UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2001
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
Fairfield, Connecticut 06430
(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
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 .
Exhibit Index on sequentially numbered page 65.
Page 1 of 77 sequentially numbered pages.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
As of October 17, 2001, 6,139,351 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 $3.275, which was 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 $19,371,000.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated Document Location in Form 10-K
None Not Applicable
PART I
Item 1. Business
Introduction
Competitive Technologies, Inc. (the registrant, we, CTT or the
Company), is a Delaware corporation incorporated in 1971 to succeed
an Illinois business corporation incorporated in 1968. We provide
patent and technology commercialization services with respect to a
broad range of digital/electronic, life sciences, and physical
sciences technologies originally invented by various individuals,
corporations, research institutions, and universities.
Our goal is to maximize returns on intellectual property. We
do this by selling, licensing, or otherwise transferring
technologies to others and enforcing our and our clients' patent
rights with respect to these technologies, or by investing in new
entities to commercialize them.
On October 1, 2001, we employed approximately 12 people (full-
time equivalents). Substantially all employees are salaried and none
is represented by a labor union.
Patent and Technology Commercialization Services
We bridge the gap between conceptualization and
commercialization to bring useful, innovative, new products and
technologies to the marketplace.
A key component of our approach is that, as early in the process
as possible, we assess the strength of each invention's intellectual
property rights, patentability or protectability, and its potential
marketability. This permits us to focus our efforts and resources on
inventions with higher potential for successful commercial
exploitation.
We provide patent and technology commercialization services
with respect to a broad range of digital/electronic, life sciences,
and physical sciences technologies invented by various individuals,
corporations, research institutions, and universities.
We include telecommunications, data security, signal
processing, digital entertainment, electrical circuitry,
microelectronic, and semiconductor technologies in our
digital/electronic portfolio. Our life sciences portfolio includes
pharmaceuticals, biotechnologies, and medical devices. Our physical
sciences portfolio includes materials, manufacturing, and
environmental technologies.
Our professional staff has diverse technical, legal,
intellectual property, financial, market and business experience and
training to serve our clients' unique needs. We supplement our
professional staff, as needed, with a network of scientific,
business, and patent experts. We have also established strategic
alliances with Innovation Partners International, k.k., in Osaka,
Japan, and Angle Technology Limited in England and Scotland.
For a technology or group of technologies, we may evaluate
technical feasibility, assess potential patentability, assess
marketability and commercial potential, apply for and prosecute
patents, and enforce issued patents or other intellectual property
rights by litigation, if necessary and appropriate.
We determine the optimal strategy to commercialize a technology
based on our evaluations. We may sell or license the technology to
others, manage the related license agreements, and distribute license
revenues to their respective owners. We may assist our clients in
obtaining funding, technical skills or other resources to accelerate
developing their technologies to the next stage of commercialization.
We may also invest in a new entity to commercialize an invention or
group of inventions. When we invest in early-stage technology-based
enterprises, we expect to reap significant returns as they mature and
their products enter the marketplace. Our objective is to develop
technologies into profitable royalty bearing licenses and equity
investments.
We realize revenues from technologies in three ways.
-- We license technologies to obtain license fees and royalty
revenues.
-- We invest in new ventures to exploit specific technologies.
-- We provide technology marketing and commercialization services
to earn agreed fees.
Our clients are inventors and invention owners - individuals,
corporations, universities, and other research institutions.
In our agreements with clients, we specify the particular
services we will provide them and how they will compensate us for
those services. We tailor each agreement to satisfy the unique needs
of each client. Most clients agree to share with us a specific
percentage of amounts received from commercialization of
technologies. Some clients agree to pay a fixed percentage of
royalty revenue from licensed technology, a fee for specific services
and/or specified annual fees for our services. In some situations,
our clients give us equity or the right to purchase equity in them.
In addition, some clients agree to share expenses of the technology
commercialization process.
The three technologies that produced retained royalties equal to
or exceeding 10% of consolidated revenue for us during 2001, 2000 or
1999 were gallium arsenide semiconductors, encryption and Vitamin B12
assay. Retained royalty revenues from these technologies were:
2001 2000 1999
Gallium arsenide, including
laser diode $2,190,000 $1,363,000 $ 518,000
Public key encryption $ -- $ 736,375 $ 661,500
Vitamin B12 assay $ 417,000 $ 381,000 $ 972,000
As a percentage of retained royalties, they represented:
2001 2000 1999
Gallium arsenide, including
laser diode 60% 35% 15%
Public key encryption -- 19% 19%
Vitamin B12 assay 11% 10% 28%
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 patents include a
laser diode technology used in optoelectronic storage devices and
another technology that improves semiconductor operating
characteristics. We have licensed these inventions to Mitsubishi
Electric Corporation, NEC Corporation, Semiconductor Company,
Matsushita Electric Industrial Co., Ltd., SDL, Inc., Hitachi Ltd.,
Tottori Sanyo Electric Co., Ltd. and Toshiba Corporation. These
inventions are in current use according to information received from
licensees and other sources. Approximately $1,715,000 of 2001's
retained royalties was from one U.S. licensee's sales of licensed
product; the remaining $475,000 was from several foreign licenses and
included license issue fees from executing two new licenses.
The public key encryption and digital authentication technology
was developed by NTRU Cryptosystems, Inc. (NTRU). It can secure and
verify authenticity in wireless and Internet communications and in
electronic commercial transactions. NTRU has applied for U.S.
patents on this technology and one patent issued in June 2000. NTRU
has licensed this technology non-exclusively to NCT Group, Inc., Sony
Corporation, TAO Group Limited and others. NTRU has developed
security products and is marketing them to customers and securing
strategic alliances to provide security in wireless and other digital
media applications. In 2000 we recognized a retained royalty
settlement of $736,375 (19% of total retained royalties) for the
estimated fair value of the royalty participation we exchanged for
2,945,500 shares of common stock of NTRU valued at $0.25 per share.
This transaction occurred simultaneously with an $11 million cash
investment in NTRU by Sony Corporation and Greylock Partners. In
addition, we retained a small royalty participation in NTRU's sales
of CTT licensed products. Retained royalties in 1999 included
$661,500 from a paid-up, non-exclusive, worldwide, field of use
limited license granted to an unrelated foreign corporation in
November 1998 on this encryption technology. All performance
milestones agreed in the license were met during fiscal 1999 and the
licensee paid all the agreed milestone payments.
The improved assay procedure for diagnosing Vitamin B12
deficiencies was developed at the University of Colorado. U.S.
patents issued from February 1980 to May 1984. Certain of these U.S.
and foreign licensed patents expired in April 1998, April 1999,
February 2000 and May 2001. The remaining Vitamin B12 licensed
patents will expire in April and November 2002. We have licensed
these assay procedures to Abbott Laboratories, Bayer Corporation,
Beckman Instruments, Inc., Bio-Rad Laboratories, Inc., Chiron
Diagnostics Corporation, Microgenics, Inc., Roche Diagnostics GmbH
and Tosoh Corporation. These assay procedures are in current use
according to information received from licensees and other sources.
Approximately $542,000 of 1999's Vitamin B12 retained royalties was
from a licensee's change in its previously estimated royalties for
the period from July 1993 through July 1998.
Beginning in fiscal 1998, we have pursued an aggressive program
to license an assay used to determine whether an individual has an
elevated level of homocysteine and a corresponding deficiency of
folate or Vitamin B12. Studies indicate that high levels of
homocysteine are a primary risk factor for coronary artery disease
and a risk factor for strokes and general artery damage. Our U.S.
patent that covers this homocysteine assay expires in 2007. We had
ten homocysteine licenses (including one sublicense) throughout
fiscal 2001, 2000 and 1999. Homocysteine retained royalties in
fiscal 2001, 2000 and 1999 were approximately $203,000, $392,000 and
$265,000, respectively. A sublicensee's withholding royalties on
certain tests reduced retained royalties in 2001, 2000 and 1999. We
have joined with our licensee in a lawsuit against the sublicensee.
See also Item 3. Legal Proceedings and Note 14 to Consolidated
Financial Statements. We cannot predict the timing or amounts of
retained royalties we may earn or the timing or costs we may incur in
licensing and enforcing the patents for this assay.
Our foreign operations are limited to royalties received from
foreign licensees. See Note 12 to Consolidated Financial Statements.
Investments in and Advances to Development-Stage Companies
We generally do not finance research and development of
technologies. However, in certain instances, as well as providing
other forms of assistance, we also invest in development-stage
companies to exploit specific technologies we believe are beyond the
pure research and development stage.
NTRU Cryptosystems, Inc.
In March and July 2000, we acquired 3,172,881 shares,
approximately 10% of the then outstanding equity, of NTRU
Cryptosystems, Inc. (NTRU) in exchange for reducing our royalty
participation on NTRU's sales of CTT licensed products and $198,006
in cash. We recorded the exchange of a substantial portion of our
royalty participation at the estimated fair value of 2,945,500 shares
of NTRU common stock, $0.25 per share, as a retained royalty
settlement of $736,375. We have worked with NTRU and its founders
since 1997 and acquired our original royalty interest in exchange for
providing NTRU with custom incubation services, including patent
filing support, interim business management, technical marketing,
licensing and initial capital sourcing services. NTRU's
mathematicians and cryptographers developed a new generation of
memory efficient high-speed public key encryption solutions. NTRU's
stock is not publicly traded and there is no quoted market price for
its stock. At July 31, 2001, our carrying value for this investment
was $934,381. In August 2001, we acquired additional shares of NTRU
Series B convertible preferred stock for $100,000 in a $26.1 million
financing round. After this round of financing, CTT held
approximately 7% of NTRU's outstanding equity. We account for this
investment on the cost method.
Advances to E. L. Specialists, Inc.
E. L. Specialists, Inc. (ELS) is a Texas corporation established
to develop and commercialize innovative flexible electronic products
based on advanced polymer thick film technology, including a flexible
printed electroluminescent lamp and a low cost, non-silicon based
biometric sensor. We provide certain technology evaluation,
marketing and licensing services for ELS under a service agreement
with them.
Through a series of bridge financing agreements, we committed to
lend $821,000 to ELS. As of July 31, 2001, we had advanced $650,000
and had reset the date for repayment to September 28, 2001. Interest
accrues on the advances at 7% per annum on the first $750,000 and at
10% per annum on the remainder. However, we have recognized no
interest since March 31, 2001. ELS's intellectual property secures
the loan and this security interest is shared pro rata with another
ELS lender that has advanced $470,000 to ELS. Our advances are
convertible into ELS's common stock in certain circumstances,
including an ELS financing round in excess of $3,000,000. On
September 28, 2001, ELS defaulted on payment of the advances. We
waived this default and reset the demand date to November 5, 2001.
Based on the decline of the electronics and wireless markets,
ELS's recent financial results and the absence of quoted values for
ELS's stock, we validated the recoverability of our advances through
a valuation of our security interest in ELS's intellectual property.
We considered the timing of our advances, our ability to withstand a
prolonged recovery in the electronics and wireless industries and the
results of the valuation of our security interest in ELS's
intellectual property. We expect both secured lenders to be able to
recover fully their advances either through ELS's repayment of the
advances or, if required, by taking possession of the intellectual
property that secures the loan and licensing the intellectual
property to recover the amount of the loan. As of July 31, 2001, we
classified our advances as current notes receivable. If we determine
that it would be in the best interests of the Company to restructure
the financing agreement, we may extend the repayment period, increase
the interest rate, and/or increase the loan's conversion rate to ELS
equity and reclassify the loan according to its repayment terms. If
we determine that the Company must license the intellectual property
to recover the advances, we will reclassify the advances as non-
current intellectual property and amortize the balance over its
useful life.
Micro-ASI, Inc.
In April 2000, CTT paid $500,000 for 500,000 shares of
convertible preferred stock and warrants to purchase 300,000 shares
of common stock at $1.00 per share of Micro-ASI, Inc. (Micro-ASI) as
part of Micro-ASI's $8 million private placement. In May 2001, CTT
advanced $100,000 of secured bridge financing to Micro-ASI. Based on
Micro-ASI's bankruptcy filing in August 2001, we determined that our
investment in and advance to Micro-ASI were impaired as of July 31,
2001, and recorded a $600,000 impairment charge. Although CTT is a
secured lender with respect to the bridge financing, it is uncertain
how much we may recover from the bankruptcy estate.
NovaNet Learning, Inc.
In May 1999, we sold our remaining 14.5% interest in NovaNET
Learning, Inc. (NLI) and recorded a gain of $2,313,227 on the sale.
In February 1995, we sold the then majority of our shares of NLI
common stock to Barden Companies, Inc. and recorded a $2,534,505 gain
on the sale. We formed University Communications, Inc., later
renamed NovaNET Learning, Inc., in June 1986 to commercialize an
interactive education and communication network developed at the
University of Illinois. At various times since starting NLI, we had
invested an aggregate of $1,997,000 in NLI equity. During NLI's
first five years, we provided custom incubation services, including
interim business management and initial capital sourcing services.
Others
In 1995, we worked with the University of Kentucky to establish
and finance Equine Biodiagnostics, Inc. (EBI), a company organized to
provide diagnostic laboratory services for the equine industry. EBI
marketed its initial product in its first month of operations. We
made a seed investment of $25,000 in 1995 and sold our investment in
EBI during fiscal 1999 for $198,850 in cash. Because we had recorded
our equity in EBI's net income during our investment period, we
recognized no gain or loss at the time of our sale in fiscal 1999.
In June 1999, we obtained equity in Digital Ink, Inc. (Digital
Ink) in exchange for $50,000 in patenting, marketing, and accounting
services provided from June 1999 through January 2000. Digital Ink
has developed an electronic pen that captures and stores handwriting
in its memory. Digital Ink expects applications of this proprietary
technology to include wireless devices, personal computers and
personal digital assistants. We provided patenting, marketing and
accounting services during the time Digital Ink developed a working
prototype of this digital pen invention. Since its inception,
Digital Ink has obtained more than $5.5 million of funding. Digital
Ink is currently seeking additional funding to implement its plan to
market and license its digital pen to device manufacturers and
wireless service providers. At July 31, 2001, we owned 11% of
Digital Ink's outstanding common and preferred stock.
In 1994, we established a majority-owned subsidiary, Vector
Vision, Inc. (VVI), to develop and exploit a video compression
technology developed at Lehigh University. Since its inception VVI
has obtained $498,000 in equity funding, $75,000 in grant funding and
$99,000 from a Small Business Innovation Research contract. VVI is
obligated to repay up to three times total grant funds received (see
Note 14 to Consolidated Financial Statements). At July 31, 2001, we
owned 53.3% of VVI's outstanding common stock. At July 31, 2001, VVI
was operationally inactive. 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.
Risk Factors
We have generated relatively limited income and we experienced
operating losses in fiscal 2001 and prior to fiscal 1999. The table
below summarizes our consolidated results of operations and cash
flows for the five years ended July 31, 2001:
2001 2000 1999 1998 1997
Operating income (loss) $(2,232,361) $ 774,038 $ 421,533 $(1,381,903) $(1,785,891)
Net income (loss) $(2,500,749) $1,300,937 $2,919,384 $(1,235,489) $(1,571,045)
Net cash flow from:
Operating activities $ (246,834) $ 458,295 $ 626,083 $ (485,035) $ (896,712)
Investing activities $ (586,941) $ (993,362) $ (979,646) $ 600,680 $ 1,467,919
Financing activities $ (658,164) $1,342,928 $ (361,843) $ (351,257) $ (317,408)
Net increase (decrease)
in cash and cash
equivalents $(1,491,939) $ 807,861 $ (715,406) $ (235,612) $ 253,799
Although we had both operating and net income in fiscal 2000 and
1999, we cannot assure you that earnings will resume in fiscal 2002,
and it is possible that we could continue to incur losses in the
foreseeable future. Patent enforcement litigation is an expensive
but essential component of our business strategy to obtain the
revenues to which we believe we and our clients are entitled. In
addition, our future revenues and profits or losses depend on certain
factors beyond our control, including technological changes and
developments, downturns in the economy or our inability to
successfully commercialize the inventions and innovations of our
clients. Consequently, we may not be able to generate sufficient
revenues to be profitable.
We receive most of our revenues from licensees over whom we have
no control. We rely on royalties received from our licensees for
most of our revenues. Retained royalties (including retained royalty
settlement in 2000) constituted 100%, 96% and 95% of our consolidated
total revenues for the years ended July 31, 2001, 2000 and 1999,
respectively. The royalties we receive from our licensees depend on
the efforts and expenditures of those licensees and we have no
control over their efforts or expenditures. Additionally, our
licensees' development of new products involves great risk since many
new technologies do not become commercially profitable products
despite extensive development efforts. Our license agreements do not
require licensees to advise us of problems they may encounter in
attempting to develop commercial products and licensees usually treat
such information as confidential. You should expect that licensees
will encounter problems frequently. We cannot assure you that our
licensees' failure to resolve such problems will not result in a
material adverse effect (financial or otherwise) on our operations.
Our licensees, and therefore we, depend on receiving government
approvals to exploit certain licensed products commercially.
Commercial exploitation of some licensed patents may require the
approval of governmental regulatory agencies and there is no
assurance that those agencies will grant such approvals. In the
United States, the principal governmental agency involved is the U.S.
Food and Drug Administration (FDA). The FDA's approval process is
rigorous, time consuming and costly. Unless and until a licensee
obtains approval for a product requiring such approval, the licensee
may not sell the product and therefore we will not receive royalty
income based on the sales of the product.
If we are unable to protect the intellectual property underlying
our licenses or to enforce our patents adequately, we may be unable
to exploit such licensed patents or technologies successfully. This
could adversely affect our revenues from those licenses. Our success
in earning revenues from licensees is subject to the risk that issued
patents may be declared invalid, that patents may not issue on patent
applications, or that competitors may circumvent our licensed patents
and thereby render our licensed patents uncommercial. In addition,
upon expiration of all patents underlying a license, our royalties
from that license will cease, and there can be no assurance that we
will be able to replace those royalties with royalty revenues from
other licenses.
Certain of our licensed patents have recently expired or will
expire in the near future and we may not be able to replace their
royalty revenues. We currently receive royalties from licenses that
we hold on thirty-four (34) patented technologies. We expect eleven
(11) of those patented technologies to expire in the next three
years. Those patented technologies represented approximately 68% of
our revenue in fiscal 2001. During fiscal 2001, approximately 60% of
our royalties were from our gallium arsenide patents including 47% of
our royalties which were from one U.S. licensee. Of our fiscal 2001
revenues, patents covering technologies representing approximately
13% expire in fiscal 2002, 4% expire in fiscal 2003 and 51% expire in
fiscal 2004. The loss of those royalties may adversely affect our
operating results if we are unable to replace them with revenue from
other licenses or other sources.
Patent litigation has increased; it can be expensive and may
delay or prevent our licensees' products from entering the market.
In the event we determine that competitive products infringe our
patent rights, we may pursue patent infringement litigation or
interference proceedings against sellers of those competing products.
During fiscal 2001 we brought such litigation against Fujitsu. See
Item 3 and Note 14 to Consolidated Financial Statements. Holders of
conflicting patents or sellers of competing products may also
challenge our patents in patent infringement litigation or
interference proceedings. We cannot assure you that we will be
successful in any such litigation or proceeding, and the results and
costs of such litigation or proceeding may materially adversely
affect our business, operating results and financial condition.
In the markets for our licensees' products, technology can
change rapidly and industry standards are continually evolving. This
often makes products obsolete or results in short product lifecycles.
Our profitability depends on our licensees' ability to adapt to such
changes. Therefore, our profitability will depend in large part on
our, our clients' and/or our licensees' abilities to:
-- introduce products in a timely manner;
-- maintain a pipeline of new technologies;
-- enhance and improve existing products continually;
-- maintain their development capabilities;
-- anticipate or adapt to technological changes and advances in
their relevant industries; and
-- ensure continuing compatibility with evolving industry
standards.
Evaluating and securing funding for new business and product
development is difficult and we cannot assure you that, once we have
found a new business or product, it will be successful. We continue
to seek business opportunities which are synergistic with our
expertise in commercializing technology or which have the potential
to generate excess cash flow that we could use to build our business.
We cannot assure you that we will succeed in acquiring or developing
such businesses or products or that they will be profitable.
In instances where we invest our own funds, whether directly,
through a subsidiary or a joint venture or otherwise, in researching,
developing, manufacturing or marketing new products, we incur the
same risks as licensees with respect to new product development. New
products may require additional 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. New competing products or alternative technologies may
render our products obsolete or otherwise unsuitable for
commercialization.
We need significant capital to operate our business and we may
require additional financing. If we cannot obtain such additional
financing, we may not be able to continue our operations or pursue
our growth strategies. We need significant capital to invest in new
developing businesses and in obtaining and marketing new
technologies. Currently available funds may be insufficient to fund
our growth strategy or our long-term operations. We may need to seek
additional financing sooner than we currently anticipate or to
curtail our activities.
Developing new products, creating effective commercialization
strategies for technologies and enhancing those products and
strategies are subject to inherent risks. These risks include
unanticipated delays, unrecoverable expenses, technical problems or
difficulties, as well as the possibility that development funds will
be insufficient. Any one of these could make us abandon or
substantially change our technology commercialization strategy. Our
success will depend upon, among other things, products meeting
targeted cost and performance objectives for large-scale production,
our licensees' ability to adapt technologies to satisfy industry
standards, satisfy consumer expectations and needs, and bring their
products to the marketplace before it is saturated. They may
encounter unanticipated technical or other problems resulting in
increased costs or substantial delays in introducing and marketing
new products. Current and future products may not be reliable or
durable under actual operating conditions or otherwise commercially
viable and competitive. New products may not satisfy price or other
performance objectives when introduced in the marketplace. Any of
these events would adversely affect our realization of royalties from
such new products.
Strong competition within our industry may reduce our client
base. Competition for technology development and commercialization
services is vigorous. Several organizations, some of which are well
established and have greater financial resources than we do, provide
technology development and commercialization services.
Our success depends on our ability to attract and retain key
personnel and consultants. Our success depends on the knowledge,
efforts, and abilities of a small number of key personnel. Our
principal key employee is Mr. Frank R. McPike, Jr. In addition, we
rely on services of third party consultants. To the extent we
implement our plans to identify and acquire synergistic businesses,
we will also need to retain the managerial and technical personnel
necessary to supervise or manage these developing companies.
Competition for all of these personnel is intense and we cannot
assure you that we will be able to attract and retain qualified
personnel. If we were to lose Mr. McPike's services or be unable to
hire and retain qualified technology advisors, business consultants,
intellectual property specialists, operating, financial, technical,
marketing, sales, and other personnel, our profitability, prospects,
financial condition and future activities could be adversely
affected.
We depend on our relationships with inventors to gain access to
new technologies and inventions. If we fail to maintain existing
relationships or to develop new relationships, we may reduce the
number of technologies and inventions available to generate revenues.
We do not invent new technologies and products ourselves. We depend
on our current relationships with universities, corporations,
governmental agencies, research institutions, inventors, and others
to provide us technology-based opportunities we can develop into
profitable equity investments and/or royalty-bearing licenses. Our
failure to maintain our relationships with them could affect our
business, operating results and financial condition both materially
and adversely. If we are unable to forge new relationships or to
maintain our current relationships, we may be unable to identify new
technology-based opportunities.
Further, we cannot be certain that our current or new
relationships will maintain the volume or quality of available new
technologies they currently present to us. In some cases,
universities and other sources of new technologies seek to develop
and commercialize these technologies themselves or through entities
they develop, finance and control. In other cases, universities
receive financing for basic research from companies in exchange for
the exclusive right to commercialize resulting inventions. These and
other strategies may reduce the number of technology sources to whom
we can market our services. If we are unable to secure new sources
of technology, this could have a material adverse effect on our
business, operating results and financial condition.
As part of our business strategy, we pursue other transactions
or investments that may generate significant charges to earnings and
may adversely affect our financial condition. We regularly review
potential transactions or investments related to technologies,
products or product rights, technology-driven enterprises and
businesses complementary to our business. Such transactions include
acquisitions of or investments in new technologies or the entities
developing them. We may make such acquisitions or investments in the
future. Depending upon the nature of any such transactions, we may
incur charges to earnings that could be material and could have an
adverse impact on the market price of our common stock.
At July 31, 2001, we had invested $934,381 (9% of total assets)
in NTRU Cryptosystems, Inc., a development-stage company. This
includes $736,375 from our royalty settlement with NTRU in fiscal
2000. We also hold equity interests in additional development-stage
companies that we acquired in exchange for cash or our professional
services. As discussed earlier, we recorded a $600,000 impairment
charge against our investment in and advance to Micro-ASI in fiscal
2001. In addition, through a series of secured bridge financing
agreements, we committed to lend $821,000 to ELS. Although we expect
to be able to recover our advances fully from ELS, we may incur
impairment charges if we are unable to recover them. See Note 3 to
Consolidated Financial Statements. While we hold these investments,
we may incur charges to earnings for impairment losses that could be
material, as we did in fiscal 2001. In addition, we cannot be
certain that we will be able to sell these investments, that such
sales proceeds will be greater than the amounts we have invested, or
that we will be able to sell these investments within any particular
timeframe.
We have not paid dividends recently and do not expect to pay
dividends on our Common Stock in the foreseeable future. Since
paying a single $0.10 per share dividend in March 1981, we have not
paid cash dividends on our Common Stock and do not expect to declare
or pay cash dividends in the foreseeable future.
We are currently involved in three lawsuits. If the courts in
these suits decide against the Company, these lawsuits could have a
materially adverse effect on our business, results of operations and
financial condition. For a description of these lawsuits, see Item
3. Legal Proceedings. These three lawsuits are:
(a) The Fujitsu litigation (involving several separate cases).
(b) The LabCorp suit, where we seek royalties and injunctive relief
under our homocysteine patent. LabCorp has filed a counterclaim
alleging noninfringement, patent invalidity and patent misuse. If
LabCorp were to prevail, we could encounter substantial difficulty
collecting further royalties from licensees under this patent.
(c) The suit involving the sale of assets to Unilens. On September
14, 2001, the attorney referee recommended that the Court grant our
motion for dismissal. No final order has yet been entered. An
adverse ruling in this suit could result in a substantial money
judgment against the Company.
Item 2. Properties
Our principal executive office is approximately 9,000 square
feet of leased space in an office building in Fairfield, Connecticut.
The office lease expires December 31, 2006, and provides for a base
rent of $225,000. We have an option to renew the lease through
December 31, 2011. We believe that our facilities are adequate for
our current and near-term operations.
Item 3. Legal Proceedings
Fujitsu
In December 2000, CTT filed a complaint with the United States
International Trade Commission (ITC) on behalf of CTT and the
University of Illinois against Fujitsu Limited of Tokyo, Japan,
(Fujitsu), Fujitsu Hitachi Plasma Display Limited, Japan, et al.
under Section 337 of the Tariff Act of 1930, as amended. CTT
requested that the ITC stop Fujitsu and/or its subsidiaries from
unlawfully importing plasma display panels (PDPs) into the United
States on the basis that the panels infringe U.S. Patent Numbers
4,866,349 and 5,081,400 held by CTT's client, the University of
Illinois. The two patents cover energy recovery in PDPs and plasma
display flat-screen televisions. The ITC has the power to issue
orders directing U.S. customs officials to stop future importation of
Fujitsu PDPs and plasma display products that infringe the two named
patents. In January 2001, the ITC voted to investigate CTT's
complaint. In June 2001, CTT requested withdrawal of its complaint
before the ITC and the ITC complaint was withdrawn in August 2001.
Coincident with filing its ITC complaint, CTT and the University of
Illinois also filed a complaint against Fujitsu in the United States
District Court for the Central District of Illinois seeking damages
for past infringements and an injunction against future sales of PDPs
that infringe these patents. In July 2001, CTT reactivated this
complaint to pursue these additional legal remedies (a permanent
injunction against future sales of PDPs that infringe these patents,
damages for past infringing sales and possibly damages for
willfulness) which are not available at the ITC. CTT intends to seek
to expedite this case.
In September 2001, Fujitsu and Fujitsu Hitachi Plasma Display
Limited, Japan, filed suit against CTT and Plasmaco, Inc. in the
United States District Court for the District of Delaware. This
lawsuit alleges, among other things, that CTT misappropriated
confidential information and trade secrets supplied by Fujitsu. It
also alleges that, with Plasmaco's assistance, CTT abused the ITC
process to obtain information to which it otherwise would not have
been entitled and which it will use in the action against Fujitsu in
the United States District Court for the Central District of
Illinois. Fujitsu seeks damages in an unspecified amount and
injunctive relief. The Company intends to defend vigorously the
action instituted by Fujitsu.
CTT is unable to estimate the legal expenses or the loss it may
incur in these suits, if any, and has recorded no potential judgment
proceeds in its financial statements to date.
LabCorp
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 beginning in 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. The
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. Discovery has been completed.
Trial is scheduled to begin in November 2001. CTT is unable to
estimate the related legal expenses it may incur in this suit and has
recorded no revenue for these withheld royalties.
MaternaTM
The 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, previously filed a lawsuit
against American Cyanamid Company, defendant, in the United States
District Court for the District of Colorado. This case involved a
patent for an improved formulation of MaternaTM, a prenatal vitamin
compound sold by defendant. 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. As a result of this contract, the Company is entitled to
share approximately 18% of damages awarded to the University of
Colorado, if any, after deducting the expenses of this suit. On
November 19, 1999, the United States Court of Appeals for the Federal
Circuit vacated a July 7, 1997 judgment by the District Court in
favor of plaintiffs for approximately $44 million and remanded the
case to the District Court for further proceedings. On July 7, 2000,
the District Court concluded that Robert H. Allen and Paul A.
Seligman were the sole inventors of the reformulation of MaternaTM
that was the subject of the patent and that defendant is liable to
them and the other plaintiffs on their claims for fraud and unjust
enrichment. In March 2001, the District Court heard arguments to
determine the nature and amount of damages to be paid by defendant.
The District Court judge has issued a preliminary favorable opinion
to guide findings of fact and conclusions of law. The parties await
the judge's decision. The Company cannot predict the amount of its
share of the judgment, if any, which may ultimately be awarded. The
Company has recorded no potential judgment proceeds in its financial
statements to date. While the Company has incurred certain expenses
in connection with this suit, it does not expect to incur additional
expenses in this suit in the future. The Company records such
expenses as they are incurred.
Optical Associates, Limited Partnership (OALP)
In 1989 UOP, a majority-owned subsidiary of CTT which had
developed a computer-based system to manufacture specialty contact
lenses, intraocular lenses and other precision optical products, sold
substantially all its assets to Unilens Corp. USA (Unilens). The
proceeds of the sale included an installment obligation for
$5,500,000 payable at a minimum of $250,000 per year beginning in
January 1992. Due to the uncertainty of the timing and amount of
future cash flows, income on the installment obligation is recorded
net of related expenses as the payments are received. Cash received
in excess of the fair value assigned to the original obligation is
recorded as other income from continuing operations. As cash
proceeds are received, CTT records a 4% commission expense payable to
its joint venture partner, Optical Associates, Limited Partnership
(OALP). Unilens made no payments in fiscal 2001, 2000 or 1999.
On November 4, 1991, a suit was filed in the Superior Court of
the Judicial District of Fairfield, Connecticut, at Bridgeport by
Bruce Arbeiter, Jeffrey A. Bigelow, Jeffrey W. Leiderman, Optical
Associates, Limited Partnership (OALP) and Optical Associates
Management Corp. (OAMC) purportedly on behalf of all the limited
partners of OALP, as plaintiffs, against Genetic Technology
Management, Inc. (GTM), University Optical Products Co. (UOP), the
registrant, Jay Warren Blaker, L.W. Miles, A. Sidney Alpert, Frank R.
McPike, Jr., Michael Behar, Bruce E. Langton, Arthur M. Lieberman and
Harry Van Benschoten, as defendants. The complaint alleges, among
other things, that in January 1989 the defendants, GTM, UOP and the
registrant, sold substantially all of the assets of OALP to Unilens
Corp. USA (Unilens) and disbursed only 4% of the sales price to OALP,
all in violation of certain agreements, representations and legal
obligations; 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.
Management of the registrant believes, based upon all the facts
available to management, that the claims asserted in the suit are
without merit, and the registrant has vigorously defended against
plaintiffs' claims. In November 2000, the Company made a motion to
dismiss this case. On September 14, 2001, the attorney referee
recommended that the Court grant defendants' motion for a judgment of
dismissal. No final order has yet been entered. Through July 31,
2001, the Company had received aggregate cash proceeds of
approximately $1,011,000 from the January 1989 sale of UOP's assets
to Unilens.
CTT recognized other expenses from continuing operations of
$52,460, $269 and $41,337 in 2001, 2000 and 1999, respectively, for
legal expenses related to this suit.
SEC Investigation
By letter of May 17, 2001, CTT received a subpoena from the
Securities and Exchange Commission (SEC) seeking certain documents in
connection with the SEC's private investigation captioned "In the
Matter of Trading in the Securities of Competitive Technologies,
Inc." In June 2001, CTT complied with the subpoena by producing the
called for records. CTT is aware of other parties, including its
director Samuel M. Fodale, who received SEC subpoenas. According to
SEC court filings, the documents sought from Mr. Fodale were in
connection with its investigation to determine whether a former
registered representative in the Hyannis, Massachusetts office of a
brokerage firm and/or others may have violated anti-fraud provisions
of the securities laws by effecting manipulative transactions in the
securities of CTT that affected its price and market from at least
October 1, 1999 to at least October 31, 2000. The SEC is apparently
also investigating whether the brokerage firm and certain persons
associated with it may have failed to reasonably supervise with a
view to preventing violations of the Securities Act of 1933. Based
on the information available to us at the time of preparation of this
Form 10-K, we believe that neither CTT nor Mr. Fodale is a target in
this investigation. CTT has agreed, pursuant to Article IV of its By-
laws, to advance to Mr. Fodale his expenses incurred in connection
with this investigation, and Mr. Fodale has agreed to repay amounts
so advanced unless it shall ultimately be determined that he is
entitled to be indemnified by CTT as authorized by Article IV. As of
October 17, 2001, the Company has made no advances to or for Mr.
Fodale and Mr. Fodale has not requested that CTT advance any amounts
pursuant to this agreement.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for Company's Common Equity and Related Stockholder
Matters
(a) The Company'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, 2001 High Low
First Quarter.................... 9.6875 6.2500
Second Quarter................... 9.1250 5.3750
Third Quarter.................... 8.6000 6.3700
Fourth Quarter................... 7.8500 5.0000
Fiscal Year Ended July 31, 2000 High Low
First Quarter.................... 6.7500 5.1250
Second Quarter................... 9.7500 4.8750
Third Quarter.................... 23.5000 8.0000
Fourth Quarter................... 15.5000 7.6250
No cash dividends were declared on the Company's common stock
during the last two fiscal years.
At October 17, 2001 there were approximately 700 holders of
record of the Company's common stock.
COMPETITIVE TECHNOLOGIES, INC.
Selected Financial Data (1)
For the years ended July 31
Item 6. Selected Financial Data
2001 2000 1999 1998 1997
Retained royalties $ 3,637,764 $ 3,202,194 $ 3,463,176 $ 2,400,534 $ 1,935,041
Retained royalty settlement -- 736,375 -- -- --
Other revenues (2) 3,520 174,298 176,148 211,300 541,176
Total revenues $ 3,641,284 $ 4,112,867 $ 3,639,324 $ 2,611,834 $ 2,476,217
Operating income (loss) $(2,232,361) $ 774,038 $ 421,533 $(1,381,903) $(1,785,891)
Net income (loss) (3) $(2,500,749) $ 1,300,937 $ 2,919,384 $(1,235,489) $(1,571,045)
Net income (loss) per share:
basic and diluted $ (0.41) $ 0.21 $ 0.49 $ (0.21) $ (0.27)
Weighted average number of common
shares outstanding:
Basic 6,135,486 6,079,211 5,982,112 5,969,434 5,914,868
Diluted 6,135,486 6,187,407 6,009,701 5,969,434 5,914,868
At year end:
Cash, cash equivalents
and short-term investments $ 5,017,877 $ 6,716,429 $ 5,498,486 $ 2,634,618 $ 3,465,005
Total assets $10,640,873 $12,093,965 $ 8,959,021 $ 6,301,864 $ 7,203,480
Long-term obligations $ -- $ -- $ -- $ -- $ 260,265
Shareholders' interest $ 6,967,746 $ 9,928,112 $ 7,180,286 $ 4,172,413 $ 5,014,746
(1) Should be read in conjunction with Consolidated Financial Statements and
Notes thereto.
(2) Includes approximately $79,000 in 1997 from a cost reimbursement contract
for the Department of the Air Force.
(3) Includes $600,000 investment and loan impairment loss on Micro-ASI, Inc.
in 2001, $2,313,227 gain on sale of investment in NovaNET Learning, Inc.
in 1999 and net income related to equity method affiliates of
approximately $58,000 in 1997.
(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
At July 31, 2001, cash and cash equivalents of $224,436 were
$1,491,939 lower than cash and cash equivalents of $1,716,375 at
July 31, 2000. Operating activities used $246,834, investing
activities used $586,941 and financing activities used $658,164 in
the year ended July 31, 2001.
In addition, Competitive Technologies, Inc. (CTT) and its
majority-owned subsidiaries (the Company or we) held $4,793,441 in
short-term investments at July 31, 2001. These investments are
available for our current operating, investing and financing needs.
The Company's net loss of $2,500,749 for the year ended July
31, 2001, included its $600,000 loss on its investment in and
advance to Micro-ASI, Inc. and non-cash charges of approximately
$215,000 for depreciation and amortization and approximately
$207,000 for employee and directors' stock compensation.
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 $384,000 reflecting the Company's normal cycle of
royalty collections. The approximately $929,000 increase in
accrued liabilities for professional fees is principally accrued
legal fees related to our enforcement actions.
In the third quarter of fiscal 2001, we granted one company a
license to a technology for one use and an option to license it for
another use. That company paid both a license issue fee and an
option fee, but our agreements do not provide for another license
issue fee if or when the optionee exercises the option. We treated
these agreements as a multiple element arrangement and deferred the
$100,000 license issue and option fee revenue. We expect to
recognize this revenue when the optionee exercises the option and
executes the second license or when the option expires.
During fiscal 2001, we sold $206,613 of highly liquid short-
term investments.
Advances to E. L. Specialists, Inc.
Through a series of bridge financing agreements, we committed
to lend $821,000 to E. L. Specialists, Inc. (ELS). As of July 31,
2001, we had advanced $650,000 and had reset the date for repayment
to September 28, 2001. Interest accrues on the advances at 7% per
annum on the first $750,000 and at 10% per annum on the remainder.
However, we have recognized no interest since March 31, 2001.
ELS's intellectual property secures the loan and this security
interest is shared pro rata with another ELS lender that has
advanced $470,000 to ELS. Our advances are convertible into ELS's
common stock in certain circumstances, including an ELS financing
round in excess of $3,000,000. On September 28, 2001, ELS
defaulted on payment of the advances. We waived this default and
reset the demand date to November 5, 2001.
Based on the decline of the electronics and wireless markets,
ELS's recent financial results and the absence of quoted values for
ELS's stock, we validated the recoverability of our advances
through a valuation of our security interest in ELS's intellectual
property. We considered the timing of our advances, our ability to
withstand a prolonged recovery in the electronics and wireless
industries and the results of the valuation of our security
interest in ELS's intellectual property. We expect both secured
lenders to be able to recover their advances fully either through
ELS's repayment of the advances or, if required, by taking
possession of the intellectual property that secures the loan and
licensing the intellectual property to recover the amount of the
loan. As of July 31, 2001, we classified the advances as current
notes receivable based on their November 5, 2001 maturity. If we
determine that it would be in the best interests of CTT to
restructure the financing agreement, we may extend the repayment
period, increase the interest rate, and/or increase the loan's
conversion rate to ELS equity and reclassify the loan according to
its repayment terms. If we determine that we must license the
intellectual property to recover the advances, we will reclassify
the advances as intellectual property and amortize the balance over
its useful life.
Loss on Investment in and Advance to Micro-ASI, Inc.
Micro-ASI, Inc. (Micro-ASI) is a Texas corporation which
planned to design, develop and manufacture flip-chip modules and
boards. As a result of Micro-ASI's filing for protection under
Chapter 7 of the United States Bankruptcy Code in August 2001, CTT
recorded a $600,000 loss on its investment in and advance to Micro-
ASI in the fourth quarter of fiscal 2001. CTT wrote off its entire
$500,000 investment in Micro-ASI preferred stock (purchased in
April 2000 for cash) and its $100,000 cash advance to Micro-ASI
under a secured bridge promissory note made in May 2001. It is
uncertain when and how much, if any, CTT may realize from the final
accounting and distribution of Micro-ASI's bankruptcy estate.
Other Matters
During fiscal 2001, CTT repurchased 86,500 shares of its common
stock for $679,289 in cash under the stock repurchase plan
authorized in October 1998 by CTT's Board of Directors. At July
31, 2001, CTT may repurchase 88,700 additional shares under that
original authorization.
At July 31, 2001, the Company had no outstanding commitments
for capital expenditures other than those discussed above.
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.
We continue to pursue additional technology commercialization
opportunities. If and when such opportunities are consummated, we
may commit capital resources to them.
The Company is involved in four pending litigation matters.
Full descriptions of them are reported in Note 14 to Consolidated
Financial Statements. During fiscal 2001, the Company incurred a
total of approximately $2,474,000 of unreimbursed patent litigation
expenses principally related to three patent suits. We expect to
continue to incur substantial unreimbursed patent litigation
expenses in fiscal 2002 as we pursue enforcement of our patent
rights in these three suits. We are exploring various arrangements
to limit or share our cash requirements for these enforcement
actions.
At July 31, 2001, we had cash and cash equivalents of $224,436,
short-term investments of $4,793,441, royalties receivable of
$2,731,228 and royalties payable of $1,852,207. Cash, cash
equivalents and short-term investments represented 47% of our total
assets at July 31, 2001. Currently we do not have any outstanding
debt or maintain a credit facility.
Based on our current expectations, we anticipate that currently
available funds will be sufficient to finance our cash needs for
the foreseeable future for our current operating activities.
However, expansion of our business is subject to many factors
outside our control or that we cannot currently anticipate,
including without limitation business opportunities that may arise
in the future. We may seek additional debt or equity funding to
support our future business growth. There can be no assurance that
our current expectations regarding the sufficiency of currently
available funds will prove to be accurate or that we will be
successful in raising additional funding.
Results of Operations - 2001 vs. 2000
Retained royalties for fiscal 2001 were $3,637,764, $435,570
(14%) higher than retained royalties of $3,202,194 in fiscal 2000.
Retained royalties from the gallium arsenide semiconductor
inventions, which include laser diode applications, were
approximately $2,190,000 in fiscal 2001, an increase of
approximately $828,000 (61%). This increase resulted principally
from increased sales of licensed products. We cannot predict
whether our licensees' sales of licensed products will continue to
grow at this rate.
Retained royalties in fiscal 2000 included approximately
$168,000 for a homocysteine licensee's increase in its previously
estimated royalties for the period from 1995 through 1999.
Homocysteine retained royalties in both fiscal years were reduced
by a sublicensee's withholding royalties on certain tests. The
Company has joined with its licensee in a lawsuit against the
sublicensee as detailed in Note 14 to Consolidated Financial
Statements.
Retained royalties from the Vitamin B12 assay in fiscal 2001
were approximately $417,000 compared with approximately $381,000 in
fiscal 2000. Certain of these licensed patents expired in April
1998, April 1999, February 2000 and May 2001. The remaining
Vitamin B12 assay licensed patents will expire in April and
November 2002.
In fiscal 2001, retained royalty revenues on our endoscopic
ligator were less than $2,000 and approximately $136,000 lower than
in fiscal 2000. Our retained royalties from the endoscopic ligator
were approximately $138,000 and $247,000 for the fiscal years ended
July 31, 2000 and 1999, respectively. Since an arbitrator ruled
that claims in our original patent were invalid, licensees of this
technology have withheld royalties. We amended our claims, filed
for reexamination of our patent and received the reexamination
certificate. We believe we are entitled to all withheld and future
royalties and are actively pursuing them. However, we cannot
predict when, if ever, licensees will resume remitting royalties
for this technology.
Retained royalties also fluctuate due to changes in the timing
of royalties reported by licensees and changes in licensees' sales
of licensed products.
In fiscal 2000, we recognized a retained royalty settlement of
$736,375 for the estimated fair value of the royalty participation
we exchanged for 2,945,500 shares of NTRU Cryptosystems, Inc.
(NTRU) common stock valued at $0.25 per share. We had no similar
royalty settlement in fiscal 2001.
Other revenues under fee-for-service contracts for fiscal 2001
were $170,778 lower than in fiscal 2000. We are not actively
seeking additional fee-for-service contracts, although we may agree
to them in the future in certain circumstances. Many of these
contracts are one-time arrangements unique to a particular client
at a particular time.
Total operating expenses for fiscal 2001 were $5,873,645,
including $2,474,017 of patent enforcement expenses, net of
reimbursements. Total operating expenses for fiscal 2000 were
$3,338,829, including $157,459 of patent enforcement expenses, net
of reimbursements. Other increases included recruiting fees in
connection with hiring additional technology commercialization
professionals in February and March 2001 and consultants' fees and
expenses, which more than offset reductions in personnel and
related expenses. We employed approximately 11 people (full-time
equivalents) in fiscal 2001 compared with 13 people (full-time
equivalents) in fiscal 2000. We supplement our full-time staff
with consultants' services in certain matters.
Patent enforcement expenses, net of reimbursements, were
$2,316,558 higher in fiscal 2001 than in fiscal 2000. These costs
exclude personnel costs related to our enforcement activities,
which are included in other costs of technology management services
discussed below. CTT is involved in three litigations (Fujitsu,
LabCorp and MaternaTM)in which it and its clients have sued to
enforce their patent rights. We have included detail of progress
and status in these three cases in Note 14 to Consolidated
Financial Statements under Litigation. Although the costs to
enforce our patent rights are high, we expect the potential returns
to be substantially greater than these expenses. We expect to
continue incurring substantial unreimbursed patent litigation
expenses in fiscal 2002 as we pursue enforcement of our patent
rights in these three suits and we are actively exploring various
arrangements to limit or share our cash requirements for these
enforcement actions.
Other costs of technology management services were $1,859,455
in fiscal 2001, $20,302 (1%) lower than in fiscal 2000. Increases
in costs related to licensing and retained royalties and new client
development were offset by a reduction in costs related to fee-for-
service contracts.
General and administration expenses for fiscal 2001 were
$238,560 (18%) higher than in fiscal 2000. Increases in recruiting
fees (in connection with hiring additional technology
commercialization professionals in February and March 2001) and
consultants' fees and expenses (related to potential acquisitions
we have considered but not consummated) more than offset reductions
in personnel and related expenses.
Interest income of $400,054 for fiscal 2001 was $26,847 (7%)
higher than in fiscal 2000. Our average invested balances were 8%
higher and our weighted average interest rate was approximately the
same as in fiscal 2000.
During fiscal 2000, CTT sold available-for-sale securities and
realized gains of $90,238, which were included in other income.
There were no such sales in fiscal 2001.
Other expenses in fiscal 2001 were legal expenses incurred in
connection with a suit brought against CTT, some of its
subsidiaries and directors. See Note 14 to Consolidated Financial
Statements. Unilens Corp. USA made no payments in either fiscal
year.
The Company has substantial net operating and capital loss
carryforwards for Federal income tax purposes, of which a
significant portion expires in fiscal 2002. See Note 8 to
Consolidated Financial Statements.
Results of Operations - 2000 vs. 1999
The Company's $774,038 operating income for the fiscal year
ended July 31, 2000, was $352,505 (84%) higher than for the fiscal
year ended July 31, 1999. Net income was $1,300,937 for the fiscal
year ended July 31, 2000, compared with net income of $2,919,384
for the fiscal year ended July 31, 1999, which included an after
tax gain of $2,313,227 from the Company's sale of its remaining
14.5% interest in NovaNET Learning, Inc. (NLI). The Company
increased its revenues by $473,543 (13%), more than the $121,038
(4%) increase in its operating expenses.
Total revenues in fiscal 2000 were $4,112,867, compared with
$3,639,324 in fiscal 1999.
Retained royalties in fiscal 2000 were $3,202,194, which was
$260,982 (8%) lower than in fiscal 1999. Retained royalties from
the gallium arsenide semiconductor inventions, which include laser
diode applications, were approximately $1,363,000 in fiscal 2000,
an increase of approximately $845,000 (163%) compared with
approximately $518,000 in fiscal 1999. This included new license
issue fees, a minimum royalty, and royalties based on sales of
licensed products.
Retained royalties in fiscal 2000 included approximately
$168,000 from a homocysteine licensee's increase in its previously
estimated royalties for the period from 1995 through 1999.
Homocysteine retained royalties in both fiscal years were reduced
by a sublicensee's withholding royalties on certain tests. The
Company has joined with its licensee in a lawsuit against the
sublicensee as noted above and detailed in Note 14 to Consolidated
Financial Statements.
Retained royalties from the Vitamin B12 assay in fiscal 2000
were approximately $381,000 compared with approximately $972,000 in
fiscal 1999. However, fiscal 1999 included approximately $542,000
from a licensee's change in its previously estimated royalties
under Vitamin B12 assay licenses for the period from July 1993
through July 1998. Certain of these licensed patents have expired.
Retained royalties in fiscal 2000 on our endoscopic ligator
technology were approximately $108,000 lower than in fiscal 1999
because licensees (including sublicensees) claimed that our patent
did not cover their products. As noted above, we have since
received a reexamination certificate and believe we are entitled to
royalties withheld by these licensees and sublicensees.
Retained royalties in fiscal 1999 also included $661,500 from a
paid-up, non-exclusive, worldwide, field-of-use limited license
granted to an unrelated foreign corporation in November 1998 on an
encryption technology. All performance milestones agreed in the
license were met during fiscal 1999 and the licensee paid all the
agreed milestone payments.
Retained royalties also fluctuate due to changes in the timing
of royalties reported by licensees and changes in licensees' sales
of licensed products.
In fiscal 2000, CTT recognized a retained royalty settlement
of $736,375 (19% of retained royalties) for the estimated fair
value of the royalty participation it exchanged for 2,945,500
shares of common stock of NTRU valued at $0.25 per share. In
addition, CTT retained a small royalty participation in NTRU's
sales of CTT licensed products. Retained royalties in 1999
included $661,500 on this encryption technology as discussed in the
second paragraph above.
Fiscal 2000 other revenues under fee-for-service contracts were
slightly lower than in fiscal 1999. In fiscal 2000, the Company
earned approximately $129,000 on two contracts, one for a
government agency and one for a domestic start-up corporation. In
fiscal 1999, the Company earned substantially all such revenues
from contract services to domestic corporations, including a one-
time fee for assisting a start-up company to obtain equity
financing.
Total operating expenses for fiscal 2000 were $3,338,829. This
was $121,038 (4%) higher than for fiscal 1999. The Company
incurred higher charges for patent litigation expenses,
consultants' fees and expenses 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 fiscal 1999. There was no similar
charge in fiscal 2000.
Patent enforcement expenses, net of reimbursements, were
$100,384 (176%) higher in fiscal 2000 than in 1999. We incurred
these higher expenses in connection with several litigation and pre-
litigation matters.
Other costs of technology management services were $1,879,757,
$77,740 (4%) lower than in fiscal 1999. Increases in costs related
to licensing and retained royalties partially offset reductions in
costs related to fee-for-service contracts and new client
development.
General and administration expenses in fiscal 2000 were
$168,394 (15%) higher than in fiscal 1999. Directors' fees and
expenses, consultants' fees and expenses, and shareholder expenses
were higher; however, lower charges for public and investor
relations services partially offset these increases.
Interest income in fiscal 2000 was $182,935 (96%) higher than
for fiscal 1999. The Company's average invested balance was
approximately 66% higher and its weighted average interest rate was
approximately 0.9% per annum higher than for fiscal 1999.
Effective May 28, 1999, CTT sold its 14.5% interest in NovaNET
Learning, Inc. (NLI) for $2,472,602 in cash in connection with
NLI's acquisition by National Computer Systems, Inc. From February
15, 1995 through May 28, 1999, CTT accounted for its $159,375
investment in NLI under the cost method. CTT recognized a gain of
$2,313,227 in its fiscal quarter ended July 31, 1999. Capital loss
carryforwards sheltered the gain from Federal and state income
taxes.
Recently Issued Accounting Pronoucements
In June 2001, the Financial Accounting Standards Board (FASB)
issued Statement No. 141, "Business Combinations." This statement
establishes financial accounting and reporting for business
combinations and requires that purchase accounting be used for all
business combinations. The provisions of this statement apply to
all business combinations initiated after June 30, 2001.
In June 2001, the FASB issued Statement No. 142, "Goodwill and
Other Intangible Assets." This statement establishes financial
accounting and reporting for acquired goodwill and other intangible
assets acquired individually or with a group of other assets but
not acquired in a business combination. The Company does not
expect adoption of Statement No. 142 to have a material effect on
its financial condition or results of operations. The Company will
adopt this Statement on August 1, 2002.
In August 2001, the FASB issued Statement No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." This
statement establishes financial accounting and reporting for the
impairment or disposal of long-lived assets. The Company is
assessing the impact of Statement No. 144 on its financial
condition and results of operations and will adopt this statement
on August 1, 2002.
Forward-Looking Statements
Statements about the Company's future expectations, including
development and regulatory plans, and all other statements in this
Annual Report on Form 10-K 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 this
Annual Report on Form 10-K for the year ended July 31, 2001 under
the caption "Risk Factors," 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 7A. Quantitative and Qualitative Disclosures About Market
Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
Page
Report of Independent Accountants 28
Consolidated Balance Sheets 29-30
Consolidated Statements of Operations 31
Consolidated Statements of Changes
in Shareholders' Interest 32
Consolidated Statements of Cash Flows 33-34
Notes to Consolidated Financial Statements 35-51
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Competitive Technologies, Inc.:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the
financial position of Competitive Technologies, Inc. and its
Subsidiaries (the "Company") at July 31, 2001 and July 31, 2000,
and the results of their operations and their cash flows for each
of the three years in the period ended July 31, 2001, in conformity
with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of
the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
s/ PricewaterhouseCoopers LLP
Stamford, Connecticut
October 12, 2001
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 2001 and 2000
2001 2000
ASSETS
Current assets:
Cash and cash equivalents $ 224,436 $ 1,716,375
Short-term investments 4,793,441 5,000,054
Accounts receivable, including $9,925
receivable from related parties
in 2000 2,782,276 2,420,180
Notes receivable - E.L. Specialists, Inc. 650,000 --
Prepaid expenses and other current assets 70,044 149,483
Total current assets 8,520,197 9,286,092
Property and equipment, at cost, net 66,994 115,518
Investments, at cost 1,025,684 1,525,685
Intangible assets acquired, principally
licenses and patented technologies, net
of accumulated amortization of $765,149
and $626,477 in 2001 and 2000,
respectively 1,027,998 1,166,670
TOTAL ASSETS $10,640,873 $12,093,965
(continued)
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 2001 and 2000
(Continued)
2001 2000
LIABILITIES AND SHAREHOLDERS' INTEREST
Current liabilities:
Accounts payable, including $3,876
payable to related parties in 2001 $ 585,966 $ 65,443
Accrued liabilities 3,087,161 2,100,410
Total current liabilities 3,673,127 2,165,853
Commitments and contingencies -- --
Shareholders' interest:
5% preferred stock, $25 par value;
35,920 shares authorized; 2,427 shares
issued and outstanding 60,675 60,675
Common stock, $.01 par value; 20,000,000
shares authorized; 6,190,785 shares
issued in 2001 and 2000 and 6,139,351
and 6,190,785 shares outstanding in
2001 and 2000, respectively 61,907 61,907
Capital in excess of par value 26,975,178 27,053,542
Treasury stock, at cost;
51,434 shares in 2001 (381,253) --
Accumulated deficit (19,748,761) (17,248,012)
Total shareholders' interest 6,967,746 9,928,112
TOTAL LIABILITIES AND SHAREHOLDERS'
INTEREST $ 10,640,873 $ 12,093,965
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended July 31, 2001, 2000 and 1999
2001 2000 1999
Revenues:
Retained royalties $ 3,637,764 $ 3,202,194 $ 3,463,176
Retained royalty settlement -- 736,375 --
Other revenues, including $9,925
and $4,947 from related parties
in 2000 and 1999, respectively 3,520 174,298 176,148
3,641,284 4,112,867 3,639,324
Patent enforcement expenses, net of
reimbursements 2,474,017 157,459 57,075
Other costs of technology management
services 1,859,455 1,879,757 1,957,497
General and administration expenses,
of which $145,673, $132,806 and
$4,800 were paid to related
parties in 2001, 2000 and 1999,
respectively 1,540,173 1,301,613 1,133,219
Restructuring charges -- -- 70,000
5,873,645 3,338,829 3,217,791
Operating income (loss) (2,232,361) 774,038 421,533
Gain on sale of investment
in NovaNET Learning, Inc. -- -- 2,313,227
Investment and loan
impairment loss (600,000) -- --
Interest income 400,054 373,207 190,272
Other income (expense), net (52,460) 90,234 (45,692)
Income (loss) before minority
interest (2,484,767) 1,237,479 2,879,340
Minority interest in losses of
subsidiary (15,982) 63,458 40,044
Net income (loss) (2,500,749) 1,300,937 2,919,384
Other comprehensive income (loss):
Net unrealized holding gains
(losses) on available-for-
sale securities -- 105,863 6,249
Reclassification adjustment for
realized gains included in
net income (loss) -- (90,238) --
Comprehensive income (loss) $(2,500,749) $ 1,316,562 $ 2,925,633
Net income (loss) per share:
Basic and diluted $ (0.41) $ 0.21 $ 0.49
Weighted average number of common
shares outstanding:
Basic 6,135,486 6,079,211 5,982,112
Diluted 6,135,486 6,187,407 6,009,701
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Interest
For the years ended July 31, 2001, 2000 and 1999
Accumulated
Preferred Stock Other
Shares Common Stock Capital in Comprehensive
issued and Shares excess of Treasury Stock Income Accumulated
outstanding Amount issued Amount par value Shares held Amount (Loss) Deficit
Balance - July 31, 1998 2,427 $60,675 6,003,193 $60,032 $25,637,881 (10,190) $ (95,968) $ (21,874) $(21,468,333)
Exercise of common
stock options. . . . . (48) 11,500 48,578
Stock issued under
1996 Directors' Stock
Participation Plan . . (2,370) 7,500 38,697
Stock issued to
directors. . . . . . . (20,313) 3,125 35,450
Stock issued under
Employees' Common Stock
Retirement Plan. . . . (1,818) 13,384 81,704
Grant of warrants to
consultants. . . . . . 11,740
Other comprehensive income:
Net change in unrealized
holding gains on
available-for-sale
securities . . . . . 6,249
Purchase of treasury
stock. . . . . . . . . (25,400) (109,380)
Net income . . . . . . . 2,919,384
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. . . . . 187,425 1,873 1,462,744 43,598 254,856
Tender of common stock
as payment for
exercise of common
stock options. . . . . (7,599) (100,000)
Stock issued under 1996
Directors' Stock
Participation Plan . . (6,004) 9,375 55,340
Stock issued under
Employees' Common
Stock Retirement Plan. 167 2 (28,270) 4,107 67,268
Other comprehensive income:
Net change in un-
realized holding gains
on available-for-sale
securities . . . . . . 15,625
Purchase of
treasury stock . . . . (49,400) (276,545)
Net income . . . . . 1,300,937
Balance - July 31, 2000 2,427 60,675 6,190,785 61,907 27,053,542 -- -- -- (17,248,012)
Exercise of common
stock options. . . . . (5,208) 3,250 26,333
Stock issued under
1996 Directors' Stock
Participation Plan . . (25,849) 11,540 100,849
Stock issued to
directors. . . . . . . (2,073) 2,898 25,620
Stock issued under
Employees' Common
Stock Retirement
Plan . . . . . . . . . (42,138) 14,814 122,138
Stock issued to
employee in lieu of
cash compensation. . . (3,096) 2,564 23,096
Purchase of treasury
stock. . . . . . . . . (86,500) (679,289)
Net loss . . . . . . . . (2,500,749)
Balance - July 31, 2001 2,427 $60,675 6,190,785 $61,907 $26,975,178 (51,434) $(381,253) $ -- $(19,748,761)
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended July 31, 2001, 2000 and 1999
2001 2000 1999
Cash flow from operating
activities:
Net income (loss) $(2,500,749) $ 1,300,937 $ 2,919,384
Noncash items included in
net income (loss):
Retained royalty settlement
paid with shares of NTRU
common stock -- (736,375) --
Depreciation and
amortization 214,768 209,225 201,277
Minority interest 15,982 (63,458) (40,044)
Stock compensation 207,298 97,085 140,101
Other noncash items -- 63,461 56,160
Investment and
loan impairment loss 600,000 -- --
Gain on sale of investments -- (90,503) (2,313,227)
Net changes in various
operating accounts:
Receivables (362,096) (694,134) (184,109)
Prepaid expenses and other
current assets 79,439 (6,312) (3,391)
Accounts payable and
accrued liabilities 1,498,524 378,369 (150,068)
Net cash flow from
operating activities (246,834) 458,295 626,083
(continued)
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended July 31, 2001, 2000 and 1999
(Continued)
2001 2000 1999
Cash flow from investing
activities:
Purchases of property and
equipment, net (27,572) (30,983) (46,480)
Investments in and advances
to cost-method affiliates (750,000) (698,006) --
Sales (purchases) of short-term
investments and available-
for-sale securities 206,613 (264,638) (3,612,606)
Sales (purchases) of
investments in affiliates -- -- 2,671,452
Other, net (15,982) 265 7,988
Net cash flow from
investing activities (586,941) (993,362) (979,646)
Cash flow from financing
activities:
Proceeds from exercise of
stock options and warrants 21,125 1,619,473 48,530
Purchases of treasury stock (679,289) (276,545) (109,380)
Repayment of purchase
obligation -- -- (300,993)
Net cash flow from financing
activities (658,164) 1,342,928 (361,843)
Net (decrease) increase in cash
and cash equivalents (1,491,939) 807,861 (715,406)
Cash and cash equivalents,
beginning of year 1,716,375 908,514 1,623,920
Cash and cash equivalents, end
of year $ 224,436 $ 1,716,375 $ 908,514
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. BUSINESS
The Company provides patent and technology commercialization
services with respect to a broad range of digital/electronic, life
sciences and physical sciences technologies originally invented by
various individuals, corporations, federal agencies and laboratories and
universities. The Company provides these parties technical evaluations,
patent and market assessments, patent application and prosecution,
patent enforcement, licensing, license management and royalty
distribution services. The Company is compensated for its services
primarily by sharing in the license and royalty fees generated from its
successful marketing of technologies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
Competitive Technologies, Inc. (CTT) and its majority-owned subsidiaries
(the Company). CTT's majority-owned subsidiaries are Digital Acorns,
Inc., University Optical Products Co. (UOP), Genetic Technology
Management, Inc. (GTM) and Vector Vision, Inc. (VVI). Intercompany
accounts and transactions have been eliminated in consolidation.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassifications
Certain accounts have been reclassified to conform with the
presentation in financial statements for fiscal 2001.
Revenue Recognition
The Company derives revenues primarily from patent and technology
license and royalty fees. Since these revenues result from the
Company's representation agreements with owners and assignees of
intellectual property rights, the Company records revenues net of the
owners' and assignees' shares of license and royalty fees. The Company
stipulates the terms of its licensing arrangements in its written
agreements with the owners, assignees and licensees. Generally these
arrangements are single element arrangements since the Company has no
significant obligations after executing the license agreements.
The Company applies a contingency model in determining its revenue
recognition. Under the terms of the Company's license arrangements, the
Company generally receives an upfront license fee and a royalty stream
based on the licensee's sales of the licensed technology.
License Fees
The Company recognizes upfront, nonrefundable license fees
upon execution of the license arrangement and collection of the
license fee. Upon the occurrence of these two events, the Company
has persuasive evidence of an arrangement, delivery is complete,
collectibility is assured and there are no continuing obligations.
Royalty Fees
Although the royalty rate is fixed in the license agreement,
the amount of earned royalties is contingent upon the amount of
product the licensee sells. Royalties earned in each reporting
period are contingent on the outcome of events occurring within
that period and such events are not within the control of the
Company and are not directly tied to the Company's providing
service. Therefore, the Company recognizes royalty revenue when
the contingency is resolved and it knows the amount of royalty
fees. The Company recognizes royalty fees upon receipt of
licensees' royalty reports.
In limited instances, the Company may enter into multiple element
arrangements with continuing service obligations or milestone billing
arrangements. Based upon the limited verifiable objective evidence
available, the Company generally defers all revenue from such multiple
element arrangements until it delivers all elements. The Company
evaluates milestone billing arrangements on a case by case basis.
Generally, the Company recognizes revenues under the milestone payment
method. Under this method, the Company recognizes upfront fees ratably
over the entire arrangement and milestone payments as it achieves
milestones.
In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition
in Financial Statements." SAB 101 summarizes certain of the SEC's views
for applying generally accepted accounting principles to revenue
recognition in financial statements. Adoption of SAB 101 did not have a
material effect on the Company's financial position or results of
operations.
Expenses
The Company recognizes expenses related to evaluating inventions,
patenting inventions, licensing inventions and enforcing intellectual
property rights in the period incurred. Patent enforcement expenses
include direct costs incurred to enforce the Company's patent rights but
exclude personnel costs. Other costs of technology management services
include direct costs associated with patent and technology
commercialization services and personnel costs (including benefits and
overhead expenses).
Cash Equivalents, Short-Term Investments and Available-for-Sale
Securities
The Company classifies overnight bank deposits as cash equivalents.
Cash equivalents are carried at fair value. The Company classifies all
highly liquid investments other than overnight deposits as short-term
investments. Short-term investments are carried at fair value. The
Company's bank and investment accounts are maintained with two financial
institutions. The Company's policy is to monitor the financial strength
of these institutions on an ongoing basis.
From time to time the Company invests in available-for-sale
securities with original maturities greater than 90 days.
Property and Equipment
The costs of depreciable assets are charged to operations on a
straight-line basis over their estimated useful lives (3 to 5 years for
equipment) or the terms of the related lease for leasehold improvements.
The cost and related accumulated depreciation of property and equipment
are removed from the accounts upon retirement or other disposition; any
resulting gain or loss is reflected in earnings.
Intangible Assets Acquired
Intangible assets acquired comprise certain licenses and patented
technologies acquired in 1996 and recorded at fair value. That value is
amortized on a straight-line basis over their estimated remaining lives
(approximately 13 years from the date acquired).
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 Income (Loss) Per Share
Basic earnings per share is computed based on the weighted average
number of common shares outstanding without giving any effect to
potentially dilutive securities. Diluted earnings per share is computed
giving effect to all potentially dilutive securities that were
outstanding during the period.
Stock-Based Compensation
The Company accounts for employee and director stock-based
compensation under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and discloses the pro forma
effects that fair value accounting would have on net income and earnings
per share.
Impairment of Long-lived Assets
The Company reviews long-lived and intangible assets for impairment
when events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable. If the sum of expected
future undiscounted cash flows is less than the carrying amount of the
asset, the Company recognizes an impairment loss based on the fair value
of the asset.
Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes, net of tax, in
shareholders' interest that result from recognized transactions and
other economic events of the period other than transactions of
shareholders in their capacities as shareholders.
Segment Information
The Company operates in a single reportable segment determined on
the basis management uses to make operating decisions and assess
performance.
Recently Issued Accounting Pronoucements
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, "Business Combinations." This statement establishes
financial accounting and reporting for business combinations and
requires that purchase accounting be used for all business combinations.
The provisions of this statement apply to all business combinations
initiated after June 30, 2001.
In June 2001, the FASB issued Statement No. 142, "Goodwill and Other
Intangible Assets." This statement establishes financial accounting and
reporting for acquired goodwill and other intangible assets acquired
individually or with a group of other assets but not acquired in a
business combination. The Company does not expect adoption of Statement
No. 142 to have a material effect on its financial condition or results
of operations. The Company will adopt this Statement on August 1, 2002.
In August 2001, the FASB issued Statement No. 144, "Accounting for
the Impairment or Disposal of Long-lived Assets." This statement
establishes a single accounting model for the impairment of long-lived
assets. The Company does not expect adoption of this standard to have a
material effect on its financial condition or results of operations.
The Company will adopt this statement on August 1, 2002.
3. INVESTMENTS AND NOTES RECEIVABLE
NTRU Cryptosystems, Inc.
In March and July 2000, CTT acquired 3,172,881 shares,
approximately 10% of the then outstanding equity, of NTRU Cryptosystems,
Inc. (NTRU) in exchange for reducing its royalty participation on NTRU's
sales of CTT licensed products and $198,006 in cash. CTT recorded the
exchange of a substantial portion of its royalty participation at the
estimated fair value of 2,945,500 shares of NTRU common stock, $0.25 per
share, as retained royalty settlement of $736,375. NTRU's stock is not
publicly traded and there is no quoted market price for its stock. At
July 31, 2001 and 2000, CTT's carrying value for this investment was
$934,381. CTT accounts for this investment on the cost method. In
August 2001, CTT acquired additional shares of NTRU Series B convertible
preferred stock for $100,000 in cash as part of a $26.1 million
financing round. After this round of financing, CTT held approximately
7% of NTRU's outstanding equity.
Micro-ASI, Inc.
In April 2000, CTT paid $500,000 for 500,000 shares of convertible
preferred stock and warrants to purchase 300,000 shares of common stock
at $1.00 per share of Micro-ASI, Inc. (Micro-ASI) as part of Micro-ASI's
$8 million private placement. In May 2001, CTT advanced $100,000 of
secured bridge financing to Micro-ASI. Based on Micro-ASI's bankruptcy
filing in August 2001, management determined that CTT's investment in
and advance to Micro-ASI were impaired as of July 31, 2001 and recorded
a $600,000 impairment charge. Although the Company is a secured lender,
it is uncertain how much the Company may recover from the bankruptcy
estate.
E. L. Specialists, Inc.
Through a series of bridge financing agreements, the Company
committed to lend $821,000 to E. L. Specialists, Inc. (ELS). As of July
31, 2001, the Company had advanced $650,000 and had reset the date for
repayment to September 28, 2001. Interest accrues on the advances at 7%
per annum on the first $750,000 and at 10% per annum on the remainder.
However, the Company has recognized no interest since March 31, 2001.
Certain of ELS's intellectual property secures the loan and this
security interest is shared pro rata with another ELS lender that has
advanced $470,000 to ELS. CTT's advances are convertible into ELS's
common stock in certain circumstances, including an ELS financing round
in excess of $3,000,000. On September 28, 2001, ELS defaulted on
payment of the advances. The Company waived this default and reset the
demand date to November 5, 2001.
Based on the decline of the electronics and wireless markets, ELS's
recent financial results and the absence of quoted values for ELS's
stock, management validated the recoverability of CTT's advances through
a valuation of its security interest in ELS's intellectual property.
Management considered the timing of CTT's advances, CTT's ability to
withstand a prolonged recovery in the electronics and wireless
industries and the results of the valuation of CTT's security interest
in ELS's intellectual property. Management expects both secured lenders
to be able to recover their advances fully either through ELS's
repayment of the advances or, if required, by taking possession of the
intellectual property that secures the loan and through licensing the
intellectual property to recover the amount of the loan. As of July 31,
2001, CTT classified the advances as current notes receivable based on
their November 5, 2001 maturity.
NovaNET Learning, Inc.
Effective May 28, 1999, CTT sold its 14.5% interest in NovaNET
Learning, Inc. (NLI) for $2,472,602 in cash in connection with NLI's
acquisition by National Computer Systems, Inc. From February 15, 1995
through May 28, 1999, CTT accounted for its $159,375 investment in NLI
under the cost method. CTT recognized a gain of $2,313,227 in its
fiscal quarter ended July 31, 1999. Capital loss carryforwards
sheltered the gain from Federal and state income taxes.
4. ACCOUNTS RECEIVABLE
Receivables were:
July 31, July 31,
2001 2000
Royalties $2,731,228 $2,347,176
Other 51,048 73,004
$2,782,276 $2,420,180
5. AVAILABLE-FOR-SALE SECURITIES
For the year ended July 31, 2000, proceeds from the sale of
available-for-sale securities were $145,444 which resulted in gross
realized gains of $90,238. The Company computes realized gains based on
specific identification.
Because the Company has capital loss carryforwards, no tax effect is
reported on the Company's unrealized gains on securities reported in
other comprehensive income (loss).
6. PROPERTY AND EQUIPMENT
Property and equipment were:
July 31, July 31,
2001 2000
Equipment and furnishings, at cost $ 244,555 $ 228,326
Leasehold improvements, at cost 59,860 59,860
304,415 288,186
Accumulated depreciation
and amortization (237,421) (172,668)
$ 66,994 $ 115,518
Depreciation expense was $76,096, $70,554 and $62,605 in 2001, 2000
and 1999, respectively.
7. ACCRUED LIABILITIES
Accrued liabilities were:
July 31, July 31,
2001 2000
Royalties payable $1,852,207 $1,780,988
Accrued professional fees 1,024,927 95,510
Accrued compensation 70,543 147,766
Deferred revenues 100,000 10,521
Other 39,484 65,625
$3,087,161 $2,100,410
8. INCOME TAXES
The income tax provision of $0 for each of 2001, 2000 and 1999
resulted from utilizing operating and capital loss carryforwards and
providing a full valuation allowance against the Company's net deferred
tax asset.
Components of the Company's net deferred tax assets were:
July 31, July 31,
2001 2000
Net operating loss carryforwards $ 3,922,000 $ 4,483,000
Net capital loss carryforwards 387,000 331,000
Installment receivable from
sale of discontinued operation 1,449,000 1,449,000
Other, net (145,000) (185,000)
Net deferred tax assets 5,613,000 6,078,000
Valuation allowance (5,613,000) (6,078,000)
Net deferred tax asset $ -- $ --
At July 31, 2001, the Company had Federal net operating loss
carryforwards of approximately $11,536,000, which expire from 2002
through 2016 ($4,371,000 in 2002, $157,000 in 2004 and $57,000 in 2005).
Changes in the valuation allowance were:
2001 2000 1999
Balance, beginning of year $ 6,078,000 $ 7,091,000 $ 8,236,000
Change in temporary differences 40,000 124,000 (499,000)
Change in net operating and
capital losses (505,000) (1,137,000) (646,000)
Balance, end of year $ 5,613,000 $ 6,078,000 $ 7,091,000
The Company's ability to derive future tax benefits from the net
deferred tax assets is uncertain and therefore it provided a full
valuation allowance.
9. SHAREHOLDERS' INTEREST
Preferred Stock
Dividends on preferred stock are noncumulative and preferred stock
is redeemable at par value at CTT's option.
Treasury Stock
In October 1998, the Board of Directors authorized CTT to
repurchase up to 250,000 shares of CTT's common stock. CTT 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. CTT repurchased
86,500, 49,400 and 25,400 shares of its common stock for $679,289,
$276,545 and $109,380 in cash in 2001, 2000 and 1999, respectively.
10. STOCK-BASED COMPENSATION PLANS
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for its stock-
based compensation plans. Accordingly, no compensation expense has been
recognized for its employee stock option plans or for its 2000 Directors
Stock Option Plan. The compensation expense charged against income for
grants under its 1996 Directors' Stock Participation Plan, Common Stock
Warrants and Employees' Common Stock Retirement Plan is reported below.
Had compensation expense for CTT's employees' and directors' stock
option plans been determined based on the fair value at the grant dates
for options awarded under those plans consistent with the fair value
provisions of Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation," the Company's net income and
earnings per share would have been reduced to the pro forma amounts
indicated below:
For the years ended July 31,
2001 2000 1999
Net income (loss) As reported $(2,500,749) $1,300,937 $2,919,384
Pro forma $(2,803,807) $ 707,572 $2,784,168
Basic
earnings As reported $ (0.41) $ 0.21 $ 0.49
per share Pro forma $ (0.46) $ 0.12 $ 0.46
Fully diluted
earnings per As reported $ (0.41) $ 0.21 $ 0.49
share Pro forma $ (0.46) $ 0.11 $ 0.46
The fair value of each option grant was estimated on the grant date
using the Black-Scholes option pricing model with the following weighted
average assumptions:
For the years ended July 31,
2001 2000 1999
Dividend yield 0.0% 0.0% 0.0%
Expected volatility 79.5% 62.1% 51.0%
Risk-free interest rates 5.2% 5.9% 4.9%
Expected lives 3 years 3 years 4 years
The pro forma information above may not be representative of pro
forma fair value compensation effects in future years.
Employee Stock Option Plans
CTT has a stock option plan which expired December 31, 2000. Under
this plan both incentive stock options and nonqualified stock options
were granted to key employees. Incentive stock options could be granted
at an exercise price not less than the fair market value of the optioned
stock on the grant date. Nonqualified stock options could be granted at
an exercise price not less than 85% of the fair market value of the
optioned stock on the grant date. Options generally vest over a period
of up to three years after the grant date and expire ten years after the
grant date if not terminated earlier. 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. No option may be granted under
the plan after December 31, 2000. The following information relates to
this stock option plan.
July 31, July 31,
2001 2000
Common shares reserved for
issuance on exercise of options 368,838 372,088
Shares available for future
option grants 0 45,096
CTT may grant either incentive stock options or nonqualified
options under its 1997 Employees' Stock Option Plan as amended in
January 2001. They may be granted at an option price not less than 100%
of the fair market value of the stock at grant date. Option vesting
provisions are determined when options are granted. The maximum term of
any option under the 1997 option plan is ten years from the grant date.
No options may be granted after September 30, 2007. The following
information relates to the 1997 Employees' Stock Option Plan.
July 31, July 31,
2001 2000
Common shares reserved for
issuance on exercise of options 525,777 225,777
Shares available for future
option grants 336,752 143,752
2000 Directors Stock Option Plan
Options granted under the 2000 Directors Stock Option Plan are
nonqualified options granted at an option price equal to 100% of the
fair market value of the stock at grant date. The maximum term of any
option under the 2000 option plan is ten years from the grant date. No
options may be granted after January 1, 2010. The following information
relates to the 2000 Directors Stock Option Plan.
July 31, July 31,
2001 2000
Common shares reserved for
issuance on exercise of options 244,000 244,000
Shares available for future
option grants 130,000 190,000
1996 Directors' Stock Participation Plan
Under the terms of the 1996 Directors' Stock Participation Plan
which expires January 2, 2006, on the first business day of January each
year, CTT shall issue to each outside director who has been elected by
shareholders and served at least one year as a director the lesser of
2,500 shares of CTT's common stock or shares of CTT's common stock equal
to $15,000 on the date such shares are issued. Should an eligible
director terminate as a director before January 2, CTT shall issue such
director a number of shares equal to the proportion of the year served
by that director.
In 2001, 2000 and 1999, CTT issued 11,540, 9,375 and 7,500 shares
of common stock, respectively, to eligible directors. (In 2001 and
1999, 2,898 and 3,125, respectively, additional shares were issued to
directors outside the 1996 Directors' Stock Participation Plan.) In
2001, 2000 and 1999, CTT charged to expense $75,000, $58,085 and
$45,078, respectively, over the directors' respective periods of
service. The following information relates to the 1996 Directors' Stock
Participation Plan.
July 31, July 31,
2001 2000
Common shares reserved for
future share issuances 53,579 65,119
Common Stock Warrants
From time to time CTT compensates certain of its consultants in
part by granting them warrants to purchase shares of its common stock.
Such warrants generally become exercisable six months after issuance.
In 1999 CTT charged to expense the fair value of warrants to purchase
3,000 shares of its common stock totaling $11,740. Information about
CTT's common stock warrants outstanding as of July 31, 2001 is presented
below.
Number Warrant Aggregate
of Price per Exercise Expiration
Issued Shares Share Price Date
September 1996 3,000 $ 9.875 $ 29,625 September 2001
August 1997 2,500 $11.094 $ 27,735 August 2002
5,500 $ 57,360
Summary of Common Stock Options and Warrants
A summary of the status of all CTT's common stock options and
warrants as of July 31, 2001, 2000 and 1999, and changes during the
years then ended is presented below.
For the years ended July 31,
2001 2000 1999
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding,
beginning of year 480,517 $ 9.14 584,042 $ 8.38 506,542 $9.43
Granted 212,000 $ 7.29 239,500 $ 6.54 127,000 $4.33
Forfeited (1,750) $ 7.22 (44,000) $ 6.82 -- $--
Exercised (3,250) $ 6.50 (231,023) $ 6.94 (11,500) $4.22
Expired or
Terminated (186,750) $ 9.08 (68,002) $ 9.19 (38,000) $9.97
Outstanding,
end of year 500,767 $ 7.48 480,517 $ 9.14 584,042 $8.38
Exercisable
at year-end 377,704 $ 7.51 397,567 $ 8.42 479,667 $8.69
Weighted average
fair value per
share of grants
during the year $ 2.49 $ 2.09 $ 1.70
The following table summarizes information about all common stock
options and warrants outstanding at July 31, 2001.
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
$4.220-$ 5.563 115,525 8.24 years $ 5.41 96,650 $ 5.39
$6.500-$ 8.813 305,042 8.77 years $ 7.54 200,854 $ 7.44
$9.063-$11.875 80,200 4.14 years $10.27 80,200 $10.27
Employees' Common Stock Retirement Plan
Effective August 1, 1990, CTT adopted an Employees' Common Stock
Retirement Plan. For the fiscal years ended July 31, 2001, 2000 and
1999, the Board authorized contributions of 14,814, 4,274 and 13,384
shares, respectively, valued at approximately $80,000, $39,000 and
$79,900, respectively, based on year-end closing prices. CTT charged
these amounts to expense in 2001, 2000 and 1999, respectively.
11. 401(k) PLAN
Effective January 1, 1997, the Company established a 401(k) defined
contribution plan for all employees meeting certain service
requirements. Eligible employees may contribute up to 15% of their
annual compensation to this plan subject to certain limitations. The
Company may also make discretionary matching contributions. The Company
has made no matching contributions.
12. REVENUES
All of the Company's royalty revenues derive from its patent rights
to various technologies. Although patents may be declared invalid, may
not issue on patent applications, or may be rendered uncommercial by new
or alternative technologies, the Company is not aware of any such
circumstances specific to its portfolio of licensed technologies. In
addition, licensees may not develop products incorporating the Company's
patented technologies or they may be unsuccessful in obtaining
governmental approvals required to sell such products. In such cases,
except for minimum fees provided in certain license agreements, royalty
revenues generally would not accrue to the Company.
Approximately $2,190,000 (60% of retained royalties) in 2001 was
from several licenses of the gallium arsenide patents. These patents
include a laser diode technology used in optoelectronic storage devices
and another technology that improves semiconductor operating
characteristics. Approximately $1,715,000 of this total was from one
U.S. licensee's sales of licensed product during the year. The
remaining $475,000 was from several foreign licensees and included
license issue fees from executing two new licenses. The U.S. patents
for these technologies expire between May 2001 and September 2006.
Approximately $417,000 (11% of retained royalties) in 2001 was from
several licenses of the Vitamin B12 assay. Certain of these licensed
patents expired in April 1998, April 1999, February 2000 and May 2001.
The remaining Vitamin B12 assay licensed patents will expire in April
and November 2002.
Retained royalties for 2001, 2000 and 1999, include $682,011,
$534,880 and $1,094,415, respectively, from foreign licensees. These
fiscal 2001 and 2000 foreign royalties include $475,000 and $371,000
from the gallium arsenide portfolio and 1999 foreign royalties include
$661,500 from the paid-up license of the encryption technology.
13. NET INCOME (LOSS) PER SHARE
The following table sets forth computations of basic and diluted
net income (loss) per share.
For the years ended July 31,
2001 2000 1999
Net income (loss)
applicable to common stock:
Basic and diluted: $(2,500,749) $1,300,937 $2,919,384
Weighted average number of common
shares outstanding 6,135,486 6,079,211 5,982,112
Effect of dilutive securities:
Stock options -- 106,022 27,589
Stock warrants -- 2,174 --
Weighted average number of common
shares outstanding and dilutive
securities 6,135,486 6,187,407 6,009,701
Net income (loss) per
share of common stock:
Basic and diluted $ (0.41) $ 0.21 $ 0.49
At July 31, 2001, 2000 and 1999, respectively, options and warrants
to purchase 500,767, 97,500 and 449,042 shares of common stock were
outstanding but were not included in the computation of earnings per
share because they were anti-dilutive.
14. COMMITMENTS AND CONTINGENCIES
Operating Leases
CTT occupies its executive office in Fairfield, Connecticut under a
lease which expires December 31, 2006. CTT has an option to renew this
lease for an additional five years.
At July 31, 2001, future minimum rental payments required under
operating leases with initial or remaining noncancelable lease terms in
excess of one year were:
For the years ending July 31:
2002 $ 222,765
2003 232,140
2004 232,140
2005 230,345
2006 226,000
2007 93,750
Total minimum payments
required $1,237,140
Total rental expense for all operating leases was:
For the years ended July 31,
2001 2000 1999
Minimum rentals $ 209,828 $ 212,425 $195,602
Less: Sublease rentals (18,500) (27,870) (29,356)
$ 191,328 $ 184,555 $ 166,246
Other Obligations
The Company has an employment contract with one of its officers
from December 1999 through December 2002 with aggregate minimum
compensation of $185,000 per year.
CTT and VVI have contingent obligations to repay up to $209,067 and
$224,127, respectively, (three times total grant funds received) in
consideration of grant funding received in 1994 and 1995. CTT is
obligated to pay at the rate of 7.5% of its revenues, if any, from
transferring rights to inventions supported by the grant funds. VVI is
obligated to pay at rates of 1.5% of its net sales of supported products
or 15% of its revenues from licensing supported products, if any. These
obligations are recognized when any such revenues are recognized.
During fiscal 2000 and 1999, CTT charged $2,733 and $3,188 in related
royalty expenses to operations. No other such expenses were charged in
any prior years. CTT's and VVI's remaining contingent obligations were
$203,146 and $224,127, respectively, at July 31, 2001.
In connection with Renovar litigation settled in June 1992, CTT
incurred approximately $67,000 of contingent legal fees. CTT agreed to
pay one-half of proceeds received from settlement of the related
litigation, if any, to a limit of three times the contingent fees
incurred (approximately $202,000). At July 31, 2001, CTT had paid the
entire cumulative contingent legal fees of $201,778, of which $1,731,
$33,629 and $44,098 were charged to operations in 2001, 2000 and 1999,
respectively.
Litigation
Fujitsu
In December 2000, CTT filed a complaint with the United States
International Trade Commission (ITC) on behalf of CTT and the University
of Illinois against Fujitsu Limited of Tokyo, Japan, (Fujitsu), Fujitsu
Hitachi Plasma Display Limited, Japan, et al. under Section 337 of the
Tariff Act of 1930, as amended. CTT requested that the ITC stop Fujitsu
and/or its subsidiaries from unlawfully importing plasma display panels
(PDPs) into the United States on the basis that the panels infringe U.S.
Patent Numbers 4,866,349 and 5,081,400 held by CTT's client, the
University of Illinois. The two patents cover energy recovery in PDPs
and plasma display flat-screen televisions. The ITC has the power to
issue orders directing U.S. customs officials to stop future importation
of Fujitsu PDPs and plasma display products that infringe the two named
patents. In June 2001, CTT requested withdrawal of its complaint before
the ITC and the ITC complaint was withdrawn in August 2001. Coincident
with filing its ITC complaint, CTT and the University of Illinois also
filed a complaint against Fujitsu in the United States District Court
for the Central District of Illinois seeking damages for past
infringements and an injunction against future sales of PDPs that
infringe these patents. In July 2001, CTT reactivated this complaint to
pursue these additional legal remedies (a permanent injunction against
future sales of PDPs that infringe these patents, damages for past
infringing sales and possibly damages for willfulness) which are not
available at the ITC. CTT intends to seek to expedite this case.
In September 2001, Fujitsu and Fujitsu Hitachi Plasma Display
Limited, Japan, filed suit against CTT and Plasmaco, Inc. in the United
States District Court for the District of Delaware. This lawsuit
alleges, among other things, that CTT misappropriated confidential
information and trade secrets supplied by Fujitsu. It also alleges
that, with Plasmaco's assistance, CTT abused the ITC process to obtain
information to which it otherwise would not have been entitled and which
it will use in the action against Fujitsu in the United States District
Court for the Central District of Illinois. Fujitsu seeks damages in an
unspecified amount and injunctive relief. The Company intends to defend
vigorously the action instituted by Fujitsu.
CTT is unable to estimate the legal expenses or the loss it may
incur in these suits, if any, and has recorded no potential judgment
proceeds in its financial statements to date.
LabCorp
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 beginning in 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. The 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. Discovery has been completed. Trial is scheduled to begin in
November 2001. CTT is unable to estimate the related legal expenses it
may incur in this suit and has recorded no revenue for these withheld
royalties.
MaternaTM
The 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, previously filed a lawsuit
against American Cyanamid Company, defendant, in the United States
District Court for the District of Colorado. This case involved a
patent for an improved formulation of MaternaTM, a prenatal vitamin
compound sold by defendant. 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.
As a result of this contract, the Company is entitled to share
approximately 18% of damages awarded to the University of Colorado, if
any, after deducting the expenses of this suit. On November 19, 1999,
the United States Court of Appeals for the Federal Circuit vacated a
July 7, 1997 judgment by the District Court in favor of plaintiffs for
approximately $44 million and remanded the case to the District Court
for further proceedings. On July 7, 2000, the District Court concluded
that Robert H. Allen and Paul A. Seligman were the sole inventors of the
reformulation of MaternaTM that was the subject of the patent and that
defendant is liable to them and the other plaintiffs on their claims for
fraud and unjust enrichment. In March 2001, the District Court heard
arguments to determine the nature and amount of damages to be paid by
defendant. The District Court judge has issued a preliminary favorable
opinion to guide findings of fact and conclusions of law. The parties
await the judge's decision. The Company cannot predict the amount of
its share of the judgment, if any, which may ultimately be awarded. The
Company has recorded no potential judgment proceeds in its financial
statements to date. While the Company has incurred certain expenses in
connection with this suit, it does not expect to incur additional
expenses in this suit in the future. The Company records such expenses
as they are incurred.
Optical Associates, Limited Partnership (OALP)
In 1989 UOP, a majority-owned subsidiary of CTT which had developed
a computer-based system to manufacture specialty contact lenses,
intraocular lenses and other precision optical products, sold
substantially all its assets to Unilens Corp. USA (Unilens). The
proceeds of the sale included an installment obligation for $5,500,000
payable at a minimum of $250,000 per year beginning in January 1992.
Due to the uncertainty of the timing and amount of future cash flows,
income on the installment obligation is recorded net of related expenses
as the payments are received. Cash received in excess of the fair value
assigned to the original obligation is recorded as other income from
continuing operations. As cash proceeds are received, CTT records a 4%
commission expense payable to its joint venture partner, Optical
Associates, Limited Partnership (OALP). Unilens made no payments in
fiscal 2001, 2000 or 1999.
On November 4, 1991, a suit was filed in the Superior Court of the
Judicial District of Fairfield, Connecticut, at Bridgeport by Bruce
Arbeiter, Jeffrey A. Bigelow, Jeffrey W. Leiderman, Optical Associates,
Limited Partnership (OALP) and Optical Associates Management Corp.
(OAMC) purportedly on behalf of all the limited partners of OALP, as
plaintiffs, against Genetic Technology Management, Inc. (GTM),
University Optical Products Co. (UOP), the registrant, Jay Warren
Blaker, L.W. Miles, A. Sidney Alpert, Frank R. McPike, Jr., Michael
Behar, Bruce E. Langton, Arthur M. Lieberman and Harry Van Benschoten,
as defendants. The complaint alleges, among other things, that in
January 1989 the defendants, GTM, UOP and the registrant, sold
substantially all of the assets of OALP to Unilens Corp. USA (Unilens)
and disbursed only 4% of the sales price to OALP, all in violation of
certain agreements, representations and legal obligations; 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. Management of the registrant believes,
based upon all the facts available to management, that the claims
asserted in the suit are without merit, and the registrant has
vigorously defended against plaintiffs' claims. In November 2000, the
Company made a motion to dismiss this case. On September 14, 2001, the
attorney referee recommended that the Court grant defendants' motion for
a judgment of dismissal. No final order has yet been entered. Through
July 31, 2001, the Company had received aggregate cash proceeds of
approximately $1,011,000 from the January 1989 sale of UOP's assets to
Unilens.
CTT recognized other expenses from continuing operations of
$52,460, $269 and $41,337 in 2001, 2000 and 1999, respectively, for
legal expenses related to this suit.
15. RELATED PARTY TRANSACTIONS
During 2001 and 2000, CTT incurred charges of approximately
$146,000 and $133,000, respectively, for consulting services (including
expenses and taxes) provided by two directors. During 2000, CTT earned
approximately $10,000 performing services for a company of which another
director is president.
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Company
The following table sets forth information with respect
to each director and executive officer according to the
information furnished the Company by him:
Principal Occupation
Name, Age and During Past Five
Positions Currently Years; Other Public Director of the
Held with the Company Directorships Company Since
George C.J. Bigar, Professional December 1996
44, Director Investor.
Richard E. Carver, President and Chief January 2000
64, Director and Executive Officer,
Chairman of the MST America (an
Board of Directors international
business strategies
consultancy) since
January 1995;
President and Chief
Executive Officer,
RPP America (a
company that sells
solid waste
wrapping systems)
from November 1998
to April 2000;
Chairman and Chief
Executive Officer,
Carver Lumber
Company (provider
of building
materials for new
home construction
and
prefabrications)
from May 1988 to
December 1999.
George W. Dunbar, Chief Executive November 1999
Jr., 55, Director Officer, EPIC
Therapeutics, Inc. (a
drug delivery
technology company)
since September 2000;
Acting President and
Chief Executive
Officer of StemCells,
Inc. (previously
known as Cyto-
Therapeutics, Inc.)
since February 2000;
Acting President of
StemCells California,
Inc. (a wholly-owned
subsidiary of
StemCells, Inc.)
since November 1999
(companies developing
organ-specific, human
platform stem cell
technologies to treat
diseases); President
and Chief Executive
Officer, Metra
BioSystems, Inc. (a
developer of products
to detect and manage
bone and joint
diseases) from 1991
to August 1999.
Director of Sonus
Pharmaceuticals, Inc.
Samuel M. Fodale, 58, President, Central October 1998
Director Maintenance Services,
Inc. (a service and
warehousing
corporation serving
the automobile
industry).
Frank R. McPike, Jr., Chief Executive February 1999
52, President, Chief Officer of the
Executive Officer, Company since
Treasurer, Chief November 2000;
Financial Officer and President of the
Director Company since October
1998; Chief Operating
Officer of the
Company from October
1998 to November
2000; Interim Chief
Executive Officer of
the Company from
August to October
1998; Secretary of
the Company from
August 1989 to
February 1999;
Treasurer of the
Company since July
1988; Vice President,
Finance and Chief
Financial Officer of
the Company since
December 1983;
Director of the
Company from July
1988 to March 1998
and since February
1999.
Charles J. Philippin, Chief Executive June 1999
51, Director Officer, Accordia,
Inc. (formerly On-
Line Retail Partners)
(a provider of
management and
technology resources
for branded e-
commerce businesses)
since June 2000; a
member of the
management committee
of Investcorp
International, Inc.
(a global investment
group that acts as a
principal and
intermediary in
international
investment
transactions) from
July 1994 to May
2000. Director of
Jostens, Inc.
John M. Sabin, 46, Chief Financial December 1996
Director Officer and General
Counsel of
NovaScreen
Biosciences
Corporation
(previously known
as Oceanix
Biosciences
Corporation) (a
developer of
biotechnology-based
tools to accelerate
drug discovery and
development) since
January 2000;
business consultant
from September 1999
to January 2000;
Executive Vice
President and Chief
Financial Officer,
Hudson Hotels
Corporation (a
limited service
hotel development
and management
company) May 1998
to September 1999;
Senior Vice
President and
Treasurer, Vistana,
Inc. (a developer
of vacation
timeshares)
February 1997 to
May 1998; Vice
President, Finance,
Choice Hotels
International,
Inc., October 1996
to February 1997;
Vice President-
Mergers and
Acquisitions,
Choice Hotels
International,
Inc., June 1995 to
October 1996; Vice
President-Finance
and Assistant
Treasurer, Manor
Care, Inc. and
Choice Hotels
International,
Inc., December 1993
to October 1996.
Each director holds office until the next annual meeting of
stockholders and until his successor has been elected and qualified
or until his earlier resignation or removal. The terms of all
executive officers of the Company are until the first meeting of the
newly elected Board of Directors following the forthcoming annual
meeting of stockholders and until their respective successors shall
have been duly elected and shall have qualified, subject to
employment agreements. Mr. McPike has an employment contract with
the Company; this contract is described in Item 11, Executive
Compensation. There is no family relationship between any director
or executive officer of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (Exchange
Act) requires the Company's directors and officers and persons who own
more than ten percent of the Company's Common Stock to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission and the American Stock Exchange. SEC regulations require
reporting persons to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of such reports received
or written representations from certain reporting persons with respect
to fiscal 2001, the Company believes that all reporting persons
complied with all applicable reporting requirements, except for Mr.
Bigar, Mr. Carver and Mr. Fodale. Mr. Bigar failed to file on a
timely basis two required reports with regard to two transactions in
the Company's securities. Mr. Carver failed to file on a timely basis
one required report with regard to one transaction in the Company's
securities. Mr. Fodale failed to file on a timely basis four required
reports with regard to five transactions in the Company's securities.
Item 11. Executive Compensation
Summary Compensation
The following table summarizes the total compensation accrued,
earned or paid by the Company for services rendered during each of
the fiscal years ended July 31, 2001, 2000 and 1999 to the sole
person who served as an executive officer of the Company during the
fiscal year ended July 31, 2001 (the Specified Executive).
SUMMARY COMPENSATION TABLE
Annual Compensation (A)
Long Term
Compensation
Awards
______
Securities
Name and Principal Fiscal Underlying All Other
Position Year Salary ($) Bonus ($) Options (#) Compensation ($)
Frank R. McPike, Jr. 2001 217,500 25,000 25,000 23,773 (B)
President, Chief 2000 184,039 25,000 100,000 17,174 (B)
Executive Officer, 1999 179,200 -- -- 16,422 (B)
Chief Operating
Officer and Chief
Financial Officer
(A) The aggregate amount of any perquisites or other personal
benefits was less than 10% of the total of annual salary and
bonus and is not included in the above table.
(B) Consists principally of amounts contributed for Mr. McPike to
Competitive Technologies, Inc.'s Employees' Common Stock
Retirement Plan. The Company contributed shares of its Common
Stock valued at the mean between its high and low prices on the
American Stock Exchange on July 31 of each year. Also includes
premiums paid for term life insurance policies (see below).
Option Grants
The following table summarizes the stock options granted by the
Company during the fiscal year ended July 31, 2001 to the Specified
Executive.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Percent Potential
Number of of Total Realizable
Securities Options Value at
Underlying Granted to Assumed Annual
Options Employees Exercise Rates ofStock
Granted in Fiscal Price Expiration Appreciation
Name (#)(1) Year ($/Sh) Date for Option Term
5% ($) 10% ($)
Frank R. McPike, Jr. 25,000 16% $8.1250 1/19/2011 $127,744 $323,729
(1) Options vest 25% one year from the grant date of January 19, 2001
with the balance to vest pro-rata quarterly over the subsequent 36
months.
Option Exercises and Year End Value
For the Specified Executive, the following table summarizes stock
options held at July 31, 2001. The Specified Executive exercised no
stock options during the fiscal year ended July 31, 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Number of
Securities Value of
Underlying Unexercised
Shares Unexercised In-the-Money
Acquired Options Options at
On Value at FY-End (#) FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
Frank R. McPike, Jr. 0 $0 133,067/37,500 $0/$0
Employment Agreements
Effective December 7, 1999, the Company entered into an
employment agreement with Mr. McPike providing for his employment as
President and Chief Operating Officer for a three-year term and for
base compensation at a minimum rate of $185,000 per year, subject to
annual reviews and increases in the sole discretion of the Board of
Directors. The employment is at will and can be terminated by
either party at any time with or without cause. The agreement also
provides, among other things:
-- a procedure for annual renewals of the employment term
with continuation of pay for six months after non-renewal
unless non-renewal is for cause
-- severance payments of up to one year's base compensation
in certain circumstances
-- a period of non-competition covering the remainder of the
employment term plus six months in certain circumstances.
The employment agreement also confirmed ten-year stock options for
the purchase of 100,000 shares of the Company's Common Stock granted
to Mr. McPike on December 7, 1999 at a price of $5.5625 per share
and vesting on a specified schedule. All options have now vested
except for 12,500 options which will vest on December 7, 2001.
Other Arrangements
The Company provides term life insurance for certain of its
officers. The policy amount in the event of death is $250,000 for
Mr. McPike. The Company paid premiums of $460 for Mr. McPike's
policy in each of 2001, 2000 and 1999.
Effective January 1, 1997, the Company established a 401-K
plan. Under the 401-K plan, an eligible employee may elect a salary
reduction up to 15% of his or her compensation as defined in the
plan to be contributed by the Company to the plan. Employee
contributions for any calendar year are limited to a specific dollar
amount determined by the Internal Revenue Service ($10,500 for 2001
and 2000 and $10,000 for 1999). The Company may also make
discretionary matching contributions. The Company has made no
matching contributions.
Effective August 1, 1990, the Company adopted the Competitive
Technologies, Inc. Employees' Common Stock Retirement Plan (the
Retirement Plan). The Retirement Plan is a qualified stock bonus
plan under the Internal Revenue Code. All employees of the Company
are eligible to participate in the Retirement Plan. Annually, the
independent directors determine the number of shares of the
Company's Common Stock, if any, to be contributed to the Retirement
Plan. These shares are allocated among participants employed on the
last day of the year and who performed at least 1,000 hours of
service during the year in proportion to their relative compensation
in a manner that is integrated with the Company's Social Security
contribution on behalf of employees; that is, the contribution made
with respect to compensation in excess of the Social Security wage
base generally will be twice as large in proportionate terms as the
contribution made with respect to compensation below that wage base.
The Company's contributions are held in trust with a separate
account established for each participant.
The maximum amount of Company Common Stock that may be
contributed to the Retirement Plan in any year is the number of
shares with a fair market value equal to 15% of that year's
compensation reduced by the 401-K plan contributions made for
Retirement Plan participants, but in no event more than 1% of the
Company's outstanding shares at the end of the previous year. There
is no minimum or required contribution. The maximum number of
shares that can be allocated to any individual participant's account
in any year is the number of shares with a fair market value equal
to the lesser of $30,000 or 25% of his or her compensation for that
year reduced by his or her 401-K plan contributions.
Participants become entitled to distributions of the vested
shares allocated to their accounts upon disability, death or other
termination of employment. Participants obtain a 100% vested
interest in the shares allocated to their accounts upon completing 5
years of service with the Company. If the Retirement Plan becomes
top heavy as defined by the Internal Revenue Code, participants
become 20% vested after 2 years of service, 40% vested after 3 years
of service, 60% vested after 4 years of service, and 100% vested
after 5 years of service.
Company stock contributed to the Retirement Plan is held in the
custody of the Retirement Plan's trustee, Webster Trust in New
Britain, Connecticut. The trustee has the power to vote Company
shares owned by the Retirement Plan. For the fiscal years ended
July 31, 2001, 2000 and 1999, the Board authorized contributions of
14,814, 4,274 and 13,384 shares, respectively, to the Retirement
Plan. Shares allocated to Mr. McPike, the Company's sole executive
officer at July 31, 2001, under the Retirement Plan were 3,308,
1,268 and 2,674 for the fiscal years ended July 31, 2001, 2000 and
1999, respectively. See also Summary Compensation Table - "All
Other Compensation" for dollar values ascribed to contributions for
Mr. McPike.
The Company has an incentive compensation plan pursuant to
which an amount equal to 10% of operating income of the Company
(defined and adjusted as provided in said plan) shall be credited
each year to an incentive fund. A committee, none of whose members
is eligible to receive awards, makes cash awards to key employees of
the Company from the incentive fund. Amounts may be credited to the
incentive fund when the Company earns operating income (as defined
in said plan) for a fiscal year. In fiscal 2001, no amounts were
credited to this fund. In fiscal 2000 and 1999, the Company
credited $86,004 and $46,837, respectively, to this incentive fund.
No amounts were credited to this fund prior to fiscal 1999. In
October 1999, the Company paid $46,750 in incentive bonuses to
employees other than Mr. McPike. In November 2000, the Company paid
$86,000 in incentive bonuses to employees, including $25,000 to Mr.
McPike.
The Company has in effect a 1997 Employees' Stock Option Plan
(the Option Plan) with respect to its Common Stock, $.01 par value,
which provides for granting either incentive stock options under
Section 422 of the Internal Revenue Code or nonqualified options.
(Incentive options and non-qualified options granted under the
Option Plan must be granted at not less than 100% of fair market
value on the grant date). In certain instances, stock options which
are vested or become vested upon the happening of an event or events
specified by the Company's Stock Option Committee, may continue to
be exercisable through up to 10 years after the date granted,
irrespective of the termination of the optionee's employment with
the Company.
Director Compensation
The Company pays each director who is not an employee of the
Company or a subsidiary $1,000 for each Board meeting attended. The
Company also pays each director $250 for attending each committee
meeting that coincides with a Board meeting and $500 for attending a
committee meeting that does not coincide with a Board meeting. The
Company pays directors who participate in telephonic board and/or
committee meetings one half the fee for attending such meetings.
The Company reimburses directors for out-of-pocket expenses incurred
to attend Board and committee meetings.
When a director of the Company represents the Company as a
director of an investee company, the Company pays the director for
attending investee board meetings the difference, if any, between
(a) the amount the investee company pays and (b) the amount the
Company pays for attendance at such meetings. During fiscal 2001
and 2000, the Company paid Mr. Sabin $7,500 and $2,500,
respectively, for his attendance at investee board meetings. No
other director received any such fees.
In addition to meeting fees, the Company pays outside directors
an annual cash retainer of $7,500 payable in quarterly installments.
In August 1999, the Board formed an executive committee with
Mr. Bigar as chairman and provided that the Company compensate him
at the rate of $8,000 per month due to the substantial commitment of
time to be required of Mr. Bigar as chairman. This arrangement
continued until August 2000. See Item 13 Certain Relationships and
Related Transactions.
Under the Company's 1996 Directors' Stock Participation Plan,
on the first business day of January from January 1997 through
January 2006, the Company issues to each non-employee director who
has been elected by the stockholders and has served at least one
full year a number of shares of the Company's Common Stock equal to
the lesser of (i) $15,000 divided by the per share fair market value
of such stock on the issuance date, or (ii) 2,500 shares. If a non-
employee director were to leave the Board after serving at least one
full year but prior to the January issuance date, the Company would
pay the annual stock compensation described above on a pro-rata
basis up to the termination date. In January 2001, the Company
issued an aggregate of 11,540 shares under this plan (2,308 each to
Messrs. Bigar, Dunbar, Fodale, Philippin and Sabin). In January
2001, 2,898 shares were issued outside the 1996 Directors' Stock
Participation Plan (217, 1,720 and 961 shares to Messrs. Dunbar,
Carver and Philippin, respectively). These shares were pro-rated
for service before January 1, 2000.
Effective January 27, 2000, the Company adopted the Competitive
Technologies, Inc. 2000 Directors Stock Option Plan (the Directors
Option Plan) with respect to its Common Stock, $.01 par value.
Directors who are not employees of the Company or a subsidiary are
eligible for options granted pursuant to this plan. This plan
provides that the Company grant an option for 10,000 shares to each
new director elected during the term of this plan on the date he or
she is first elected to office, whether by the stockholders or by
the Board. This plan also provides that the Company grant an
additional option for 10,000 shares to each director holding office
on the first business day in each subsequent January. Options under
this plan will be non-statutory options, have an exercise price of
100% of the fair market value at the grant date, have a term of ten
years from the grant date, and fully vest on the grant date. If a
person's directorship is terminated because of death or permanent
disability, options may be exercised within one year after
termination. If the termination is for any other reason, options
may be exercised only within 180 days after termination. In no
event may an option be exercised after expiration of its ten-year
term. The Company may not grant options under the Directors Option
Plan after the first business day of January 2010. On January 2,
2001, the Company granted 60,000 options under this plan (10,000
each to Messrs. Bigar, Carver, Dunbar, Fodale, Philippin and Sabin).
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following information indicates the beneficial ownership of
the Company's Common Stock by each director and executive officer of
the Company and by each person known to the Company to be the
beneficial owner of more than 5% of the Company's outstanding Common
Stock. The indicated owners furnished such information to the
Company as of October 1, 2001 except as otherwise indicated in the
footnotes.
Name (and Address if more
than 5%) of Beneficial Amount Beneficially
Owners Owned (A) Percent (B)
Directors and executive officer
George C.J. Bigar 24,331 (C) --
Richard E. Carver 17,720 (D) --
George W. Dunbar, Jr. 22,525 (E) --
Samuel M. Fodale 180,458 (F) 2.9%
Frank R. McPike, Jr. 205,223 (G) 3.3%
Charles J. Philippin 34,269 (H) --
John M. Sabin 24,726 (I) --
All directors and executive
officers as a group 509,252 (J) 7.9%
Additional 5% Owner
Richard D. Corley 323,200 (K) 5.3%
416 St. Mark Court
Peoria, IL 61603
(A) Except as indicated in the notes which follow, the designated
person or group has sole voting and investment power.
(B) Percentages of less than 1% are not shown.
(C) Consists of 4,331 shares of Common Stock plus 20,000 stock
options deemed exercised solely for purposes of showing total shares
owned by Mr. Bigar.
(D) Consists of 3,720 shares of Common Stock plus 14,000 stock
options deemed exercised solely for purposes of showing total shares
owned by Mr. Carver.
(E) Consists of 2,525 shares of Common Stock and 20,000 stock
options deemed exercised solely for purposes of showing total shares
owned by Mr. Dunbar.
(F) Consists of 160,458 shares of Common Stock plus 20,000 stock
options deemed exercised solely for purposes of showing total shares
owned by Mr. Fodale. Includes 99,100 shares of Common Stock held by
Central Maintenance Services, Inc., 9,000 shares of Common Stock
held by Missouri Recycling - St. Louis, Inc., 3,200 shares of Common
Stock held by children and 2,000 shares of Common Stock held by
spouse.
(G) Consists of 34,656 shares of Common Stock plus 170,567 stock
options deemed exercised solely for purposes of showing total shares
owned by Mr. McPike. Includes 1,500 shares of Common Stock held by
daughter as to which Mr. McPike disclaims beneficial ownership.
Includes 9,922 shares of Common Stock held by Webster Trust as
Trustee under the Company's Employee Common Stock Retirement Plan,
as to which Mr. McPike has shared investment power. Does not
include 10,533 shares of Common Stock allocated to Mr. McPike under
said Retirement Plan; Trustee has sole voting and investment power
with regard thereto.
(H) Consists of 14,269 shares of Common Stock plus 20,000 stock
options deemed exercised solely for purposes of showing total shares
owned by Mr. Philippin.
(I) Consists of 4,726 shares of Common Stock plus 20,000 stock
options deemed exercised solely for purposes of showing total shares
owned by Mr. Sabin. Includes 200 shares of Common Stock held by
spouse.
(J) Consists of 224,685 shares of Common Stock plus 284,567 stock
options to purchase shares of Common Stock deemed exercised solely
for purposes of showing total shares owned by such group.
(K) Information taken from Schedule 13D/A filed September 25, 2001
which states that the information is as of September 14, 2001.
At October 17, 2001, the stock transfer records maintained by
the Company with respect to its Preferred Stock showed that the
largest holder of Preferred Stock owned 500 shares.
The following table sets forth information with respect to the
common stock, $.001 par value per share, of University Optical
Products Co. (UOP), a subsidiary of the Company, beneficially owned
by each director or executive officer of the Company and by each
person known to the Company to be the beneficial owner of more than
5% of the Company's outstanding Common Stock at October 17, 2001.
Shares of Common Percent
Name Stock of UOP (A) of Class (B)
George C.J. Bigar None --
Richard E. Carver None --
George W. Dunbar, Jr. None --
Samuel M. Fodale None --
Frank R. McPike, Jr. 14,000 --
Charles J. Philippin None --
John M. Sabin None --
All directors and executive
officers as a group 14,000 --
(A) Does not include 1,333,333 shares of UOP class A stock (which
have four votes per share and are convertible into an equal number
of shares of UOP common stock) and 2,757,735 shares of UOP common
stock owned by the Company and 1,927 shares of UOP common stock
owned by Genetic Technology Management, Inc., a wholly-owned
subsidiary of the Company.
(B) Percentages of less than 1% are not shown.
Item 13. Certain Relationships and Related Transactions
Since August 2000, the Company has compensated George C.J. Bigar,
a director of the Company, at the rate of $8,000 per month for
consulting services related to the Company's investments and potential
investments in development-stage companies. Mr. Bigar has received
$120,000 for these services from August 2000 through October 2001.
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, 2001
and 2000. 29-30
Consolidated Statements of Operations for the
years ended July 31, 2001, 2000 and 1999. 31
Consolidated Statements of Changes in
Shareholders' Interest for the years ended
July 31, 2001, 2000 and 1999. 32
Consolidated Statements of Cash Flows for the
years ended July 31, 2001, 2000 and 1999. 33-34
Notes to Consolidated Financial Statements. 35-51
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
The Company filed no reports on Form 8-K 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 Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
COMPETITIVE TECHNOLOGIES, INC.
(the Company)
By s/ Frank R. McPike, Jr.
Frank R. McPike, Jr.
President, Chief Executive Officer,
Chief Financial Officer, Director
and Authorized Signer
Date: October 29, 2001
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 Company and in the capacities and on the dates
indicated.
Name Title Date
GEORGE C. J. BIGAR* Director )
George C. J. Bigar )
)
RICHARD E. CARVER* Director )
Richard E. Carver )
)
GEORGE W. DUNBAR, JR.* Director )
George W. Dunbar, Jr. )
)
SAMUEL M. FODALE* Director )
Samuel M. Fodale )
)
)
s/ FRANK R. McPIKE, JR. President, Chief )
Frank R. McPike, Jr. Executive Officer, )
Chief Financial ) October 29, 2001
Officer (Principal )
Financial and Accounting )
Officer), and Director )
)
CHARLES J. PHILIPPIN* Director )
Charles J. Philippin )
)
JOHN M. SABIN* Director )
John M. Sabin )
)
)
* By s/ FRANK R. McPIKE, JR. )
Frank R. McPike, Jr., Attorney-in-Fact )
EXHIBIT INDEX
Exhibit
No. Description Page
3.1 Unofficial restated certificate of incorpora-
tion of the registrant as amended
to date filed as Exhibit 4.1 to
registrant's Registration Statement on
Form S-8, File Number 333-49095 and hereby
incorporated by reference.
3.2 By-laws of the registrant as amended
to date filed as Exhibit 3.1 to
registrant's Form 10-Q for the quarter ended
October 31, 1997 and hereby incorporated by
reference.
10.1* Registrant's Restated Key Employees'
Stock Option Plan filed as Exhibit
4.3 to registrant's Registration Statement on
Form S-8, File No. 33-87756 and hereby
incorporated by reference.
10.2* Registrant Incentive Compensation Plan
filed as Exhibit 10.2 to the registrant's
Form 10-K for the year ended
July 31, 1997 and hereby incorporated by
reference.
10.3* Registrant's 2000 Directors Stock
Option Plan filed as Exhibit 4.3 to
registrant's Registration Statement on
Form S-8, File Number 333-95763 and hereby
incorporated by reference.
10.4* Registrant's 1996 Directors' Stock
Participation Plan filed as Exhibit 4.3 to
registrant's Form S-8 No. 333-18759 and
hereby incorporated by reference.
10.5 Limited Partnership Agreement of Optical
Associates, 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 incorporated by reference;
moratorium agreement dated July 20, 1987
between University Optical Products Co. and
Optical Associates, Limited Partnership filed
as Exhibit 10.14 to registrant's Form 10-K
for the fiscal year ended July 31, 1987 and
hereby incorporated by reference.
10.7 Asset Purchase Agreement among University
Optical Products Co., Unilens
Corp. USA, Unilens Optical Corp. and the
registrant dated January 23, 1989 filed as
Exhibit 19.1 to registrant's Form 10-Q for
the quarter ended January 31, 1989 and hereby
incorporated by reference.
10.8* Registrant's 1997 Employees' Stock Option
Plan as amended January 19, 2001 filed
as Exhibit 10.1 to registrant's Form 10-Q for
the quarter ended January 31, 2001 and hereby
incorporated by reference.
10.9 Asset Purchase Agreement between Unilens
Corp. U.S.A. and University Optical
Products Co. dated November 30, 1989 filed as
Exhibit 19.1 to registrant's Form 10-Q for
the quarter ended October 31, 1989 and hereby
incorporated by reference.
10.10* Employment Agreement between registrant
and Frank R. McPike, Jr. dated
December 7, 1999 filed as Exhibit 10.1 to
registrant's Form 10-Q for the quarter ended
January 31, 2000 and hereby incorporated by
reference.
10.11 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
reference.
10.12 Stock Purchase Agreement dated July
15, 1993 among registrant, Unilens Corp.
USA and Unilens Vision Inc. filed as Exhibit
10.48 to registrant's Form 10-K for the year
ended July 31, 1993 and hereby incorporated
by reference.
10.13 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 for the year ended
July 31, 1993 and hereby incorporated by
reference.
10.14 Lease agreement between registrant
and The Bronson Road Group made
August 28, 1996 filed as Exhibit 10.34 to
registrant's Form 10-K for the year ended
July 31, 1996 and hereby incorporated by
reference.
10.15 First Amendment of Lease Agreement
dated August 9, 2001 between
registrant and the Bronson Road Group, LLP. 68-72
10.16 Agreement between registrant and Samuel
M. Fodale dated June 13, 2001. 73
21.1 Subsidiaries of the registrant. 74
23.1 Consent of PricewaterhouseCoopers LLP. 75
24.1 Power of attorney. 76-77
* Management Contract or Compensatory Plan