**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,
                2006




OR





o
            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)


*www.competitivetech.net*






Delaware
              (State or other jurisdiction of incorporation
                or
                organization)
            36-2664428
              (I.R.S.
                Employer Identification
                No.)1960 Bronson Road
              Fairfield, Connecticut
              (Address of principal executive offices)
            06824
              (Zip
                code)





(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
o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act).




Large
      accelerated filer o  Accelerated filer
      x 
Non-accelerated
      filer o





Indicate
      by check mark whether the registrant is a shell company (as defined in rule
      12b-2 of the Exchange Act). Yes o  No
x





The
      number of shares of the registrant’s common stock outstanding as of March 8,
      2006 was 7,704,988 shares.









**COMPETITIVE
      TECHNOLOGIES, INC.**





**INDEX
      TO QUARTERLY REPORT ON FORM 10-Q**







**PART
                  I.  FINANCIAL INFORMATION**
              **Page
                  No.**Item
                  1. Condensed Consolidated Financial Statements (Unaudited)Condensed
                  Consolidated Balance Sheets at January 31, 2006, and July 31,
                  2005
              3Condensed
                    Consolidated Statements of Operations for thethree
                    months ended January 31, 2006 and 2005
              4Condensed
                    Consolidated Statements of Operations for thesix
                    months ended January 31, 2006 and 2005
              5Condensed
                    Consolidated Statement of Comprehensive Loss and Changes inShareholders’
                    Interest for the six months
                  ended
                    January 31, 2006
              6Condensed
                    Consolidated Statements of Cash Flows for thesix
                    months ended January 31, 2006 and 2005
              7Notes
                  to Condensed Consolidated Financial Statements
              8
                  -
                  18Item
                    2. Management's Discussion and Analysis of Financial Conditionand
                    Results of Operations
              19
                  - 27Item
                  3. Quantitative and Qualitative Disclosures About Market
                  Risk
              27
                  - 28Item
                  4. Controls and Procedures
              28**PART
                  II.  OTHER INFORMATION**Item
                  1. Legal Proceedings
              28Item
                  2. Unregistered Sales of Equity Securities and Use of
                  Proceeds
              28Item
                  4. Submission of Matters to a Vote of Security Holders
              29Item
                  6. Exhibits
              29Signatures
              30
  Page
            2


**PART
      I. FINANCIAL INFORMATION**





**Item
      1.**  **Condensed
      Consolidated Financial Statements**





COMPETITIVE
      TECHNOLOGIES, INC.


Condensed
      Consolidated Balance Sheets




**January
                  31,**
              
              July
                  31,**2006**
              
              2005**(Unaudited)**
              
              ***ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              **$**
              **12,222,449**
              
              $
              14,279,547Receivables
              
              
              **5,882,868**
              
              
              4,086,241Prepaid
                  expenses and other current assets
              
              
              **793,655**
              
              
              272,345Total
                  current assets
              
              
              **18,898,972**
              
              
              18,638,133Equity
                  securities
              
              
              **459,006**
              
              
              558,299Prepaid
                  royalties
              
              
              **75,000**
              
              
              75,000Deferred
                  equity financing costs, net
              
              
              **—**
              
              
              96,227Intangible
                  assets, net
              
              
              **29,022**
              
              
              38,571Property
                  and equipment, net
              
              
              **62,371**
              
              
              34,863TOTAL
                  ASSETS
              
              **$**
              **19,524,371**
              
              $
              19,441,093**LIABILITIES
                  AND SHAREHOLDERS' INTEREST**Current
                  liabilities:Accounts
                  payable
              
              **$**
              **668,141**
              
              $
              642,868Accrued
                  expenses and other liabilities
              
              
              **2,820,455**
              
              
              4,690,344Total
                  current liabilities
              
              
              **3,488,596**
              
              
              5,333,212Non-current
                  royalties payable
              
              
              **1,157,185**
              
              
              **—**Commitments
                  and contingenciesShareholders'
                  interest:5%
                  preferred stock, $25 par value, 35,920shares
                  authorized, 2,427
                shares
                  issued and outstanding
              
              
              **60,675**
              
              
              60,675Common
                  stock, $.01 par value, 20,000,000shares
                  authorized, 7,669,333
                and
                  7,326,749shares
                  issued, respectively
              
              
              **76,693**
              
              
              73,267Capital
                  in excess of par value
              
              
              **33,005,326**
              
              
              31,285,496Accumulated
                  deficit
              
              
              **(18,018,332**
              **)**
              
              (17,044,174
              )Accumulated
                  other comprehensive loss
              
              
              **(245,772**
              **)**
              
              (267,383
              )Total
                  shareholders' interest
              
              
              **14,878,590**
              
              
              14,107,881TOTAL
                    LIABILITIES AND SHAREHOLDERS'
                INTEREST
              
              **$**
              **19,524,371**
              
              $
              19,441,093




*See
      accompanying notes*




**
        Balances were derived from the July 31, 2005 audited balance
        sheet.*
  Page
            3


PART
      I. FINANCIAL INFORMATION (Continued)





COMPETITIVE
      TECHNOLOGIES, INC.


Condensed
      Consolidated Statements of Operations


(Unaudited)




Three
                    months ended
                January
                  31,**2006**
              
              2005**Revenues**Retained
                  royalties
              
              **$**
              **1,152,589**
              
              $
              6,686,588Investment
                  income
              
              
              **108,653**
              
              
              64,287Other
                  income
              
              
              **10,000**
              
              
              32,512**1,271,242**
              
              
              6,783,387**Expenses**Personnel
                    and other direct expensesrelating
                    to revenues
              
              
              **1,105,027**
              
              
              2,095,467General
                  and administrative expenses
              
              
              **761,390**
              
              
              566,891Patent
                    enforcement expenses, net ofreimbursements
              
              
              **58,059**
              
              
              113,711**1,924,476**
              
              
              2,776,069Income
                  (loss) before income taxes
              
              
              **(653,234**
              **)**
              
              4,007,318Provision
                  (benefit) for income taxes
              
              
              **(12,081**
              **)**
              
              49,975**Net
                  income (loss)**
              
              **$**
              **(641,153**
              **)**
              $
              3,957,343Net
                  income (loss) per common share:Basic
              
              **$**
              **(0.09**
              **)**
              $
              0.60Diluted
              
              **$**
              **(0.09**
              **)**
              $
              0.54Weighted
                    average number of commonshares
                    outstanding:Basic
              
              
              **7,507,004**
              
              
              6,633,440Diluted
              
              
              **7,507,004**
              
              
              7,352,821


*See
      accompanying notes*




Page
          4




PART
      I. FINANCIAL INFORMATION (Continued)





COMPETITIVE
      TECHNOLOGIES, INC.


Condensed
      Consolidated Statements of Operations


(Unaudited)





Six
                    months ended
                January
                  31,**2006**
              
              2005**Revenues**Retained
                  royalties
              
              **$**
              **2,390,069**
              
              $
              7,442,357Royalty
                  legal awards
              
              
              **—**
              
              
              815,492Dividends
                  received
              
              
              **—**
              
              
              679,149Investment
                  income
              
              
              **235,494**
              
              
              212,845Other
                  income
              
              
              **12,000**
              
              
              64,561**2,637,563**
              
              
              9,214,404**Expenses**Personnel
                    and other direct expensesrelating
                    to revenues
              
              
              **1,994,209**
              
              
              3,119,206General
                  and administrative expenses
              
              
              **1,530,999**
              
              
              814,871Patent
                    enforcement expenses, net ofreimbursements
              
              
              **98,594**
              
              
              284,424**3,623,802**
              
              
              4,218,501Income
                  (loss) before income taxes
              
              
              **(986,239**
              **)**
              
              4,995,903Provision
                  (benefit) for income taxes
              
              
              **(12,081**
              **)**
              
              70,735**Net
                  income (loss)**
              
              **$**
              **(974,158**
              **)**
              $
              4,925,168Net
                  income (loss) per common share:Basic
              
              **$**
              **(0.13**
              **)**
              $
              0.76Diluted
              
              **$**
              **(0.13**
              **)**
              $
              0.70Weighted
                    average number of commonshares
                    outstanding:Basic
              
              
              **7,495,177**
              
              
              6,516,872Diluted
              
              
              **7,495,177**
              
              
              7,027,121




*See
      accompanying notes*




Page
          5


PART
      I. FINANCIAL INFORMATION (Continued)





COMPETITIVE
      TECHNOLOGIES, INC.


Condensed
      Consolidated Statement of Comprehensive Loss and Changes in Shareholders'
      Interest


For
      the
      six months ended January 31, 2006


(Unaudited)





**Preferred
                  Stock**
              
              **Common
                  Stock****Shares**
                **issued
                    and**
                **outstanding**
              
              **Amount**
              
              **Shares**
                **issued**
              
              **Amount**
              
              **Capital**
                **in
                    excess of**
                **par
                  value**
              
              **Accumulated**
                **Deficit**
              
              **Accumulated**
                  **other**
                **comprehensive**
                **loss**
              
              **Total**
                **Shareholders'**
                **Interest**Balance
                  - July 31, 2005
              
              
              2,427
              
              $
              60,675
              
              
              7,326,749
              
              $
              73,267
              
              $
              31,285,496
              
              $
              (17,044,174
              )
              $
              (267,383
              )
              $
              14,107,881Comprehensive
                  loss:Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (974,158
              )
              
              —
              
              
              (974,158
              )Net
                    unrealized holding loss on
                securities
                  held
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (307,738
              )
              
              (307,738
              )Unrealized
                    foreign currency
                translation
                  gain
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              97,225
              
              
              97,225Unrealized
                    gain from reversal
                of
                  sale restriction discount
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              232,124
              
              
              232,124Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (952,547
              )Compensation
                    expense related
                to
                  common stock options
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              253,304
              
              
              —
              
              
              —
              
              
              253,304Exercise
                  of common stock options
              
              
              —
              
              
              —
              
              
              6,250
              
              
              62
              
              
              16,203
              
              
              —
              
              
              —
              
              
              16,265Stock
                  issued under 401(k) Plan
              
              
              —
              
              
              —
              
              
              15,943
              
              
              159
              
              
              99,803
              
              
              —
              
              
              —
              
              
              99,962Stock
                  issued to Directors
              
              
              —
              
              
              —
              
              
              12,500
              
              
              125
              
              
              49,875
              
              
              —
              
              
              —
              
              
              50,000Sales
                    and issuances of stock
                pursuant
                  to equity financing
              
              
              —
              
              
              —
              
              
              307,891
              
              
              3,080
              
              
              1,396,872
              
              
              —
              
              
              —
              
              
              1,399,952Amortization
                    of deferred equity
                financing
                  costs
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (96,227
              )
              
              —
              
              
              —
              
              
              (96,227
              )**Balance
                  - January 31, 2006**
              
              
              **2,427**
              
              **$**
              **60,675**
              
              
              **7,669,333**
              
              **$**
              **76,693**
              
              **$**
              **33,005,326**
              
              **$**
              **(18,018,332**
              **)**
              **$**
              **(245,772**
              **)**
              **$**
              **14,878,590**




See
      accompanying notes




Page
          6




PART
      I. FINANCIAL INFORMATION (Continued)





COMPETITIVE
      TECHNOLOGIES, INC.


Condensed
      Consolidated Statements of Cash Flows


(Unaudited)




Six
                    months ended
                January
                  31,**2006**
              
              2005**Cash
                  flows from operating activities:**Net
                  income (loss)
              
              **$**
              **(974,158**
              **)**
              $
              4,925,168Noncash
                  and other expenses (income)included
                  in net income (loss):Depreciation
                  and amortization
              
              
              **20,639**
              
              
              17,874Share-based
                  compensation - stock options
              
              
              **253,304**
              
              
              —Stock
                  compensation accrued
              
              
              **62,500**
              
              
              87,500Dividends
                  received
              
              
              **—**
              
              
              (679,149
              )Other
              
              
              **—**
              
              
              (33,085
              )(Increase)
                  decrease in assets:Receivables
              
              
              **(2,010,856**
              **)**
              
              (1,146,814
              )Prepaid
                  expenses and other current assets
              
              
              **(104,810**
              **)**
              
              77,672Increase
                  (decrease) in liabilities:Accounts
                    payable and accrued expensesand
                    other liabilities, and
                  Non-currentroyalties
                    payable
              
              
              **(681,336**
              **)**
              
              4,339,492Net
                  cash provided by (used in) operating activities
              
              
              **(3,434,717**
              **)**
              
              7,588,658**Cash
                  flows from investing activities:**Purchases
                  of property and equipment
              
              
              **(38,598**
              **)**
              
              (31,178
              )Collection
                  on Unilens receivable, net
              
              
              **—**
              
              
              335,126Net
                  cash provided by (used in) investing activities
              
              
              **(38,598**
              **)**
              
              303,948**Cash
                  flows from financing activities:**Proceeds
                  from exercises of stock options
              
              
              **16,265**
              
              
              521,577Proceeds
                  from sales of common stock
              
              
              **1,399,952**
              
              
              1,412,539Net
                  cash provided by financing activities
              
              
              **1,416,217**
              
              
              1,934,116Net
                  increase (decrease) in cash and cash equivalents
              
              
              **(2,057,098**
              **)**
              
              9,826,722Cash
                  and cash equivalents at beginning of period
              
              
              **14,279,547**
              
              
              4,309,680Cash
                  and cash equivalents at end of period
              
              **$**
              **12,222,449**
              
              $
              14,136,402




See
      accompanying notes




Page
          7




PART
      I.
      FINANCIAL INFORMATION (Continued)





COMPETITIVE
      TECHNOLOGIES, INC.





Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)








1.
            Basis
                of Presentation





The
      interim condensed consolidated financial information presented in the
      accompanying condensed consolidated financial statements and notes hereto is
      unaudited.





Competitive
      Technologies, Inc. (“CTT”) and its majority owned subsidiary (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, electronic, physical, and nano 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 we generate from the successful licensing of our clients’ technologies. The
      condensed consolidated financial statements include the accounts of CTT and
      its
      subsidiary. Intercompany accounts and transactions have been eliminated in
      consolidation.





We
      believe that we have made all adjustments, primarily normal and recurring
      adjustments, which are necessary to present the unaudited condensed consolidated
      financial statements fairly in conformity with accounting principles generally
      accepted in the United States of America. The results for the three and six
      months ended January 31 ,
      2006 ,
      are not
      necessarily indicative of the results that can be expected for the full
      year.





You
      should read the interim unaudited condensed 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, 2005.




2.
            Stock-Based
                Compensation





Effective
      August 1, 2005, we adopted Financial Accounting Standards Board Statement No.
      123(R), “Share-Based Payment” (“FAS 123R”). FAS 123R establishes the accounting
      required for share-based compensation, and requires companies to measure and
      recognize compensation expense for all share-based payments at the grant date
      based on the fair value of the award, as defined in FAS 123R, and include such
      costs as an expense in their statements of operations over the requisite service
      (vesting) period. We elected to adopt FAS 123R using a modified prospective
      application, whereby the provisions of the statement will apply going forward
      only from the date of adoption to new (issued subsequent to July 31, 2005)
      stock
      option awards, and for the portion of any previously issued and outstanding
      stock option awards for which the requisite service is rendered after the date
      of adoption. Thus, we recognize as expense the fair value of stock options
      issued prior to August 1, 2005, but vesting after August 1, 2005, over the
      remaining vesting period. In addition, compensation expense must be recognized
      for any awards modified, repurchased, or cancelled after the date of adoption.
      Under the modified prospective application, no restatement of previously issued
      results is required. We use the Black-Scholes option-pricing model to measure
      fair value. This is the same method we used in prior years for disclosure
      purposes.




Page
          8




Pursuant
      to our 1997 Employees’ Stock Option Plan, as amended (the “1997 Plan”), either
      incentive stock options or non-qualified options awards may be granted to
      employees. The stock options must be granted at exercise prices not less than
      100% of the fair market value of our common stock at the grant date. The
      Compensation Committee or the Board of Directors determines vesting provisions
      when stock options are granted, and stock options granted generally vest over
      three or four years. The maximum life of stock options granted under this plan
      is ten years from the grant date. For the three and six months ended January
      31,
      2006, we recognized $73,017 and $123,304, respectively, of compensation expense
      (included in personnel and other direct expenses relating to revenues) from
      stock options vesting during the period, without any associated income tax
      benefit. No compensation expense related to stock options granted to employees
      was recognized during the three and six months ended January 31,
      2005.




Pursuant
      to our Directors Stock Option Plan, we grant each non-employee director 10,000
      fully vested, non-qualified common stock options when the individual first
      is
      elected a director, and 10,000 more common stock options on the first business
      day of January thereafter, as long as the individual remains a director. All
      such stock options are granted at exercise prices not less than 100% of the
      fair
      market value of our common stock at the grant date. The maximum life of stock
      options granted under this plan is ten years from the grant date. Since these
      stock options are fully vested upon grant, the full fair value of these stock
      options is recorded as expense at the grant date. For the three and six months
      ended January 31, 2006, we recognized $130,000 of compensation expense (included
      in general and administrative expenses) from stock options issued and vesting
      during the period, without any associated income tax benefit. No compensation
      expense related to stock options granted to directors was recognized during
      the
      three and six months ended January 31, 2005.




The
      following assumptions were used to estimate the fair value of stock options
      granted using the Black-Scholes option valuation method:




Three
                Months Ended January 31,
            
            Six
                Months Ended January 31,**2006**
            
            2005
            
            **2006**
            
            2005Dividend
                yield (1)
            
            
            **0.0**%****
            
            
            0.0%
            
            
            **0.0**%****
            
            
            0.0%Expected
                volatility (2)
            
            
            **76.6**%****
            
            
            75.8%
            
            
            **76.5**%****
            
            
            75.8%Risk
                free interest rate (3)
            
            
            **4.4**%****
            
            
            3.7%
            
            
            **4.0**%****
            
            
            3.6%Expected
                lives (in years) (2)
            
            
            **5.0**
            
            
            5.0
            
            
            **5.0**
            
            
            5.0





(1)
            We
                have not paid cash dividends on our common stock since 1981, and
                we
                currently do not have any plans to pay or declare any cash dividends.
                Consequently, we used an expected dividend rate of zero for the
                valuations.


(2)
            Estimated
                based on our historical experience. Volatility was based on historical
                experience over a period equivalent to the expected life in
                years.


(3)
            Based
                on the U.S. Treasury constant maturity interest rate with a term
                consistent with the expected life of the options
                granted.




For
      options granted during the three and six months ended January 31, 2006, as
      required by FAS 123R, we estimated the impact of forfeitures based on our
      historical experience with previously granted stock options, and considered
      the
      impact of the forfeitures when determining the amount of expense to record
      for
      the stock options granted. For stock options issued prior to the adoption of
      FAS
      123R, forfeitures are recognized when the stock option is actually forfeited.
      During the three months ended January 31, 2006 and 2005, the weighted average
      fair value of each stock option granted was $2.67 and $6.30, respectively.
      During the six months ended January 31, 2006 and 2005, the weighted average
      fair
      value of each stock option granted was $3.26 and $3.30, respectively. These
      amounts were estimated on the grant date using the Black-Scholes option-pricing
      model with the assumptions listed above. We generally issue new shares of common
      stock to satisfy stock option exercises.




Page
          9





A
      summary
      of stock option activity for all our plans during the current fiscal
      year-to-date is presented below:





**Stock
                Options**
            
            **Shares**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Weighted-**
                **Average**
              **Remaining**
              **Contractual**
              **Term**
              **(Years)**
            
            **Aggregate**
              **Intrinsic**
              **Value**Outstanding
                at August 1, 2005
            
            
            740,223
            
            $
            5.76Granted
            
            
            192,500
            
            
            5.34Exercised
            
            
            (750
            )
            
            3.72Outstanding
                at October 31, 2005
            
            
            931,973
            
            
            5.68
            
            
            7.18
            
            $
            692,077Granted
            
            
            61,000
            
            
            4.10Exercised
            
            
            (500
            )
            
            1.95Expired
            
            
            (25,000
            )
            
            8.79**Outstanding
                at January 31, 2006**
            
            
            **967,473**
            
            **$**
            **5.50**
            
            
            **7.30**
            
            **$**
            **218,575****Exercisable
                at January 31, 2006**
            
            
            **601,975**
            
            **$**
            **6.06**
            
            
            **5.72**
            
            **$**
            **165,448**





The
      stock
      options granted during the three and six months ended January 31, 2006, were
      outstanding only a portion of the period, and thus the compensation expense
      recognized was only for the period that they were outstanding. As of January
      31,
      2006, there was $679,414 of total unrecognized compensation cost related to
      non-vested outstanding stock options granted under the 1997 Plan. This cost
      is
      expected to be recognized over a weighted-average period of 1.7
      years.




During
      the three and six months ended January 31, 2006, the following activity occurred
      relating to exercises under our stock option plans:




Three
                Months Ended January 31,
            
            Six
                Months Ended January 31,**2006**
            
            2005
            
            **2006**
            
            2005Total
                intrinsic value of stock options exercised
            
            **$**
            **940**
            
            $
            645,326
            
            **$**
            **2,135**
            
            $
            649,490







At
      January 31, 2006, 1,578,047 shares of common stock were reserved for issuance
      under all our stock based compensation plans, including our stock option plans,
      and 626,024 shares were available for future grants.




Page
          10




Prior
      to
      the adoption of FAS 123R, we accounted for our share-based compensation plans
      under the provisions of Accounting Principles Board Opinion No. 25, “Accounting
      for Stock Issued to Employees,” and related interpretations. If compensation
      cost for our stock-based compensation plans had been determined based on the
      fair value method (estimated using the Black-Scholes option pricing model)
      at
      the grant dates in accordance with Financial Accounting Standards Board
      Statement No. 123, “Accounting for Stock-Based Compensation,” our pro forma net
      income and earnings per share for the three and six months ended January 31,
      2005, would have been as follows:





Three
                  months ended
              January
                31, 2005
            
            Six
                  months ended
              January
                31, 2005Net
                income, as reported
            
            $
            3,957,343
            
            $
            4,925,168Deduct:
                Pro forma stock optioncompensation
                expense for stock
              options
                granted using a fair valuemethod
                (1)
            
            
            (426,838)
            
            
            (523,563)Pro
                forma net income
            
            $
            3,530,505
            
            $
            4,401,605Basic
                net income per common share:As
                reported
            
            $
            0.60
            
            $
            0.76Pro
                forma
            
            $
            0.53
            
            $
            0.68Diluted
                net income per common share:As
                reported
            
            $
            0.54
            
            $
            0.70Pro
                forma
            
            $
            0.48
            
            $
            0.63





(1)
            Compensation
                expense was reduced for forfeitures as they actually
                occurred.








3.
            Retained
                Royalties





*Abbott
      Laboratories, Inc.*




In
      December 2004, we granted Abbott Laboratories, Inc. (“Abbott”) a license to sell
      tests used to measure homocysteine levels. The term of the license is through
      July 2007, the expiration date of the patent, with certain limited exceptions.
      Pursuant to the license, Abbott paid us a one-time, non-refundable and
      non-creditable (against future royalties) upfront license fee, and agreed to
      pay
      certain “Milestone Fees” (as defined in the license), and per test royalties on
      homocysteine assay sales in the United States after January 1, 2006. No per
      test
      royalties were due from Abbott in calendar year 2005. We recorded in retained
      royalties our share of the upfront license fee, which was $5,200,000, during
      the
      three months ended January 31, 2005, and began to accrue over calendar 2005
      the
      present value of the Milestone Fees. The difference between the present value
      and the gross amount of the Milestone Fees was recorded in interest income.
      Our
      share of the Milestone Fees aggregated to $1,600,000, of which we were paid
      $800,000 in February 2006, with the remaining $800,000 due to be paid to us
      on
      January 31, 2007, as long as our patent is valid and enforceable. As of January
      31, 2006, we had accrued a gross total of $3,928,642 of Milestone Fees in
      receivables.




*Diagnostic
      Products Corporation*




Effective
      November 1, 2004, we granted Diagnostic Products Corporation (“DPC”) a license
      to sell tests used to measure homocysteine levels. Pursuant to this license,
      DPC
      paid us a one-time, non-refundable and non-creditable (against future royalties)
      upfront license fee and per test royalties on homocysteine assay sales in the
      United States after November 1, 2004. We recorded in retained royalties our
      share the upfront license fee, which was $550,000, during the three months
      ended
      January 31, 2005. The term of the license is through July 2007, the expiration
      date of the patent, with certain limited exceptions.




Page
          11




*Other*




Licenses
      granted in fiscal 2006 and 2005 relating to homocysteine testing generally
      provide for an upfront license fee and a royalty to be paid to us based on
      a
      fixed fee per test. The amounts of the fees are determined based on estimated
      volume.








4.
            Royalty
                Legal 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 court 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 we recorded $815,492 in royalty legal awards and $105,060 in interest income
      during the six months ended January 31, 2005. The payment did not include
      attorneys’ fees or court costs previously awarded to the Plaintiffs that were
      under appeal with the court. On January 24, 2005, the CAFC issued a summary
      dismissal of LabCorp’s appeal of the court’s award of attorneys’ fees and court
      costs from the original case, and, on April 15, 2005, we announced that we
      had
      received payment from LabCorp for the attorneys’ fees and court costs. Our claim
      for additional attorneys’ fees and court costs related to the appeals process is
      still pending, and we do not expect it to be finalized until after the U.S.
      Supreme Court issues a final ruling on LabCorp’s appeal (see
      below).




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.) On February
      28, 2005, we announced that the Court had invited the Solicitor General of
      the
      United States (the “SG”) to file a brief in this case expressing the SG’s views
      on the single question of the patentability of method patents of this type.
      On
      August 26, 2005, the SG issued its brief, recommending that the Court deny
      LabCorp’s petition. However, in November 2005, the Court granted LabCorp’s writ
      of certiorari and agreed to hear their appeal. Oral arguments in front of the
      Court related to the case are scheduled to be heard on March 21, 2006. If the
      present schedule is maintained, we expect a final ruling from the Court in
      June
      2006. If the Court ultimately rules against LabCorp’s appeal, then the case will
      be over. Depending on how the Court rules, the case may be remanded back to
      the
      District Court. If this occurs we do not know how long it will take for the
      case
      to reach a final resolution.




If
      the
      Court rules in favor of LabCorp’s appeal, and if the Court remands the case back
      to the District Court to review its original decision, and then if the original
      judgment subsequently is reversed, then 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. In April 2005, the appeals process was considered
      to have ended, and the Stipulated Order expired. LabCorp’s ability to recover
      any amounts paid to the Plaintiffs would depend on the extent and reason for
      any
      reversal of the original judgment. From January 2003 through April 30, 2005,
      LabCorp paid us an aggregate of $1,930,355 under the Stipulated Order, including
      both our retained amounts and amounts paid to our clients. Since April 30,
      2005,
      LabCorp has not paid us any royalties directly. If the Court does not rule
      in
      LabCorp’s favor, and if LabCorp has performed tests since April 2005, then they
      may owe us royalties for the period from April 30, 2005.




If
      the Court invalidates our patent, then there will be
      a material, adverse impact on our business, results of operations and cash
      flows.




Page
          12












5.
            Dividends
                Received





In
      October 2004, our investee, Melanotan Corporation (“MelanoTan”), paid its
      shareholders a dividend in the form of shares of common stock of its investee,
      Clinuvel Pharmaceuticals Limited (“Clinuvel”), an Australian company (formerly
      EpiTan Limited). As a result, we received 1,252,346 shares of Clinuvel common
      stock. Clinuvel common stock is traded on the Australian Stock Exchange (quoted
      in Australian dollars) under the symbol CUV. As a condition to receiving the
      dividend, we had agreed not to sell, transfer or otherwise dispose of the shares
      before October 21, 2005. This restriction has lapsed and we now are free to
      sell, transfer and dispose of the shares.




We
      estimated the fair value of the Clinuvel common stock received in the prior
      year
      using the closing price of the shares ($0.93 per share, Australian dollars)
      and
      the exchange rate for converting Australian dollars to U.S. dollars ($0.7289
      Australian dollars to $1.00 U.S. dollar) 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 risk associated with an investment in Clinuvel stock, since
      Clinuvel had minimal revenues and had incurred substantial accumulated net
      losses. We recorded the estimated value of the shares, $679,149, as dividend
      income during the three months ended October 31, 2004. In June 2005 we received
      an additional dividend of 660,686 shares of Clinuvel stock which we valued
      at
      $146,533 in the same manner as the October 2004 dividend. In total we own
      1,913,032 shares of Clinuvel common stock.








6.
            Net
                Income (Loss) Per Common Share





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





Three
                months ended
              January
                31,
            
            Six
                months ended
              January
                31,**2006**
            
            2005
            
            **2006**
            
            2005Denominator
                for basic net income (loss) per commonshare,
                weighted average common shares outstanding
            
            
            **7,507,004**
            
            
            6,633,440
            
            
            **7,495,177**
            
            
            6,516,872Dilutive
                effect of employees’ and directors’ common stock options
            
            
            **N/A**
            
            
            719,381
            
            
            **N/A**
            
            
            510,249Denominator
                for diluted net income (loss) per common share
            
            
            **7,507,004**
            
            
            7,352,821
            
            
            **7,495,177**
            
            
            7,027,121





At
      January 31, 2006, all 967,473 outstanding common stock options were excluded
      from the computation of diluted net
      income (loss) per common share, because
      they were anti-dilutive. At January 31, 2005, 114,500 outstanding common stock
      options and warrants were excluded from the computation of diluted net income
      (loss) per common share, because the exercise prices were greater than the
      weighted average share prices for the period, making them anti-dilutive (total
      options and warrants outstanding were 1,278,096 at January 31,
      2005).




Page
          13




7.
            Comprehensive
                Income (Loss) and Accumulated Other Comprehensive
                Loss





Comprehensive
      income (loss) loss consists of the following:




Three
                    months ended
                January
                  31,
              
              Six
                    months ended
                January
                  31,**2006**
              
              2005
              
              **2006**
              
              2005Net
                  income (loss)
              
              **$**
              **(641,153**
              **)**
              $
              3,957,343
              
              **$**
              **(974,158**
              **)**
              $
              4,925,168Net
                    unrealized holding gain (loss)on
                    securities held
              
              
              **17,682**
              
              
              —
              
              
              **(307,738**
              **)**
              
              (50,094
              )Unrealized
                    foreign currencytranslation
                    gain (loss)
              
              
              **13,890**
              
              
              (13,603
              )
              
              **97,225**
              
              
              53,167Unrealized
                    gain from reversalof
                    sale restriction discount
              
              
              **25,704**
              
              
              —
              
              
              **232,124**
              
              
              —Comprehensive
                  income (loss)
              
              **$**
              **(583,877**
              **)**
              $
              3,943,740
              
              **$**
              **(952,547**
              **)**
              $
              4,928,241





Accumulated
      other comprehensive loss consists of the following:




**2006**
              
              2005Accumulated
                  net unrealized holding loss on equity securities
              
              **$**
              **(695,157**
              **)**
              $
              (387,419
              )Accumulated
                  unrealized foreign currency translation gains
              
              
              **217,261**
              
              
              120,036Accumulated
                  unrealized gain from reversal of sale restriction discount
              
              
              **232,124**
              
              
              —Accumulated
                  other comprehensive loss
              
              **$**
              **(245,772**
              **)**
              $
              (267,383
              )








8.
            Receivables





Receivables
      consist of the following:




**January
                31,**
            
            July
                31,**2006**
            
            2005Royalties
            
            **$**
            **5,158,419**
            
            $
            3,836,857Receivables
                from insurance carrier
            
            
            **616,472**
            
            
            191,568Other
            
            
            **107,977**
            
            
            57,816Receivables
            
            **$**
            **5,882,868**
            
            $
            4,086,241





The
      increase in royalties and receivables from insurance carrier is due principally
      to timing differences in billing receivables and the receipt of
      cash.




Page
          14




9.
            Available-for-Sale
                Securities





We
      hold
      common stock of Palatin Technologies, Inc. (“Palatin”) and Clinuvel that are
      categorized as available-for-sale and carried at fair value.




The
      Palatin shares consist of the following:




**January
                  31,**
              **2006**
            
            July
                  31,
              2005170,000
                shares of Palatin - fair value
            
            **$**
            **416,500**
            
            $
            —Original
                basis
            
            **$**
            **295,596**
            
            $
            —





At
      July
      31, 2005, the Palatin shares we received contained a legend indicating that
      they
      were restricted and not registered for resale, and therefore the value of the
      shares was included in receivables, as Palatin had agreed to give us
      unrestricted shares (see Note 12). Subsequent to July 31, 2005, Palatin filed
      a
      registration statement with the Securities and Exchange Commission to register
      the shares for sale, and during the quarter ended January 31, 2006, we
      determined that we could trade the shares even though the legend was still
      in
      place, and therefore reclassified them to prepaid and other current assets.
      We
      hold the shares of Palatin on our behalf and on behalf of our client. Temporary
      changes in the fair value of the shares are included in other comprehensive
      income (loss), except that we do not recognize changes in the fair value of
      the
      portion of the shares that we hold on behalf of our client. There were no losses
      realized relating to the Palatin shares during the three and six months ended
      January 31, 2006.




The
      Clinuvel shares consist of the following:




**January
                  31,**
              **2006**
            
            July
                  31,
              20051,913,032
                shares of Clinuvel - fair value
            
            **$**
            **459,006**
            
            $
            558,299Original
                basis
            
            **$**
            **825,682**
            
            $
            825,682





The
      Clinuvel shares are classified as a non-current asset in equity securities
      since
      our current intention is to hold the shares as a long term investment. Temporary
      changes in the fair value of the shares are included in other comprehensive
      income (loss). There were no losses realized relating to the Clinuvel shares
      during the three and six months ended January 31, 2006.





Page
          15


10.
            Accrued
                Expenses and Other Liabilities





Accrued
      expenses and other liabilities consist of the following:




**January
                  31,**
              **2006**
            
            July
                  31,
              2005Accrued
                royalties payable
            
            **$**
            **2,362,355**
            
            $
            2,793,083Accrued
                compensation
            
            
            **276,034**
            
            
            1,616,522Accrued
                professional fees
            
            
            **54,953**
            
            
            177,605Accrued
                other
            
            
            **127,113**
            
            
            103,134Accrued
                expenses and other liabilities
            
            **$**
            **2,820,455**
            
            $
            4,690,344





The
      decrease in accrued compensation is due principally to the payment of fiscal
      2005 bonus and commissions.








11.
            Common
                Stock Sales Pursuant to Equity
                Financing





Pursuant
      to our February 2004 equity financing agreement with Fusion Capital Fund II
      (“Fusion Capital”), we sold and issued the following shares to Fusion Capital
      during the three and six months ended January 31, 2006:




**Cash**
              **Received**
            
            Shares
              Sold
            
            Commitment
              Shares
              Issued
            
            **Total**
              **Shares**Three
                months ended October 31, 2005
            
            **$**
            **782,456**
            
            
            149,908
            
            
            5,543
            
            
            **155,451**Three
                months ended January 31, 2006
            
            
            **617,496**
            
            
            148,053
            
            
            4,387
            
            
            **152,440**Six
                months ended January 31, 2006
            
            **$**
            **1,399,952**
            
            
            297,961
            
            
            9,930
            
            
            **307,891**





We
      use
      the proceeds for general working capital needs. The
      aggregate proceeds received from Fusion Capital pursuant to the equity financing
      agreement from the date of inception through January 31, 2006, were $4,117,493.
      Costs previously incurred related to the financing were capitalized and
      amortized against capital in excess of par value on a pro-rata basis based
      upon
      the ratio of the proceeds received compared to our estimate of the total
      proceeds to be received over the life of the equity financing agreement. As
      of
      the end of our first quarter ended October 31, 2005, we had sold a total of
      $3,499,998 of common stock to Fusion Capital pursuant to the equity financing
      agreement, and had estimated that we would not sell any more shares to Fusion
      Capital. Accordingly, we
      amortized the remaining $96,227 of deferred equity financing costs against
      capital in excess of par value during the three months ended October 31, 2005,
      which fully amortized the deferred equity financing costs. Subsequent to October
      31, 2005, we began selling more common stock to Fusion Capital, and now estimate
      that we will sell the full $5.0 million of common stock to Fusion Capital,
      although this estimate may change at any time. No further amortization of the
      deferred financing costs has or will occur since the costs have been fully
      amortized.





Page
          16





12.
            Contingencies




*Employment
      matters*




On August
      10, 2005, we received notice that John B. Nano, our former President and
      Chief Executive Officer, had filed a complaint in the Superior Court in the Judicial
      District of Stamford, Connecticut seeking the pre-judgment remedy of attachment.
      In his complaint Mr. Nano seeks to attach our bank accounts in the amount of
      $1.4 million to preserve his ability to collect should he succeed on his claims
      that CTT allegedly breached his employment contract because it denied him
      certain severance benefits when it terminated him on June 14, 2005. Mr. Nano
      also claims, in the alternative, that CTT violated a proposed but unexecuted
      and
      undelivered separation agreement and general release which it sought to
      negotiate with him at the time of his departure. Mr. Nano claims in his
      complaint that CTT withdrew the proposed agreement after he communicated his
      acceptance to the Chairman of our Board of Directors. CTT has opposed Mr. Nano’s
      application for a prejudgment remedy, denies and is vigorously defending the
      allegations in the suit, and has filed a complaint against Mr. Nano (see below).
      Hearings on the motion were held in November 2005. Further action on this motion
      is pending.




On
      December 7, 2005, we filed a complaint in the Superior Court in the Judicial
      District of Stamford, Connecticut against Mr. Nano for monetary and punitive
      damages, alleging breach of contract, breach of fiduciary duty, statutory theft
      of confidential information, and other claims, including a request for an
      injunction preventing Mr. Nano from competing with CTT with products and
      business contacts originally coming to Mr. Nano’s attention through his
      employment at CTT. Further action on this matter is pending.




On
      March
      2, 2006, Mr. Nano notified the Occupational Safety and Health Administration
      (“OSHA”) that he was withdrawing the complaint he filed with OSHA on September
      14, 2005, alleging that CTT had violated Section 806 of the Corporate
      and Criminal Fraud Accountability Act of 2002, 18 U.S.C. 1514A (also
      known as the Sarbanes-Oxley Act), in connection with the termination of his
      employment. In his withdrawal, Mr. Nano indicated that it was his intention
      to
      re-file his complaint in federal court.




*Palatin
      Technologies, Inc.*




On
      September 14, 2005, we filed a complaint alleging breach of contract against
      Palatin in the Superior Court, Judicial District of Fairfield at Bridgeport,
      Connecticut, seeking monetary damages, interest, attorneys’ fees, court costs,
      punitive damages, and other remuneration at the option of the court. On November
      22, 2005, Palatin filed a motion for summary judgment seeking a dismissal of
      our
      complaint and monetary damages, including reimbursement of their legal fees,
      as
      sanctions against us for filing the original complaint. We opposed Palatin’s
      motion for summary judgment, and further, on February 3, 2006, we filed a motion
      to enlarge the scope of our original complaint, alleging fraudulent behavior
      by
      Palatin in their actions in negotiating the mediated settlement (described
      below). Further action in this case is pending.




The
      alleged breach of contract relates to a mediated settlement agreement with
      Palatin signed on June 17, 2005. Pursuant to the settlement, Palatin paid us
      $1,700,000, and further agreed promptly to issue to us 170,000 shares of its
      unrestricted common stock. Palatin actually issued restricted shares to us
      that
      were not registered for resale and thus we were restricted from selling,
      transferring or otherwise disposing of the shares, which was not in accordance
      with the settlement. As a result of Palatin’s failure to honor all the terms of
      the June 17, 2005 settlement, we filed the complaint to obtain unrestricted
      shares, damages, and to recover our enforcement costs. Subsequently, we expanded
      our original complaint to allege that Palatin was aware that they were unable
      to
      issue unrestricted shares at the time that they agreed to do so as part of
      the
      mediated settlement.




Page
          17




The
      settlement was the result of a mediation of a prior dispute whereby on October
      27, 2004, we had demanded arbitration, as provided for in a license between
      us
      and Palatin, due to 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. Pursuant to the terms of our license, 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 Collaborative Development and Marketing Agreement
      between Palatin and King for up to $100 million. On August 18, 2004, Palatin
      announced that they had received an initial $20 million from King, but did
      not
      submit any funds to us, which caused us to notify Palatin that they were in
      breach.




We
      believe that the mediated settlement entered into by CTT and Palatin referred
      only to the disposition of this specific $20 million sublicensing fee received
      by Palatin from King, and did not pertain to any future milestone payments,
      or
      to any other future payments to be made by King to Palatin. However, Palatin
      has
      made statements in their public filings that the June 17, 2005 mediated
      settlement agreement released them from any other obligations to us relating
      to
      any other future payments received from King. We disagree with their statements,
      and reserve our rights under the original license granted to Palatin. In
      addition, Palatin has made other public filings in which they stated that they
      did not believe that any license from us was needed to commercialize their
      sexual dysfunction therapeutic product. We disagree with these and any other
      similar such statements.




*Other*




We
      also
      may be a party to other legal actions and proceedings for which we cannot
      predict the final outcomes. Since we are unable to estimate the legal expenses
      or the loss we may incur, or the possible damages we may recover in these
      actions, if any, we have not recorded any potential judgment proceeds in our
      financial statements to date. We record expenses in connection with these
      actions as they are incurred.




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 and actual claims and lawsuits
      that occur in the ordinary course of our business. However, an unfavorable
      resolution of any or all matters, and/or our incurrence of significant legal
      fees and other costs to defend or prosecute any of these actions and proceedings
      may, depending on the amount and timing, have a material adverse effect on
      our
      consolidated financial position, results of operations and cash flows in a
      particular period.




Page
          18




**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. If and 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, growth strategies, operating performance, industry trends, 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, 2005, filed with the Securities and Exchange
      Commission (“SEC”) on October 13, 2005, 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. We provide technology
      transfer, selling and licensing services focused on the technology needs of
      our
      customers, matching those requirements with commercially viable technology
      solutions, bridging the gap between market demand and raw innovation. We develop
      relationships with universities, companies, inventors and patent or intellectual
      property holders to obtain the rights or a license to their intellectual
      property rights, principally patents and inventions (collectively,
“Technology”), and they become our clients, for whom we find markets to sell or
      further develop their Technology. We also develop relationships with those
      who
      have a need or use for Technologies, and they become our customers, usually
      through a license or sublicense. 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 Technologies to our customers (licensees).
      Our
      customers pay us royalties based on their use of each Technology, and we share
      the fees 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
      usually occurs when we receive periodic royalty reports from our customers
      listing their sales of licensed products and the royalties we 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. In addition, revenues will fluctuate from quarter to quarter
      due to normal fluctuations in revenues of our customers, the receipt of
      differing magnitudes of revenues from upfront license fees, the granting of
      new
      licenses and the expiration of existing licenses, as in the normal course of
      our
      business patents expire, and revenues generated one year may not recur in the
      following year.




Reliance
      on one revenue source





For
      both
      the three and six months ended January 31, 2006 and 2005, we had a significant
      concentration of revenues derived from our homocysteine assay Technology. We
      believe that we have licenses with the most significant distributors and
      laboratories in the United States that sell and/or perform tests used to measure
      homocysteine levels. The patent for this Technology expires in early July 2007,
      and we will not receive any revenues from this Technology for sales made after
      that date. In addition, the validity of this patent has been appealed to the
      U.S. Supreme Court. If the Supreme Court rules in our favor, then the case
      is
      over and our patent will continue to be valid and enforceable. If the Supreme
      Court invalidates our patent, there will be a material adverse impact on our
      business, results of operations and cash flows. If the Supreme Court remands
      the
      case back to the district court to review its decision, and the decision is
      then
      reversed, then the plaintiffs may, in certain circumstances, try to recover
      royalties paid to us while the case was under appeal. For further information
      see Part II, Item 1., “Legal Proceedings”.




Page
          19




Excluding
      upfront license fees received in the prior year from new homocysteine licenses,
      our revenues from this Technology are higher this year compared to last year.
      However, we did expect our revenues from this Technology to be higher than
      they
      are currently, as the actual number of tests and related royalty revenues from
      our homocysteine licensees has been trending downward over the last few
      quarters. This is not unusual in the last year or two prior to the expiration
      of
      a patent, although there may be other reasons for the decrease. For example,
      we
      believe that part of the decrease may be due to suspected infringers who are
      selling tests without a license. We filed a patent infringement complaint
      against one party but we believe that any progress on this and any other new
      cases we might file may be subject to delaying tactics by the defendant until
      the Supreme Court appeal is finalized. In addition, we believe that market
      forces on and business plans of our licensees, over which we have no control,
      may have changed, resulting in less tests and revenue than might have been
      expected. We accelerated our normal audit program of our licensees to make
      sure
      we are capturing available revenues, and are researching the homocysteine
      testing market to better understand the total size of the market, and what
      we
      could expect our revenues to be. The results of our research so far have been
      inconclusive, in part because our licensees generally do not share what they
      consider to be confidential business plans and strategies with us, including
      their market research. All of these factors will continue to affect our
      financial results.




Presentation





We
      rounded all amounts in Item 2 to the nearest thousand dollars, so certain
      amounts may not total precisely. In addition, all periods discussed in 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 January 31, 2006 (Second Quarter 2006) vs.
      Three Months Ended January 31, 2005 (Second Quarter 2005 )





Summary
      of Results





We
      incurred a net loss for the second quarter 2006 of $641,000, or $0.09 per
      diluted share, compared to net income of $3,957,000, or $0.54 per diluted share,
      for the second quarter 2005, a decrease of $4,598,000, or $0.63 per diluted
      share. As explained below, the decrease in net income principally is due to
      a
      decrease in significant upfront license fees received on licenses granted in
      the
      second quarter 2005, and the impact of recognizing non cash stock option
      compensation expense in the second quarter 2006. We did not recognize any stock
      compensation expense in the second quarter 2005.





Revenues





In
      the
      second quarter 2006, total revenues were $1,271,000, compared to $6,783,000
      for
      the second quarter 2005, a decrease of $5,512,000, or 81%.




Page
          20




*Retained
      royalties* for the
      second quarter 2006 were $1,152,000, which was $5,535,000, or 83% less than
      the
      $6,687,000 of retained royalties reported in the second quarter 2005. The
      following compares retained royalty revenues by Technology in the second quarter
      2006 with the second quarter 2005.





*For
                the three months ended January 31,***2006**
            
            2005
            
            Increase
              (Decrease)
            
            %(Decrease)Homocysteine
                assay
            
            **$**
            **902,000**
            
            $
            6,359,000
            
            $
            (5,457,000
            )
            
            (86)%Gallium
                arsenide
            
            
            **99,000**
            
            
            133,000
            
            
            (34,000
            )
            
            (26)%All
                other Technologies
            
            
            **151,000**
            
            
            195,000
            
            
            (44,000
            )
            
            (23)%**Total
                retained royalties**
            
            **$**
            **1,152,000**
            
            $
            6,687,000
            
            $
            (5,535,000
            )
            
            (83)%





Of
      the
      $6,359,000 of revenues received in the second quarter 2005 from our homocysteine
      assay, $5,750,000 was from upfront fees received upon grants of new licenses
      in
      the second quarter 2005. While the receipt of upfront licensee fees is common,
      the magnitude of such fees has and will fluctuate, sometimes significantly
      from
      period to period. In the second quarter 2006 we did not grant any new licenses
      with significant upfront license fees. Excluding the upfront license fees from
      last years revenues, revenues for this Technology for the second quarter 2005
      were $609,000, compared to $902,000 in the current year quarter, which is a
      $293,000 increase, or 48%. The decrease in revenues from the gallium arsenide
      Technology was due to expiring licenses.




Approximately
      78% of our retained royalties for the second quarter 2006 was from the
      homocysteine assay Technology. As explained above, the patent on this Technology
      expires in 2007, and the validity of this patent has been challenged to the
      U.S.
      Supreme Court. 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.




*Investment
      income* includes
      dividends and interest earned on our invested cash. Investment income increased
      $44,000, or 69% in the second quarter 2006 compared to the second quarter 2005,
      due to significantly higher average cash balances during the second quarter
      2006
      compared to the prior year, combined with higher rates of return on the invested
      cash.




Expenses





*For
                the three months ended January 31,***2006**
            
            2005
            
            Increase
              (Decrease)
            
            %
                Increase
              (Decrease)Personnel
                and other direct expenses relating to revenues
            
            **$**
            **1,105,000**
            
            $
            2,095,000
            
            $
            (990,000
            )
            
            (47)%General
                and administrative expenses
            
            
            **761,000**
            
            
            567,000
            
            
            194,000
            
            
            34%Patent
                enforcement expenses, net of reimbursements
            
            
            **58,000**
            
            
            114,000
            
            
            (56,000
            )
            
            (49)%**Total
                expenses**
            
            **$**
            **1,924,000**
            
            $
            2,776,000
            
            $
            (852,000
            )
            
            (31)%




Page
          21




*Personnel
      and other direct expenses relating to revenues* for the
      second quarter 2006 decreased compared to the second quarter 2005, due to a
      combination of several factors. Personnel expenses decreased $963,000 in the
      second quarter 2006 compared to the prior year, principally due to a $1,109,000
      decrease in commission and bonus expense, which was higher in the prior year
      due
      to the financial results achieved. This saving was offset partially by a non
      cash charge of $73,000 for compensation expense related to stock options vesting
      during the quarter and recognized as a result of the adoption of Financial
      Accounting Standards Board Statement No. 123(R), “Share-Based Payment” (“FAS
      123R”), effective August 1, 2005. Since FAS 123R was adopted at the beginning of
      the current fiscal year, there was no such charge in the second quarter 2005.
      In
      addition, we incurred $121,000 in the second quarter 2006 for recruiting
      expenses to add more professional staff to build up our business development
      capabilities. The additional staff will allow us to increase our business
      development activities, which we believe will, in turn, result in more
      Technologies being added to our portfolio and more signed licenses generating
      future revenues. There was no related expense in the prior year. Consulting
      fees
      also increased $63,000 as a result of increased new business development
      activity. Other direct expenses decreased $91,000, principally as a result
      of
      less costs incurred in the second quarter 2006 compared to the prior year for
      our review of the feasibility of certain Technologies, and costs incurred in
      the
      prior year in connection with collecting back royalties from a royalty
      audit.




*General
      and administrative expenses* increased in the second quarter 2006 compared to the second quarter 2005, due
      to
      several factors. Directors’ fees and expenses increased $154,000, principally
      due to a non cash charge, pursuant to the adoption of FAS 123R, of $130,000
      of
      compensation expense related to stock options issued to our directors in January
      2006 (there was no such charge in the prior year), and an increase in the annual
      premium for our directors’ and officers’ liability insurance. In addition, legal
      costs increased $94,000 in the second quarter 2006 compared to the second
      quarter 2005, related to our defense of two complaints filed against CTT by
      our
      former President and Chief Executive Officer and the complaint we filed against
      him (see Part II, Item 1., “Legal Proceedings”).




*Patent
      enforcement expenses, net of reimbursements* ,
      decreased in the second quarter 2006 compared to the second quarter 2005, due
      to
      less activity in the current year related both to homocysteine patent
      infringement lawsuits and a dispute with our licensee related to our sexual
      dysfunction Technology. Most of our homocysteine patent infringement cases
      were
      settled favorably in the prior year. The level of patent enforcement expenses
      relates to our legal strategies and varies depending on the stage and activity
      relating to the litigation.




Provision
      for income taxes





In
      prior
      years, we generated significant federal and state income and alternative minimum
      tax losses, and these net operating losses (“NOLs”) were carried forward for
      income tax purposes. Thus, in the last fiscal year we were able to utilize
      a
      portion of our NOLs against our regular federal and state taxable income,
      effectively eliminating our regular income tax liabilities. However, we still
      were subject to the federal alternative minimum tax (“AMT”), where we are
      limited to using 90% of our NOL against taxable income, and the income tax
      provision recorded for the second quarter 2005 consisted solely of our estimated
      AMT liability. We did not record a provision in the second quarter 2006 due
      to
      the loss incurred during the period. The benefit recorded was due to a true
      up
      of our fiscal 2005 estimated AMT liability to the final tax return as
      filed.




Page
          22




Results
      of Operations - Six Months Ended January 31, 2006 (First Half 2006) vs. Six
      Months Ended January 31, 2005 (First Half 2005 )





Summary
      of Results





We
      incurred a net loss for the first half 2006 of $974,000, or $0.13 per diluted
      share, compared to net income of $4,925,000, or $0.70 per diluted share, for
      the
      first half 2005, a decrease of $5,899,000, or $0.83 per diluted share. As
      explained below, the decrease in net income was due to a decrease in the first
      half 2006 in significant upfront license fees, combined with the lack of royalty
      legal awards and dividends received in the first half 2006, as was received
      in
      the first half 2005. In addition, the first half 2006 included the impact of
      recognizing non cash stock option compensation expense, legal costs to defend
      CTT against two complaints filed against us by our former President and Chief
      Executive Officer, and the costs for us to file a complaint against our former
      President and Chief Executive Officer alleging breach of contract, breach of
      fiduciary duty, statutory theft of confidential information, and other
      claims.





Revenues





In
      the
      first half 2006, total revenues were $2,638,000, compared to $9,214,000 for
      the
      first half 2005, a decrease of $6,576,000, or 71%.




*Retained
      royalties* for the
      first half 2006 were $2,390,000, which was $5,052,000, or 68% lower than the
      $7,442,000 of retained royalties reported in the first half 2005. The following
      compares retained royalty revenues by Technology in the first half 2006 with
      the
      first half 2005.





*For
                the six months ended January 31,***2006**
            
            2005
            
            Increase
              (Decrease)
            
            %(Decrease)Homocysteine
                assay
            
            **$**
            **1,982,000**
            
            $
            7,035,000
            
            $
            (5,053,000
            )
            
            (72)%Gallium
                arsenide
            
            
            **99,000**
            
            
            138,000
            
            
            (39,000
            )
            
            (28)%All
                other Technologies
            
            
            **309,000**
            
            
            269,000
            
            
            40,000
            
            
            15%**Total
                retained royalties**
            
            **$**
            **2,390,000**
            
            $
            7,442,000
            
            $
            (5,052,000
            )
            
            (68)%





Of
      the
      $7,035,000 of revenues received in the first half 2005 from our homocysteine
      assay, $5,750,000 was from upfront fees received upon grants of new licenses
      in
      the second quarter 2005. As previously stated, while the receipt of upfront
      license fees is common, the magnitude of such fees has and will fluctuate,
      sometimes significantly from period to period. In the first half 2006 we did
      not
      grant any new licensees with significant upfront license fees. Excluding the
      upfront license fees from last years revenues, revenues for this Technology
      for
      the first half 2005 were $1,285,000, compared to $1,982,000 in the first half
      2006, which is a $697,000 increase, or 54%. The decrease in revenues from the
      gallium arsenide Technology was due to expiring licenses.




Approximately
      83% of our retained royalties for the first half 2006 was from the homocysteine
      assay Technology. As explained above, the patent on this Technology expires
      in
      2007, and the validity of this patent has been challenged to the U.S. Supreme
      Court. 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
      legal awards* of
      $815,000 in the first half 2005 were from our share of an award received from Laboratory
      Corporation of America Holdings d/b/a LabCorp (“LabCorp”) as a result of its
      unsuccessful appeal to the Court of Appeals for the Federal Circuit of an
      earlier lower court decision in our favor. In
      addition to the award, we received $105,000 of interest income. Subsequently,
      as
      described above, LabCorp appealed this decision to the U.S. Supreme Court,
      and
      it has agreed to hear LabCorp’s appeal (see Part II, Item 1., “Legal
      Proceedings”). There were no legal awards in the first half 2006.




Page
          23




*Dividends
      received* of
      $679,000 in the first half 2005 were from our receipt of a dividend from our
      investee, Melanotan Corporation (“MelanoTan”). There were no dividends received
      in the first half 2006. In October 2004, MelanoTan paid its shareholders a
      dividend in the form of shares of common stock of its investee, Clinuvel
      Pharmaceuticals Limited (“Clinuvel”), an Australian company (formerly EpiTan
      Limited). As a result, we received 1,252,346 shares of Clinuvel common stock.
      Previously, we licensed our rights to a sunless tanning Technology to MelanoTan
      and MelanoTan sublicensed the rights to Clinuvel. MelanoTan also had received
      shares of Clinuvel. Clinuvel common stock is traded on the Australian Stock
      Exchange (quoted in Australian dollars) under the symbol CUV.




*Investment
      income* increased $23,000, or 11%, in the first half 2006 compared to the first half
      2005. Investment income for the first half 2005 included $105,000 in interest
      income from the legal award received from LabCorp. Excluding this interest
      income, investment income for the first half 2005 was $108,000, compared to
      $235,000 in the first half 2006, or an increase of $128,000, or 118%. The
      increase, excluding the LabCorp legal award, is due to significantly higher
      average cash balances during the first half 2006 compared to the prior year,
      combined with higher rates of return on invested cash.




Expenses





*For
                the six months ended January 31,***2006**
            
            2005
            
            Increase
              (Decrease)
            
            %
                Increase
              (Decrease)Personnel
                and other direct expenses relating to revenues
            
            **$**
            **1,994,000**
            
            $
            3,119,000
            
            $
            (1,125,000
            )
            
            (36)%General
                and administrative expenses
            
            
            **1,531,000**
            
            
            815,000
            
            
            716,000
            
            
            88%Patent
                enforcement expenses, net of reimbursements
            
            
            **99,000**
            
            
            284,000
            
            
            (185,000
            )
            
            (65)%**Total
                expenses**
            
            **$**
            **3,624,000**
            
            $
            4,218,000
            
            $
            (594,000
            )
            
            (14)%





*Personnel
      and other direct expenses relating to revenues* decreased in the first half 2006 compared to the first half 2005, due to a
      combination of several factors. Personnel expenses decreased $1,006,000 in
      the
      first half 2006 compared to the prior year, principally due to a $1,155,000
      decrease in commission and bonus expense, which was higher in the prior year
      due
      to the financial results achieved. In addition, salaries decreased $104,000
      due
      to less full time employees during the first half 2006 compared to the first
      half 2005. This saving was offset partially by a non cash charge of $123,000
      for
      compensation expense related to stock options vesting during the first half
      2006
      and recognized as a result of the adoption of FAS 123R effective August 1,
      2005.
      Since FAS 123R was adopted at the beginning of the current fiscal year, there
      was no such charge in the first half 2005. In addition, we incurred $121,000
      in
      the first half 2006 for recruiting expenses to add more professional staff
      to
      build up our business development capabilities. The additional staff will allow
      us to increase our business development activities, which we believe will,
      in
      turn, result in more Technologies being added to our portfolio and ultimately
      more signed licenses generating future revenues. There was no related expense
      in
      the prior year. Consulting fees also increased $66,000 as a result of increased
      new business development activity. Other direct expenses decreased $185,000,
      principally as a result of less costs incurred in the first half 2006 compared
      to the prior year for our review of the feasibility of certain Technologies,
      and
      costs incurred in the prior year in connection with collecting back royalties
      from a royalty audit.




*General
      and administrative expenses* increased in the first half 2006 compared to the first half 2005, due to several
      factors. Directors’ fees and expenses increased $232,000, principally due to a
      charge, pursuant to the adoption of FAS 123R, of $130,000 of non cash
      compensation expense related to stock options issued to our directors in January
      2006 (there was no such charge in the prior year), and an increase in the annual
      premium for our directors’ and officers’ liability insurance. Legal expenses
      increased $275,000 in the first half 2006 compared to the first half 2005,
      related to our defense of two complaints filed against CTT by our former
      President and Chief Executive Officer and the complaint we filed against him
      (see Part II, Item 1., “Legal Proceedings”). In addition, legal expenses for the
      first half 2005 had been reduced and were lower than normal due to a refund
      from
      our director’s and officer’s liability insurance carrier of $168,000 for legal
      costs incurred and expensed in prior years. The costs were incurred in
      connection with an investigation by the SEC.




Page
          24


*Patent
      enforcement expenses, net of reimbursements* ,
      decreased in the first half 2006 compared to the first half 2005, due to less
      activity in the current year related both to homocysteine patent infringement
      lawsuits and a dispute with our licensee related to our sexual dysfunction
      Technology. Most of our homocysteine patent infringement cases were settled
      favorably in the prior year. The level of patent enforcement expenses relates
      to
      our legal strategies and varies depending on the stage and activity relating
      to
      the litigation.




Provision
      for income taxes





During
      the last fiscal year, we were able to utilize a portion of our NOLs against
      our
      regular federal and state taxable income, effectively eliminating our regular
      income tax liabilities for fiscal 2005. However, we still were subject to the
      AMT, and the income tax provision recorded for the first half 2005 consisted
      solely of our estimated AMT liability. We did not record a provision in the
      first half 2006 due to the loss incurred during the period. The benefit recorded
      was due to a true up of our fiscal 2005 estimated AMT liability to the final
      tax
      return as filed. If we generate taxable income in fiscal 2006 we will be able
      to
      utilize our NOLs against any regular income tax liabilities that we may incur
      for fiscal 2006, but we still will be liable for the AMT.








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, if any. In addition, we have the option to fund requirements through
      sales of common stock pursuant to an equity financing arrangement (see below).
      At January 31, 2006, we had no outstanding debt or 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
      January 31, 2006, cash and cash equivalents were $12,222,000, compared to
      $14,280,000 at July 31, 2005. Cash used in operating activities during the
      first
      half 2006 was $3,435,000, compared to cash provided by operations of $7,589,000
      during the first half of 2005. The decrease in cash from operating activities
      in
      the current period compared to the prior year period was due principally to
      the
      net loss experienced in the current year compared to large net income in the
      same period of the prior year, an increase in receivables due to the timing
      of
      receipts, and the payment of fiscal 2005 commission and bonus awards during
      the
      first half 2006 that had been accrued at the end of fiscal 2005. Cash used
      in
      investing activities in the first half 2006 was $39,000, compared to cash
      provided by investing activities of $304,000 in the first half 2005. In the
      prior year the cash was provided by the partial collection of an outstanding
      receivable balance. Cash provided by financing activities in the first half
      2006
      was $1,416,000, compared to $1,934,000 of cash provided in the first half 2005.
      The decrease was due to less stock option exercises in the first half 2006
      compared to the first half 2005. We receive cash equivalent to the exercise
      price of each stock option exercised.




Page
          25




Changes
      in royalties receivable and payable reflect our normal cycle of royalty
      collections and payments, and fluctuate depending on income received and the
      date when royalty receipts and payments are due to be paid out under our
      agreements with clients and customers.




*Funding
      and capital requirements*





Equity
      Financing





In
      February 2004, we entered into an equity financing agreement with Fusion Capital
      Fund II, LLC (“Fusion Capital”), pursuant to which we can sell to Fusion Capital
      up to $5.0 million of our common stock, at our option. During the first half
      2006, we sold $1,400,000 of common stock to Fusion Capital. We use the proceeds
      for general working capital needs. The aggregate proceeds from sales to Fusion
      Capital pursuant to the equity financing agreement, were approximately
      $4,117,000 from inception through January 31, 2006. We have the ability and
      currently expect to sell the full $5.0 million of our common stock to Fusion
      Capital; however, we may not sell the entire $5.0 million of our common stock
      to
      them. In addition, we have the option of entering into another equity financing
      agreement with Fusion Capital for an additional $5.0 million upon termination
      of
      the current agreement.





Income
      taxes





We
      currently have the benefit of using a portion of our accumulated NOLs to
      eliminate any regular federal and state income tax liabilities that we may
      incur
      for fiscal 2006. If we have taxable income for the year, we expect that we
      would
      be liable to pay only the federal AMT for fiscal 2006. The rate that we would
      pay for the AMT liability is much less than if we had to pay income taxes at
      statutory income tax rates. We will continue to receive this benefit until
      we
      have utilized all of our NOLs (federal and state). However, we cannot determine
      when and if we will have sufficient income to utilize the benefit of the
      remainder of our NOLs.





Capital
      requirements





We
      are
      investing funds to find new Technologies and new sources of Technologies, and
      license the Technologies, specifically by adding more personnel to our business
      development team and adding personnel to support our expanding, global business
      development activities. We also are researching potential acquisition
      candidates. We are making these investments in order to grow our business,
      increase shareholder value, and accomplish our strategic goals. We expect this
      trend to continue.





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 achieve and 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 and/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 and the ability to raise funds from sales
      of
      our common stock to Fusion Capital will be sufficient to meet our current and
      anticipated operating cash requirements for at least the next year.





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          26




*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 herein and 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 incurrence of 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
      and
      cash flows in a particular period.





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 to cover us against potential claims that occur in the normal course
      of our business.





Critical
      Accounting Estimates





We
      account for stock-based compensation in accordance with FAS 123(R). Pursuant
      to
      the fair value recognition provisions of FAS 123R, share-based compensation
      cost
      is measured at the grant date based on the value of the award and is recognized
      as expense over the service (vesting) period. Determining the fair value of
      share-based awards at the grant date requires judgment, including estimating
      the
      expected life of the stock option, volatility, and the amount of share-based
      awards that can be expected to be forfeited. Our estimates were based on our
      historical experience with stock option awards. If actual results differ
      significantly from these estimates, stock-based compensation expense and our
      results of operations could be materially impacted.




There
      have been no other 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,
      2005.








**Item 3.**
            **Quantitative
                and Qualitative Disclosures About Market
                Risk**





We
      do not
      have significant market risk to the valuation of our assets other than risks
      related to our common stock holdings of Palatin Technologies, Inc. (“Palatin”),
      and Clinuvel. The value of the Palatin stock is included in prepaid and other
      current assets while the value of the Clinuvel shares is included in equity
      securities, as our current intention is to hold the Clinuvel shares as a long
      term investment. The value of the stock is subject to market fluctuations in
      the
      per share price of the stock as well as foreign currency fluctuations relating
      to the Clinuvel shares, since Clinuvel common stock is traded on the Australian
      Stock Exchange and the price per share of the stock is quoted in Australian
      dollars. We currently consider any market fluctuations to be temporary. During
      the three and six months ended January 31, 2006, the market value of the
      Clinuvel shares decreased by $57,390 and $402,938, respectively, while the
      exchange rate changed in our favor by $13,890 and $97,225, respectively. In
      addition, during the six months ended January 31, 2006, we reversed the discount
      originally recorded upon receipt of the Clinuvel shares due to the lapse of
      the
      sales restriction, resulting in an unrealized gain of $206,420. The net
      aggregate unrealized loss on the Clinuvel shares for the three and six months
      ended January 31, 2006, was $43,500 and $99,293, respectively. Partially
      offsetting this loss, during the three and six months ended January 31, 2006,
      the market value of the Palatin shares increased $75,072 and $95,200,
      respectively. In addition, during the three and six months ended January 31,
      2006, we reversed the discount originally recorded upon the receipt of the
      Palatin shares due to our conclusion that the shares could be resold, resulting
      in an unrealized gain of $25,704. The net aggregate unrealized gain on the
      Palatin shares for the three and six months ended January 31, 2006 was $100,776
      and $120,904, respectively. The total combined net unrealized gain for the
      three
      and six months ended January 31, 2006, was $57,276 and $21,611,
      respectively.





Page
          27





**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 the Securities Exchange Act of 1934
      (the
“Exchange Act”), Rules 13a-15(e) and 15d-15(e)) as of January 31,
      2006 .
      Our
      disclosure controls and procedures are designed to ensure that information
      required to be disclosed by us in reports filed under the Exchange Act is
      recorded, processed, summarized, and reported as specified in the SEC’s rules
      and forms. Based on this evaluation, our Chief Executive Officer and Chief
      Financial Officer concluded that our disclosure controls and procedures were
      effective as of January 31,
      2006 .





(b) Changes
      in Internal Control over Financial Reporting





There
      were no significant changes in our internal control over financial reporting
      during the quarter ended January 31 ,
      2006 ,
      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
      4 and 12 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 January
      31, 2006 , 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 upon an exemption under Section 4(2) of the Securities
      Act of 1933 because we made the offers and sales in private
      placements. The
      proceeds from these sales were used for general working capital
      purposes.




Month
            
            Number
                of
              shares
                sold
              and
                issued
            
            Total
                cash
              receivedNovember
                2005
            
            
            38,296
            
            $
            174,991December
                2005
            
            
            67,961
            
            
            267,518January
                2006
            
            
            46,183
            
            
            174,987152,440
            
            $
            617,496




Page
          28




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





At
      the
      annual meeting of stockholders held January 17, 2006, our stockholders elected
      the following directors:





Name
            
            Votes
                For
            
            Votes
                WithheldRichard
                E. Carver
            
            6,097,053
            
            792,624George
                W. Dunbar, Jr.
            
            6,105,603
            
            784,074Dr.
                Donald J. Freed
            
            6,223,517
            
            666,160Dr.
                Maria-Luisa Maccecchini
            
            6,254,517
            
            635,160Charles
                J. Philippin
            
            6,203,203
            
            686,474John
                M. Sabin
            
            6,134,165
            
            755,512





There
      were no broker non-votes in the election of directors.








**Item 6.**
            **Exhibits**




10.1*
              Registrant’s
                  Annual Incentive Plan filed (on November 25, 2005) as Exhibit 99.1
                  to
                  registrant’s Current Report on Form 8-K dated November 25, 2005, and
                  hereby incorporated by reference.10.25*
              Amendment
                  number one to Amended and Restated Employment Agreement by and
                  between
                  registrant and Donald J. Freed dated February 15, 2006, filed (on
                  February
                  23, 2006) as Exhibit 10.1 to registrant’s Current Report on Form 8-K, and
                  hereby incorporated by reference.10.26*
              Employment
                  Agreement dated as of February 15, 2006, between registrant and
                  Dr.
                  Michael E. Kiley, filed (on February 23, 2006) as Exhibit 10.1
                  to
                  registrant’s Current Report on Form 8-K, 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)).31.2
              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)).32.1
              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).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).




*
      Management contract or compensatory plan





Page
          29








**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.




COMPETITIVE
                  TECHNOLOGIES, INC.
                (the
                  registrant)Date: March
              10, 2006
            By:
            /s/ D.J.
              Freed, Ph.D.D.J.
              Freed, Ph.D.President,
              Chief
              ExecutiveOfficer and Authorized
              Signer




COMPETITIVE
                TECHNOLOGIES, INC.
              (the
                registrant)Date: March
              10, 2006
            By:
            /s/ Michael
              D. DavidsonMichael
              D. DavidsonVice
                President, Chief Financial Officer,
              Chief
                Accounting Officer
              and
                Authorized Signer




Page
          30




INDEX
      TO
      EXHIBITS






Exhibit
      No.  Description




10.1*
              Registrant’s
                  Annual Incentive Plan filed (on November 25, 2005) as Exhibit 99.1
                  to
                  registrant’s Current Report on Form 8-K dated November 25, 2005, and
                  hereby incorporated by reference.10.25*
              Amendment
                  number one to Amended and Restated Employment Agreement by and
                  between
                  registrant and Donald J. Freed dated February 15, 2006, filed (on
                  February
                  23, 2006) as Exhibit 10.1 to registrant’s Current Report on Form 8-K, and
                  hereby incorporated by reference.10.26*
              Employment
                  Agreement dated as of February 15, 2006, between registrant and
                  Dr.
                  Michael E. Kiley, filed (on February 23, 2006) as Exhibit 10.1
                  to
                  registrant’s Current Report on Form 8-K, 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)).31.2
              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)).32.1
              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).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).




* Management
      contract or compensatory plan










Page
          31