COMPETITIVE TECHNOLOGIES INC - 10-Q Quarterly Report

Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 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]

Common Stock outstanding as of March 1, 2004 - 6,243,697 shares

Exhibit Index on sequentially numbered page 30 of 76.

Page 1 of 76 sequentially numbered pages

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION Page No.

Item 1. Financial Statements

A. Condensed Financial Statements (Unaudited)

Consolidated Balance Sheets at
January 31, 2004 and (Unaudited)
July 31, 2003 (Audited) 3

Consolidated Statements of Operations for the
three months ended January 31, 2004 and 2003 4

Consolidated Statements of Operations for the
six months ended January 31, 2004 and 2003 5

Consolidated Statement of Changes in
Shareholders' Interest for the six
months ended January 31, 2004 6

Consolidated Statements of Cash Flows for the
six months ended January 31, 2004, and 2003 7

Notes to Consolidated Financial Statements 8-19

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 20-28

Item 3. Quantitative and Qualitative Disclosures
About Market Risk 29

Item 4. Controls and Procedures 29

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 29

Item 4. Submission of Matters to a Vote
of Security Holders 30

Item 5. Other Information 30

Item 6. Exhibits and Reports on Form 8-K 30-31

Signatures 32

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 31, 2004 and July 31, 2003

January 31, July 31,
2004 2003
(Unaudited) (Audited)
ASSETS

Current assets:
Cash and cash equivalents $ 1,497,279 $ 1,404,615
Short-term investments 100,031 99,680
Receivables 897,281 957,275
Prepaid expenses and other current assets 152,134 275,019
Total current assets 2,646,725 2,736,589

Property and equipment, net 19,245 29,834
Investments, at cost 40,993 43,356
Intangible assets acquired, net 116,270 142,722
TOTAL ASSETS $ 2,823,233 $ 2,952,501

LIABILITIES AND SHAREHOLDERS' INTEREST

Current liabilities:
Accounts payable $ 261,247 $ 501,655
Accrued liabilities 824,799 1,281,419
Total current liabilities 1,086,046 1,783,074

Commitments and contingencies -- --

Shareholders' interest:
5% preferred stock, $25 par value 60,675 60,675
Common stock, $.01 par value 62,437 62,013
Capital in excess of par value 26,904,985 26,747,229
Accumulated deficit (25,290,910) (25,700,490)

Total shareholders' interest 1,737,187 1,169,427

TOTAL LIABILITIES AND SHAREHOLDERS'
INTEREST $ 2,823,233 $ 2,952,501

See accompanying notes

PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
for the three months ended January 31, 2004 and 2003
(Unaudited)

2004 2003

Revenues
Retained royalties $ 698,055 $ 833,004
Retained royalty settlements 250,000 --
948,055 833,004

Patent enforcement expenses, net of
reimbursements 14,174 118,362
Personnel and other direct expenses
relating to revenue 588,085 670,672
General and administrative expenses 371,157 515,787
973,416 1,304,821

Operating loss (25,361) (471,817)

Interest income 3,161 6,105
Other income (expense), net 86,487 (944,311)

Net income (loss) $ 64,287 $(1,410,023)

Net income (loss) per share:
Basic and diluted $ 0.01 $ (0.23)

Weighted average number of common
shares outstanding:
Basic 6,207,631 6,174,196
Diluted 6,398,726 6,174,196

See accompanying notes

PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
for the six months ended January 31, 2004 and 2003
(Unaudited)

2004 2003

Revenue
Retained royalties $ 1,084,954 $ 1,214,762
Retained royalty settlements 1,150,000 --
2,234,954 1,214,762

Patent enforcement expenses, net of
reimbursements 47,011 153,505
Personnel and other direct expenses
relating to revenue 1,146,894 1,410,668
General and administrative expenses 797,327 939,781
Reversal of accounts payable exchanged
for contingent note payable -- (1,583,445)
1,991,232 920,509

Operating income 243,722 294,253

Interest income 5,622 18,942
Other income (expense), net 160,236 (944,311)

Net income (loss) $ 409,580 $ (631,116)

Net income (loss) per share:
Basic and diluted $ 0.07 $ (0.10)

Weighted average number of common
shares outstanding:
Basic 6,204,488 6,166,284
Diluted 6,300,036 6,166,284

See accompanying notes

PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Interest
For the six months ended January 31, 2004
(Unaudited)

See accompanying notes

PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the six months ended January 31, 2004 and 2003
(Unaudited)

2004 2003
Cash flows from operating activities:
Net income (loss) $ 409,580 $ (631,116)
Noncash items included in net income (loss):
Depreciation and amortization 30,875 95,474
Stock compensation 33,266 40,740
Reversal of accounts payable exchanged
for contingent note payable -- (1,583,445)
Impairment loss on investment -- 944,000
Collection on Unilens receivable (160,235) --
Other, net 6,165 311
Net changes in various operating accounts:
Receivables 59,994 (730,335)
Prepaid expenses and other current
assets 122,885 (3,208)
Accounts payable and accrued
liabilities (599,072) 52,005
Net cash flows used in operating activities (96,542) (1,815,574)

Cash flows from investing activities:
Purchases of property and equipment -- (13,567)
Purchase of intangible assets -- (50,000)
Proceeds from short-term investments (351) 1,036,025
Sale of interests in E. L. Specialists, Inc. -- 200,000
Collection on Unilens receivable 160,235 --
Other 2,364 --
Net cash flows provided by investing
activities 162,248 1,172,458

Cash flows from financing activities:
Proceeds from exercise of stock options 26,958 --
New cash flows provided by financing
activities 26,958 --

Net increase (decrease) in cash and cash
equivalents 92,664 (643,116)
Cash and cash equivalents, beginning
of period 1,404,615 750,421
Cash and cash equivalents, end of period $ 1,497,279 $ 107,305

See accompanying notes

PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

1. Interim Financial Statements

Interim financial information presented in the accompanying
financial statements and notes hereto is unaudited.

In the opinion of management, all adjustments that are
necessary to present the financial statements fairly in
conformity with accounting principles generally accepted in the
United States of America, consisting only of normal recurring
adjustments, have been made.

The interim financial statements and notes thereto as well
as the accompanying Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in
conjunction with the Company's Annual Report on Form 10-K for the
year ended July 31, 2003.

The year-end balance sheet data were derived from audited
financial statements but do not include all disclosures required
by accounting principles generally accepted in the United States
of America.

Capital Requirements, Management's Plans and Basis of
Presentation

The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity
of operations, realization of assets and liquidation of
liabilities in the ordinary course of business. At January 31,
2004, the Company's accumulated deficit was $25,290,910. At
January 31, 2004, its cash, cash equivalents and short-term
investments were $1,597,310.

The Company has incurred substantial operating and net
losses in the three years ended July 31, 2003. Net patent
enforcement expenses related to the Fujitsu and LabCorp
litigations and investment losses have been substantial. In
addition, the Company has incurred $534,000 cumulatively through
January 31, 2004 for professional advice related to the ongoing
SEC investigation (see Note 8 to Consolidated Financial
Statements). Accordingly, our auditor's opinion with respect to
our financial statements as of and for the year ended July 31,
2003 included an explanatory paragraph with respect to our
ability to continue as a going concern.

Management has and continues to take actions to improve the
Company's results. These actions include aggressively pursuing
new license agreements, reducing cash operating expenses,
deferring payment of certain liabilities, structuring payment
obligations contingent upon revenues, selling portions of CTT's
share of the potential Materna award, and collecting amounts
previously written off.

See also Note 10 to the accompanying Consolidated Financial
Statements.

The amounts and timing of the Company's future cash
requirements will depend on many factors, including the results
of the Company's marketing efforts, the Materna(TM) award,
Fujitsu and LabCorp lawsuits (see Note 8 to accompanying
Consolidated Financial Statements), the SEC investigation, and
the Company's fund raising efforts. To achieve profitability,
the Company must successfully license technologies with current
and long-term revenue streams greater than its operating
expenses. To sustain profitability, the Company must continually
add such licenses. However, royalty revenues, obtaining rights
to new technologies, granting licenses, and enforcing
intellectual property rights are subject to many factors outside
our control or that we cannot currently anticipate. Although we
cannot assure you that we will be successful in these efforts,
management believes its plan would sustain the Company at least
through fiscal 2005.

2. Net Income (Loss) Per Share

The following table sets forth the computations of basic and
diluted net income (loss) per share.

At January 31, 2004 and 2003, respectively, options and
warrants to purchase 573,428 and 997,767 shares of common stock
were outstanding but were not included in the computation of
earnings per share because they were anti-dilutive (of total
options and warrants outstanding of 1,113,717 and 997,767,
respectively).

3. Stock-Based Compensation

The Company accounts for stock-based compensation at its
intrinsic value under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
Interpretations. Accordingly, the Company has recognized no
compensation expense for options granted under its employees and
directors stock option plans since the exercise price of all
options granted under those plans was at least the market value
of the underlying common stock on the grant date.

If CTT had determined compensation expense for its option
grants under its employees and directors stock option plans using
the fair value method of Financial Accounting Standards Board
Statement No. 123, "Accounting for Stock-Based Compensation," the
Company's results would have been:

The pro forma information above may not be representative of
pro forma fair value compensation effects in future periods.

4. Unilens Receivable

In 1989, the Company sold substantially all the assets of
University Optical Products Co. (UOP) to Unilens Corp. USA for $6
million dollars, including a $5.5 million installment receivable.
Due to uncertainties related to its collection, the Company wrote
off the entire installment receivable in fiscal 1989 and 1990.
The Company deemed the receivable balance of $4.7 million
uncollectible.

Effective October 17, 2003, Unilens Corp. USA and Unilens
Vision Inc. (Unilens) agreed to pay CTT an aggregate of
$1,250,000 in quarterly installments of the greater of $100,000
or an amount equal to 50% of the royalties received by Unilens
from one licensee. CTT and Unilens also agreed to settle all
prior claims and to terminate all prior agreements between them.
At January 31, 2004, Unilens has paid aggregate installments of
$203,000. Installments are due each March 31, June 30, September
30 and December 31 beginning December 31, 2003. Unilens granted
CTT a security interest in all Unilens real and personal property
that is subordinate to a security interest held by UNIINVEST
Holding AG in respect of $450,000 plus interest owed by Unilens
to UNIINVEST Holding AG.

Due to Unilens' financial condition and the uncertainty of
its payments on this receivable ($1,047,000 at January 31, 2004),
the Company will record other income as it receives payments from
Unilens.

5. Receivables

Receivables were:
January 31, July 31,
2004 2003

Royalties $ 888,952 $ 905,654
Other 8,329 51,621
$ 897,281 $ 957,275

6. Intangible Assets Acquired

The Company reported an impairment charge of $6,166 in
the first half of fiscal 2004.

The Company reported amortization expense of $20,286 and
$78,759, in the first half of fiscal 2004 and 2003, respectively,
and expects to record annual amortization expense of
approximately $39,000 for fiscal 2004, $38,000 for fiscal 2005,
$24,000 for fiscal 2006 and $3,000 for fiscal 2007 and 2008.

January 31, July 31,
2004 2003
Intangible assets acquired,
principally licenses and
patented technologies,
at adjusted cost $ 1,204,820 $ 1,687,067
Impairment charge (6,166) (482,247)
Accumulated amortization (1,082,384) (1,062,098)
$ 116,270 $ 142,722

7. Accrued Liabilities

Accrued liabilities were:
January 31, July 31,
2004 2003

Royalties payable $ 532,070 $ 854,616
Accrued professional fees 31,750 156,840
Accrued compensation 155,103 217,952
Accrued rent 48,750 --
Other 57,126 52,011
$ 824,799 $ 1,281,419

Accrued compensation at January 31, 2004 and July 31, 2003
included bonuses aggregating $50,000 for the fiscal year ended
July 31, 2003. The Board of Directors awarded cash bonuses to
administrative and professional staff (with the exception of Mr.
Nano) for their efforts towards furthering the Company's goals to
build recurring revenue streams and increase shareholder value.
These bonuses will be paid to employees upon receipt of the
potential Materna award (see Note 8 to accompanying Consolidated
Financial Statements).

8. Contingencies

Contingent Obligations

CTT and Vector Vision, Inc. (VVI, a CTT consolidated
subsidiary) have contingent future royalty obligations of
$199,569 and $224,127, respectively, at January 31, 2004 to
repay grant funding.

Under a promissory note, the Company is contingently
obligated to our former patent litigation counsel in the
Fujitsu matter for $1,683,349 plus simple interest at the
annual rate of 11% from October 28, 2002, payable only from
future receipts in a settlement or other favorable outcome
of the litigation against Fujitsu, if any. When we made
this agreement in the first quarter of fiscal 2003, we
reversed from accounts payable and recognized other
operating income of $1,583,445 that was accrued at July 31,
2002. Since interest is also contingently payable, the
Company has recorded no interest expense with respect to
this note.

Litigation

Fujitsu

In December 2000, (coincident with filing a complaint
with the United States International Trade Commission (ITC)
that was withdrawn in August 2001) CTT and the University of
Illinois filed a complaint against Fujitsu Limited, Fujitsu
General Limited, Fujitsu General America, Fujitsu
Microelectronics, Inc. and Fujitsu Hitachi Plasma Display
Ltd. (Fujitsu et al.) in the United States District Court
for the Central District of Illinois seeking damages for
past infringements and an injunction against future sales of
plasma display panels (PDPs) that infringe two U.S. patents
held by CTT's client, the University of Illinois. The two
patents cover energy recovery in flat plasma display panels.
In July 2001, CTT reactivated this complaint to pursue legal
remedies (damages for past infringing sales and possibly
damages for willfulness) that are not available at the ITC.
In May 2002, the District Court granted defendants' motion
to transfer this case to the Northern District of
California. On July 31, 2003, the judge in this case issued
his Markman decision to determine the scope of and the
interpretation of terms in the underlying patent claims.
The Court has since stayed all issues in both the underlying
case and the counterclaims except issues relating to summary
judgment. Currently, no trial is scheduled pending the
outcome of summary judgment motions and possible appeal
options.

Since July 23, 2002, the University of Illinois has
taken the lead in this litigation and assumed the cost of
new lead counsel. Before that, CTT bore the entire cost of
lead counsel in this litigation. In December 2002, CTT was
dismissed as co-plaintiff from this litigation but retains
its economic interest in any potential favorable outcome.

In September 2001, Fujitsu et al. filed suit against
CTT and Plasmaco, Inc. in the United States District Court
for the District of Delaware (subsequently dismissed and
refiled in the Northern District of California). This
lawsuit alleged, among other things, that CTT
misappropriated confidential information and trade secrets
supplied by Fujitsu during the course of the ITC action. It
also alleged that, with Plasmaco's assistance, CTT abused
the ITC process to obtain information to which it otherwise
would not have been entitled and which it will use in the
action against Fujitsu in the United States District Court
for the Northern District of California. On February 3,
2004, the U.S. Court of Appeals for the Federal Circuit
heard oral arguments on appeal by the University of Illinois
(now a defendant in this suit) of the District Court ruling
that sovereign immunity does not attach to certain of the
counterclaims.

CTT is unable to estimate the legal expenses or the
loss it may incur or the possible damages it may recover in
these suits, if any, and has recorded no potential judgment
proceeds in its financial statements to date. The Company
records expenses in connection with this suit as they are
incurred.

LabCorp

On May 4, 1999, Metabolite Laboratories, Inc. (MLI) and
CTT (collectively plaintiffs) filed a complaint and jury
demand against Laboratory Corporation of America Holdings
d/b/a LabCorp (LabCorp) in the United States District Court
for the District of Colorado. The complaint alleged, among
other things, that LabCorp owes plaintiffs royalties for
homocysteine assays performed beginning in the summer of
1998 using methods falling within the claims of a patent
owned by CTT. CTT licensed the patent non-exclusively to
MLI and MLI sublicensed it to LabCorp. Plaintiffs claimed
LabCorp's actions constitute breach of contract and patent
infringement. The claim sought an injunction ordering
LabCorp to perform all its obligations under its agreement,
to cure past breaches, to provide an accounting of
wrongfully withheld royalties and to refrain from infringing
the patent. Plaintiffs also sought unspecified money and
exemplary damages and attorneys' fees, among other things.
LabCorp filed an answer and counterclaims alleging
noninfringement, patent invalidity and patent misuse.

The jury that heard this case in November 2001
confirmed the validity of CTT's patent rights and found that
LabCorp willfully contributed to and induced infringement
and breached its contract. In December 2001, the Court
entered judgment affirming the jury's verdict.

In November 2002, the Court confirmed its judgment in
favor of CTT and MLI. The Court's amended judgment awarded
CTT approximately $1,019,000 damages, $1,019,000 enhanced
damages, $560,000 attorneys' fees and $132,000 prejudgment
interest. If the Court's judgment is upheld on appeal, CTT
will retain approximately $1,100,000 of damages awarded plus
post-judgment interest at the statutory rate. The U.S.
Court of Appeals for the Federal Circuit heard oral
arguments in this case on November 5, 2003 and we await its
decision.

CTT is unable to estimate the legal expenses it may
incur or the possible damages it may ultimately recover in
this suit, if any. CTT has not recorded revenue in its
financial statements to date for awarded damages, awarded
enhanced damages, awarded attorneys' fees or awarded
interest from the Court's November 2002 judgment. CTT will
record these revenues, if any, when the awards are final and
collectible. The Company records expenses in connection
with this suit as they are incurred.

In a January 2003 Stipulated Order, LabCorp agreed to
post a bond for all damages awarded in the November 2002
judgment and to pay CTT a percentage of sales of
homocysteine tests performed since November 1, 2002 through
final disposition of this case. In addition, pursuant to
this order, LabCorp paid $250,000 for homocysteine assays
performed from November 1, 2001 through October 31, 2002.
In exchange, this Stipulated Order stayed execution of the
monetary judgment and the permanent injunction against
LabCorp in the Court's November 2002 judgment. This
Stipulated Order is without prejudice to any party's
position on appeal. Since January 2003, CTT has received
cumulative royalties of $1,003,029 (revenues of $401,211 (of
which $99,954 relate to assays performed from November 1,
2001 through October 31, 2002) and royalties paid or payable
of $601,818 to our clients) from LabCorp pursuant to this
January 2003 Stipulated Order. If the November 2002
judgment in favor of CTT is reversed on appeal, LabCorp's
ability to recover amounts paid to CTT, if at all, may
depend on the extent and reason for the reversal. CTT's
management believes the probability that LabCorp will
recover such amounts is very unlikely.

Materna(TM)

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 (now a subsidiary of Wyeth),
defendant, in the United States District Court for the
District of Colorado. This case involved a patent for an
improved formulation of Materna, a prenatal vitamin compound
sold by defendant. While the Company was not and is not a
party to this case, the Company had a contract with the
University of Colorado to license University of Colorado
inventions to third parties. As a result of this contract,
the Company is entitled to share 18.2% of damages awarded to
the University of Colorado, if any, after deducting the
expenses of this suit.

On July 7, 2000, the District Court concluded that
Robert H. Allen and Paul A. Seligman were the sole inventors
of the reformulation of Materna that was the subject of the
patent and that defendant is liable to them and the other
plaintiffs on their claims for fraud and unjust enrichment.

On August 13, 2002, the District Court judge awarded
approximately $54 million, plus certain interest from
January 1, 2002, to the plaintiffs. The defendant has
posted a $59 million bond.

On September 3, 2003, a three-judge panel of the U.S.
Court of Appeals for the Federal Circuit (CAFC) unanimously
affirmed the August 13, 2002 judgment. In November 2003,
the CAFC denied the defendant's appeal requesting a
rehearing en banc.

On February 12, 2004, the defendant filed petition for
certiorari (a request that the U.S. Supreme Court hear its
appeal) to the U.S. Supreme Court.

Based on the language of the September 3, 2003
judgment, CTT's management believes there is a very
reasonable possibility the Company will receive its share of
damages finally awarded plus its proportionate share of
interest. CTT has recorded no potential judgment proceeds
in its financial statements to date. CTT will record
revenue for judgment proceeds when it receives them.

Sales of portions of expected Materna award

Effective October 30, 2003, CTT sold to LawFinance
Group, Inc. (LFG) a second portion of its expected
$6,000,000 patent infringement judgment against American
Cyanamid Company (Defendant) in the Materna lawsuit. On
October 31, 2003, CTT received $900,000 cash in exchange for
an Assigned Portion (plus court awarded interest thereon
from October 31, 2003) of CTT's share of the potential award
and recorded $900,000 in retained royalty settlement revenue
in first quarter 2004. In management's opinion, it is most
likely that the Assigned Portion will be $1,125,000.

According to this LFG agreement, the Assigned Portion
relating to the above transaction will be:

a) $1,125,000 if, in the current Appeal, Defendant
does not file a petition for certiorari with the United
States Supreme Court (Supreme Court) or the Supreme Court
denies Defendant's petition for certiorari during the
current 2003-2004 Term and LFG receives full payment within
7 days of CTT's receiving payment from Defendant, or

b) $2,160,000 if, in the current Appeal, Defendant
files a petition for certiorari with the Supreme Court and
the Supreme Court grants Defendant's petition and LFG
receives full payment within 7 days of CTT's receiving
payment from Defendant, or

c) $1,400,000 in any circumstance that does not meet
the conditions of a) or b).

CTT has no financial obligation to repay LFG or to
return any portion of the aggregate $1,500,000 received from
LFG as of January 31, 2004. (On May 19, 2003, CTT received
$600,000 cash from LFG in exchange for $1,290,000 (plus
court awarded interest from May 19, 2003) of CTT's share of
the potential award.) If CTT's share of the potential award
is less than the total amount sold to LFG, the entire amount
would be paid to LFG and LFG would be deemed paid in full.
CTT granted LFG a first security interest in CTT's share of
the potential award.

Effective November 17, 2003, CTT sold to a CTT
shareholder $312,500 (plus court awarded interest thereon
from November 14, 2003) of its expected judgment in the
Materna lawsuit in exchange for $250,000 in cash. CTT
granted this shareholder a security interest subordinate to
that of LFG in CTT's share of the potential award.

If the judgment in the Materna lawsuit is reversed in
an unappealable decision by the appropriate court, or if
there are no litigation proceeds to be distributed, the
Company has no financial obligation to repay this
shareholder in either cash or shares of CTT common stock.
If the award remaining after all amounts due to LFG is less
than $312,500, CTT shall pay this shareholder the difference
in shares of CTT common stock valued at its market value on
the day of distribution, after which he would be deemed paid
in full.

Depending on the conditions described in a), b) and c)
above relative to LFG, at January 31, 2004, CTT retained the
remaining anticipated a) $3,272,500, b) $2,237,500, or c)
$2,997,500 proceeds from this expected award (plus court
awarded interest thereon) in addition to the $1,750,000
already received from LFG and this shareholder.

SEC Investigation

By letter of May 17, 2001, CTT received a subpoena from
the Securities and Exchange Commission (SEC) seeking certain
documents in connection with the SEC's private investigation
captioned "In the Matter of Trading in the Securities of
Competitive Technologies, Inc."

On June 12, 2003, the staff of the Securities and
Exchange Commission sent written "Wells Notices" to the
Company, Frank R. McPike, Jr., (then the Company's Executive
Vice President and Chief Financial Officer), Samuel M.
Fodale (a director of the Company) and George C. J. Bigar (a
former director of the Company). The "Wells Notices"
indicated that the staff intended to recommend that the
Commission bring a civil action against the Company and the
individuals in the matter of trading in the stock of the
Company, which the Company believes relates to the Company's
stock repurchase program under which the Company repurchased
shares of its stock from time to time during the period from
October 28, 1998 to March 22, 2001.

The Company, Mr. McPike, Mr. Fodale and Mr. Bigar have
responded in writing to their respective "Wells Notices."
The Company continues to cooperate with the Commission staff
in this matter and awaits notice of the staff's formal
recommendation of what action, if any, the Commission might
take against the Company.

CTT has agreed, pursuant to Article IV of its By-laws,
to advance to Mr. Fodale his expenses incurred in connection
with this investigation, and Mr. Fodale has agreed to repay
amounts so advanced if it is ultimately determined that he
is not entitled to be indemnified by CTT as authorized by
Article IV. As of January 31, 2004, the Company has
advanced $101,000 pursuant to this agreement.

As of January 31, 2004, the Company has also paid
$356,000 and accrued an additional $77,000 for the Company's
and several current and former directors' (excluding Mr.
Fodale, addressed above) related legal fees in the matter,
which were in the aggregate approximately $433,000 to
January 31, 2004. Except for Mr. Fodale, no individual
current or former director's cumulative fees exceeded
$60,000 at January 31, 2004.

The Company has filed a claim under its directors' and
officers' liability insurance with Federal Insurance Company
of Warren, New Federal Jersey (Federal) for reimbursement of
these fees in excess of the policy deductible. Federal
denied the Company's claim. As a result, on February 3,
2004, the Company filed a complaint in the U.S. District
Court for the District of Connecticut against Federal to
enforce its claim. The Company will record any
reimbursements for these expenses when it receives them.

Other

Pursuant to a severance agreement dated November 1,
2003, CTT agreed, among other things, to pay Mr. McPike up
to $112,500 if and only if CTT receives settlement funds
from the Materna litigation discussed above. CTT also
agreed to extend the expiration date of his stock options
vested at November 1, 2003 to the earlier of ten years from
their grant date or November 1, 2006.

By letter dated October 7, 2003, the U.S. Department of
Labor notified CTT 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 request that the
Occupational Safety and Health Administration (OSHA) investigate
and, if appropriate, prosecute such violations and request OSHA's
assistance in obtaining fair and reasonable reimbursement and
compensation for damages. Management believes these claims are
without merit and the Company has responded to the complaints.
It cannot estimate the final outcome of these complaints or the
related legal or other expenses it may incur.

9. Related Party Transactions

During the six months ended January 31, 2004 and 2003, CTT
incurred charges (reported in personnel and other direct expenses
relating to revenues) of approximately $5,300 and $6,000,
respectively, related to consulting services provided by one
director.

10. Subsequent Event

On February 25, 2004, CTT entered into an agreement to
obtain up to $5 million in equity financing from Fusion Capital
Fund II, LLC (Fusion). Under the agreement, Fusion agreed to
purchase up to $5 million of newly issued CTT common stock over a
period of time up to 20 months. CTT has the right to control the
timing and the amount of stock sold, if any, to Fusion.

In this agreement, CTT agreed to initially issue at no cost
to Fusion 53,138 commitment shares of CTT restricted common stock
and an additional 35,425 commitment shares of CTT common stock on
a pro rata basis as CTT obtains funds from selling common stock
to Fusion. CTT will pay no cash commitment fee to Fusion to
obtain this agreed funding.

Under this agreement, funding of the initial $5 million
would occur over a period of time commencing upon fulfillment of
certain conditions, including the Securities and Exchange
Commission declaring effective a registration statement covering
the resale by Fusion of the commitment shares and newly issued
shares of common stock to be purchased by Fusion. Upon
completion of this funding, at CTT's sole discretion, it has the
right to enter into a new agreement with Fusion covering the sale
of up to an additional $5 million of common stock.

When funding commences, Fusion has agreed to purchase on
each trading day $12,500 of our common stock. The purchase price
per share will be equal to the lesser of:

-- the lowest sale price of our common stock on the
purchase date; or

-- the average of the three lowest closing sale prices
during the 12 consecutive trading days prior to the date of
purchase.

We may, subject to certain provisions, set a minimum purchase
price from time to time (currently $3.00 per share). Fusion does
not have the right or obligation to purchase our stock in the
event that the price of our stock is less than $1.00 per share.

We presently estimate that the maximum number of shares we
will sell to Fusion (exclusive of commitment fee shares) will be
1,159,552 shares. Therefore, the selling price of our common
stock to Fusion will have to average at least $4.32 per share for
us to receive the maximum proceeds of $5 million.

Under our agreement with Brooks, Houghton & Company, Inc.,
our financial advisor who assisted in arranging the transaction
with Fusion, we will pay the advisor a cash fee of $50,000 plus
up to $200,000 in installments as we receive amounts from Fusion
(5% of $5 million in the aggregate). In addition, we will grant
to the advisor five-year warrants to purchase 57,537 shares of
our common stock (approximately 5% of 1,159,552 shares, the
maximum number of shares that may be sold to Fusion) at an
exercise price of $4.345 per share (110% of the $3.95 average
closing price of our common stock for a ten (10) day trading
period ended January 21, 2004 that was used to determine the
88,563 commitment shares issuable to Fusion).

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations

We have rounded all amounts in this Item 2 to the nearest
thousand dollars. In addition, all periods discussed in this Item 2
relate to our fiscal years 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 January 31, 2004 (Second
Quarter 2004) vs. Three Months Ended January 31, 2003 (Second
Quarter 2003)

Summary Results

Net income for our second quarter 2004 was $64,000 compared
with a loss of $1,410,000 for our second quarter 2003, an
improvement of $1,474,000.

Revenues

In our second quarter 2004, $790,000 (83%) of our revenues were
from four technologies: Ethyol $300,000 (32%), the sale of a
portion of expected Materna award, $250,000 (26%), the homocysteine
assay, $135,000 (14%) and gallium arsenide $105,000 (11%).

Total revenues in our second quarter 2004 were $948,000, which
was $115,000 (14%) higher than in our second quarter 2003,
principally because of $300,000 royalty revenues from Ethyol(TM)
(none in second quarter 2003) and retained royalty settlement
revenues of $250,000 from sale of a portion of our potential award
in the Materna(TM) lawsuit in our second quarter 2004 (see Note 8 to
the accompanying Consolidated Financial Statements).

Offsetting these increases were a $173,000 reduction in gallium
arsenide revenues, $162,000 of nonrecurring second quarter 2003
revenues (see the Company's Annual Report on form 10-K for the year
ended July 31, 2003) and a reduction of $100,000 because of other
expiring licenses. Lower sales of licensed products, timing
differences and expiring licenses caused the reduction in gallium
arsenide revenues. Our licenses generally expire when the last of
the licensed patents expires.

Operating expenses

Patent enforcement expenses, net of reimbursements, of $14,000
in second quarter 2004 were $104,000 (88%) lower than in second
quarter 2003. The level of patent enforcement expenses varies
depending on the stage of the litigation. We have included details
of progress and status in these cases in Note 8 to the accompanying
Consolidated Financial Statements.

Personnel and other direct expenses relating to revenue were
$588,000 for second quarter 2004, which was $83,000 (12%) lower than
the $671,000 in second quarter 2003. Personnel expenses (which
include costs of consultants engaged to assist us in developing
specific revenue opportunities and strategic alliances and
relationships) were $68,000 lower in second quarter 2004. In second
quarter 2004, we had approximately 14 full-time equivalents compared
with approximately 16 in second quarter 2003. In addition,
amortization expense on intangible assets was $30,000 lower in
second quarter 2004.

General and administrative expenses for second quarter 2004
were $371,000, which was $145,000 (28%) lower than the $516,000 for
second quarter 2003. We reduced proxy and annual report expenses by
$57,000, audit and tax expenses by $33,000 and legal expenses
directly related to the SEC investigation by $69,000 (see Note 8 to
Consolidated Financial Statements) in our second quarter 2004.
Financing expenses increased $31,000.

Other income, net

Other income, net, for second quarter 2004 included a $103,000
installment received from Unilens Corp. USA pursuant to a settlement
agreement effective October 17, 2003, partially offset by related
expenses.

We recorded an impairment charge of $944,000 on our investment
in NTRU Cryptosystems, Inc. in our second quarter 2003.

Results of Operations - Six Months Ended January 31, 2004 (First
Half 2004) vs. Six Months Ended January 31, 2003 (First Half 2003)

Summary Results

Net income for our first half 2004 was $410,000 compared with a
loss of $631,000 for our first half 2003, an improvement of
$1,041,000.

Revenues

In our first half 2004, $1,850,000 (83%) of our revenues were
from three technologies: the sales of portions of expected Materna
award $1,150,000 (52%), the homocysteine assay $401,000 (18%) and
Ethyol $300,000 (13%).

Total revenues in our first half 2004 were $2,235,000,
which was $1,020,000 (84%) higher than in our first half 2003,
principally because of retained royalty settlement revenues of
$1,150,000 in our first half 2004 from sales of portions of our
potential award in the Materna(TM) lawsuit discussed in Note 8
to accompanying Consolidated financial Statements. Royalty
revenues from Ethyol increased $153,000 due to increasing sales
and their effect on when we record these royalties, up to our
$500,000 per calendar year maximum. In our first half 2004, we
recorded $300,000 of Ethyol royalties in the second quarter and
none in the first quarter. In our first half 2003, we recorded
$147,000 of Ethyol royalties in the first quarter and none in
the second quarter. We expect to record the remaining $200,000
of our calendar year 2004 Ethyol royalties in our third quarter
2004. CTT received $140,000 homocysteine revenues from
settlement of a royalty audit in our first half 2004.
Recurring royalty revenues from homocysteine assays increased
$101,000 (63%).

Partially offsetting these increases were a $200,000 reduction
in gallium arsenide revenues, a $163,000 reduction because of other
expiring licenses and $162,000 of nonrecurring first half 2003
revenues (see the Company's Annual Report on Form 10-K for the year
ended July 31, 2003). Lower sales of licensed products, timing
differences and expiring licenses caused the reduction in gallium
arsenide revenues.

Operating expenses

Patent enforcement expenses, net of reimbursements, of $47,000
in first half 2004 were $106,000 (69%) lower than in first half
2003. The level of patent enforcement expenses varies depending on
the stage of the litigation. We have included details of progress
and status in these cases in Note 8 to the accompanying Consolidated
Financial Statements.

Personnel and other direct expenses relating to revenue were
$1,147,000 for first half 2004, which was $264,000 (19%) lower than
the $1,411,000 in first half 2003. Personnel expenses (which
include costs of consultants engaged to assist us in developing
specific revenue opportunities and strategic alliances and
relationships) were $250,000 lower in first half 2004. In first
half 2004, we had approximately 14 full-time equivalents compared
with approximately 16 in first half 2003.

General and administrative expenses for first half 2004 were
$797,000, which was $142,000 (15%) lower than the $940,000 for first
half 2003. We reduced proxy and annual report expenses by $83,000,
audit and tax expenses by $45,000 and legal expenses directly
related to the SEC investigation by $36,000 (see Note 8 to
accompanying Consolidated Financial Statements) in first half 2004.
Financing expenses increased $65,000.

Reversal of accounts payable exchanged for contingent note payable

In first quarter 2003, we reversed from accounts payable
$1,583,000 that was accrued at July 31, 2002. This one-time
reversal constituted other operating income (see Note 8 to
accompanying Consolidated financial Statements).

Other income, net

Other income, net, for first half 2004 included $203,000 of
installments received from Unilens Corp. USA pursuant to a
settlement agreement effective October 17, 2003, partially offset by
related and other expenses (see Note 4 to accompanying Consolidated
Financial Statements).

We recorded an impairment charge of $944,000 on our investment
in NTRU Cryptosystems, Inc. in our second quarter 2003.

The Company has substantial net operating and capital loss
carryforwards for Federal income tax purposes.

Financial Condition and Liquidity

Condition at January 31, 2004

At January 31, 2004, the Company had net working capital of
$1,561,000 (which was $607,000 more than at July 31, 2003) and no
outstanding debt or available credit facility. However, see $5
Million Equity Financing below.

At January 31, 2004, cash, cash equivalents and short-term
investments of $1,597,000 were $93,000 higher than at July 31, 2003
and were available to support our current operating needs.
Operating activities in first half 2004 used $97,000 of cash:
$600,000 for paying accounts payable and accrued liabilities
partially offset by $410,000 from net income, $123,000 from prepaid
expenses and other current assets and $60,000 from collecting
receivables. Investing activities provided $162,000 of cash
primarily from the Unilens payment described above. Financing
activities provided $27,000 from exercise of stock options.

In addition to fluctuations in the amounts of royalties
reported, changes in royalties receivable and payable reflect the
Company's normal cycle of royalty collections and payments.

Funding and capital requirements

$5 Million Equity Financing

On February 25, 2004, CTT entered into an agreement to obtain
up to $5 million in equity financing from Fusion Capital Fund II,
LLC (Fusion). Under the agreement, Fusion agreed to purchase up to
$5 million of newly issued CTT common stock over a period of time up
to 20 months. CTT has the right to control the timing and the
amount of stock sold, if any, to Fusion.

In this agreement, CTT agreed to initially issue at no cost to
Fusion 53,138 commitment shares of CTT restricted common stock and
an additional 35,425 commitment shares of CTT common stock on a pro
rata basis as CTT obtains funds from selling common stock to Fusion.
CTT will pay no cash commitment fee to Fusion to obtain this agreed
funding.

Under this agreement, funding of the initial $5 million would
occur over a period of time commencing upon fulfillment of certain
conditions, including the Securities and Exchange Commission
declaring effective a registration statement covering the resale by
Fusion of the commitment shares and newly issued shares of common
stock to be purchased by Fusion. Upon completion of this funding,
at CTT's sole discretion, it has the right to enter into a new
agreement with Fusion covering the sale of up to an additional $5
million of common stock.

When funding commences, at CTT's sole option, Fusion has agreed
to purchase $12,500 of our common stock on each trading day. The
purchase price per share will be equal to the lesser of:

-- the lowest sale price of our common stock on the purchase
date; or

-- the average of the three lowest closing sale prices during
the 12 consecutive trading days prior to the date of purchase. See
Note 10 to the accompanying Consolidated Financial Statements.

Capital requirements

The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity of
operations, realization of assets and liquidation of liabilities in
the ordinary course of business. At January 31, 2004, the Company's
accumulated deficit was $25,290,910. At January 31, 2004, its cash,
cash equivalents and short-term investments were $1,597,310.

The Company has incurred substantial operating and net losses
in the three years ended July 31, 2003. Net patent enforcement
expenses related to the Fujitsu and LabCorp litigations and
investment losses have been substantial. In addition, the Company
has incurred $534,000 cumulatively through January 31, 2004 for
professional advice related to the ongoing SEC investigation (see
Note 8 to Consolidated Financial Statements). Accordingly, our
auditor's opinion with respect to our financial statements as of and
for the year ended July 31, 2003 included an explanatory paragraph
with respect to our ability to continue as a going concern.

Management has and continues to take actions to improve the
Company's results. These actions include aggressively pursuing new
license agreements, reducing cash operating expenses, deferring
payment of certain liabilities, structuring payment obligations
contingent upon revenues, selling portions of CTT's share of the
potential Materna award, and collecting amounts previously written
off.

See also the $5 Million Equity Financing above.

The amounts and timing of the Company's future cash
requirements will depend on many factors, including the results of
the Company's marketing efforts, the Materna(TM) award, Fujitsu and
LabCorp lawsuits (see Note 8 to accompanying Consolidated Financial
Statements), the SEC investigation, and the Company's fund raising
efforts. To achieve profitability, the Company must successfully
license technologies with current and long-term revenue streams
greater than its operating expenses. To sustain profitability, the
Company must continually add such licenses. However, royalty
revenues, obtaining rights to new technologies, granting licenses,
and enforcing intellectual property rights are subject to many
factors outside our control or that we cannot currently anticipate.
Although we cannot assure you that we will be successful in these
efforts, management believes its plan would sustain the Company at
least through fiscal 2005.

Compliance with American Stock Exchange listing standards

At July 31, 2003, CTT's shareholders' interest was $1,169,000.
On November 12, 2003, the American Stock Exchange (AMEX) notified
CTT that it did not meet certain AMEX listing standards and that the
Company must submit a plan for returning to compliance with those
standards to maintain its AMEX listing. On January 23, 2004, AMEX
notified CTT that AMEX had accepted CTT's plan to regain compliance
with AMEX continued listing standards and that AMEX was continuing
CTT's listing pursuant to an extension. To maintain its listing,
CTT is required to make progress consistent with its plan during the
extension period and to regain compliance with AMEX continued
listing standards by May 12, 2005. We cannot assure you if or when
we will again meet AMEX listing requirements.

Installment receivable from Unilens Corp. USA and Unilens Vision,
Inc. (Unilens)

Due to Unilens' financial condition and the uncertainty of its
payments on our installment receivable ($1,047,000 at January 31,
2004), the Company will record other income as it receives payments
from Unilens (see Note 4 to accompanying Consolidated Financial
Statements).

Commitments

In addition to liabilities recorded at January 31, 2004,
the Company's commitments were:

Payments Due by Period
Less More
At January 31, 2004 than 1-3 3-5 than 5
Contractual Obligations Total 1 year years years years

Operating lease
obligations $735,000 $294,000 $441,000 $ -- $ --
Other
obligations 19,000 4,000 15,000 -- --
$754,000 $298,000 $456,000 $ -- $ --

The Company's other commitments are either contingent upon a
future event or terminable on less than thirty days' notice.

Our directors, officers, employees and agents may claim
indemnification in certain circumstances. We are currently exposed
to potential indemnification claims in connection with the SEC
investigation and with complaints filed by certain former employees
alleging discriminatory employment practices in violation of Section
806 of the Corporate and Criminal Fraud Accountability Act of 2002
(see Note 8 to accompanying Consolidated Financial Statements). We
seek to limit and reduce our potential financial obligations for
indemnification by carrying directors' and officers' liability
insurance (subject to deductibles).

The Company has several agreements with third parties to assist
it in licensing specific technologies or to audit licensees' royalty
reports. Under these agreements, the third parties are compensated
only from the new revenues generated by their efforts.

In one of the Company's agreements (which the Company may
terminate on ninety days' written notice), it has committed to pay
minimum annual license fees of $10,000 on each January 1, beginning
January 1, 2004. In another agreement (which the Company may also
terminate on ninety days' written notice), it has committed to pay
$4,000 in June 2004 and a $15,000 termination fee if the agreement
is terminated in certain circumstances before January 31, 2006. In
addition, the Company has agreed to reimburse patent expenses
($59,000 as of January 31, 2004) from future royalty receipts before
retaining any revenue.

Under another agreement, the Company has agreed to pay $25,000
per technology portfolio when a candidate transferee demonstrates
firm interest in two technology portfolios.

CTT and Vector Vision, Inc. (VVI, a CTT consolidated
subsidiary) have remaining contingent obligations of $199,569 and
$224,127, respectively, at January 31, 2004 to repay grant funding.

Other Matters

The Company carries liability insurance, directors' and
officers' liability insurance and casualty insurance for owned or
leased tangible assets.

The Company is involved in several lawsuits all of which are
detailed in Note 8 to the accompanying Consolidated Financial
statements.

Critical Accounting Policies

Preparation of our consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires that we make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, the reported
amounts of revenues and expenses for the reporting period, and
related disclosures. We base our estimates on the information
available at the time and assumptions we believe are reasonable.

We believe that significant estimates, assumptions and
judgments affect the following critical accounting policies used in
preparing our consolidated financial statements. Our audit
committee has reviewed their selection, application and disclosure.

Revenue Recognition

We derive revenues primarily from patent and technology license
and royalty fees. Since these revenues result from our
representation agreements with owners and assignees of intellectual
property rights, we record revenues net of the owners' and
assignees' shares of license and royalty fees. We stipulate the
terms of our licensing arrangements in written agreements with the
owners, assignees and licensees.

Single element arrangements

Since we usually have no significant obligations after we
execute license agreements, they are generally single element
arrangements. Under the terms of our license agreements, we
generally receive an upfront license fee and a royalty stream
based on the licensee's sales of products applying the licensed
technology.

License fees under single element arrangements

We recognize upfront, nonrefundable license fees when our
licensee executes the license agreement and pays the license
fee. When these two events occur, we have persuasive evidence
of an arrangement, no continuing obligations, completed
delivery, and assurance of collection.

Royalty fees under single element arrangements

Although we fix the royalty rate (e.g., percentage of
sales or rate per unit sold) in the license agreement, the
amount of earned royalties is contingent upon the amount of
licensed product the licensee sells. Royalties earned in each
reporting period are contingent on the outcome of events (i.e.,
the licensee's sales of licensed products) occurring within
that period that are not within our control and are not
directly tied to our providing services. Therefore, we
recognize this royalty revenue when the contingency is resolved
and we can estimate the amount of royalty fees earned, which is
upon our receipt of the licensee's royalty report.

Royalty settlements

We recognize royalty settlement revenue when our rights to
litigation awards related to our patent and license rights are
final and unappealable and we have assurance of collecting
those awards. We also recognize royalty settlement revenue
when we have collected litigation awards in cash (from the
adverse party or by sale of our rights to another party without
recourse) and we have no obligation or are very unlikely to be
obligated to repay such collected amounts. We include royalty
settlement revenue in operating revenue. Although final
litigation awards may be infrequent, they are an integral
aspect of our patent and technology licensing and
commercialization business.

Other arrangements

In limited instances, we enter into multiple element
arrangements with continuing service obligations. Based upon
the limited verifiable objective evidence available, we
generally defer all revenue from such multiple element
arrangements until we deliver all elements.

We evaluate milestone billing arrangements on a case-by-
case basis. Generally we recognize upfront fees ratably over
the entire arrangement and milestone payments as we achieve
milestones.

Impairment of Intangible Assets and Long-Term Investments

We review intangible assets and investments in equity
securities that do not have readily determinable fair values for
impairment when events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. If the sum of
expected future undiscounted cash flows is less than the carrying
amount of the asset, we recognize an impairment loss measured by the
amount the asset's carrying value exceeds its fair value and re-
evaluate the remaining useful life of the asset. If a quoted market
price is available for the asset or a similar asset, we use it in
determining fair value. If not, we determine fair value as the
present value of estimated cash flows based on reasonable and
supportable assumptions.

We regularly apply this policy to our equity investments in
privately held companies. We consider the investee's financial
health (including cash position), business outlook (including
product stage and viability to continue operations), recent funding
activities, and business plan (including historical and forecast
financial information). These investments are not readily
transferable and our opportunities to liquidate them are limited and
subject to many factors beyond our control, including circumstances
internal to the investee and broader economic conditions.

We also apply this policy to all acquired intangible assets.

Related Party Transactions

CTT incurred charges (reported in personnel and other direct
expenses relating to revenue) of $5,300 and $6,000 related to
consulting services provided by one director in the first half of
fiscal 2004 and 2003, respectively.

The Company's board of directors determined that when a
director's services were outside the normal duties of a director,
the Company should compensate the director at the rate of $1,000 per
day plus expenses (which is the same amount it pays a director for
attending a one-day Board meeting).

Forward-Looking Statements

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" 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 1 of our Annual Report
on Form 10-K for the year ended July 31, 2003 under the caption
"Risk Factors," and other factors that may be described in our other
filings with the Securities and Exchange Commission, 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures

The Company's Chief Executive and Financial Officer
evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Exchange Act Rules
13a-14(c) and 15d-14(c)) as of January 31, 2004. The Company's
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, the
Company's Chief Executive and Financial Officer concluded that these
controls were effective as of January 31, 2004.

(b) Change in Internal Controls

There have been no significant changes in the Company's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
There were no significant deficiencies or material weaknesses in our
internal controls.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in pending litigation matters,
including the Company's complaint filed on February 3, 2004, against
Federal Insurance Company of Warren, New Jersey, that are fully
detailed in Note 8 to the accompanying Consolidated Financial
Statements.

Item 4. Submission of Matters to a Vote of Security Holders

At the Company's annual meeting of stockholders held January
16, 2004, the following directors were elected:

Name Votes For Votes Withheld

Richard E. Carver 5,467,573 436,564
George W. Dunbar, Jr. 4,913,809 990,328
Samuel M. Fodale 4,916,409 987,728
John B. Nano 5,654,557 249,580
Charles J. Philippin 5,475,673 428,464
John M. Sabin 4,975,609 928,528

There were no broker non-votes.

In addition, at the Company's annual meeting of stockholders
held January 16, 2004, stockholders did not approve the proposal to
amend the 1996 Directors' Stock Participation Plan by increasing the
number of shares of Common Stock available for issuance under the
Plan by 25,000 shares to a total of 125,000 shares. There were
1,150,834 shares voted for and 1,296,705 shares voted against this
proposal, and 39,376 shares abstained. There were 3,417,222 broker
non-votes on this matter.

Item 5. Other Information

(a) Effective January 1, 2004, the Company appointed Dr.
Donald J. Freed as Executive Vice President and Chief Technology
Officer. Prior thereto, he consulted for CTT from April 2003 to
December 2003. From November 1998 through March 2003, he served as
Vice President, Business Development, and prior thereto, as Vice
President of Marketing of Nanophase Technologies Corporation, a
publicly held nanomaterials company.

Effective November 1, 2003, the Company agreed, among other
things, to terminate Frank R. McPike, Jr.'s employment with the
Company. Prior to July 1, 2003, Mr. McPike served as Executive Vice
President and Chief Financial Officer of the Company (see Note 8 to
accompanying Consolidated Financial Statements).

Item 6. Exhibits and Reports on Form 8-K Page

A) Exhibits

10.1 Agreement between registrant and a CTT
shareholder effective November 17, 2003** 33-54

10.2* Severance agreement between registrant
and Frank R. McPike, Jr. effective
November 1, 2003 55-64

10.3 Letter agreement between registrant and
Brooks, Houghton & Company, Inc. and
Brooks, Houghton Securities, Inc. and
their affiliates dated October 7, 2002
and extended July 10, 2003 65-73

31.1 Certification by the Principal Executive
and 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)) 74-75

32.1 Certification by the Principal Executive
and Financial Officer of Competitive
Technologies, Inc. pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350). 76

__________________
* Management Contract or Compensatory Plan

** Portions of this Exhibit (indicated by asterisks) have been
omitted pursuant to a request for confidential treatment
pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended, and such portions have been filed separately
with the Commission.

B) Reports on Form 8-K

The Company filed the following two reports on Form 8-K during the
period covered by this report on Form 10-Q:

1) On November 10, 2003, the Company filed a report
on Form 8-K under Items 2, 5 and 7 to report its October
30, 2003 sale to LawFinance Group, Inc. of a second
portion of its expected patent infringement judgment
against American Cyanamid Company in the Materna lawsuit.

2) On January 29, 2004, the Company filed a report
on Form 8-K (date of earliest event reported January 23,
2004) under Items 5 and 7 to report that the American
Stock Exchange had accepted the Company's plan to regain
compliance with AMEX continued listing standards within
the extension period ending May 12, 2005.

In addition, on December 15, 2003, the Company furnished a
report on Form 8-K under Item 12 to the SEC for furnishing the press
release announcing results for its first quarter ended October 31,
2003.

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
Officer, Chief Financial Officer
and Authorized Signer

Date: March 16, 2004