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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8696
COMPETITIVE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-2664428
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1960 Bronson Road
P.O. Box 340
Fairfield, Connecticut 06430
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (203) 255-6044
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 63.
Page 1 of 70 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 13, 2000, 6,173,685 shares of the registrant's common
stock were outstanding. The aggregate market value of the voting stock
(disregarding preferred stock, for which there is no public market) held
by nonaffiliates of the registrant, based on the mean between the high
and the low price of the registrant's common stock on the American Stock
Exchange on such date, was approximately $40,231,000.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated Document Location in Form 10-K
None Not Applicable
PART I
Item 1. Business
Introduction
Competitive Technologies, Inc. (the registrant, we, CTT or the
Company), is a Delaware corporation incorporated in 1971 to succeed
an Illinois business corporation incorporated in 1968. We provide
technology development and commercialization services with respect
to a broad range of digital/electronic, life sciences, and physical
sciences technologies originally invented by various individuals,
corporations, research institutions, and universities.
Our goal is to maximize returns on research, development, and
intellectual property investments. We do this by selling,
licensing, or otherwise transferring technologies to others or by
investing in new entities to commercialize them.
Effective May 28, 1999, we sold our remaining 14.5% interest in
NovaNET Learning, Inc. (NLI) for $2,472,602 in cash in connection
with NLI's acquisition by National Computer Systems, Inc. From
February 15, 1995 through May 28, 1999, we accounted for our $159,375
investment in NLI under the cost method. In February 1995, we sold a
significant portion of our investment in NLI to Barden Companies,
Inc. As a result of that transaction, we received approximately
$3,000,000 in cash and reduced our ownership in NLI from 55.1% to
14.5%.
Effective January 31, 1996, we acquired the remaining 80% of
University Science, Engineering and Technology, Inc. (USET). The
total purchase price was $1,835,000 (excluding expenses related to
the acquisition). We paid the final installment of the purchase
price on January 31, 1999. In addition to cash of approximately
$605,000 and computer equipment, USET's assets comprised principally
licenses and patented technologies. We included USET's results of
operations in our consolidated results of operations from January 31,
1996. Prior to January 31, 1996, we owned 20% of USET and accounted
for our investment in USET on the equity method and recorded 20% of
USET's net income.
On October 1, 2000, we employed approximately 10 people full-
time. Substantially all employees are salaried and none is
represented by a labor union.
Technology Development and Commercialization Services
We provide technology development and commercialization
services with respect to a broad range of digital/electronic, life
sciences, and physical sciences technologies invented by various
individuals, corporations, research institutions, and universities.
We include telecommunications, data security, signal
processing, digital entertainment, electrical circuitry,
microelectronic, and semiconductor technologies in our
digital/electronic portfolio. Our life sciences portfolio includes
pharmaceuticals, biotechnologies, and medical devices. Our physical
sciences portfolio includes materials, manufacturing, and
environmental technologies.
Our professional staff has diverse technical, legal,
intellectual property, financial, market and business experience and
training to serve our clients' unique needs. We supplement our
professional staff, as needed, with a network of scientific,
business, and patent experts. We have also established strategic
allies in Innovation Partners International, k.k., in Osaka, Japan,
and Angle Technology Limited in England and Scotland.
We bridge the gap between conceptualization and
commercialization to bring useful, innovative, new products and
technologies to the marketplace.
A key component of our approach is that, as early in the process
as possible, we assess the strength of each invention's intellectual
property rights, patentability or protectability, and its potential
marketability. This permits us to focus our efforts and resources on
inventions with higher potential for successful commercial
exploitation.
For a technology or group of technologies, we may evaluate
technical feasibility, assess potential patentability, assess
marketability and commercial potential, apply for and prosecute
patents, and enforce issued patents or other intellectual property
rights by litigation, if necessary and appropriate.
We determine the optimal strategy to commercialize a technology
based on our evaluations. We may sell or license the technology to
others, manage the related license agreements, and distribute license
revenues to their respective owners. We may assist our clients in
obtaining funding, technical skills or other resources to accelerate
developing their technologies to the next stage of commercialization.
We may also invest in a new entity to commercialize an invention or
group of inventions. When we invest in early-stage technology-based
enterprises, we expect to reap significant returns as they mature and
their products enter the marketplace. Our objective is to develop
technologies into profitable royalty bearing licenses and equity
investments.
We realize revenues from technologies in three ways.
- We license technologies to obtain royalty revenues.
- We invest in new ventures to exploit specific technologies.
- We provide technology development, marketing, and
commercialization services to earn agreed fees.
Our clients are inventors and invention owners - individuals,
corporations, universities, and other research institutions.
In our agreements with clients, we specify the particular
services we will provide them and how they will compensate us for
those services. We tailor each agreement to satisfy the unique needs
of each client. Most clients agree to share with us a specific
percentage of amounts received from commercialization of
technologies. Some clients agree to pay a fixed percentage of
royalty revenue from licensed technology, a fee for specific services
and/or specified annual fees for our services. In some situations,
our clients give us equity or the right to purchase equity in them.
In addition, some clients agree to share expenses of the technology
development and commercialization process.
The three technologies that produced retained royalties equal to
or exceeding 10% of consolidated revenue for us during 2000, 1999 or
1998 were encryption, gallium arsenide semiconductors and Vitamin B12
assay. Retained royalty revenues from these technologies were:
2000 1999 1998
Gallium arsenide, including
laser diode $ 1,363,000 $ 518,000 $ 232,000
Public key encryption $ 735,375 $ 661,500 $ --
Vitamin B12 assay $ 381,000 $ 972,000 $ 664,000
As a percentage of retained royalties, they represented:
2000 1999 1998
Gallium arsenide, including
laser diode 35% 15% 10%
Public key encryption 19% 19% 0%
Vitamin B12 assay 10% 28% 28%
Inventions employing gallium arsenide to improve semiconductor
operating characteristics were developed at the University of
Illinois. U.S. patents have issued from March 1983 to May 1989 and
expire from May 2001 to September 2006. These patents include a
laser diode technology used in optoelectronic storage devices and
another technology that improves semiconductor operating
characteristics. We have licensed these inventions to Mitsubishi
Electric Corporation, NEC Corporation, Semiconductor Company,
Matsushita Electronics Corporation, SDL, Inc. and Toshiba
Corporation. These inventions are in current use according to
information received from licensees and other sources. Approximately
$992,000 of 2000's retained royalties was from one U.S. licensee's
sales of licensed product; the remaining $371,000 was from several
foreign licenses and included license issue fees from executing two
new licenses.
The public key encryption and digital authentication technology
was developed by NTRU Cryptosystems, Inc. (NTRU). It can secure and
verify authenticity in wireless and Internet communications and in
electronic commercial transactions. NTRU has applied for U.S.
patents on this technology and one patent issued in June 2000. NTRU
has licensed this technology non-exclusively to NCT Group, Inc., Sony
Corporation, TAO Group Limited and others. NTRU has developed
security products and is marketing them to customers and securing
strategic alliances to provide security in wireless and other digital
media applications. In 2000 we recognized a retained royalty
settlement of $736,375 (19% of total retained royalties) for the
estimated fair value of the royalty participation we exchanged for
2,945,500 shares of common stock of NTRU valued at $0.25 per share.
This transaction occurred simultaneously with an $11 million cash
investment in NTRU by Sony Corporation and Greylock Partners. In
addition, we retained a small royalty participation in NTRU's sales
of CTT licensed products. Retained royalties in 1999 included
$661,500 from a paid-up, non-exclusive, worldwide, field of use
limited license granted to an unrelated foreign corporation in
November 1998 on this encryption technology. All performance
milestones agreed in the license were met during fiscal 1999 and the
licensee paid all the agreed milestone payments.
The improved assay procedure for diagnosing Vitamin B12
deficiencies was developed at the University of Colorado. U.S.
patents have issued from February 1980 to May 1984 and expire between
February 1997 and May 2001. Certain of these licensed patents
expired in April 1998, April 1999 and February 2000. We have
licensed these assay procedures to Abbott Laboratories, Bayer
Corporation, Beckman Instruments, Inc., Bio-Rad Laboratories, Inc.,
Chiron Diagnostics Corporation, Dade International, Inc.,
Microgenics, Inc., Roche Diagnostics GmbH and Tosoh Corporation.
These assay procedures are in current use according to information
received from licensees and other sources. Approximately $542,000 of
1999's Vitamin B12 retained royalties was from a licensee's change in
its previously estimated royalties for the period from July 1993
through July 1998.
Beginning in fiscal 1998, we have pursued an aggressive program
to license an assay used to determine whether an individual has an
elevated level of homocysteine and a corresponding deficiency of
folate or Vitamin B12. Studies indicate that high levels of
homocysteine are a primary risk factor for coronary artery disease
and a risk factor for strokes and general artery damage. Our U.S.
patent that covers this homocysteine assay expires in 2007. We had
ten homocysteine licenses (including one sublicense) throughout
fiscal 2000 and 1999, up from three (including one sublicense) at
August 1, 1997. Homocysteine retained royalties in fiscal 2000, 1999
and 1998 were approximately $392,000, $265,000, and $191,000,
respectively. A sublicensee's withholding royalties on certain tests
reduced retained royalties in 2000 and 1999. We have joined with our
licensee in a lawsuit against the sublicensee. See also Item 3.
Legal Proceedings and Note 13 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 11 to Consolidated Financial Statements.
Investments in Development-Stage Companies
We generally do not finance research and development of
technologies. However, in certain instances, we invest in
development-stage companies to exploit specific technologies we
believe are beyond the pure research and development stage.
In March and July 2000, we acquired 3,172,881 shares,
approximately 10% of the outstanding equity, 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 retained royalty settlement of $736,375. We have worked with NTRU
and its founders since 1997 and acquired our original royalty
interest in exchange for providing NTRU with custom incubation
services, including patent filing support, interim business
management, technical marketing, licensing and initial capital
sourcing services. NTRU's mathematicians and cryptographers
developed a new generation of memory efficient high-speed public key
encryption solutions. NTRU's stock is not publicly traded and there
is no quoted market price for its stock. At July 31, 2000, our
carrying value for this investment was $934,381. We account for this
investment on the cost method.
In April 2000, we paid $500,000 cash 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. as part of
their $8 million private placement. Micro-ASI plans to provide
semiconductor packaging customers a one-stop-shop for flip-chip
technology, including design, prototype development, and volume
manufacturing of modules and boards. Micro-ASI's preferred and
common stock is not publicly traded and there is no quoted market
price for its stock. At July 31, 2000, we carried this investment
(approximately 2% of Micro-ASI's outstanding share capital) at
$500,000 on the cost method.
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.
In 1995, we worked with the University of Kentucky to establish
and finance Equine Biodiagnostics, Inc. (EBI), a company organized to
provide diagnostic laboratory services for the equine industry. EBI
marketed its initial product in its first month of operations. We
made a seed investment of $25,000 in 1995 and sold our investment in
EBI during fiscal 1999 for $198,850 in cash. Because we had recorded
our equity in EBI's net income during our investment period, we
recognized no gain or loss at the time of our sale in fiscal 1999.
In June 1999, we obtained 15% of the equity of Digital Ink, Inc.
in exchange for $50,000 in cash and $50,000 in patenting, marketing,
and accounting services provided from June 1999 through January 2000.
Digital Ink, Inc. has developed an electronic pen that captures and
stores handwriting in its memory. Digital Ink expects applications
of this proprietary technology to include wireless e-mail and fax
devices, input for personal computers and personal digital
assistants, remote controls and input for consumer electronic
devices. We provided patenting, marketing and accounting services
during the time Digital Ink developed a working prototype of this
digital pen invention. Since January 2000, Digital Ink has obtained
additional funding of more than $2 million to refine its product and
develop its commercialization strategy. Digital Ink intends to have
a low-cost version of its n-scribe pen ready for original equipment
manufacturer sales in the first quarter of calendar 2001.
In 1994, we established a majority-owned subsidiary, Vector
Vision, Inc. (VVI), to develop and exploit a video compression
technology developed at Lehigh University. VVI incurred research and
development expenditures (included in costs of technology management
services in the Consolidated Financial Statements) of approximately
$78,000 in 1998. Since its inception VVI has obtained $498,000 in
equity funding, $75,000 in grant funding and $99,000 from a Small
Business Innovation Research contract. VVI is obligated to repay up
to three times total grant funds received (see Note 13 to
Consolidated Financial Statements). At July 31, 2000, we owned 51.6%
of VVI's outstanding common stock. At July 31, 2000, VVI is
operationally inactive. Certain of VVI's proprietary technology has
been accepted in a portion of the MPEG-4 standard, an international
standard for low bandwidth applications such as video
teleconferencing, video databases and wireless video access.
Risk Factors
In the past, we have generated relatively limited income and
until fiscal 1999, we generally experienced operating losses. The
table below summarizes our consolidated results of operations and
cash flows for the five years ended July 31, 2000:
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Operating income (loss) $ 774,038 $ 421,533 $(1,381,903) $(1,785,891) $ (851,760)
Net income (loss) $1,300,937 $2,919,384 $(1,235,489) $(1,571,045) $ (588,101)
Net cash flow from:
Operating activities $ 458,295 $ 626,083 $ (485,035) $ (896,712) $(1,227,743)
Investing activities $ (993,362) $ (979,646) $ 600,680 $ 1,467,919 $ 996,649
Financing activities $1,342,928 $ (361,843) $ (351,257) $ (317,408) $ 455,636
Net increase (decrease)
in cash and cash
equivalents $ 807,861 $ (715,406) $ (235,612) $ 253,799 $ 224,542
</TABLE>
Although we had both operating and net income in fiscal 2000 and
1999, we cannot assure you that earnings will continue, and it is
possible that losses could occur in the foreseeable future. In
addition, our future revenues and profits or losses depend on certain
factors beyond our control, including technological changes and
developments, downturns in the economy or our inability to
successfully commercialize the inventions and innovations of our
clients. Consequently, we may not be able to generate sufficient
revenues to remain profitable.
We receive most of our revenues from licensees over which we
have no control. We rely on royalties received from our licensees
for most of our revenues. Retained royalties (including retained
royalty settlement in 2000) constituted 96%, 95% and 92% of our
consolidated total revenues for the years ended July 31, 2000, 1999
and 1998, respectively. The royalties we receive from our licensees
depend on the efforts and expenditures of those licensees and we have
no control over their efforts or expenditures. Additionally, our
licensees' development of new products involves great risk since many
new technologies do not become commercially profitable products
despite extensive development efforts. Our license agreements do not
require licensees to advise us of problems they may encounter in
attempting to develop commercial products and licensees usually treat
such information as confidential. You should expect that licensees
will encounter problems frequently. We cannot assure you that our
licensees' failure to resolve such problems will not result in a
material adverse effect (financial or otherwise) on our operations.
Our licensees, and therefore we, depend on receiving government
approvals to exploit certain licensed products commercially.
Commercial exploitation of some licensed patents may require the
approval of governmental regulatory agencies and there is no
assurance that those agencies will grant such approvals. In the
United States, the principal governmental agency involved is the U.S.
Food and Drug Administration (FDA). The FDA's approval process is
rigorous, time consuming and costly. Unless and until a licensee
obtains approval for a product requiring such approval, the licensee
will not sell the product and therefore we will not receive royalty
income based on the sales of the product.
If we are unable to protect the intellectual property underlying
our licenses or to enforce our patents adequately, we may be unable
to exploit such licensed patents or technologies successfully. This
could adversely affect our revenues from those licenses. Our success
in earning revenues from licensees is subject to the risk that issued
patents may be declared invalid, that patents may not issue on patent
applications, or that competitors may circumvent our licensed patents
and thereby render our licensed patents uncommercial. In addition,
upon expiration of all patents underlying a license, our royalties
from that license will cease, and there can be no assurance that we
will be able to replace those royalties with royalty revenues from
other licenses.
Certain of our licensed patents will expire in the near future
and we may not be able to replace their royalty revenues. We
currently receive royalties from licenses that we hold on forty-three
(43) patented technologies. We expect seven (7) of those patented
technologies to expire in the next three years. Those patented
technologies represented approximately 14% of our revenue in fiscal
2000. The loss of those royalties may adversely affect our operating
results if we are unable to replace them with revenue from other
licenses or other sources.
Patent litigation is increasing; it can be expensive and may
delay or prevent our licensees' products from entering the market.
In the event we determine that competitive products infringe our
patent rights, we may pursue patent infringement litigation or
interference proceedings against sellers of those competing products.
Holders of conflicting patents or sellers of competing products may
also challenge our patents in patent infringement litigation or
interference proceedings. We cannot assure you that we will be
successful in any such litigation or proceeding, and the results and
costs of such litigation or proceeding may materially adversely
affect our business, operating results and financial condition.
In the markets for our licensees' products, technology changes
rapidly and industry standards are continually evolving. This often
makes products obsolete or results in short product lifecycles. Our
profitability depends on our licensees' ability to adapt to such
changes. Therefore, our profitability will depend in large part on
our, our clients' and/or our licensees' abilities to:
- introduce products in a timely manner;
- maintain a pipeline of new technologies;
- enhance and improve existing products continually;
- maintain their development capabilities;
- anticipate or adapt to technological changes and advances in
their relevant industries; and
- ensure continuing compatibility with evolving industry
standards.
Evaluating and securing funding for new business and product
development is difficult and we cannot assure you that, once we have
found a new business or product, it will be successful. We continue
to seek business opportunities which are synergistic with our
expertise in developing and commercializing technology or which have
the potential to generate excess cash flow that we could use to build
our business. We cannot assure you that we will succeed in acquiring
or developing such businesses or products or that they will be
profitable.
In instances where we invest our own funds, whether directly,
through a subsidiary or a joint venture or otherwise, in researching,
developing, manufacturing or marketing new products, we incur the
same risks as licensees with respect to new product development. New
products may require additional funding after initial funds are
exhausted and if such funding cannot be obtained, such new products
may have to be abandoned resulting in loss of monies previously
invested. New competing products or alternative technologies may
render our products obsolete or otherwise unsuitable for
commercialization.
We need significant capital to operate our business and we may
require additional financing. If we cannot obtain such additional
financing, we may not be able to continue our operations or pursue
our growth strategies. We need significant capital to invest in new
developing businesses and in obtaining and marketing new
technologies. Currently available funds may be insufficient to fund
our growth strategy or our operations. We may need to seek
additional financing sooner than we currently anticipate or to
curtail our activities.
Developing new products, creating effective commercialization
strategies for technologies and enhancing those products and
strategies are subject to inherent risks. These risks include
unanticipated delays, unrecoverable expenses, technical problems or
difficulties, as well as the possibility that development funds will
be insufficient. Any one of these could make us abandon or
substantially change our technology commercialization strategy. Our
success will depend upon, among other things, products meeting
targeted cost and performance objectives for large-scale production,
our licensees' ability to adapt technologies to satisfy industry
standards, satisfy consumer expectations and needs, and bring their
products to the marketplace before it is saturated. They may
encounter unanticipated technical or other problems resulting in
increased costs or substantial delays in introducing and marketing
new products. Current and future products may not be reliable or
durable under actual operating conditions or otherwise commercially
viable and competitive. New products may not satisfy price or other
performance objectives when introduced in the marketplace. Any of
these events would adversely affect our realization of royalties from
such new products.
Strong competition within our industry may reduce our client
base. Competition for technology development and commercialization
services is vigorous. Several organizations, some of which are well
established and have greater financial resources than we do, provide
technology development and commercialization services.
Our success depends on our ability to attract and retain key
personnel and consultants. Our success depends on the knowledge,
efforts, and abilities of a small number of key personnel. Our
principal key employee is Mr. Frank R. McPike, Jr. In addition, we
rely on services of third party consultants. To the extent we
implement our plans to identify and acquire synergistic businesses,
we will also need to retain the managerial and technical personnel
necessary to supervise or manage these developing companies.
Competition for all of these personnel is intense and we cannot
assure you that we will be able to attract and retain qualified
personnel. If we were to lose Mr. McPike's services or be unable to
hire and retain qualified technology advisors, business consultants,
intellectual property specialists, operating, financial, technical,
marketing, sales, and other personnel, our profitability, prospects,
financial condition and future activities could be adversely
affected.
We depend on our relationships with inventors to gain access to
new technologies and inventions. If we fail to maintain existing
relationships or to develop new relationships, we may reduce the
number of technologies and inventions available to generate revenues.
We do not invent new technologies and products ourselves. We depend
on our current relationships with universities, corporations,
governmental agencies, research institutions, inventors, and others
to provide us technology-based opportunities we can develop into
profitable equity investments and/or royalty-bearing licenses. Our
failure to maintain our relationships with them could affect our
business, operating results and financial condition both materially
and adversely. If we are unable to forge new relationships or to
maintain our current relationships, we may be unable to identify new
technology-based opportunities.
Further, we cannot be certain that our current or new
relationships will maintain the volume or quality of available new
technologies they currently present to us. In some cases,
universities and other sources of new technologies seek to develop
and commercialize these technologies themselves or through entities
they develop, finance and control. In other cases, universities
receive financing for basic research from companies in exchange for
the exclusive right to commercialize resulting inventions. These and
other strategies may reduce the number of technology sources to whom
we can market our services. Our inability to secure new sources of
technology could have a material adverse effect on our business,
operating results and financial condition.
As part of our business strategy, we pursue other transactions
or investments that may generate significant charges to earnings and
may adversely affect our financial condition. We regularly review
potential transactions or investments related to technologies,
products or product rights, technology-driven enterprises and
businesses complementary to our business. Such transactions include
acquisitions of or investments in new technologies or the entities
developing them. We may make such acquisitions or investments in the
future. Depending upon the nature of any such transactions, we may
incur charges to earnings that could be material and could have an
adverse impact on the market price of our common stock.
At July 31, 2000, we had invested $1,434,381 (12% of total
assets) in two development-stage companies. This includes $736,375
from our royalty settlement with NTRU in fiscal 2000. We also hold
equity interests in additional development-stage companies that we
acquired in exchange for our professional services. See Note 2 in
Consolidated Financial Statements. While we hold these investments,
we may incur charges to earnings for impairment losses that could be
material. In addition, we cannot be certain that we will be able to
sell these investments, that such sales proceeds will be greater than
the amounts we have invested, or that we will be able to sell these
investments within any particular timeframe.
We have not paid dividends recently and do not expect to pay
dividends on our Common Stock in the foreseeable future. Since
paying a single $0.10 per share dividend in March 1981, we have not
paid cash dividends on our Common Stock and do not expect to declare
or pay cash dividends in the foreseeable future.
We are currently involved in two lawsuits. If the judges in
these suits decide against the Company, these lawsuits could have a
materially adverse effect on our business, results of operations and
financial condition. For a description of these lawsuits, see Item
3. Legal Proceedings. These two lawsuits are:
(a) The LabCorp suit, where we seek royalties and injunctive relief
under our homocysteine patent. LabCorp has filed a counterclaim
alleging noninfringement, patent invalidity and patent misuse. If
LabCorp were to prevail, we could encounter substantial difficulty
collecting further royalties from licensees under this patent.
(b) The suit involving the sale of assets to Unilens. An adverse
ruling in this suit could result in a substantial money judgment
against the Company.
Item 2. Properties
Our principal executive office is approximately 9,000 square
feet of leased space in an office building in Fairfield, Connecticut.
The office lease expires December 31, 2001 and provides for a base
rent of $202,500. We have an option to renew the lease through
December 31, 2006. We believe that our facilities are adequate for
our current and near-term operations.
Item 3. Legal Proceedings
On May 4, 1999, Metabolite Laboratories, Inc. (MLI) and the
registrant (collectively plaintiffs) filed a complaint and jury
demand against Laboratory Corporation of America Holdings d/b/a
LabCorp (LabCorp) in the United States District Court for the
District of Colorado. The complaint alleges, among other things,
that LabCorp owes plaintiffs royalties for homocysteine assays
performed during and since the summer of 1998 using methods and
materials falling within the claims of a patent owned by the
registrant. The registrant licensed the patent non-exclusively to
MLI and MLI sublicensed it to LabCorp. Plaintiffs claim LabCorp's
actions constitute breach of contract and patent infringement. Their
claim seeks an injunction ordering LabCorp to perform all its
obligations under its agreement, to cure past breaches, to provide an
accounting of wrongfully withheld royalties and to refrain from
infringing the patent. Plaintiffs also seek unspecified money and
exemplary damages and attorneys' fees, among other things. LabCorp
has filed an answer and counterclaims alleging noninfringement,
patent invalidity and patent misuse. Discovery has been completed.
Trial is scheduled to begin in April 2001. Through July 31, 2000,
the registrant had incurred approximately $78,000 in unreimbursed
litigation expenses related to this case. The registrant is unable
to estimate the related legal expenses it may incur in this suit and
has recorded no revenue for these withheld royalties.
The University of Colorado Foundation, Inc., the University of
Colorado, the Board of Regents of the University of Colorado, Robert
H. Allen and Paul A. Seligman, plaintiffs, previously filed a lawsuit
against American Cyanamid Company, defendant, in the United States
District Court for the District of Colorado. This case involved a
patent for an improved formulation of 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 approximately 18% of damages awarded to the University of
Colorado, if any, after deducting the expenses of this suit. On
November 19, 1999, the United States Court of Appeals for the Federal
Circuit vacated a July 7, 1997 judgment by the District Court in
favor of plaintiffs for approximately $44 million and remanded the
case to the District Court for further proceedings. On July 7, 2000,
the District Court concluded that Robert H. Allen and Paul A.
Seligman were the sole inventors of the reformulation of 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. The District Court also reopened all issues of damages
and ordered a retrial to determine the nature and amount of damages
to be paid by defendant. The damages retrial is scheduled to begin
in March 2001. The Company cannot predict the amount of its share of
the judgment, if any, which may ultimately be awarded. The Company
has recorded no potential judgment proceeds in its financial
statements to date.
On November 4, 1991, a suit was filed in the Superior Court of
the Judicial District of Fairfield, Connecticut, at Bridgeport by
Bruce Arbeiter, Jeffrey A. Bigelow, Jeffrey W. Leiderman, Optical
Associates, Limited Partnership (OALP) and Optical Associates
Management Corp. (OAMC) purportedly on behalf of all the limited
partners of OALP, as plaintiffs, against Genetic Technology
Management, Inc. (GTM), University Optical Products Co. (UOP), the
registrant, Jay Warren Blaker, L.W. Miles, A. Sidney Alpert, Frank R.
McPike, Jr., Michael Behar, Bruce E. Langton, Arthur M. Lieberman and
Harry Van Benschoten, as defendants. The complaint alleges, among
other things, that in January 1989 the defendants, GTM, UOP and the
registrant, sold substantially all of the assets of OALP to Unilens
Corp. USA (Unilens) and disbursed only 4% of the sales price to OALP,
all in violation of certain agreements, representations and legal
obligations; that OALP is entitled to the full proceeds of the sale
to Unilens; and that by vote of limited partners holding in excess of
80% of the capital interests of OALP, the limited partners have
removed GTM as the general partner of OALP and replaced GTM with
OAMC. The complaint claims, among other things, money damages (in an
amount not specified in the claim for relief); treble and punitive
damages (with no amounts specified); attorneys fees; an accounting;
temporary and permanent injunctive relief; and judgment holding that
OAMC was legally substituted for GTM as the general partner of OALP.
Management of the registrant believes, based upon all the facts
available to management, that the claims asserted in the suit are
without merit, and the registrant intends to defend the suit
vigorously. Hearings in the case have commenced before an attorney
referee; further hearings are scheduled for November 2000, at which
time the registrant expects to file motions to dismiss the case.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for Company's Common Equity and Related Stockholder
Matters
(a) The Company's common stock is listed on the American Stock
Exchange. The following table sets forth the high and low sales
prices as reported by the American Stock Exchange for the periods
indicated.
Fiscal Year Ended July 31, 2000 High Low
First Quarter.................... 6 3/4 5 1/8
Second Quarter................... 9 3/4 4 7/8
Third Quarter.................... 23 1/2 8
Fourth Quarter................... 15 1/2 7 5/8
Fiscal Year Ended July 31, 1999 High Low
First Quarter.................... 8 15/16 2 7/8
Second Quarter................... 8 3/4 3 7/8
Third Quarter.................... 7 1/2 5
Fourth Quarter................... 7 1/2 5 13/16
No cash dividends were declared on the Company's common stock
during the last two fiscal years.
At October 13, 2000 there were approximately 800 holders of
record of the Company's common stock.
COMPETITIVE TECHNOLOGIES, INC.
Selected Financial Data (1)
For the years ended July 31
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996 (5)
<S> <C> <C> <C> <C> <C>
Retained royalties $ 3,202,194 $ 3,463,176 $ 2,400,534 $ 1,935,041 $ 1,619,909
Retained royalty settlement 736,375 -- -- -- --
Revenues under service contracts
and grants (2) 174,298 176,148 211,300 541,176 660,287
Total revenues $ 4,112,867 $ 3,639,324 $ 2,611,834 $ 2,476,217 $ 2,280,196
Income (loss) from continuing
operations (3)(4) $ 1,300,937 $ 2,919,384 $(1,235,489) $(1,571,045) $ (588,101)
Net income (loss) $ 1,300,937 $ 2,919,384 $(1,235,489) $(1,571,045) $ (588,101)
Net income (loss) per share
(basic and diluted):
Continuing operations $ 0.21 $ 0.49 $ (0.21) $ (0.27) $ (0.10)
Net income (loss) $ 0.21 $ 0.49 $ (0.21) $ (0.27) $ (0.10)
Weighted average number of common
shares outstanding (basic) 6,079,211 5,982,112 5,969,434 5,914,868 5,853,814
At year end:
Cash, cash equivalents
and short-term investments $ 6,716,429 $ 5,498,486 $ 2,634,618 $ 3,465,005 $ 4,381,630
Total assets $12,093,965 $ 8,959,021 $ 6,301,864 $ 7,203,480 $ 8,368,140
Long-term obligations $ -- $ -- $ -- $ 260,265 $ 652,367
Shareholders' interest $ 9,928,112 $ 7,180,286 $ 4,172,413 $ 5,014,746 $ 6,287,952
</TABLE>
(1) Should be read in conjunction with Consolidated Financial Statements and
Notes thereto.
(2) Includes approximately $79,000 and $254,000 in 1997 and 1996, respectively,
from a cost reimbursement contract for the Department of the Air Force.
(3) Includes $2,313,227 gain on sale of investment in NovaNET Learning, Inc. in
1999.
(4) Includes net income (losses) related to equity method affiliates of
approximately $58,000 and $34,000 in 1997 and 1996, respectively. In 1996,
approximately $30,000 of net income related to equity method affiliates
related to USET.
(5) Includes results of USET's operations on a consolidated basis for the six
months from January 31, 1996 through July 31, 1996.
(6) No cash dividends were declared or paid in any year presented.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition and Liquidity
At July 31, 2000, cash and cash equivalents of $1,716,375 were
$807,861 higher than cash and cash equivalents of $908,514 at July
31, 1999. Operating activities provided $458,295, investing
activities used $993,362 and financing activities provided
$1,342,928 in the year ended July 31, 2000. In addition, the
Company held approximately $5,000,000 in short-term investments
available for its current operating, investing and financing needs.
The Company's net income of $1,300,937 for the year ended July
31, 2000, included $736,375 of retained royalty settlement received
in shares of NTRU Cryptosystems, Inc. (NTRU) common stock and was
net of charges for the following noncash items: approximately
$209,000 of depreciation and amortization, approximately $97,000 of
directors' stock and stock retirement plan accruals and
approximately $63,000 of minority interest.
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 $697,000 increase in royalties receivable and the
$708,000 increase in royalties payable. These changes in royalties
receivable and payable reflect the Company's normal cycle of
royalty collections and payments. In addition, the Company
recognized approximately $143,000 of deferred revenues during
fiscal 2000.
In March and July 2000, CTT acquired 3,172,881 shares,
approximately 10% of the outstanding equity, of NTRU in exchange
for reducing its royalty participation on NTRU's sales of CTT
licensed products and $198,006 in cash. CTT recorded the exchange
of a substantial portion of its royalty participation at the
estimated fair value of 2,945,500 shares of NTRU common stock,
$0.25 per share, as retained royalty settlement of $736,375. CTT
has worked with NTRU and its founders since 1997 and acquired its
original royalty interest in exchange for providing NTRU with
custom incubation services, including patent filing support,
interim business management, technical marketing, licensing and
initial capital sourcing services. NTRU's mathematicians and
cryptographers developed a new generation of memory efficient high
speed public key encryption solutions. NTRU's stock is not
publicly traded and there is no quoted market price for its stock.
At July 31, 2000, CTT's carrying value for this investment was
$934,381. CTT accounts for this investment on the cost method.
In April 2000, CTT paid $500,000 cash for 500,000 shares of
preferred stock and warrants to purchase 300,000 shares of common
stock at $1.00 per share of Micro-ASI, Inc. Micro-ASI plans to
provide semiconductor packaging customers a one-stop-shop for flip-
chip technology, including design, prototype development, and
volume manufacturing of modules and boards. Micro-ASI's preferred
and common stock is not publicly traded and there is no quoted
market price for its stock. At July 31, 2000, CTT carried this
investment (approximately 2% of Micro-ASI's outstanding share
capital) at $500,000 on the cost method.
During the year ended July 31, 2000, the Company sold available-
for-sale securities for proceeds of approximately $145,000 and
purchased approximately $410,000 of short-term investments.
During fiscal 2000, the Company received approximately
$1,619,000 from stock options exercised to purchase common stock.
In October 1998, the Board of Directors authorized CTT to
repurchase up to 250,000 shares of its common stock. 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 49,400 shares of its common stock for approximately
$277,000 in cash in the fiscal year ended July 31, 2000. Since
October 1998, the Company has repurchased 74,800 shares of its
common stock for a total of approximately $386,000.
At July 31, 2000, the Company had no outstanding commitments
for capital expenditures.
The Company carries liability insurance, directors' and
officers' liability insurance and casualty insurance for owned or
leased tangible assets. It does not carry key person life
insurance. There are no legal restrictions on payments of
dividends by CTT.
The Company continues to pursue additional technology
management opportunities. If and when such opportunities are
consummated, the Company may commit capital resources to them.
The Company does not believe that inflation had a significant
impact on its operations during fiscal 2000 or 1999 or that it will
have a significant impact on operations during the next twelve-
month operating period.
Currently Vector Vision, Inc. (VVI), CTT's 51.6% owned
subsidiary, is operationally inactive. The Company, the inventor
and others supported VVI's video compression software development
activities in the past. Certain of VVI's proprietary technology
has been accepted in a portion of the MPEG-4 standard, an
international standard for low bandwidth applications such as video
teleconferencing, video databases and wireless video access.
The Company is involved in three pending litigation matters.
Full descriptions of them are reported in Note 13 to Consolidated
Financial Statements.
At July 31, 2000, the Company had cash and cash equivalents of
$1,716,375, short-term investments of $5,000,054, royalties
receivable of $2,347,176 and royalties payable of $1,780,988.
Total assets were $12,093,965 (approximately $3,135,000 higher than
at July 31, 1999), total liabilities were $2,165,853 and total
shareholders' interest was $9,928,112.
Based on the Company's current expectations, it anticipates
that currently available funds will be sufficient to finance cash
needs for the foreseeable future for its current operating
activities. However, expansion of the Company's business is
subject to many factors outside the Company's control or that it
cannot currently anticipate, including without limitation business
opportunities that may arise in the future. Accordingly, there can
be no assurance that the Company's current expectations regarding
the sufficiency of currently available funds will prove to be
accurate.
Results of Operations - 2000 vs. 1999
The Company's $774,038 operating income for the fiscal year
ended July 31, 2000, was $352,505 (84%) higher than for the fiscal
year ended July 31, 1999. Net income was $1,300,937 for the fiscal
year ended July 31, 2000, compared with net income of $2,919,384
for the fiscal year ended July 31, 1999, which included an after
tax gain of $2,313,227 from the Company's sale of its remaining
14.5% interest in NovaNET Learning, Inc. (NLI). The Company
increased its revenues by $473,543 (13%), more than the $121,038
(4%) increase in its operating expenses.
Total revenues in fiscal 2000 were $4,112,867, compared with
$3,639,324 in fiscal 1999.
Retained royalties in fiscal 2000 were $3,202,194, which was
$260,982 (8%) lower than in fiscal 1999. Retained royalties from
the gallium arsenide semiconductor inventions, which include laser
diode applications, were approximately $1,363,000 in fiscal 2000,
an increase of approximately $845,000 (163%) compared with
approximately $518,000 in fiscal 1999. This included new license
issue fees, a minimum royalty, and royalties based on sales of
licensed products.
Retained royalties in fiscal 2000 included approximately
$168,000 from a homocysteine licensee's increase in its previously
estimated royalties for the period from 1995 through 1999.
Homocysteine retained royalties in both fiscal years were reduced
by a sublicensee's withholding royalties on certain tests. The
Company has joined with its licensee in a lawsuit against the
sublicensee as detailed above and in Note 13 to Consolidated
Financial Statements.
Retained royalties from the Vitamin B12 assay in fiscal 2000
were approximately $381,000 compared with approximately $972,000 in
fiscal 1999. However, fiscal 1999 included approximately $542,000
from a licensee's change in its previously estimated royalties
under Vitamin B12 assay licenses for the period from July 1993
through July 1998. Certain of these licensed patents expired in
April 1998, April 1999, and February 2000. The remaining Vitamin
B12 assay licensed patents are expected to expire in May 2001.
Retained royalties in fiscal 2000 on another technology were
approximately $108,000 lower than in fiscal 1999 because licensees
(including sublicensees) claim that our patent does not cover their
products. The Company is currently pursuing this matter.
Retained royalties in fiscal 1999 also included $661,500 from a
paid-up, non-exclusive, worldwide, field-of-use limited license
granted to an unrelated foreign corporation in November 1998 on an
encryption technology. All performance milestones agreed in the
license were met during fiscal 1999 and the licensee paid all the
agreed milestone payments.
Retained royalties also fluctuate due to changes in the timing
of royalties reported by licensees and changes in licensees' sales
of licensed products.
In fiscal 2000, CTT recognized a retained royalty settlement
of $736,375 (19% of retained royalties and 18% of total revenues)
for the estimated fair value of the royalty participation it
exchanged for 2,945,500 shares of common stock of NTRU valued at
$0.25 per share. In addition, CTT retained a small royalty
participation in NTRU's sales of CTT licensed products. Retained
royalties in 1999 included $661,500 on this encryption technology,
as discussed above.
Fiscal 2000 revenues under service contracts and grants were
slightly lower than in fiscal 1999. In fiscal 2000, the Company
earned approximately $129,000 on two contracts, one for a
government agency and one for a domestic start-up corporation. In
fiscal 1999, the Company earned substantially all of these revenues
from contract services to domestic corporations, including a one-
time fee for assisting a start-up company to obtain equity
financing. Many of the Company's service contracts are one-time
arrangements unique to a particular client at a particular time.
The Company is not currently seeking additional fee-for-service
contracts.
Total operating expenses for fiscal 2000 were $3,338,829. This
was $121,038 (4%) higher than for fiscal 1999. The Company
incurred higher charges for patent litigation expenses,
consultants' fees and expenses and shareholder expenses. Lower
charges for public and investor relations services partially offset
these increases. In addition, the Company charged $70,000 for
restructuring its operations in fiscal 1999. There was no similar
charge in fiscal 2000.
Costs of technology management services were $22,644 (1%)
higher in fiscal 2000 than in fiscal 1999 as more fully discussed
below.
Costs related to retained royalties were approximately $335,000
(34%) higher in 2000 than in 1999. This increase includes
approximately $159,000 higher personnel costs (including benefits
and overheads) associated with patenting and licensing services,
$93,000 higher patent litigation and enforcement expenses (net of
reimbursements) related to several litigation and pre-litigation
matters, and $78,000 lower reimbursements of foreign patent
expenses. Costs related to retained royalties also include
domestic and foreign patent prosecution, maintenance, and
litigation expenses.
Costs related to service contracts were approximately $37,000
lower for fiscal 2000 than for fiscal 1999. Substantially all of
this reduction was in personnel costs (including benefits and
overheads) associated with service contracts.
Costs associated with new client development for fiscal 2000
(principally personnel costs, including benefits and overheads)
were approximately $275,000 (35%) lower than for fiscal 1999. The
Company had fewer employees in fiscal 2000 than it had in fiscal
1999.
General and administration expenses in fiscal 2000 were
$168,394 (15%) higher than in fiscal 1999. Directors' fees and
expenses, consultants' fees and expenses, and shareholder expenses
were higher; however, lower charges for public and investor
relations services partially offset these increases.
Restructuring charges of $70,000 in fiscal 1999 related to the
costs of closing the Company's Bethlehem, Pennsylvania, office and
other staff reductions made in August and September 1998.
Management took these actions to reduce operating expenses and
improve operating efficiency.
Interest income in fiscal 2000 was $182,935 (96%) higher than
for fiscal 1999. The Company's average invested balance was
approximately 66% higher and its weighted average interest rate was
approximately 0.9% per annum higher than for fiscal 1999. Interest
expense in fiscal 1999 related to the debt incurred in acquiring
USET.
Effective May 28, 1999, CTT sold its 14.5% interest in NLI for
$2,472,602 in cash in connection with NLI's acquisition by National
Computer Systems, Inc. From February 15, 1995 through May 28,
1999, CTT accounted for its $159,375 investment in NLI under the
cost method. CTT recognized a gain of $2,313,227 in its fiscal
quarter ended July 31, 1999. Capital loss carryforwards sheltered
the gain from Federal and state income taxes.
During fiscal 2000, the Company sold available-for-sale
securities and realized gains of $90,238, which were included in
other income.
Other expenses for fiscal 2000 and 1999 were legal expenses
incurred in connection with a lawsuit brought against CTT, some of
its subsidiaries and directors. This suit is more fully detailed
in Note 13 to Consolidated Financial Statements. Unilens Corp. USA
made no payments in either fiscal year.
Minority interest in the losses of subsidiaries in 2000 and
1999 was VVI's minority shareholders' additional interest in its
losses.
The Company has substantial net operating and capital loss
carryforwards for Federal income tax purposes, of which a
significant portion expires in fiscal 2001. See Note 7 to
Consolidated Financial Statements.
The Company does not expect adoption of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," to have a material effect on
its financial statements. See Note 1 to Consolidated Financial
Statements.
The Company is in the process of assessing the impact of Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," on its financial condition and results of operations.
See Note 1 to Consolidated Financial Statements.
The Company does not expect adoption of Interpretation No. 44,
"Accounting for Certain Transactions involving Stock Compensation,"
to have a material effect on its financial statements. See Note 1
to Consolidated Financial Statements.
Results of Operations - 1999 vs. 1998
The Company's $421,533 operating income and $2,919,384 net
income for the fiscal year ended July 31, 1999, were $1,803,436 and
$4,154,873 higher, respectively, than its operating loss and net
loss for the fiscal year ended July 31, 1998. The Company
increased its revenues by $1,027,490 (39%) and reduced its
operating expenses by $775,946 (19%) compared with fiscal 1998.
Net income for fiscal 1999 included the Company's $2,313,227 gain
on the sale of its investment in NLI in the fourth fiscal quarter.
In fiscal 1999, retained royalties revenues increased
substantially while revenues under service contracts decreased
compared with fiscal 1998.
Retained royalties in fiscal 1999 were $3,463,176, which was
$1,062,642 (44%) higher than in fiscal 1998. Approximately
$542,000 of this increase was from a licensee's change in its
previously estimated royalties under Vitamin B12 assay licenses for
the period from July 1993 through July 1998. This correction was
partially offset by lower royalty revenues from other Vitamin B12
assay licensees due to expiration of a U.S. patent in April 1998
and certain foreign patents in April 1999. These expiring licenses
contributed approximately $137,000 (4%) of total retained royalties
in fiscal 1999. The remaining Vitamin B12 assay licenses are
expected to expire in May 2001. Approximately $972,000 (28%) of
retained royalties in fiscal 1999 were from the Vitamin B12 assay
licenses. In fiscal 1998, approximately $664,000 (28%) of retained
royalties were from the Vitamin B12 assay licenses.
Retained royalties in fiscal 1999 also included $661,500 from a
paid-up, non-exclusive, worldwide, field-of-use limited license
granted to an unrelated foreign corporation in November 1998, on an
encryption technology. All performance milestones agreed in the
license were met during fiscal 1999 and the licensee paid all the
agreed milestone payments. This license generated 19% of retained
royalties in fiscal 1999.
In fiscal 1999, retained royalties from gallium arsenide
semiconductor inventions, which include laser diode applications,
also increased approximately $286,000 over fiscal 1998. This
increase included a license issue fee and royalties from a new
license as well as royalties from licensees' increased sales of
licensed products. Retained royalties from gallium arsenide
semiconductor inventions were approximately $518,000 (15%) of
retained royalties in fiscal 1999 ($232,000 (10%) in fiscal 1998).
Retained royalties from homocysteine licenses, including
license issue fees, of approximately $265,000 in fiscal 1999
increased approximately $73,000 (38%) over fiscal 1998. The
Company had ten homocysteine licenses (including one sublicense)
throughout fiscal 1999, up from three (including one sublicense) at
August 1, 1997. Homocysteine retained royalties in fiscal 1999
were reduced by a sublicensee's withholding royalties on certain
tests. In addition, retained royalties in fiscal 1998 benefited
from license issue fees on new homocysteine licenses.
Partially offsetting these increases in retained royalties were
reductions in retained royalties because of (a) a final royalty
settlement on a licensed patent that expired in September 1997 and
(b) a one-time sale of a corporate client's patented technology in
fiscal 1998.
Fiscal 1999 revenues under service contracts and grants were
$35,152 (17%) lower than in fiscal 1998. The Company earned
substantially all of these revenues from contract services to
domestic corporations in fiscal 1999. This included a one-time fee
for assisting a start-up company to obtain equity financing. The
Company completed two government contracts in fiscal 1998; this
accounts for most of the reduction in service contract revenues
from fiscal 1998.
Total operating expenses for fiscal 1999 were $3,217,791. This
was $775,946 (19%) lower than for fiscal 1998. The Company reduced
personnel and related expenses, consultants' fees, and VVI's
research and development expenses. These reductions were partially
offset by higher shareholders' expenses, including public and
investor relations services. The Company reduced its operating
expenses by closing its Cleveland, Ohio, office in January 1998 and
its Bethlehem, Pennsylvania, office in September 1998 and by
reducing its Connecticut office staff.
Costs of technology management services were $72,662 (3%) lower
in fiscal 1999 than in fiscal 1998 as more fully discussed below.
Costs related to retained royalties were approximately $85,000
(9%) higher in 1999 than in 1998. This reflects higher personnel
costs (including benefits and overheads) associated with patenting
and licensing services partially offset by lower costs for
subcontractors on retainer for certain sales and marketing services
for certain corporate technologies.
Fiscal 1999 costs related to service contracts (including
direct charges for subcontractors' services and personnel costs
associated with service contracts) were approximately $134,000
(37%) lower than for fiscal 1998. The greatest portion of this
reduction was in personnel costs (including benefits and overheads)
and consultants' costs associated with service contracts.
Costs associated with new client development for fiscal 1999
(principally personnel costs, including benefits and overheads)
were approximately $23,000 (3%) lower than for fiscal 1998. The
Company had fewer employees in fiscal 1999 than it had in fiscal
1998.
General and administration expenses in fiscal 1999 were
approximately $473,000 (29%) lower than in fiscal 1998. The
Company had fewer employees and lower consultants' fees and
expenses; however, these reductions were partially offset by higher
shareholders' expenses (including public and investor relations
services).
Restructuring charges of $70,000 in fiscal 1999 related to the
costs of closing the Company's Bethlehem, Pennsylvania, office and
other staff reductions made in August and September 1998.
Additionally, charges of $75,000 in fiscal 1998 related to the
costs of closing the Company's office in Cleveland, Ohio.
Management took both of these actions to reduce operating expenses
and improve operating efficiency. In fiscal 1998, the Company
accrued contract settlement expenses of $300,000 for the estimated
costs of settling the remainder of its former president and chief
executive officer's employment contract.
Interest income in fiscal 1999 was higher than for fiscal 1998.
The Company's average invested balance was approximately 29% higher
but its weighted average interest rate was approximately 0.8% per
annum lower than for fiscal 1998. Interest expense in fiscal 1999
and 1998 related to the debt incurred in acquiring USET.
Other income for fiscal 1998 included approximately $18,000
gain realized from available-for-sale securities.
Other expenses for fiscal 1999 and 1998 were legal expenses
incurred in connection with a lawsuit brought against CTT, some of
its subsidiaries and directors. This suit is more fully detailed
in Note 13 to Consolidated Financial Statements. Unilens Corp. USA
made no payments in either fiscal year.
Minority interest in the losses of subsidiaries in 1999 and
1998 was VVI's minority shareholders' additional interest in its
losses.
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, 2000, and
other factors that may be described in the Company's filings with
the Securities and Exchange Commission, and are subject to change
at any time. The Company's actual results could differ materially
from these forward-looking statements. The Company undertakes no
obligation to update publicly any forward-looking statement.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
Page
Report of Independent Accountants 26
Consolidated Balance Sheets 27-28
Consolidated Statements of Operations 29
Consolidated Statements of Changes
in Shareholders' Interest 30
Consolidated Statements of Cash Flows 31-32
Notes to Consolidated Financial Statements 33-49
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Competitive Technologies, Inc.:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the
financial position of Competitive Technologies, Inc. and its
Subsidiaries (the "Company") at July 31, 2000 and July 31, 1999,
and the results of their operations and their cash flows for each
of the three years in the period ended July 31, 2000, 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
September 28, 2000
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 2000 and 1999
2000 1999
ASSETS
Current assets:
Cash and cash equivalents $ 1,716,375 $ 908,514
Short-term investments 5,000,054 4,589,972
Available-for-sale securities -- 39,581
Receivables, including $9,925 and $2,449
receivable from related parties in
2000 and 1999, respectively 2,420,180 1,726,046
Prepaid expenses and other current assets 149,483 143,171
Total current assets 9,286,092 7,407,284
Property and equipment, at cost, net 115,518 155,089
Investments, at cost 1,525,685 91,307
Intangible assets acquired, principally
licenses and patented technologies, net
of accumulated amortization of $626,477
and $487,806 in 2000 and 1999,
respectively 1,166,670 1,305,341
TOTAL ASSETS $12,093,965 $8,959,021
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 2000 and 1999
(Continued)
2000 1999
LIABILITIES AND SHAREHOLDERS' INTEREST
Current liabilities:
Accounts payable $ 65,443 $ 109,986
Accrued liabilities, including $5,938
payable to related parties in 1999 2,100,410 1,668,749
Total current liabilities 2,165,853 1,778,735
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 and
6,003,193 shares issued in 2000
and 1999, respectively; and
6,190,785 and 6,003,112 shares
outstanding in 2000 and 1999,
respectively 61,907 60,032
Capital in excess of par value 27,053,542 25,625,072
Treasury stock (common), at cost;
81 shares in 1999 -- (919)
Accumulated other comprehensive loss -- (15,625)
Accumulated deficit (17,248,012) (18,548,949)
Total shareholders' interest 9,928,112 7,180,286
TOTAL LIABILITIES AND SHAREHOLDERS'
INTEREST $ 12,093,965 $ 8,959,021
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended July 31, 2000, 1999 and 1998
2000 1999 1998
Revenues:
Retained royalties $ 3,202,194 $ 3,463,176 $ 2,400,534
Retained royalty settlement 736,375 -- --
Revenues under service contracts
and grants, including $9,925,
$4,947 and $101,281 from
related parties in 2000, 1999
and 1998, respectively 174,298 176,148 211,300
4,112,867 3,639,324 2,611,834
Costs of technology management
services 2,037,216 2,014,572 2,087,234
General and administration expenses,
of which $132,806, $4,800 and
$6,504 were paid to related parties
in 2000, 1999 and 1998,
respectively 1,301,613 1,133,219 1,606,503
Contract settlement expense -- -- 300,000
Restructuring charges -- 70,000 --
3,338,829 3,217,791 3,993,737
Operating income (loss) 774,038 421,533 (1,381,903)
Gain on sale of investment
in NovaNET Learning, Inc. -- 2,313,227 --
Interest income 373,207 190,272 170,051
Interest expense -- (3,607) (37,688)
Income (loss) related to
equity method affiliates, net -- (748) 182
Other income (expense), net 90,234 (41,337) (8,852)
Income (loss) before minority
interest 1,237,479 2,879,340 (1,258,210)
Minority interest in losses of
subsidiary 63,458 40,044 22,721
Net income (loss) 1,300,937 2,919,384 (1,235,489)
Other comprehensive income (loss):
Net unrealized holding gains
(losses) on available-for-
sale securities 105,863 6,249 (11,194)
Reclassification adjustment for
realized gains included in
net income (loss) (90,238) -- (18,482)
Comprehensive income (loss) $ 1,316,562 $ 2,925,633 $(1,265,165)
Net income (loss) per share:
Basic and diluted $ 0.21 $ 0.49 $ (0.21)
Weighted average number of common
shares outstanding:
Basic 6,079,211 5,982,112 5,969,434
Diluted 6,187,407 6,009,701 5,969,434
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Interest
For the years ended July 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - July 31, 1997 2,427 $60,675 5,951,829 $59,518 $25,218,106 (15,346) $ (98,511) $ 7,802 $(20,232,844)
Exercise of common
stock options. . . . 33,358 333 243,684 (6,438) (73,033)
Exercise of common
stock warrants . . . 6,000 61 28,265
Stock issued under
1996 Directors'
Stock Participation
Plan . . . . . . . . 12,006 120 101,130
Stock issued under
Employees' Common
Stock Retirement
Plan . . . . . . . . 24,423 11,594 75,576
Grant of warrants
to consultants . . . 22,273
Other comprehensive income:
Net change in un-
realized holding
gains (losses) on
available-for-sale
securities . . . . (29,676)
Net loss . . . . . . . (1,235,489)
Balance - July 31, 1998 2,427 60,675 6,003,193 60,032 25,637,881 (10,190) (95,968) (21,874) (21,468,333)
Exercise of common
stock options. . . . (48) 11,500 48,578
Stock issued under
1996 Directors'
Stock Participation
Plan . . . . . . . . (2,370) 7,500 38,697
Stock issued to
directors. . . . . . (20,313) 3,125 35,450
Stock issued under
Employees' Common
Stock Retirement
Plan . . . . . . . . (1,818) 13,384 81,704
Grant of warrants
to consultants . . . 11,740
Other comprehensive income:
Net change in un-
realized holding
gains (losses) on
available-for-sale
securities . . . . 6,249
Purchase of treasury
stock. . . . . . . . (25,400) (109,380)
Net income . . . . . . 2,919,384
Balance - July 31, 1999 2,427 60,675 6,003,193 60,032 25,625,072 (81) (919) (15,625) (18,548,949)
Exercise of common
stock options. . . . 187,425 1,873 1,462,744 43,598 254,856
Tender of common stock
as payment for
exercise of common
stock options. . . . (7,599) (100,000)
Stock issued under
1996 Directors'
Stock Participation
Plan . . . . . . . . (6,004) 9,375 55,340
Stock issued under
Employees' Common
Stock Retirement
Plan . . . . . . . . 167 2 (28,270) 4,107 67,268
Other comprehensive income:
Net change in un-
realized holding
gains (losses) on
available-for-sale
securities. . . . . 15,625
Purchase of treasury
stock . . . . . . . . (49,400) (276,545)
Net income. . . . . . . 1,300,937
Balance - July 31, 2000 2,427 $60,675 6,190,785 $61,907 $27,053,542 -- $ -- $ -- $(17,248,012)
</TABLE>
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended July 31, 2000, 1999 and 1998
2000 1999 1998
Cash flow from operating
activities:
Net income (loss) $ 1,300,937 $ 2,919,384 $(1,235,489)
Noncash items included in
net income (loss):
Retained royalty settlement
paid with shares of NTRU
common stock (736,375) -- --
Depreciation and
amortization 209,225 201,277 233,657
Equity method affiliates -- 748 (182)
Minority interest (63,458) (40,044) (22,721)
Directors' stock and
stock retirement plan
accruals 97,085 140,101 175,004
Contract settlement accrual -- -- 300,000
Amortization of discount
on purchase obligation -- 3,607 37,688
Other noncash items 63,458 51,784 11,872
Gain on sale of investments (90,503) (2,313,227) --
Other 3 21 (11,994)
Net changes in various
operating accounts:
Receivables (694,134) (184,109) (87,902)
Prepaid expenses and other
current assets (6,312) (3,391) (24,243)
Accounts payable and
accrued liabilities 378,369 (150,068) 139,275
Net cash flow from
operating activities 458,295 626,083 (485,035)
(continued)
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended July 31, 2000, 1999 and 1998
(Continued)
2000 1999 1998
Cash flow from investing
activities:
Purchases of property and
equipment, net (30,983) (46,480) (24,433)
Investments in cost-method
affiliates (698,006) -- --
Proceeds from sales of:
Available-for-sale securities 145,444 -- 1,500,000
Other short-term investments 265 --
Purchases of short-term
investments (410,082) (3,612,606) (861,213)
Proceeds from sales of
investments in:
NovaNET Learning, Inc. -- 2,472,602 --
Equine Biodiagnostics, Inc. -- 198,850 --
Investments in affiliates and
subsidiaries, net -- 7,988 (13,674)
Net cash flow from
investing activities (993,362) (979,646) 600,680
Cash flow from financing
activities:
Proceeds from exercise of
stock options and warrants 1,619,473 48,530 199,310
Purchases of treasury stock (276,545) (109,380) --
Repayment of purchase
obligation -- (300,993) (550,567)
Net cash flow from financing
activities 1,342,928 (361,843) (351,257)
Net increase (decrease) in cash
and cash equivalents 807,861 (715,406) (235,612)
Cash and cash equivalents,
beginning of year 908,514 1,623,920 1,859,532
Cash and cash equivalents, end
of year $ 1,716,375 $ 908,514 $ 1,623,920
See accompanying notes
COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. 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., Competitive Technologies of Ohio, Inc. (CTT-OH), University
Optical Products Co. (UOP), Genetic Technology Management, Inc. (GTM)
and Vector Vision, Inc. (VVI). Prior to fiscal 2000, CTT's majority-
owned subsidiaries also included University Science, Engineering and
Technology, Inc. (USET) and Competitive Technologies of PA, Inc. (CTT-
PA). USET and CTT-PA were dissolved effective July 31, 1999 and CTT
assumed their operations, assets and obligations. These changes do not
affect the consolidated results of operations. Intercompany accounts
and transactions have been eliminated in consolidation.
Business
The Company provides technology development and commercialization
services with respect to a broad range of digital/electronic, life
sciences and physical sciences technologies originally invented by
various individuals, corporations, federal agencies and laboratories and
universities. These services include technical evaluations, patent and
market assessments, patent application and prosecution, patent
enforcement, licensing, license management and royalty distribution.
The Company seeks to maximize returns on research, development and
patent investments (intellectual property assets) by selling, licensing
or otherwise transferring innovations to others, or when appropriate, by
investing in new entities to commercialize them.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassifications
Certain accounts have been reclassified to conform with the
presentation in financial statements for fiscal 2000.
Royalty Revenues
The Company's technology license agreements generally include up-
front license issue fees, minimum annual license fees and royalties
based on the licensees' sales of licensed products. The Company's
technology license agreements infrequently include terms that provide
for milestone payments and/or up-front paid-up license fees. The
Company includes all of these fees and royalties in retained royalty
revenues. The Company's license agreements provide that licensees
report and pay royalties within 30, 60 (usually) or 90 days of the end
of the royalty reporting period. When the Company agrees to a
technology license, the Company usually does not agree to any continuing
obligations on its part. Up-front license issue fees and minimum annual
license fees are nonrefundable.
The Company recognizes revenue on up-front license issue fees and
up-front paid-up license fees when both (a) the license agreement is
effective and (b) the Company has received the up-front license fees.
Because the Company cannot be certain that it will collect minimum
annual license fees, it recognizes revenue on minimum annual license
fees when it receives them. Although the Company has infrequently
agreed to milestone payments in its license agreements, because they are
contingent on the licensee's acceptance of completed performance, the
Company recognizes royalty revenue when both (a) no contingencies remain
and (b) it has received the milestone payment.
Before receiving its licensees' royalty reports, the Company is
unable to estimate their royalties on sales of licensed products.
Therefore, for royalties earned on licensees' sales, the Company accrues
royalty revenue (and the related royalty receivable and royalty payable)
based on royalty reports and/or payments it receives from its licensees
relating to the period being reported. The Company does not provide an
allowance for uncollectible royalties.
Revenues under Service Contracts and Grants
For fixed-price or fixed-rate contracts for technology development,
licensing or other commercialization services, the Company recognizes
revenues under service contracts in the period it provides the
contractual services based on the percentage of completion.
The Company recognizes grant revenues, which are nonrefundable
except under certain conditions (see Note 13), in the period grant funds
are earned under the terms of the grant.
Expenses
The Company charges its expenditures in connection with evaluating
inventions, patenting inventions, licensing inventions and enforcing
intellectual property rights to operations in the period they are
incurred. Costs of technology management services include direct costs
associated with technology development and commercialization services
and personnel costs (including benefits and overhead expenses).
Cash Equivalents and Short-Term Investments
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.
Property and Equipment
The costs of depreciable assets are charged to operations on a
straight-line basis over their estimated useful lives (3 to 5 years for
equipment) or the terms of the related lease for leasehold improvements.
The cost and related accumulated depreciation of property and equipment
are removed from the accounts upon retirement or other disposition; any
resulting gain or loss is reflected in earnings.
Intangible Assets Acquired
Intangible assets acquired in connection with an acquisition
comprise principally licenses and patented technologies recorded at
their estimated fair value at acquisition on January 31, 1996. That
value is amortized on a straight-line basis over their estimated
remaining lives (approximately 13 years from the date acquired).
Income Taxes
Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each balance sheet
date based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Provision for income
taxes is the tax payable for the year and the change during the year in
deferred tax assets and liabilities.
Investment tax credits are accounted for using the flow-through
method.
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. The Company charges operations for the fair value of stock
options or other equity instruments issued to nonemployee providers of
goods and services in the period they provide goods or services.
Impairment of Long-lived Assets
The Company reviews long-lived and intangible assets for impairment
whenever 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, an impairment loss is recognized based on the fair value of the
asset.
Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes, net of tax, in
shareholders' interest that result from recognized transactions and
other economic events of the period other than transactions of
shareholders in their capacities as shareholders.
Segment Information
The Company operates in a single reportable segment determined on
the basis management uses to make operating decisions and assess
performance.
Future Impact of Adopting Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." In June 1999, it issued Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." In June 2000, it issued
Statement No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities - An Amendment of Statement No. 133." These
Statements establish accounting and reporting standards for derivative
instruments, including those embedded in other contracts, and hedging
activities. The Company will adopt these Statements on August 1, 2001.
The Company has not invested in derivative instruments or engaged in
hedging activities and therefore does not expect adoption to have a
material effect on its financial statements.
In December 1999, the staff of the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101). The SAB summarizes
certain of the Staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. In June
2000, the staff of the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101B, "Second Amendment: Revenue Recognition in
Financial Statements." This amendment provides additional time to
implement SAB 101. SAB 101 as amended requires companies to analyze
their revenue recognition policies for compliance with generally
accepted accounting principles summarized in SAB 101 no later than the
fourth quarter of fiscal years beginning after December 15, 1999. The
Company is in the process of assessing the impact of SAB 101 on its
financial condition and results of operations.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation - An Interpretation of Accounting Principles Board
Opinion No. 25." This Interpretation clarifies the definition of
employee for purposes of applying Opinion No. 25, the criteria for
determining whether a plan is compensatory or noncompensatory, the
accounting consequences of various modifications to terms of previously
fixed stock options or awards, and the accounting for an exchange of
stock compensation awards in a business combination. The new rules
generally increase situations where stock-based compensation results in
a compensation charge. This Interpretation is generally effective for
transactions occurring after July 1, 2000, but may apply to certain
transactions after December 15, 1998 or January 12, 2000. Although the
Interpretation may affect the terms and provisions of future option
grants, the Company does not expect adoption to have a material effect
on its financial statements.
2. INVESTMENTS
In March and July 2000, CTT acquired 3,172,881 shares,
approximately 10% of the outstanding equity, of NTRU Cryptosystems, Inc.
(NTRU) in exchange for reducing its royalty participation on NTRU's
sales of CTT licensed products and $198,006 in cash. CTT recorded the
exchange of a substantial portion of its royalty participation at the
estimated fair value of 2,945,500 shares of NTRU common stock, $0.25 per
share, as retained royalty settlement of $736,375. CTT has worked with
NTRU and its founders since 1997 and acquired its original royalty
interest in exchange for providing NTRU with custom incubation services,
including patent filing support, interim business management, technical
marketing, licensing and initial capital sourcing services. NTRU's
mathematicians and cryptographers developed a new generation of memory
efficient high speed public key encryption solutions. NTRU's stock is
not publicly traded and there is no quoted market price for its stock.
At July 31, 2000, CTT's carrying value for this investment was $934,381.
CTT accounts for this investment on the cost method.
In April 2000, CTT paid $500,000 cash 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 plans to
provide semiconductor packaging customers a one-stop-shop for flip-chip
technology, including design, prototype development, and volume
manufacturing of modules and boards. Micro-ASI's preferred and common
stock is not publicly traded and there is no quoted market price for its
stock. At July 31, 2000, CTT carried this investment (approximately 2%
of Micro-ASI's outstanding share capital) at $500,000 on the cost
method.
Effective May 28, 1999, CTT sold its 14.5% interest in NovaNET
Learning, Inc. (NLI) for $2,472,602 in cash in connection with NLI's
acquisition by National Computer Systems, Inc. From February 15, 1995
through May 28, 1999, CTT accounted for its $159,375 investment in NLI
under the cost method. CTT recognized a gain of $2,313,227 in its
fiscal quarter ended July 31, 1999. Capital loss carryforwards
sheltered the gain from Federal and state income taxes.
At July 31, 1998, CTT owned 37.5% of the outstanding common stock of
Equine Biodiagnostics, Inc. (EBI) and accounted for its investment in
EBI on the equity method. EBI stock is not publicly traded and there is
no quoted market price for its stock. During fiscal 1999, CTT sold its
investment in EBI for $198,850 in cash. This selling price was also
CTT's carrying value for this investment. No gain or loss was
recognized on the sale.
CTT's 13.3% voting interest in Innovation Partners International,
k.k. (IPI) is accounted for under the cost method. IPI stock is not
publicly traded and there is no quoted market price for its stock.
3. RECEIVABLES
Receivables were:
July 31, July 31,
2000 1999
Royalties $2,347,176 $1,649,713
Other 73,004 76,333
$2,420,180 $1,726,046
4. AVAILABLE-FOR-SALE SECURITIES
The components of the Company's available-for-sale securities were
as follows:
Gross Gross
Aggregate Unrealized Unrealized
Security Type Fair Value Holding Gains Holding Losses Cost Basis
At July 31, 1999
Equity
Securities $39,581 $ -- $15,625 $55,206
For the years ended July 31, 2000 and 1998, respectively, proceeds
from the sale of available-for-sale securities were $145,444 and
$1,500,000 which resulted in gross realized gains of $90,238 in 2000 and
$18,482 in 1998. The Company computes realized gains based on specific
identification.
Because the Company has capital loss carryforwards, no tax effect is
reported on the Company's unrealized gains on securities reported in
other comprehensive income (loss).
5. PROPERTY AND EQUIPMENT
Property and equipment were:
July 31, July 31,
2000 1999
Equipment and furnishings, at cost $ 228,326 $ 263,960
Leasehold improvements, at cost 59,860 55,196
288,186 319,156
Accumulated depreciation
and amortization (172,668) (164,067)
$ 115,518 $ 155,089
Depreciation expense was $70,554, $62,605 and $81,516 in 2000, 1999
and 1998, respectively.
6. ACCRUED LIABILITIES
Accrued liabilities were:
July 31, July 31,
2000 1999
Royalties payable $1,780,988 $1,072,704
Accrued compensation 147,766 172,587
Deferred revenues 10,521 153,741
Other 161,135 269,717
$2,100,410 $1,668,749
7. INCOME TAXES
The income tax provisions for 2000, 1999 and 1998 have been offset
by utilizing operating and capital loss carryforwards. Prior years' loss
carryforwards were previously offset by a valuation allowance.
Components of the Company's net deferred tax assets (in thousands)
were:
July 31, July 31,
2000 1999
Net operating loss carryforwards $ 4,483 $ 5,584
Net capital loss carryforwards 331 368
Installment receivable from
sale of discontinued operation 1,449 1,410
Other, net (185) (271)
Net deferred tax assets 6,078 7,091
Valuation allowance (6,078) (7,091)
Net deferred tax asset $ -- $ --
At July 31, 2000, the Company had Federal net operating loss
carryforwards of approximately $13,185,000, which expire from 2001
through 2013 ($4,343,000 in 2001, $4,371,000 in 2002, $157,000 in 2004
and $57,000 in 2005).
Changes in the valuation allowance (in thousands) were:
2000 1999 1998
Balance, beginning of year $ 7,091 $ 8,236 $ 8,461
Charged to costs and expenses 325 7 468
Credited to costs and expenses (1,338) (1,152) (693)
Balance, end of year $ 6,078 $ 7,091 $ 8,236
Amounts charged to costs and expenses offset corresponding deferred tax
asset increases. Amounts credited to costs and expenses result from
deferred tax asset reductions, including utilizing and expiring net
operating and capital losses. 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.
8. SHAREHOLDERS' INTEREST
Preferred Stock
Dividends on preferred stock are noncumulative and preferred stock
is redeemable at par value at CTT's option.
Stock-based Compensation Plans
At July 31, 2000, CTT had stock-based compensation plans which are
described below. The Company applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for its 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 that has been 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 employee 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,
2000 1999 1998
Net income (loss) As reported $1,300,937 $2,919,384 $(1,235,489)
Pro forma $ 707,572 $2,784,168 $(1,305,996)
Basic
earnings As reported $ 0.21 $ 0.49 $ (0.21)
per share Pro forma $ 0.12 $ 0.46 $ (0.22)
Fully diluted
earnings per As reported $ 0.21 $ 0.49 $ (0.21)
share Pro forma $ 0.11 $ 0.46 $ (0.22)
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,
2000 1999 1998
Dividend yield 0.0% 0.0% 0.0%
Expected volatility 62.1% 51.0% 42.1%
Risk-free interest rates 5.9% 4.9% 6.0%
Expected lives 3 years 4 years 4 years
The pro forma information above may not be representative of pro
forma fair value compensation effects in future years.
Employee Stock Option Plans
CTT has a stock option plan which expires December 31, 2000. Under
this plan both incentive stock options and nonqualified stock options
may be granted to key employees. Incentive stock options may be granted
at an exercise price not less than the fair market value of the optioned
stock on the grant date. Nonqualified stock options may be granted at
an exercise price not less than 85% of the fair market value of the
optioned stock on the grant date. Options generally vest over a period
of up to three years after the grant date and expire ten years after the
grant date if not terminated earlier. For nonqualified stock options,
the difference between the exercise price and the fair market value of
the optioned stock on the grant date, if any, is charged to expense over
the term of the option. Stock appreciation rights may be granted either
at the time an option is granted or any time thereafter. There are no
stock appreciation rights outstanding. The following information
relates to the stock option plan which expires December 31, 2000.
July 31, July 31,
2000 1999
Common shares reserved for
issuance on exercise of options 372,088 547,888
Shares available for future
option grants 45,096 43,346
On March 31, 1998, shareholders approved the 1997 Employees' Stock
Option Plan. Options granted under this plan may be either incentive
stock options or nonstatutory options at an option price of 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,
2000 1999
Common shares reserved for
issuance on exercise of options 225,777 275,000
Shares available for future
option grants 143,752 225,000
2000 Directors Stock Option Plan
On January 27, 2000, shareholders approved the 2000 Directors Stock
Option Plan. Options granted under this plan are nonstatutory options
granted at an option price equal to 100% of the fair market value of the
stock at grant date. The maximum term of any option under the 2000
option plan is ten years from the grant date. No options may be granted
after January 1, 2010. The following information relates to the 2000
Directors Stock Option Plan.
July 31,
2000
Common shares reserved for
issuance on exercise of options 244,000
Shares available for future
option grants 190,000
1996 Directors' Stock Participation Plan
Under the terms of the 1996 Directors' Stock Participation Plan
which expires January 2, 2006, on the first business day of January each
year, CTT shall issue to each outside director who has been elected by
shareholders and served at least one year as a director the lesser of
2,500 shares of CTT's common stock or shares of CTT's common stock equal
to $15,000 on the date such shares are issued. Should an eligible
director terminate as a director before January 2, CTT shall issue such
director a number of shares equal to the proportion of the year served
by that director.
In 2000, 1999 and 1998, CTT issued 9,375, 7,500 and 12,006 shares
of common stock, respectively, to eligible directors. In 1999, 3,125
additional shares were issued to two directors outside the 1996
Directors' Stock Participation Plan. In 2000, 1999 and 1998, CTT
charged to expense $58,085, $45,078 and $75,000, respectively, over the
directors' respective periods of service. The following information
relates to the 1996 Directors' Stock Participation Plan.
July 31, July 31,
2000 1999
Common shares reserved for
future share issuances 65,119 74,494
Common Stock Warrants
From time to time CTT compensates certain of its consultants in
part by granting them warrants to purchase shares of its common stock.
Such warrants generally become exercisable six months after issuance.
In 1999 and 1998, CTT charged to expense the fair value of warrants to
purchase 3,000 and 11,500 shares of its common stock, respectively,
totaling $11,740 and $22,273, respectively. Information about CTT's
common stock warrants outstanding as of July 31, 2000 is presented
below.
Number Warrant Aggregate
of Price per Exercise Expiration
Issued Shares Share Price Date
September 1996 3,000 $ 9.875 $ 29,625 September 2001
August 1997 2,500 $11.094 $ 27,735 August 2002
November 1997 6,000 $ 9.000 $ 54,000 October 2000
May 1998 3,000 $ 9.000 $ 27,000 April 2001
August 1998 3,000 $ 9.000 $ 27,000 July 2001
17,500 $165,360
Summary of Common Stock Options and Warrants
A summary of the status of all CTT's common stock options and
warrants as of July 31, 2000, 1999 and 1998, and changes during the
years then ended is presented below.
For the years ended July 31,
2000 1999 1998
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding,
beginning
of year 584,042 $ 8.38 506,542 $ 9.43 494,900 $ 9.05
Granted 239,500 $ 6.54 127,000 $ 4.33 146,000 $10.77
Forfeited (44,000) $ 6.82 -- $ -- (39,000) $11.09
Exercised (231,023) $ 6.94 (11,500) $ 4.22 (39,358) $ 6.20
Expired or
Terminated (68,002) $ 9.19 (38,000) $ 9.97 (56,000) $10.10
Outstanding,
end of year 480,517 $ 8.19 584,042 $ 8.38 506,542 $ 9.43
Exercisable
at year-end 397,567 $ 8.42 479,667 $ 8.69 408,042 $ 9.11
Weighted-average
fair value of
grants during
the year $ 2.12 $ 1.70 $ 3.02
The following table summarizes information about all common stock
options and warrants outstanding at July 31, 2000.
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
$ 4.22-$ 9.875 383,017 5.86 years $ 7.42 311,317 $ 7.65
$11.06-$11.875 97,500 3.74 years $11.19 86,250 $11.20
Employees' Common Stock Retirement Plan
Effective August 1, 1990, CTT adopted an Employees' Common Stock
Retirement Plan. Under the terms of this Plan, a committee of outside
directors annually recommends for full Board approval a contribution of
shares of CTT's common stock to the Plan. For the fiscal years ended
July 31, 2000, 1999 and 1998, the Board authorized contributions of
4,274, 13,384 and 11,594 shares, respectively, valued at approximately
$39,000, $79,900 and $100,000, respectively, based on year-end closing
prices. CTT charged these amounts to expense in 2000, 1999 and 1998,
respectively.
9. STOCK REPURCHASE PLAN
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
49,400 shares of its common stock for $276,545 in cash in 2000 and
25,400 shares of its common stock for $109,380 in cash in 1999. CTT
reissued repurchased shares as reported in Consolidated Statement of
Changes in Shareholders' Interest.
10. 401(k) PLAN
Effective January 1, 1997, the Company established a 401(k) defined
contribution plan for all employees meeting certain service
requirements. Eligible employees may contribute up to 15% of their
annual compensation to this plan limited to an amount specified by the
Internal Revenue Service each year ($10,500 for 2000; $10,000 for 1999
and 1998). The Company may also make discretionary matching
contributions. During the years ended July 31, 2000, 1999 and 1998, the
Company made no matching contributions.
11. 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 $1,363,000 (35% of retained royalties and 33% of
total revenues) in 2000 was from several licenses of the gallium
arsenide patents. These patents include a laser diode technology used
in optoelectronic storage devices and another technology that improves
semiconductor operating characteristics. Approximately $992,000 of this
total was from one U.S. licensee's sales of licensed product during the
year. The remaining $371,000 was from several foreign licensees and
included license issue fees from executing two new licenses. The U.S.
patents for these technologies expire between May 2001 and September
2006.
In 2000 CTT recognized a retained royalty settlement of $736,375
(19% of retained royalties and 18% of total revenues) for the estimated
fair value of the royalty participation it exchanged for 2,945,500
shares of common stock of NTRU valued at $0.25 per share. In addition,
CTT retained a small royalty participation in NTRU's sales of CTT
licensed products. Retained royalties in 1999 included $661,500 (19% of
retained royalties and 18% of total revenues) from a paid-up, non-
exclusive, worldwide, field-of-use limited license granted to an
unrelated foreign corporation in November 1998 on an encryption
technology. All performance milestones agreed in the license were met
during fiscal 1999 and the licensee paid all the agreed milestone
payments.
Approximately $381,000 (10% of retained royalties and 9% of total
revenues) in 2000 was from several licenses of the Vitamin B12 assay.
Certain of these licensed patents expired in April 1998, April 1999 and
February 2000. The remaining Vitamin B12 assay licenses are expected to
expire in May 2001.
Retained royalties for 2000, 1999 and 1998, include $534,880,
$1,094,415 and $192,433, respectively, from foreign licensees. These
fiscal 2000 foreign royalties include the $371,000 from the gallium
arsenide portfolio noted above and the 1999 foreign royalties include
the $661,500 from the paid-up license of the encryption technology noted
above.
12. 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,
2000 1999 1998
Net income (loss)
applicable to common stock:
Basic and diluted: $1,300,937 $2,919,384 $(1,235,489)
Weighted average number of common
shares outstanding 6,079,211 5,982,112 5,969,434
Effect of dilutive securities:
Stock options 106,022 27,589 --
Stock warrants 2,174 -- --
Weighted average number of common
shares outstanding and dilutive
securities 6,187,407 6,009,701 5,969,434
Net income (loss) per
share of common stock:
Basic and diluted $ 0.21 $ 0.49 $ (0.21)
At July 31, 2000, 1999 and 1998, respectively, options and warrants
to purchase 97,500, 449,042 and 506,542 shares of common stock were
outstanding but were not included in the computation of earnings per
share because they were anti-dilutive.
13. COMMITMENTS AND CONTINGENCIES
Operating Leases
In November 1996, CTT relocated its principal executive office to
Fairfield, Connecticut under a lease which expires December 31, 2001.
CTT has an option to renew the lease for an additional five years.
At July 31, 2000, 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:
2001 $207,240
2002 89,115
2003 4,740
2004 4,740
2005 4,345
Total minimum payments
required $310,180
Total rental expense for all operating leases was:
For the years ended July 31,
2000 1999 1998
Minimum rentals $ 212,425 $ 195,602 $ 219,265
Less: Sublease rentals (27,870) (29,356) (25,323)
$ 184,555 $ 166,246 $ 193,942
Contract Settlement Obligation
The Company's former President and Chief Executive Officer, whose
employment contract ran through July 31, 1999, resigned his employment
with the Company to pursue other opportunities. In connection with his
resignation, the Company accrued contract settlement costs of $300,000
in the fourth quarter of fiscal 1998. The Company paid all settlement
costs, totaling $298,000, during the year ended July 31, 1999.
Other Obligations
The Company has an employment contract with one of its officers
from December 1999 through December 2002 with aggregate minimum
compensation of $185,000 per year.
CTT and VVI have contingent obligations to repay up to $209,067 and
$224,127, respectively, (three times total grant funds received) in
consideration of grant funding received in 1994 and 1995. CTT is
obligated to pay at the rate of 7.5% of its revenues, if any, from
transferring rights to inventions supported by the grant funds. VVI is
obligated to pay at rates of 1.5% of its net sales of supported products
or 15% of its revenues from licensing supported products, if any. These
obligations are recognized when any such revenues are recognized.
During fiscal 2000 and 1999, CTT charged $2,733 and $3,188 in related
royalty expenses to operations. No other such expenses were charged in
any prior years. CTT's and VVI's remaining contingent obligations were
$203,146 and $224,127, respectively, at July 31, 2000.
In connection with Renova litigation settled in June 1992, CTT
incurred approximately $67,000 of contingent legal fees. CTT agreed to
pay one-half of proceeds received from settlement of the related
litigation, if any, to a limit of three times the contingent fees
incurred (approximately $202,000). Through July 31, 2000, CTT had paid
cumulative contingent legal fees of $200,047, of which $33,629, $44,098
and $45,494 were charged to operations in 2000, 1999 and 1998,
respectively.
Litigation
On May 4, 1999, Metabolite Laboratories, Inc. (MLI) and CTT
(collectively plaintiffs) filed a complaint and jury demand against
Laboratory Corporation of America Holdings d/b/a LabCorp (LabCorp)
in the United States District Court for the District of Colorado. The
complaint alleges, among other things, that LabCorp owes plaintiffs
royalties for homocysteine assays performed during and since the summer
of 1998 using methods and materials falling within the claims of a
patent owned by CTT. CTT licensed the patent non-exclusively to MLI and
MLI sublicensed it to LabCorp. Plaintiffs claim LabCorp's actions
constitute breach of contract and patent infringement. Their claim
seeks an injunction ordering LabCorp to perform all its obligations
under its agreement, to cure past breaches, to provide an accounting of
wrongfully withheld royalties and to refrain from infringing the patent.
Plaintiffs also seek unspecified money and exemplary damages and
attorneys' fees, among other things. LabCorp has filed an answer and
counterclaims alleging noninfringement, patent invalidity and patent
misuse. Discovery has been completed. Trial is scheduled to begin in
April 2001. Through July 31, 2000, CTT had incurred approximately
$78,000 in unreimbursed litigation expenses related to this case. CTT
is unable to estimate the related legal expenses it may incur in this
suit and has recorded no revenue for these withheld royalties.
The University of Colorado Foundation, Inc., the University of
Colorado, the Board of Regents of the University of Colorado, Robert H.
Allen and Paul A. Seligman, plaintiffs, previously filed a lawsuit
against American Cyanamid Company, defendant, in the United States
District Court for the District of Colorado. This case involved a
patent for an improved formulation of MaternaT, a prenatal vitamin
compound sold by defendant. While the Company was not and is not a
party to this case, the Company had a contract with the University of
Colorado to license University of Colorado inventions to third parties.
As a result of this contract, the Company is entitled to share
approximately 18% of damages awarded to the University of Colorado, if
any, after deducting the expenses of this suit. On November 19, 1999,
the United States Court of Appeals for the Federal Circuit vacated a
July 7, 1997 judgment by the District Court in favor of plaintiffs for
approximately $44 million and remanded the case to the District Court
for further proceedings. On July 7, 2000, the District Court concluded
that Robert H. Allen and Paul A. Seligman were the sole inventors of the
reformulation of 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. The District Court also reopened all
issues of damages and ordered a retrial to determine the nature and
amount of damages to be paid by defendant. The damages retrial is
scheduled to begin in March 2001. The Company cannot predict the amount
of its share of the judgment, if any, which may ultimately be awarded.
The Company has recorded no potential judgment proceeds in its financial
statements to date.
In 1989 UOP, a majority-owned subsidiary of CTT which had developed
a computer-based system to manufacture specialty contact lenses,
intraocular lenses and other precision optical products, sold
substantially all its assets to Unilens Corp. USA (Unilens). The
proceeds of the sale included an installment obligation for $5,500,000
payable at a minimum of $250,000 per year beginning in January 1992.
Due to the uncertainty of the timing and amount of future cash flows,
income on the installment obligation is recorded net of related expenses
as the payments are received. Cash received in excess of the fair value
assigned to the original obligation is recorded as other income from
continuing operations. As cash proceeds are received, CTT records a 4%
commission expense payable to its joint venture partner, Optical
Associates, Limited Partnership (OALP). Unilens made no payments in
fiscal 2000, 1999 or 1998.
CTT recognized other expenses from continuing operations of $269,
$41,337 and $29,334, in 2000, 1999 and 1998, respectively, for legal
expenses related to the suit described in the following paragraph.
In November 1991, a lawsuit was filed in Connecticut against CTT,
its wholly-owned subsidiary, GTM, its majority-owned subsidiary, UOP,
and one current and several former directors on behalf of the 59 limited
partners of OALP. The complaint alleges, among other things, that the
January 1989 sale of UOP's assets to Unilens violated the partnership
agreement and that OALP is entitled to the full proceeds of the sale to
Unilens. The complaint claims, among other things, money damages and
treble and punitive damages in an unspecified amount and attorneys'
fees. The Company believes that the asserted claims are without merit
and intends to defend vigorously the action instituted by plaintiffs.
Hearings in the case have commenced before an attorney referee; further
hearings are scheduled for November 2000, at which time the Company
expects to file motions to dismiss this case. Through July 31, 2000,
the Company had received aggregate cash proceeds of approximately
$1,011,000 from the January 1989 sale of UOP's assets to Unilens.
14. RELATED PARTY TRANSACTIONS
During 2000, CTT incurred charges of approximately $133,000 for
consulting services (including expenses and taxes) provided by two
directors. CTT also earned approximately $10,000 performing services
for a company of which another director is president.
CTT earned approximately $5,000 and $101,000 in 1999 and 1998,
respectively, from contracts with Lehigh University, which then owned
20% of the outstanding common stock of CTT-PA.
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Company
The following table sets forth information with respect
to each director and executive officer according to the
information furnished the Company by him:
Name, Age and
Positions Currently Principal Occupation Director of the
Held with the Company During Past Five Company Since
Years; Other Public
Directorships
George C.J. Bigar, Professional December 1996
43, Director Investor.
Richard E. Carver, President and Chief January 2000
63, Director Executive Officer,
MST America (an
international
business strategies
consultancy) since
January 1995;
President and Chief
Executive Officer,
RPP America (a
company that sells
solid waste
wrapping systems)
since November
1998; President and
Chief Executive
Officer, Zeppelin
of North America (a
manufacturer of
spun metal parts
for space
applications -
shuttles,
satellites, launch
vehicles) from June
1994 to December
1995; President and
Chief Executive
Officer, ZF
Industries
(manufacturer of
driveline, steering
and suspension
components for
automobile and
machinery makers)
from May 1988 to
December 1994;
Chairman and Chief
Executive Officer,
Carver Lumber
Company (provider
of building
materials for new
home construction
and prefabrication)
from May 1988 to
December 1999.
George W. Dunbar, Chief Executive November 1999
Jr., 54, Director Officer, EPIC
Therapeutics, Inc. (a
drug delivery
technology company)
since September 2000;
Acting President and
Chief Executive
Officer of StemCells,
Inc. (previously
known as Cyto-
Therapeutics, Inc.)
since February 2000;
Acting President of
StemCells California,
Inc. (a wholly-owned
subsidiary of
StemCells, Inc.)
since November 1999
(companies developing
organ-specific, human
platform stem cell
technologies to treat
diseases); President
and Chief Executive
Officer, Metra
BioSystems, Inc. (a
developer of products
to detect and manage
bone and joint
diseases) from 1991
to August 1999.
Director of Quidel
Corporation, Sonus
Pharmaceuticals,
Inc., and LJL
BioSystems, Inc.
Samuel M. Fodale, 57, President, Central October 1998
Director Maintenance Services,
Inc. (a service and
warehousing
corporation serving
the automobile
industry).
Frank R. McPike, Jr., President and Chief February 1999
51, President, Chief Operating Officer of
Operating Officer, the Company since
Treasurer, Chief October 1998; Interim
Financial Officer and Chief Executive
Director Officer of the
Company from August
to October 1998;
Secretary of the
Company from August
1989 to February
1999; Treasurer of
the Company since
July 1988; Vice
President, Finance
and Chief Financial
Officer of the
Company since
December 1983;
Director of the
Company from July
1988 to March 1998
and since February
1999.
Charles J. Philippin, Chief Executive June 1999
50, Director Officer, On-Line
Retail Partners (a
provider of
management and
technology resources
for branded e-
commerce businesses)
since June 2000; a
member of the
management committee
of Investcorp
International, Inc.
(a global investment
group that acts as a
principal and
intermediary in
international
investment
transactions) from
July 1994 to May
2000. Director of
Jostens, Inc.
John M. Sabin, 46, General Counsel and December 1996
Director and Chairman Chief Financial
of the Board of Officer of
Directors NovaScreen
Biosciences
Corporation
(previously known
as Oceanix
Biosciences
Corporation) (a
developer of
biotechnology-based
tools to accelerate
drug discovery and
development) since
January 2000;
business consultant
from September 1999
to January 2000;
Executive Vice
President and Chief
Financial Officer,
Hudson Hotels
Corporation (a
limited service
hotel development
and management
company) May 1998
to September 1999;
Senior Vice
President and
Treasurer, Vistana,
Inc. (a developer
of vacation
timeshares)
February 1997 to
May 1998; Vice
President, Finance,
Choice Hotels
International,
Inc., October 1996
to February 1997;
Vice President-
Mergers and
Acquisitions,
Choice Hotels
International,
Inc., June 1995 to
October 1996; Vice
President-Finance
and Assistant
Treasurer, Manor
Care, Inc. and
Choice Hotels
International,
Inc., December 1993
to October 1996;
Vice President-
Corporate Mergers
and Acquisitions,
Marriott
Corporation, 1988
to December 1993.
Director of Cysive,
Inc.
The terms of all officers of the Company are until the first
meeting of the newly elected Board of Directors following the
forthcoming annual meeting of stockholders and until their
respective successors shall have been duly elected and shall have
qualified, subject to employment agreements. Mr. McPike has an
employment contract with the Company; this contract is described in
Item 11, Executive Compensation. There is no family relationship
between any director or executive officer of the Company.
Item 11. Executive Compensation
Summary Compensation
The following table summarizes the total compensation accrued,
earned or paid by the Company for services rendered during each of
the fiscal years ended July 31, 2000, 1999 and 1998 to the sole
person who served as an executive officer of the Company during the
fiscal year ended July 31, 2000 (the Specified Executive).
SUMMARY COMPENSATION TABLE
Annual Compensation (A)
Long Term
Compensation
Awards
______
Securities All Other
Name and Principal Fiscal Underlying Compensation
Position Year Salary ($) Bonus ($) Options (#) ($)
Frank R. McPike, Jr. 2000 184,039 25,000 100,000 17,174 (B)
President, Chief 1999 179,200 -- -- 16,422 (B)
Operating Officer 1998 167,000 -- 20,000 17,460 (B)
and Chief
Financial
Officer
(A) The aggregate amount of any perquisites or other personal
benefits was less than 10% of the total of annual salary and
bonus and is not included in the above table.
(B) Consists principally of amounts contributed for Mr. McPike to
Competitive Technologies, Inc.'s Employees' Common Stock
Retirement Plan. The Company contributed shares of its Common
Stock valued at the mean between its high and low prices on the
American Stock Exchange on July 31 of each year. Also includes
premiums paid for term life insurance policies (see below).
Option Grants
The following table summarizes the stock options granted by the
Company during the fiscal year ended July 31, 2000 to the Specified
Executive.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
<TABLE>
<CAPTION>
Percent Potential
Number of of Total Realizable
Securities Options Value at
Underlying Granted to Assumed Annual
Options Employees Exercise Rates of Stock
Granted in Fiscal Price Expiration Appreciation
Name (#)(1) Year ($/Sh) Date for Option Term
<S> <C> <C> <C> <C> <C> <C>
5% ($) 10% ($)
Frank R. McPike, Jr. 100,000 56% $5.5625 12/7/2009 $349,823 $886,519
</TABLE>
(1) Options vest according to the terms stated in Employment
Agreements below.
Option Exercises and Year End Value
For the Specified Executive, the following table summarizes stock
options exercised during the fiscal year ended July 31, 2000 and stock
options held at July 31, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Number of
Securities Value of
Underlying Unexercised
Shares Unexercised In-the-Money
Acquired Options Options at
On Value at FY-End (#) FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
Frank R. McPike, Jr. 17,975 $166,191 154,567/25,000 $748,547/$139,063
Employment Agreements
Effective December 7, 1999, the Company entered into an
employment agreement with Mr. McPike providing for his employment as
President and Chief Operating Officer for a three-year term and for
base compensation at a minimum rate of $185,000 per year, subject to
annual reviews and increases in the sole discretion of the Board of
Directors. The employment is at will and can be terminated by
either party at any time with or without cause. The agreement also
provides, among other things:
-- a procedure for annual renewals of the employment
term with continuation of pay for six months after non-
renewal unless non-renewal is for cause
-- severance payments of up to one year's base
compensation in certain circumstances
-- a period of non-competition covering the remainder of
the employment term plus six months in certain
circumstances.
The employment agreement also confirms ten-year stock options for
the purchase of 100,000 shares of the Company's Common Stock granted
to Mr. McPike on December 7, 1999 at a price of $5.5625 per share
and vesting as follows:
-- 25,000 options on grant date
-- 12,500 options one year from grant date
-- 12,500 options two years from grant date
-- 25,000 options nine years from grant date, subject to
acceleration of vesting if during the one-year period
following the grant date the average closing price of the
Company's Common Stock for 20 consecutive trading days is
$8.00 or higher (vested February 10, 2000)
-- 25,000 options nine years from grant date, subject to
acceleration of vesting if during the two-year period
following the grant date the average closing price of the
Company's Common Stock for 20 consecutive trading days is
$10.00 or higher (vested March 1, 2000).
Other Arrangements
The Company provides term life insurance for certain of its
officers. The policy amount in the event of death is $250,000 for
Mr. McPike. The Company paid premiums of $460 for Mr. McPike's
policy in each of 2000, 1999 and 1998.
Effective January 1, 1997, the Company established a 401-K
plan. Under the 401-K plan, an eligible employee may elect a salary
reduction up to 15% of his or her compensation as defined in the
plan to be contributed by the Company to the plan. Employee
contributions for any calendar year are limited to a specific dollar
amount determined by the Internal Revenue Service ($10,500 for 2000
and $10,000 for 1999). For fiscal 2000, the Company made no
matching contributions.
Effective August 1, 1990, the Company adopted the Competitive
Technologies, Inc. Employees' Common Stock Retirement Plan (the
Retirement Plan). The Retirement Plan is a qualified stock bonus
plan under the Internal Revenue Code. All employees of the Company
are eligible to participate in the Retirement Plan. Annually, a
committee of independent directors determines the number of shares
of the Company's Common Stock, if any, to be contributed to the
Retirement Plan. These shares are allocated among participants
employed on the last day of the year and who performed at least
1,000 hours of service during the year in proportion to their
relative compensation in a manner that is integrated with the
Company's Social Security contribution on behalf of employees; that
is, the contribution made with respect to compensation in excess of
the Social Security wage base generally will be twice as large in
proportionate terms as the contribution made with respect to
compensation below that wage base. The Company's contributions are
held in trust with a separate account established for each
participant.
The maximum amount of Company Common Stock that may be
contributed to the Retirement Plan in any year is the number of
shares with a fair market value equal to 15% of that year's
compensation reduced by the 401-K plan contributions made for
Retirement Plan participants, but in no event more than 1% of the
Company's outstanding shares at the end of the previous year. There
is no minimum or required contribution. The maximum number of
shares that can be allocated to any individual participant's account
in any year is the number of shares with a fair market value equal
to the lesser of $30,000 or 25% of his or her compensation for that
year reduced by his or her 401-K plan contributions.
Participants become entitled to distributions of the vested
shares allocated to their accounts upon disability, death or other
termination of employment. Participants obtain a 100% vested
interest in the shares allocated to their accounts upon completing 5
years of service with the Company. If the Retirement Plan becomes
top heavy as defined by the Internal Revenue Code, participants
become 20% vested after 2 years of service, 40% vested after 3 years
of service, 60% vested after 4 years of service, and 100% vested
after 5 years of service.
Company stock contributed to the Retirement Plan is held in the
custody of the Retirement Plan's trustee, Webster Trust in New
Britain, Connecticut. The trustee has the power to vote Company
shares owned by the Retirement Plan. For the fiscal years ended
July 31, 2000 and 1999, the Board authorized a contribution of 4,274
and 13,384 shares, respectively, to the Retirement Plan. Shares
allocated to Mr. McPike, the Company's sole executive officer at
July 31, 2000, under the Retirement Plan for the year ended July 31,
2000 were 1,268. See also Summary Compensation Table - "All Other
Compensation" for dollar values ascribed to contributions for Mr.
McPike.
The Company has an incentive compensation plan pursuant to
which an amount equal to 10% of operating income of the Company
(defined and adjusted as provided in said plan) shall be credited
each year to an incentive fund. A committee, none of whose members
is eligible to receive awards, makes cash awards to key employees of
the Company from the incentive fund. Amounts may be credited to the
incentive fund when the Company earns operating income (as defined
in said plan) for a fiscal year. In fiscal 2000 and 1999, the
Company credited $86,004 and $46,837, respectively, to this
incentive fund. No amounts were credited to this fund prior to
fiscal 1999. In October 1999, the Company paid $46,750 in incentive
bonuses to employees other than Mr. McPike.
The Company has in effect a Key Employees' Stock Option Plan
and a 1997 Employees' Stock Option Plan (the Option Plans) with
respect to its Common Stock, $.01 par value, which provide for
granting either incentive stock options under Section 422 of the
Internal Revenue Code or nonqualified options. (Incentive options
under both Option Plans and non-qualified options granted under the
1997 Employees' Stock Option Plan must be granted at not less than
100% of fair market value on the grant date. Nonqualified options
under the Key Employees' Stock Option Plan may be granted at not
less than 85% of fair market value on the grant date.) Stock
appreciation rights may also be granted under the Key Employees'
Stock Option Plan. In certain instances, stock options which are
vested or become vested upon the happening of an event or events
specified by the Company's Stock Option Committee, may continue to
be exercisable through up to 10 years after the date granted,
irrespective of the termination of the optionee's employment with
the Company.
Director Compensation
The Company pays each director who is not an employee of the
Company or a subsidiary $1,000 for each Board meeting attended. The
Company also pays each director $250 for attending each committee
meeting that coincides with a Board meeting and $500 for attending a
committee meeting that does not coincide with a Board meeting. The
Company pays directors who participate in telephonic board and/or
committee meetings one half the fee for attending such meetings.
The Company reimburses directors for out-of-pocket expenses incurred
to attend Board and committee meetings.
When a director of the Company represents the Company as a
director of an investee company, the Company pays the director for
attending investee board meetings the difference, if any, between
(a) the amount the investee company pays and (b) the amount the
Company pays for attendance at such meetings.
In addition to meeting fees, the Company pays outside directors
an annual cash retainer of $7,500 payable in quarterly installments.
In August 1999, the Board formed an executive committee with
Mr. Bigar as chairman and provided that the Company compensate him
at the rate of $8,000 per month due to the substantial commitment of
time to be required of Mr. Bigar as chairman. During fiscal 2000,
the Company paid Mr. Bigar $96,000 plus out-of-pocket expenses as
chairman of the executive committee.
During the five months from March through July 2000, the
Company paid Mr. Sabin a total of $20,000 ($4,000 per month) plus
out-of-pocket expenses for his assistance with three projects over
and above his normal duties as a director.
The Company has a 1996 Director's Stock Participation Plan.
Under this plan, on the first business day of January from January
1997 through January 2006, the Company issues to each non-employee
director who has been elected by the stockholders and has served at
least one full year a number of shares of the Company's Common Stock
equal to the lesser of (i) $15,000 divided by the per share fair
market value of such stock on the issuance date, or (ii) 2,500
shares. If a non-employee director were to leave the Board after
serving at least one full year but prior to the January issuance
date, the Company would pay the annual stock compensation described
above on a pro-rata basis up to the termination date. In January
2000, the Company issued an aggregate of 7,500 shares under this
plan (2,500 each to Messrs. Bigar, Fodale and Sabin). In September
1999, the Company issued 1,875 shares under this plan to Michael G.
Bolton, who resigned as a director effective September 30, 1999.
Effective January 27, 2000, the Company adopted the Competitive
Technologies, Inc. 2000 Directors Stock Option Plan (the Directors
Option Plan) with respect to its Common Stock, $.01 par value.
Directors who are not employees of the Company or a subsidiary are
eligible for options granted pursuant to this plan. This plan
provides that the Company grant an option for 10,000 shares to each
director elected at its annual meeting of stockholders on January
27, 2000 and to each new director elected during the term of this
plan on the date he or she is first elected to office, whether by
the stockholders or by the Board. This plan also provides that the
Company grant an additional option for 10,000 shares to each
director holding office on the first business day in each subsequent
January. Options under this plan will be non-statutory options,
have an exercise price of 100% of the fair market value at the grant
date, have a term of ten years from the grant date, and fully vest
on the grant date. If a person's directorship is terminated because
of death or permanent disability, options may be exercised within
one year after termination. If the termination is for any other
reason, options may be exercised only within 180 days after
termination. In no event may an option be exercised after
expiration of its ten-year term. The Company may not grant options
under the Directors Option Plan after the first business day of
January 2010. On January 27, 2000, the Company granted 60,000
options under this plan (10,000 each to Messrs. Bigar, Carver,
Dunbar, Fodale, Philippin and Sabin).
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following information indicates the beneficial ownership of
the Company's Common Stock by each director and executive officer of
the Company and by each person known to the Company to be the
beneficial owner of more than 5% of the Company's outstanding Common
Stock. The indicated owners furnished such information to the
Company as of October 1, 2000 except as otherwise indicated in the
footnotes.
Name (and Address if more
than 5%) of Beneficial Amount Beneficially
Owners Owned (A) Percent (B)
Directors and executive officer
George C.J. Bigar 15,708 (C) --
Richard E. Carver 6,000 (D) --
George W. Dunbar, Jr. 10,000 (E) --
Samuel M. Fodale 174,200 (F) 2.8%
Frank R. McPike, Jr. 208,807 (G) 3.3%
Charles J. Philippin 15,000 (H) --
John M. Sabin 17,418 (I) --
All directors and executive
officers as a group 447,133 (J) 7.0%
Additional 5% Owner
None -- --
(A) Except as indicated in the notes which follow, the designated
person or group has sole voting and investment power.
(B) Percentages of less than 1% are not shown.
(C) Consists of 5,708 shares of Common Stock plus 10,000 stock
options deemed exercised solely for purposes of showing total shares
owned by Mr. Bigar.
(D) Consists of 2,000 shares of Common Stock plus 4,000 stock
options deemed exercised solely for purposes of showing total shares
owned by Mr. Carver.
(E) Consists of 10,000 stock options deemed exercised solely for
purposes of showing total shares owned by Mr. Dunbar.
(F) Consists of 164,200 shares of Common Stock plus 10,000 stock
options deemed exercised solely for purposes of showing total shares
owned by Mr. Fodale. Includes 99,100 shares of Common Stock held by
Central Maintenance Services, Inc., 9,000 shares of Common Stock
held by Missouri Recycling - St. Louis, Inc., 3,200 shares of Common
Stock held by children and 2,000 shares of Common Stock held by spouse.
(G) Consists of 29,240 shares of Common Stock plus 179,567 stock
options deemed exercised solely for purposes of showing total shares
owned by Mr. McPike. Includes 1,500 shares of Common Stock held by
daughter as to which Mr. McPike disclaims beneficial ownership.
Includes 8,506 shares of Common Stock held by Webster Trust as
Trustee under the Company's Employee Common Stock Retirement Plan,
as to which Mr. McPike has shared investment power. Does not
include 8,641 shares of Common Stock allocated to Mr. McPike under
said Retirement Plan; Trustee has sole voting and investment power
with regard thereto.
(H) Consists of 5,000 shares of Common Stock plus 10,000 stock
options deemed exercised solely for purposes of showing total shares
owned by Mr. Philippin.
(I) Consists of 7,418 shares of Common Stock plus 10,000 stock
options deemed exercised solely for purposes of showing total shares
owned by Mr. Sabin. Includes 200 shares of Common Stock held by
spouse.
(J) Consists of 213,566 shares of Common Stock plus 233,567 stock
options to purchase shares of Common Stock deemed exercised solely
for purposes of showing total shares owned by such group.
At October 13, 2000, the stock transfer records maintained by
the Company with respect to its Preferred Stock showed that the
largest holder of Preferred Stock owned 500 shares.
The following table sets forth information with respect to the
common stock, $.001 par value per share, of University Optical
Products Co. (UOP), a subsidiary of the Company, beneficially owned
by each director or executive officer of the Company and by each
person known to the Company to be the beneficial owner of more than
5% of the Company's outstanding Common Stock at October 13, 2000.
Shares of Common Percent
Name Stock of UOP (A) of Class (B)
George C.J. Bigar None --
Richard E. Carver None --
George W. Dunbar, Jr. None --
Samuel M. Fodale None --
Frank R. McPike, Jr. 14,000 --
Charles J. Philippin None --
John M. Sabin None --
All directors and executive
officers as a group 14,000 --
(A) Does not include 1,333,333 shares of UOP class A stock (which
have four votes per share and are convertible into an equal number
of shares of UOP common stock) and 2,757,735 shares of UOP common
stock owned by the Company and 1,927 shares of UOP common stock
owned by Genetic Technology Management, Inc., a wholly-owned
subsidiary of the Company.
(B) Percentages of less than 1% are not shown.
Item 13. Certain Relationships and Related Transactions
Not applicable.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) List of financial statements and schedules. Page
Competitive Technologies, Inc. and Subsidiaries:
Consolidated Balance Sheets as of July 31, 2000
and 1999. 27-28
Consolidated Statements of Operations for the
years ended July 31, 2000, 1999 and 1998. 29
Consolidated Statements of Changes in
Shareholders' Interest for the years ended
July 31, 2000, 1999 and 1998. 30
Consolidated Statements of Cash Flows for the
years ended July 31, 2000, 1999 and 1998. 31-32
Notes to Consolidated Financial Statements. 33-49
All financial statement schedules have been omitted because
the information is not present or is not present in sufficient
amounts to require submission of the schedule or because the
information required is included in the financial statements or
the notes thereto.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the fourth
quarter.
(c) List of exhibits: See Exhibit Index immediately preceding
exhibits.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
COMPETITIVE TECHNOLOGIES, INC.
(the Company)
By s/ Frank R. McPike, Jr.
Frank R. McPike, Jr.
President, Chief Operating Officer,
Chief Financial Officer, Director
and Authorized Signer
Date: October 27, 2000
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates
indicated.
Name Title Date
GEORGE C. J. BIGAR* Director )
George C. J. Bigar )
)
RICHARD E. CARVER* Director )
Richard E. Carver )
)
GEORGE W. DUNBAR, JR.* Director )
George W. Dunbar, Jr. )
)
SAMUEL M. FODALE* Director )
Samuel M. Fodale )
)
)
s/ FRANK R. MCPIKE, JR. President, Chief )
Frank R. McPike, Jr. Operating Officer, )
Chief Financial ) October 27, 2000
Officer (Principal )
Financial and Accounting )
Officer), and Director )
)
CHARLES J. PHILIPPIN* Director )
Charles J. Philippin )
)
JOHN M. SABIN* Director )
John M. Sabin )
)
)
* By s/ FRANK R. MCPIKE, JR. )
Frank R. McPike, Jr., Attorney-in-Fact )
EXHIBIT INDEX
Exhibit
No. Description Page
3.1 Unofficial restated certificate of incorpora-
tion of the registrant as amended to date filed
as Exhibit 4.1 to registrant's Registration
Statement on Form S-8, File Number 333-49095
and hereby incorporated by reference.
3.2 By-laws of the registrant as amended to date
filed as Exhibit 3.1 to registrant's Form 10-Q
for the quarter ended October 31, 1997 and
hereby incorporated by reference.
10.1* Registrant's Restated Key Employees' Stock
Option Plan, filed as Exhibit 4.3 to registrant's
Registration Statement on Form S-8, File No.
33-87756 and hereby incorporated by reference.
10.2* Incentive Compensation Plan of the registrant,
filed as Exhibit 10.2 to the registrant's Form
10-K for the year ended July 31, 1997 and hereby
incorporated by reference.
10.3* Registrant's 2000 Directors Stock Option Plan
filed as Exhibit 4.3 to registrant's Registration
Statement on Form S-8, File Number 333-95763 and
hereby incorporated by reference.
10.4* Registrant's 1996 Directors' Stock Participation
Plan filed as Exhibit 4.3 to registrant's Form
S-8 No. 333-18759 and hereby incorporated by
reference.
10.5 Limited Partnership Agreement of Optical Associates,
Limited Partnership dated November 3, 1983 filed
as Exhibit 19.02 to registrant's Form 10-Q for
the quarter ended January 31, 1984 and hereby
incorporated by reference.
10.6 Joint Venture Agreement dated April 30, 1984 between
Optical Associates, Limited Partnership and
University Optical Products Co., filed as Exhibit
19.02 to registrant's Form 10-Q for the quarter
ended April 30, 1984 and hereby incorporated by
reference; moratorium agreement dated July 20, 1987
between University Optical Products Co. and
Optical Associates, Limited Partnership filed
as Exhibit 10.14 to registrant's Form 10-K
for the fiscal year ended July 31, 1987 and
hereby incorporated by reference.
10.7 Asset Purchase Agreement among University Optical
Products Co., Unilens Corp. USA, Unilens Optical
Corp. and the registrant dated January 23, 1989
filed as Exhibit 19.1 to registrant's Form 10-Q
for the quarter ended January 31, 1989 and hereby
incorporated by reference.
10.8* Registrant's 1997 Employees' Stock Option Plan
filed as Exhibit 4.3 to registrant's Registration
Statement on Form S-8, File Number 333-49095 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* Voluntary Release and Exit Agreement between
registrant and George M. Stadler signed October
15, 1998 filed as Exhibit 10.11 to registrant's
Form 10-K for the year ended July 31, 1998 and
hereby incorporated by reference.
10.11* 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
11.1 Schedule of computation of earnings per share 66
for the three years ended July 31, 2000.
21.1 Subsidiaries of the registrant. 67
23.1 Consent of PricewaterhouseCoopers LLP. 68
24.1 Power of attorney. 69-70
27.1 Financial Data Schedule - EDGAR only.
* Management Contract or Compensatory Plan
