**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





(Mark
      One)





x
            
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934 for
                the quarterly period ended October 31,
                2005




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
            
            36-2664428(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)1960
                Bronson RoadFairfield,
                Connecticut
            
            06824(Address
                of principal executive offices)
            
            (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 an accelerated filer (as defined in
      rule
      12b-2 of the Exchange Act). Yes xNo
o





The
      number of shares of the registrant’s common stock outstanding as of December 5,
      2005 was 7,545,521 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 October 31, 2005, and July 31, 2005
            3Condensed
                Consolidated Statements of Operations for the three months ended
                October
                31, 2005 and 2004
            4Condensed
                Consolidated Statement of Comprehensive Loss and Changes in
                Shareholders’
              Interest
                for the three months ended October 31, 2005
            5Condensed
                Consolidated Statements of Cash Flows for the three months ended
                October
                31, 2005 and 2004
            6Notes
                to Condensed Consolidated Financial Statements
            7
                -
                16Item
                2.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            17
                - 22Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            22Item
                4.
            Controls
                and Procedures
            23




**PART II. OTHER
                INFORMATION**Item
                1.
            Legal
                Proceedings
            23Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            23Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            23Item
                6.
            Exhibits
            24Signatures
            
            25







Page
          2


PART
      I. FINANCIAL
      INFORMATION


Item
      1.Condensed
      Consolidated Financial Statements





COMPETITIVE
      TECHNOLOGIES, INC.


Condensed
      Consolidated Balance Sheets




**October
                  31,**
              
              July
                  31,**2005**
              
              2005(Unaudited)
              
              ***ASSETS**Current
                assets:Cash
                  and cash equivalents
              
              **$**
              **13,681,685**
              
              $
              14,279,547Receivables
              
              
              **3,252,395**
              
              
              4,086,241Prepaid
                  expenses and other current assets
              
              
              **745,709**
              
              
              272,345Total
                  current assets
              
              
              **17,679,789**
              
              
              18,638,133Non-current
                  royalty receivable
              
              
              **1,333,333**
              
              
              —Equity
                  securities
              
              
              **502,506**
              
              
              558,299Prepaid
                  royalties
              
              
              **75,000**
              
              
              75,000Deferred
                  equity financing costs, net
              
              
              **—**
              
              
              96,227Intangible
                  assets, net
              
              
              **33,796**
              
              
              38,571Property
                  and equipment, net
              
              
              **47,402**
              
              
              34,863TOTAL
                  ASSETS
              
              **$**
              **19,671,826**
              
              $
              19,441,093**LIABILITIES
                  AND SHAREHOLDERS' INTEREST**Current
                  liabilities:Accounts
                  payable
              
              **$**
              **430,686**
              
              $
              642,868Accrued
                  expenses and other liabilities
              
              
              **3,850,161**
              
              
              4,690,344Total
                  current liabilities
              
              
              **4,280,847**
              
              
              5,333,212Non-current
                  royalties payable
              
              
              **800,000**
              
              
              **—**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, 7,503,893 and 7,326,749shares
                  issued, respectively
              
              
              **75,038**
              
              
              73,267Capital
                  in excess of par value
              
              
              **32,135,493**
              
              
              31,285,496Accumulated
                  deficit
              
              
              **(17,377,179**
              )
              
              (17,044,174
              )Accumulated
                  other comprehensive loss
              
              
              **(303,048**
              )
              
              (267,383
              )Total
                  shareholders' interest
              
              
              **14,590,979**
              
              
              14,107,881TOTAL
                  LIABILITIES AND SHAREHOLDERS'INTEREST
              
              **$**
              **19,671,826**
              
              $
              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 endedOctober
                  31,**2005**
              
              2004**Revenues**Retained
                  royalties
              
              **$**
              **1,237,480**
              
              $
              755,769Royalty
                  legal awards
              
              
              **—**
              
              
              815,492Dividends
                  received
              
              
              **—**
              
              
              679,149Interest
                  income
              
              
              **126,841**
              
              
              148,558Other
                  income
              
              
              **2,000**
              
              
              32,049**1,366,321**
              
              
              2,431,017**Expenses**Personnel
                  and other direct expensesrelating
                  to revenues
              
              
              **889,182**
              
              
              1,023,739General
                  and administrative expenses
              
              
              **769,609**
              
              
              247,980Patent
                  enforcement expenses, net ofreimbursements
              
              
              **40,535**
              
              
              170,713**1,699,326**
              
              
              1,442,432Income
                  (loss) before income taxes
              
              
              **(333,005**
              **)**
              
              988,585Provision
                  for income taxes
              
              
              **—**
              
              
              20,760**Net
                  income (loss)**
              
              **$**
              **(333,005**
              **)**
              $
              967,825Net
                  income (loss) per common share:Basic
              
              **$**
              **(0.04**
              **)**
              $
              0.15Assuming
                  dilution
              
              **$**
              **(0.04**
              **)**
              $
              0.14Weighted
                  average number of commonshares
                  outstanding:Basic
              
              
              **7,410,416**
              
              
              6,399,715Assuming
                  dilution
              
              
              **7,410,416**
              
              
              6,700,832




*See
      accompanying notes*


Page
          4





PART
      I. FINANCIAL INFORMATION (Continued)





COMPETITIVE
      TECHNOLOGIES, INC.


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


For
      the
      three months ended October 31, 2005


(Unaudited)




**Preferred
                  Stock**
              
              **Common
                  Stock**
              
              
              
              
              
              **Accumulated****Shares**
              
              
              
              
              
              
              
              **Capital**
              
              
              
              **other**
              
              **Total****issued
                  and**
              
              
              
              **Shares**
              
              
              
              **in
                  excess of**
              
              **Accumulated**
              
              **comprehensive**
              
              **Shareholders'****outstanding**
              
              **Amount**
              
              **issued**
              
              **Amount**
              
              **par
                  value**
              
              **Deficit**
              
              **loss**
              
              **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
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (333,005
              )
              
              —
              
              
              (333,005
              )Net
                  unrealized holding loss onsecurities
                  held
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (325,420
              )
              
              (325,420
              )Unrealized
                  foreign currencytranslation
                  adjustments
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              83,335
              
              
              83,335Unrealized
                  gain from reversalof
                  sale restriction discount
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              206,420
              
              
              206,420Comprehensive
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (333,005
              )
              
              (35,665
              )
              
              (368,670
              )Compensation
                  expense on issuanceof
                  common stock options
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              50,287
              
              
              —
              
              
              —
              
              
              50,287Exercise
                  of common stock options
              
              
              —
              
              
              —
              
              
              5,750
              
              
              57
              
              
              15,233
              
              
              —
              
              
              —
              
              
              15,290Stock
                  issued under 401(k) Plan
              
              
              —
              
              
              —
              
              
              15,943
              
              
              159
              
              
              99,803
              
              
              —
              
              
              —
              
              
              99,962Sales
                  and issuances of stock inequity
                  financing
              
              
              —
              
              
              —
              
              
              155,451
              
              
              1,555
              
              
              780,901
              
              
              —
              
              
              —
              
              
              782,456Amortization
                  of deferred equityfinancing
                  costs
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (96,227
              )
              
              —
              
              
              —
              
              
              (96,227
              )**Balance
                  - October 31, 2005**
              
              
              **2,427**
              
              **$**
              **60,675**
              
              
              **7,503,893**
              
              **$**
              **75,038**
              
              **$**
              **32,135,493**
              
              **$**
              **(17,377,179**
              **)**
              **$**
              **(303,048**
              **)**
              **$**
              **14,590,979**





*See
        accompanying notes*




Page
          5





PART
      I. FINANCIAL INFORMATION (Continued)





COMPETITIVE
      TECHNOLOGIES, INC.


Condensed
      Consolidated Statements of Cash Flows


(Unaudited)




Three
                  months endedOctober
                  31,**2005**
              
              2004**Cash
                  flows from operating activities:**Net
                  income (loss)
              
              **$**
              **(333,005**
              )
              $
              967,825Noncash
                  and other expenses (income)included
                  in net income (loss):Depreciation
                  and amortization
              
              
              **9,896**
              
              
              9,014Share-based
                  compensation - stock options
              
              
              **50,287**
              
              
              —Stock
                  compensation accrued
              
              
              **43,750**
              
              
              43,777Stock
                  dividend
              
              
              **—**
              
              
              (679,149
              )Other
              
              
              **—**
              
              
              (17,701
              )(Increase)
                  decrease in assets:Receivables
              
              
              **619,617**
              
              
              (199,279
              )Prepaid
                  expenses and other current assets
              
              
              **(196,196**
              **)**
              
              38,441Non-current
                  receivable
              
              
              **(1,333,333**
              **)**
              
              —Increase
                  (decrease) in liabilities:Accounts
                  payable and accrued expensesand
                  other liabilities
              
              
              **(1,038,964**
              **)**
              
              1,704,590Non-current
                  royalties payable
              
              
              **800,000**
              
              
              —Net
                  cash provided by (used in) operating activities
              
              
              **(1,377,948**
              **)**
              
              1,867,518**Cash
                  flows from investing activities:**Purchases
                  of property and equipment
              
              
              **(17,660**
              **)**
              
              (21,370
              )Collection
                  on Unilens receivable, net
              
              
              **—**
              
              
              154,619Net
                  cash provided by (used in) investing activities
              
              
              **(17,660**
              **)**
              
              133,249**Cash
                  flows from financing activities:**Proceeds
                  from exercises of stock options
              
              
              **15,290**
              
              
              2,242Proceeds
                  from sales of common stock
              
              
              **782,456**
              
              
              350,007Net
                  cash provided by financing activities
              
              
              **797,746**
              
              
              352,249Net
                  increase (decrease) in cash and cash equivalents
              
              
              **(597,862**
              **)**
              
              2,353,016Cash
                  and cash equivalents at beginning of period
              
              
              **14,279,547**
              
              
              4,309,680Cash
                  and cash equivalents at end of period
              
              **$**
              **13,681,685**
              
              $
              6,662,696




*See
        accompanying notes*







Page
          6





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 (microscopic particles)
      science technologies originally invented by various individuals, corporations
      and universities. We are compensated for our services primarily by sharing
      in
      the license and royalty fees generated from 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 months
      ended
      October 31 ,
      2005 ,
      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.
            
            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 license relieves Abbott’s
      customers from their obligation to pay us royalties on tests performed using
      the
      Abbott homocysteine assay. 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 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 U.S. after January 1, 2006. No per test royalties are payable
      from
      Abbott in calendar year 2005. In January 2005, upon receipt, we recorded the
      upfront license fee, and began accruing the Milestone Fees, our share of which
      aggregates to $1,600,000, and which will be paid to us in two equal installments
      of $800,000 on January 31, 2006 and 2007, as long as our patent is valid and
      enforceable. The present value of the Milestone Fees has been accrued in
      retained royalties during calendar 2005, and the difference between the present
      value and the amount due us has been recorded in interest income. During the
      three months ended October 31, 2005, we accrued $377,990, our share of the
      Milestone Fees, in retained royalties, and $22,010 in interest income, for
      a
      total of $400,000. From the inception of the license, we have accrued a gross
      total of $3,333,333 of Milestone Fees in receivables, $1,333,333 of which has
      been classified as long term.




Page
          7


*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 amount of the fixed fee is determined based on estimated
      volume.




3.
            
            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 have 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. This expense
      is recognized 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.




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. Stock options granted under the 1997 Plan
      generally vest over three or four years. The maximum life of options granted
      under this plan is ten years after the grant date. We generally issue new shares
      of common stock to satisfy stock option exercises. For the three months ended
      October 31, 2005, we recognized $50,287 of compensation expense from stock
      options vesting during the quarter, without any associated income tax
      benefit. No compensation expense related to stock options granted was recognized
      during the three months ended October 31, 2004.







Page
          8





The
      following assumptions were used to estimate the fair value of options granted
      during the three months ended October 31:




**Black
                -Scholes Option Valuation Assumptions**
            
            **2005**
            
            **2004**Dividend
                yield (1)
            
            
            **0.0**
            **%**
            
            0.0
            %Expected
                volatility (2)
            
            
            **76.0**
            **%**
            
            76.0
            %Risk
                free interest rate (3)
            
            
            **3.9**
            **%**
            
            3.6
            %Expected
                lives (in years) (2)
            
            
            **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 months ended October 31, 2005, 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.
      The weighted average fair values of options granted during the quarters ended
      October 31, 2005 and 2004, were $3.44 and $2.37 per option, respectively,
      estimated on the grant date using the Black-Scholes option-pricing model with
      the assumptions listed above.




A
      summary
      of option activity under all our plans as of October 31, 2005, and changes
      during the quarter then ended is presented below:





**Weighted-****Weighted**
            
            **Average****Average**
            
            **Remaining**
            
            **Aggregate****Exercise**
            
            **Contractual**
            
            **Intrinsic****Options**
            
            **Shares**
            
            **Price**
            
            **Term**
            
            **Value**Outstanding
                at August 1, 2005
            
            
            740,223
            
            $
            5.76Granted
            
            
            192,500
            
            
            5.34Exercised
            
            
            (750
            )
            
            3.72Outstanding
                at October 31, 2005
            
            
            931,973
            
            $
            5.56
            
            
            7.18
            
            $
            692,077Exercisable
                at October 31, 2005
            
            
            558,480
            
            $
            6.45
            
            
            5.30
            
            $
            359,131





The
      options granted during the three months ended October 31, 2005, were outstanding
      only a portion of the quarter, and thus the expense recognized for these options
      was only for the period that they were outstanding. The total intrinsic value
      of
      options exercised during the quarters ended October 31, 2005 and 2004, was
      $1,455 and $4,164, respectively. As of October 31, 2005, there was $725,479
      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 1.9 years.




Page
          9


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 an option price not less than 100% of the
      fair
      market value of the common stock at the grant date. The maximum life of the
      options granted under this plan is ten years from the grant date. Since these
      options are fully vested upon grant, the fair value of these options will be
      recorded as expense at the grant date.




At
      October 31, 2005, 1,440,098 shares of common stock were reserved for issuance
      under all our stock option plans, and 523,575 shares were available for future
      grants.




Prior
      to
      the adoption of FAS 123R, we accounted for our share-based employee 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 months ended October
      31,
      2004, would have been as follows:





For
                theThree
                monthsEnded
                October 31,2004Net
                income, as reported
            
            $
            967,825Deduct: Pro forma stock option
              compensation
                expense for stock options
              granted
                using a fair value method (1)
            
            
            (96,725
            )Pro
                forma net income
            
            $
            871,100Basic
                net income per common share:As
                reported
            
            $
            0.15Pro
                forma
            
            $
            0.14Net
                income per common share,
              assuming
                dilution:As
                reported
            
            $
            0.14Pro
                forma
            
            $
            0.13





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








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. (“MLI”) 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 prior year quarter ended October 31, 2004. 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.




Page
          10


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 “SGO”) to file a brief in this case expressing its views on
      the single question of the patentability of method patents of this type. On
      August 26, 2005, the SGO 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. A date for a hearing in front
      of
      the Court has not yet been set. If the Court ultimately rules against LabCorp’s
      appeal, then the case will be over. However, if the Court rules in favor of
      LabCorp’s appeal, and if the Court remands the case back to the District Court,
      and then if the original judgment is subsequently 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.) LabCorp’s ability to
      recover any amounts paid to the Plaintiffs would depend on the extent and reason
      for the reversal. From January 2003 through April 30, 2005, LabCorp paid us
      an
      aggregate of $1,930,355 under the Stipulated Order, including both our retained
      amounts and amounts paid or payable to our clients. We believe that the
      probability that LabCorp will recover any amounts paid is remote. The appeals
      process was considered to have ended in April 2005. The Stipulated Order expired
      April 30, 2005. Thus, since April 30, 2005, LabCorp has not paid us any
      royalties directly.








5.
            Dividends
                Received and Comprehensive Loss





In
      October 2004, our investee, Melanotan Corporation (“MelanoTan”), paid its
      shareholders a dividend in the form of shares of common stock of EpiTan Limited
      (Australia) (“EpiTan”), MelanoTan’s investee. As a result, we received 1,252,346
      shares of EpiTan common stock. EpiTan common stock is traded on the Australian
      Stock Exchange (quoted in Australian dollars) under the symbol EPT. As a
      condition to receiving the dividend, we 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 EpiTan 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 EpiTan stock, since
      EpiTan 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. This asset is included in equity
      securities and classified as a non-current asset since our current intention
      is
      to hold the shares long term. In June 2005 we received an additional dividend
      of
      660,686 shares of EpiTan stock and valued the dividend at $146,533, in the
      same
      manner as the October 2004 dividend. In total, we received and now directly
      own
      1,913,032 shares of EpiTan common stock, with a total initial value of $825,682.
      Our ownership percentage of EpiTan’s common stock is not
      significant.




Page
          11


Unrealized
      market price and foreign exchange gains and losses relating to the EpiTan shares
      have been aggregated and included in accumulated other comprehensive loss in
      shareholders’ interest, since we believe that the decline in value of the shares
      is temporary. For the three months ended October 31, 2005, we recorded an
      unrealized loss on the decline in the market value of the stock of $345,548,
      and
      an unrealized foreign exchange gain of $83,335 on the value of the U.S. dollar
      compared to the Australian dollar. In addition, as a result of the lapse of
      the
      sale restriction, we also recorded an unrealized gain of $206,420 related to
      the
      reversal of the 20% discount on the original value of the shares received.
      In
      total, we recorded a net unrealized loss of $55,793 related to EpiTan during
      the
      three months ended October 31, 2005. For the three months ended October 31,
      2004, we recorded an unrealized foreign exchange gain of $16,676.




We
      previously received 170,000 restricted shares of Palatin Technologies, Inc.
      (“Palatin”) common stock as part of a mediated settlement. Unrealized market
      price gains related to our retained portion of the shares are included in other
      comprehensive loss. For the three months ended October 31, 2005, we recorded
      a
      $20,128 unrealized gain on the market price of our share of the Palatin
      stock.




Comprehensive
      income (loss) was ($368,670) and $984,501, respectively, for the three months
      ended October 31, 2005 and 2004.








6.
            
            Net
                Income (Loss) Per Common Share





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




For
                the three months ended October 31,**2005**
            
            2004Denominator
                for basic net income (loss) per
              common
                share, weighted average common
              shares
                outstanding
            
            
            **7,410,416**
            
            
            6,399,715Dilutive
                effect of warrants and employees’
              and
                directors’ common stock options
            
            
            **—**
            
            
            301,117Denominator
                for net income (loss) per
              common
                share, assuming dilution
            
            
            **7,410,416**
            
            
            6,700,832





At
      October 31, 2005, all 931,973 outstanding options to purchase shares of common
      stock were excluded from the computation of net
      income (loss) per common share, assuming dilution, because
      they were anti-dilutive. At October 31, 2004, stock options and warrants to
      purchase 578,278 shares of common stock were outstanding but were not included
      in the computation of net income (loss) per share because the exercise prices
      were greater than the weighted average share prices for the quarter, making
      them
      anti-dilutive (total options and warrants outstanding were
      1,384,182).




Page
          12





7.
            
            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 months ended October 31, 2005:




Commitment**Cash**
            
            Shares
            
            Shares
            
            **Total****Received**
            
            Sold
            
            Issued
            
            **Shares**Three
                months ended October 31, 2005
            
            **$**
            **782,456**
            
            
            149,908
            
            
            5,543
            
            
            **155,451**





We
      are
      using the proceeds for general working capital needs. The
      aggregate proceeds received from sales of common stock to Fusion Capital
      pursuant to the equity financing agreement from the date of inception through
      October 31, 2005, were $3,499,998. Costs 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. Previously, we had estimated that we would sell a total of $3.5
      million of common stock to Fusion Capital pursuant to the equity financing
      agreement and, accordingly, we
      amortized $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. Subsequently, we began selling
      more common stock to Fusion Capital, and sold and issued 47,773 shares
      to
      them through December 5, 2005, for proceeds of $217,492. No further amortization
      of the deferred financing costs occurred since the balance of the costs had
      been
      fully amortized.




8.
            
            Receivables





Receivables
      consist of the following:




**October
                31,**
            
            July
                31,**2005**
            
            2005Royalties
            
            **$**
            **2,901,654**
            
            $
            3,836,857Receivables
                from insurance carrier
            
            
            **269,840**
            
            
            191,568Other
            
            
            **80,901**
            
            
            57,816Receivables
            
            **$**
            **3,252,395**
            
            $
            4,086,241







Page
          13





9.
            
            Accrued
                expenses and other liabilities





Accrued
      expenses and other liabilities consist of the following:




**October
                31,**
            
            July
                31,**2005**
            
            2005Accrued
                royalties payable
            
            **$**
            **3,308,439**
            
            $
            2,793,083Accrued
                compensation
            
            
            **198,687**
            
            
            1,616,522Accrued
                professional fees
            
            
            **202,485**
            
            
            177,605Accrued
                other
            
            
            **140,550**
            
            
            103,134Accrued
                expenses and other liabilities
            
            **$**
            **3,850,161**
            
            $
            4,690,344





The
      increase in accrued royalties payable since July 31, 2005 is the result of
      increased royalties from new homocysteine licenses collected on behalf of our
      clients. The net decrease in accrued compensation is due principally to the
      payment of fiscal 2005 bonus and commission awards.




10.
            
            Contingencies




*Employment
      matters*




On
      February 2, 2005, the Occupational Safety and Health Administration ("OSHA")
      issued a finding that there was probable cause to believe that CTT had violated Section
      806 of the Corporate and Criminal Fraud Accountability Act of 2002, 18 U.S.C.
      1514A (the
“Sarbanes-Oxley Act”) by
      terminating Wil Jacques and Scott Bechtel in June 2003. Based on the finding,
      OSHA ordered that the complainants be reinstated and that CTT pay damages
      totaling approximately $827,000. Jacques and Bechtel had contended that they
      were improperly terminated for raising concerns about financial reporting.
      CTT
      contended that Jacques and Bechtel did not raise protected concerns and were
      terminated for lawful, non-discriminatory reasons, that OSHA failed to fairly
      investigate and consider all relevant facts, and that the conclusions drawn
      by
      OSHA were legally erroneous. CTT denied that it was liable to the complainants
      in any amount.




In
      accordance with law and regulation, in February 2005, we filed timely objections
      and requested a *de
      novo* hearing
      before an Administrative Law Judge (“ALJ”) of the U.S. Department of Labor
      (“DOL”). The hearing was held in May 2005. On May 18, 2005, CTT and plaintiff
      Jacques entered into a memorandum of understanding, which later was approved
      by
      the ALJ, whereby all claims against CTT by Jacques were resolved.




On
      October 6, 2005, the findings of the ALJ of the DOL were issued, in which all
      of
      the claims of Mr. Bechtel and OSHA’s decision were dismissed, and further, that
      the issue of damages was not relevant since the plaintiff had failed to carry
      his burden of proof. The plaintiff had ten business days in which to file an
      appeal, and did so with the DOL on October 19, 2005. The motion for appeal
      was
      granted. Subsequently, Mr. Bechtel filed a separate complaint with OSHA alleging
      that CTT violated Section 806
      of
      the Sarbanes-Oxley
      Act in connection with his reinstatement. We filed a response and a request
      for
      dismissal of this complaint on November 16, 2005.




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 one of 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, and denies and will vigorously defend
      the
      allegations in the suit. Hearings on the motion were held in November 2005,
      and
      post hearing briefs will be scheduled in January 2006.




Page
          14


On
      September 14, 2005, we announced that we had received notice that Mr. Nano
      also
      had filed a complaint with OSHA, alleging a violation of Section
      806 of the Sarbanes-Oxley
      Act by CTT in connection with the termination of his employment. We believe
      that
      the complaint is totally without merit. We filed an answer to the OSHA inquiry
      on October 3, 2005. Further action on this matter is pending OSHA’s review of
      the merits of the claim.




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 with CTT. Further action on this matter is pending.




*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. 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 to issue to us promptly 170,000 shares of its
      unrestricted common stock. Palatin issued restricted shares to us that were
      not
      registered for resale and thus we are 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.




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. 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.




Page
          15


We
      believe that the mediation settlement entered into by CTT and Palatin referred
      only to the disposition of this particular $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 that may be covered
      under Palatin’s license with us. However, Palatin has made statements in their
      public filings that this agreement released them from any other obligations
      to
      us relating to future payments received from King. We disagree with their
      statements, and reserve our rights under the original license granted to
      Palatin.




*Carolina
      Liquid Chemistries Corporation*




On
      August
      29, 2005, we filed a complaint alleging infringement of our patent covering
      homocysteine assays against Carolina Liquid Chemistries Corporation (“Carolina
      Liquid”) in the United States District Court for the District of Colorado,
      seeking monetary damages, punitive damages, attorneys’ fees, court costs and
      other remuneration at the option of the court. Carolina Liquid was served on
      September 1, 2005, and has requested a change of venue to the California federal
      court system. Further action in this case is pending.




*Federal
      Insurance Company*




Effective
      October 13, 2004, Federal Insurance Company (“Federal”) agreed to pay us
      $167,500 to reimburse us for prior costs incurred and acknowledged that the
      deductible under our insurance policy was deemed satisfied for purposes of
      a
      civil suit filed against CTT by the Securities and Exchange Commission (“SEC”).
      We recorded the payment as a reduction of litigation expenses, which are
      included in general and administrative expenses, in the prior year quarter
      ended
      October 31, 2004. In addition, on September 15, 2004, the Chubb Group of
      Insurance Companies, on behalf of Federal, agreed to accept coverage for losses,
      including defense costs, as a result of the SEC’s civil suit, according to the
      terms of the policy. Accordingly,
      we have not recorded any significant costs in the current fiscal year relating
      to the SEC civil suit.




*Other*




We
      also
      are 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 or cash flows in a
      particular period.




Page
          16


**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, the
“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 our clients’ and our own 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 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.




For
      the
      three months ended October 31, 2005, we had a concentration of revenues derived
      from our homocysteine assay Technology, on which the patent expires in July
      2007. We believe that we currently have licenses with the most significant
      distributors and laboratories in the United States that sell and/or perform
      tests used to measure homocysteine levels.




Because
      we have rounded all amounts in this Item 2 to the nearest thousand dollars,
      certain amounts may not total precisely. In addition, all periods discussed
      in
      this Item 2 relate to our fiscal year ending July 31 (first, second, third
      and
      fourth quarters ending October 31, January 31, April 30 and July 31,
      respectively).





Page
          17


Results
      of Operations - Three Months Ended October 31, 2005 (First Quarter 2006) vs.
      Three Months Ended October 31, 2004 (First Quarter 2005 )





Summary
      of Results





Net
      loss
      for the first quarter 2006 was $333,000, or $0.04 per share, compared to net
      income of $968,000, or $0.14 per diluted share, for the first quarter 2005,
      a
      decrease of $1,301,000, or $0.18 per diluted share. As explained below, the
      decrease in net income principally is due to a decrease in royalty legal awards
      and dividends received.





Revenues





In
      the
      first quarter 2006, total revenues were $1,366,000, compared to $2,431,000
      for
      the first quarter 2005, a decrease of $1,065,000, or 44%.




*Retained
      royalties* for the
      first quarter 2006 were $1,237,000, which was $481,000, or 64% higher than
      the
      $756,000 of retained royalties reported in the first quarter 2005. The following
      compares retained royalty revenues by Technology in the first quarter 2006
      with
      the first quarter 2005.





*For
                the three months ended October 31,***2005**
            
            2004
            
            Increase
              (Decrease)
            
            %
                Increase
              (Decrease)Homocysteine
                assay
            
            **$**
            **1,080,000**
            
            $
            675,000
            
            $
            405,000
            
            
            60%All
                other Technologies
            
            
            **157,000**
            
            
            81,000
            
            
            76,000
            
            
            94%**Total
                retained royalties**
            
            **$**
            **1,237,000**
            
            $
            756,000
            
            $
            481,000
            
            
            64%





The
      increase in revenues from the homocysteine assay was due principally to
      royalties earned on new licenses granted in fiscal 2005 (principally subsequent
      to the first quarter), including Abbott Laboratories (“Abbott”), Bayer
      Corporation, Dade Behring, Inc., and Beckman Coulter. As a result, we received
      royalties in the first quarter 2006 from the new licenses where we did not
      receive any royalties in 2005. The increase in royalties in the first quarter
      2006 compared to the prior year from all other Technologies principally is
      due
      to an upfront license fee received in the first quarter 2006 related to our
      nanotechnology bone biomaterial Technology.




Approximately
      87% of our retained royalties for the first quarter 2006, was from the
      homocysteine assay Technology, on which the patent expires in July 2007. 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 quarter 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 of a decision in our favor. In
      addition to the award, we received $105,000 of interest income. The U.S. Supreme
      Court has agreed to hear LabCorp’s appeal relating to this case - see Part II,
      Item 1., “Legal Proceedings.” There were no legal awards in the first quarter
      2006.




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




Page
          18


*Interest
      income* in the
      first quarter 2006, decreased $22,000 compared to the first quarter 2005,
      principally due to the fact that the first quarter 2005 includes $105,000 of
      interest income from the LabCorp litigation award. Excluding this item, interest
      income is higher than in the prior year due to significantly higher average
      cash
      balances as compared with the first quarter 2005, and higher interest rates.
      In
      addition, first quarter 2006 includes approximately $22,000 of imputed interest
      related to a long term receivable due from Abbott that will be paid in January
      2007.




Expenses




*For
                  the three months ended October 31,***2005**
              
              2004
              
              Increase
                (Decrease)
              
              %
                  Increase
                (Decrease)Personnel
                  and other direct expenses
                relating
                  to revenues
              
              **$**
              **889,000**
              
              $
              1,024,000
              
              $
              (135,000
              )
              
              (13
              )%General
                  and administrative expenses
              
              
              **770,000**
              
              
              248,000
              
              
              522,000
              
              
              211
              %Patent
                  enforcement expenses,
                net
                  of reimbursements
              
              
              **40,000**
              
              
              170,000
              
              
              (130,000
              )
              
              (77
              )%**Total
                  expenses**
              
              **$**
              **1,699,000**
              
              $
              1,442,000
              
              $
              257,000
              
              
              18
              %





*Personnel
      and other direct expenses relating to revenues* decreased due to a combination of several factors. Personnel expense for the
      first quarter 2006 decreased a net of $44,000. This was due principally to
      a
      $97,000 decrease in salaries and incentive compensation expense, resulting
      from
      fewer full-time employees in 2006 compared to 2005, partially offset by $50,000
      of compensation expense related to stock options vesting in 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. (There was no such charge in the first quarter 2005). Other direct
      expenses decreased $44,000 due to costs incurred in the prior year in connection
      with collecting back royalties from a royalty audit, and $32,000 due to a one
      time charge incurred in the prior year for technical services to support
      licensing a technology (which costs are recoverable partially from future
      licensing revenue).




*General
      and administrative expenses* increased due to several factors. We incurred $181,000 in legal costs in the
      first quarter 2006 related to our defense of two complaints filed against CTT
      by
      our former President and Chief Executive Officer (see Part II, Item 1., “Legal
      Proceedings”). Directors’ fees and expenses increased $78,000 due to an increase
      in the annual premium for our directors’ and officers’ liability insurance, an
      increase in directors fees due to an increase in the number of meetings held,
      and an increase in the annual stipend paid to the Chairman of our Board of
      Directors to recognize the additional responsibilities and time demands of
      the
      position. In addition, we incurred $54,000 of legal costs associated with
      a complaint previously filed against us by two former
      employees (see Part II, Item 1., “Legal Proceedings”). The first quarter
      2005 also included a $168,000 cost reduction as a result of a payment received
      from our directors’ and officers’ liability insurance carrier as settlement of
      our claim for reimbursement of amounts incurred in connection with an
      investigation by the Securities and Exchange Commission.




Page
          19





*Patent
      enforcement expenses, net of reimbursements* ,
      decreased in the first quarter 2006 compared to the first quarter 2005, due
      to
      less activity in the current year related to patent infringement lawsuits,
      as
      most of our 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 of 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, 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, and we
      will
      be able to utilize our NOLs against any liabilities that we may incur for fiscal
      2006. However, we still would be subject to the federal alternative minimum
      tax
      (“AMT”), where we are limited to using 90% of our NOL against income. We did not
      record a provision in the first quarter 2006 due to the loss incurred during
      the
      period. The prior year provision consisted solely of our estimated AMT
      liability.




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 flows from operations,
      including royalty legal awards, and cash on hand. In addition, we have the
      ability to fund our requirements through sales of common stock pursuant to
      an
      equity financing arrangement (see below). At October 31, 2005, 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
      October 31, 2005, cash and cash equivalents were $13,682,000, compared to
      $14,280,000 at July 31, 2005. Cash used in operating activities during the
      three
      months ended October 31, 2005, was $1,378,000, compared to cash provided by
      operations of $1,868,000 during the same period of the prior year. The decrease
      in cash from operating activities in the current period compared to the prior
      year period was due principally to a net loss experienced in the current quarter
      compared to net income in the same period of the prior year, and the payment
      of
      fiscal 2005 annual incentive compensation awards during the current quarter.
      Cash used in investing activities in the current quarter was $18,000, compared
      to cash provided by investing activities of $133,000 in the same period of
      the
      prior year. In the prior year cash was provided by a partial collection of
      an
      outstanding receivable balance. Cash provided by financing activities in the
      current year was $798,000, compared to $352,000 provided in the prior year.
      The
      increase was due principally to an increase in the number of shares sold to
      Fusion Capital Fund II, LLC (“Fusion Capital”) (see below).




In
      addition to fluctuations in the amounts of royalties and our clients’ shares of
      royalty settlements and awards, changes in royalties receivable and payable
      reflect our normal cycle of royalty collections and payments, and fluctuate
      depending on when royalty receipts and payments are due under our agreements
      with clients and customers.




Page
          20





*Funding
      and capital requirements*





Equity
      Financing





In
      February 2004, we entered into an equity financing agreement with Fusion
      Capital, pursuant to which we can sell to Fusion Capital up to $5 million of
      our
      common stock, at our option. During the three months ended October 31, 2005,
      we
      sold $782,000 of common stock to Fusion Capital. We will use the proceeds for
      general working capital needs. The aggregate proceeds from inception through
      October 31, 2005,  from sales to Fusion Capital pursuant to the equity
      financing agreement are approximately $3,500,000.  From November 1,
      2005
      through December 5, 2005 we sold and issued 47,773 shares of common stock to
      Fusion Capital for $217,492. We have the ability to sell up to $5 million of
      our
      common stock to Fusion Capital, however, we may or may not sell the entire
      $5
      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
      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 this occurs, we expect that we will 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 in exploring new business opportunities, including expanding
      our
      marketing capabilities on a more global basis, searching for new sources of
      Technologies, researching potential acquisition candidates in order to grow
      our
      business and increase shareholder value, and adding to our commercialization
      action team to accomplish our 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 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, revenues from executing our strategic plan,
      and
      the ability to raise funds from sales of our common stock pursuant to our equity
      financing agreement will be sufficient to meet our current and anticipated
      operating cash requirements for at least the next year.





*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
      or
      cash flows in a particular period.





Page
          21


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 this statement, 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.




Related
      Party Transactions





Our
      board
      of directors has determined that when a director's services are outside the
      normal duties of a director, we should compensate the director at the rate
      of
      $1,000 per day, plus expenses (which is the same amount that we pay a director
      for attending a one-day board meeting).





During
      the three months ended October 31, 2005, we incurred $1,147 of costs, including
      expenses, (principally travel, reported in personnel and other direct expenses
      relating to revenues) related to consulting services provided by one of our
      directors.




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





We
      do not
      have any significant market risk to the valuation of our assets other
      than
      risks related to our common stock holdings of EpiTan and Palatin
      Technologies, Inc. ("Palatin") common stock. 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 EpiTan shares, since EpiTan common
      stock is traded on the Australian Stock Exchange and the price per share of
      the
      stock is quoted in Australian dollars. During the three months ended October
      31,
      2005, the market value of the EpiTan shares decreased by $345,000, while the
      exchange rate changed in our favor by $83,000. In addition, we reversed the
      discount originally recorded upon receipt of the EpiTan shares due to the lapse
      of the sales restriction, resulting in an unrealized gain of $206,000. The
      net
      aggregate unrealized loss on the EpiTan shares for the three months ended
      October 31, 2005, was $56,000. Partially offsetting this loss, the market value
      of the Palatin shares increased $20,000 during the quarter. The total combined
      net unrealized loss for the three months ended October 31, 2005 was
      $36,000.




Page
          22





**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 October
      31, 2005 .
      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 October
      31, 2005 .





(b)  Changes
      in Internal Control over Financial Reporting





There
      were no significant changes in our internal control over financial reporting
      during the quarter ended October 31 ,
      2005 ,
      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 10 to the accompanying unaudited condensed consolidated financial
      statements in Part I of this Quarterly Report on Form 10-Q.




**Item
      2.**  **Unregistered
      Sales of Equity Securities and Use of Proceeds**





The
      following table lists sales and issuances of our common stock to Fusion Capital
      during the three months ended October
      31, 2005 , pursuant
      to the $5 million equity financing arrangement with Fusion Capital as described
      in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition
      and Results of Operations.” We issued all of these securities without
      registration in reliance on an exemption under Section 4(2) of the Securities
      Act of 1933 because we made the offers and sales in private
      placements.




Month
            
            Number
                of
              shares
                sold
              and
                issued
            
            Total
                cash
              receivedAugust
                2005
            
            
            22,284
            
            $
            104,998September
                2005
            
            
            106,245
            
            
            530,001October
                2005
            
            
            26,922
            
            
            147,457155,451
            
            $
            782,456




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





None





Page
          23





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




3.2
              By-laws
                  of the registrant as amended effective October 14,
                  2005.10.1*
              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.10.22*
              Amended
                  and Restated Employment Agreement by and between registrant and
                  Donald J.
                  Freed effective October 1, 2005, filed (on October 13, 2005) as
                  Exhibit
                  10.22 to registrant’s Annual Report on Form 10-K for the year ended July
                  31, 2005, 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


[Signature
      page follows]








Page
          24







**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**)**By:
              /s/
                D.J. Freed, Ph.D.Date:
                December 12, 2005
              Donald
                  J. Freed
                President,
                  Chief Executive
                Officer
                  and Authorized Signer




COMPETITIVE
                TECHNOLOGIES, INC.
              (the
                registrant)By:
            /s/
              Michael D. DavidsonDate:
              December 12, 2005
            Michael
                D. Davidson
              Vice
                President, Chief Financial Officer,
              Chief
                Accounting Officer
              and
                Authorized Signer




Page
          25








INDEX
      TO
      EXHIBITS




Exhibit
                  No.
                Description3.2
                By-laws
                    of the registrant as amended effective October 14,
                    2005.10.1*
                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.10.22*
                Amended
                    and Restated Employment Agreement by and between registrant and
                    Donald J.
                    Freed effective October 1, 2005, filed (on October 13, 2005)
                    as Exhibit
                    10.22 to registrant’s Annual Report on Form 10-K for the year ended July
                    31, 2005, 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
          26