-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I4IEEH0Xja47h+D6QX53jk4Xf7ccY/gQ+qDpHcDTfQVOzLmGFAist8aw3y2eTMRo oXlcr5Y0eB6MSGZSS/mpMg== 0001157523-04-011462.txt : 20041214 0001157523-04-011462.hdr.sgml : 20041214 20041214173033 ACCESSION NUMBER: 0001157523-04-011462 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20041031 FILED AS OF DATE: 20041214 DATE AS OF CHANGE: 20041214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPETITIVE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000102198 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 362664428 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08696 FILM NUMBER: 041202624 BUSINESS ADDRESS: STREET 1: 1960 BRONSON ROAD STREET 2: BUILDING 1 CITY: FAIRFIELD STATE: CT ZIP: 06824 BUSINESS PHONE: 2032556044 MAIL ADDRESS: STREET 1: 1960 BRONSON ROAD STREET 2: BUILDING 1 CITY: FAIRFIELD STATE: CT ZIP: 06824 FORMER COMPANY: FORMER CONFORMED NAME: UNIVERSITY PATENTS INC DATE OF NAME CHANGE: 19920703 10-Q 1 a4783340.txt COMPETITIVE TECHNOLOGIES, INC. 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended October 31, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-8696 ------ COMPETITIVE TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) Delaware 36-2664428 - ------------------------------------ -------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1960 Bronson Road Fairfield, Connecticut 06824 - --------------------------- ------------------------------------- (Address of principal executive (Zip Code) offices) (203) 255-6044 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) N/A - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act). Yes[ ] No[x] The number of shares of the registrant's common stock outstanding as of December 1, 2004 was 6,591,200 shares. COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES ----------------------------------------------- INDEX TO QUARTERLY REPORT ON FORM 10-Q -------------------------------------- PART I. FINANCIAL INFORMATION Page No. - ----------------------------- -------- Item 1. Condensed Consolidated Financial Statements (Unaudited) Consolidated Balance Sheets at October 31, 2004 and July 31, 2004.................................................................3 Consolidated Statements of Operations for the three months ended October 31, 2004 and 2003.........................4 Consolidated Statement of Changes in Shareholders' Interest for the three months ended October 31, 2004..........................5 Consolidated Statements of Cash Flows for the three months ended October 31, 2004 and 2003.........................6 Notes to Consolidated Financial Statements.......................7 - 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................13 - 19 Item 3. Quantitative and Qualitative Disclosures About Market Risk...........19 Item 4. Controls and Procedures..............................................20 PART II. OTHER INFORMATION - -------------------------- Item 1. Legal Proceedings....................................................20 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..........20 Item 6. Exhibits.............................................................21 Signatures...................................................................22 Page 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets October 31, July 31, 2004 2004 (Unaudited) * -------------- -------------- ASSETS Current assets: Cash and cash equivalents $ 6,662,696 $ 4,309,680 Receivables 1,029,275 829,996 Prepaid expenses and other current assets 866,539 209,154 -------------- -------------- Total current assets 8,558,510 5,348,830 Deferred equity financing costs, net 697,851 866,302 Non-current receivable, net 258,293 394,133 Intangible assets acquired, net 48,755 52,150 Property and equipment, net 35,143 19,392 -------------- -------------- TOTAL ASSETS $ 9,598,552 $ 6,680,807 ============== ============== LIABILITIES AND SHAREHOLDERS' INTEREST Current liabilities: Accounts payable $ 98,492 $ 162,913 Accrued expenses and other liabilities 3,293,270 1,579,376 -------------- -------------- Total current liabilities 3,391,762 1,742,289 -------------- -------------- 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, 6,472,433 and 6,349,189 shares issued and outstanding, respectively 64,724 63,492 Capital in excess of par value 27,842,851 27,560,312 Accumulated deficit (21,778,136) (22,745,961) Other comprehensive income 16,676 - -------------- -------------- Total shareholders' interest 6,206,790 4,938,518 -------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' INTEREST $ 9,598,552 $ 6,680,807 ============== ============== See accompanying notes * Balances were derived from the July 31, 2004 audited balance sheet. Page 3 PART I. FINANCIAL INFORMATION (Continued) ----------------------------------------- COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) Three months ended October 31, 2004 2003 ------------ ------------ Revenues Retained royalties $ 755,769 $ 386,899 Royalty settlements and awards 815,492 835,787 Stock dividend 679,149 - Settlement with Unilens, net - 73,749 Interest income 148,558 66,674 Other income 32,049 - ------------ ------------ 2,431,017 1,363,109 ------------ ------------ Expenses Personnel and other direct expenses relating to revenues 1,023,739 558,809 General and administrative expenses 247,980 426,170 Patent enforcement expenses, net of reimbursements 170,713 32,837 ------------ ------------ 1,442,432 1,017,816 ------------ ------------ Income before income taxes 988,585 345,293 Provision for income taxes 20,760 - ------------ ------------ Net income $ 967,825 $ 345,293 ============ ============ Net income per common share: Basic $ 0.15 $ 0.06 ============ ============ Assuming dilution $ 0.14 $ 0.06 ============ ============ Weighted average number of common shares outstanding: Basic 6,399,715 6,201,345 Assuming dilution 6,700,832 6,201,345 See accompanying notes Page 4 PART I. FINANCIAL INFORMATION (Continued) ----------------------------------------- COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statement of Changes in Shareholders' Interest For the three months ended October 31, 2004 (Unaudited)
Preferred Stock Common Stock --------------------- --------------------- Shares Shares Capital Other Total issued and issued and in excess of Accumulated comprehensive Shareholders' outstanding Amount outstanding Amount par value Deficit income Interest ----------- ---------------------------------------------------------------------------------------- Balance - July 31, 2004 2,427 $ 60,675 6,349,189 $ 63,492 $ 27,560,312 $(22,745,961) $ - $ 4,938,518 Exercise of common stock options - - 1,150 11 2,231 - - 2,242 Stock issued under 401(k) Plan - - 25,056 251 99,722 - - 99,973 Sales and issuances of stock in equity financing - - 97,038 970 349,037 - - 350,007 Amortization of deferred equity financing costs - - - - (168,451) - - (168,451) Unrealized foreign exchange gain - - - - - - 16,676 16,676 Net income - - - - - 967,825 - 967,825 ----------- --------- ----------- --------- ------------- ------------- ------------- -------------- Balance - October 31, 2004 2,427 $ 60,675 6,472,433 $ 64,724 $ 27,842,851 $(21,778,136) $ 16,676 $ 6,206,790 =========== ========= =========== ========= ============= ============= ============= ============== See accompanying notes
Page 5 PART I. FINANCIAL INFORMATION (Continued) ----------------------------------------- COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Three months ended October 31, 2004 2003 ------------ ------------ Cash flows from operating activities: Net income $ 967,825 $ 345,293 Noncash and other expenses (income) included in net income: Depreciation and amortization 9,014 15,832 Stock compensation accrued 43,777 38,366 Stock dividend (679,149) - Other (17,701) (73,750) (Increase) decrease in current assets: Receivables (199,279) 650,042 Prepaid expenses and other current assets 38,441 95,841 Increase (decrease) in current liabilities: Accounts payable and accrued expenses and other liabilities 1,704,590 (152,389) ------------ ------------ Net cash provided by operating activities 1,867,518 919,235 ------------ ------------ Cash flows from investing activities: Purchases of property and equipment (21,370) - Collection on Unilens receivable, net 154,619 73,749 Other - 2,364 ------------ ------------ Net cash provided by investing activities 133,249 76,113 ------------ ------------ Cash flows from financing activities: Proceeds from exercise of stock options 2,242 - Proceeds from sales of common stock 350,007 - ------------ ------------ Net cash provided by financing activities 352,249 - ------------ ------------ Net increase in cash and cash equivalents 2,353,016 995,348 Cash and cash equivalents at beginning of year 4,309,680 1,504,295 ------------ ------------ Cash and cash equivalents at end of period $ 6,662,696 $ 2,499,643 ============ ============ See accompanying notes Page 6 PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) 1. Basis of Presentation --------------------- The interim consolidated financial information presented in the accompanying consolidated financial statements and notes hereto is unaudited. Competitive Technologies, Inc. ("CTT") and its majority owned subsidiaries (collectively, "we" or "us") provide patent and technology licensing and commercialization services throughout the world (with concentrations in the U.S.A. and Asia) with respect to a broad range of life, digital/electronic, physical, and nano (microscopic particles) science technologies originally invented by various individuals, corporations and universities. We are compensated for our services primarily by sharing in the license and royalty fees generated from our successful licensing of our clients' technologies. The consolidated financial statements include the accounts of CTT and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Certain amounts in the prior year accompanying unaudited consolidated financial statements have been reclassified to conform to the current year's presentation. We believe we have made all adjustments, primarily normal and recurring adjustments, which are necessary to present the unaudited consolidated financial statements fairly in conformity with accounting principles generally accepted in the United States of America. The results for the three months ended October 31, 2004, are not necessarily indicative of the results that can be expected for the full year. You should read the interim unaudited consolidated financial statements and notes thereto, as well as the accompanying Management's Discussion and Analysis of Financial Condition and Results of Operations, in conjunction with our Annual Report on Form 10-K for the year ended July 31, 2004. This report is available on our website at www.competitivetech.net. 2. Royalty Settlements and Awards ------------------------------ On August 5, 2004, the U.S. Court of Appeals for the Federal Circuit ("CAFC") denied the petition of Laboratory Corporation of America Holdings d/b/a LabCorp ("LabCorp") for a rehearing or a rehearing en banc (rehearing by the full CAFC) of a June 8, 2004 decision affirming a November 2002 decision in favor of Metabolite Laboratories, Inc. and us (collectively, the "Plaintiffs"). As a result of this decision, on August 16, 2004, the Plaintiffs received approximately $6.7 million. Our share of the $6.7 million payment was $920,552 and, accordingly, we recorded $815,492 in royalty settlements and awards and $105,060 in interest income during the quarter. The payment did not include attorneys fees or court costs previously awarded to the Plaintiffs but still under appeal with the court. In addition, our claim for additional attorneys fees and court costs for the appeals is pending. On November 3, 2004, LabCorp filed a petition for a writ of certiorari with the U.S. Supreme Court (the "Court") relating to the November 2002 decision. (A writ of certiorari is a petition requesting the Court to hear an appeal.) If the Court denies LabCorp's petition, then LabCorp will have no further avenues of appeal. If the Court agrees to hear LabCorp's appeal and if the original judgment is subsequently reversed, LabCorp may attempt to recover amounts paid to the Plaintiffs, including royalties paid to us as part of a January 2003 stipulated court order (the "Stipulated Order"). (Pursuant to the Stipulated Order, the court had stayed execution of a monetary judgment and a permanent injunction that prevented LabCorp from performing homocysteine assays, and LabCorp had agreed to pay us a percentage of their homocysteine assay sales during their appeals process.) LabCorp's ability to recover any amounts paid to the Plaintiffs would depend on the extent and reason for the reversal. From January 2003 through October 31, 2004, LabCorp paid us an aggregate of $1,870,483 under the Stipulated Order, including both our retained amounts and amounts paid or payable to our clients. We believe that the probability that LabCorp will recover any amounts paid is remote. Page 7 Effective October 30, 2003, we sold $1,125,000 plus subsequent interest of our patent infringement judgment award against American Cyanamid Company in the Materna(TM) lawsuit to LawFinance Group, Inc. ("LFG") for $900,000 in cash. Since we had no financial obligation to repay LFG or to return any portion of the cash we received from them, we recorded $835,787 in royalty settlements and awards and $64,213 in interest income in October 2003. We also granted LFG a first security interest in our share of the expected award. 3. Stock Dividend -------------- In October 2004, our investee, Melanotan Corporation ("MelanoTan"), paid its shareholders a dividend in the form of shares of stock of EpiTan Limited (Australia) ("EpiTan"), MelanoTan's investee. As a result of our ownership of 20.9% of MelanoTan's shares, we received 1,252,346 shares of EpiTan common stock (we previously reported in our Form 10-K for the year ended July 31, 2004, that we had received 500,938 shares). Previously, we had licensed our rights to a sunless tanning technology to MelanoTan and MelanoTan sublicensed the rights to EpiTan. MelanoTan also received shares of EpiTan (MelanoTan has no operations of its own). The technology may prevent or lessen skin cancer caused by unprotected sun exposure, and EpiTan is in the process of testing and evaluating the technology for future commercialization. EpiTan common stock is traded on the Australian Stock Exchange (quoted in Australian dollars) under the symbol EPT. As a condition to receiving the dividend, we agreed not to sell, transfer or otherwise dispose of the shares before October 21, 2005. We estimated the fair value of the EpiTan stock dividend using the closing price of the shares and the exchange rate for converting Australian dollars to U.S. dollars on the date that MelanoTan's board of directors approved the dividend. We then discounted the value of the shares using a 20% discount factor to recognize the estimated impact of the sale restriction and the high risk associated with an investment in EpiTan stock, since EpiTan has minimal current revenues and substantial current and accumulated net losses. We recorded the estimated value of the shares, $679,149, as dividend income and included the asset in prepaid expenses and other current assets, since we are restricted from trading the shares. Subsequent unrealized market price and foreign exchange gains or losses relating to the shares will be included in other comprehensive income in shareholders' interest. For the period from the date we recorded the dividend to October 31, 2004, we recorded an unrealized foreign exchange gain of $16,676. Comprehensive income for the three months ended October 31, 2004 was $984,501. Page 8 4. Net Income Per Common Share --------------------------- The following table sets forth our computations of basic and diluted net income per common share. For the three months ended October 31, -------------------------------------- 2004 2003 ----------- ----------- Denominator for basic net income per common share, weighted average common shares outstanding 6,399,715 6,201,345 Dilutive effect of warrants and employees' and directors' common stock options 301,117 - ----------- ----------- Denominator for net income per common share, assuming dilution 6,700,832 6,201,345 =========== =========== At October 31, 2004 and 2003, respectively, stock options and warrants to purchase 578,278 and 1,001,567 shares of common stock were outstanding but were not included in the computation of earnings per share because the exercise prices were greater than the weighted average share prices for the quarters, making them anti-dilutive (total options and warrants outstanding were 1,384,182 and 1,001,567, respectively). 5. Stock-Based Compensation ------------------------ We account for grants of stock options using the intrinsic value method pursuant to Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Accordingly, since the exercise price of the stock options granted under our stock option plans to employees and directors was at least equal to the market value of the underlying common stock on the grant date, we have not recorded any compensation expense for stock options granted. Under the provisions of Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation," we are required to disclose the impact on net income if we had used a fair value method, as defined, to account for grants of stock options. Using the fair value method, as defined, our results would have been: For the three months ended October 31, -------------------------------------- 2004 2003 ----------- ----------- Net income, as reported $ 967,825 $ 345,293 Deduct: Pro forma compensation expense for stock options granted using a fair value method (96,725) (99,199) ----------- ----------- Pro forma net income $ 871,100 $ 246,094 =========== =========== Basic income per common share: As reported $ 0.15 $ 0.06 =========== =========== Pro forma $ 0.14 $ 0.04 =========== =========== Income per common share, assuming dilution: As reported $ 0.14 $ 0.06 =========== =========== Pro forma $ 0.13 $ 0.04 =========== =========== Page 9 We estimated the fair value of stock options at the grant date using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require highly subjective input assumptions, including expected stock price volatility and expected stock option lives. Because our stock options are not publicly traded and have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions affect the fair value estimate, we do not believe that option valuation models necessarily provide a reliable single measure of the fair value of our stock options. The pro forma information shown above may not be representative of pro forma fair value compensation effects in future periods. 6. Common Stock Sales Pursuant to Equity Financing ----------------------------------------------- During the three months ended October 31, 2004, we sold 94,558 shares to Fusion Capital Fund II, LLC ("Fusion Capital"), for $350,007, and issued 2,480 commitment shares (as defined in the equity financing agreement) for a total of 97,038 shares, pursuant to our equity financing agreement with Fusion Capital. We will use the proceeds for general working capital needs. In addition, we amortized $168,451 of deferred equity financing costs against capital in excess of par value. We will amortize the remaining balance of the deferred equity financing costs against capital in excess of par value as we sell common stock to Fusion Capital in the future. 7. Accrued Expenses and Other Liabilities -------------------------------------- Accrued expenses and other liabilities consist of the following: October 31, July 31, 2004 2004 ------------ ------------ Royalties payable $ 2,497,841 $ 625,908 Accrued professional fees 413,092 294,100 Accrued compensation 216,984 534,945 Other 165,353 124,423 ------------ ------------ Accrued expenses and other liabilities $ 3,293,270 $ 1,579,376 ============ ============ The increase in royalties payable from July 31, 2004 is the result of increased royalties, including a new homocysteine license, and royalty settlements and awards collected on behalf of our clients that will be paid in January 2005, when they are due. Page 10 8. Settlements ----------- Bayer Corporation On October 21, 2004, we granted Bayer Corporation, et al, ("Bayer") a license under which Bayer agreed to pay us a fee and royalties on sales of homocysteine assays beginning July 1, 2004. The fee is non-refundable and is not creditable against future royalties. This license settled a complaint we filed against Bayer on August 17, 2004, alleging infringement of our patent covering homocysteine assays, in the U.S. District Court for the District of Colorado, in which we sought monetary damages, punitive damages, attorneys fees, court costs and other remuneration at the option of the court. Bayer had responded to our complaint on September 27, 2004, denying the allegations. We recorded our share of the license fee and royalties earned in retained royalties. Federal Insurance Company Effective October 13, 2004, Federal Insurance Company ("Federal") agreed to pay us $167,500 and acknowledged that the deductible under our insurance policy was deemed satisfied for purposes of a civil suit filed against us by the Securities and Exchange Commission ("SEC") (described below). In return, we agreed to withdraw with prejudice and release Federal from any and all claims we made in a civil action filed against Federal on February 3, 2004, to enforce our claim that Federal should reimburse us for expenses incurred by CTT, Mr. Frank R. McPike, Jr. (our former Chief Executive Officer), and certain other directors and officers relating to an SEC investigation, including any subsequent action thereon. We recorded the payment as a reduction of litigation expenses, which are included in general and administrative expenses. On September 15, 2004, the Chubb Group of Insurance Companies, on behalf of Federal, agreed to accept coverage as to losses, including defense costs, that CTT and Mr. McPike incur as a result of the SEC's civil suit (described below), according to the terms of the policy. Accordingly, we have recorded amounts incurred relating to the SEC civil suit as a receivable, and not as litigation expenses. 9. Contingencies ------------- Palatin Technologies, Inc. On October 27, 2004, we notified Palatin Technologies, Inc. ("Palatin") that we were demanding arbitration as a result of our belief that Palatin was in material breach of their license agreement with us for their exclusive use of our technology in developing their experimental therapeutic treatment for male and female sexual dysfunction. Under the terms of our license agreement with Palatin, we are entitled to receive 20% of any sublicense fee that Palatin receives. On August 13, 2004, Palatin announced that they had granted a co-exclusive license to King Pharmaceuticals, Inc. ("King"), included in a $20 million Collaborative Development and Marketing Agreement between Palatin and King. On August 18, 2004, Palatin announced that they had received the $20 million from King, but we have not received any funds from Palatin relating to this sublicense. Our license with Palatin provides for binding arbitration of disputes. We expect the arbitration hearing to occur in the first half of calendar 2005. Page 11 JDS Uniphase Corp. On October 5, 2004, we filed a complaint seeking damages, interest, costs and attorneys fees, and punitive damages against JDS Uniphase Corp. ("JDS Uniphase"), alleging that they failed to fulfill obligations under a license agreement and misrepresented royalties due to us. The complaint was filed in the Superior Court, Judicial District of Fairfield, at Bridgeport, Connecticut. Further action in this case is pending. Securities and Exchange Commission On August 11, 2004, the SEC filed a civil suit naming Competitive Technologies, Inc., Frank R. McPike, Jr. (our former Chief Executive Officer), and six individual brokers in the U.S. District Court for the District of Connecticut, alleging that from at least July 1998 to June 2001, the defendants were involved in a scheme to manipulate the price of our stock. The case relates to our 1998 stock repurchase program under which we repurchased shares of our common stock from time to time during the period from October 28, 1998 to March 22, 2001. CTT was named as a defendant in the suit due to the alleged conduct of Mr. McPike, whose conduct in connection with the stock repurchase program was imputed to CTT as a matter of law. Relating to CTT, the SEC seeks a permanent injunction prohibiting CTT from further violations of the Securities Exchange Act of 1934 and a civil penalty pursuant to Section 21(d)(3) of the Securities Exchange Act of 1934 (this section provides for maximum penalties of $550,000 for a corporate entity and $110,000 per individual). On September 24, 2004, we filed a motion to dismiss this suit. On October 15, 2004, the SEC filed a motion opposing our motion to dismiss the suit. Further action in this case is pending. Abbott Laboratories, Inc. On June 8, 2004, we filed a complaint alleging infringement of our patent covering homocysteine assays against Abbott Laboratories, Inc., ("Abbott"), in the U.S. District Court for the District of Colorado, seeking monetary damages, punitive damages, attorneys fees, court costs and other remuneration at the option of the court. Abbott was served notice of our complaint in August and responded to the suit on October 12, 2004, denying the allegations. Further action in this case is pending. Fujitsu On September 20, 2004, the judge in the Fujitsu litigation entered a stipulated order staying certain issues relating to the case, including the counterclaims, pending resolution of the University of Illinois' appeal of the summary judgment that was granted on July 1, 2004, in favor of Fujitsu. Further action in this case is pending. Other By letter dated October 7, 2003, the U.S. Department of Labor notified us that certain former employees had filed complaints alleging discriminatory employment practices in violation of Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, 18 U.S.C. 1514A, also known as the Sarbanes-Oxley Act. The complainants requested that the Occupational Safety and Health Administration ("OSHA") investigate and, if appropriate, prosecute such violations and requested OSHA assistance in obtaining fair and reasonable reimbursement and compensation for damages. We believe that the claims are without merit, and we have responded aggressively to the complaints. We cannot predict the final outcomes to our legal actions and proceedings, nor are we able to estimate the legal expenses, potential losses we may incur, or possible damages we may recover in any of these legal actions and proceedings, if any. We have not recorded any potential losses or income in our financial statements to date. We record expenses in connection with these matters as they are incurred. An unfavorable resolution of any or all matters where we are a defendant, and/or our incurrence of significant legal fees and other costs to defend or prosecute any of these actions and proceedings may, depending upon the amount and timing, have a material adverse effect on our consolidated financial position, results of operations or cash flows in a particular period. Page 12 We believe that we carry adequate liability insurance, directors' and officers' insurance, casualty insurance (for owned or leased tangible assets), and other insurance as needed to cover us against potential claims that occur in the course of our business. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements - -------------------------- Certain statements about our future expectations, including development and regulatory plans, and all other statements in this Quarterly Report on Form 10-Q, other than historical facts, are "forward-looking statements" within the meaning of applicable Federal Securities Laws, and are not guarantees of future performance. When used in this Form 10-Q, the words "anticipate," "believe," "intend," "plan," "expect," "estimate," "approximate," and similar expressions, as they relate to us or our business or management, are intended to identify such forward-looking statements. These statements involve risks and uncertainties related to market acceptance of and competition for our licensed technologies, and other risks and uncertainties inherent in our business, including those set forth in Item 7 under the caption "Risk Factors," in our Annual Report on Form 10-K for the year ended July 31, 2004, filed with the Securities and Exchange Commission ("SEC") on October 29, 2004, and other factors that may be described in our other filings with the SEC, and are subject to change at any time. Our actual results could differ materially from these forward-looking statements. We undertake no obligation to update publicly any forward-looking statement. Overview - -------- We are a full service technology transfer and licensing provider focused on the technology needs of our customers and transforming those requirements into commercially viable solutions. We develop relationships with universities, companies, inventors and patent or intellectual property holders to obtain the rights or a license to their technologies, and they become our clients, for whom we find markets for the technologies. We also develop relationships with those who have a need or use for specific technologies, and they become our customers, usually through a license or sublicense. We identify and commercialize innovative technologies in life, digital/electronic, nano, and physical sciences developed by universities, companies and inventors, and match our customers' needs with our clients' technologies. Our goal is to maximize the value of intellectual assets for the benefit of our clients, customers and shareholders. We earn revenues primarily from licensing our clients' and our intellectual property rights, principally patents and inventions (collectively, the "Technology"), to our customers (licensees). Our customers pay us royalties based on their use of the Technology, and we share those royalties with our clients. We determine the amount of royalty revenue to record when we can estimate the amount of royalties we have earned for a period, which occurs when we receive periodic royalty reports from our customers listing sales of licensed products and royalties earned in the period. We receive these reports monthly, quarterly, or semi-annually. Since reports are not received on the same frequency, revenues will fluctuate from one quarter to another. Page 13 For the three months ended October 31, 2004, we had a concentration of revenues derived from homocysteine assays. Because we have rounded all amounts in this Item 2 to the nearest thousand dollars, certain amounts may not total precisely. In addition, all periods discussed in this Item 2 relate to our fiscal year ending July 31 (first, second, third and fourth quarters ending October 31, January 31, April 30 and July 31, respectively). Results of Operations - Three Months Ended October 31, 2004 (First Quarter 2005) - -------------------------------------------------------------------------------- vs. Three Months Ended October 31, 2003 (First Quarter 2004) - ------------------------------------------------------------ Summary of Results Net income for the first quarter 2005 was $968,000, or $0.14 per diluted share, compared to net income of $345,000, or $0.06 per diluted share, for the first quarter 2004, an improvement of $623,000, or $0.08 per diluted share. Revenues -------- In the first quarter 2005, total revenues were $2,431,000, compared to $1,363,000 for the first quarter 2004, an increase of $1,068,000, or 78%. Retained royalties for the first quarter 2005 were $756,000, which was $369,000 or 95% higher than the $387,000 reported in the first quarter of 2004. The following table compares retained royalty revenues in the first quarter 2005 with the first quarter 2004. For the three months ended October 31, ---------------------------------------------- Increase % Increase 2004 2003 (Decrease) (Decrease) ---------- ---------- ---------- ----------- Homocysteine assay $ 675,000 $ 266,000 $ 409,000 154% All other Technologies 81,000 121,000 (40,000) (33%) ---------- ---------- ---------- Total retained royalties $ 756,000 $ 387,000 $ 369,000 95% ========== ========== ========== The increase in revenues from the homocysteine assay was due, in part, to an upfront license fee and royalties earned on one calendar quarter of sales pursuant to the license we granted to Bayer Corporation on October 21, 2004. Other increases in homocysteine assay revenues were from Laboratory Corporation of America Holdings d/b/a LabCorp ("LabCorp") and other previously existing licenses. The first quarter of 2004 included homocysteine assay royalties from a non-recurring royalty audit settlement that partially offset the current year increases. For revenues from all other technologies, increased royalties from a recently producing license were more than offset by reduced royalties due to a license that expired after the first quarter of 2004. We believe that revenues from the homocysteine assay will continue to grow, possibly at a substantial rate, but we cannot predict if or when we will succeed in closing additional license agreements and enforcing our patent rights or how the growth in volume will affect assay pricing. In November 2004, we granted Diagnostic Products Corporation a license to perform homocysteine assays that included an upfront license fee and royalties on future assays. (We will include revenues from this new license in the second quarter 2005 and beyond.) We also filed suit against Abbott Laboratories, Inc. for infringement of our homocysteine assay patent and are pursuing other laboratories and diagnostic supply companies performing or manufacturing homocysteine assays to protect our rights to receive royalties on each assay performed. Our U.S. patent that covers the homocysteine assay expires in July 2007. Page 14 Approximately 89% of our retained royalties for first quarter 2005 was from the homocysteine assay Technology. We continue to seek licenses to new Technologies to mitigate this concentration of revenues, to replace revenues from expiring licenses and to provide future revenues. Royalty settlements and awards of $815,000 in the first quarter 2005 were from our share of the award from LabCorp received as a result of the denial on August 5, 2004 by the U.S. Court of Appeals for the Federal Circuit ("CAFC") of LabCorp's petition for a rehearing by the CAFC. (The LabCorp litigation confirmed the validity of our homocysteine assay patent rights.) In addition to the award, we received $105,000 of interest income. On November 3, 2004, LabCorp filed a petition for a writ of certiorari with the U.S. Supreme Court - see Part II, Item 1., "Legal Proceedings." (We believe that the probability that LabCourt ultimately will prevail is remote.) We also were granted attorneys fees and court costs in this case, and have filed for reimbursement of such costs related to the appeals. These claims are pending. In the first quarter 2004 our royalty settlements and awards of $836,000 were from our non-recourse sale of a portion of our share of the award in the Materna(TM) litigation to generate a total of $900,000 in cash, including $64,000 recorded in interest income. Stock dividend of $679,000 in the first quarter 2005, was from our receipt of a dividend from our investee, Melanotan Corporation ("MelanoTan"). In October 2004, MelanoTan paid its shareholders a dividend in the form of shares of common stock of EpiTan Limited (Australia) ("EpiTan"), MelanoTan's investee. As a result, we received 1,252,346 shares of EpiTan common stock (we previously reported in our Form 10-K for the year ended July 31, 2004, that we had received 500,938 shares). Previously, we had licensed our rights to a sunless tanning Technology to MelanoTan and MelanoTan sublicensed the rights to EpiTan. MelanoTan also received shares of EpiTan (MelanoTan has no operations of its own). The Technology may prevent or lessen skin cancer caused by unprotected sun exposure, and EpiTan is in the process of testing and evaluating the Technology for future commercialization. EpiTan common stock is traded on the Australian Stock Exchange (quoted in Australian dollars) under the symbol EPT. As a condition to receiving the dividend, we agreed not to sell, transfer or otherwise dispose of the shares before October 21, 2005. We estimated the fair value of our EpiTan stock dividend using the closing price of the shares and the exchange rate for converting Australian dollars to U.S. dollars on the date MelanoTan's board of directors approved the dividend. We then discounted the value of the shares using a 20% discount factor to recognize the estimated impact of the sale restriction and the high risk associated with an investment in EpiTan stock, since EpiTan has minimal revenues and has incurred substantial current and accumulated net losses. Settlement with Unilens, net in the first quarter 2004 was from the first installment from Unilens Corp. USA ("Unilens") under our October 2003 settlement of an old receivable from Unilens. Due to Unilens' financial condition and the uncertainty of collecting the installments due from the settlement, we recorded revenue, net of related expenses, in fiscal 2004 when we received payments from Unilens. At July 31, 2004, we reviewed Unilens' financial condition and determined that the entire remaining balance of the receivable was collectible and recorded the net present value of the receivable and related settlement income at July 31, 2004. Page 15 Interest income in the first quarter 2005 includes $105,000 in connection with the LabCorp litigation award and interest earned on our invested cash and cash equivalents. In the first quarter 2004, interest income included $64,000 in connection with our non-recourse sale of a portion of our share of the Materna award and interest earned on our invested cash and cash equivalents. The increase in interest income earned from invested cash and cash equivalents in the current year compared to the prior year is due to significantly higher cash balances and 0.6% per annum higher interest rates this year. Expenses For the three months ended October 31, ----------------------------------------------- Increase % Increase 2004 2003 (Decrease) (Decrease) ------------ ------------ ---------- ---------- Personnel and other direct expenses relating to revenues $ 1,024,000 $ 559,000 $ 465,000 83% General and administrative expenses 248,000 426,000 (178,000) (42%) Patent enforcement expenses, net of reimbursements 170,000 33,000 137,000 415% ------------ ------------ ---------- Total expenses $ 1,442,000 $ 1,018,000 $ 424,000 42% ============ ============ ========== Personnel and other direct expenses relating to revenues increased due to several factors. Our personnel expenses for the first quarter 2005 increased $409,000 since we have more full-time equivalent employees as we continue to expand our business development efforts, and for salary increases and higher incentive bonus accruals. In addition, other direct expenses relating to revenues increased $56,000 due to costs in connection with collecting additional royalties relating to an ongoing royalty audit and a one-time charge for technical services to support licensing a Technology (which costs are partially recoverable from future licensing revenues, if any), which were partially offset by lower direct costs related to licensing other technologies. General and administrative expenses decreased principally due to a $168,000 payment received from our directors' and officers' liability insurance carrier as settlement of our claim for reimbursement of amounts incurred in connection with an investigation by the Securities and Exchange Commission ("SEC"). Costs related to the investigation were previously expensed as incurred. (In addition to the payment, our insurance carrier confirmed that they will provide coverage (in accordance with the terms of the policy) for losses incurred in the SEC litigation (see Part II, Item 1., "Legal Proceedings"). Our carrier also acknowledged that we had met our deductible under our policy relating to this matter. Accordingly, we have recorded amounts incurred relating to the SEC civil suit as a receivable, and not as litigation expenses. Patent enforcement expenses, net of reimbursements, increased principally due to our lawsuits against LabCorp, Abbott and Bayer to enforce our homocysteine assay patent rights and our demand for arbitration of our dispute with Palatin Technologies, Inc. (see Part II, Item 1., "Legal Proceedings"). The level of patent enforcement expenses relates to our legal strategy and varies depending on the stage of the litigation. Activity related to homocysteine assay patent rights was considerably higher in the first quarter 2005 compared to 2004, but the Fujitsu case was less active in the first quarter 2005. Page 16 Provision for income taxes -------------------------- In the first quarter 2005 we provided $21,000 for our federal income tax liability at our estimated effective annual income tax rate of 2.1%. We have federal and state income tax loss carryforwards to reduce our regular taxable income and income tax liability significantly. We expect our tax liability to be principally for the federal alternative minimum income tax. In the prior year, we incurred a loss for tax purposes but did not record a benefit since we could not conclude that it was more likely than not that we would realize the benefit. Financial Condition and Liquidity - --------------------------------- Our liquidity requirements arise principally from our working capital needs, including funds needed to find, obtain and license new Technologies and to protect and enforce our intellectual property rights, if necessary. We fund our liquidity requirements with a combination of cash on hand and cash flows from operations, including legal settlements and awards. In addition, we have the ability to fund our requirements through sales of common stock under an equity financing arrangement (see below). At October 31, 2004, we had no outstanding debt or available credit facility. Cash and cash equivalents consist of demand deposits and highly liquid, interest earning investments with maturities when purchased of three months or less, including overnight bank deposits and money market funds. We carry cash equivalents at cost, which approximates fair value. At October 31, 2004, cash and cash equivalents were $6,663,000, compared to $4,310,000 at July 31, 2004. The increase in cash primarily was due to receiving the LabCorp award, new revenues from homocysteine assays, and sales of our common stock pursuant to our equity financing. Cash provided by operating activities during the three months ended October 31, 2004, was $1,868,000, compared to $919,000 during the same period of the prior year. The increase in cash from operating activities in the current year compared to the prior year resulted principally from our receipt of significant royalties and royalty settlements and awards during the current quarter, including our clients' shares that we will pay to them in January 2005, when they are due. Cash provided by investing activities in the current quarter was $133,000, compared to $76,000 in the same period of the prior year. In the current year we collected more cash on our receivable from Unilens. Cash provided by financing activities in the current year was $352,000, principally from sales of our common stock to Fusion Capital Fund II, LLC ("Fusion Capital") (see below). There was no cash provided by or used in financing activities in the comparable quarter of the prior year. In addition to fluctuations in the amounts of royalties and our clients' shares of royalty settlements and awards, changes in royalties receivable and payable reflect our normal cycle of royalty collections and payments and fluctuate depending on when royalty receipts and payments are due under our agreements with clients and customers. Funding and capital requirements LabCorp litigation On August 5, 2004, the CAFC denied LabCorp's petition for a rehearing or a rehearing en banc (rehearing by the full CAFC) of a June 8, 2004 decision affirming a November 2002 decision in favor of Metabolite Laboratories, Inc. and us, (collectively, the "Plaintiffs"). As a result of this decision, on August 16, 2004, the Plaintiffs received approximately $6.7 million. Our share of the $6.7 million payment was $921,000 and, accordingly, we recorded $815,000 in royalty settlements and awards and $105,000 in interest income during the quarter. The payment did not include attorneys fees or court costs previously awarded to the Plaintiffs but still under appeal with the court. In addition, our claim for additional attorneys fees and court costs for the appeals is pending. Page 17 On November 3, 2004, LabCorp filed a petition for a writ of certiorari with the U.S. Supreme Court (the "Court") relating to the November 2002 decision. (A writ of certiorari is a petition requesting the Court to hear an appeal.) If the Court denies LabCorp's petition, then LabCorp will have no further avenues of appeal. If the Court agrees to hear LabCorp's appeal and if the original judgment is subsequently reversed, LabCorp may attempt to recover amounts paid to the Plaintiffs, including royalties paid to us as part of a January 2003 stipulated court order (the "Stipulated Order"). (Pursuant to the Stipulated Order, the court had stayed execution of a monetary judgment and a permanent injunction that prevented LabCorp from performing homocysteine assays, and LabCorp had agreed to pay us a percentage of their homocysteine assay sales during their appeals process.) LabCorp's ability to recover any amounts paid to the Plaintiffs would depend on the extent and reason for the reversal. From January 2003 through October 31, 2004, LabCorp paid us an aggregate of $1,870,483 under the Stipulated Order, including both our retained amounts and amounts paid or payable to our clients. We believe that the probability that LabCorp will recover any amounts paid is remote. Equity Financing In February 2004, we entered into an equity financing agreement with Fusion Capital, pursuant to which we can sell Fusion Capital up to $5 million of our common stock, at our option. During the three months ended October 31, 2004, we sold approximately $350,000 of common stock to Fusion Capital, and from November 1 through November 30, 2004, we sold approximately $575,000 of common stock to Fusion Capital. We will use the proceeds for general working capital needs. The aggregate proceeds through November 30, 2004 from sales to Fusion Capital are approximately $1,125,000. Although we have the ability to sell up to $5 million of our common stock to Fusion Capital, we currently estimate that we will sell $2 million in total to Fusion Capital pursuant to the equity financing agreement. However, this estimate could change at any time. In addition, we have the option of entering into another equity financing agreement with Fusion Capital for an additional $5 million upon termination of the current agreement. General The amounts and timing of our future cash requirements will depend on many factors, including the results of our operations and marketing efforts, the results and costs of legal proceedings, and our equity financing. To sustain profitability, we must license Technologies with sufficient current and long-term revenue streams and continually add new licenses. However, obtaining rights to new Technologies, granting rights to licensees, enforcing intellectual property rights, and collecting royalty revenues are subject to many factors beyond our control or that we cannot currently anticipate. Although there can be no assurance that we will be successful in our efforts, we believe that the combination of our cash on hand, revenues from executing our strategic plan, and the ability to raise funds from sales of our common stock pursuant to our equity financing agreement will be sufficient to meet our current and anticipated operating cash requirements at least through our fiscal year ending July 31, 2006. Contingencies We are a party to several legal actions and proceedings, both as a plaintiff and as a defendant, for which we cannot predict the final outcomes. These matters have been detailed in prior filings with the SEC. Depending upon the amount and timing, an unfavorable resolution of any or all matters where we are a defendant and/or our incurring significant legal fees and other costs to defend or prosecute any of these actions and proceedings may have a material adverse effect on our consolidated financial position, results of operations or cash flows in a particular period. Page 18 Other matters We believe that we carry adequate liability insurance, directors' and officers' insurance, casualty insurance (for owned or leased tangible assets), and other insurance as needed to cover us against potential claims that occur in the course of our business. On November 10, 2004, we received notification from the American Stock Exchange ("AMEX") that we had evidenced compliance with the requirements necessary for continued listing on the AMEX. Critical Accounting Estimates - ----------------------------- There have been no significant changes in our accounting estimates described under the caption "Critical Accounting Estimates," included in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the year ended July 31, 2004. We estimated the fair value of our EpiTan stock dividend using the closing price of the shares and the exchange rate for converting Australian dollars to U.S. dollars on the date MelanoTan's board of directors approved the dividend. We then discounted the value of the shares using a 20% discount factor to recognize the estimated impact of the sale restriction and the high risk associated with an investment in EpiTan stock, since EpiTan has minimal current revenues and has incurred substantial current and accumulated net losses. Related Party Transactions - -------------------------- We previously disclosed that our board of directors had determined that when a director's services are outside the normal duties of a director, we should compensate the director at the rate of $1,000 per day, plus expenses (which is the same amount that we pay a director for attending a one-day Board meeting). During the three months ended October 31, 2004 we incurred $10,475 of costs, including expenses, (reported in personnel and other direct expenses relating to revenues) related to consulting services provided by one of our directors. Item 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- We do not have any significant market risk other than risks related to our shares of EpiTan common stock. The value of the stock is subject to market fluctuations in the per share price of EpiTan stock as well as foreign currency fluctuations, since EpiTan common stock is traded on the Australian Stock Exchange and the price per share of the stock is quoted in Australian dollars. We received the shares during the quarter ended October 31, 2004, and the unrealized gain to date has been minimal. Page 19 Item 4. Controls and Procedures ----------------------- (a) Evaluation of Disclosure Controls and Procedures ------------------------------------------------ Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of October 31, 2004. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported as specified in the Securities and Exchange Commission's rules and forms. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these controls were effective as of October 31, 2004. (b) Change in Internal Controls There were no significant changes in our internal control over financial reporting during the quarter ended October 31, 2004, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION --------------------------- Item 1. Legal Proceedings ----------------- See Notes 2, 8 and 9 to the accompanying unaudited condensed consolidated financial statements in Part I of this Quarterly Report on Form 10-Q. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ----------------------------------------------------------- The following table lists sales and issuances of our common stock to Fusion Capital during the three months ended October 31, 2004, pursuant to the $5 million equity financing arrangement with Fusion Capital as described in Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations." We issued all of these securities without registration in reliance on an exemption under Section 4(2) of the Securities Act of 1933 because we made the offers and sales in private placements. Number of shares sold Total cash Date and issued received ------------------- ------------- ------------ August 18, 2004 29,145 $ 100,000 October 1, 2004 13,617 50,002 October 11, 2004 13,664 50,001 October 13, 2004 27,282 100,003 October 23, 2004 13,330 50,001 ------------- ------------ 97,038 $ 350,007 ============= ============ Page 20 Item 6. Exhibits -------- A) Exhibits Page ---- 3.1 By laws of the registrant as amended effective July 27, 2004, filed (on October 29, 2004) as Exhibit 3.2 to registrant's Form 10-K for the year ended July 31, 2004 and hereby incorporated by reference. 3.2 By laws of the registrant as amended effective January 14, 2005. 23-30 10.1* Employment Agreement by and between Competitive Technologies, Inc. and Donald J. Freed dated September 27, 2004, filed (on September 29, 2004) as Exhibit 10.1 to registrant's Form 8-K dated September 27, 2004 and hereby incorporated by reference. 31.1 Certification by the Principal Executive Officer of Competitive Technologies, Inc. pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). 31 31.2 Certification by the Principal Financial Officer of Competitive Technologies, Inc. pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). 32 32.1 Certification by the Principal Executive Officer of Competitive Technologies, Inc. pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 (18 U.S.C. 1350) (furnished herewith). 33 32.2 Certification by the Principal Financial Officer of Competitive Technologies, Inc. pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 (18 U.S.C. 1350) (furnished herewith). 34 * Management contract or compensatory plan [Signature page follows] Page 21 SIGNATURES ---------- Pursuant to the requirements 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 registrant) By /s/ John B. Nano ------------------------------ John B. Nano President, Chief Executive Date: December 14, 2004 Officer and Authorized Signer COMPETITIVE TECHNOLOGIES, INC. (the registrant) By /s/ Michael D. Davidson ------------------------------ Michael D. Davidson Date: December 14, 2004 Chief Financial Officer and Authorized Signer Page 22 EX-3.2 2 a4783340ex32.txt COMPETITIVE TECHNOLOGIES, INC. EXHIBIT 3.2 Exhibit 3.2 ----------- BY-LAWS ------- OF COMPETITIVE TECHNOLOGIES, INC. ------------------------------ As Amended Effective January 14, 2005 ARTICLE I --------- MEETING OF SHAREHOLDERS ----------------------- SECTION 1.01. Annual Meetings. The annual meeting of shareholders for the election of Directors and for the transaction of such other proper business, notice of which is given in the notice of the meeting, shall be held on such date and at such time and place, within or without the State of Delaware, as shall be designated by the Board of Directors and set forth in the notice of such meeting. SECTION 1.02. Special Meetings. Special meetings of the shareholders may be called at any time by the Chairman of the Board of Directors or by the President of the Corporation or by the Board of Directors. Special meetings shall be held at such place within or without the State of Delaware and at such hour as may be designated in the notice of such meeting and the business transacted shall be confined to the object stated in the notice of the meeting. SECTION 1.03. Notice of Shareholders' Meetings. The notice of all meetings of shareholders shall be in writing and shall state the place, date and hour of the meeting. The notice of an annual meeting shall state that the meeting is called for the election of the Directors to be elected at such meeting and for the transaction of such other business as is stated in the notice of the meeting. The notice of a special meeting shall state the purpose or purposes for which the meeting is called and shall also indicate that it is being issued by or at the direction of the person or persons calling the meeting. A copy of the notice of each meeting of shareholders shall be given, personally or by mail, not less than ten days nor more than fifty days before the date of the meeting, to each shareholder entitled to vote at such meeting at his record address or at such other address as he may have furnished by request in writing to the Secretary of the Corporation. If a meeting is adjourned to another time or place, and, if any announcement of the adjourned time or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the adjournment is for more than thirty days or the Directors, after adjournment, fix a new record date for the adjourned meeting. Notice of a meeting need not be given to any shareholder who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of a shareholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting shall constitute a waiver of notice of the meeting. SECTION 1.04. Quorum at Shareholders' Meetings: Vote Required. At any meeting of the shareholders the holders of a majority of the outstanding shares entitled to vote thereat shall constitute a quorum. If there shall be less than a quorum at any meeting of the shareholders a majority of those present in person or by proxy may adjourn the meeting. Directors shall be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election. Whenever any corporate action, other than the election of Directors, is to be taken by vote of the shareholders, it shall, except as otherwise required by the General Corporation Law, be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. SECTION 1.05. Inspectors at Shareholders' Meetings. The Board of Directors, in advance of any shareholders meeting, may appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed, the person presiding at the shareholders' meeting may, and on the request of any shareholder entitled to vote thereat shall, appoint one or more inspectors. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting or any shareholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated and of the vote as certified by them. ARTICLE II ---------- DIRECTORS --------- SECTION 2.01. Qualifications and Number; Vacancies. A Director need not be a shareholder, a citizen of the United States, or a resident of the State of Delaware. The number of Directors constituting the entire Board is hereby fixed at seven (7) Directors of which group up to two (2) Directors may be internal Directors. The number of Directors may be changed by resolution of the Board of Directors adopted by the same vote that is necessary under Article VII hereof to amend these by-laws. The Directors shall be chosen from among the seven (7) nominees receiving the greatest plurality of votes from shareholders at the annual meeting of shareholders. 2 The number of Directors may be increased or decreased by amendment of these by-laws duly adopted by either the shareholders or a vote of the majority of the entire Board of Directors, provided that the number of Directors constituting the entire Board shall not be less than three. No decrease shall shorten the term of any incumbent Director. Any Director may be removed for cause by the shareholders. Vacancies and newly created directorships resulting from any increase in the authorized number of Directors may be filled by a majority of the Directors then in office, though less than a quorum, or by a sole remaining Director. SECTION 2.02. Term. Each director shall hold office until the next annual meeting of shareholders and until his successor has been elected and qualified. SECTION 2.03. Place and Time of Meetings of the Board. Regular and special meetings of the Board shall be held at such places (within or without the State of Delaware) and at such times as may be fixed by the Board or upon call of the President of the Corporation or of the executive committee or of any two Directors, provided that the Board of Directors shall hold at least four meetings a year. SECTION 2.04. Quorum and Manner of Acting. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business, but if there shall be less than a quorum at any meeting of the Board, a majority of those present (or if only one be present, then that one) may adjourn the meeting from time to time and the meeting may be held as adjourned without further notice. At all meetings of Directors, a quorum being present, all matters shall be decided by the vote of a majority of the Directors present at the time of the vote. SECTION 2.05. Remuneration of Directors. In addition to reimbursement for his reasonable expenses incurred in attending meetings or otherwise in connection with his attention to the affairs of the Corporation, each Director as such, and as a member of any committee of the Board, shall be entitled to receive such remuneration as may be fixed from time to time by the Board. SECTION 2.06. Notice of Meetings of the Board. Regular meetings of the Board may be held without notice if the time and place of such meetings are fixed by the Board. All regular meetings of the Board, the time and place of which have not been fixed by the Board, and all special meetings of the Board shall be held upon twenty-four hours' notice to the Directors given by letter or telegraph. No notice need specify the purpose of the meeting. Any requirement of notice shall be effectively waived by any Director who signs a waiver of notice before or after the meeting or who attends the meeting without protesting (prior thereto or at its commencement) the lack of notice to him. SECTION 2.07. Executive Committee and Other Committees. The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from among its members an Executive Committee and other committees to serve at the pleasure of the Board. Each committee shall consist of three or more Directors. During the intervals between the meetings of the Board, the Executive Committee shall have all of the authority of the Board of Directors. Each other committee shall be empowered to perform such functions as may, by resolution, be delegated to it by the Board. 3 The Board of Directors may designate one or more Directors as alternate members of any such committee, who may replace any absent member or members at any meetings of such committee. Vacancies in any committee, whether caused by resignation or by increase in the number of members constituting said committee, shall be filled by a majority of the entire Board of Directors. The Executive Committee may fix its own quorum. In the absence or disqualification of any member of any such committee, the member or members thereof present at any meeting and not disqualified from voting whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. SECTION 2.08. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the board, or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the board or committee. ARTICLE III ----------- OFFICERS -------- SECTION 3.01. Officers. The Board of Directors, at its first meeting held after the annual meeting of shareholders in each year shall elect a Chairman of the Board, Chairman of the Executive Committee, a President, one or more Vice Presidents, a Secretary and a Treasurer and may, in its discretion, also appoint from time to time such other officers or agents as it may deem proper. The Chairman of the Board, Chairman of the Executive Committee and the President shall be elected from among the members of the Board of Directors. Any two or more offices may be held by the same person. Unless otherwise provided in the resolution of election or appointment or in the employment agreement with an officer, each officer shall hold office until the meeting of the Board of Directors following the next annual meeting of shareholders and until his successor has been elected and qualified; provided, however, that the Board of Directors may, unless otherwise provided in such resolution or agreement, remove any officer for cause or without cause at any time. SECTION 3.02. Chairman of the Board. The Chairman shall, if present, preside at all meetings of the shareholders and Board of Directors. The Chairman shall act as lead director and serve as principal interface between the Board of Directors and management of the Corporation and shall work with the Chief Executive Officer to develop agendas for all meetings of the Board of Directors. He shall also consult with and recommend to the Nominating and Corporate Governance Committee, the membership of the various committees of the Board of Directors. The Chairman shall have the right to attend committee meetings of the Board of Directors whenever appropriate. The Chairman shall also do and perform any and all other acts and duties which may be assigned to him from time to time by the Board of Directors. 4 SECTION 3.03. Chairman of Executive Committee. The Chairman of the Executive Committee shall, if present, preside at all meetings of the Executive Committee and shall do and perform all other acts and duties which may be assigned to him from time to time by the Board of Directors. SECTION 3.04. President. In the absence of the Chairman of the Board or his inability to act, the President shall preside at all meetings of the shareholders and of the Board of Directors. The President shall do and perform all other acts and duties which may be assigned to him from time to time by the Board of Directors or the Chairman of the Board. SECTION 3.04A. Vice Presidents. The Vice Presidents shall do and perform such acts and duties as may be assigned to them from time to time by the Board of Directors, the Chairman of the Board or the President. SECTION 3.04B. Designations of CEO and COO. The Board of Directors shall from time to time designate the persons, whether by name or title, who shall be the Chief Executive Officer ("CEO") and Chief Operating Officer ("COO") of the Corporation. The CEO shall have general supervision of the affairs of the Corporation subject to the control of the Board of Directors. Both the CEO and the COO shall have the power on behalf of the Corporation to execute and deliver all contracts, instruments, conveyances or documents and to affix the corporate seal thereto. SECTION 3.05. Secretary. The Secretary shall keep minutes of the proceedings and the resolutions adopted at all meetings of the shareholders and the Board of Directors, and shall give due notice of the meetings of the shareholders and the Board of Directors. He shall have charge of the seal and all books and papers of the Corporation, and shall perform all duties incident to his office. In case of the absence or disability of the Secretary, his duties and powers may be exercised by such person as may be appointed by the Board of Directors or the Executive Committee. SECTION 3.06. Treasurer. The Treasurer shall receive all the monies belonging to the Corporation, and shall forthwith deposit the same to the credit of the Corporation in such financial institution as may be selected by the Board of Directors or the Executive Committee. He shall keep books of account and vouchers for all monies disbursed. He shall also perform such other duties as may be prescribed by the Board of Directors or Executive Committee or the President and in case of the absence or disability of the Treasurer, his duties and powers may be exercised by such person as may be appointed by the Board of Directors or Executive Committee. ARTICLE IV ---------- INDEMNIFICATION --------------- SECTION 4.01. Indemnification. (a) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 5 (b) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper. (c) To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b), or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) Any indemnification under subsections (a) and (b) (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b). Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. (e) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the manner provided in subsection (d) upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this Article IV. 6 (f) The indemnification provided by this Article IV shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) The Board of Directors may authorize, by a vote of a majority of the full Board, the Corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article IV. ARTICLE V --------- CAPITAL STOCK ------------- SECTION 5.01. Share Certificates. Each certificate representing shares of the Corporation shall be in such form as may be approved by the Board of Directors and, when issued, shall contain upon the face or back thereof the statements prescribed by the General Corporation Law and by any other applicable provision of law. Each such certificate shall be signed by the Chairman or President or a Vice President and by the Secretary or Treasurer or an Assistant Secretary or Assistant Treasurer. The signatures of said officers upon a certificate may be facsimile if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or its employee. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue. SECTION 5.02. Lost, Destroyed or Stolen Certificates. No certificate representing shares shall be issued in place of any certificate alleged to have been lost, destroyed or stolen, except on production of evidence of such loss, destruction or theft and on delivery to the Corporation, if the Board of Directors shall so require, of a bond of indemnity in such amount, upon such terms and secured by such surety as the Board of Directors may in its discretion require. SECTION 5.03. Transfer of Shares. The shares of stock of the Corporation shall be transferable or assignable on the books of the Corporation only by the person to whom they have been issued or his legal representative, in person or by attorney, and only upon surrender of the certificate or certificates representing such shares properly assigned. The person in whose name shares of stock shall stand on the record of shareholders of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. SECTION 5.04. Record Dates. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other action, the Board may fix, in advance, a date as the record date for any such determination of shareholders. Such date shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. 7 ARTICLE VI ---------- MISCELLANEOUS ------------- SECTION 6.01. Signing of Instruments. All checks, drafts, notes, acceptances, bills of exchange, and orders for the payment of money shall be signed in such manner and by such person or persons as may be authorized from time to time by the Board of Directors or the Executive Committee or by the by-laws. SECTION 6.02. Corporate Seal. The seal of the Corporation shall be in such form and shall have such content as the Board of Directors shall from time to time determine. ARTICLE VII ----------- AMENDMENTS OF BY-LAWS --------------------- SECTION 7.01. Amendments. These by-laws may be altered, amended or repealed at any meeting, by vote of a majority of the Board of Directors, provided that notices of the proposed amendments shall have been sent by mail to all the Directors not less than three days before the meeting at which they are to be acted upon, or at any regular meeting of the Directors, by the unanimous vote of all the Directors present. 8 EX-31.1 3 a4783340ex311.txt COMPETITIVE TECHNOLOGIES, INC. EXHIBIT 31.1 Exhibit 31.1 ------------ CERTIFICATION I, John B. Nano, President and Chief Executive Officer of Competitive Technologies, Inc., certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Competitive Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 14, 2004 /s/ John B. Nano ------------------------------ John B. Nano President and Chief Executive Officer of Competitive Technologies, Inc. EX-31.2 4 a4783340ex312.txt COMPETITIVE TECHNOLOGIES, INC. EXHIBIT 31.2 Exhibit 31.2 ------------ CERTIFICATION I, Michael D. Davidson, Chief Financial Officer of Competitive Technologies, Inc., certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Competitive Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 14, 2004 /s/ Michael D. Davidson ------------------------------ Michael D. Davidson Chief Financial Officer of Competitive Technologies, Inc. EX-32.1 5 a4783340ex321.txt COMPETITIVE TECHNOLOGIES, INC. EXHIBIT 32.1 Exhibit 32.1 ------------ CERTIFICATION BY THE PRINCIPAL EXECUTIVE OFFICER OF COMPETITIVE TECHNOLOGIES, INC. PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350) I, John B. Nano, am President and Chief Executive Officer of Competitive Technologies, Inc. (the Company). This certification is being furnished pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 (the "Exchange Act") and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Company's Quarterly Report on Form 10-Q for the quarter ended October 31, 2004 (the "Report"). I hereby certify that to the best of my knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act (15 U.S.C. 78m(a) or 78o(d)); and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: December 14, 2004 /s/ John B. Nano ------------------------------ John B. Nano President and Chief Executive Officer of Competitive Technologies, Inc. EX-32.2 6 a4783340ex322.txt COMPETITIVE TECHNOLOGIES, INC. EXHIBIT 32.2 Exhibit 32.2 ------------ CERTIFICATION BY THE PRINCIPAL FINANCIAL OFFICER OF COMPETITIVE TECHNOLOGIES, INC. PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350) I, Michael D. Davidson, am Chief Financial Officer of Competitive Technologies, Inc. (the Company). This certification is being furnished pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 (the "Exchange Act") and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Company's Quarterly Report on Form 10-Q for the quarter ended October 31, 2004 (the "Report"). I hereby certify that to the best of my knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act (15 U.S.C. 78m(a) or 78o(d)); and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: December 14, 2004 /s/ Michael D. Davidson ------------------------------ Michael D. Davidson Chief Financial Officer of Competitive Technologies, Inc. -----END PRIVACY-ENHANCED MESSAGE-----