UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8696
COMPETITIVE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-2664428
(State or other jurisdiction of (I.R.S. Employer
Identification No.)
incorporation or organization)
1960 Bronson Road
P.O. Box 340
Fairfield, Connecticut 06430
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (203) 255-6044
N/A
Former name, former address and former fiscal year, if
changed since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X . No .
Common Stock outstanding as of March 6, 2000 - 6,108,447 shares
Exhibit Index on sequentially numbered page 21 of 33.
Page 1 of 33 sequentially numbered pages
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
No.
Item 1. Condensed Financial Statements
A. Financial Statements (Unaudited)
Consolidated Balance Sheets at
January 31, 2000 and July 31, 1999 3
Consolidated Statements of Operations for the
three months ended January 31, 2000 and 1999 4
Consolidated Statements of Operations for the
six months ended January 31, 2000 and 1999 5
Consolidated Statement of Changes in
Shareholders' Interest for the six
months ended January 31, 2000 6
Consolidated Statements of Cash Flows for the
six months ended January 31, 2000 and 1999 7
Notes to Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-19
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of
Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 21
PART I. FINANCIAL INFORMATION
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 31, 2000 and July 31, 1999
(Unaudited)
January 31, July 31,
2000 1999
ASSETS
Current assets:
Cash and cash equivalents $ 124,663 $ 185,838
Short-term investments, at market 5,735,475 5,352,229
Receivables, including $9,800 and $2,449
receivable from related parties in
January and July, respectively 2,202,184 1,726,046
Prepaid expenses and other current assets 97,615 143,171
Total current assets 8,159,937 7,407,284
Property and equipment, net 148,271 155,089
Investments 91,304 91,307
Intangible assets acquired, principally
licenses and patented technologies, net 1,236,005 1,305,341
TOTAL ASSETS $ 9,635,517 $ 8,959,021
LIABILITIES AND SHAREHOLDERS' INTEREST
Current liabilities:
Accounts payable, including $3,309 and
$2,043 payable to related parties in
January and July, respectively $ 89,562 $ 109,986
Accrued liabilities, including $5,938
payable to related parties in July 1,878,503 1,668,749
Total current liabilities 1,968,065 1,778,735
Commitments and contingencies -- --
Shareholders' interest:
5% preferred stock, $25 par value 60,675 60,675
Common stock, $.01 par value 60,663 60,032
Capital in excess of par value 25,869,123 25,625,072
Treasury stock (common), at cost;
11,847 and 81 shares
in January and July, respectively (76,469) (919)
Accumulated other comprehensive income
(loss) 14,750 (15,625)
Accumulated deficit (18,261,290) (18,548,949)
Total shareholders' interest 7,667,452 7,180,286
TOTAL LIABILITIES AND SHAREHOLDERS'
INTEREST $ 9,635,517 $ 8,959,021
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
for the three months ended January 31, 2000 and 1999
(Unaudited)
2000 1999
Revenues:
Retained royalties $1,118,229 $ 965,454
Revenues under service contracts,
including $9,800 from related
parties in 2000 27,840 27,820
1,146,069 993,274
Costs of technology management
services 512,236 460,942
General and administration expenses,
of which $30,594 and $1,200 were
paid to related parties in 2000
and 1999, respectively 352,150 300,884
864,386 761,826
Operating income 281,683 231,448
Interest income 82,552 42,115
Interest expense -- (1,804)
Losses related to equity
method affiliates -- (498)
Other income (expense), net 64,490 (32,427)
Net income 428,725 238,834
Other comprehensive income:
Net unrealized holding gains (losses)
on available-for-sale securities 84,448 (7,291)
Reclassification adjustment for realized
gains included in net income (64,490) --
Comprehensive income $ 448,683 $ 231,543
Net income per share:
Basic and diluted $ 0.07 $ 0.04
Weighted average number of common
shares outstanding:
Basic 6,009,531 5,975,286
Diluted 6,039,908 6,006,466
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
for the six months ended January 31, 2000 and 1999
(Unaudited)
2000 1999
Revenues:
Retained royalties $ 1,562,959 $ 1,281,709
Revenues under service contracts
including $9,800 from related
parties in 2000 153,937 130,879
1,716,896 1,412,588
Costs of technology management
services 1,076,320 890,901
General and administration expenses,
of which $58,151 and $2,400 were
paid to related parties in 2000
and 1999, respectively 580,813 574,145
Restructuring charges -- 70,000
1,657,133 1,535,046
Operating income (loss) 59,763 (122,458)
Interest income 163,675 84,733
Interest expense -- (3,607)
Losses related to equity
method affiliates -- (748)
Other income (expense), net 64,221 (34,534)
Net income (loss) 287,659 (76,614)
Other comprehensive income:
Net unrealized holding gains (losses)
on available-for-sale securities 94,865 9,375
Reclassification adjustment for realized
gains included in net income (64,490) --
Comprehensive income (loss) $ 318,034 $ (67,239)
Net income (loss) per share:
Basic and diluted $ 0.05 $ (0.01)
Weighted average number of common
shares outstanding:
Basic 6,006,086 5,983,132
Diluted 6,036,385 5,983,132
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Interest
for the six months ended January 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Accumulated
Shares Common Stock Capital in Other
issued and Shares excess of Treasury Stock Comprehensive Accumulated
outstanding Amount issued Amount par value Shares held Amount Income (Loss) Deficit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - July 31, 1999 2,427 $60,675 6,003,193 $60,032 $25,625,072 (81) $ (919) $ (15,625) $(18,548,949)
Exercise of common
stock options 63,101 631 250,055 28,259 145,655
Stock issued under
1996 Directors'
Stock Participation
Plan . . (6,004) 9,375 55,340
Other comprehensive
income:
Net unrealized holding
gains (losses) on
available-for-sale
securities . . . . 94,865
Reclassification
adjustment . (64,490)
Purchase of treasury
stock. . . (49,400) (276,545)
Net income . . . . . 287,659
Balance -
January 31, 2000 2,427 $60,675 6,066,294 $60,663 $25,869,123 (11,847) $(76,469) $ 14,750 $(18,261,290)
</TABLE>
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the six months ended January 31, 2000 and 1999
(Unaudited)
2000 1999
Cash flow from operating activities:
Income (loss) from operations $ 287,659 $ (76,614)
Noncash items included in income
(loss) from operations:
Depreciation and amortization 103,895 98,962
Equity method affiliates -- 748
Directors' stock and stock retirement
plan accruals 63,411 74,266
Amortization of discount on purchase
obligation -- 3,607
Other noncash items 3 11,740
Gain on sale of investment (64,490) --
Net changes in various operating accounts:
Receivables (476,138) (47,319)
Prepaid expenses and other current
assets 45,556 60,458
Accounts payable and accrued
liabilities 175,255 (302,667)
Net cash flow from operating activities 135,151 (176,819)
Cash flow from investing activities:
Purchases of property and equipment, net (27,741) 5,850
Purchases of other short-term investments (394,827) --
Proceeds from sale of:
Available-for-sale securities 106,446 --
Other short-term investments -- 356,262
Proceeds from sales of investments in
affiliates -- 198,850
Net cash flow from investing activities (316,122) 560,962
Cash flow from financing activities:
Proceeds from exercise of stock options 396,341 --
Purchases of treasury stock (276,545) (86,385)
Repayment of purchase obligation -- (300,993)
Net cash flow from financing activities 119,796 (387,378)
Net decrease in cash and cash equivalents (61,175) (3,235)
Cash and cash equivalents, beginning
of period 185,838 216,826
Cash and cash equivalents, end of period $ 124,663 $ 213,591
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Interim Financial Statements
Interim financial information presented in the accompanying
financial statements and notes hereto is unaudited.
The year end balance sheet data was derived from audited
financial statements but does not include all disclosures required
by generally accepted accounting principles.
In the opinion of management, all adjustments which are
necessary to present the financial statements fairly in conformity
with generally accepted accounting principles, consisting only of
normal recurring adjustments, have been made.
The interim financial statements and notes thereto as well as
the accompanying Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended
July 31, 1999.
2. Net Income (Loss) Per Share
The following table sets forth the computations of basic and
diluted net income (loss) per share.
<TABLE>
<CAPTION>
Six months Quarter
ended January 31, ended January 31,
2000 1999 2000 1999
<C> <C> <C> <C> <C>
Net income (loss)
applicable to common stock:
Basic and diluted $ 287,659 $ (76,614) $ 428,725 $ 238,834
Weighted average number of
common shares outstanding 6,006,086 5,983,132 6,009,531 5,975,286
Effect of dilutive securities:
Stock options 30,299 -- 30,377 31,180
Weighted average number of common
shares outstanding and
dilutive securities 6,036,385 5,983,132 6,039,908 6,006,466
Net income (loss) per share of
common stock:
Basic and diluted $ 0.05 $ (0.01) $ 0.07 $ 0.04
</TABLE>
At January 31, 2000 and 1999, respectively, options and warrants
to purchase 463,042 and 473,542 shares of common stock were
outstanding but were not included in the computation of earnings per
share because they were anti-dilutive.
3. Short-term Investments
On January 31, 2000, the Company's available-for-sale securities
were as follows:
Accumulated Accumulated
Other Other
Aggregate Comprehensive Comprehensive
Security Type Fair Value Income Loss Cost Basis
Equity
Securities $ 28,000 $ 14,750 $ -- $ 13,250
For the quarter and six months ended January 31, 2000, proceeds
from the sale of available-for-sale securities were $106,446 which
resulted in gross realized gains of $64,490. For the quarter and six
months ended January 31, 1999, there were no sales of available-for-
sale securities. Cost is based on specific identification in
computing realized gains.
A reconciliation detailing amounts reported in net income and
other comprehensive income for the quarters and six months ended
January 31, 2000 and 1999 follows:
Quarter ended Six months ended
January 31, January 31,
2000 1999 2000 1999
Accumulated other
comprehensive income (loss):
Accumulated net unrealized
holding gains (losses) on
available-for-sale securities,
beginning of period $ (5,208) $ (5,208) $(15,625) $(21,874)
Other comprehensive income:
Holding gains (losses) arising
during the period 84,448 (7,291) 94,865 9,375
Reclassification adjustment
for gains on sales of
securities included in
net income (64,490) -- (64,490) --
Accumulated other comprehensive
income (loss) $ 14,750 $(12,499) $14,750 $(12,499)
No tax effect is reported on the Company's unrealized gains on
securities because the Company has capital loss carryforwards.
4. Receivables
Receivables comprise:
January 31 July 31,
2000 1999
Royalties $2,143,362 $1,649,713
Other 58,822 76,333
$2,202,184 $1,726,046
5. Accrued Liabilities
Accrued liabilities were:
January 31, July 31,
2000 1999
Royalties payable $1,490,083 $1,072,704
Accrued compensation 157,721 172,587
Deferred revenues 26,465 153,741
Other 204,234 269,717
$1,878,503 $1,668,749
6. Contingencies
Litigation
On May 4, 1999, Metabolite Laboratories, Inc. (MLI) and
Competitive Technologies, Inc. (CTT or the Company) (collectively
plaintiffs) filed a complaint and jury demand against Laboratory
Corporation of America Holdings d/b/a LabCorp (LabCorp) in the
United States District Court for the District of Colorado. The
complaint alleges, among other things, that LabCorp owes plaintiffs
royalties for homocysteine assays performed during and since the
summer of 1998 using methods falling within the claims of a patent
owned by CTT. CTT licensed the patent non-exclusively to MLI and
MLI sublicensed it to LabCorp. Plaintiffs claim LabCorp's actions
constitute breach of contract and patent infringement. Their claim
seeks an injunction ordering LabCorp to perform all its obligations
under its agreement, to cure past breaches, to provide an accounting
of wrongfully withheld royalties and to refrain from infringing the
patent. Plaintiffs also seek unspecified money and exemplary
damages and attorneys' fees, among other things. LabCorp has filed
an answer and counterclaims alleging noninfringement, patent
invalidity and patent misuse. The District Court has ordered the
parties to attempt to settle their claims before October 1, 2000.
CTT is unable to estimate the related legal expenses it may incur in
this suit and has recorded no revenue for these withheld royalties.
On July 7, 1997, in a case previously filed in the United
States District Court for the District of Colorado by University of
Colorado Foundation, Inc., the University of Colorado, the Board of
Regents of the University of Colorado, Robert H. Allen and Paul A.
Seligman, plaintiffs, against American Cyanamid Company, defendant,
judgment was entered in favor of plaintiffs and against defendant in
the amount of approximately $44.4 million. The case involved a
patent for an improved formulation of Materna, a prenatal vitamin
compound sold by defendant. The District Court concluded that
defendant fraudulently obtained a patent on the improvement without
disclosing the patent application to plaintiffs and without naming
the professors as the inventors and that the defendant was unjustly
enriched. While the Company was not and is not a party to this
case, the Company had a contract with the University of Colorado to
license University of Colorado inventions to third parties, and the
Company would have been entitled to a share of the judgment. On
November 19, 1999, the United States Court of Appeals for the
Federal Circuit (CAFC) vacated and remanded the July 7, 1997,
decision by the United States District Court for the District of
Colorado. CTT's share of the vacated award would have been
approximately $5.2 million. Among other findings, the CAFC ruled
that the District Court used an incorrect standard to determine
inventorship. The CAFC instructed the District Court to apply
federal patent law standards to determine inventorship of the patent
and then to determine whether damages should be awarded. On
February 29, 2000, the District Court heard arguments on the
plaintiffs' motion for judgment. The parties await the judgment of
the District Court. The Company cannot predict the amount of the
judgment, if any, that may ultimately be awarded. The Company has
recorded no potential judgment proceeds in its financial statements
to date.
In November 1991, a lawsuit was filed in Connecticut against
CTT, its wholly-owned subsidiary, Genetic Technology Management,
Inc. (GTM), its majority-owned subsidiary, University Optical
Products Co. (UOP), and one current and several former directors on
behalf of the 59 limited partners of Optical Associates, Limited
Partnership (OALP). The complaint alleges, among other things, that
the January 1989 sale of UOP's assets to Unilens Corp. USA (Unilens)
violated the partnership agreement and that OALP is entitled to the
full proceeds of the sale to Unilens. The complaint claims, among
other things, money damages and treble and punitive damages in an
unspecified amount and attorneys' fees. The Company believes that
the asserted claims are without merit and intends to defend
vigorously the action instituted by plaintiffs. Hearings in the
case have commenced before an attorney referee; however, due to
scheduling conflicts, further hearings have been adjourned and are
expected to occur in calendar 2000. Through January 31, 2000, the
Company had received aggregate cash proceeds of approximately
$1,011,000 from the January 1989 sale of UOP's assets to Unilens.
As cash proceeds are received, CTT records a 4% commission expense
payable to OALP, its joint venture partner.
PART I. FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition and Liquidity
At January 31, 2000, cash and cash equivalents of $124,663 were
$61,175 lower than cash and cash equivalents of $185,838 at July 31,
1999. Operating activities provided $135,151, investing activities
used $316,122 and financing activities provided $119,796.
In addition, Competitive Technologies, Inc. (CTT) and its
majority-owned subsidiaries (the Company) held $5,735,475 in short-
term investments at January 31, 2000. These investments are
available for the Company's future operating, investing and
financing activities.
The Company's net income for the six-months ended January 31,
2000, included the following non-cash items: approximately $104,000
of depreciation and amortization and approximately $63,000 of
accrued expenses.
In general, changes in various operating accounts result from
changes in the timing and amounts of cash flows before and after the
end of the period. Royalties receivable increased approximately
$494,000 and royalties payable increased approximately $417,000.
These changes in royalties receivable and payable reflect the
Company's normal cycle of royalty collections and payments. In
addition, the Company recognized approximately $127,000 of deferred
revenues during the six months ended January 31, 2000.
During the six months ended January 31, 2000, the Company sold
available-for-sale securities for proceeds of approximately $106,000
and purchased approximately $395,000 of other short-term
investments.
During the six months ended January 31, 2000, the Company
received approximately $396,000 from stock options exercised to
purchase common stock.
In October 1998, the Board of Directors authorized CTT to
repurchase up to 250,000 shares of its common stock. The Company
may repurchase shares on the open market or in privately negotiated
transactions at times and in amounts determined by management based
on its evaluation of market and economic conditions. The Company
repurchased 49,400 shares of its common stock for approximately
$277,000 in cash in the six months ended January 31, 2000. Since
October 1998, the Company has repurchased 74,800 shares of its
common stock for a total of approximately $386,000.
The Company is contractually required to pay certain persons
specified percentages of Renovar royalties received. At January 31,
2000, the remaining amount of this contingent payment obligation was
$13,894.
At January 31, 2000, the Company had no outstanding commitments
for capital expenditures.
The Company carries liability insurance, directors' and
officers' liability insurance and casualty insurance for owned or
leased tangible assets. It does not carry key person life
insurance. There are no legal restrictions on payments of dividends
by CTT.
The Company continues to pursue additional technology
management opportunities. If and when such opportunities are
consummated, the Company may commit capital resources to them.
The Company does not believe inflation had a significant impact
on its operations during fiscal 2000 or 1999 or that it will have a
significant impact on operations during the next twelve-month
operating period.
In previous periods, the Company addressed the Year 2000
computer issue. This issue concerns computer hardware and software
systems' ability to recognize and process dates after December 31,
1999, properly and accurately. The Company modified, upgraded, or
replaced previously noncompliant computer systems. The Company's
significant systems have performed properly and accurately in the
Year 2000. To the date of this report, the Company is not aware of
any Year 2000 related problems affecting its licensees in making
licensed products or in reporting royalties. Nor has the Company
experienced any Year 2000 related problems in its transactions with
banks or other critical vendors to the date of this report.
Management estimates that it spent approximately $26,000 to address
Year 2000 issues, including normally recurring costs to keep its
computer systems current. This is a Year 2000 readiness disclosure
entitled to protection as provided in the Year 2000 Information and
Readiness Disclosure Act.
Vector Vision, Inc. (VVI), CTT's 52.4% owned subsidiary, is
operationally inactive. The Company, the inventor and others
supported VVI's video compression software development activities in
the past. Certain of VVI's proprietary technology has been accepted
in a portion of the MPEG-4 standard, an international standard for
low bandwidth applications such as video teleconferencing, video
databases and wireless video access.
In connection with the case that involved an idea by professors
at the University of Colorado that improved a prenatal vitamin
compound sold by American Cyanamid Company, the Company is entitled
to a share of any judgment awarded to the University of Colorado.
On November 19, 1999, the United States Court of Appeals for the
Federal Circuit (CAFC) vacated and remanded the July 7, 1997,
decision by the United States District Court for the District of
Colorado. Among other findings, the CAFC ruled that the District
Court used an incorrect standard to determine inventorship. The
CAFC instructed the District Court to apply federal patent law
standards to determine inventorship of the patent and then to
determine whether damages should be awarded. On February 29, 2000,
the District Court heard arguments on the plaintiffs' motion for
judgment. The parties await the judgment of the District Court.
The Company cannot predict the amount of the judgment, if any, that
may ultimately be awarded. The Company has recorded no potential
judgment proceeds in its financial statements to date. (See Note 6
to the accompanying financial statements and Item 3, Legal
Proceedings in the Company's Annual Report on Form 10-K for the year
ended July 31, 1999.)
On May 4, 1999, Metabolite Laboratories, Inc. (MLI) and CTT
(collectively plaintiffs) filed a complaint and jury demand against
Laboratory Corporation of America Holdings d/b/a LabCorp (LabCorp)
in the United States District Court for the District of Colorado.
The complaint alleges, among other things, that LabCorp owes
plaintiffs royalties for homocysteine assays performed during and
since the summer of 1998 using methods and materials falling within
the claims of a patent owned by CTT. CTT licensed the patent non-
exclusively to MLI and MLI sublicensed it to LabCorp. Plaintiffs
claim LabCorp's actions constitute breach of contract and patent
infringement. Their claim seeks an injunction ordering LabCorp to
perform all its obligations under its agreement, to cure past
breaches, to provide an accounting of wrongfully withheld royalties
and to refrain from infringing the patent. Plaintiffs also seek
unspecified money and exemplary damages and attorneys' fees, among
other things. LabCorp has filed an answer and counterclaims
alleging noninfringement, patent invalidity and patent misuse. The
District Court has ordered the parties to attempt to settle their
claims before October 1, 2000. CTT is unable to estimate the
related legal expenses it may incur in this suit and has recorded no
revenue for these withheld royalties.
At January 31, 2000, the Company had $5,860,138 in cash, cash
equivalents and short-term investments. Royalties receivable, net
of royalties payable, were $653,279. Based on the Company's current
expectations, it anticipates that currently available funds will be
sufficient to finance cash needs for the foreseeable future for its
current operating activities. However, expansion of the Company's
business is subject to many factors outside the Company's control or
that it cannot currently anticipate, including without limitation
business opportunities that may arise in the future. Accordingly,
there can be no assurance that the Company's current expectations
regarding the sufficiency of currently available funds will prove to
be accurate.
Results of Operations - Three Months Ended January 31, 2000 (Second
Quarter, Fiscal 2000) vs. Three Months Ended January 31, 1999
(Second Quarter, Fiscal 1999)
The Company's $281,683 operating income and $428,725 net income
for the second quarter of fiscal 2000 were $50,235 and $189,891
higher, respectively, than its operating income and net income for
the second quarter of fiscal 1999.
Total revenues for the quarter ended January 31, 2000, were
$152,795 (15%) higher than for the quarter ended January 31, 1999.
Retained royalties for the quarter ended January 31, 2000, were
$152,775 (16%) higher than for the quarter ended January 31, 1999.
Retained royalties from the gallium arsenide semiconductor
inventions, which include laser diode applications, were
approximately $363,000 (166%) higher than in the second quarter of
fiscal 1999. This increase includes a new license issue fee, a
minimum royalty fee, and more than $350,000 in higher earned
royalties based on licensees' sales of licensed products. In the
second quarter of fiscal 2000, revenues from homocysteine licenses
were approximately $55,000 lower than in the second quarter of
fiscal 1999. This decrease resulted partially from a sublicensee's
withholding royalties on certain tests. The Company has joined with
its licensee in a suit against the sublicensee as detailed above and
in footnote 6 to the accompanying financial statements. In
addition, the second quarter of fiscal 1999 included nearly $284,000
in retained royalty revenues from milestone payments on the
encryption technology and $94,000 from a sublicensee's catch-up
payment for previously withheld royalties; neither of these was
repeated in the fiscal 2000 second quarter. Royalty revenue
fluctuations also reflect changes in the timing of royalties
reported by licensees, new license issue fees and in licensees'
sales of licensed products.
Revenues under service contracts for the quarter ended January
31, 2000, were approximately equal to those for the quarter ended
January 31, 1999. Lower revenues from service contracts for
domestic corporate clients substantially offset increased revenues
from service contracts for university clients. Many of the
Company's service contracts are one-time arrangements unique to a
particular client at a particular time.
Total operating expenses for the quarter ended January 31,
2000, were $864,386. This was $102,560 (13%) higher than for the
quarter ended January 31, 1999. In the second quarter of fiscal
2000, the Company incurred higher charges for direct costs related
to royalties, shareholder expenses, and corporate legal expenses and
lower charges for public and investor relations services than in the
second quarter of fiscal 1999. Higher direct costs related to
royalties include the costs associated with enforcing certain of the
Company's patent and license rights. The Company held its annual
meetings of stockholders in the second quarter of fiscal 2000 and in
the third quarter of fiscal 1999. Shareholder expenses are usually
higher in the quarter that the annual meeting is held.
Costs of technology management services for the quarter ended
January 31, 2000, were $51,294 (11%) higher than for the quarter
ended January 31, 1999, as more fully discussed below.
Costs related to licensing and retained royalties were
approximately $103,000 higher in the fiscal 2000 second quarter than
in the fiscal 1999 second quarter. Approximately $65,000 of this
increase is in patent litigation expenses associated with enforcing
certain of the Company's patent and license rights. Approximately
$34,000 reflects higher personnel costs (including benefits and
overheads) associated with patenting and licensing services.
Costs related to service contracts were approximately $20,000
higher for the second quarter of fiscal 2000 than for the second
quarter of fiscal 1999. This increase is primarily due to higher
personnel costs (including benefits and overheads) associated with
service contracts.
Costs associated with new client development for the second
quarter of fiscal 2000 (principally personnel costs, including
benefits and overheads) were approximately $72,000 lower than for
the second quarter of fiscal 1999.
General and administration expenses in the fiscal 2000 second
quarter were $51,266 (17%) higher than in the fiscal 1999 second
quarter. In the fiscal 2000 second quarter, the Company's recurring
charges for public and investor relations services were lower than
in the fiscal 1999 second quarter. However, shareholders' expenses
and corporate legal expenses were higher in the fiscal 2000 second
quarter. Certain of these increases related to the Company's annual
meeting of stockholders held January 27, 2000.
The net effect of the $152,795 (15%) increase in operating
revenues and the $102,560 (13%) increase in operating expenses was
to increase the Company's operating income by $50,235 (22%) compared
with the second quarter of fiscal 1999.
Interest income in the second quarter of fiscal 2000 was higher
than in the second quarter of fiscal 1999. For the second quarter
of fiscal 2000, the Company's average invested balance was 83%
higher than its average invested balance for the second quarter of
fiscal 1999. In addition, its weighted average interest rate was
approximately 0.36% per annum higher than for the second quarter of
fiscal 1999. Interest expense in the fiscal 1999 quarter related to
the debt incurred in acquiring USET.
During the second quarter of fiscal 2000, the Company sold
available-for-sale securities and realized gains of $64,490, which
were included in other income.
Other expenses for the quarters ended January 31, 2000, and
1999, were legal expenses incurred in connection with a suit brought
against CTT, some of its subsidiaries and directors. This suit is
more fully detailed above and in Note 13 to Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the year
ended July 31, 1999. Further hearings in this case have been
adjourned and are expected to occur in calendar 2000. Management is
unable to estimate the related legal expenses it may incur in fiscal
2000. Unilens Corp. USA (Unilens) made no payments in either
quarter of fiscal 2000 or 1999. Since the Company carries this
receivable at zero value, it will record any collections in the
period collected. Through January 31, 2000, the Company had
received aggregate cash proceeds of approximately $1,011,000 from
the January 1989 sale of University Optical Products Co. assets to
Unilens. As cash proceeds were received, the Company paid a 4%
commission to Optical Associates, L.P., its joint venture partner.
The Company has approximately $16,481,000 of Federal net
operating loss carryforwards of which approximately $3,613,000
expire in fiscal 2000.
The Company does not expect adoption of Statement of Financial
Accounting Standards No. 133 to have a material effect on its
financial statements. See Note 1 to Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the year
ended July 31, 1999.
Results of Operations - Six Months Ended January 31, 2000 (First
Half, Fiscal 2000) vs. Six Months Ended January 31, 1999 (First
Half, Fiscal 1999)
The Company's $59,763 operating income and $287,659 net income
for the six months ended January 31, 2000 are $182,221 and $364,273
higher, respectively, than its operating loss and net loss for the
six months ended January 31, 1999.
Total revenues for the six months ended January 31, 2000, were
$304,308 (22%) higher than for the six months ended January 31,
1999.
Retained royalties for the six months ended January 31, 2000,
were $281,250 (22%) higher than for the six months ended January 31,
1999. Retained royalties from the gallium arsenide semiconductor
inventions, which include laser diode applications, were
approximately $376,000 (171%) higher than in the first half of
fiscal 1999. This increase includes new license issue fees, a
minimum royalty fee, and more than $350,000 in higher earned
royalties based on licensees' sales of licensed products. In the
first half of fiscal 2000, revenues from homocysteine licenses were
approximately $115,000 lower than in the first half of fiscal 1999.
This decrease resulted partially from a sublicensee's withholding
royalties on certain tests. The Company has joined with its
licensee in a suit against the sublicensee as detailed above and in
footnote 6 to the accompanying financial statements. In addition,
the first half of fiscal 1999 included nearly $284,000 in retained
royalty revenues from milestone payments on the encryption
technology and $94,000 from a sublicensee's catch-up payment for
previously withheld royalties; neither of these was repeated in the
fiscal 2000 second quarter. Royalty revenue fluctuations also
reflect new license issue fees and changes in the timing of
royalties reported by licensees and in licensees' sales of licensed
products.
Revenues under service contracts for the six months ended
January 31, 2000, were $23,058 (18%) higher than for the six months
ended January 31, 1999. This increase reflects lower revenues from
contract services for domestic corporations more than offset by
higher revenues from a nonrecurring government contract. The
Company earned approximately $129,000 on two contracts, one for a
government agency and one for a domestic start-up corporation, in
the fiscal 2000 first half. The Company earned substantially all of
the revenues from contract services to domestic corporations in the
fiscal 1999 first half, including a one-time fee for assisting a
start-up company to obtain equity financing. Many of the Company's
service contracts are one-time arrangements unique to a particular
client at a particular time.
Total operating expenses for the six months ended January 31,
2000, were $1,657,133. This was $122,087 (8%) higher than for the
six months ended January 31, 1999. The Company incurred higher
charges for direct costs related to royalties and shareholder
expenses. Lower charges for public and investor relations services
partially offset these increases. In addition, the Company charged
$70,000 for restructuring its operations in the first half of fiscal
1999. There was no similar charge in the first half of fiscal 2000.
Costs of technology management services for the six months
ended January 31, 2000, were $185,419 (21%) higher than for the six
months ended January 31, 1999, as more fully discussed below.
Costs related to licensing and retained royalties were
approximately $190,000 higher in the fiscal 2000 first half than in
the six months ended January 31, 1999. This increase includes
approximately $117,000 higher personnel costs (including benefits
and overheads) associated with patenting and licensing services and
$93,000 higher patent litigation and enforcement expenses. In the
fiscal 2000 first half, domestic and foreign patent costs were lower
and recoveries of foreign patent costs against university royalties
were higher.
Costs related to service contracts were approximately $45,000
higher for the first half of fiscal 2000 than for the first half of
fiscal 1999. This increase is due to direct costs related to
services for a domestic start-up corporation.
Costs associated with new client development for the first half
of fiscal 2000 (principally personnel costs, including benefits and
overheads) were approximately $49,000 lower than for the first half
of fiscal 1999.
General and administration expenses in the fiscal 2000 first
half were $6,668 (1%) higher than in the fiscal 1999 first half.
Although shareholder expenses were higher, public and investor
relations expenses were lower in the first half of fiscal 2000.
Restructuring charges of $70,000 in the six months ended
January 31, 1999, related to the costs of closing the Company's
Bethlehem, Pennsylvania, office and other staff reductions made in
August and September, 1998. Management took these actions to reduce
operating expenses and improve operating efficiency.
The net effect of the $304,308 (22%) increase in operating
revenues and the $122,087 (8%) increase in operating expenses was to
increase the Company's operating income by $182,221 (149%) compared
with the first half of fiscal 1999.
Interest income in the first half of fiscal 2000 was higher
than in the first half of fiscal 1999. For the first half of fiscal
2000, the Company's average invested balance was 93% higher than its
average invested balance for the first half of fiscal 1999.
However, its weighted average interest rate was substantially equal
to that for the first half of fiscal 1999. Interest expense in the
fiscal 1999 first half related to the debt incurred in acquiring
USET.
During the first half of fiscal 2000, the Company sold
available-for-sale securities and realized gains of $64,490, which
were included in other income.
Other expenses for the six months ended January 31, 2000, and
1999, were legal expenses incurred in connection with a suit brought
against CTT, some of its subsidiaries and directors. This suit is
detailed more fully above and in Note 13 to Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the year
ended July 31, 1999.
Forward-Looking Statements
Statements about the Company's future expectations, including
development and regulatory plans, and all other statements in this
Quarterly Report on Form 10-Q other than historical facts, are
"forward-looking statements" within the meaning of applicable
Federal Securities Laws and are not guarantees of future
performance. These statements involve risks and uncertainties
related to market acceptance of and competition for the Company's
licensed technologies and other risks and uncertainties inherent in
the Company's business, including those set forth in Item 1 of the
Company's Annual Report on Form 10-K for the year ended July 31,
1999, and other factors that may be described in the Company's
filings with the Securities and Exchange Commission, and are subject
to change at any time. The Company's actual results could differ
materially from these forward-looking statements. The Company
undertakes no obligation to update publicly any forward-looking
statement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The November 19, 1999 decision of the United States Court of
Appeals for the Federal Circuit is more fully reported in Note 6 to
the accompanying financial statements and is incorporated herein by
reference.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of stockholders held January
27, 2000, the following directors were elected:
Name Votes For Votes Withheld
George C.J. Bigar 3,932,235 1,671,106
Richard E. Carver 4,714,359 888,982
George W. Dunbar, Jr. 4,712,371 890,970
Samuel M. Fodale 4,136,162 1,467,179
Frank R. McPike, Jr. 3,966,177 1,637,164
Charles J. Philippin 4,732,321 871,020
John M. Sabin 3,961,595 1,641,746
No votes were withheld as to all nominees and there were no
broker non-votes.
Also at the Company's annual meeting of stockholders held
January 27, 2000, stockholders rejected the proposal to amend the
Company's Restated Certificate of Incorporation to authorize
2,000,000 shares of undesignated Class A Preferred Stock. There
were 955,126 shares voted for and 2,513,770 shares voted against
this proposal, and 47,285 shares abstained. There were also
2,087,160 broker non-votes which were not entitled to vote on this
matter.
Also at the Company's annual meeting of stockholders held
January 27, 2000, stockholders approved the proposal to approve the
2000 Directors Stock Option Plan and reserve 250,000 shares of
Common Stock for options under the Plan. There were 3,141,299
shares voted for and 2,415,314 shares voted against this proposal,
and 46,728 shares abstained.
Item 6. Exhibits and Reports on Form 8-K Page
A) Exhibits
10.1 Employment Agreement between registrant
and Frank R. McPike, Jr. dated
December 7, 1999. 22-32
11.1 Schedule of computation of earnings per
share for the three and six months ended
January 31, 2000 and 1999. 33
27.1 Financial Data Schedule (EDGAR only).
B) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: March 16, 2000 By: S/ Frank R. McPike, Jr.
Frank R. McPike, Jr.
President, Chief Operating
Officer, Chief Financial
Officer, Director and
Authorized Signer
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement"), dated as of
December 7, 1999 ("Effective Date"), is between Competitive
Technologies, Inc., (the "Company") and Frank R. McPike, Jr. (the
"Executive").
WHEREAS, the Company desires to continue to employ Executive
as its President and Chief Operating Officer, and Executive
desires to accept such employment, on the terms and conditions
set forth below.
NOW THEREFORE, in consideration of the mutual covenants
herein, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
1. Employment. The Company hereby employs the Executive,
and the Executive hereby accepts such employment with the
Company, upon all the terms and conditions set forth below.
Executive represents and warrants that he has full power and
authority to enter into this Employment Agreement and that he is
not restricted in any manner whatsoever from performing the
duties described below. Executive's employment with the Company
shall include service for the Company's direct and indirect
subsidiaries (the "Subsidiaries").
2. Employment Term.
a. Unless earlier terminated as provided below, the term
of the Executive's employment under this Agreement
("Employment Term") shall commence on the Effective Date and
shall continue until the date three years after the
Effective Date ("Ending Date"). By agreement of the parties,
the Employment Term and Ending Date may be extended from
year to year thereafter in accordance with Section 2(b)
below. The Company and the Executive acknowledge that the
Executive's employment is at will and can be terminated by
either party at any time with or without Cause (as defined
below). If the Executive's employment terminates for any
reason, with or without Cause, the Executive shall not be
entitled to any payments, benefits, damages, awards, or
compensation other than as provided in this Agreement.
b. Executive agrees that not less than 180 days prior to
the Ending Date, he will notify the Company in writing
regarding whether he is willing to continue in the Company's
employ after the Ending Date on substantially the same terms
as provided in this Agreement ("Continuation Notice"). The
Company agrees to respond to the Continuation Notice within
30 days of receipt and inform Executive regarding whether it
will offer Executive continuing employment for the next year
after the Ending Date on substantially the same terms as
provided in this Agreement ("Continuation Response"). The
Company shall pay to Executive continuation of his Base
Compensation then in effect for a period of six months after
the Ending Date if: (i) Executive provides a Continuation
Notice; (ii) the Company elects not to offer Executive
continued employment at the end of the Employment Term on at
least substantially the same terms as provided in this
Agreement unless the reason(s) for such non-renewal
constitutes Cause (as defined below); and (iii) Executive
remains employed by the Company through the Ending Date.
3. Position and Duties.
a. Executive Officer. The Company shall employ the
Executive as its President and Chief Operating Officer.
Executive shall report to the Company's Board of Directors
(the "Board") or its chief executive officer, if any, or
other Board designee. Without any additional compensation,
Executive will serve in the discretion of the Board and/or
if so elected by the Company's stockholders, as a member of
the Board and as an officer and/or director of any
affiliated entities or Subsidiaries. Executive shall have
such responsibilities and duties as are commensurate with
such positions in an entity comparable to the Company,
including, without limitation, development of business
strategy and annual business plans, supervision of all day-
to-day operations of the Company, development of the
Company's organization plan, establishment of the Company's
management team, and establishing and maintaining
communications and relationships with the Board. The Board
may assign other duties to Executive from time to time. The
Board shall have the right to modify the responsibilities of
the Executive from time to time as the Board may deem
necessary or appropriate.
b. Manner of Employment. Executive shall faithfully,
diligently and competently perform his responsibilities and
duties. The Executive shall devote his exclusive and full
business efforts and time to the Company. This Section
3(b), however, shall not preclude the Executive, outside
normal business hours, from engaging in appropriate civic or
charitable activities, or from serving as a director of any
not-for-profit entity, as long as such activities do not
interfere or conflict with his responsibilities to the
Company. With the Board's consent, Executive may serve as a
director of a for-profit entity.
4. Base Compensation. The Company shall pay the Executive
as compensation for his services an aggregate base compensation
in the amount of $185,000 per year, subject to annual reviews and
increases in the sole discretion of the Board ("Base
Compensation"). Base Compensation shall be paid periodically in
accordance with normal Company payroll practices.
5. Employment Benefits. Executive shall be entitled to
the following benefits during the Employment Term:
a. Expense Allowance. Executive shall be reimbursed for
business related expenses reasonably and necessarily
incurred and advanced by Executive in performing his duties
for the Company, in accordance with Company policy as it
exists from time to time.
b. Vacation. The Executive shall be entitled to 25 days
of paid vacation per calendar year to be earned and used in
accordance with the Company's vacation policy as it exists
from time to time. Vacations cannot be carried over from
year to year and are forfeited if not taken prior to the end
of the year. If Executive does not use all of Executive's
vacation in any calendar year, Executive may receive pay in
lieu of such vacation, up to a maximum of two weeks per
year.
c. Other Benefits. Executive may participate in all other
employee benefit plans and programs as the Company may, from
time to time, offer to its executive employees, subject to
the same terms and conditions as such benefits are generally
provided by the Company. All such benefits are subject to
plan documents (where applicable) and the Company's policies
and procedures. Nothing in this Section 5(c) guarantees
that any specific benefits will be provided or offered by
the Company which has the sole right to modify, add to, or
terminate such benefits at any time.
6. Bonus. Executive may participate in any executive
bonus plan adopted by the Company. The terms of such bonus plan
and the payment of any bonuses to Executive shall be in the sole
discretion of the Board or its Compensation Committee.
7. Stock Options.
a. The Company shall grant to Executive certain options
("Options") for the purchase of an aggregate of 100,000
shares of the Company's common stock ("Common Stock") at the
price of $5.5625 per share, the mean between the high and
low price for such shares on December 7, 1999, the date the
Company's Compensation Committee approved the grant. Such
Options shall vest as follows:
i. Options for the purchase of 25,000 shares of
Common Stock, of which 7,025 shall be non-statutory
stock options ("NSOs") and 17,975 shall be incentive
stock options ("ISOs"), shall vest on the Effective
Date;
ii. Options for the purchase of 12,500 shares of
Common Stock, all of which shall be ISOs, to vest on
the first annual anniversary of the Effective Date;
iii. Options to purchase 12,500 shares of Common Stock,
all of which shall be ISOs, to vest on the second
annual anniversary of the Effective Date.
iv. Options for the purchase of 25,000 shares of
Common Stock, all of which shall be NSOs, to vest on
the ninth annual anniversary after the Effective Date;
provided however that if and only if during the one
year period immediately after the Effective Date, the
average closing trading price for the Common Stock for
any consecutive 20 trading day period shall be $8.00
per share or higher, then the vesting of such Options
shall be accelerated and such Options shall vest
immediately at the end of such 20 day period.
v. Options for the purchase of 25,000 shares of
Common Stock, all of which shall be NSOs, to vest on
the ninth annual anniversary after the Effective Date;
provided however that if and only if during the two
year period immediately after the Effective Date, the
average closing trading price for the Common Stock for
any consecutive 20 trading day period shall be $10.00
per share or higher, then the vesting of such Options
shall be accelerated and such Options shall vest
immediately at the end of such 20 day period.
b. The grant and exercisability of all Options described
in Section 7(a) are subject to: (i) the terms and
conditions contained in the Company's Stock Option Plan as
may be amended from time to time in the Company's sole
discretion ("Option Plan"); and (ii) the terms and
conditions of a definitive Stock Option Agreement (the
"Option Agreement") to be entered into as of the Effective
Date between the parties pursuant to the Option Plan that
will set forth all of the rights, duties and obligations
regarding such Options.
8. Termination and Severance Benefits.
a. Death. The death of Executive shall automatically
terminate the Company's obligations under this Agreement;
provided however, the Company shall pay to Executive's
estate Executive's Base Compensation and accrued benefits
through the date of termination.
b. Disability. If Executive is unable, in the reasonable
determination of the Board, to render services of
substantially the kind and nature, and to substantially the
extent, required to be rendered by Executive under this
Agreement due to illness, injury, physical or mental
incapacity or other disability, for 120 days, whether
consecutive or not, within any 12 month period, Executive's
employment may be terminated by the Company and Executive
shall only be entitled to Base Compensation and accrued
benefits through the date of termination.
c. Resignation. If Executive resigns his employment
during the Employment Term other than for Good Reason (as
defined below), the Company shall have no liability to
Executive except to pay Executive's Base Compensation and
any accrued benefits through his last day worked, and
Executive shall not be entitled to receive severance or
other benefits.
d. Resignation for Good Reason. If Executive resigns his
employment for Good Reason, he shall be entitled to the
Severance Amount (as defined below).
e. Termination By Company for Cause. If the Executive's
employment is terminated for Cause (as defined below), the
Company shall have no liability to Executive except to pay
Executive Base Compensation and any accrued benefits through
his last day worked and Executive shall not be entitled to
receive severance or other benefits.
f. Termination By Company Without Cause. If the Company
terminates Executive's employment during the Employment Term
without Cause (as defined below), Executive shall be
entitled to receive the Severance Amount (as defined below).
g. Cause. The following acts by Executive shall
constitute "Cause" for termination:
i. theft or embezzlement, or attempted theft or
embezzlement, of money or material tangible or
intangible assets or property of the Company or its
employees or business relations;
ii. any felony conviction or any violation of any law
or any act or acts of moral turpitude which negatively
affects the interests, property, business, operations
or reputation of the Company;
iii. other than as a result of a disability, a material
failure to carry out effectively Executive's duties and
obligations to the Company, or failure to devote to the
Company's business the time required in Section 3(b)
above, as determined in the reasonable judgment of the
Board, upon not less than ten (10) days' advance
written notice of the asserted problem and a reasonable
opportunity to cure;
iv. gross negligence or willful misconduct in the
performance of Executive's duties;
v. Executive's material breach of this Agreement
which, after written notice by the Company of such
breach, is not cured within ten (10) days of such
notice.
h. Resignation for Good Reason. Resignation by Executive
of his employment for "Good Reason" shall mean a resignation
by Executive:
i. within 2 months after the Company's determination
that Executive shall no longer serve as President or
Chief Operating Officer, it expressly being understood
that so long as he holds at least one of those titles,
Executive shall not have grounds for a resignation for
Good Reason; or
ii. within 6 months after a Change in Control (as
defined below), and either a material reduction in
Executive's total compensation package or the Company's
determination the Executive shall no longer serve in
either of the positions set forth in Section 8(h)(i)
above.
i. Change in Control. For purposes of this Agreement, a
"Change in Control" shall mean the occurrence of any of the
following events:
i. a merger or consolidation involving the Company or
any subsidiary of the Company after the completion of
which: (A) in the case of a merger (other than a
triangular merger) or a consolidation involving the
Company, the stockholders of the Company immediately
prior to the completion of such merger or consolidation
beneficially own (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or comparable
successor rules), directly or indirectly, outstanding
voting securities representing less than fifty percent
(50%) of the combined voting power of the surviving
entity in such merger or consolidation, and (B) in the
case of a triangular merger involving the Company or a
subsidiary of the Company, the stockholders of the
Company immediately prior to the completion of such
merger beneficially own (within the meaning of Rule 13d-
3 promulgated under the Exchange Act, or comparable
successor rules), directly or indirectly, outstanding
voting securities representing less than fifty percent
(50%) of the combined voting power of the surviving
entity in such merger and less than fifty percent (50%)
of the combined voting power of the parent of the
surviving entity in such merger;
ii. an acquisition by any person, entity or "group"
(within the meaning of Section 13(d) or 14(d) of the
Exchange Act or any comparable successor provisions),
other than any employee benefit plan, or related trust,
sponsored or maintained by the Company or an affiliate
of the Company and other than in a merger or
consolidation of the type referred to in clause "(i)"
of this Section 7(b), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rules) of
outstanding voting securities of the Company
representing more than forty percent (40%) of the
combined voting power of the Company (in a single
transaction or series of related transactions); or
iii. in the event that the individuals who, as of the
Effective Date, are members of the Board (the
"Incumbent Board"), cease for any reason to constitute
at least fifty percent (50%) of the Board. (However,
if the subsequent election, or nomination for election
by the Company's stockholders, of any new member of the
Board is approved by a vote of at least fifty percent
(50%) of the Incumbent Board, such new member of the
Board shall be considered as a member of the Incumbent
Board.).
j. Severance Amount. The "Severance Amount" shall mean
the lesser of (i) one year's Base Compensation in effect
immediately prior to such termination or resignation; or
(ii) the Base Compensation payable over the remainder of the
Employment Term, but in no event less than six months.
Severance Amount shall be paid as a salary continuation to
be paid on the Company's regular pay days or on an
accelerated basis as determined in the Board's sole
discretion.
k. Resignations. Upon the end of Executive's employment
for any reason, Executive shall be deemed to have resigned
from any positions which he holds as a director or officer
of the Company and any of its Subsidiaries or affiliates.
9. Key Executive Insurance. The Company, at its
discretion, may apply for and procure in its own name for its own
benefit life and/or disability insurance on Executive in any
amount specified by the Company. Executive agrees to cooperate
in any medical or other examination, supply information and
execute such applications as may be reasonably necessary to
obtain and continue such insurance at the Company's expense.
Executive represents that he has no reason to believe his life is
not insurable at prevailing rates for men of his age.
10. Confidential and Proprietary Information.
a. Executive agrees that after the Effective Date, he will
not use or disclose to any person, entity, association, firm
or corporation, any of the Company's Confidential
Information, except with the written authorization of the
Board or as necessary to perform his duties under this
Agreement. The term "Confidential Information" means
information and data not generally known outside of the
Company (unless as a result of Executive's breach of any of
the obligations imposed by this Agreement or the duties
imposed by any then existing statute, regulation, ordinance
or common law) concerning the Company's business and
technical information, and includes, without limitation,
information relating to: (i) the identities of clients and
the Company's other Business Relations (as defined below)
and their purchasing habits, needs, business information,
contact personnel and other information; (ii) suppliers' and
vendors' costs, products, contact personnel and other
information; and (iii) the Company's trade secrets,
products, research and development, financial and marketing
information, personnel and compensation information, and
business plans. Executive understands that this Section 10
applies to computerized as well as written information and
to other information, whether or not in written form. It is
expressly understood, however, that the obligations of this
Section 10 shall only apply for as long as and to the extent
that the Confidential Information has not become generally
known to or available for use by the public other than by
Executive's act or omission in violation of this Agreement.
b. Executive agrees that upon the end of his employment
with the Company for any reason, he will not take with him
any Confidential Information that is in written,
computerized, machine readable, model, sample, or other form
capable of physical delivery, without the prior written
consent of the Board. The Executive also agrees that upon
the end of his employment with the Company for any reason or
at any other time that the Company may request, he will
deliver promptly and return to the Company all such
documents and materials in his possession or control, along
with all other property and documents of the Company or
relating to the Company's employees, suppliers, customers,
and business.
11. Non-Solicitation. Executive agrees that he will not
through the date one year after the end of his employment with
the Company for any reason, directly or indirectly, on his own
behalf or on behalf of any other person or entity, without the
express written permission of the Board: (a) solicit or attempt
to solicit any employee or representative of the Company; or (b)
solicit or attempt to solicit, any client, vendor, service
provider or other business relation of the Company (each a
"Business Relation"), about whom he learned or with whom he came
into contact during his employment with the Company on behalf of
any entity or with respect to any service or products which is or
may be competitive with the Company or its services or products.
12. Non-Competition.
a. Executive agrees that during the Restrictive Period (as
defined below), he will not, without the express written
consent of the Board, be associated with or engage in,
directly or indirectly, as employee, consultant, proprietor,
stockholder, partner, agent, representative, officer, or
otherwise, the operation of any business that is competitive
with the business of the Company within the United States or
any other geographic area in which the Company does material
business during the Restrictive Period (the "Restricted
Territory").
b. The term "Restrictive Period" shall mean the Employment
Term plus a period of six months after the end of the
Employment Term; provided that the six month period
following the end of the Employment Term shall not apply if:
(i) Executive's employment is terminated by the Company
without Cause, (ii) Employee resigns his employment for Good
Reason, or (iii) Employee provides the Company with a timely
Continuation Notice but the Company decides not to continue
Executive's employment after the Ending Date.
c. The phrase "business that is competitive with the
business of the Company" shall mean any business in which
the Company is engaged, including, without limitation,
digital, life sciences, and physical sciences technology
development, management and commercialization.
d. Passive investment of less than two percent of the
outstanding equity securities of an entity which is listed
on a national or regional securities exchange shall not, in
itself, constitute a violation of this Section 12.
13. Intellectual Property Rights. Executive will, during
the period of his employment, disclose to the Company promptly
and fully all Intellectual Property made or conceived by
Executive (either solely or jointly with others) including but
not limited to Intellectual Property which relate to the business
of the Company or the Company's actual or anticipated research or
development, or result from work performed by him for the
Company. All Intellectual Property and all records related to
Intellectual Property, whether or not patentable, shall be and
remain the sole and exclusive property of the Company.
"Intellectual Property" means all copyrights, trademarks, trade
names, trade secrets, proprietary information, inventions,
designs, developments, and ideas, and all know-how related
thereto. Executive hereby assigns and agrees to assign to the
Company all his rights to Intellectual Property and any patents,
trademarks, or copyrights which may be issued with respect to
Intellectual Property. Executive further acknowledges that all
work shall be work made for hire. During and after the
Employment Term, Executive agrees to assist the Company, without
charge to the Company but at its request and expense, to obtain
and retain rights in Intellectual Property, and will execute all
appropriate related documents at the request of the Company.
Executive understands that this Paragraph 13 shall not apply
to any Intellectual Property for which no equipment, supplies,
facilities, trade secret, or other confidential information of
the Company was used and which was developed entirely on his own
time, and does not relate to the business of the Company, its
actual or anticipated research, and does not result from any work
performed by him for the Company.
14. Successors and Assignees. This Agreement may be
assigned by the Company to any successor or assignee of a
substantial portion of the business of the Company (whether by
transfer of assets or stock, merger or other business
combination). Executive may not assign his rights or obligations
under this Agreement.
15. Binding Effect. This Agreement shall inure to the
benefit of and be binding upon the parties and their respective
heirs, successors, legal representatives and permitted assigns.
16. Notices. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing and either
delivered in person by reputable messenger or overnight delivery
service, by telecopy (with confirmation of receipt) or sent by
certified mail, postage prepaid, if to the Company at the
Company's principal place of business, c/o Chairman of the Board,
and if to the Executive, at his home address most recently filed
with the Company, or to such other address as either party shall
have designated in writing to the other party.
17. Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of
Connecticut.
18. Severability and Construction. If any provision of
this Agreement is declared void or unenforceable or against
public policy, such provision shall be deemed severable and
severed from this Agreement and the balance of this Agreement
shall remain in full force and effect. If a court of competent
jurisdiction determines that any restriction in this Agreement is
overbroad or unreasonable under the circumstances, such
restriction shall be modified or revised by such court to include
the maximum reasonable restriction allowed by law.
19. Remedies. Executive and Company acknowledge and agree
that damages would not adequately compensate Company if Executive
were to breach any of his covenants contained in this Agreement.
Consequently, Executive agrees that in the event of any such
breach, Company shall be entitled to enforce this Agreement by
means of an injunction or other equitable relief, in addition to
any other remedies including without limitation set off against
any amounts due Executive by Company and termination of
Executive's employment for Cause.
20. Waiver. Failure to insist upon strict compliance with
any of the terms, covenants or conditions hereof shall not be
deemed a waiver of such term, covenant or condition.
21. Entire Agreement; Modifications. This Agreement
constitutes the entire agreement of the parties with respect to
its subject matter and supersedes all prior agreements, oral and
written, between the parties with respect to the subject matter
of this Agreement, including without limitation the Employment
Agreement dated as of January 7, 1997; provided however that any
Stock Option Agreement between the parties signed on or before
the Effective Date shall remain in full force and effect. This
Agreement may be modified or amended only by an instrument in
writing signed by both parties.
22. Employment and Income Taxes. All payments made to
Executive pursuant to this Agreement will be subject to
withholding of employment taxes and other lawful deductions, as
applicable.
COMPETITIVE TECHNOLOGIES, INC.
s/Frank R. McPike, Jr. By: s/ John Sabin
Frank R. McPike, Jr. Title: Chairman
Exhibit 11.1
COMPETITIVE TECHNOLOGIES, INC.
Schedule of Computation of Earnings Per Share
(Unaudited)
<TABLE>
<CAPTION>
Six months Quarter
ended January 31, ended January 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net income (loss) applicable
to common stock $ 287,659 $ (76,614) $ 428,725 $ 238,834
Common and common equivalent
shares - diluted:
Basic weighted average common
shares outstanding 6,006,086 5,983,132 6,009,531 5,975,286
Adjustments for assumed exercise
of stock options 30,299 16,096* 30,377 31,180
Weighted average number of common
and common equivalent shares
outstanding 6,036,385 5,999,228 6,039,908 6,006,466
Net income (loss) per share of
common stock:
Basic and diluted $ 0.05 $ (0.01) $ 0.07 $ 0.04
* Anti-dilutive.
</TABLE>
These calculations are submitted in accordance with Regulation S-K item 601
(b) (11) which differs from the requirements of paragraph 13 of Statement of
Financial Accounting Standards No. 128 because they produce an anti-dilutive
result.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule for Form 10-Q for January 31, 2000
</LEGEND>
<CIK> 0000102198
<NAME> COMPETITIVE TECHNOLOGIES, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-END> JAN-31-2000
<CASH> 124,663
<SECURITIES> 5,735,475
<RECEIVABLES> 2,202,184
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,159,937
<PP&E> 294,091
<DEPRECIATION> 145,820
<TOTAL-ASSETS> 9,635,517
<CURRENT-LIABILITIES> 1,968,065
<BONDS> 0
0
60,675
<COMMON> 60,663
<OTHER-SE> 7,546,114
<TOTAL-LIABILITY-AND-EQUITY> 9,635,517
<SALES> 0
<TOTAL-REVENUES> 1,716,896
<CGS> 0
<TOTAL-COSTS> 1,657,133
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 287,659
<INCOME-TAX> 0
<INCOME-CONTINUING> 287,659
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 287,659
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.05
</TABLE>
