THIS DOCUMENT IS A COPY OF THE FORM 10-K FILED ON OCTOBER 30, 2002
PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION
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, 2002
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 06824
(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 68.
Page 1 of 83 sequentially numbered pages.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
[x]
As of October 1, 2002, 6,154,351 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 $2.03 per share, 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
$11,981,000.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated Document Location in Form 10-K
Registrant's definitive proxy Part III - Items 10,
statement if filed within 120 11, 12 and 13
days after the end of the
fiscal year covered by this
Form 10-K
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
technology licensing and commercialization services with respect to
a broad range of life, digital, physical, and nano science
technologies originally invented by individuals, corporations,
research institutions and universities.
Our goal is to maximize returns on intellectual property by
selling, licensing, or otherwise transferring technologies to
others. In a few cases, we have enforced our clients' and our
patent rights with respect to these technologies or invested in new
entities to commercialize certain technologies.
On October 1, 2002, we employed 13 people (full-time
equivalents). Substantially all employees are salaried and none is
represented by a labor union.
Technology Licensing Services
We provide technology licensing and commercialization services
with respect to a broad range of life, digital, physical, and nano
science technologies invented by individuals, corporations, research
institutions, and universities.
We bridge the gap between conceptualization and
commercialization to license useful and innovative technologies to
companies that will make and sell products incorporating them. In
the future we intend to seek to focus on obtaining lists of
technologies that companies want and to fill those technology wish
lists. We intend to seek to have an order for a technology that we
can match with a technology in our portfolio or one we obtain from
another source.
We also have intellectual property rights available for
licensing. We assess the strength of each invention's intellectual
property rights and its potential commercial value to focus our
efforts and resources on inventions with higher potential for
successful commercial exploitation.
Our life science portfolio includes pharmaceuticals,
biotechnologies, and medical devices. We include communications
(wireless, optical, broadband, compression, conversion devices and
circuits), semiconductors (devices, network integrated circuits and
subsystems and micro-electromechanical structures), internet and e-
commerce (encryption, security and privacy), infrastructure and
consumer electronics technologies in our digital portfolio. Our
physical science portfolio targets display, environmental and
nanotechnologies and smart/novel materials.
Our professional staff has diverse technical, intellectual
property, legal, 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 also have a strategic alliance with
Innovation Partners International, k.k., in Osaka, Japan.
Our clients are inventors and invention owners - individuals,
corporations, universities, and research institutions. In the future
our clients may also be those seeking such inventions. We realize
revenues from technologies primarily by licensing them to obtain
license fees and royalty revenues. We also manage the related
license agreements and distribute license revenues to their
respective owners.
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 licensing or commercializing
technologies. In addition, some clients share expenses of the
technology commercialization process.
The four technologies that produced retained royalties equal to
or exceeding 10% of our consolidated revenue during 2002, 2001 or
2000 were gallium arsenide semiconductors, EthyolTM, public key
encryption and vitamin B12 assay. Retained royalty revenues from
these technologies were approximately:
2002 2001 2000
Gallium arsenide, including
laser diode $1,012,000 $2,190,000 $1,363,000
Ethyol $ 391,000 $ 228,000 $ 225,000
Public key encryption -- $ -- $ 736,375
Vitamin B12 assay $ 264,000 $ 417,000 $ 381,000
As a percentage of retained royalties, they represented:
2002 2001 2000
Gallium arsenide, including
laser diode 39% 60% 35%
Ethyol 15% 6% 6%
Public key encryption -- -- 19%
Vitamin B12 assay 10% 11% 10%
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 $417,000, $1,715,000 and
$992,000 of retained royalties in fiscal 2002, 2001 and 2000,
respectively, were from one U.S. licensee's sales of licensed
product; the remaining $595,000, $475,000 and $370,000, respectively,
were from several foreign licenses.
Ethyol is a chemotherapeutic mitigation agent licensed by
Southern Research Institute (SRI) exclusively to MedImmune, Inc.
(formerly U.S. BioScience, Inc.). Pursuant to an agreement between
CTT and SRI, SRI pays CTT a share of license income it receives,
which payments are limited to $500,000 maximum in any calendar year.
According to information reported by MedImmune, U.S. patents for
Ethyol expire between July 2012 and April 2019. Since October 2001,
when MedImmune began selling Ethyol directly in the United States,
the underlying royalty base has been higher than when it sold Ethyol
through a distributor. We expect our retained royalties from Ethyol
to reach $500,000 per year in fiscal 2003.
The public key encryption and digital authentication technology
was developed by NTRU Cryptosystems, Inc. (NTRU) to secure and verify
authenticity in wireless and Internet communications and commercial
transactions. NTRU has applied for U.S. patents on this technology
and one patent issued in June 2000. In fiscal 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. In addition, we retain a small royalty
participation in NTRU's sales of CTT licensed products.
The improved assay procedure for determining vitamin B12
deficiencies was developed at the University of Colorado. Certain
U.S. and foreign licensed vitamin B12 patents expired in April 1998,
April 1999, February 2000, May 2001 and April 2002. The remaining
vitamin B12 licensed patent will expire in 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.
Beginning in fiscal 1998, we have pursued a program to license
an assay used to determine homocysteine levels and a corresponding
deficiency of folate or vitamin B12. Studies suggest that high
levels of homocysteine are a primary risk factor for coronary artery
disease and a risk factor for strokes and general cardiovascular
disease. Our U.S. patent that covers this homocysteine assay expires
in 2007. We had ten homocysteine licenses (including one sublicense)
throughout fiscal 2002, 2001 and 2000. Homocysteine retained
royalties in fiscal 2002, 2001 and 2000 were approximately $171,000,
$203,000 and $392,000, respectively. A sublicensee's withholding of
royalties on certain tests reduced retained royalties in each of
these years. We joined with our licensee in a lawsuit against the
sublicensee. In November 2001, a jury confirmed the validity of our
patent rights and found that Labcorp willfully infringed them. In
December 2001, the Court entered judgment confirming the jury's
verdict. We await the judge's final ruling. If it confirms the
earlier judgments, we will begin an aggressive campaign to collect
royalties that are due. See also Item 3. Legal Proceedings and Note
16 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 13 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, in addition to
providing other forms of assistance, we have invested in or advanced
funds to development-stage companies to exploit specific
technologies. Our strategy going forward will not include such
investments where we would be a primary or lead investor.
NTRU Cryptosystems, Inc.
In fiscal 2000, we acquired 3,172,881 shares of 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. In August 2001, we
acquired shares of NTRU Series B convertible preferred stock for
$100,000 in cash after which we held approximately 7% of NTRU's
outstanding common and preferred equity. NTRU's stock is not
publicly traded and there is no quoted market price for its stock.
At July 31, 2002 and 2001, CTT's carrying value for this investment
was $1,034,381 and $934,381, respectively. CTT accounts for this
investment on the cost method.
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).
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. During fiscal 2002, we recovered $21,598 of our advance. We
cannot predict the timing or amounts of additional potential
recoveries; therefore we will record future recoveries, if any, only
when we can estimate their timing and amounts.
E. L. Specialists, Inc.
Through a series of bridge financing agreements, the Company
loaned $1,056,300 ($956,300 in cash and $100,000 in services) to E.
L. Specialists, Inc. (ELS).
Effective August 5, 2002, CTT sold and transferred all its
interests related to ELS to MRM Acquisitions, LLC (MRM) for $200,000
cash. The transferred interests include CTT's notes receivable in
the face amount of $1,056,300 (plus interest) from ELS, its related
security interest in ELS's intellectual property, all its other
interests under agreements in connection with its notes receivable
from ELS and CTT's interest in a technology servicing agreement
related to ELS's intellectual property.
In the second quarter of fiscal 2002, the Company recorded an
impairment loss of $519,200 against its notes receivable from ELS.
As a result of closing the sale and transfer to MRM, CTT recorded an
additional $262,724 impairment loss on loans to ELS in July 2002,
bringing the total for the fiscal year ended July 31, 2002 to
$781,924. (In addition, CTT previously charged against other
revenues from ELS approximately $75,000 deemed uncollectible.) At
July 31, 2002, CTT carried its notes receivable from ELS as current
assets at $200,000, which it collected from MRM in cash on August 5,
2002.
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.
Risk Factors
We have generated relatively limited income and we experienced
operating and net losses in fiscal 2002, 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, 2002:
2002 2001 2000 1999 1998
Operating income (loss) $(3,278,885) $(2,232,361) $ 774,038 $ 421,533 $(1,381,903)
Net income (loss) $(4,016,428) $(2,500,749) $1,300,937 $2,919,384 $(1,235,489)
Net cash flow from:
Operating activities $(1,666,360) $ (246,834) $ 458,295 $ 626,083 $ (485,035)
Investing activities $ 2,192,345 $ (586,941) $ (993,362) $ (979,646) $ 600,680
Financing activities $ -- $ (658,164) $1,342,928 $ (361,843) $ (351,257)
Net increase (decrease)
in cash and cash
equivalents $ 525,985 $(1,491,939) $ 807,861 $ (715,406) $ (235,612)
Net increase (decrease)
in short-term
investments $(2,656,567) $ (206,613) $ 410,082 $3,612,606 $ (861,213)
We cannot assure you when, if ever, we will recognize net income
again, and it is possible that we could continue to incur losses in
the foreseeable future. Our revenues for fiscal 2002 were
$2,595,931, which was $1,045,353 (29%) lower than for fiscal 2001.
Revenues from new licenses and developing technologies have not
increased sufficiently to offset declining revenues from expiring
licenses or mature technologies.
For fiscal 2002 and 2001, our net losses included $2,132,090 and
$2,474,017, respectively, in net patent enforcement expenses. Patent
enforcement litigation is expensive but sometimes necessary to obtain
the revenues to which we believe we and our clients are entitled.
Effective July 23, 2002, we agreed that the University of Illinois,
would take the lead and assume the cost of new lead counsel in the
litigation against Fujitsu. See Item 3. Legal Proceedings. Before
this agreement, we bore the entire cost of lead counsel in this
litigation. We expect this agreement to reduce our net patent
enforcement expenses substantially in fiscal 2003. In addition, on
October 28, 2002, the Company signed a contingent promissory note
payable to our patent litigation counsel for approximately $1,600,000
plus simple interest at the annual rate of 11% from the agreement
date payable only from future receipts in a settlement or other
favorable outcome of the litigation against Fujitsu, if any.
Accordingly, we will reverse approximately $1,600,000 from accounts
payable and operating expenses in the first quarter of fiscal 2003.
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 the inability of our
licensees to successfully commercialize our technologies.
Consequently, we may not be able to generate sufficient revenues to
be profitable.
Although we expect our available capital to be sufficient to finance
our current operating and enforcement activities into fiscal 2004, we
cannot be certain that actual results will meet our expectations.
At July 31, 2002, we had net working capital of $1,140,836,
approximately $3,706,000 less than at July 31, 2001. Our accounts
payable at July 31, 2002, include approximately $1,600,000 of patent
litigation counsel's invoices we will not pay except from future
receipts in a settlement or other favorable outcome of the litigation
against Fujitsu, if any. On October 28, 2002, the Company signed a
contingent promissory note payable to our patent litigation counsel
for approximately $1,600,000 plus simple interest at the annual rate
of 11% from the agreement date payable only from future receipts in a
settlement or other favorable outcome of the litigation against
Fujitsu, if any. Accordingly, we will reverse approximately
$1,600,000 from accounts payable and operating expenses in the first
quarter of fiscal 2003, thereby reducing the Company's working
capital requirements. In addition, as a result of our agreement for
the University of Illinois to assume the costs of lead counsel in the
litigation against Fujitsu, we expect substantially lower patent
enforcement expenses in fiscal 2003.
Based on our current expectations, including the actions
discussed in the preceding paragraph, we anticipate that currently
available funds and expected revenues will be sufficient to finance
cash needs for our current operating and enforcement activities into
fiscal 2004. We are, however, considering opportunities to increase
our cash resources. Specifically, we have engaged an investment
banking firm to assist us in raising debt and/or equity funds to
execute our strategic plan. In addition, we are evaluating an
opportunity to monetize a portion of our interest in the Materna
judgment prior to its final resolution on appeal. We will carefully
evaluate the economic costs and benefits of any transaction of this
nature.
We intend to monitor our operating and enforcement costs closely
and reduce them, if necessary, to meet these expectations. However,
royalty revenues, costs of enforcement actions and expansion of our
business are subject to many factors outside our control or that we
cannot currently anticipate, including without limitation business
opportunities that may arise in the future. Accordingly, there can
be no assurance that our current expectations regarding the
sufficiency of currently available funds and expected revenues will
prove to be accurate.
The AMEX may consider delisting our common stock at the end of fiscal
2003.
At July 31, 2002, CTT's shareholders' interest was $2,992,643.
Under American Stock Exchange (AMEX) listing standards, if CTT
sustains a net loss in fiscal 2003 and has less than $4,000,000
shareholders' interest at July 31, 2003, the AMEX may consider
suspending dealings in or delisting CTT's common stock. In October
2002, CTT engaged investment bankers to assist CTT in raising
additional debt or equity funds to execute our strategic plan. In
addition, CTT is pursuing additional strategies to leverage its core
licensing competencies and generate near-term revenues. We expect
the results of these efforts, together with the benefits of our July
23, 2002 agreement with the University of Illinois and our October
28, 2002 agreement with patent litigation counsel discussed above,
will keep CTT within the AMEX listing standards, but we cannot assure
you that we will achieve our expectations.
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. In June 2002, our directors retained
Mr. John B. Nano as our President and Chief Executive Officer and
elected him to be a director. Simultaneously, they appointed Mr.
Frank R. McPike, Jr. as Executive Vice President, and he continues to
serve as Chief Financial Officer and a director.
We also rely on our professional staff and third party
consultants to identify intellectual property opportunities and to
negotiate and close license agreements. Competition for these
personnel is intense and we cannot assure you that we will be able to
attract and retain qualified personnel. If we were unable to hire
and retain qualified professional staff and consultants, our
revenues, prospects, financial condition and future activities could
be materially adversely affected.
We are currently involved in lawsuits that have historically involved
significant legal expenses. If the courts in these suits decide
against us, this could have a materially adverse effect on our
business, results of operations and financial condition.
For a complete description of these lawsuits, see Item 3. Legal
Proceedings.
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 fiscal 2000) constituted 99%, 100%, and 96% of our revenues fiscal
2002, 2001 and 2000, respectively. The royalties we receive from our
licensees depend on their efforts and expenditures 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.
We received 71% of our retained royalties in fiscal 2002 from four
technologies.
In fiscal 2002, approximately $1,838,000 (71%) of our retained
royalties were from four technologies: $1,012,000 (39%) from gallium
arsenide patents (including a laser diode technology used in
optoelectronic storage devices and another technology that improves
semiconductor operating characteristics); $391,000 (15%) from Ethyol
(a chemotherapeutic mitigation agent); $264,000 (10%) from the
vitamin B12 assay; and $171,000 (7%) from the homocysteine assay.
Retained royalties from the gallium arsenide semiconductor
inventions (which include laser diode applications) for fiscal 2002
were approximately $1,012,000 compared with approximately $2,190,000
for fiscal 2001, a decline of approximately $1,178,000 (54%). This
reflects lower telecom industry sales partially offset by higher DVD
product sales. Due to uncertainties in the markets for products
using these inventions, we cannot predict whether our royalties
(which are based on our licensees' sales of licensed products) will
continue to decline or begin to increase, nor can we predict whether,
if an increase were to occur, our royalties would return to the 2001
level.
Royalties from Ethyol in fiscal 2002 increased approximately
$163,000 over fiscal 2001. Ethyol's royalty base is higher since
October 2001 when the licensee began selling Ethyol directly in the
United States rather than through a distributor. We expect our
retained royalties from Ethyol to reach our $500,000 per year maximum
in fiscal 2003.
Our last vitamin B12 assay patent expires in November 2002.
This technology generated a substantial portion of our past retained
royalties.
Retained royalties from homocysteine were also lower than in
fiscal 2001. A homocysteine licensee that had been paying certain
royalties in fiscal 2001 began withholding those royalties in fiscal
2002, taking a position similar to LabCorp's position. See Item 3.
Legal Proceedings. We believe that the December 2001 judgment of the
U.S. District Court for the District of Colorado confirms that our
patent rights are valid. We await the judge's final ruling. Based
on that judgment, we believe that we are entitled to royalties on all
homocysteine assays performed by our licensees. However, there can
be no assurance that we will ultimately prevail.
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 sales of the product.
If our clients and 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.
Our success in earning revenues from licenses 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, when all patents underlying a license
expire, 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.
In fiscal 2002 we received royalties from licenses on thirty-two
(32) patented technologies. We expect royalties from twelve (12) of
those patented technologies to expire in the next five years. Those
patented technologies represented approximately 58% of our retained
royalty revenue in fiscal 2002. Of our fiscal 2002 revenues, patents
covering technologies representing approximately 1%, 13%, 28%, less
than 1% and 15% expire in fiscal 2003, 2004, 2005, 2006 and 2007,
respectively. Loss of these 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.
Our clients and/or we are pursuing patent infringement
litigation or interference proceedings against sellers of products
that we believe infringe our patent rights. See Item 3. Legal
Proceedings. Holders of conflicting patents or sellers of competing
products may also challenge our patents in patent infringement
litigation or interference proceedings.
Effective July 23, 2002, CTT and the University of Illinois
agreed that the University of Illinois would take the lead in the
litigation against Fujitsu and assume the cost of new lead counsel.
Before this agreement, CTT bore the entire costs of lead counsel fees
in this litigation. CTT retains its economic interest in its
potential favorable outcome. See Risk Factors above and Note 18 to
Consolidated Financial Statements.
We cannot assure you that our clients and 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
clients', our licensees' and our abilities to:
- introduce products in a timely manner;
- maintain a pipeline of new technologies;
- enhance and improve existing products continually;
- maintain development capabilities;
- anticipate or adapt to technological changes and advances in
relevant industries; and
- ensure continuing compatibility with evolving industry
standards.
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 market before it is saturated. They may encounter
unanticipated technical or other problems that result 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.
We compete with universities, law firms, venture capital firms
and other technology commercialization firms for technology licensing
opportunities. There are more than 140 organizations that offer some
aspect of technology transfer services. This market is highly
fragmented and participants are frequently focused on a specific
technology area. Some of our competitors are well established and
have more financial and human resources than we do.
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 relationships with universities, corporations, governmental
agencies, research institutions, inventors, and others to provide us
technology-based opportunities we can develop into profitable royalty-
bearing licenses. Our failure to maintain our relationships with
them or to develop new relationships could adversely affect our
business, operating results and financial condition. 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 provide the volume or quality of available new
technologies necessary to sustain our business. 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/or 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.
Our $1,034,381 investment in NTRU and $733,246 net intangible assets
acquired comprise 16% and 11%, respectively of our total assets.
Future events related to these assets may generate charges to
earnings and adversely affect our financial condition.
We regularly review our carrying values for these assets for
potential impairment.
If NTRU, which is a development-stage entity, were unable to
achieve sufficient market penetration and revenues, its potential
value in a sale or initial public offering could be diminished and
our investment could be impaired. Our investment is not readily
transferable and our opportunities to liquidate it are limited. In
that case we would recognize an impairment charge to reduce our
carrying value to the fair value of our investment in NTRU.
Likewise, if our acquired intangible assets (principally patents
and licensed patents) were to stop producing revenues or no longer be
expected to generate revenues, we could incur an impairment charge.
If either of these assets were to become entirely worthless, the
charge to earnings would be its entire carrying value at that time,
which could adversely affect our net income and financial condition.
However, it would not reduce our cash balance.
We have not paid dividends and do not expect to pay dividends on our
common stock in the foreseeable future.
Since 1981, we have not paid cash dividends on our common stock
and we do not expect to declare or pay cash dividends in the
foreseeable future.
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 annual
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, Fujitsu General
Limited, Fujitsu General America and Fujitsu Microelectronics, Inc.
(Fujitsu) 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 flat and plasma
display panels. 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, which was subsequently stayed,
against Fujitsu and Fujitsu Hitachi Plasma Display Ltd. (Fujitsu et
al.) 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 (damages for past infringing sales and possibly damages for
willfulness) which are not available at the ITC. In May 2002, the
District Court granted defendants' motion to transfer this case to
the Northern District of California. The trial in this case is
currently scheduled for October 2003.
Effective July 23, 2002, CTT and the University of Illinois
agreed that the University of Illinois would take the lead in this
litigation and assume the cost of new lead counsel. Before this
agreement, CTT bore the entire costs of lead counsel fees in this
litigation. CTT retains its economic interest in its potential
favorable outcome.
In September 2001, Fujitsu filed suit against CTT and Plasmaco,
Inc. in the United States District Court for the District of
Delaware. This lawsuit alleged, among other things, that CTT
misappropriated confidential information and trade secrets supplied
by Fujitsu during the course of the ITC action. It also alleged
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 (now in
the Northern District of California). The Delaware District Court
dismissed this action at the request of Fujitsu who subsequently re-
instituted the case in the Northern District of California.
CTT is unable to estimate the legal expenses or the loss it may
incur or the possible damages it may recover 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 alleged, among other things, that LabCorp owes plaintiffs
royalties for homocysteine assays performed beginning in the summer
of 1998 using methods falling within the claims of a patent owned by
CTT. CTT licensed the patent non-exclusively to MLI and MLI
sublicensed it to LabCorp. Plaintiffs claim LabCorp's actions
constitute breach of contract and patent infringement. The claim
sought 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 sought unspecified money and exemplary
damages and attorneys' fees, among other things. LabCorp filed an
answer and counterclaims alleging noninfringement, patent invalidity
and patent misuse.
The jury that heard this case in November 2001 confirmed the
validity of CTT's patent rights and found that LabCorp willfully
contributed to and induced infringement and breached its contract.
In December 2001, the Court entered judgment affirming the jury's
verdict. If the Court's judgment is upheld in post-trial motions and
on a potential appeal, CTT will retain approximately $400,000 of
damages awarded plus interest at the statutory rate from the date
judgment was entered. In post-trial motions now pending, LabCorp has
asked that the jury verdict be set aside and CTT has asked for
punitive damages and attorneys' fees based on the jury's finding that
LabCorp's infringement was willful.
CTT is unable to estimate the legal expenses it may incur or the
possible damages it may ultimately recover in this suit, if any. CTT
has recorded no potential judgment proceeds in its financial
statements to date.
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 (a subsidiary of Wyeth), defendant,
in the United States District Court for the District of Colorado.
This case involved a patent for an improved formulation of Materna, 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 18.2% of damages awarded to the
University of Colorado, if any, after deducting the expenses of this
suit.
On July 7, 2000, the District Court concluded that Robert H.
Allen and Paul A. Seligman were the sole inventors of the
reformulation of Materna 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. On August 13, 2002, the District
Court judge awarded approximately $54 million, plus certain interest
from January 1, 2002, to the plaintiffs. If this judgment becomes
final, CTT's share would be approximately $6 million plus its
proportionate share of interest.
Since the defendant may appeal this judgment and posted a $59
million bond to be able to appeal it, CTT is unable to predict when
this lawsuit will finally be settled or when it will receive its
share of damages finally awarded, if any. CTT 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 University Optical Products Co. (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, OALP.
Unilens made no payments in fiscal 2002, 2001 or 2000.
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 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., the Company, 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
Company, sold substantially all the assets of OALP to Unilens Corp.
USA 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.
Based upon all the facts available, management believes that the
claims asserted in the suit are without merit, and the Company has
vigorously defended against plaintiffs' claims. On September 14,
2001, the attorney referee recommended that the Court grant
defendants' motion for dismissal, but plaintiffs objected. There has
been no further action and no final order has yet been entered.
Through July 31, 2002, 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
$399, $52,460 and $269 in 2002, 2001 and 2000, 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. By letter of October 24, 2002, Frank R. McPike,
Jr., CTT's Executive Vice President, Chief Financial Officer and a
director, received a subpoena from the SEC seeking additional
documents from July 1, 1998 to date in connection with the
investigation and setting a November 2002 date for Mr. McPike to
testify before officers of the SEC. CTT is aware of other parties,
including its director Samuel M. Fodale, who have 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 preparing this Form 10-K, we believe that neither CTT nor
Messrs. McPike or 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 25, 2002, the
Company has advanced $40,000 for Mr. Fodale pursuant to this
agreement.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market Price of and Dividends on the Company's Common Equity
and Related Stockholder Matters
(a) Market information. 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, 2002 High Low
First Quarter 6.25 2.60
Second Quarter 4.45 2.30
Third Quarter 3.60 2.37
Fourth Quarter 3.00 1.82
Fiscal Year Ended July 31, 2001 High Low
First Quarter 9.69 6.25
Second Quarter 9.13 5.38
Third Quarter 8.60 6.37
Fourth Quarter 7.85 5.00
(b) Holders. At October 1, 2002 there were approximately 700
holders of record of the Company's common stock.
(c) Dividends. No cash dividends were declared on the
Company's common stock during the last two fiscal years.
(d) Securities authorized for issuance under equity compensation
plans. The following table sets forth information about the
Company's equity compensation plans as of July 31, 2002.
Equity Compensation Plan Information
(a) (b) (c)
Number of
securities
remaining
Number of available for
securities to future issuance
be issued under equity
upon compensation
exercise of Weighted-average plans
outstanding exercise price of (excluding
options, outstanding securities
warrants and options, warrants reflected in
Plan category rights and rights column (a))
Equity
compensation
plans approved
by security
holders 937,767 $ 5.43 352,831
Equity
compensation
plans not
approved by
security
holders 2,500 (1) $11.09 8,848
TOTAL
(1) 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. These warrants expired
unexercised in August 2002.
COMPETITIVE TECHNOLOGIES, INC.
Selected Financial Data (1) (4)
For the years ended July 31
Item 6. Selected Financial Data
2002 2001 2000 1999 1998
Retained royalties $ 2,570,931 $ 3,637,764 $ 3,202,194 $ 3,463,176 $ 2,400,534
Retained royalty settlement -- -- 736,375 -- --
Other revenues 25,000 3,520 174,298 176,148 211,300
Total revenues $ 2,595,931 $ 3,641,284 $ 4,112,867 $ 3,639,324 $ 2,611,834
Operating income (loss) (2) $(3,278,885) $(2,232,361) $ 774,038 $ 421,533 $(1,381,903)
Net income (loss) (3) $(4,016,428) $(2,500,749) $ 1,300,937 $ 2,919,384 $(1,235,489)
Net income (loss) per share:
basic and diluted $ (0.65) $ (0.41) $ 0.21 $ 0.49 $ (0.21)
Weighted average number of common
shares outstanding:
Basic 6,148,022 6,135,486 6,079,211 5,982,112 5,969,434
Diluted 6,148,022 6,135,486 6,187,407 6,009,701 5,969,434
At year end:
Cash, cash equivalents and
short-term investments $ 2,887,295 $ 5,017,877 $ 6,716,429 $ 5,498,486 $ 2,634,618
Total assets $ 6,399,783 $10,640,873 $12,093,965 $ 8,959,021 $ 6,301,864
Long-term obligations $ -- $ -- $ -- $ -- $ --
Shareholders' interest $ 2,992,643 $ 6,967,746 $ 9,928,112 $ 7,180,286 $ 4,172,413
(1) Should be read in conjunction with Consolidated Financial Statements and
Notes thereto.
(2) Includes approximately $1,600,000 in 2002 that we will reverse in the first
quarter of fiscal 2003. See Note 18 to Consolidated Financial Statements.
(3) Includes $781,924 loan impairment loss on E. L. Specialists, Inc. in 2002,
$600,000 investment and loan impairment loss on Micro-ASI, Inc. in 2001 and
$2,313,227 gain on sale of investment in NovaNET Learning, Inc. in 1999.
(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
Critical Accounting Policies
Preparation of our consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires that we make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date
of the financial statements, the reported amounts of revenues and
expenses for the reporting period, and related disclosures. We
base our estimates on the information available at the time and
assumptions we believe are reasonable.
We believe that significant estimates, assumptions and
judgments affect the following critical accounting policies used in
preparing our consolidated financial statements. Our audit
committee has reviewed their selection, application and disclosure.
Revenue Recognition
We derive revenues primarily from patent and technology
license and royalty fees. Since these revenues result from our
representation agreements with owners and assignees of intellectual
property rights, we record revenues net of the owners' and
assignees' shares of license and royalty fees. We stipulate the
terms of our licensing arrangements in written agreements with the
owners, assignees and licensees.
Single element arrangements
Since we usually have no significant obligations after we
execute license agreements, they are generally single element
arrangements. Under the terms of our license agreements, we
generally receive an upfront license fee and a royalty stream
based on the licensee's sales of products applying the
licensed technology.
License fees under single element arrangements
We recognize upfront, nonrefundable license fees when our
licensee executes the license agreement and pays the license
fee. When these two events occur, we have persuasive evidence
of an arrangement, no continuing obligations, completed
delivery, and assurance of collection.
Royalty fees under single element arrangements
Although we fix the royalty rate (e.g., percentage of
sales or rate per unit sold) in the license agreement, the
amount of earned royalties is contingent upon the amount of
licensed product the licensee sells. Royalties earned in each
reporting period are contingent on the outcome of events
(i.e., the licensee's sales of licensed products) occurring
within that period that are not within our control and are not
directly tied to our providing services. Therefore, we
recognize this royalty revenue when the contingency is
resolved and we can estimate the amount of royalty fees
earned, which is upon our receipt of the licensee's royalty
report.
Other arrangements
In limited instances, we enter into multiple element
arrangements with continuing service obligations. Based upon
the limited verifiable objective evidence available, we
generally defer all revenue from such multiple element
arrangements until we deliver all elements.
In limited instances, we enter into milestone billing
arrangements, which we evaluate on a case-by-case basis. In
these arrangements, we generally defer upfront fees and
recognize the related revenue and other services revenue as
earned over the entire arrangement.
Impairment of Intangible Assets and Long-Term Investments
We review intangible assets and investments in equity
securities that do not have readily determinable fair values 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, we recognize an impairment loss
measured by the amount the asset's carrying value exceeds its fair
value and re-evaluate the remaining useful life of the asset. If a
quoted market price is available for the asset or a similar asset,
we use it in determining fair value. If not, we determine fair
value as the present value of estimated cash flows based on
reasonable and supportable assumptions.
We applied this policy to our $500,000 investment in and
$100,000 advance to Micro-ASI, Inc. and recorded a $600,000
impairment charge in fiscal 2001. In fiscal 2002, we recorded a
$21,598 recovery of our advance. We cannot predict the timing or
amounts of potential additional recoveries; therefore we will
record further recoveries, if any, when we can estimate their
timing and amounts.
We also applied this policy to our $50,000 investment of
services in Digital Ink, Inc. We discuss this application in
results of operations for fiscal 2002 below.
We regularly apply this policy to our equity investments in
privately held companies (principally $1,034,381 in NTRU
Cryptosystems, Inc. at July 31, 2002). We consider the investee's
financial health (including cash position), business outlook
(including product stage and viability to continue operations),
recent funding activities, and business plan (including historical
and forecast financial information). In the future, we could be
required to write down our investments because of adverse changes
in these or other factors. These investments are not readily
transferable and our opportunities to liquidate them are limited
and subject to many factors beyond our control, including
circumstances internal to the investee and broader economic
conditions.
We also apply this policy to all acquired intangible
assets. At July 31, 2002, certain of our acquired licenses
stopped producing revenues and certain of our acquired patents
are no longer expected to generate revenues in the future. For
each technology, we compared the estimated future revenues with
the carrying value at July 31, 2002. For those technologies
with a carrying value greater than estimated future revenues,
we recorded total impairment charges of $156,080 in other costs
of technology management services in fiscal 2002.
After recording this impairment charge, we also reviewed the
estimated useful lives of the remaining intangible assets. As a
result, we reduced the average remaining useful life from 7 to
approximately 5 years and expect to record amortization expense of
approximately $156,000 for fiscal 2003, compared with $138,672 for
each fiscal year ending July 31, 2002, 2001 and 2000.
Impairment of Loans
We review loans for impairment when events or changes in
circumstances indicate that the carrying amount of the loan may not
be recoverable. We determine the present value of expected future
cash flows under the loan (discounted at the loan's effective
interest rate) or the fair value of the collateral if the loan is
collateral dependent. If the fair value of the loan is less than
its carrying amount, we recognize an impairment loss based on the
fair value of the loan. This policy is consistent with Statement
of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan - an amendment of Statements No. 5 and
15."
We applied this policy to our $1,056,300 of notes receivable
from E. L. Specialists, Inc. (ELS). We discuss the results of this
application more fully below.
Results of Operations - 2002 vs. 2001
Our total revenues for fiscal 2002 were $2,595,931, which was
$1,045,353 (29%) lower than for fiscal 2001.
For fiscal 2002, retained royalties were $2,570,931, which was
$1,066,833 (29%) lower than for fiscal 2001. In fiscal 2002,
approximately $1,838,000 (71%) of our retained royalties were from
four technologies: $1,012,000 (39%) from gallium arsenide patents
(including a laser diode technology used in optoelectronic storage
devices and another technology that improves semiconductor
operating characteristics); $391,000 (15%) from EthyolTM (a
chemotherapeutic mitigation agent); $264,000 (10%) from the vitamin
B12 assay; and $171,000 (7%) from the homocysteine assay.
Retained royalties from the gallium arsenide semiconductor
inventions (which include laser diode applications) for fiscal 2002
were approximately $1,012,000 compared with approximately
$2,190,000 for fiscal 2001, a decline of approximately $1,178,000
(54%). This reflects lower telecom industry sales partially offset
by higher DVD product sales. Due to uncertainties in the markets
for products using these inventions, we cannot predict whether our
royalties (which are based on our licensees' sales of licensed
products) will continue to decline or begin to increase, nor can we
predict whether, if an increase were to occur, our royalties would
return to the 2001 level. Most of our royalties from these
inventions are reported semi-annually in the second and fourth
fiscal quarters.
Retained royalties were also lower because a licensee (which
had previously been paying $100,000 minimum pre-market annual
retained royalties in prior fiscal years) terminated its license
and therefore paid no minimum in fiscal 2002. Also lower were
retained royalties from homocysteine and expiring vitamin B12 assay
patents (our last vitamin B12 assay patent expires in November
2002). A homocysteine licensee that had been paying certain
royalties in fiscal 2001 began withholding those royalties in
fiscal 2002, taking a position similar to LabCorp's position. We
believe that the December 2001 judgment of the U.S. District Court
for the District of Colorado confirms that our patent rights are
valid. Based on that judgment, we believe that we are entitled to
royalties on all homocysteine assays performed by our licensees.
However, there can be no assurance that we will ultimately prevail.
Retained royalty increases from other technologies partially
offset these reductions. Royalties from Ethyol in fiscal 2002
increased approximately $163,000 over fiscal 2001. Ethyol's
royalty base is higher since October 2001 when the licensee began
selling Ethyol directly in the United States rather than through a
distributor. We expect our retained royalties from Ethyol to reach
our $500,000 per year maximum in fiscal 2003. Other increases
included higher minimum royalties on licenses of our sunless
tanning technology and a treatment for sexual dysfunction, one-time
royalties from a Retin-ATM royalty audit and earned royalties from
a new license in 2002.
Licensees of our endoscopic ligator have withheld royalties
since the third quarter of fiscal 2000. (Our retained royalties
from the endoscopic ligator were approximately $138,000 for fiscal
2000.) We believe we are entitled to all withheld and future
royalties for use of our patented technology. However, we cannot
predict when, if ever, licensees will resume remitting royalties
for this technology. We believe that a 2002 Supreme Court decision
voids our licensees' arguments that their products are not using
our patented technology. This decision upheld earlier decisions
that a patent's scope is not limited to its literal terms, but
embraces all equivalents to the claims described and puts the
burden of proof on the patentee to show that the equivalents at
issue have not been surrendered. According to patent law, an
equivalent uses substantially the same invention in substantially
the same way to achieve substantially the same result. We continue
to pursue collection of these royalties through non-judicial means.
Other changes in retained royalty revenues reflect changes in
the timing of royalties reported by licensees and in licensees'
sales of licensed products. Historically, the Company's royalty
revenues in its second and fourth fiscal quarters have been higher
than in its first and third fiscal quarters.
Total operating expenses for fiscal 2002 were $5,874,816
compared with $5,873,645 in fiscal 2001. While personnel,
recruiting and corporate legal expenses were higher in fiscal 2002,
patent enforcement (net of reimbursements) and consultants' fees
and expenses were lower. Intangible asset impairment charges were
approximately $156,000 in fiscal 2002.
In fiscal 2002 we employed 13 people (full-time equivalents)
compared with 11 in fiscal 2001. We hired John B. Nano as our
President and Chief Executive Officer in June 2002, increased our
professional staff and reduced consultants compared with fiscal
2001. Recruiting expenses in fiscal 2002 (to search for a new
President and Chief Executive Officer) were higher than those for
professional staff hired in fiscal 2001. Corporate legal expenses
were higher due in part to legal expenses related to an SEC
investigation, including those of a director (Samuel M. Fodale)
pursuant to our June 13, 2001 legal expense reimbursement agreement
(see Exhibit 10.16 to our Annual Report on Form 10-K for the year
ended July 31, 2001) and increased legal services related to
certain contractual matters with a client.
Patent enforcement expenses, net of reimbursements, in fiscal
2002 were $341,927 (14%) lower than in fiscal 2001. Patent
enforcement expenses are principally for outside litigation
counsels' services in the three patent litigations (Fujitsu,
LabCorp and MaternaTM, two of which were active in fiscal 2002) in
which our clients and/or we have sued to enforce their and our
patent rights. The level of activity in these two cases was lower
in fiscal 2002 than in fiscal 2001. We have included details of
progress and status in these three cases in Note 16 to Consolidated
Financial Statements.
Effective July 23, 2002, we agreed with the University of
Illinois, our client, that the University would take the lead and
assume the cost of new lead counsel in the litigation against
Fujitsu. Before this agreement, CTT bore the entire costs of lead
counsel in this litigation. We expect this agreement to reduce our
net patent enforcement expenses substantially in fiscal 2003. CTT
retains its economic interest in the potential favorable outcome of
this case.
On October 28, 2002, the Company signed a contingent
promissory note payable to our patent litigation counsel for
approximately $1,600,000 plus simple interest at the annual rate of
11% from the agreement date payable only from future receipts in a
settlement or other favorable outcome of the litigation against
Fujitsu, if any. Since patent litigation counsel had not agreed to
these revised payment terms at July 31, 2002, our accounts payable
at July 31, 2002, included these invoices. Accordingly, we will
reverse approximately $1,600,000 from accounts payable and
operating expenses in the first quarter of fiscal 2003.
In fiscal 2002 we paid a client $201,058 as reimbursement of
certain of our previously deducted patent enforcement expenses. We
included this charge in patent enforcement expenses. If and when
the related enforcement action is settled, we are entitled to
reimbursement of these and additional litigation expenses we have
then incurred from any recovery we receive as a result of the
litigation and from subsequent income from the related patents.
Other costs of technology management services for fiscal 2002
were $2,290,952, which was $384,499 (20%) higher than for fiscal
2001. This increase reflects increased costs related to licensing
and retained royalties and new client development, principally
personnel and related expenses. It also includes approximately
$156,000 of intangible asset impairment charges in fiscal 2002 (see
Note 7 to Consolidated Financial Statements). We have reclassified
consulting expenses directly related to technology management from
general and administration expenses in fiscal 2001 to conform to
the classification in fiscal 2002.
General and administration expenses for fiscal 2002 were
$1,451,774, which was $41,401 (3%) lower than in fiscal 2001.
Higher corporate legal and recruiting expenses partially offset
lower consultants' fees and expenses.
Other income (loss), net
Effective August 5, 2002, CTT sold and transferred all its
interests related to E. L. Specialists, Inc. to MRM Acquisitions,
LLC for $200,000 cash. As a result of this transaction, CTT wrote
down its $1,056,300 notes receivable from ELS to their fair value
of $200,000, which it collected on August 5, 2002. In fiscal 2002
CTT incurred a total $781,924 impairment loss on loans to ELS
($519,200 and $262,724 in the second and fourth quarters,
respectively,) and charged against other revenues approximately
$75,000 deemed uncollectible (see Note 3 to Consolidated Financial
Statements).
Because of Digital Ink, Inc.'s (DII) inability to arrange
financial support to continue its operations, CTT recorded an
impairment loss of $50,000 to write off 100% of our equity
investment in DII in the third quarter of fiscal 2002. In fiscal
1999 and 2000, CTT provided patenting, marketing and accounting
services in exchange for its $50,000 equity in DII.
In the third quarter of fiscal 2002, CTT recorded a recovery
of $21,598 of its secured bridge financing advances to Micro-ASI,
Inc. At July 31, 2001, CTT reduced its carrying value for all its
investments and advances to Micro-ASI to zero because of Micro-
ASI's bankruptcy filing in August 2001. We are unable to predict
the timing or amount of CTT's potential future recoveries of its
advances to Micro-ASI, if any (see Note 3 to Consolidated Financial
Statements).
Interest income of $97,335 for fiscal 2002 was $302,719 (76%)
lower than in fiscal 2001. Our average invested balance was
approximately 37% lower and our weighted average interest rate was
approximately 2.2% per annum compared with approximately 5.6% per
annum 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 16 to Consolidated Financial
Statements.
The Company has substantial net operating and capital loss
carryforwards for Federal income tax purposes. See Note 9 to
Consolidated Financial Statements.
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.
Retained royalties in fiscal 2000 included approximately
$168,000 for a homocysteine licensee's increase in its previously
estimated royalties for 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 16 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.
In fiscal 2001, retained royalty revenues on our endoscopic
ligator were less than $2,000 and approximately $136,000 lower than
in fiscal 2000.
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. Many of these contracts
were one-time arrangements unique to a particular client at a
particular time.
Total operating expenses for fiscal 2001 were $5,873,645
compared with $3,338,829 for fiscal 2000. Patent enforcement
expenses (net of reimbursements), recruiting fees (in connection
with hiring additional technology commercialization professionals)
and consultants' fees and expenses increased more than personnel
and related expenses declined. We employed 11 people (full-time
equivalents) in fiscal 2001 compared with 13 people (full-time
equivalents) in fiscal 2000. We supplemented our full-time staff
with consultants 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. We were involved in three litigations (Fujitsu,
LabCorp and Materna) in which our clients and/or we sued to enforce
our patent rights.
Other costs of technology management services were $1,906,453
in fiscal 2001 and $1,904,819 in fiscal 2000. We have reclassified
consulting expenses directly related to technology management from
general and administration expenses in fiscal 2001 and 2000 to
conform to the classification in fiscal 2002. Increases in costs
related to licensing and retained royalties and new client
development were partially offset by a reduction in costs related
to fee-for-service contracts.
General and administration expenses for fiscal 2001 were
$216,624 (17%) higher than in fiscal 2000. Increases in recruiting
fees and consultants' fees and expenses (related to potential
acquisitions we considered but did not consummate) 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 that were included in other income.
There were no such sales in fiscal 2001.
Financial Condition and Liquidity
At July 31, 2002, cash and cash equivalents of $750,421 were
$525,985 higher than cash and cash equivalents of $224,436 at July
31, 2001. Operating activities used $1,666,360 and investing
activities provided $2,192,345 in fiscal 2002.
In addition, the Company held $2,136,874 in short-term
investments at July 31, 2002 compared with $4,793,441 at July 31,
2001. These investments are available for our current operating,
investing and financing needs.
The Company's net loss for fiscal 2002 included non-cash
charges of approximately $1,281,000 comprising approximately
$194,000 for depreciation and amortization, approximately $121,000
for stock compensation, approximately $156,000 of intangible asset
impairment, $781,924 of loan impairment loss, $50,000 of investment
impairment loss, and $21,598 recovery of advances to Micro-ASI,
Inc.
In general, changes in various operating accounts result from
changes in the timing and amounts of cash flows before and after
the end of the period. The most substantial changes in operating
accounts were the $1,572,543 (58%) decrease in royalties
receivable, the $1,140,271 (195%) increase in accounts payable, the
$543,826 (29%) decrease in royalties payable and the $959,765 (94%)
decrease in accrued professional fees. In addition to fluctuations
in the amounts of royalties reported, the changes in royalties
receivable and payable reflect the Company's normal cycle of
royalty collections and payments. The changes in accounts payable
and accrued professional fees were principally related to patent
enforcement expenses.
During fiscal 2002, the Company sold $2,656,567 of short-term
investments at book value to support operating and other investing
activities described below.
In August 2001, CTT acquired 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 combined preferred and
common equity.
At various times between August 1, 2001 and April 30, 2002,
CTT loaned additional amounts totaling $306,300 in cash and
$100,000 in services to ELS under bridge financing agreements which
increased the loans outstanding to $1,056,300. After recording a
loan impairment loss of $781,924 against its notes receivable from
ELS, on July 31, 2002 CTT carried the notes as current assets at
$200,000, which it collected on August 5, 2002. Our strategy going
forward will not include such investments where we would be a
primary or lead investor.
At July 31, 2002, the Company had no outstanding commitments
for capital expenditures and no outstanding debt or available
credit facility.
At July 31, 2002, we had net working capital of $1,140,836,
approximately $3,706,000 less than at July 31, 2001. Our accounts
payable at July 31, 2002, include approximately $1,600,000 of
patent litigation counsel's invoices we will not pay except from
future receipts in a settlement or other favorable outcome of the
litigation against Fujitsu, if any. On October 28, 2002, the
Company signed a contingent promissory note payable to our patent
litigation counsel for approximately $1,600,000 plus simple
interest at the annual rate of 11% from the agreement date payable
only from future receipts in a settlement or other favorable
outcome of the litigation against Fujitsu, if any. Accordingly, we
will reverse approximately $1,600,000 from accounts payable and
operating expenses in the first quarter of fiscal 2003, thereby
reducing the Company's working capital requirements. In addition,
as a result of our agreement for the University of Illinois to
assume the costs of lead counsel in the litigation against Fujitsu,
we expect substantially lower patent enforcement expenses in fiscal
2003.
Based on our current expectations, including the actions
discussed in the preceding paragraph, we anticipate that currently
available funds and expected revenues will be sufficient to finance
cash needs for our current operating and enforcement activities
into fiscal 2004. We are, however, considering opportunities to
increase our cash resources. Specifically, we have engaged an
investment banking firm to assist us in raising debt and/or equity
funds to execute our strategic plan. In addition, we are
evaluating an opportunity to monetize a portion of our interest in
the Materna judgment prior to its final resolution on appeal. We
will carefully evaluate the economic costs and benefits of any
transaction of this nature.
We intend to monitor our operating and enforcement costs
closely and reduce them, if necessary, to meet these expectations.
However, royalty revenues, costs of enforcement actions and
expansion of our business are subject to many factors outside our
control or that we cannot currently anticipate, including without
limitation business opportunities that may arise in the future.
Accordingly, there can be no assurance that our current
expectations regarding the sufficiency of currently available funds
and expected revenues will prove to be accurate.
At July 31, 2002, CTT's shareholders' interest was $2,992,643.
Under American Stock Exchange (AMEX) listing standards, if CTT
sustains a net loss in fiscal 2003 and has less than $4,000,000
shareholders' interest at July 31, 2003, the AMEX may consider
suspending dealings in or delisting CTT's common stock. In October
2002, we engaged investment bankers to assist us in raising
additional debt or equity funds to execute our strategic plan. In
addition, we are pursuing additional strategies to leverage our
core licensing competencies and generate near-term revenues. We
expect the results of these efforts, together with the benefits of
our July 23, 2002 agreement with the University of Illinois and our
October 28, 2002 agreement with patent litigation counsel discussed
above, to keep CTT within the AMEX listing standards, but we cannot
assure you that we will achieve our expectations.
Other Matters
The Company carries liability insurance, directors' and
officers' liability insurance and casualty insurance for owned or
leased tangible assets. It does not carry key person life
insurance. There are no legal restrictions on payments of
dividends by CTT.
The Company is involved in four pending litigation matters,
three of which are patent enforcement suits. They are detailed in
Note 16 to the accompanying Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (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. Because Statement No. 144 adopts the
Statement No. 121 accounting model for the impairment of long-lived
assets (which the Company currently follows), 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.
In April 2002, the FASB issued Statement No. 145, "Rescission
of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections." Statement No. 145 rescinds
Statement No. 4, "Reporting Gains and Losses from Extinguishment of
Debt" and Statement No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements." It also rescinds Statement No.
44, "Accounting for Intangible Assets of Motor Carriers."
Statement No. 145 amends Statement No. 13, "Accounting for Leases",
to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain
lease modifications that have economic effects that are similar to
sale-leaseback transactions. This statement also amends other
existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability
under changed conditions. The Company does not expect adoption of
Statement No. 145 to have a material effect on its financial
condition or results of operations.
In June 2002, the FASB issued Statement No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities." This
Statement addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging
Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)."
The provisions of this Statement are effective for exit or disposal
activities initiated after December 31, 2002.
Related Party Transactions
During fiscal 2002, 2001 and 2000, CTT incurred charges for
consulting services (including expenses and use taxes) provided by
two directors in each period. During fiscal 2000, CTT earned
approximately $10,000 performing services for a company of which
another director is president.
Historically, the Company's board of directors has determined
that when a director's services are outside the normal duties of a
director, generally the Company should compensate the director at
the rate of $1,000 per day plus expenses (which is the same amount
it pays a director for attending a one-day Board meeting). CTT
classifies these amounts as consulting expenses.
For the years ended July 31,
2002 2001 2000
George C. J. Bigar $117,000 $118,000 $111,000
All directors $124,000 $146,000 $133,000
George C. J. Bigar's consulting services (which were
discontinued in June 2002) related to the Company's investments and
potential investments in development-stage companies. The Company
compensated Mr. Bigar at the rate of $8,000 per month except for
three months, which were at $12,000.
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, 2002 under
the caption "Risk Factors," and other factors that may be described
in the Company's other 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 34
Consolidated Balance Sheets 35
Consolidated Statements of Operations 36
Consolidated Statements of Changes
in Shareholders' Interest 37
Consolidated Statements of Cash Flows 38-39
Notes to Consolidated Financial Statements 40-59
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Competitive Technologies, Inc.:
In our opinion, the accompanying consolidated financial statements
listed in the index appearing on page 33 present fairly, in all
material respects, the financial position of Competitive
Technologies, Inc. and its Subsidiaries (the "Company") at July 31,
2002 and July 31, 2001, and the results of their operations and
their cash flows for each of the three years in the period ended
July 31, 2002 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 28, 2002
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 2002 and 2001
2002 2001
ASSETS
Current assets:
Cash and cash equivalents $ 750,421 $ 224,436
Short-term investments 2,136,874 4,793,441
Accounts receivable 1,199,483 2,782,276
Notes receivable - E.L. Specialists, Inc. 200,000 650,000
Prepaid expenses and other current assets 261,198 70,044
Total current assets 4,547,976 8,520,197
Property and equipment, at cost, net 42,877 66,994
Investments, at cost 1,075,684 1,025,684
Intangible assets acquired, net 733,246 1,027,998
TOTAL ASSETS $ 6,399,783 $ 10,640,873
LIABILITIES AND SHAREHOLDERS' INTEREST
Current liabilities:
Accounts payable, including $3,876
payable to related parties in 2001 $ 1,726,237 $ 585,966
Accrued liabilities 1,680,903 3,087,161
Total current liabilities 3,407,140 3,673,127
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 2002 and 2001 and 6,154,351
and 6,139,351 shares outstanding in
2002 and 2001, respectively 61,907 61,907
Capital in excess of par value 26,893,287 26,975,178
Treasury stock, at cost; 36,434 and
51,434 shares in 2002 and 2001,
respectively (258,037) (381,253)
Accumulated deficit (23,765,189) (19,748,761)
Total shareholders' interest 2,992,643 6,967,746
TOTAL LIABILITIES AND SHAREHOLDERS'
INTEREST $ 6,399,783 $ 10,640,873
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended July 31, 2002, 2001 and 2000
2002 2001 2000
Revenues:
Retained royalties $ 2,570,931 $ 3,637,764 $ 3,202,194
Retained royalty settlement -- -- 736,375
Other revenues, including $9,925
from related parties in 2000 25,000 3,520 174,298
2,595,931 3,641,284 4,112,867
Patent enforcement expenses, net of
reimbursements 2,132,090 2,474,017 157,459
Other costs of technology management
services 2,290,952 1,906,453 1,904,819
General and administration expenses,
of which $124,073, $145,673 and
$132,806 were paid to related
parties in 2002, 2001 and 2000,
respectively 1,451,774 1,493,175 1,276,551
5,874,816 5,873,645 3,338,829
Operating income (loss) (3,278,885) (2,232,361) 774,038
Other income (loss), net (737,543) (268,388) 526,899
Net income (loss) (4,016,428) (2,500,749) 1,300,937
Other comprehensive income -- -- 15,625
Comprehensive income (loss) $(4,016,428) $(2,500,749) $ 1,316,562
Net income (loss) per share:
Basic and diluted $ (0.65) $ (0.41) $ 0.21
Weighted average number of common
shares outstanding:
Basic 6,148,022 6,135,486 6,079,211
Diluted 6,148,022 6,135,486 6,187,407
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Interest
For the years ended July 31, 2002, 2001 and 2000
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, 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 unrealized holding
gains (losses) on
available-for-sale
securities . . . . . 105,863
Reclassification
adjustment for
realized gains included
in net income (loss). (90,238)
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)
Stock issued under
1996 Directors' Stock
Participation Plan. . . (81,891) 15,000 123,216
Net loss. . . . . . . (4,016,428)
Balance - July 31, 2002 2,427 $60,675 6,190,785 $61,907 $26,893,287 (36,434) $(258,037) $ -- $(23,765,189)
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended July 31, 2002, 2001 and 2000
2002 2001 2000
Cash flow from operating
activities:
Net income (loss) $(4,016,428) $(2,500,749) $ 1,300,937
Noncash items included in
net income (loss):
Retained royalty settlement
paid with shares of NTRU
common stock -- -- (736,375)
Depreciation and
amortization 193,775 214,768 209,225
Impairment of intangible
assets 156,080 -- --
Minority interest 26,936 15,982 (63,458)
Stock compensation 121,325 207,298 97,085
Other, net (25,624) -- 63,461
Impairment losses on
investments and advances 810,326 600,000 --
Gain on sale of investments -- -- (90,503)
Net changes in operating accounts:
Receivables 1,604,391 (362,096) (694,134)
Prepaid expenses and other
current assets (191,154) 79,439 (6,312)
Accounts payable and
accrued liabilities (345,987) 1,498,524 378,369
Net cash flow from
operating activities (1,666,360) (246,834) 458,295
(continued)
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended July 31, 2002, 2001 and 2000
(Continued)
2002 2001 2000
Cash flow from investing
activities:
Purchases of property and
equipment, net (30,986) (27,572) (30,983)
Investments in cost-
method affiliates (100,000) (100,000) (698,006)
Advances to E.L. Specialists,
Inc. (306,300) (650,000) --
Sales (purchases) of short-term
investments and available-
for-sale securities 2,656,567 206,613 (264,638)
Other (26,936) (15,982) 265
Net cash flow from
investing activities 2,192,345 (586,941) (993,362)
Cash flow from financing
activities:
Proceeds from exercise of
stock options and warrants -- 21,125 1,619,473
Purchases of treasury stock -- (679,289) (276,545)
Net cash flow from financing
activities -- (658,164) 1,342,928
Net increase (decrease) in cash
and cash equivalents 525,985 (1,491,939) 807,861
Cash and cash equivalents,
beginning of year 224,436 1,716,375 908,514
Cash and cash equivalents, end
of year $ 750,421 $ 224,436 $ 1,716,375
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. BUSINESS
The Company provides patent and technology licensing and
commercialization services with respect to a broad range of life,
digital, physical, and nano science technologies originally invented by
various individuals, corporations and universities. The Company is
compensated for its services primarily by sharing in the license and
royalty fees generated from its successful licensing 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. The Company's more significant estimates
include the future cash flows used in evaluating intangible assets for
potential impairment and the remaining useful lives of long-lived and
intangible assets. Actual results could differ from those estimates.
Reclassifications
Certain accounts have been reclassified to conform with the
presentation in financial statements for fiscal 2002.
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.
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 fee revenue
when the contingency is resolved and it can estimate the amount of
royalty fees, which is 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 these 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.
Expenses
The Company recognizes expenses related to evaluating, patenting
and 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 personnel
(including benefits and overhead) and direct costs associated with
patent and technology commercialization.
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 or amortization 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.
Income Taxes
Deferred income taxes are recognized for future tax consequences 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 and Intangible 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 measured by the amount
the asset's carrying value exceeds its fair value and re-evaluates the
remaining useful life of the asset. If a quoted market price is
available for the asset or a similar asset, the Company uses it in
determining fair value. If not, the Company determines fair value as
the present value of estimated cash flows based on reasonable and
supportable assumptions.
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 Pronouncements
In June 2001, the Financial Accounting Standards Board (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 impairment of long-lived
assets. Because Statement No. 144 adopts the Statement No. 121
accounting model for impairment of long-lived assets (which the Company
currently follows), 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.
In April 2002, the FASB issued Statement No. 145, "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13,
and Technical Corrections." Statement No. 145 rescinds Statement No. 4,
"Reporting Gains and Losses from Extinguishment of Debt" and Statement
No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements." It also rescinds Statement No. 44, "Accounting for
Intangible Assets of Motor Carriers." Statement No. 145 amends
Statement No. 13, "Accounting for Leases", to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the
required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This statement
also amends other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their applicability
under changed conditions. The Company does not expect adoption of
Statement No. 145 to have a material effect on its financial condition
or results of operations.
In June 2002, the FASB issued Statement No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." This Statement
addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force
Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)." The provisions of this Statement are
effective for exit or disposal activities initiated after December 31,
2002.
3. INVESTMENTS AND NOTES RECEIVABLE
NTRU Cryptosystems, Inc.
In fiscal 2000, CTT acquired 3,172,881 shares of NTRU
Cryptosystems, Inc. (NTRU) common and preferred stock 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 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. In August 2001, CTT acquired additional shares of NTRU Series
B convertible preferred stock for $100,000 in cash after which CTT held
approximately 7% of NTRU's outstanding common and preferred equity.
NTRU's stock is not publicly traded and there is no quoted market price
for its stock. At July 31, 2002 and 2001, CTT's carrying value for this
investment was $1,034,381 and $934,381, respectively. CTT accounts for
this investment on the cost method.
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). 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. During fiscal
2002, CTT recovered $21,598 of its advance. CTT cannot predict the
timing or amounts of additional potential recoveries; therefore CTT will
record further recoveries, if any, when it can estimate their timing and
amounts.
E. L. Specialists, Inc.
Through a series of bridge financing agreements, the Company loaned
$1,056,300 ($956,300 in cash and $100,000 in services) to E. L.
Specialists, Inc. (ELS).
Effective August 5, 2002, CTT sold and transferred all its interests
related to ELS to MRM Acquisitions, LLC (MRM) for $200,000 cash. The
transferred interests include CTT's notes receivable in the face amount
of $1,056,300 (plus interest) from ELS, its related security interest in
ELS's intellectual property, all its other interests under agreements in
connection with its notes receivable from ELS and CTT's interest in a
technology servicing agreement related to ELS's intellectual property.
In the second quarter of fiscal 2002, the Company recorded an
impairment loss of $519,200 against its notes receivable from ELS. As a
result of closing the sale and transfer to MRM, CTT recorded an
additional $262,724 impairment loss on loans to ELS in July 2002,
bringing the total for the fiscal year ended July 31, 2002 to $781,924.
(In addition, CTT previously charged against other revenues from ELS
approximately $75,000 deemed uncollectible.) At July 31, 2002, CTT
carried its notes receivable from ELS as current assets at $200,000,
which it collected from MRM in cash on August 5, 2002.
4. ACCOUNTS RECEIVABLE
Accounts receivable were:
July 31, July 31,
2002 2001
Royalties $1,158,685 $2,731,228
Other 40,798 51,048
$1,199,483 $2,782,276
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 gains on securities reported in other
comprehensive income.
6. PROPERTY AND EQUIPMENT
Property and equipment were:
July 31, July 31,
2002 2001
Equipment and furnishings, at cost $ 269,253 $ 244,555
Leasehold improvements, at cost 59,860 59,860
329,113 304,415
Accumulated depreciation
and amortization (286,236) (237,421)
$ 42,877 $ 66,994
Depreciation expense was $55,103, $76,096 and $70,554 in 2002, 2001
and 2000, respectively.
7. INTANGIBLE ASSETS ACQUIRED
Certain of the Company's acquired licenses stopped producing
revenues and certain of its acquired patents are no longer expected
to generate revenues in the future. The Company reviewed all
acquired intangible assets for impairment at July 31, 2002. For
each technology, the Company compared the estimated future revenues
with the carrying value on July 31, 2002. For those technologies
with a carrying value greater than estimated future revenues, the
Company recorded an impairment charge. The Company reported a total
impairment charge of $156,080 in other costs of technology
management services in the fourth quarter of fiscal 2002.
After recording this impairment charge, the Company reviewed the
estimated useful lives of the remaining intangible assets. As a result,
the Company reduced the average remaining useful life from 7 to
approximately 5 years and expects to record amortization expense of
approximately $156,000 for fiscal 2003, compared with $138,672 for each
fiscal year ending July 31, 2002, 2001 and 2000.
July 31, July 31,
2002 2001
Intangible assets acquired,
principally licenses and
patented technologies,
at cost $1,793,147 $1,793,147
Impairment charge (156,080) --
1,637,067 1,793,147
Accumulated amortization (903,821) (765,149)
$ 733,246 $1,027,998
8. ACCRUED LIABILITIES
Accrued liabilities were:
July 31, July 31,
2002 2001
Royalties payable $1,308,381 $1,852,207
Accrued professional fees 65,162 1,024,927
Accrued compensation 157,416 70,543
Deferred revenues 106,667 100,000
Other 43,277 39,484
$1,680,903 $3,087,161
9. INCOME TAXES
The income tax provision of $0 for each of 2002, 2001 and 2000
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,
2002 2001
Net operating loss carryforwards $ 2,670,000 $ 3,922,000
Net capital loss carryforwards 586,000 387,000
Installment receivable from
sale of discontinued operation 1,449,000 1,449,000
Accounts payable 618,000 --
Impairment of receivables 305,000 --
Other, net 214,000 (145,000)
Net deferred tax assets 5,842,000 5,613,000
Valuation allowance (5,842,000) (5,613,000)
Net deferred tax asset $ -- $ --
At July 31, 2002, the Company had Federal net operating loss
carryforwards of approximately $7,355,000, which expire from 2004
through 2017 ($157,000 in 2004, $57,000 in 2005 and $767,000 in 2007).
Changes in the valuation allowance were:
2002 2001 2000
Balance, beginning of year $ 5,613,000 $ 6,078,000 $ 7,091,000
Change in temporary differences 1,281,000 40,000 124,000
Change in net operating and
capital losses (1,052,000) (505,000) (1,137,000)
Balance, end of year $ 5,842,000) $ 5,613,000 $ 6,078,000
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.
10. 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 and 49,400 shares of its common stock for $679,289 and $276,545
in cash in 2001 and 2000, respectively.
11. 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,
2002 2001 2000
Net income (loss) As reported $(4,016,428) $(2,500,749) $1,300,937
Pro forma $(4,151,801) $(2,803,807) $ 707,572
Basic
earnings As reported $ (0.65) $ (0.41) $ 0.21
per share Pro forma $ (0.68) $ (0.46) $ 0.12
Fully diluted
earnings per As reported $ (0.65) $ (0.41) $ 0.21
share Pro forma $ (0.68) $ (0.46) $ 0.11
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,
2002 2001 2000
Dividend yield 0.0% 0.0% 0.0%
Expected volatility 79.1% 79.5% 62.1%
Risk-free interest rates 4.1% 5.2% 5.9%
Expected lives 3 years 3 years 3 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 vested 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. No option may be granted under
this plan after December 31, 2000. The following information relates to
this stock option plan.
July 31, July 31,
2002 2001
Common shares reserved for
issuance on exercise of options 368,838 368,838
Shares available for future
option grants 0 0
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,
2002 2001
Common shares reserved for
issuance on exercise of options 825,777 525,777
Shares available for future
option grants 244,252 336,752
2000 Directors Stock Option Plan
Options granted under the 2000 Directors Stock Option Plan are
nonqualified options granted at an option price not less than 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,
2002 2001
Common shares reserved for
issuance on exercise of options 244,000 244,000
Shares available for future
option grants 70,000 130,000
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 2002, 2001 and 2000, CTT issued 15,000, 11,540 and 9,375 shares
of common stock, respectively, to eligible directors. (In 2001 CTT
issued 2,898 additional shares to directors outside the 1996 Directors'
Stock Participation Plan.) In 2002, 2001 and 2000, CTT charged to
expense $41,325, $75,000 and $58,085, respectively, over the directors'
respective periods of service. The following information relates to the
1996 Directors' Stock Participation Plan.
July 31, July 31,
2002 2001
Common shares reserved for
future share issuances 38,579 53,579
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.
Information about CTT's common stock warrants outstanding as of July 31,
2002 is presented below.
Number Warrant Aggregate
of Price per Exercise Expiration
Issued Shares Share Price Date
August 1997 2,500 $11.094 $ 27,735 August 2002
These warrants expired unexercised in August 2002.
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, 2002, 2001 and 2000, and changes during the
years then ended is presented below.
For the years ended July 31,
2002 2001 2000
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding,
beginning of
year 500,767 7.48 480,517 $ 9.14 584,042 $8.38
Granted 452,500 3.35 212,000 $ 7.29 239,500 $6.54
Forfeited -- -- (1,750) $ 7.22 (44,000) $6.82
Exercised -- -- (3,250) $ 6.50 (231,023) $6.94
Expired or
terminated (13,000) 11.41 (186,750) $ 9.08 (68,002) $9.19
Outstanding,
end of year 940,267 5.44 500,767 $ 7.48 480,517 $9.14
Exercisable
at year-end 485,929 7.22 377,704 $ 7.51 397,567 $8.42
Weighted average
fair value per
share of grants
during the year:
At market $ 2.89 $ 2.49 $2.09
Above market $ 0.27 $ -- $ --
The following table summarizes information about all common stock
options and warrants outstanding at July 31, 2002.
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
2.150-$ 2.150 300,000 9.89 years $ 2.15 -- $ --
$4.220-$ 6.875 350,067 8.07 years $ 5.81 257,567 $ 6.03
$7.300-$ 8.813 223,000 8.09 years $ 7.90 163,562 $ 7.97
$9.063-$11.875 67,200 3.81 years $10.05 64,800 $10.07
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 and 2000 the
Board authorized contributions of 14,814 and 4,274 shares, respectively,
valued at approximately $80,000 and $39,000 respectively, based on year-
end closing prices. CTT charged these amounts to expense in 2001 and
2000 respectively. For fiscal 2002, CTT's directors authorized a
discretionary matching contribution of Company common stock to the
Company's 401(k) plan rather than to the Employees' Common Stock
Retirement Plan.
12. 401(k) PLAN
Effective January 1, 1997, the Company established a 401(k) defined
contribution plan for all employees meeting certain service
requirements. All employees who have attained the age of 21 are
eligible to participate in the 401(k) plan. Employee contributions for
any calendar year are limited to a specific dollar amount determined by
the Internal Revenue Service ($11,000 plus an additional $1,000 for
participants over age 50 for 2002, and the lesser of 15% of their annual
compensation or $10,500 for 2001 and 2000). The Company may also make
discretionary matching contributions. For the fiscal year ended July
31, 2002, CTT's directors authorized a discretionary matching
contribution of $80,000 payable in the Company's common stock. CTT
charged this amount to expense in fiscal 2002. CTT expects to
contribute shares of Company common stock valued at $80,000 for
distribution to eligible employees before December 31, 2002. The
Company made no matching contributions prior to 2002.
13. 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 $1,838,000 (71%) of the Company's 2002 retained
royalties were from four technologies: $1,012,000 (39%) from gallium
arsenide patents (including a laser diode technology used in
optoelectronic storage devices and another technology that improves
semiconductor operating characteristics); $391,000 (15%) from EthyolTM
(a chemotherapeutic mitigation agent); $264,000 (10%) from the vitamin
B12 assay; and $171,000 (7%) from the homocysteine assay. Within these
four technologies, two licenses provided approximately $807,000 (31%) of
the Company's 2002 retained royalties: $417,000 (16%) from one U.S.
license of the gallium arsenide patents and the $391,000 (15%) from the
EthyolTM license.
Certain of the Company's patents have expired recently or will soon
expire. The vitamin B12 assay patents have expired beginning in April
1998 with the remaining patent scheduled to expire in November 2002.
The gallium arsenide patents expire between May 2001 and September 2006.
Fiscal 2002 retained royalties of approximately $25,000 (1%), $346,000
(13%), $718,000 (28%), $5,000 (0%) and $386,000 (15%) were from patents
expiring in fiscal 2003, 2004, 2005, 2006 and 2007, respectively.
Retained royalties for 2002, 2001 and 2000, include $878,894,
$682,011 and $534,880, respectively, from foreign licensees. These
fiscal 2002, 2001 and 2000 foreign royalties include $595,000, $475,000
and $371,000 from the gallium arsenide portfolio.
14. Other income (loss), net
Other income (loss), net, comprised:
For the years ended July 31,
2002 2001 2000
Impairment loss on loans to
E.L. Specialists, Inc. $ (781,924) $ -- $ --
Impairment recovery (loss)
on advances to Micro-ASI, Inc. 21,598 (600,000) --
Impairment loss on investment
in Digital Ink, Inc. (50,000) -- --
Interest income 97,335 400,054 373,207
Other income (expense), net 2,384 (52,460) 90,234
Minority interest (26,936) (15,982) 63,458
$ (737,543) $ (268,388) $526,899
15. 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,
2002 2001 2000
Net income (loss)
applicable to common stock:
Basic and diluted: $(4,016,428) $(2,500,749) $1,300,937
Weighted average number of common
shares outstanding 6,148,022 6,135,486 6,079,211
Effect of dilutive securities:
Stock options -- -- 106,022
Stock warrants -- -- 2,174
Weighted average number of common
shares outstanding and dilutive
securities 6,148,022 6,135,486 6,187,407
Net income (loss) per
share of common stock:
Basic and diluted $ (0.65) $ (0.41) $ 0.21
At July 31, 2002, 2001 and 2000, respectively, options and warrants
to purchase 940,267, 500,767 and 97,500 shares of common stock were
outstanding but were not included in the computation of earnings per
share because they were anti-dilutive.
16. 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, 2002, 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:
2003 $ 244,077
2004 244,077
2005 242,282
2006 225,995
2007 93,750
Total minimum payments
required $1,050,181
Total rental expense for all operating leases was:
For the years ended July 31,
2002 2001 2000
Minimum rentals $ 223,613 $ 209,828 $ 212,425
Less: Sublease rentals (6,665) (18,500) (27,870)
$ 216,948 $ 191,328 $ 184,555
Other Obligations
The Company has an employment agreement with Mr. Nano which
provides for his employment as the Company's President and Chief
Executive Officer at a base compensation of $250,000 per year, subject
to reviews and increases in the sole discretion of the Company's Board
of Directors. His employment is at will and can be terminated by either
party at any time and for any reason. Certain obligations under this
agreement survive the end of Mr. Nano's employment.
The Company has an employment contract with another of its officers
from December 1999 through December 2002 with minimum compensation of
$185,000 per year.
The Company has a contract with a consultant from July through
October 2002 with total compensation of $50,010 plus reimbursement for
reasonable expenses relating to travel. During fiscal 2002, CTT charged
$8,000 of fees under this contract, plus related expenses, to
operations. No payments were made under this contract in fiscal 2002.
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 2002 and 2000 CTT charged $3,018 and $2,733 in related
royalty expenses to operations. CTT's and VVI's remaining contingent
obligations were $200,128 and $224,127, respectively, at July 31, 2002
and $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. At July 31, 2001, CTT had paid the entire cumulative
contingent legal fees of $201,778, of which $1,731, and $33,629 were
charged to operations in 2001 and 2000, 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, Fujitsu General Limited, Fujitsu
General America and Fujitsu Microelectronics, Inc. (Fujitsu) 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 flat plasma display panels. In June 2001, CTT requested
withdrawal of its complaint before the ITC and the ITC complaint was
withdrawn in August 2001.
Coincident with filing the ITC complaint, CTT and the University of
Illinois also filed a complaint, which was subsequently stayed, against
Fujitsu and Fujitsu Hitachi Plasma Display Ltd. (Fujitsu et al.) 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
(damages for past infringing sales and possibly damages for willfulness)
which are not available at the ITC. In May 2002, the District Court
granted defendants' motion to transfer this case to the Northern
District of California. The trial in this case is currently scheduled
for October 2003.
Effective July 23, 2002, CTT and the University of Illinois agreed
that the University of Illinois would take the lead in this litigation
and assume the cost of new lead counsel. Before this agreement, CTT
bore the entire costs of lead counsel fees in this litigation. CTT
intends to withdraw as co-plaintiff from this litigation but retains its
economic interest in its potential favorable outcome.
In September 2001, Fujitsu et al. filed suit against CTT and
Plasmaco, Inc. in the United States District Court for the District of
Delaware. This lawsuit alleged, among other things, that CTT
misappropriated confidential information and trade secrets supplied by
Fujitsu during the course of the ITC action. It also alleged 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 (now in the Northern District of
California). The Delaware District Court dismissed this action at the
request of Fujitsu who subsequently re-instituted the case in the
Northern District of California.
CTT is unable to estimate the legal expenses or the loss it may
incur or the possible damages it may recover 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 alleged, among other things, that LabCorp owes plaintiffs
royalties for homocysteine assays performed beginning in the summer of
1998 using methods falling within the claims of a patent owned by CTT.
CTT licensed the patent non-exclusively to MLI and MLI sublicensed it to
LabCorp. Plaintiffs claim LabCorp's actions constitute breach of
contract and patent infringement. The claim sought 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
sought unspecified money and exemplary damages and attorneys' fees,
among other things. LabCorp filed an answer and counterclaims alleging
noninfringement, patent invalidity and patent misuse.
The jury that heard this case in November 2001 confirmed the
validity of CTT's patent rights and found that LabCorp willfully
contributed to and induced infringement and breached its contract. In
December 2001, the Court entered judgment affirming the jury's verdict.
If the Court's judgment is upheld in post-trial motions and on a
potential appeal, CTT will retain approximately $400,000 of damages
awarded plus interest at the statutory rate from the date judgment was
entered. In post-trial motions now pending, LabCorp has asked that the
jury verdict be set aside and CTT has asked for punitive damages and
attorneys' fees based on the jury's finding that LabCorp's infringement
was willful.
CTT is unable to estimate the legal expenses it may incur or the
possible damages it may ultimately recover in this suit, if any, CTT
has recorded no potential judgment proceeds in its financial statements
to date.
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 (a subsidiary of Wyeth), defendant, in
the United States District Court for the District of Colorado. This
case involved a patent for an improved formulation of Materna, 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 18.2% of damages awarded to the University of Colorado, if any,
after deducting the expenses of this suit.
On July 7, 2000, the District Court concluded that Robert H. Allen
and Paul A. Seligman were the sole inventors of the reformulation of
Materna 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. On August 13, 2002, the District Court judge awarded
approximately $54 million, plus certain interest from January 1, 2002,
to the plaintiffs. If this judgment becomes final, CTT's share would be
approximately $6 million plus its proportionate share of interest.
Since the defendant may appeal this judgment and posted a $59
million bond to be able to appeal it, CTT is unable to predict when this
lawsuit will finally be settled or when it will receive its share of
damages finally awarded, if any. CTT 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, OALP. Unilens
made no payments in fiscal 2002, 2001 or 2000.
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 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., the Company, 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 Company, sold substantially all the assets
of OALP to Unilens Corp. USA 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. Based upon all the
facts available, management believes that the claims asserted in the
suit are without merit, and the Company has vigorously defended against
plaintiffs' claims. On September 14, 2001, the attorney referee
recommended that the Court grant defendants' motion for dismissal, but
plaintiffs objected. There has been no further action and no final
order has yet been entered. Through July 31, 2002, 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 $399,
$52,460 and $269 in 2002, 2001 and 2000, respectively, for legal
expenses related to this suit.
17. RELATED PARTY TRANSACTIONS
During 2002, 2001 and 2000, CTT incurred charges of approximately
$124,000, $146,000 and $133,000, respectively, for consulting services
(including expenses and use taxes) provided by two directors in each
period. During 2000, CTT earned approximately $10,000 performing
services for a company of which another director is president.
18. SUBSEQUENT EVENT
On October 28, 2002, the Company signed a contingent promissory
note payable to our patent litigation counsel for approximately
$1,600,000 plus simple interest at the annual rate of 11% from the
agreement date payable only from future receipts in a settlement or
other favorable outcome of the litigation against Fujitsu, if any.
Since patent litigation counsel had not agreed to these revised payment
terms at July 31, 2002, our accounts payable at July 31, 2002, included
these invoices. Accordingly, we will reverse approximately $1,600,000
from accounts payable and operating expenses in the first quarter of
fiscal 2003.
19. Selected Quarterly Financial Data (unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
For the year ended July 31, 2002
Revenues $ 409,739 $ 797,189 $ 547,278 $ 841,725
Patent enforcement expenses,
net of reimbursements (1) 631,615 553,022 602,345 345,108
Other costs of technology
management services (2) 527,814 526,038 599,717 637,383
General and administration
expenses (2) 334,354 365,274 362,562 389,584
Total operating expenses 1,493,783 1,444,334 1,564,624 1,372,075
Operating loss $(1,084,044) $ (647,145) $(1,017,346) $ (530,350)
Net loss (3) $(1,039,040) $(1,167,059) $(1,031,879) $ (778,450)
Net loss per share
(basic and diluted) $ (0.17) $ (0.19) $ (0.17) $ (0.13)
For the year ended July 31, 2001
Revenues $ 463,578 $ 1,561,198 $ 416,562 $ 1,199,946
Patent enforcement expenses,
net of reimbursements 60,085 305,792 791,880 1,316,260
Other costs of technology
management services (2) 336,263 402,539 531,036 636,615
General and administration expenses (2) 372,075 453,383 270,634 397,083
Total operating expenses $ 768,423 $ 1,161,714 $ 1,593,550 $ 2,349,958
Operating income (loss) $ (304,845) $ 399,484 $(1,176,988) $(1,150,012)
Net income (loss) (4) $ (185,140) $ 494,203 $(1,103,268) $(1,706,544)
Net income (loss) per share
(basic and diluted) $ (0.03) $ 0.08 $ (0.18) $ ($0.28)
(1) Includes approximately $1,600,000 that we will reverse in the first
quarter of fiscal 2003. See Note 18 to Consolidated Financial Statements.
(2) Consulting expenses directly related to technology management have been
reclassified in each quarter to conform to the presentation in the
financial statements for fiscal 2002.
(3) Includes $519,200 and $262,724 impairment loss on loans to E.L.
Specialists, Inc. in second and fourth quarters 2002 and $50,000
impairment loss on investment in Digital Ink, Inc. in third quarter 2002.
(4) Includes $600,000 investment and loan impairment loss on Micro-ASI, Inc.
in fourth quarter 2001.
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
Not applicable.
PART III
Pursuant to General Instruction G (3), the information
called for by Part III (Item 10 (Directors and Executive
Officers of the Registrant), Item 11 (Executive Compensation),
Item 12 (Security Ownership of Certain Beneficial Owners and
Management), and 13 (Certain Relationships and Related
Transactions)), if not incorporated by reference from the
registrant's definitive proxy statement filed with the
Commission pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this Form 10-K,
will be filed as an amendment to this Form 10-K not later than
the end of said 120-day period.
Item 14. Controls and Procedures
Not applicable.
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PART IV
Item 15. 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, 2002
and 2001. 35
Consolidated Statements of Operations for the
years ended July 31, 2002, 2001 and 2000. 36
Consolidated Statements of Changes in
Shareholders' Interest for the years ended
July 31, 2002, 2001 and 2000. 37
Consolidated Statements of Cash Flows for the
years ended July 31, 2002, 2001 and 2000. 38-39
Notes to Consolidated Financial Statements. 40-59
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
On June 20, 2002, the Company filed a report on Form 8-K
under Item 5 and Item 7 to report the appointment of John B.
Nano as President and Chief Executive Officer and his
election as a director on June 17, 2002.
On July 25, 2002, the Company filed a report on Form 8-K
under Item 5 and Item 7 to report its agreement effective
July 23, 2002 that the University of Illinois would assume
the cost of new lead counsel and take the lead in the patent
infringement litigation against Fujitsu currently before the
U.S. District court for the Northern District of California.
On August 6, 2002, the Company filed a report on Form 8-K
(date of earliest event reported July 16, 2002) under Item 5
and Item 7 to report its sale of all its interests related
to E. L. Specialists, Inc. to MRM Acquisitions, LLC for
$200,000.
On August 16, 2002, the Company filed a report on Form 8-K
under Item 5 and Item 7 to report the August 13, 2002
opinion of the U.S. District judge for the District of
Colorado awarding approximately $54 million plus interest
from January 1, 2002, to the plaintiffs in the MaternaTM
patent infringement litigation.
(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. COMPETITIVE TECHNOLOGIES, INC.
(the Company) (the Company)
By /s/ John B. Nano By /s/ Frank R. McPike, Jr.
John B. Nano Frank R. McPike, Jr.
President, Chief Executive Executive Vice President,
Officer, Director and Chief Financial Officer, Director
Authorized Signer and Authorized Signer
Date: October 29, 2002
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
/s/ George C. J. Bigar Director )
George C. J. Bigar )
)
/s/ Richard E. Carver Director )
Richard E. Carver )
)
/s/ George W. Dunbar, Jr. Director )
George W. Dunbar, Jr. )
)
/s/ John B. Nano President, Chief )
John B. Nano Executive Officer and )
Director )
)
/s/ Frank R. McPike, Jr. Executive Vice President,) October 29, 2002
Frank R. McPike, Jr. Chief Financial Officer )
(Principal Financial and )
Accounting Officer), and )
Director )
)
/s/ Charles J. Philippin Director )
Charles J. Philippin )
)
/s/ John M. Sabin Director )
John M. Sabin )
)
)
CERTIFICATIONS
I, John B. Nano, President and Chief Executive Officer of Competitive
Technologies, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Competitive
Technologies, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this annual report.
Date: October 29, 2002
/s/ John B. Nano
John B. Nano, President
and Chief Executive Officer
Competitive Technologies, Inc.
I, Frank R. McPike, Jr., Executive Vice President, Chief Financial
Officer and Treasurer of Competitive Technologies, Inc. certify that:
1. I have reviewed this annual report on Form 10-K of Competitive
Technologies, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this annual report.
Date: October 29, 2002
/s/ Frank R. McPike, Jr.
Frank R. McPike, Jr.
Executive Vice President,
Chief Financial Officer
and Treasurer of Competitive
Technologies, Inc.
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 Number 33-87756 and hereby
incorporated by reference.
10.2* Registrant's Incentive
Compensation Plan filed as Exhibit 10.2 to
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; amended Section
5(c) of registrant's 2000 Directors Stock
Option Plan filed as Exhibit 10.1 to
registrant's Form 10-Q for the quarter ended
January 31, 2002 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, File Number 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 18, 2002,
filed as Exhibit 4.3 to registrant's Form S-
8, File Number 333-81456 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.
10.16 Agreement between registrant
and Samuel M. Fodale
dated June 13, 2001.
10.17* Employment Agreement between
registrant and John B. Nano dated June 17,
2002 filed as Exhibit 10.1 to registrant's
Form 8-K dated June 17, 2002, filed June 20,
2002 and hereby incorporated by reference.
10.18 Assignment of Promissory Notes,
Technology Servicing Agreement, Note Purchase
Agreement, Security Interest Agreement, and
Intercreditor Agreement between registrant
and MRM Acquisitions, LLC effective August 5,
2002 filed as Exhibit 10.1 to registrant's
Form 8-K dated July 16, 2002, filed August 6,
2002 and hereby incorporated by reference.
10.19* 1997 Employees' Stock Option Agreement between 71-79
registrant and John B. Nano dated June 17, 2002.
21.1 Subsidiaries of the registrant. 80
23.1 Consent of PricewaterhouseCoopers LLP. 81
99.1 Certification by the Principal Executive 82
Officer of Competitive Technologies, Inc.
Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (18 U.S.C. 1350).
99.2 Certification by the Principal Financial 83
Officer of Competitive Technologies, Inc.
Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (18 U.S.C. 1350).
* Management Contract or Compensatory Plan