to a foreign purchaser for $5.8828 per share in exchange for approximately $525,000, net of expenses of the sale. Employee Stock Option Plan CTI 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. 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 generally become exercisable six months after the grant date. 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 following summarizes stock option activity for the three-year period ended July 31, 1995: Aggregate Option Price Price Shares per Share (in 000's) Options outstanding - July 31, 1992 248,052 $4.75 - 17.88 $2,481 Granted 80,000 $9.875 - 11.062 861 Terminated (750) $13.00 (9) Options outstanding - July 31, 1993 327,302 $4.75 - 17.88 3,333 Granted 73,000 $6.5625 - 6.875 491 Expired (15,096) $5.875 - 17.25 (207) Terminated (6,500) $9.875 - 11.875 (69) Options outstanding - July 31, 1994 378,706 $4.75 - 17.88 3,548 Granted 92,500 $6.50 - 6.5625 607 Expired (5,306) $11.44 - 12.63 (64) Options outstanding - July 31, 1995 465,900 $4.75 - 17.88 $4,091 Additional information related to stock options at July 31, 1995 and 1994 follows: 1995 1994 Exercisable options 441,400 334,706 Common shares reserved for issuance on exercise of options 678,746 378,746 Shares available for future option grants 212,846 40 Directors' Stock Participation Plan Under the terms of the Directors' Stock Participation Plan (the "Plan"), outside directors who have served a full annual term are eligible to receive shares of common stock of CTI. Under the Plan as amended by shareholders' approval in December 1986, the number of shares issuable each year to any director is the lesser of 2,000 shares or an aggregate fair market value on the date of issuance of $10,000. The Plan expires in January 1996. In 1995, 1994 and 1993, eligible directors were issued 7,545, 9,798, and 3,856 shares of common stock, respectively, the fair value of which has been charged to expense. At July 31, 1995 and 1994, 25,223 and 32,768 shares, respec- tively, were reserved for future issuance under the Plan. Common Stock Warrants The Company has the following outstanding warrants at July 31, 1995 which became exercisable six months after the issue date: Warrant Aggregate Price per Exercise Expiration Issued No. Shares Share Price Date August 1990 5,000 $5.75 $ 28,750 August 1995 October 1990 40,000 6.125 245,000 October 1995 June 1991 15,000 7.3125 109,687 June 1996 November 1993 50,000 8.375 418,750 November 1996 November 1993 50,000 8.375 418,750 November 1996 April 1994 6,000 6.375 38,250 April 1997 September 1994 5,000 8.310 41,550 September 1997 Employees' Stock Retirement Plan Effective August 1, 1990, CTI 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 CTI's common stock to the Plan. For the fiscal years ended July 31, 1995, 1994 and 1993 the board authorized contributions of 10,966, 6,592 and 5,220 shares valued at approximately $66,000, $50,000 and $44,000, respectively, based upon year-end closing prices. These amounts have been charged to expense in 1995, 1994 and 1993, respectively. 14. COMMITMENTS Operating Leases At July 31, 1995, future minimum rental payments required under operating leases with initial or remaining noncancelable lease terms in excess of one year are as follows: Gross Sublease Net Years ending July 31: Rentals Rentals Rentals 1996 $ 320,103 $(285,195) $ 34,908 1997 26,675 (19,015) 7,660 Total minimum payments required $ 346,778 $(304,210) $ 42,568 Total rental expense for all operating leases was: 1995 1994 1993 Minimum rentals $ 325,109 $ 338,719 $ 324,939 Less: Sublease rentals (310,032) (276,106) (261,455) $ 15,077 $ 62,613 $ 63,484 The lessor of CTI's office space is a partnership comprising four former officers of CTI, including one who is currently a director of CTI. 15. RELATED PARTY TRANSACTIONS CTI incurred charges in connection with patent and trademark litigation from a law firm in which a director of CTI is a partner. Such charges amounted to approximately $25,000, $40,000 and $32,000 in 1995, 1994 and 1993, respectively. That firm agreed that payment of approximately $67,000 of fees incurred during 1992 would be contingent upon CTI's receipt of proceeds from settlement of the related litigation. CTI 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, 1995, CTI had paid cumulative contingent fees of $38,331 of which $5,557, $6,010 and $26,764 were charged to operations in 1995, 1994 and 1993, respectively. During 1994 and 1993 CTI incurred charges of approximately $20,000 and $24,000, respectively, for corporate and investor relations services provided by a corporation of which a former director of CTI was president. During 1995 and 1994 CTI incurred charges of approximately $87,000 and $73,500, respectively, for consulting services provided by its former chief executive officer who is also a director. CTI earned approximately $60,000 for management and accounting services performed for KSI in 1995 (see Note 4). Since CTI accounts for KSI on the equity method, this amount has not been eliminated in these consolidated financial statements. During 1994 and 1993 CTI earned approximately $69,000 and $148,000, respectively, from UCI for consulting services, rent, and interest on outstanding notes receivable. These amounts have not been eliminated in these consolidated financial statements. CTI-PA earned approximately $211,000, $179,000 and $84,000 in 1995, 1994 and 1993, respectively, from contracts with Lehigh University, which owns 20% of the outstanding common stock of CTI-PA. 16. DISCONTINUED OPERATIONS University Optical Products Co. In 1989 University Optical Products Co. ("UOP"), a majority-owned subsidiary of CTI 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. Amounts related to the sale of the UOP assets are presented as discontinued operations. 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. Both Unilens Corp. USA and Unilens Optical Corp., the parent company of Unilens Corp. USA and guarantor of the obligation, were development stage companies in 1989. CTI recorded the original installment obligation in 1989 at $470,000, which was its estimated fair value at the time of the transaction. In 1990 CTI recorded the $470,000 as loss from discontinued operations. 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. Such amounts have been recorded as gain on discontinued operations until the fair value assigned to the original obligation was received. Cash received in excess of such amount is recorded as other income from continuing operations. As cash proceeds are received, CTI records a 4% commission expense payable to its joint venture partner, Optical Associates, Limited Partnership ("OALP"). CTI recognized net gains (losses) on its disposal of UOP's discontinued operations of $221,852 and ($9,314) in the statements of operations for 1994 and 1993, respectively. CTI also recognized other expenses from continuing operations of $132,032 in 1995 for legal expenses related to the suit described in the following paragraph and other income of $37,976 in 1994. In November, 1991, a suit was filed in Connecticut against CTI, 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. The defendants' motion for summary judgment was denied. It is expected that the case will be tried during fiscal 1996. Through July 31, 1995, the Company had received aggregate cash proceeds of approximately $1,011,000 from the January 1989 sale of UOP's assets to Unilens. University Communications, Inc. On February 15, 1995, Barden Companies, Inc. ("Barden") (to which Barden Communications, Inc. had assigned its rights and interests) exercised its option to purchase from CTI additional shares of UCI common stock. Barden paid $3,227,372 ($1.375 per share) in cash for 2,347,180 shares held by CTI. In connection with Barden's purchase, CTI offered to purchase from all UCI shareholders other than Barden a number of their shares of UCI common stock to allow all UCI shareholders to participate in the sale to Barden on a pro rata basis. Pursuant to this offer, CTI purchased 151,096 tendered shares for a total of $207,757 ($1.375 per share) in cash. CTI's net gain on these transactions was $2,534,505 which was recorded in the third quarter of 1995. Upon completion of these and other transactions, Barden owned 52.1% and CTI owned 14.5% of the outstanding common stock of UCI. With a holding of 14.5% and no representation on UCI's board of directors, CTI no longer exerts significant influence over UCI's operations. Therefore, effective February 15, 1995, CTI began to account for its investment in UCI of $159,375 on the cost method. CTI's consolidated financial statements for all prior periods, which previously included the financial statements of UCI as a consolidated subsidiary, have been reclassified to present UCI's net assets and CTI's equity in UCI's net results of operations as a discontinued operation. Summarized information from UCI's unaudited financial statements for six and one-half months ended February 15, 1995 and the years ended July 31, 1994 and 1993 follows (in thousands): 1995 1994 1993 Gross revenues $2,764 $3,753 $2,183 Gross profit 1,235 1,519 675 Net income (loss) 181 (20) (766) CTI's equity in net income (loss) 99 (11) (450) At July 31, 1994, $313,992 was receivable from UCI including a loan of $150,000 bearing interest at 8%, accumulated interest on that loan of $40,000 and other receivables of $123,992. For services CTI provided to UCI, CTI charged UCI $3,786, $55,811 and $78,270, in 1995, 1994 and 1993, respectively. 17. SUBSEQUENT EVENT (UNAUDITED) In August, 1995, CTI formed a wholly-owned subsidiary and purchased 2,000 shares of CTI-Intercorporate Licensing, Inc. ("CTI- ILI") common stock for $100,000 in cash to provide licensing and technology management services to corporations. CTI expects CTI-ILI to require additional cash of approximately $250,000 to fund its first year of operations. CTI expects to provide that cash in exchange for additional equity in CTI-ILI. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Knowledge Solutions, Inc. We have audited the accompanying balance sheet of Knowledge Solutions, Inc. as of June 30, 1995, and the related statements of operations, changes in shareholders' interest and cash flows from June 21, 1994 (date of inception) through June 30, 1995. These financial statements are the responsibility of the management of Knowledge Solutions, Inc. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Knowledge Solutions, Inc. as of June 30, 1995, and the results of its operations and its cash flows for the period from June 21, 1994 (date of inception) through June 30, 1995, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that Knowledge Solutions, Inc. will continue as a going concern. As discussed in Note 1 to the financial statements, KSI has generated losses from operations and has a deficit accumulated during the development stage that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustment that might result from the outcome of this uncertainty. S/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. October 16, 1995 Stamford, Connecticut KNOWLEDGE SOLUTIONS, INC. A Development Stage Enterprise Balance Sheet June 30, 1995 ASSETS Current assets: Cash $ 126,130 Receivables 1,840 Prepaid expenses 523 Total current assets 128,493 Property and equipment, net 22,352 TOTAL ASSETS $ 150,845 LIABILITIES AND SHAREHOLDERS' INTEREST Current liabilities: Accounts payable, including $1,061 payable to related parties $ 6,105 Accrued compensation 2,691 Accrued expenses 2,522 Total current liabilities 11,318 Shareholders' Interest: Class A common stock, $0.001 par value; shares authorized: 3,500,000; issued: 580,325; outstanding: 375,000 580 Class B common stock, $0.001 par value; shares authorized: 1,500,000; issued and outstanding: 260,000 260 Capital in excess of par value 669,663 205,325 shares of treasury stock, at cost (153,125) Deficit accumulated during the development stage (377,851) Total shareholders' interest 139,527 TOTAL LIABILITIES AND SHAREHOLDERS' INTEREST $ 150,845 See accompanying notes KNOWLEDGE SOLUTIONS, INC. A Development Stage Enterprise Statement of Operations For the period from June 21, 1994 (date of inception) through June 30, 1995 Grant revenue $ 73,687 Costs and expenses: Research and development costs, including $53,000 paid to related parties (225,320) Selling, general and administrative expenses, including $40,000 paid to related parties (176,956) (402,276) Operating loss (328,589) Loss on investment (52,200) Interest income 3,238 Loss before income tax expense (377,551) Provision for income taxes 300 Net loss $(377,851) Net loss per share (primary and fully diluted) $ (0.70) Weighted average number of common and common equivalent shares outstanding (primary and fully diluted) 541,313 See accompanying notes KNOWLEDGE SOLUTIONS, INC. A Development Stage Enterprise Statement of Changes in Shareholders' Interest For the period from June 21, 1994 (date of inception) through June 30, 1995
Deficit Class A Common Class B Common Accumulated Stock Stock Capital in Treasury Stock During the Shares Shares Excess of Shares Development Date issued Amount issued Amount Par value held Amount Stage Stock issued to Competitive Technologies, Inc ("CTI") for cash ................... 6/94 -- $ -- 100,000 $ 100 $ 24,900 -- $ -- $ -- (1) Stock issued to Dr. Francis Harvey...................... 7/94 100,000 100 24,900 Stock issued to Dr. Adam Nelson for cash............. 9/94 20,000 20 4,980 Stock issued to Safeguard Scientifics, Inc. for cash.. 9/94 200,000 200 194,978 (2) Stock issued to Competitive Technologies, Inc. in exchange for 25,000 shares of CTI's common stock................. 9/94 205,325 205 205,120 (3) Stock issued to Safeguard Scientifics, Inc. for cash... 6/95 100,000 100 99,900 (2) Purchase of 205,325 shares of treasury stock from Competitive Technologies, Inc. in exchange for 25,000 shares of CTI's common stock................ 6/95 (205,325) (153,125) Stock issued to Competitive Technologies, Inc. for cash.. 6/95 75,000 75 74,925 (1) Stock issued to Competitive Technologies, Inc............. 6/95 40,000 40 39,960 Net loss....................... (377,851) Balance - June 30, 1995 580,325 $ 580 260,000 $ 260 $ 669,663 (205,325) $(153,125) $(377,851)
(1) Stock issued in exchange for services provided. The value of the services was determined by KSI's board of directors. (2) Stock value was determined by KSI's board of directors based on the market value of Competitive Technologies, Inc.'s common stock exchanged. (3) In connection with this transaction KSI also issued warrants to purchase an additional 100,000 shares of Class A common stock at $1.00 per share through December 31, 1994 and 133,333 shares of Class A common stock at $1.50 per share through December 31, 1995. See accompanying notes KNOWLEDGE SOLUTIONS, INC. A Development Stage Enterprise Statement of Cash Flows For the period from June 21, 1994 (date of inception) through June 30, 1995 Cash flow from operating activities: Net loss $(377,851) Non-cash items included in net loss: Depreciation 3,480 Expenses paid by issuance of stock 65,000 Loss on investment 52,200 Net changes in various operating accounts 8,955 Net cash flows used in operating activities (248,216) Cash flow from investing activities: Purchase of property and equipment (25,832) Net cash flows used in investing activities (25,832) Cash flow from financing activities: Proceeds from issuance of common stock, net of expenses 400,178 Net cash flows from financing activities 400,178 Net increase in cash and cash equivalents 126,130 Cash and cash equivalents at inception -- Cash and cash equivalents at end of period $ 126,130 Supplemental cash flow information: Cash paid for income taxes $ 300 See accompanying notes KNOWLEDGE SOLUTIONS, INC. A Development Stage Enterprise Notes to Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Basis of Financial Statements Knowledge Solutions, Inc. ("KSI") was formed in June, 1994 to develop and deliver interactive multimedia training packages. KSI is a development stage enterprise involved in developing and marketing its initial product. It has made no product sales to date. At June 30, 1995, Safeguard Scientifics, Inc. ("SSI"), owned 46.2% and Competitive Technologies, Inc. ("CTI") owned 33.9% of KSI's outstanding common stock. The accompanying financial statements have been prepared assuming that KSI will continue as a going concern, which contem- plates the realization of assets and the satisfaction of liabili- ties in the normal course of business. KSI has incurred operating losses since inception and had an accumulated deficit of $377,851 at June 30, 1995. As of June 30, 1995, KSI's current assets exceed its current liabilities by $117,175. KSI is currently marketing its first multimedia Agility training product and seeking contracts to develop multimedia training products for others. It is uncertain whether KSI will be able to achieve profitable operations or generate sufficient internal cash flow to maintain its opera- tions and other sources of funds may not be available. Neither SSI nor CTI is willing to provide additional financial support to KSI. These factors raise substantial doubt about KSI's ability to continue as a going concern. KSI's financial statements do not include any adjustments that might result from the outcome of this uncertainty. Grant Revenues Grant revenues, which are nonrefundable except under certain conditions, are recognized in the period the grant funds are received. Property and Equipment The costs of depreciable assets are charged to operations on a straight-line basis over their estimated useful lives. 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. Cash KSI's banking activity and cash balances are maintained with a single bank. KSI's policy is to monitor the bank's financial strength on an ongoing basis. 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. Net Loss per Share Net 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. Fully diluted net loss per share is anti-dilutive for the year ended June 30, 1995. 2. INVESTMENT IN COMPETITIVE TECHNOLOGIES, INC. In September, 1994, KSI acquired 25,000 shares of CTI's common stock valued at $205,325 in exchange for 205,325 shares of KSI's Class A common stock. KSI classified the CTI stock as available- for-sale. In June, 1995, KSI reacquired the 205,325 shares of its Class A common stock from CTI in exchange for the 25,000 shares of CTI common stock. The $52,200 realized loss was charged against income in KSI's statement of operations. The 205,325 KSI shares are classified as treasury stock at June 30, 1995 at cost ($153,125). 3. PROPERTY AND EQUIPMENT Property and equipment as of June 30, 1995 comprised: Computer equipment $23,356 Furniture and fixtures 2,476 25,832 Less: accumulated depreciation (3,480) $22,352 4. INCOME TAXES The current provision for income taxes for 1995 comprises state income taxes. At June 30, 1995, KSI had a net operating loss carryforward of $261,639 which expires in 2010 for federal and in 1998 for state tax purposes. The provision for income taxes differs from that computed using the statutory federal income tax rate of 34% as follows: Expected tax benefit at federal statutory rate $(128,469) Loss on investment 17,748 Services paid with common stock 22,100 Effect of net operating loss not utilized 88,234 Other 687 Provision for income taxes $ 300 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. KSI's net deferred tax asset of $88,957 is entirely offset by a valuation allowance of $88,957 at June 30, 1995. 5. SHAREHOLDERS' INTEREST Capital Stock In the event of any voluntary or involuntary liquidation, dissolution or winding up of KSI which is commenced during the "Preference Period" (as defined below), the holders of Class A common stock are entitled to a liquidation preference equal to $1.50 per share. If the assets of KSI are insufficient to permit payment of the full preferential amount to Class A shareholders, all of the net assets of KSI shall be distributed ratably among the holders of Class A common stock. After payment of the liquidation preference to holders of Class A common stock and payment of $.001 per share to holders of Class B common stock, or upon the expiration of the Preference Period, in the event of liquidation, holders of Class A common stock will be entitled to share ratably with the holders of Class B common stock in all assets remaining after payment of liabilities. The Preference period will expire upon the end of any fiscal year in which KSI and any subsidiaries shall have consolidated net income before taxes of not less than $1,000,000. The Class A common stock and Class B common stock will automatically be reclassified as a single class of common stock on a share for share basis at the end of the Preference Period. Employee Stock Option Plan KSI has a stock option plan ("the Plan") which was approved by the Board of Directors and shareholders on December 12, 1994. No option may be granted under the Plan after December 11, 2004. Both incentive stock options and nonqualified stock options may be granted to key employees under the Plan. All stock options are granted at an exercise price equal to the fair market value of the optioned stock on the grant date. Options generally become exercisable according to a vesting schedule approved by the Board at the grant date. The following summarizes the stock option activity for the period from the approval of the Plan through June 30, 1995: Option Aggregate Shares Price Price Options granted and outstanding 20,000 $ 1.00 $20,000 Additional information related to stock options at June 30, 1995 follows: Exercisable options NONE Class B common shares reserved for issuance on exercise of options 150,000 Shares available for future option grants 130,000 Common Stock Warrants KSI has the following outstanding warrants at June 30, 1995: Aggregate Exercise Expiration Issued Exercisable No. Shares Class Share Price Date September 1994 September 1994 133,333 A $1.50 $200,000 December 1995 March 1995 March 1996 5,000 B $1.00 $ 5,000 March 2000 6. COMMITMENTS KSI leases office space in Lehigh, Pennsylvania, under a lease expiring in August of 1995. Rent expense in 1995 amounted to $2,751. KSI was awarded a $75,000 grant to support its development activities from September 1, 1994, through August 31, 1995. In consideration of the grant funding KSI has a contingent obligation to repay up to three times total grant funds received at rates of 1% of aggregate net sales of supported products or 2% of revenues from licensing supported products, if any. KSI will recognize such obligations when it recognizes revenues from sales or licenses. Effective October, 1994, Competitive Technologies of PA, Inc. granted KSI an exclusive ten-year license agreement to its process model for interactive multimedia training in exchange for a 3% royalty on future sales of licensed products and services. KSI will recognize such obligations when it recognizes revenues from sales. 7. RELATED PARTY TRANSACTIONS During 1995 KSI incurred $40,000 of charges for management and accounting services performed by CTI which have not been eliminated in CTI's consolidated financial statements. Services were paid by the issuance of Class B common stock. KSI incurred charges of $5,500 during 1995 for consulting services provided by a director. During 1995 KSI incurred charges of $47,500 for product development consulting services performed by the inventor of the process model who is also a shareholder. $25,000 of these services were paid by the issuance of Class B common stock. 8. SUBSEQUENT EVENT During July, 1995, KSI incurred charges of $20,000 for management and consulting services performed by CTI which have not been eliminated in CTI's consolidated financial statements. Services were paid by the issuance of Class B common stock. After this transaction, CTI owned 35.9% of KSI. 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 (Items 10 through 13) is incorporated by reference, to the extent required, from the registrant's definitive proxy statement for its 1995 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, 1995 and 1994. 25-26 Consolidated Statements of Operations for the years ended July 31, 1995, 1994 and 1993. 27-28 Consolidated Statements of Changes in Shareholders' Interest for the years ended July 31, 1995, 1994 and 1993. 29 Consolidated Statements of Cash Flows for the years ended July 31, 1995, 1994 and 1993. 30-32 Notes to Consolidated Financial Statements. 33-48 Knowledge Solutions, Inc. Balance Sheet as of June 30, 1995. 50 Statement of Operations for the period from June 1, 1994 (date of inception) through June 30, 1995. 51 Statement of Changes in Shareholders' Interest for the period from June 1, 1994 (date of inception) through June 30, 1995. 52 Statement of Cash Flows for the period from June 1, 1994 (date of inception) through June 30, 1995. 53 Notes to Financial Statements 54-58 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 26, 1995 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 ) ) FRANK R. McPIKE, JR. Vice President, ) Frank R. McPike, Jr. Finance, Treasurer, ) Secretary and Director ) (Principal Financial ) and Accounting Officer) ) ) MICHAEL G. BOLTON* Director ) Michael G. Bolton ) ) BRUCE E. LANGTON* Director ) October 26, 1995 Bruce E. Langton ) ) H.S. LEAHEY* Director ) H.S. Leahey ) ) DAVID M. TOBEY* Director ) David M. Tobey ) ) HARRY VAN BENSCHOTEN* Director ) Harry Van Benschoten ) ) ) ) * By 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. 68-72 3.2 By-laws of the registrant as amended to date. 73-82 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* Employment Agreement between registrant and A. Sidney Alpert dated as of April 1, 1992 filed as Exhibit 19.1 to registrant's Form 10-Q for the three months ended April 30, 1992 and hereby incorporated by reference. 10.3* Incentive Compensation Plan filed as Exhibit 13.47 to Post Effective Amendment No. 6 to Registration Statement on Form S-1 No. 2-55141 and hereby incorporated by reference; and amendment thereto adopted by the Board of Directors on April 12, 1983 filed as Exhibit 10.5 to registrant's Form 10-K for the fiscal year ended July 31, 1983 and hereby incorpor- ated by reference. 10.4* 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. 10.5 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* Form of long-term disability income policy and schedule of information for Mr. Alpert filed as Exhibit 10.42 to registrant's Form 10-K for the fiscal year ended July 31, 1985 and hereby incorporated by reference. 10.8 Indemnity Agreement dated September 1, 1988 between the registrant and A. S. Alpert (simi- lar agreements have been signed by each of the registrant's directors) filed as Exhibit 10.24 to registrant's Form 10-K for the fiscal year ended July 31, 1988 and hereby incorporated by reference. 10.9 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. 10.10 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. 10.11 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. 10.12 Stock Purchase Agreement dated as of August 20, 1990 between USET Holding Co. and Macmillan, Inc. for the purchase and sale of the outstand- ing capital stock of University Science, Engi- neering and Technology, Inc. filed as Exhibit 10.33 to registrant's Form 10-K for the year ended July 31, 1990 and hereby incorporated by reference. 10.13 Guarantee Agreement dated as of August 20, 1990 by and among Macmillan, Inc., VenTex, Universi- ty Science, Engineering and Technology, Inc. and registrant filed as Exhibit 10.34 to regi- strant's Form 10-K for the year ended July 31, 1990 and hereby incorporated by reference. 10.14 Agreement dated August 20, 1990 between TRTF Venture, Inc., UPAT Services, Inc. and the registrant dated August 20, 1990 authorizing the registrant to have exclusive right to appoint and/or remove the directors of Univer- sity Science, Engineering and Technology, Inc. and USET Holding Co. filed as Exhibit 10.35 to registrant's Form 10-K for the year ended July 31, 1990 and hereby incorporated by reference. 10.15 Agreement of Limited Partnership of USET Acqui- sition Partners, L.P. dated as of June 28, 1990 between VenTex and USAA, a reciprocal inter- insurance exchange, filed as Exhibit 10.36 to registrant's Form 10-K for the year ended July 31, 1990 and hereby incorporated by reference. 10.16 Election to Continue Partnership Business, Amendment of Agreement of Limited Partnership and Admission of New General Partner for USET Acquisition Partners, L.P., between all of the Limited Partners of USET Acquisition Partners, L.P., Ventex and UPAT Services, Inc. (a wholly- owned subsidiary of the registrant), dated as of April 19, 1991 filed as Exhibit 19.2 to registrant's Form 10-Q for the nine months ended April 30, 1991 and hereby incorporated by reference. 10.17 Custodian Agreement dated July 29, 1991 between Lafayette Bank and Trust Company and registrant relating to transfer of Escrow Agreement dated September 1, 1988 between Putnam Trust Company of Greenwich, the registrant and each of regi- strant's directors filed as Exhibit 10.44 to the registrant's Form 10-K for the year ended July 31, 1991 and hereby incorporated by refer- ence. 10.18 Lease agreement between 1465 Realty Associates and registrant dated August 8, 1991 filed as Exhibit 10.45 to registrant's Form 10-K for the year ended July 31, 1991 and hereby incorporat- ed by reference. 10.19* Employment agreement between registrant and George M. Stadler dated August 1, 1995. 83-86 10.20 Private Placement Agreement dated as of Novem- ber 11, 1992 between the registrant and Capital Assurance Company, Inc. filed as Exhibit 19.3 to registrant's Form 10-Q for the three months ended October 31, 1992 and hereby incorporated by reference. 10.21 Letter Agreement with Capital Assurance Compa- ny, Inc. dated March 8, 1993 filed as Exhibit 4.3 to registrant's registration statement on Form S-3 (No. 33-60210) and hereby incorporated by reference. 10.22 Purchase and Subscription Agreement dated July 9, 1993 by and among University Communications, Inc., Competitive Technologies, Inc. (formerly University Patents, Inc.) and Barden Communica- tions, Inc. filed as Exhibit 10.1 to regis- trant's Form 8-K dated July 9, 1993 and hereby incorporated by reference. 10.23 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. 10.24* Employment Agreement between registrant and Frank R. McPike, Jr. dated September 15, 1993 filed as Exhibit 10.46 to registrant's Form 10- K for the year ended July 31, 1993 and hereby incorporated by reference. 10.25 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. 10.26 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. 10.27 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. 10.28 Common Stock Purchase Warrant issued by regis- trant to Spencer Trask Holdings, Inc. as of November 22, 1993 filed as Exhibit 10.2 to registrant's Form 10-Q for the quarter ended January 31, 1994 and hereby incorporated by reference. 10.29 Common Stock Purchase Warrant issued by the registrant to Christopher D. Illick as of November 22, 1993 filed as Exhibit 10.3 to registrant's Form 10-Q for the quarter ended January 31, 1994 and hereby incorporated by reference. 10.30 Common Stock Purchase Warrant issued by regis- trant to Desmond Towey & Associates as of April 26, 1994 filed as Exhibit 10.1 to registrant's From 10-Q for the quarter ended April 30, 1994 and hereby incorporated by reference. 10.31 Stock Purchase Agreement dated September 12, 1994 between Knowledge Solutions, Inc. and Safeguard Scientifics, Inc. filed as Exhibit 10.49 to registrant's Form 10-K for the year ended July 31, 1994 and hereby incorporated by reference. 10.32 Voting Agreement dated September 12, 1994 among Knowledge Solutions, Inc., Safeguard Scienti- fics, Inc. the registrant, Francis Harvey and Adam Nelson filed as Exhibit 10.50 to regis- trant's Form 10-K for the year ended July 31, 1994 and hereby incorporated by reference. 10.33 Common Stock Purchase Warrant issued to Robert Frost as of September 16, 1994 filed as Exhibit 10.1 to registrant's Form 10-Q for the quarter ended October 31, 1994 and hereby incorporated by reference. 10.34 Exchange Agreement dated as of September 30, 1994 among Plasmaco, Inc. and the holders of Series A through D Preferred Stock of Plamsaco, including the registrant filed as Exhibit 10.51 to registrant's Form 10-K for the year ended July 31, 1994 and hereby incorporated by refer- ence. 10.35 Contract awarded by Department of the Air Force to registrant No. F33615-95-C-5514 dated Janu- ary 24, 1995 filed as Exhibit 10.1 to regi- strant's Form 10-Q for the quarter ended Janu- ary 31, 1995 and hereby incorporated by refer- ence. 10.36 Letter from Barden Companies, Inc. to Competitive Technologies, Inc. dated February 14, 1995, received by the registrant February 15, 1995 filed as Exhibit 2.1 to registrant's Form 8-K dated February 15, 1995 and hereby incorporated by reference. 10.37 Stock Purchase Agreement by and among Knowledge Solutions, Inc., Safeguard Scientifics, Inc., Competitive Technologies, Inc. and Donald Berman dated May 17, 1995. 87-96 11.1 Schedule of computation of earnings per share for the three years ended July 31, 1995. 97 21.1 Subsidiaries of the registrant. 98 23.1 Consent of Coopers & Lybrand. 99 23.2 Consent of Coopers & Lybrand. 100 24.1 Power of attorney. 101-102 27.1 Financial Data Schedule - EDGAR only. * Management Contract or Compensatory Plan EX-3.1 2 Exhibit 3.1 UNOFFICAL RESTATED CERTIFICATE OF INCORPORATION OF COMPETITIVE TECHNOLOGIES, INC. as Amended to date COMPETITIVE TECHNOLOGIES, INC., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the corporation is COMPETITIVE TECHNOLOGIES, INC., and the name under which the corporation was originally incorporated is U.P. Inc. The date of filing of its original Certificate of Incorporation with the Secretary of State was August 12, 1971. 2. This Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Certificate of Incorporation of this corporation as heretofore amended or supplemented and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation. 3. The text of the Certificate of Incorporation as amended or supplemented heretofore is hereby restated without further amendments or changes to read as herein set forth in full: FIRST: The name of the corporation (hereinafter called the "Corporation") is Competitive Technologies, Inc. SECOND: The registered office of the Corporation is to be located at 100 West Tenth Street, in the City of Wilmington, in the County of New Castle, in the State of Delaware. The name of its registered agent at that address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware FOURTH: The total number of shares of stock of all classes of stock which the Corporation shall have authority to issue is 8,000,000 shares, of which 35,920 shares, with a par value of $25.00 each, are to be Preferred Stock, and 7,964,080 shares, with a par value of $.01 each, are to be Common Stock. The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions of the classes of stock of the Corporation are as follows: 1. Dividends: The holders of the Preferred Stock shall be entitled to receive, out of any funds of the Corporation lawfully available for dividends under the laws of the State of Delaware, if, as and when declared by the Board of Directors in its discretion, preferential dividends at the rate of 5% of the par value of the Preferred Stock, per share per annum, and no more, payable quarterly on the 30th day of January, April, July and October, respectively, in each year, before any dividends shall be declared or paid upon or set apart for, or other distribution shall be ordered or made in respect of, any shares of Common Stock; provided, however, that dividends on the Preferred Stock shall be noncumulative, so that if such dividends on the Preferred Stock are not declared or paid in whole or in part, the unpaid dividends shall not accumulate. 2. Preference Upon Liquidation: In the event of any liquidation, dissolution or winding up of the Corporation or any reduction of its capital resulting in any distribution of its assets to its stockholders, whether voluntary or involuntary, the holders of the Preferred Stock shall be entitled to receive, for each share thereof, out of the assets of the Corporation, whether from capital, surplus or earnings available for distribution to its stockholders, $25.00 per share in cash, before any distribution of assets of the Corporation shall be made to the holders of the Common Stock; but the holders of the Preferred Stock shall be entitled to no further participation in such distribution. If, upon any such liquidation, dissolution, winding up or reduction, the assets of the Corporation distributable as aforesaid among the holders of the Preferred Stock shall be insufficient to permit of the payment to them of the full preferential amount aforesaid, then the entire assets of the Corporation to be distributed shall be distributed ratably among the holders of the Preferred Stock in proportion to the full preferential amount to which they are respectively entitled. A consolidation or merger of the Corporation, or a sale or transfer of all or substantially all of its assets as an entirety, shall not be regarded as a voluntary liquidation, dissolution or winding up of the Corporation. 3. Voluntary Redemption: The Corporation may, at its option, expressed by resolution of its Board of Directors, at any time or from time to time, redeem the whole or any part of the Preferred Stock at a redemption price for each share thereof equal to $25.00. Notice of any proposed redemption of shares of Preferred Stock shall be given by the Corporation by mailing a copy of such notice at least 30 days prior to the date fixed for such redemption to the holders of record of the shares of Preferred Stock to be redeemed, at their respective addresses appearing on the books of the Corporation. If less than all the shares of Preferred Stock are to be redeemed as herein provided, the redemption shall be made in such amount, at such place, by such method, either by lot or pro rata, and subject to such provisions of convenience as shall from time to time be determined by resolution of the Board of Directors. From and after the date fixed in any such notice as the date of redemption, unless default shall be made by the Corporation in providing moneys at the time and place specified for the payment of the redemption price pursuant to said notice, all rights of the holders of said shares of Preferred Stock so called for redemption as stockholders of the Corporation, except only the right to receive the redemption price, shall cease and determine and such shares shall be deemed no longer to be outstanding. 4. Voting Power: The holders of the Preferred Stock and of the Common Stock shall possess full voting power for the election of directors and for all other purposes. Holders of stock of whatever class entitled to vote shall have one vote for each share of stock held by them. 5. No Preemptive Rights: No holder of any class of stock of the Corporation, whether now or hereafter authorized, shall have any preemptive, preferential or other rights to subscribe for or purchase or acquire any shares of any class of stock or any other securities of the Corporation, whether now or hereafter authorized, and whether or not convertible into, or evidencing or carrying the right to purchase, shares or any other securities now or hereafter authorized, and whether the same shall be issued for cash, services or property, or by way of dividend or otherwise. FIFTH: The name and mailing address of the incorporator is as follows: Name Address Jesse J. Holland 208 South LaSalle Street Chicago, Illinois 60604 SIXTH: Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, the meeting and vote of stockholders may be dispensed with and such action may be taken with the written consent of stockholders having not less than the minimum percentage of the total vote required by statute for the proposed corporate action, and provided that prompt notice be given to all stockholders of the taking of corporate action without a meeting and by less than unanimous consent. SEVENTH: The Corporation shall, to the fullest extent permitted by Section 145 of the General Corporation Law of Delaware, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section. EIGHT: The Board of Directors shall have power, without stockholder action: 1. To make By-laws for the Corporation, and to amend, alter or repeal any By-laws. 2. To set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve or reserves. In addition to the powers and authorities herein or by statute expressly conferred upon it, the Board of Directors may exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the laws of the State of Delaware, of this Certificate of Incorporation and of the By- laws of the Corporation. NINTH: No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty by such director as a director; provided, however, that this Article NINTH shall not eliminate or limit the liability of a director to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article NINTH shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. 4. This Restated Certificate of Incorporation was duly adopted by the Board of Directors in accordance with Section 245 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said COMPETITIVE TECHNOLOGIES, INC. has caused this Certificate to be signed by A. SIDNEY ALPERT, its President, and attested by FRANK R. MCPIKE, JR., its Secretary, this 10 day of June, 1992. COMPETITIVE TECHNOLOGIES, INC. By: S/ A. Sidney Alpert President ATTEST: By: S/ Frank R. McPike, Jr. Secretary EX-3.2 3 Exhibit 3.2 UNOFFICIAL BY-LAWS OF COMPETITIVE TECHNOLOGIES, INC. As Amended to date ARTICLE I MEETING OF SHAREHOLDERS SECTION 1.01. Annual Meetings. The annual meeting of shareholders for the election of Directors and for the transaction of such other proper business, notice of which is given in the notice of the meeting, shall be held commencing in 1976 on such day in December of each year and at such time and place, within or without the State of Delaware, as shall be designated by the Board of Directors and set forth in the notice of such meeting. SECTION 1.02. Special Meetings. Special meetings of the shareholders may be called at any time by the Chairman of the Board of Directors or by the President of the Corporation or by the Board of Directors. Special meetings shall be held at such place within or without the State of Delaware and at such hour as may be designated in the notice of such meeting and the business transacted shall be confined to the object stated in the notice of the meeting. SECTION 1.03. Notice of Shareholders' Meetings. The notice of all meetings of shareholders shall be in writing and shall state the place, date and hour of the meeting. The notice of an annual meeting shall state that the meeting is called for the election of the Directors to be elected at such meeting and for the transaction of such other business as is stated in the notice of the meeting. The notice of a special meeting shall state the purpose or purposes for which the meeting is called and shall also indicate that it is being issued by or at the direction of the person or persons calling the meeting. A copy of the notice of each meeting of shareholders shall be given, personally or by mail, not less than ten days nor more than fifty days before the date of the meeting, to each shareholder entitled to vote at such meeting at his record address or at such other address as he may have furnished by request in writing to the Secretary of the Corporation. If a meeting is adjourned to another time or place, and, if any announcement of the adjourned time or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the adjournment is for more than thirty days or the Directors, after adjournment, fix a new record date for the adjourned meeting. Notice of a meeting need not be given to any shareholder who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of a shareholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting shall constitute a waiver of notice of the meeting. SECTION 1.04. Quorum at Shareholders' Meetings: Vote Required. At any meeting of the shareholders the holders of a majority of the outstanding shares entitled to vote thereat shall constitute a quorum. If there shall be less than a quorum at any meeting of the shareholders a majority of those present in person or by proxy may adjourn the meeting. Directors shall be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election. Whenever any corporate action, other than the election of Directors, is to be taken by vote of the shareholders, it shall, except as otherwise required by the General Corporation Law, be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. SECTION 1.05. Inspectors at Shareholders' Meetings. The Board of Directors, in advance of any shareholders meeting, may appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed, the person presiding at the shareholders' meeting may, and on the request of any shareholder entitled to vote thereat shall, appoint one or more inspectors. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting or any shareholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute of certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated and of the vote as certified by them. ARTICLE II DIRECTORS SECTION 2.01. Qualifications and Number; Vacancies. A Director need not be a shareholder, a citizen of the United States, or a resident of the State of Delaware. The number of Directors constituting the entire Board is hereby fixed at such number as may be specified by resolution of the Board of Directors adopted by the same vote which is necessary under Article VII hereof to amend these by-laws. The number of Directors may be increased or decreased by amendment of these by-laws duly adopted by either the shareholders or the vote of a majority of the entire Board of Directors, provided that the number of Directors constituting the entire Board shall not be less than three. No decrease shall shorten the term of any incumbent Director. Any Director may be removed for cause by the shareholders. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, through less than a quorum, or by a sole remaining director. SECTION 2.02. Term. Each director shall hold office until the next annual meeting of shareholders and until his successor has been elected and qualified. SECTION 2.03. Place and Time of Meetings of the Board. Regular and special meetings of the Board shall be held at such places (within or without the State of Delaware) and at such times as may be fixed by the Board or upon call of the President of the Corporation or of the executive committee or of any two Directors, provided that the Board of Directors shall hold at least four meetings a year. SECTION 2.04. Quorum and Manner of Acting. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business, but if there shall be less than a quorum at any meeting of the Board, a majority of those present (or if only one be present, then that one) may adjourn the meeting from time to time and the meeting may be held as adjourned without further notice. At all meetings of Directors, a quorum being present, all matters shall be decided by the vote of a majority of the Directors present at the time of the vote. SECTION 2.05. Remuneration of Directors. In addition to reimbursement for his reasonable expenses incurred in attending meetings or otherwise in connection with his attention to the affairs of the Corporation, each Director as such, and as a member of any committee of the Board, shall be entitled to receive such remuneration as may be fixed from time to time by the Board. SECTION 2.06. Notice of Meetings of the Board. Regular meetings of the Board may be held without notice if the time and place of such meetings are fixed by the Board. All regular meetings of the Board, the time and place of which have not been fixed by the Board, and all special meetings of the Board shall be held upon twenty-four hours' notice to the Directors given by letter or telegraph. No notice need specify the purpose of the meeting. Any requirement of notice shall be effectively waived by any Director who signs a waiver of notice before or after the meeting or who attends the meeting without protesting (prior thereto or at its commencement) the lack of notice to him. SECTION 2.07. Executive Committee and Other Committees. The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from among its members an Executive Committee and other committees to serve at the pleasure of the Board. Each committee shall consist of three or more Directors. During the intervals between the meetings of the Board, the Executive Committee shall have all of the authority of the Board of Directors. Each other committee shall be empowered to perform such functions as may, by resolution, be delegated to it by the Board. The Board of Directors may designate one or more Directors as alternate members of any such committee, who may replace any absent member or members at any meetings of such committee. Vacancies in any committee, whether caused by resignation or by increase in the number of members constituting said committee, shall be filled by a majority of the entire Board of Directors. The Executive Committee may fix its own quorum. In the absence or disqualification of any member of any such committee, the member or members thereof present at any meeting and not disqualified from voting whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. SECTION 2.08. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the board, or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the board or committee. ARTICLE III OFFICERS SECTION 3.01. Officers. The Board of Directors, at its first meeting held after the annual meeting of shareholders in each year shall elect a Chairman of the Board, Chairman of the Executive Committee, a President, one or more Vice Presidents, a Secretary and a Treasurer and may, in its discretion, also appoint from time to time such other officers or agents as it may deem proper. The Chairman of the Board, Chairman of the Executive Committee and the President shall be elected from among the members of the Board of Directors. Any two or more offices may be held by the same person. Unless otherwise provided in the resolution of election or appointment or in the employment agreement with an officer, each officer shall hold office until the meeting of the Board of Directors following the next annual meeting of shareholders and until his successor has been elected and qualified; provided, however, that the Board of Directors may, unless otherwise provided in such resolution or agreement, remove any officer for cause or without cause at any time. SECTION 3.02. Chairman of the Board. The Chairman shall, if present, preside at all meetings of the shareholders and Board of Directors. The Chairman shall be the Chief Executive Officer of the Corporation and as such shall have general supervision of the affairs of the Corporation subject to the control of the Board of Directors. The Chairman Shall do and perform all other acts and duties which may be assigned to him from time to time by the Board of Directors. SECTION 3.03. Chairman of Executive Committee. The Chairman of the Executive Committee shall, if present, preside at all meetings of the Executive Committee and shall do and perform all other acts and duties which may be assigned to him from time to time by the Board of Directors. SECTION 3.04. President. In the absence of the Chairman of the Board or his inability to act, the President shall preside at all meetings of the shareholders and of the Board of Directors. The President shall be the Chief Operating Officer of the Corporation. He shall do and perform all acts and duties which may be assigned to him from time to time by the Board of Directors or the Chairman of the Board. The President shall have the power on behalf of the Corporation to execute and deliver all contracts, instruments, conveyances or documents and to affix the corporate seal thereto. SECTION 3.04A. Vice Presidents. The Vice Presidents shall do and perform such acts and duties as may be assigned to them from time to time by the Board of Directors, the Chairman of the Board or the President. SECTION 3.05. Secretary. The Secretary shall keep minutes of the proceedings taken and the resolutions adopted at all meetings of the shareholders and the Board of Directors, and shall give due notice of the meetings of the shareholders and the Board of Directors. He shall have charge of the seal and all books and papers of the Corporation, and shall perform all duties incident to his office. In case of the absence or disability of the Secretary, his duties and powers may be exercised by such person as may be appointed by the Board of Directors or the Executive Committee. SECTION 3.06. Treasurer. The Treasurer shall receive all the monies belonging to the Corporation, and shall forthwith deposit the same to the credit of the Corporation in such financial institution as may be selected by the Board of Directors or the Executive Committee. He shall keep books of account and vouchers for all monies disbursed. He shall also perform such other duties as may be prescribed by the Board of Directors or Executive Committee or the President and in case of the absence or disability of Treasurer, his duties and powers may be exercised by such person as may be appointed by the Board of Directors or Executive Committee. ARTICLE IV INDEMNIFICATION SECTION 4.01. Indemnification. (a) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper. (c) To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b), or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) Any indemnification under subsections (a) and (b) (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b). Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written option, or (3) by the stockholders. (e) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the manner provided in subsection (d) upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this Article IV. (f) The indemnification provided by this Article IV shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) The Board of Directors may authorize, by a vote of a majority of the full Board, the Corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article IV. ARTICLE V CAPITAL STOCK SECTION 5.01. Share Certificates. Each certificate representing shares of the Corporation shall be in such form as may be approved by the Board of Directors and, when issued, shall contain upon the face or back thereof the statements prescribed by the General Corporation Law and by any other applicable provision of law. Each such certificate shall be signed by the Chairman or President or a Vice President and by the Secretary or Treasurer or an Assistant Secretary or Assistant Treasurer. The signatures of said officers upon a certificate may be facsimile if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or its employee. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue. SECTION 5.02. Lost, Destroyed or Stolen Certificates. No certificate representing shares shall be issued in place of any certificate alleged to have been lost, destroyed or stolen, except on production of evidence of such loss, destruction or theft and on delivery to the Corporation, if the Board of Directors shall so require, of a bond of indemnity in such amount, upon such terms and secured by such surety as the Board of Directors may in its discretion require. SECTION 5.03. Transfer of Shares. The shares of stock of the Corporation shall be transferable or assignable on the books of the Corporation only by the person to whom they have been issued or his legal representative, in person or by attorney, and only upon surrender of the certificate or certificates representing such shares properly assigned. The person in whose name shares of stock shall stand on the record of shareholders of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. SECTION 5.04. Record Dates. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other action, the Board may fix, in advance, a date as the record date for any such determination of shareholders. Such date shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. ARTICLE VI MISCELLANEOUS SECTION 6.01. Signing of Instruments. All checks, drafts, notes, acceptances, bills of exchange, and orders for the payment of money shall be signed in such manner and by such person or persons as may be authorized from time to time by the Board of Directors or the Executive Committee or by the by-laws. SECTION 6.02. Corporate Seal. The seal of the Corporation shall be in such form and shall have such content as the Board of Directors shall from time to time determine. ARTICLE VII AMENDMENTS OF BY-LAWS SECTION 7.01. Amendments. These by-laws may be altered, amended or repealed at any meeting, by vote of a majority of the Board of Directors, provided that notices of the proposed amendments shall have been sent by mail to all the Directors not less than three days before the meeting at which they are to be acted upon, or at any regular meeting of the Directors, by the unanimous vote of all the Directors present. EX-10.19 4 Exhibit 10.19 EMPLOYMENT AGREEMENT AGREEMENT dated as of August 1, 1995 between Competitive Technologies, Inc., a Delaware corporation (herein called "CTI") and George M. Stadler of Fairfield, CT. (herein called "Stadler"). WITNESSETH 1. Employment and Term: CTI hereby employs Stadler and Stadler hereby agrees to continue employment by CTI for a period commencing August 1, 1995 and ending four (4) years thereafter, unless sooner terminated as hereinafter provided. 2. Extension of Term: Subject to the provision of paragraph 9 hereof, the term of this Agreement shall be extended automatically for consecutive periods of twelve (12) calendar months each, commencing August 1, 1999, unless either party hereto shall give written notice to the other, not later than one hundred twenty (120) days prior to August 1, 1999 or August 1 of any calendar year thereafter that either party elects to terminate this Agreement as of August 1 of that year. 3. Duties: During the term hereof Stadler shall serve in the executive position of President and Chief Executive Officer of CTI and he shall perform during normal business hours such duties as may be assigned to him from time to time by the Board of Directors of CTI. Stadler shall report directly to the Board of Directors of CTI. 4. Compensation: During the term hereof CTI shall pay Stadler compensation at the rate of a minimum of One Hundred Sixty Thousand ($160,000) Dollars per year, payable in twenty-six equal payments per year. Stadler's compensation shall be reviewed annually by the Board of Directors of CTI. 5. Expense Reimbursement and Fringe Benefits: CTI shall reimburse Stadler for all expenses incurred by him on behalf of or attributable to the business of CTI. Stadler shall be entitled to all medical and hospitalization benefits, group life insurance coverage, if any, and all other fringe benefits which CTI or its associated companies currently provides or which it may hereafter institute. 6. Restrictive Covenants: In the event that Stadler terminates this Agreement, Stadler covenants and agrees that, for a period of one (1) year following such termination, he will not engage, directly or indirectly, as an owner, employee, officer, agent, representative or otherwise, or become a principal stockholder, in any business operating in the United States of America which is competitive with the principal business engaged in by CTI. 7. Right of CTI to Injunction: If Stadler violates the provisions of paragraph 6 hereof, CTI shall be entitled to an injunction to be issued by a court of competent jurisdiction enjoining the breach of said provisions by Stadler. 8. Safeguarding of Information: Stadler agrees that (a) he will keep in strict confidence all proprietary information which he may acquire during his employment relating to the business or affairs of CTI or any of its associated companies; and (b) he will not, without the prior written consent of CTI, communicate, divulge, disclose, or use such confidential information except as may be required to perform his duties hereunder. 9. Termination: In the event of the death of Stadler, this Agreement shall terminate on the last day of the calendar month in which such death shall occur, provided that all accrued rights of Stadler at the time of his death (including salary, stock options, severance pay installments and stock retirement benefits) shall be paid to his wife, and if and so long as she shall survive him. If his wife shall not survive him or shall not survive long enough to receive the benefits of such rights, any balance remaining thereafter shall be paid to Stadler's estate. CTI shall have the right to terminate this Agreement: (a) at any time for cause which for the purposes hereof shall mean any criminal act by Stadler for which he is convicted; or (b) if Stadler is personally unable to perform his duties hereunder for a period of six (6) consecutive months due to physical or mental illness, disability or incapacity; provided, however, that if CTI shall have terminated this Agreement because of such illness, disability or incapacity and if such illness, disability or incapacity shall have been cured prior to the expiration of this Agreement, then, in such event, this Agreement shall ipso facto be reinstated for the remainder of the term hereof with the same force and effect as if CTI had never exercised its right of termination except that Stadler shall not be entitled to compensation hereunder for the period during which this Agreement shall have been in a state of termination, and the executive duties to be performed by Stadler hereunder shall be those as shall be specified by the Board of Directors of CTI. In the event CTI terminates this Agreement without cause, Stadler shall be paid, as liquidated damages, an amount equal to the lesser of (a) one and one-half times his then currently yearly salary, or (b) the total salary due for the remaining term of this Agreement. 10. Incentive Compensation: CTI's Board of Directors will revise and modify the Company's existing "Incentive Compensation Plan" dated July 31, 1979 and Stadler will be eligible to participate in this new plan. 11. Enforceability after Termination: The covenants and agreements set forth in paragraphs 6, 7 and 8 shall survive and be enforceable after the termination of this Agreement. 12. Complete Agreement: This Agreement constitutes the complete agreement between CTI and Stadler, no verbal or other statements, inducements or representations have been made to or relied upon by Stadler, and no modification hereof shall be binding on either party unless in writing and signed by both parties hereto. 13. Severability: If any term or provision of this Agreement shall to any extent be held invalid or unenforceable, the remaining terms and provisions of this Agreement shall not be affected thereby and shall be valid and enforceable to the fullest extent permitted by law. 14. Binding upon Successor: This Agreement shall be binding upon and inure to the benefit of Stadler and shall be binding upon and inure to the benefit of CTI and its successors and assigns. However, in the event that CTI is acquired or merged with another company, and/or experiences a significant change in its present stock ownership by an individual or group of individuals (i.e. - accumulation of more than 10% of the shares outstanding), Stadler's minimum rate of compensation under this Agreement will be his present rate of compensation at the time of such merger, acquisition, and/or change in stock ownership. Further, Stadler will be given an opportunity to negotiate a new Agreement and/or to modify this present Agreement prior to such change. 15. Governing Law: This Agreement shall be governed by the laws of Connecticut as to both interpretation and performance. 16. Arbitration: Standard AAA provision. IN WITNESS WHEREOF, Competitive Technologies, Inc. has caused this Agreement to be duly executed by its authorized officers and its corporate seal to be hereunto affixed, and George M. Stadler has duly signed and sealed this Agreement, all as of the day and year first above written. ATTEST: COMPETITIVE TECHNOLOGIES, INC. S/ Lorraine Frauenhofer S/ Frank R. McPike, Jr. Frank R. McPike, Jr. Vice President, Finance Treasurer and Secretary S/ Marie Cataldo By: S/ Bruce Langton Bruce Langton Chairman of the Compensation and Stock Option Committee of the Board of Directors S/ George M. Stadler George M. Stadler EX-10.37 5 Exhibit 10.37 STOCK PURCHASE AGREEMENT KNOWLEDGE SOLUTIONS, INC. THIS AGREEMENT is made as of the 17th day of May, 1995 by and among Knowledge Solutions, Inc., a Delaware corporation (the "Company"), Safeguard Scientifics (Delaware), Inc., a Delaware corporation ("Safeguard"), Competitive Technologies, Inc., a Delaware Corporation formerly known as University Patents, Inc. ("CTI") and Donald Berman, a resident ("Berman") (individually referred to as the "Purchaser" or "Safeguard", "CTI" or "Berman" and collectively referred to as the "Purchasers"). ARTICLE I PURCHASE, SALE AND TERMS OF SHARES 1.01. The Shares. The Company has authorized the issuance, sale and exchange of a total of 225,000 shares (the "Shares") of its authorized but unissued shares of Class A Common Stock, $.001 par value (the "Stock"), at a purchase price of $1.00 per share to the Purchasers. 1.02. Purchase and Sale. Subject to the terms and conditions herein set forth, the Company hereby issues and sells to each Purchaser, and each Purchaser (severally but not jointly) hereby purchase the number of Shares set forth opposite such Purchaser's name below. Number of Shares of Class A Purchaser Common Stock Purchase Price Safeguard Scientifics (Delaware), Inc. 100,000 $100,000 Competitive Technologies, Inc. 75,000 $ 75,000 Donald Berman 50,000 $ 50,000 Total: 225,000 $225,000 The Company is delivering to each Purchaser a certificate for the Shares, registered in the Purchaser's name (or its nominee), against delivery of a certified check payable to the order of the Company, or a transfer of funds to the account of the Company by wire transfer, for such Purchaser's purchase price. 1.03. Representations by the Purchaser. Each Purchaser makes the following representations and warranties for itself only: (a) Investment Representations. The Purchaser represents that it is its present intention to acquire the Shares for its own account (and it will be the sole beneficial owner thereof) and that the Shares are being and will be acquired by it for the purpose of investment and not with a view to distribution or resale thereof except pursuant to registration under the Securities Act or exemption therefrom. The Purchaser further represents that it understands and agrees that, until registered under the Securities Act or transferred pursuant to the provisions of Rule 144 or Rule 144A as promulgated by the Commission, all certificates evidencing any of the Shares, whether upon initial issuance or upon any transfer thereof, shall bear a legend, prominently stamped or printed thereon, reading substantially as follows: "The securities represented by this certificate have not been registered under the Securities Act of 1933 or applicable state securities laws. These securities may not be offered for sale, sold or transferred, in the absence of an effective registration statement under the Act and any applicable state securities laws or an opinion of counsel satisfactory to the Company of the availability of an exemption from registration thereunder." (b) Access to Information. Purchaser has had the opportunity to ask questions of and receive answers from management of the Company concerning the terms and conditions of the offering of the Shares and the additional information, documents, records and books relative to its business, assets, financial condition, results of operations and liabilities (contingent or otherwise) of the Company. (c) Sophistication and Knowledge. Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of the Shares. Purchaser can bear the economic risks of this investment and can afford a complete loss of its investment. (d) Lack of Liquidity. Purchaser has no present need for liquidity in connection with its purchase of the Shares. (e) Suitability and Investment Objectives. The purchase of the Shares by Purchaser is consistent with the general investment objectives of the Purchaser. The Purchaser understands that the purchase of the Shares involves a high degree of risk in view of the fact that, among other things, the Company is a start- up enterprise, and there may be no established market for the Company's capital stock. (f) Accredited Investor Status. Purchaser is an "Accredited Investor" as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act. 1.04. Brokers or Finders. Purchaser represents that no Person has or will have, as a result of the transactions contemplated by this Agreement, any right, interest or valid claim against or upon the Company for any commission, fee or other compensation as a finder or broker because of any act or omission by Purchaser or its agents. ARTICLE II CLOSING DOCUMENTATION 2.01. Documentation at Closing. The Company shall deliver to each Purchaser all of the following materials, each in form and substance satisfactory to the Purchaser: (a) A copy of the Certificate of Incorporation of the Company, as amended or restated to date; a copy of the resolutions of the Board of Directors providing for the approval of this Agreement, the issuance of the Shares, and all other agreements or matters contemplated hereby or executed in connection herewith; all of which have been certified by the Secretary of the Company to be true, complete and correct in every particular; and certified copies of all documents evidencing other necessary corporate or other action and governmental approvals, if any, required to be obtained at or prior to the Closing with respect to this Agreement and the issuance of the Shares. (b) A Good Standing Certificate issued by the Secretary of State of the State of incorporation of the Company and each other jurisdiction in which the Company is required to qualify to do business as a foreign corporation. (C) Simultaneously with the closing of this investment, CTI and the Company will enter into an amendment to the KSI-UPI Stock Exchange Agreement originally dated as of September 12, 1994 pursuant to which they will reverse and cancel the exchange of stock made pursuant to the original agreement. The execution of such amendment is a condition to Safeguard's obligation to close under this Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants as of the Closing as follows: 3.01. Organization and Standing of the Company. The Company is a duly organized and validly existing corporation in good standing under the laws of the State of Delaware and has all requisite corporate power and authority for the ownership and operation of its properties and for the carrying on of its business as now conducted and as now proposed to be conducted and to execute and deliver this Agreement and the Voting Agreement, to issue, sell and deliver the Share and to perform its other obligations pursuant hereto and thereto. The Company is duly licensed or qualified and in good standing as a foreign corporation authorized to do business in all jurisdictions wherein the character of the property owned or leased or the nature of the activities conducted by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified would not have a material adverse effect on the business, operations or financial condition of the Company. 3.02. Corporate Action. This Agreement has been duly authorized, executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms. The Shares have been duly authorized. The issuance, sale and delivery of the Shares have been duly authorized by all required corporation action; the Shares have been validly issued, are fully paid and nonassessable with no personal liability attaching to the ownership thereof and are free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through the Company except as set forth in this Agreement and the Voting Agreement, as of the Closing. 3.03. Litigation. There is no litigation or governmental proceeding or investigation pending or, to the knowledge of the Company, threatened against the Company affecting any of its properties or assets, nor, to the best knowledge of the Company, has there occurred any event or does there exist any condition on the basis of which any litigation, proceeding or investigation might properly be instituted. The Company is not in default with respect to any order, writ, injunction, decree, ruling or decision of any court, commission, board or other government agency, which such default might have a material adverse effect on the business, assets, liabilities, operations, Intellectual Property Rights, management or financial condition of the Company. There are no actions or proceedings pending or, to the Company's knowledge, threatened (or any basis therefor known to the Company) which might result, either in any case or in the aggregate, in any material adverse change in the business, operations, Intellectual Property Rights, affairs or financial condition of the Company or in any of its properties or assets, or which might call into question the validity of this Agreement, any of the Shares, or any action taken or to be taken pursuant hereto or thereto. The foregoing sentences include, without limiting their generality, actions pending or, to the Company's knowledge, threatened (or any basis therefor known to the Company) involving the prior employment or engagement of any of the Company's officers, employees or consultants or their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers or to any other Person. 3.04. Certain Agreements of Officers and Employees. (a) No officer, employee or consultant of the Company is, or is now, to the Company's knowledge, expected to be, in violation of any term of any employment contract, patent disclosure agreement, proprietary information agreement, noncompetition agreement, nonsolicitation agreement, confidentiality agreement, or any other similar contract or agreement or any restrictive covenant, relating to the right of any such officer, employee, or consultant to be employed or engaged by the Company because of the nature of the business conducted or to be conducted by the Company or relating to the use of trade secrets or proprietary information of others, and to the Company's best knowledge and belief, the continued employment or engagement of the Company's officers, employees or consultants does not subject the Company or any Purchaser to any liability with respect to any of the foregoing matters. (b) No officer, consultant or Key Employee of the Company whose termination, either individually or in the aggregate, could have an adverse effect on the Company, has terminated, or to the best knowledge of the Company, has any present intention of terminating, his employment or engagement with the Company. 3.05. Compliance with Other Instruments. The Company is in compliance in all respects with the terms and provisions of this Agreement and of its Certificate of Incorporation and By-laws, each as amended and/or restated to date, and in all respects with the material terms and provisions of all mortgages, indentures, leases, agreements and other instruments by which it is bound or to which it or any of its properties or assets are subject. The Company is in compliance in all material respects with all judgments, decrees, governmental orders, laws, statutes, rules or regulations by which it is bound or to which it or any of its properties or assets are subject. Neither the execution, issuance and delivery of this Agreement or the Voting Agreement, nor the consummation of any transaction contemplated hereby or thereby, has constituted or resulted in or will constitute or result in a default or violation of any term or provision of any of the foregoing documents, instruments, judgments, agreements, decrees, orders, statutes, rules and regulations. 3.06. Title to Assets, Patents. The Company has good and marketable title in fee to such of its fixed assets as are real property, and good and merchantable title to all of its other assets, now carried on its books, which assets consist of those reflected in the most recent balance sheet of the Company included in Exhibit 3.07 attached hereto, or acquired since the date of such balance sheet (except personal property disposed of since said date in the ordinary course of business) free of any mortgages, pledges, charges, liens, security interests or other encumbrances. The Company enjoys peaceful and undisturbed possession under all leases under which it is operating, and all said leases are valid and subsisting and in full force and effect. The Company owns or has a valid right to use the Intellectual Property Rights being used to conduct its business as now operated and as now proposed to be operated or under development or now proposed to be developed by the Company, and the conduct of its business as now operated and as now proposed to be operated and the development, manufacture and distribution of the products under development or now proposed to be developed by the Company does not and will not conflict with or infringe upon the intellectual property rights of others. Descriptions of certain Intellectual Property Rights and products under development or now proposed to be developed by the Company is contained in Exhibit 3.06. Such descriptions do not necessarily describe all Intellectual Property Rights and products under development or proposed to be developed by the Company. A complete list of licenses and registrations of such Intellectual Property rights is attached hereto as Exhibit 3.06. Except as set forth on Exhibit 3.06, no claim is pending or threatened against the Company and/or its officers, employees and consultants to the effect that any such Intellectual Property Right owned or licensed by the Company, or which the Company otherwise has the right to use, is invalid or unenforceable by the Company. Except pursuant to the terms of any licenses specified on Exhibit 3.06, the Company has no obligation to compensate any Person for the use of any such Intellectual Property Rights, no other Person has any right, title or interest in or to such Intellectual Property and the Company has not granted any Person any license or other right to use any of the Intellectual Property Rights of the Company, whether requiring payment of royalties or not. The Company has taken all reasonable measures to protect and preserve the security, confidentiality and value of its Intellectual Property Rights, including its trade secrets and other confidential information. All employees and consultants of the Company involved in the design, review, evaluation or development of products or Intellectual Property Rights have executed a nondisclosure and assignment of inventions agreements sufficient to protect the confidentiality and value of the Company's Intellectual Property Rights and to vest in the Company exclusive ownership of such Intellectual Property Rights. To the best knowledge of the Company, all trade secrets and other confidential information of the Company are presently valid and protectable and are not part of the public domain or knowledge, nor, to the best knowledge of the Company, have they been used, divulged or appropriated for the benefit of any person other than the Company or otherwise to the detriment of the Company. To the best of the Company's knowledge, no employee or consultant of the Company has used any trade secrets or other confidential information of any other person in the course of their work for the Company. The Company is the exclusive owner of all right, title and interest in its Intellectual Property Rights as purported to be owned by the Company, and such Intellectual Property Rights are valid and in full force and effect. Neither the Company, nor any of its employees or consultants has received notice of, and to the best of the Company's knowledge after reasonable investigation, there are no claims that the Company's Intellectual Property Rights or the use or ownership thereof by the Company infringes, violates or conflicts with any such right of any third party. No university, hospital, government agency (whether federal or state) or other organization which sponsored research and development conducted by the Company or any employee of the Company or has any claim of right to or ownership of or other encumbrance upon the Intellectual Property Rights of the Company. 3.07. Financial Information. The financial statements of the Company as of December 31, 1994 and as of March 31, 1995 (the "Financial Statement Date"), in each case including the Company's Statement of Income and Balance Sheet, attached hereto as Exhibit 3.07, present fairly the financial position of the Company as at the date or dates thereof and have been prepared in accordance with generally accepted accounting principles consistently applied, except for the absence in the March 31, 1995 financial statements of footnotes and normal non-material year-end adjustments (the "Financial Statements"). The Company does not have, and has no reasonable grounds to know of, any liability, contingent or otherwise, not adequately reflected in or reserved against in the Financial Statements. Except as set forth in Exhibit 3.07, since the Financial Statement Date (i) there has been no material adverse change in the business, assets, operations, affairs, prospects or financial condition of the Company; (ii) neither the business, financial condition, operations, prospects or affairs of the Company nor any of its properties or assets, including without limitation, its Intellectual Property Rights, have been materially adversely affected as the result of any legislative or regulatory change, any revocation or change in any franchise, permit, license or right to do business, or any other event or occurrence, whether or not insured against; and (iii) the Company has not entered into any material transaction other than in the ordinary course of business, made any distribution on its capital stock, or redeemed or repurchased any of its capital stock, except as set forth on Exhibit 3.07. 3.08. Taxes. The Company has accurately prepared and timely filed all federal, state and other tax returns required by law to be filed by it, has paid or made provision for the payment of all taxes shown to be due and all additional assessments, and adequate provisions have been made and are reflected in the Company's financial statements for all current taxes and other charges to which the Company is subject and which are not currently due and payable. 3.09. ERISA. The Company presently makes no contributions to any employee pension benefit plans for its employees which are subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). 3.10. Transactions with Affiliates. Except as set forth in Exhibit 3.10, there are no outstanding loans, obligations, leases, royalty agreements or other continuing transactions between the Company and any officer, employee, consultant or director of the Company or any Person owning five percent (5%) or more of the capital stock of the Company or any member of the immediate family of such officer, employee, consultant, director or stockholder or any corporation or other entity controlled by such officer, employee, consultant, director or stockholder, or a member of the immediate family of such officer, employee, consultant, director or stockholder. 3.11. Assumptions or Guaranties of Indebtedness of Other Persons. The Company has not assumed, guaranteed, endorsed or otherwise become directly or contingently liable on (including, without limitation, liability by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor or otherwise to assure the creditor against loss), any Indebtedness of any other Person. 3.12. Disclosure. Neither this Agreement, the Financial Statements, nor any other agreement, document, certificate, statement, whether oral or written, furnished to any of the Purchasers or their special counsel by or on behalf of the Company in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances in which made, not misleading. 3.13. Brokers or Finders. No Person has or will have, as a result of the transactions contemplated by this Agreement, any right, interest or valid claim against or upon the Company for any commission, fee or other compensation as a finder or broker because of any act or omission by the Company or its respective agents. 3.14. Capitalization; Status of Capital Stock. As of the Closing, the Company capitalization (including all outstanding options, warrants, rights, and convertible securities) will be as set forth in Exhibit 3.14 hereto. The Shares when issued and delivered in accordance with the terms hereof. None of the Company's outstanding securities or authorized capital stock or the Shares are subject to any rights of redemption, repurchase, rights of first refusal, preemptive rights or other similar rights, whether contractual, statutory or otherwise, for the benefit of the Company, any stockholder, or any other Person. There are no restrictions on the transfer of shares of capital stock of the Company other than those imposed by relevant federal and state securities laws. The offer and sale of all capital stock and other securities of the Company issued before the Closing complied with or were exempt from all applicable federal and state securities laws and no stockholder has a right of rescission or damages with respect thereto. 3.15. Insurance. The Company carries insurance covering its properties and business adequate and customary for the type and scope of the properties, assets and business, and similar to companies of comparable size and condition similarly situated in the same industry in which the Company operates, but in any event in amounts sufficient to prevent the Company from becoming a co-insurer or self-insurer, with provision for reasonable deductibles. 3.16. Books and Records. The books of account, ledgers, order books, records and documents of the Company accurately and completely reflect all material information relating to the business of the Company, the location and collection of its assets, and the nature of all transactions giving rise to the obligations or accounts receivable of the Company. 3.17. Environmental and Safety Laws. To the best of the Company's knowledge after due investigation, it is not in violation of any applicable statute, law or regulation relating to the environment or occupational safety and health, and to the best of its knowledge after due investigation, no material expenditures will be required in order to comply with any such statute, law or regulation. ARTICLE IV MISCELLANEOUS 4.01. Amendments, Waivers and Consents. Any provision in the Agreement to the contrary notwithstanding, and except as hereinafter provided, changes in, termination or amendments of or additions to this Agreement may be made, and compliance with any covenant or provision set forth herein may be omitted or waived, upon the written agreement of the parties hereto. Any waiver or consent may be given subject to satisfaction of conditions stated therein and any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 4.02. Survival of Representations and Warranties. All representations and warranties made in this Agreement, the Shares, or any other instrument or document delivered in connection herewith or therewith, shall survive the execution and delivery hereof or thereof. 4.03. Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Delaware, and without giving effect to choice of laws provisions. 4.04. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart. IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase Agreement to be executed as of the date first above written. KNOWLEDGE SOLUTIONS, INC. SAFEGUARD SCIENTIFICS (DELAWARE), INC. By: S/ Frank R. McPike, Jr. By: S/ Donald R. Caldwell Title: Vice President Title: President COMPETITIVE TECHNOLOGIES, INC. By: S/ George M. Stadler Title: President DONALD BERMAN EX-11.1 6 Exhibit 11.1 COMPETITIVE TECHNOLOGIES, INC. Schedule of Computation of Earnings Per Share Year ended July 31, 1995 1994 1993 Loss from continuing operations (641,249) (828,996) (1,446,811) Income (loss) from operations of discontinued operations 99,468 (10,786) (449,724) Net gain (loss) on disposal of discontinued operations 2,534,505 221,852 (9,314) Net income (loss) applicable to common stock 1,992,724 (617,930) (1,905,849) Common and common equivalents shares - primary: Weighted average common shares outstanding 5,805,833 5,761,610 5,478,082 Adjustments for assumed exercise of stock options 5,986 7,838 * 32,382 * Adjustments for assumed exercise of stock warrants 3,007 4,274 * 20,443 * Weighted average number of common and common equivalent shares out- standing 5,814,826 5,773,722 5,530,907 Common and common equivalent shares - fully diluted: Weighted average common shares outstanding 5,805,833 5,761,610 5,478,082 Adjustments for assumed exercise of stock options 5,986 14,341 * 32,382 * Adjustments for assumed exercise of stock warrants 3,007 8,500 * 20,443 * Weighted average number of common and common equivalent shares out- standing 5,814,826 5,784,451 5,530,907 Net income (loss) per share of common stock - primary and fully diluted: Continuing operations (0.11) (0.15) (0.27) Operations of discontinued operation 0.02 (0.00) (0.08) Disposal of discontinued operations 0.43 0.04 (0.00) Net income (loss) per share of common stock 0.34 (0.11) (0.35) * Anti-dilutive. These calculations are submitted in accordance with the requirements of Regulation S-K item 601 (b) (11) which differ from the requirements of paragraph 40 of Accounting Principles Board Opinion No. 15 and produce an anti-dilutive result. EX-21.1 7 Exhibit 21.1 COMPETITIVE TECHNOLOGIES, INC. Subsidiaries of the Registrant (omitting subsidiaries which do not constitute significant subsidiaries) University Optical Products Co. (Delaware) Competitive Technologies of PA, Inc. (Pennsylvania) EX-23.1 8 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Competitive Technologies, Inc. on Forms S-8 and the related prospectuses (No. 2-69835 and No. 33-87756) pertaining to the Key Employees' Stock Option Plan, on Form S-8 and the related prospectus (No. 33-10528) pertaining to the Key Employees' Stock Option Plan and the Directors' Stock Participation Plan, on Form S- 8 and the related prospectus (No. 33-44612) pertaining to the Key Employees' Stock Option Plan, Directors' Stock Participation Plan and Employees' Common Stock Retirement Plan and on Form S-8 and the related prospectus (No. 33-48081) pertaining to Common Stock Purchase Warrants dated October 22, 1990 of our report dated September 29, 1995, on our audits of the consolidated financial statements of Competitive Technologies, Inc. and Subsidiaries as of July 31, 1995 and 1994 and for each of the three years in the period ended July 31, 1995, which report is included in this Annual Report on Form 10-K. S/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Stamford, Connecticut October 26, 1995 EX-23.2 9 Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Competitive Technologies, Inc. on Forms S-8 and the related prospectuses (No. 2-69835 and No. 33-87756) pertaining to the Key Employees' Stock Option Plan, on Form S-8 and the related prospectus (No. 33-10528) pertaining to the Key Employees' Stock Option Plan and the Directors' Stock Participation Plan, on Form S- 8 and the related prospectus (No. 33-44612) pertaining to the Key Employees' Stock Option Plan, Directors' Stock Participation Plan and Employees' Common Stock Retirement Plan and on Form S-8 and the related prospectus (No. 33-48081) pertaining to Common Stock Purchase Warrants dated October 22, 1990 of our report dated October 16, 1995, on our audit of the financial statements of Knowledge Solutions, Inc. as of June 30, 1995 and for the year ended June 30, 1995, which report is included in this Annual Report on Form 10-K. S/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Stamford, Connecticut October 26, 1995 EX-24.1 10 Exhibit 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, COMPETITIVE TECHNOLOGIES, INC., a Delaware corporation (the "Company"), and each of the undersigned directors and officers of the Company, does hereby constitute and appoint George M. Stadler, and Frank R. McPike, Jr., and each of them severally, the true and lawful attorneys and agents of the undersigned, each with full power to act without any other and with full power of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents may deem necessary or desirable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules, regulations and requirements of the Securities and Exchange Commission thereunder in connection with the filing under the Act of the Company's Annual Report on Form 10-K for fiscal year ended July 31, 1995, and all related matters, including specifically, but without limiting the generality of the foregoing, power and authority to sign the name of the Company and the names of the undersigned directors and officers in the capacities indicated below to the Form 10-K to be filed with the Securities and Exchange Commission, and to any and all amendments to said Form 10-K, and to any and all instruments or documents filed as part of or in connection with any of the foregoing and any and all amendments thereto; and each of the undersigned hereby ratifies and confirms all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. This Power of Attorney may be executed in one or more counterparts, each of which shall be deemed an original, but all of which, when taken together, shall be and constitute one instrument. IN WITNESS WHEREOF, each of the undersigned has subscribed these presents this 26th day of October, 1995. COMPETITIVE TECHNOLOGIES, INC. By: S/ George M. Stadler George M. Stadler President ATTEST: By: S/ Frank R. McPike, Jr. Frank R. McPike, Jr. Secretary Capacities Signatures President and Director (Principal Executive Officer) S/ George M. Stadler George M. Stadler Vice President, Finance, Treasurer, Secretary and Director (Principal Financial and Accounting Officer) S/ Frank R. McPike, Jr. Frank R. McPike, Jr. Director A. Sidney Alpert Director S/ Michael G. Bolton Michael G. Bolton Director S/ Bruce E. Langton Bruce E. Langton Director S/ H.S. Leahey H.S. Leahey Director Arthur M. Lieberman Director S/ David Tobey David Tobey Director S/ Harry Van Benschoten Harry Van Benschoten EX-27 11
5 0000102198 COMPETITIVE TECHNOLOGIES, INC. YEAR JUL-31-1995 JUL-31-1995 336,098 4,621,045 490,324 0 0 5,575,896 346,614 (212,781) 6,768,942 479,418 0 58,353 0 60,675 6,170,496 6,768,942 0 1,703,195 0 1,120,483 1,211,538 0 0 (642,988) 21,373 (641,249) 2,633,973 0 0 1,992,724 0.34 0.34
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