COMPETITIVE TECHNOLOGIES INC - 10-K Annual Report

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

FORM 10-K

(Mark One)

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

For the fiscal year ended July 31, 2003

OR

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

Commission file number 1-8696

COMPETITIVE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

Delaware 36-2664428
(State or other jurisdiction of I.R.S. Employer
Identification No.)
incorporation or organization)

1960 Bronson Road
Fairfield, Connecticut 06824
(Address of principal executive (Zip Code)
offices)

Registrant's telephone number, including area code: (203) 255-6044

Securities registered pursuant to Section 12(b) of the Act:

Name of Each Exchange On
Title of Each Class Which Registered

Common Stock ($.01 par value) American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. [x]Yes [ ]No

Exhibit Index on sequentially numbered page 69.

Page 1 of 104 sequentially numbered pages.

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
[x]

Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Act). [ ]Yes [x]No

Based on the $2.33 closing price of the registrant's common stock
on the American Stock Exchange on January 31, 2003 (the last business
day of the registrant's most recently completed second fiscal quarter)
the aggregate market value of the common equity held by non-affiliates
of the registrant was approximately $13,900,000.

As of October 15, 2003, 6,201,345 shares of the registrant's common
stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Incorporated Document Location in Form 10-K

Registrant's definitive proxy Part III - Items 10,
statement if filed within 120 11, 12, 13 and 14
days after the end of the
fiscal year covered by this
Form 10-K

PART I

Item 1. Business

Technology Commercialization Services

Competitive Technologies, Inc. (the registrant, we, CTT or the
Company), is a Delaware corporation incorporated in 1971 to succeed
an Illinois business corporation incorporated in 1968. We provide
technology transfer and licensing services focused on the technology
needs of our customers and matching those requirements with
commercially viable solutions. We identify, develop and
commercialize innovative technologies in life, digital, nano and
physical sciences developed by universities, companies, independent
research institutions and individual inventors.

We seek to maximize the value of intellectual property for the
benefit of our customers, clients and shareholders by selling,
licensing, or otherwise commercializing technologies from our
clients' or our portfolio of intellectual property rights. We obtain
customers' technology requirements and match them with effective
technology solutions, bridging the gap between market demand and raw
innovation. In a few cases, we are enforcing our clients' and our
patent rights with respect to certain of our technologies.

Our customers (licensees) pay license and royalty fees for
licensed rights to use our clients' and our technologies. We also
realize revenues from court awarded judgments and settlements of
patent enforcement actions. We share these fees, judgments and
settlements with our clients under our respective agreements with
them.

Our life science portfolio includes pharmaceuticals,
biotechnologies, and medical devices. We include communications,
semiconductors, Internet, e-commerce and consumer electronics
technologies in our digital portfolio. Our physical science portfolio
targets display, environmental and nano-technologies and smart/novel
materials.

On October 15, 2003, we employed 9 people (full-time
equivalents). On June 30, 2003, the Company released its 2 full-time
employees responsible for marketing technologies. Their
responsibilities were reassigned to 4 consultants who also provided
business development services under contracts with the Company during
fiscal 2003. In addition to the diverse technical, intellectual
property, legal, financial, marketing and business expertise of our
professional team, we rely on advice from technical and professional
specialists to satisfy our clients' unique technology needs.

The technologies that produced revenues equal to or exceeding 15%
of our consolidated revenue for 2003, 2002 or 2001 were:

2003 2002 2001

Ethyol(TM) $ 647,000 $ 391,000 $ 228,000
Materna(TM) $ 600,000 $ * *
Homocysteine assay $ 584,000 $ * *
Gallium arsenide, including
laser diode $ 508,000 $1,012,000 $2,190,000

As a percentage of retained royalties, they represented:

2003 2002 2001

Ethyol 20% 15% *
Materna 18% * *
Homocysteine assay 18% * *
Gallium arsenide, including
laser diode 15% 39% 60%

* Amounts were less than 15% of revenues in these years.

Ethyol is a chemotherapeutic mitigation agent licensed by
Southern Research Institute (SRI) exclusively to MedImmune, Inc.
(formerly U.S. BioScience, Inc.). Pursuant to an agreement between
CTT and SRI, SRI pays CTT a share of Ethyol license income it
receives, which payments are limited to $500,000 maximum in any
calendar year. According to information reported by MedImmune, U.S.
patents for Ethyol expire between July 2012 and June 2019. Since
October 2001, when MedImmune began selling Ethyol directly in the
United States, the underlying royalty base has been higher than when
it sold Ethyol through a distributor. Our retained royalties from
Ethyol in fiscal 2003 exceeded $500,000 because fiscal 2003 included
$500,000 for calendar 2003 and $147,000 for calendar 2002.

Effective May 19, 2003, CTT sold to LawFinance Group, Inc.
(LawFinance) the first $1,290,000 (plus court awarded interest from
May 19, 2003) of its potential share from the judgment in the Materna
lawsuit for $600,000 cash. CTT granted LawFinance a security interest
in CTT's share of the potential award. At July 31, 2003, CTT retained
the remaining anticipated approximately $4,710,000 proceeds from the
potential award in addition to the $600,000 received from LawFinance
(see Item 3. Legal Proceedings and Note 16 to Consolidated Financial
Statements).

The homocysteine assay is used to determine homocysteine levels
and a corresponding deficiency of folate or vitamin B12. Studies
suggest that high levels of homocysteine are a primary risk factor for
cardiovascular, vascular and Alzheimer's diseases, and rheumatoid
arthritis. Our U.S. patent that covers this homocysteine assay
expires in 2007. In the second quarter of fiscal 2003, we licensed
this assay to two additional clinical laboratories and LabCorp began
paying us under the terms of a January 2003 Stipulated Order (see also
Item 3. Legal Proceedings and Note 16 to Consolidated Financial
Statements). Before that, we had ten homocysteine licenses (including
one sublicense), which provided $171,000 and $203,000 of revenues in
fiscal 2002 and 2001, respectively. Based on information we have
obtained, we believe that the number of homocysteine assays performed
is growing substantially. We continue our accelerated program to
license laboratories performing homocysteine assays and manufacturers
and distributors of automated homocysteine assays. We cannot predict
if or when we will succeed in closing these additional license
agreements or how the growth in volume will affect assay prices.

Inventions employing gallium arsenide to improve semiconductor
operating characteristics were developed at the University of
Illinois. U.S. patents have issued from March 1983 to May 1989 and
expire from May 2001 to September 2006. These patents include a laser
diode technology used in optoelectronic storage devices and another
technology that improves semiconductor operating characteristics. We
have licensed these inventions to Mitsubishi Electric Corporation, NEC
Corporation, Semiconductor Company, Matsushita Electric Industrial
Co., Ltd., SDL, Inc., Hitachi Ltd., Tottori Sanyo Electric Co., Ltd.
and Toshiba Corporation. These inventions are in current use
according to information received from licensees and other sources.
Approximately $156,000, $417,000 and $1,715,000 of retained royalties
in fiscal 2003, 2002 and 2001, respectively, were from one U.S.
licensee's sales of licensed product; the remaining $351,000, $595,000
and $475,000, respectively, were from several foreign licenses.

Retained Royalties from Foreign Sources

We are developing relationships with Asian companies seeking
technology solutions. Currently, our foreign operations are
principally royalties received from foreign licensees. See Note 13 to
Consolidated Financial Statements.

Investments

From time to time in the past, in addition to providing other
forms of assistance, we have funded certain development-stage
companies to exploit specific technologies. In view of our financial
condition, we discontinued that practice during the fourth quarter of
fiscal 2002.

NTRU Cryptosystems, Inc.

In April 2003, NTRU redeemed all outstanding shares of its Series
A and Series B Preferred Stock (NTRU Preferred Stock) in exchange for
cash or NTRU common stock.

Competitive Technologies, Inc. is a minority investor in NTRU and
currently owns 3,129,509 shares of NTRU common stock, including 76,509
shares received in April 2003 (approximately 10% of NTRU's outstanding
common stock). CTT exchanged its NTRU Preferred Stock for $90,741 in
cash ($88,377 received in May 2003 and $2,364 received in September
2003), and 76,509 shares of NTRU common stock.

CTT recorded in other expense a charge of approximately $944,000
in its second quarter ended January 31, 2003 due to the uncertain
timing and amount of CTT's expected future cash flows from its
investment in NTRU's common stock after its recapitalization.

CTT continues to hold a seat and participate actively on NTRU's
Board of Directors. CTT's management continues to believe NTRU's
encryption technology has value and these actions provide NTRU an
opportunity to allow applications to evolve to meet customer's needs
for strong encryption, a small footprint and low processing
requirements.

E. L. Specialists, Inc. (ELS)

Effective August 5, 2002, CTT sold and transferred all its
interests related to ELS to MRM Acquisitions, LLC (MRM) for $200,000
cash. The Company recorded an impairment loss in other expense on its
loans to ELS of $781,924 in fiscal 2002 ($519,200 in the second
quarter and $262,724 in the fourth quarter). (In addition, CTT
previously charged against other revenues from ELS approximately
$75,000 deemed uncollectible in fiscal 2002.) The transferred
interests included CTT's notes receivable in the face amount of
$1,056,300 (plus interest) from ELS, its related security interest in
ELS's intellectual property, all its other interests under agreements
in connection with its notes receivable from ELS and CTT's interest in
a technology servicing agreement related to ELS's intellectual
property.

Code of Ethics

The Board of Directors adopted CTT's Corporate Standards of
Conduct for all its directors, officers and employees in January 1999.
A copy of it as amended to date is filed as Exhibit 14.1 to this
Annual Report on Form 10-K.

Available Information

We make available without charge copies of Competitive
Technologies, Inc.'s Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, any amendments to those
reports and any other of its reports filed with or furnished to the
Securities and Exchange Commission (SEC) on or through our Company's
website, www.competitivetech.net, as soon as reasonably practicable
after their filing with the SEC. You may also request a paper copy of
materials we file with the SEC by calling us at (203) 255-6044.

You may also read and copy materials we file with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC
20549 or on the SEC's website, http://www.sec.gov. You may obtain
information on the operation of the Public Reference Room by calling
the SEC at 1-800-732-0330.

Risk Factors

We cannot assure you that we will be successful in reducing cash
expenses or increasing cash resources sufficiently to sustain the
Company until it obtains additional cash from revenues, potential
litigation awards or other funding sources.

At July 31, 2003, the Company's cash, cash equivalents and short-
term investments of $1,504,295 were $1,383,000 lower than at July 31,
2002.

The table below summarizes our consolidated cash, cash
equivalents and short-term investments and changes therein for the
five years ended July 31, 2003:

The amounts and timing of the Company's future capital
requirements will depend on many factors, including the results of the
Materna, Fujitsu and LabCorp lawsuits (see Item 3, Legal Proceedings),
the Company's marketing efforts, the pending SEC investigation (see
Item 3, Legal Proceedings) and the Company's fund raising efforts.

Management has taken certain steps to reduce ongoing cash
operating expenses (including fourth quarter fiscal 2003 staff
reductions), to defer payment of certain liabilities, to make payment
of certain obligations contingent upon receipt of revenues, and to
sell additional portions of its share of the potential Materna award.
In addition to seeking debt and/or equity funding, we also seek to
increase our cash resources by obtaining substantial up-front license
fees in potential new licenses, by collecting additional amounts we
believe are due to us and by selling future royalty streams from our
portfolio. We cannot predict when we might receive our anticipated
approximately $4,710,000 potential Materna award (which is net of the
$1,290,000 sold to LawFinance). While receipt of that award would
satisfy our cash requirements and fund our current level of operations
until we believe we could generate revenues to sustain our operations,
we cannot rely on it for our current cash requirements.

If we do not obtain sufficient additional cash resources in the
next several months, management plans additional cash expense
reductions sufficient to sustain the Company until it obtains
additional cash from revenues, potential litigation awards or other
funding sources. Under this plan, the Company will implement further
cost reductions and cost containment actions to reduce operating
costs. However, royalty revenues, obtaining rights to new
technologies, granting licenses, and enforcing intellectual property
rights are subject to many factors outside our control or that we
cannot currently anticipate. If these reductions are insufficient or
if our efforts do not generate sufficient cash, management would make
further necessary reductions that could affect our ability to achieve
our growth strategy. Although we cannot assure you that we will be
successful in these efforts, management believes that its plan will
sustain the Company at least into fiscal 2005.

Our auditor's opinion with respect to our financial statements as of
and for the year ended July 31, 2003 includes an explanatory paragraph
with respect to our ability to continue operating as a going concern.

See Item 8, Financial Statements and Supplementary Data, Report
of BDO Seidman, LLP.

We have generated relatively limited income and experienced operating
and net losses in fiscal 2003, 2002, 2001 and prior to fiscal 1999.

The table below summarizes our consolidated results of operations
and cash flows for the five years ended July 31, 2003:

The Company has incurred substantial operating and net losses in
the three years ending July 31, 2003. Net patent enforcement expenses
principally related to the Fujitsu and LabCorp litigations were
$425,790, $2,132,090 and $2,474,017 in fiscal 2003, 2002 and 2001,
respectively. Effective July 23, 2002, the University of Illinois
took the lead and assumed the cost of lead counsel in the litigation
against Fujitsu (see Item 3, Legal Proceedings). Previously we had
borne the entire cost of lead counsel in this litigation. This
reduced our net patent enforcement expenses substantially in fiscal
2003.

On October 28, 2002, the Company signed an agreement making any
further payments to our former patent litigation counsel in the
Fujitsu matter completely contingent on future receipts from Fujitsu.
This contingent obligation was reflected in a promissory note payable
to our former patent litigation counsel for $1,683,349 plus simple
interest at the annual rate of 11% from the agreement date
(approximately $139,000 at July 31, 2003) payable only from future
receipts in a settlement or other favorable outcome of the litigation
against Fujitsu, if any. Accordingly, in the first quarter of fiscal
2003, we reversed from accounts payable $1,583,445 that was accrued at
July 31, 2002 and recognized other operating income. Since interest
is also contingently payable, the Company has recorded no interest
expense with respect to this note.

During fiscal 2003, the Company has focused its efforts and
resources on increasing revenues to replace revenues from expiring
licenses; however, these efforts and resources have not yet increased
revenues sufficiently. In addition, the Company has incurred $494,000
cumulatively through July 31, 2003 for professional advice related to
the ongoing SEC investigation (see Item 3, Legal Proceedings).

To achieve profitability, the Company must successfully license
technologies with current and long-term revenue streams substantially
greater than its operating expenses. To sustain profitability, the
Company must continually add such licenses. The time required to
reach profitability is highly uncertain and we cannot assure you that
the Company will be able to achieve profitability on a sustained
basis, if at all.

In addition, our future revenues and profits or losses depend on
certain factors beyond our control, including technological changes
and developments, economic cycles or the ability of our licensees to
successfully commercialize our technologies. Consequently, we may not
be able to generate sufficient revenues to be profitable.

We have received and responded to written "Wells Notices" dated June
12, 2003 from the staff of the Securities and Exchange Commission.
However, until this matter is resolved, our ability to obtain debt or
equity financing is restricted.

On June 12, 2003, the staff of the Securities and Exchange
Commission sent written "Wells Notices" indicating that the staff
intended to recommend that the Commission bring a civil action against
the Company and certain individuals (including the Company's then
Chief Financial Officer, a director and a former director) in the
matter of trading in the stock of the Company. The Company and the
individuals have responded in writing to their respective "Wells
Notices." The Company continues to cooperate with the Commission
staff in this matter and awaits the staff's formal recommendation of
what action, if any, should be brought against the Company by the
Commission (see Item 3, Legal Proceedings).

While this matter is pending, we have found our efforts to obtain
debt or equity financing severely restricted and our operations and
expenses negatively affected.

Our By-Laws provide that we will indemnify our directors, officers,
employees and agents in certain circumstances. We carry directors'
and officers' liability insurance (subject to deductibles) to reduce
these financial obligations.

Our directors, officers, employees and agents may claim
indemnification in certain circumstances. We are currently exposed to
potential indemnification claims in connection with the SEC
investigation and with complaints filed by certain former employees
alleging discriminatory employment practices in violation of Section
806 of the Corporate and Criminal Fraud Accountability Act of 2002
(see Note 16 to Consolidated Financial Statements).

We seek to limit and reduce our potential financial obligations
for indemnification by carrying directors' and officers' liability
insurance (subject to deductibles).

We received 71% of our retained royalties in fiscal 2003 from four
technologies.

In 2003, $2,339,000 (71%) of our 2003 revenues were from four
technologies: $647,000 (20%) from Ethyol, $600,000 (18%) from our
sale of the first $1,290,000 of CTT's share of the potential award in
the Materna lawsuit, $584,000 (18%) from the homocysteine assay, and
$508,000 (15%) from gallium arsenide semiconductors.

Ethyol's royalty base is higher since October 2001 when the
licensee began selling Ethyol (a chemotherapeutic mitigation agent)
directly in the United States rather than through a distributor. Our
retained royalties from Ethyol reached our $500,000 per calendar year
maximum for calendar 2003 in fiscal 2003. In the future, we expect to
receive and record our total $500,000 per calendar year Ethyol
retained royalties in our third and fourth fiscal quarters.

Effective May 19, 2003, CTT sold to LawFinance Group, Inc. a
portion of its potential $6 million from the patent infringement
judgment against American Cyanamid Company in the Materna lawsuit.
CTT received $600,000 cash (recognized in retained royalty settlement
revenue) in exchange for the first $1,290,000 (plus court awarded
interest thereon from May 19, 2003) of CTT's share of the potential
award. CTT has no financial obligation to repay LawFinance or to
return any portion of the $600,000 received from LawFinance;
accordingly, CTT recorded this amount as revenue. If CTT's share of a
final award is less than the amount sold to LawFinance, the entire
amount received would be paid to LawFinance and LawFinance would be
deemed paid in full. CTT granted LawFinance a security interest in
CTT's share of the potential award. At July 31, 2003, CTT retains the
remaining anticipated approximately $4,710,000 proceeds from this
potential award in addition to the $600,000 already received. See
Note 16 to Consolidated Financial Statements.

The increase in homocysteine assay royalties includes amounts for
assays performed in several quarters by LabCorp ($294,000 under a
stipulated order in the LabCorp litigation) and other clinical
laboratories ($132,000 under license agreements made in the second
quarter of 2003). LabCorp has appealed the judgment in favor of CTT.
If the judgment is reversed on appeal, LabCorp's ability to recover
amounts paid to CTT will depend on the extent of and reason for the
reversal. CTT's management believes the probability that LabCorp will
recover such amounts is very unlikely. See Note 16 to Consolidated
Financial Statements.

Our 2003 royalties from gallium arsenide semiconductors were
lower than in 2002 due to expiring licenses and licensees' much lower
sales.

Such a concentration of revenues makes our operations vulnerable
to changes in any one of them, particularly to one-time, nonrecurring
transactions such as the sale of a portion of our share of the
potential award in the Materna lawsuit.

Certain of our licensed patents have recently expired or will expire
in the near future and we may not be able to replace their royalty
revenues.

In fiscal 2003, we received royalties from licenses on thirty-
three (33) patented technologies, excluding the $600,000 sale related
to Materna. We expect royalties from nineteen (19) of those patented
technologies to expire in the next five years. Those patented
technologies represented approximately 44% of our revenue in fiscal
2003. Fiscal 2003 revenues of approximately $191,000 (6%), $359,000
(11%), and $891,000 (27%) were from patents expiring in fiscal 2003,
2004 and 2007, respectively. Loss of these royalties may adversely
affect our operating results if we are unable to replace them with
revenue from other licenses or other sources.

We are currently involved in lawsuits that have historically involved
significant legal expenses. If the courts in these suits decide
against us, this could have a materially adverse effect on our
business, results of operations and financial condition.

For a complete description of these lawsuits, see Item 3. Legal
Proceedings.

The AMEX may de-list our common stock.

At July 31, 2003, CTT's shareholders' interest was $1,169,000.
Under American Stock Exchange (AMEX) listing standards, since CTT
sustained a net loss in 2003 and has less than $4,000,000
shareholders' interest at July 31, 2003, the AMEX may suspend dealings
in or de-list CTT's common stock. We cannot predict when we might
receive our anticipated approximately $4,710,000 potential award from
the Materna lawsuit (which is net of the $1,290,000 sold to
LawFinance). Since all of this $4,710,000 potential award would be
recorded as revenue upon its receipt, it would increase our
shareholders' interest. Raising additional equity financing or
generating net income would also increase CTT's shareholders'
interest. We cannot assure you if or when we will again meet AMEX
listing requirements.

Our revenue growth depends on our ability to understand the technology
requirements of our customers in the context of their markets. If we
fail to understand their technology needs or markets, we limit our
ability to meet those needs and to generate revenues.

We believe that by focusing on the technology needs of our
customers, we are better positioned to generate revenues by providing
them technology solutions. In this way, our revenues are driven by
the market demands of our customers. The better we understand their
markets and requirements, the better we are able to identify and
obtain effective technology solutions for our customers. Since we
released our 2 full-time employees responsible for marketing
technologies, we currently rely on our contract business development
consultants to understand the technical, commercial and market
demands, requirements and constraints of our customers and to identify
and obtain effective technology solutions for them.

Our success depends on our ability to attract and retain key
personnel.

Our success depends on the knowledge, efforts and abilities of a
small number of key personnel. John B. Nano, President, Chief
Executive Officer and Chief Financial Officer, is currently our sole
Executive Officer. We rely on our professional staff and contract
business development consultants to identify intellectual property
opportunities and technology solutions and to negotiate and close
license agreements. Competition for these personnel is intense and we
cannot assure you that we will be able to attract and retain qualified
personnel. If we were unable to hire and retain highly qualified
professionals and consultants, our revenues, prospects, financial
condition and future activities could be materially adversely
affected.

We depend on our relationships with inventors to gain access to new
technologies and inventions. If we fail to maintain existing
relationships or to develop new relationships, we may reduce the
number of technologies and inventions available to generate revenues.

We do not invent new technologies and products ourselves. We
depend on relationships with universities, corporations, governmental
agencies, research institutions, inventors, and others to provide us
technology-based opportunities we can develop into profitable royalty-
bearing licenses. Our failure to maintain our relationships with them
or to develop new relationships could adversely affect our business,
operating results and financial condition. If we are unable to forge
new relationships or to maintain our current relationships, we may be
unable to identify new technology-based opportunities.

Further, we cannot be certain that our current or new
relationships will provide the volume or quality of available new
technologies necessary to sustain our business. In some cases,
universities and other sources of new technologies seek to develop and
commercialize these technologies themselves or through entities they
develop, finance and/or control. In other cases, universities receive
financing for basic research from companies in exchange for the
exclusive right to commercialize resulting inventions. These and
other strategies may reduce the number of technology sources
(potential clients) to whom we can market our services. If we are
unable to secure new sources of technology, this could have a material
adverse effect on our business, operating results and financial
condition.

We receive most of our revenues from licensees over whom we have no
control.

We rely on royalties received from our licensees for revenues.
The royalties we receive from our licensees depend on their efforts
and expenditures and we have no control over their efforts or
expenditures. Additionally, our licensees' development of new
products involves great risk since many new technologies do not become
commercially profitable products despite extensive development
efforts. Our license agreements do not require licensees to advise us
of problems they may encounter in attempting to develop commercial
products and licensees usually treat such information as confidential.
You should expect that licensees will encounter problems frequently.
Our licensees' failure to resolve such problems may result in a
material adverse effect on our operating results.

Our licensees, and therefore we, depend on receiving government
approvals to exploit certain licensed products commercially.

Commercial exploitation of some licensed patents may require the
approval of governmental regulatory agencies and there is no assurance
that those agencies will grant such approvals. In the United States,
the principal governmental agency involved is the U.S. Food and Drug
Administration (FDA). The FDA's approval process is rigorous, time
consuming and costly. Unless and until a licensee obtains approval
for a product requiring such approval, the licensee may not sell the
product in the U.S.A. and therefore we will not receive royalty income
based on U.S. sales of the product.

If our clients and we are unable to protect the intellectual property
underlying our licenses or to enforce our patents adequately, we may
be unable to exploit such licensed patents or technologies
successfully.

Our success in earning revenues from licenses is subject to the
risk that issued patents may be declared invalid, that patents may not
issue on patent applications, or that competitors may circumvent our
licensed patents and thereby render our licensed patents uncommercial.
In addition, when all patents underlying a license expire, our
royalties from that license cease, and there can be no assurance that
we will be able to replace those royalties with royalty revenues from
other licenses.

Patent litigation has increased; it can be expensive and may delay or
prevent our licensees' products from entering the market.

Our clients and/or we pursue patent infringement litigation or
interference proceedings against sellers of products that we believe
infringe our patent rights. See Item 3. Legal Proceedings. Holders
of conflicting patents or sellers of competing products may also
challenge our patents in patent infringement litigation or
interference proceedings.

We cannot assure you that our clients and/or we will be
successful in any such litigation or proceeding, and the results and
costs of such litigation or proceeding may materially adversely affect
our business, operating results and financial condition.

In the markets for our licensees' products, technology can change
rapidly and industry standards are continually evolving. This often
makes products obsolete or results in short product lifecycles. Our
profitability depends on our licensees' ability to adapt to such
changes.

Therefore, our profitability will depend in large part on our
clients', our licensees' and our abilities to:

- introduce products in a timely manner;
- maintain a pipeline of new technologies;
- enhance and improve existing products continually;
- maintain development capabilities;
- anticipate or adapt to technological changes and advances in
relevant industries; and
- ensure continuing compatibility with evolving industry
standards.

Developing new products, creating effective commercialization
strategies for technologies and enhancing those products and
strategies are subject to inherent risks. These risks include
unanticipated delays, unrecoverable expenses, technical problems or
difficulties, as well as the possibility that development funds will
be insufficient. Any one of these could make us abandon or
substantially change our technology commercialization strategy.

Our success will depend upon, among other things, products
meeting targeted cost and performance objectives for large-scale
production, our licensees' ability to adapt technologies to satisfy
industry standards, satisfy consumer expectations and needs and bring
their products to market before the market is saturated. They may
encounter unanticipated technical or other problems that result in
increased costs or substantial delays in introducing and marketing new
products. Current and future products may not be reliable or durable
under actual operating conditions or otherwise commercially viable and
competitive. New products may not satisfy price or other performance
objectives when introduced in the marketplace. Any of these events
would adversely affect our realization of royalties from such new
products.

Strong competition within our industry may reduce our client base.

We compete with universities, law firms, venture capital firms
and other technology commercialization firms for technology licensing
opportunities. Many organizations offer some aspect of technology
transfer services. This market is highly fragmented and participants
are frequently focused on a specific technology area. Some of our
competitors are well established and have more financial and human
resources than we do.

We have not paid dividends and do not expect to pay dividends on our
common stock in the foreseeable future.

Since 1981, we have not paid cash dividends on our common stock
and we do not expect to declare or pay cash dividends in the
foreseeable future.

Item 2. Properties

Our principal executive office is approximately 9,000 square feet
of leased space in an office building in Fairfield, Connecticut. The
office lease expires December 31, 2006, and provides for annual base
rent of $225,000. We have an option to renew the lease through
December 31, 2011. We believe that our facilities are adequate for
our current and near-term operations.

Item 3. Legal Proceedings

Fujitsu

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

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

In September 2001, Fujitsu et al. filed suit against CTT and
Plasmaco, Inc. in the United States District Court for the District of
Delaware (subsequently dismissed and reinstituted in the Northern
District of California). This lawsuit alleged, among other things,
that CTT misappropriated confidential information and trade secrets
supplied by Fujitsu during the course of the ITC action. It also
alleged that, with Plasmaco's assistance, CTT abused the ITC process
to obtain information to which it otherwise would not have been
entitled and which it will use in the action against Fujitsu in the
United States District Court for the Northern District of California.

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

LabCorp

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

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

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

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

In a January 2003 Stipulated Order, LabCorp agreed to post a bond
for all damages awarded in the November 2002 judgment and to pay CTT a
percentage of sales of homocysteine tests performed since November 1,
2002 through final disposition of this case. In addition, pursuant to
this order, LabCorp agreed to pay $250,000 (in twelve monthly
installments of $20,824 each) for homocysteine assays performed from
November 1, 2001 through October 31, 2002 (of which it has paid
approximately $187,000). In exchange, this Stipulated Order stayed
execution of the monetary judgment and the permanent injunction
against LabCorp in the Court's November 2002 judgment. This
Stipulated Order is without prejudice to any party's position on
appeal. For the year ended July 31, 2003, CTT recorded total
royalties of $734,429 (revenues of $293,772 (of which $99,954 relate
to assays performed from November 1, 2001 through October 31, 2002)
and royalties paid or payable of $440,657) from LabCorp pursuant to
this January 2003 Stipulated Order. LabCorp has appealed the November
2002 judgment in favor of CTT. If the judgment is reversed on appeal,
LabCorp's ability to recover amounts paid to CTT will depend on the
extent and reason for the reversal. CTT's management believes the
probability that LabCorp will recover such amounts is very unlikely.

Materna(TM)

The University of Colorado Foundation, Inc., the University of
Colorado, the Board of Regents of the University of Colorado, Robert
H. Allen and Paul A. Seligman, plaintiffs, previously filed a lawsuit
against American Cyanamid Company (now a subsidiary of Wyeth),
defendant, in the United States District Court for the District of
Colorado. This case involved a patent for an improved formulation of
Materna, a prenatal vitamin compound sold by defendant. While the
Company was not and is not a party to this case, the Company had a
contract with the University of Colorado to license University of
Colorado inventions to third parties. As a result of this contract,
the Company is entitled to share 18.2% of damages awarded to the
University of Colorado, if any, after deducting the expenses of this
suit.

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

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

On September 3, 2003, a three-judge panel of the U.S. Court of
Appeals for the Federal Circuit (CAFC) unanimously affirmed the August
13, 2002 judgment. The defendant has filed an appeal requesting a
rehearing or a rehearing en banc (before the full bench).

Based on the language of the September 3, 2003 judgment, CTT's
management believes there is a reasonable possibility the Company will
receive its share of damages finally awarded, approximately $4.7
million at July 31, 2003, plus its proportionate share of interest.
CTT has recorded no potential judgment proceeds in its financial
statements to date. CTT will record revenue for judgment proceeds
when it receives them.

Optical Associates, Limited Partnership (OALP)

This lawsuit (described in detail in Note 16 to Consolidated
Financial Statements in the Company's Annual Report on Form 10-K for
the year ended July 31, 2002) was dismissed on May 16, 2003.

SEC Investigation

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

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

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

CTT has agreed, pursuant to Article IV of its By-laws, to advance
to Mr. Fodale his expenses incurred in connection with this
investigation, and Mr. Fodale has agreed to repay amounts so advanced
if it is ultimately determined that he is not entitled to be
indemnified by CTT as authorized by Article IV. As of July 31, 2003,
the Company has advanced $58,000 and accrued an additional $40,000 for
Mr. Fodale pursuant to this agreement.

As of July 31, 2003, the Company has also paid $210,000 and
accrued an additional $185,000 for the Company's, the Company's
current directors' (excluding Mr. Fodale), Mr. McPike's, Mr. Bigar's
and two other former directors' related legal fees in the matter,
which were in the aggregate approximately $395,000 to July 31, 2003.
Cumulative fees for current or former director (except Mr. Fodale)
individually exceeded $60,000 at July 31, 2003.

The Company may receive reimbursement of certain of these fees in
excess of the deductible from its directors' and officers' liability
insurance policy. The Company will record any reimbursements for
these expenses when they are received.

Other

By letter dated October 7, 2003, the U.S. Department of Labor
notified CTT that certain former employees had filed complaints
alleging discriminatory employment practices in violation of Section
806 of the Corporate and Criminal Fraud Accountability Act of 2002, 18
U.S.C. 1514A, also known as the Sarbanes-Oxley Act. The complainants
request that the Occupational Safety and Health Administration (OSHA)
investigate and, if appropriate, prosecute such violations and request
OSHA assistance in obtaining fair and reasonable reimbursement and
compensation for damages. The Company believes the claims are without
merit and is preparing its response to the complaints. It cannot
estimate the final outcome of these complaints or the related legal or
other expenses it may incur.

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

None

PART II

Item 5. Market Price of and Dividends on the Company's Common Equity
and Related Stockholder Matters

(a) Market information. The Company's common stock is listed on
the American Stock Exchange. The following table sets forth the high
and low sales prices as reported by the American Stock Exchange for
the periods indicated.

Fiscal Year Ended July 31, 2003 High Low

First Quarter $3.84 $1.82
Second Quarter 3.50 1.80
Third Quarter 2.40 1.76
Fourth Quarter 2.12 1.49

Fiscal Year Ended July 31, 2002 High Low

First Quarter $6.25 $2.60
Second Quarter 4.45 2.30
Third Quarter 3.60 2.37
Fourth Quarter 3.00 1.82

(b) Holders. At October 15, 2003 there were approximately 700
holders of record of the Company's common stock.

(c) Dividends. No cash dividends were declared on the Company's
common stock during the last two fiscal years.

(d) Securities authorized for issuance under equity compensation
plans. The following table sets forth information about the
Company's equity compensation plans as of July 31, 2003.

Equity Compensation Plan Information

(a) (b) (c)
Number of
securities
remaining
Number of available for
securities to future issuance
be issued under equity
upon compensation
exercise of Weighted-average plans
outstanding exercise price of (excluding
options, outstanding securities
warrants and options, warrants reflected in
Plan category rights and rights column (a))

Equity
compensation
plans
approved
by security
holders 943,267 $ 5.08 590,331

Equity
compensation
plans not
approved
by security
holders None Not applicable None

COMPETITIVE TECHNOLOGIES, INC.
Selected Financial Data (1) (5)
For the years ended July 31

Item 6. Selected Financial Data

(1) Should be read in conjunction with Consolidated Financial Statements and
Notes thereto.

(2) Fiscal 2003 includes $600,000 exchanged for the first $1,290,000 of CTT's
share of the potential award in the Materna lawsuit (see Note 16 to
Consolidated Financial Statements) and reversal of approximately $1,583,000
that was charged to patent enforcement expense in fiscal 2002 (see Note 16
to Consolidated Financial Statements). Fiscal 2000 includes $736,375 for
royalty participation exchanged for NTRU common stock (see Note 3 to
Consolidated Financial Statements).

(3) In fiscal 2003, includes $341,000 of corporate legal expenses directly
related to the SEC investigation (See Item 3, Legal Proceedings).

(4) Includes approximately $944,000 impairment loss on investment in NTRU
Cryptosystems, Inc. in fiscal 2003 (see Note 3 to Consolidated Financial
Statements), $781,924 loan impairment loss on E. L. Specialists, Inc. in
2002, $600,000 investment and loan impairment loss on Micro-ASI, Inc. in
2001 and $2,313,227 gain on sale of investment in NovaNET Learning, Inc.
in 1999.

(5) No cash dividends were declared or paid in any year presented.

Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations

We have rounded all amounts in this Item 7 to the nearest
thousand dollars. In addition, all periods discussed in this Item
7 relate to our fiscal years ending July 31 (first, second, third
and fourth quarters ending October 31, January 31, April 30 and
July 31 respectively).

Results of Operations - 2003 vs. 2002

Financial Results

Our net loss for 2003 was $1,935,000 compared with $4,016,000
for 2002, an improvement of $2,081,000. Our operating results
improved $2,261,000 from a loss of $3,279,000 for 2002 to
$1,018,000 for 2003 as discussed below.

Revenues

Our total revenues for 2003 were $3,293,000, which was
$697,000 (27%) higher than in 2002. Retained royalty settlement
revenues of $600,000 in 2003 were from the sale of $1,290,000 of
our potential award in the Materna lawsuit discussed below.
Excluding this $600,000, revenues increased 4% over 2002.

In 2003, $2,339,000 (71%) of our revenues were from four
technologies: $647,000 (20%) from Ethyol(TM), $600,000 (18%) from
the sale discussed above, $584,000 (18%) from the homocysteine
assay, and $508,000 (15%) from gallium arsenide semiconductors.

Ethyol's royalty base is higher since October 2001 when the
licensee began selling Ethyol directly in the United States rather
than through a distributor. Our retained royalties from Ethyol
reached our $500,000 per calendar year maximum for calendar 2003 in
fiscal 2003. In the future, we expect to receive and record our
total $500,000 per calendar year Ethyol retained royalties in our
third and fourth fiscal quarters.

Effective May 19, 2003, CTT sold to LawFinance Group, Inc. a
portion of its potential $6 million from the patent infringement
judgment against American Cyanamid Company in the
Materna(TM) lawsuit. CTT received $600,000 cash (recognized in
retained royalty settlement revenue) in exchange for the first
$1,290,000 (plus court awarded interest thereon from May 19, 2003)
of CTT's share of the potential award. CTT has no financial
obligation to repay LawFinance or to return any portion of the
$600,000 received from LawFinance; accordingly, CTT recorded this
amount as revenue. If CTT's share of a final award is less than
the amount sold to LawFinance, the entire amount received would be
paid to LawFinance and LawFinance would be deemed paid in full.
CTT granted LawFinance a security interest in CTT's share of the
potential award. At July 31, 2003, CTT retains the remaining
anticipated approximately $4,710,000 proceeds from this potential
award in addition to the $600,000 already received.

The increase in homocysteine assay royalties includes amounts
for assays performed in several quarters by LabCorp ($294,000 under
a stipulated order in the LabCorp litigation) and other clinical
laboratories ($132,000 under license agreements made in the second
quarter of 2003). LabCorp has appealed the judgment in favor of
CTT. If the judgment is reversed on appeal, LabCorp's ability to
recover amounts paid to CTT will depend on the extent of and reason
for the reversal. CTT's management believes the probability that
LabCorp will recover such amounts is very unlikely. See Note 16 to
Consolidated Financial Statements.

The exclusive licensee terminated its license for the
electrochromic display during the third quarter of fiscal 2003. As
a result, we recognized $107,000 previously deferred revenue on
this license and $50,000 in license termination fees.

The last vitamin B12 patent expired in November 2002. As a
result, our 2003 revenues (which include final royalty payments
under these licenses) declined $149,000 from our 2002 royalties.

Our 2003 royalties from gallium arsenide semiconductors were
lower than in 2002 due to expiring licenses and licensees' much
lower sales.

Operating expenses

Patent enforcement expenses, net of reimbursements, in 2003
were $426,000, which was $1,706,000 (80%) lower than in 2002. Our
July 23, 2002, agreement with the University of Illinois, our
client, (for the University to take the lead and assume the cost of
new lead counsel in the litigation against Fujitsu) substantially
reduced our net patent enforcement expenses in 2003. The level of
patent enforcement expenses varies depending on the stage of the
litigation. We have included details of progress and status in
these cases in Note 16 to Consolidated Financial Statements.

Personnel and other direct expenses relating to revenue were
$3,418,000 for 2003, which was $1,176,000 (52%) higher than in
2002. A reduction of $118,000 in recruiting expense partially
offset increases of $774,000 in expenses for salaries and benefits
and for consultants we engaged to assist us in developing specific
revenue opportunities and strategic alliances and relationships.
In 2003 we had approximately 16 full-time equivalents compared with
approximately 13 in 2002. In the fourth quarter of 2003, we
recorded $482,000 of impairment charges related to intangible
assets principally due to the uncertainty of future revenues from
the ribozyme technology. In the fourth quarter of 2002, we
recorded $156,000 of impairment charges related to intangible
assets.

General and administrative expenses for 2003 were $2,051,000,
which was $549,000 (37%) higher than in 2002. Expenses that
increased were corporate legal expenses directly related to the SEC
investigation (increased $252,000) (see Note 16 to Consolidated
Financial Statements), financing (increased $192,000) and investor
relations (increased $107,000). We had expected to charge $196,000
of financing costs incurred since October 2002 against the proceeds
of a debt or equity financing in 2003. We expensed them in the
fourth quarter of 2003 since the placement memorandum was no longer
current and we have not yet obtained funding.

Reversal of accounts payable exchanged for contingent note payable

On October 28, 2002, the Company signed an agreement making
future payments to our former patent litigation counsel in the
Fujitsu matter completely contingent on future receipts from
Fujitsu. This contingent promissory note payable is for $1,683,000
plus simple interest at the annual rate of 11% from the agreement
date ($139,000 at July 31, 2003) payable only from future receipts
in a settlement or other favorable outcome of the litigation
against Fujitsu, if any. Accordingly, in the first quarter of
2003, we reversed from accounts payable $1,583,000 that was accrued
at July 31, 2002. This one-time reversal constituted other
operating income in the first quarter of 2003 and increased
shareholders' interest.

Other expense

Impairment loss on investment in NTRU Cryptosystems, Inc. (NTRU)

In April 2003, NTRU redeemed all outstanding shares of its
Series A and Series B Preferred Stock (NTRU Preferred Stock) in
exchange for cash or NTRU common stock.

Competitive Technologies, Inc. is a minority investor in NTRU
and currently owns 3,129,509 shares of NTRU common stock, including
76,509 shares received in April 2003 (approximately 10% of NTRU's
outstanding common stock). CTT exchanged its NTRU Preferred Stock
for $90,741 in cash ($88,377 received in May 2003 and $2,364
received in September 2003), and 76,509 shares of NTRU common
stock.

CTT recorded other expense of $944,000 in its second quarter
ended January 31, 2003 due to the uncertain timing and amount of
CTT's expected future cash flows from its investment in NTRU's
common stock after its recapitalization.

CTT continues to hold a seat and participate actively on
NTRU's Board of Directors. CTT's management continues to believe
NTRU's encryption technology has value and these actions provide
NTRU an opportunity to allow applications to evolve to meet
customer's needs for strong encryption, a small footprint and low
processing requirements.

Interest income of $27,000 for 2003 was $71,000 (73%) lower
than in 2002. Our average invested balance was approximately 49%
lower and our weighted average interest rate was approximately 1.2%
per annum compared with approximately 2.2% per annum in 2002.

The Company has substantial net operating and capital loss
carryforwards for Federal income tax purposes. See Note 9 to
Consolidated Financial Statements.

Results of Operations - 2002 vs. 2001

Our total revenues for fiscal 2002 were $2,596,000, which was
$1,045,000 (29%) lower than for fiscal 2001.

For fiscal 2002, retained royalties were $2,571,000, which was
$1,067,000 (29%) lower than for fiscal 2001. In fiscal 2002,
approximately $1,838,000 (71%) of our retained royalties were from
four technologies: $1,012,000 (39%) from gallium arsenide patents
(including a laser diode technology used in optoelectronic storage
devices and another technology that improves semiconductor
operating characteristics); $391,000 (15%) from Ethyol (a
chemotherapeutic mitigation agent); $264,000 (10%) from the vitamin
B12 assay; and $171,000 (7%) from the homocysteine assay.

Retained royalties from the gallium arsenide semiconductor
inventions (which include laser diode applications) for fiscal 20 02
were approximately $1,012,000 compared with approximately
$2,190,000 for fiscal 2001, a decline of approximately $1, 178,000
(54%). This reflects lower telecom industry sales partially offset
by higher DVD product sales. Most of our royalties from these
inventions are reported semi-annually in the second and fourth
fiscal quarters.

Retained royalties were also lower because a licensee (which
had previously been paying $100,000 minimum pre-market annual
retained royalties in prior fiscal years) terminated its license
and therefore paid no minimum in fiscal 2002. Also lower were
retained royalties from homocysteine and expiring vitamin B12 assay
patents (our last vitamin B12 assay patent expired in November
2002). A homocysteine licensee that had been paying certain
royalties in fiscal 2001 began withholding those royalties in
fiscal 2002, taking a position similar to LabCorp's position.

Retained royalty increases from other technologies partially
offset these reductions. Royalties from Ethyol in fiscal 2002
increased approximately $163,000 (71%) over fiscal 2001. Other
increases included higher minimum royalties on licenses of our
sunless tanning technology and a treatment for sexual dysfunction,
one-time royalties from a Retin-A(TM) royalty audit and earned
royalties from a new license in 2002.

Licensees of our endoscopic ligator have withheld royalties
since the third quarter of fiscal 2000. (Our retained royalties
from the endoscopic ligator were approximately $138,000 for fiscal
2000.) We believe we are entitled to all withheld and future
royalties for use of our patented technology. However, we cannot
predict when, if ever, licensees will resume remitting royalties
for this technology.

Other changes in retained royalty revenues reflect changes in
the timing of royalties reported by licensees and in licensees'
sales of licensed products. Historically, the Company's royalty
revenues in its second and fourth fiscal quarters have been higher
than in its first and third fiscal quarters.

In fiscal 2002 we employed 13 people (full-time equivalents)
compared with 11 in fiscal 2001. We increased our professional
staff and reduced consultants compared with fiscal 2001.
Recruiting expenses in fiscal 2002 (to search for a new President
and Chief Executive Officer) were higher than those for
professional staff hired in fiscal 2001. Corporate legal expenses
were higher due in part to legal expenses related to an SEC
investigation, (see Note 16 to Consolidated Financial Statements)
and increased legal services related to certain contractual matters
with a client.

Patent enforcement expenses, net of reimbursements, in fiscal
2002 were $2,132,000, which was $342,000 (14%) lower than in fiscal
2001. Patent enforcement expenses were principally for outside
litigation counsels' services in the three patent litigations
(Fujitsu, LabCorp and Materna, two of which were active in fiscal
2002) in which our clients and/or we have sued to enforce their and
our patent rights. The level of activity in these two cases was
lower in fiscal 2002 than in fiscal 2001.

In fiscal 2002 we paid a client $201,000 as reimbursement of
certain of our previously deducted patent enforcement expenses. We
included this charge in patent enforcement expenses in fiscal 2002.
If and when the related enforcement action is settled, we are
entitled to reimbursement of these and additional litigation
expenses we have then incurred from any recovery we receive as a
result of the litigation and from subsequent income from the
related patents.

Personnel and other direct expenses relating to revenue were
$2,241,000 for 2002, which was $398,000 (22%) higher than in 2001.
This increase principally reflects increased costs for salaries and
recruiting expenses. It also includes approximately $156,000 of
intangible asset impairment charges in fiscal 2002 (see Note 7 to
Consolidated Financial Statements).

General and administrative expenses for 2002 were $1,501,000,
which was $55,000 (4%) lower than in 2001. Reductions in
acquisition costs, audit and tax fees, directors' fees and expenses
and depreciation were partially offset by increases in legal
expenses directly related to the SEC investigation (see Note 16 to
Consolidated Financial Statements).

Other expense, net

Effective August 5, 2002, CTT sold and transferred all its
interests related to E. L. Specialists, Inc. to MRM Acquisition s,
LLC for $200,000 cash. As a result of this transaction, CTT wrote
down its $1,056,300 notes receivable from ELS to their fair value
of $200,000, which it collected on August 5, 2002. In fiscal 2002 ,
CTT incurred a total $782,000 impairment loss on loans to ELS
($519,000 and $263,000 in the second and fourth quarters,
respectively) and charged against other revenues approximately
$75,000 deemed uncollectible (see Note 3 to Consolidated Financial
Statements).

Because of Digital Ink, Inc.'s (DII) inability to arrange
financial support to continue its operations, CTT recorded an
impairment loss of $50,000 in other expense to write off 100% of
our equity investment in DII in the third quarter of fiscal 2002.
In fiscal 1999 and 2000, CTT provided patenting, marketing and
accounting services in exchange for its $50,000 equity in DII.

In the third quarter of fiscal 2002, CTT recorded a recovery
of $22,000 of its secured bridge financing advances to Micro-ASI,
Inc. At July 31, 2001, CTT reduced its carrying value for all its
investments and advances to Micro-ASI to zero because of Micro-
ASI's bankruptcy filing in August 2001. We are unable to predict
the timing or amount of CTT's potential future recoveries of our
advances to Micro-ASI, if any (see Note 3 to Consolidated Financial
Statements).

Interest income of $97,000 for fiscal 2002 was $303,000 (76%)
lower than in fiscal 2001. Our average invested balance was
approximately 37% lower and our weighted average interest rate was
approximately 2.2% per annum compared with approximately 5.6% per
annum in fiscal 2001.

Other expenses in fiscal 2001 were legal expenses incurred in
connection with a suit brought against CTT, some of its
subsidiaries and directors. See Optical Associates, Limited
Partnership (OALP) in Item 3. Legal Proceedings.

Financial Condition and Liquidity

At July 31, 2003, the Company had no outstanding debt or
available credit facility.

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

Before this agreement, Unilens owed $4,712,000 (previously
written off due to uncertainties relating to its collection)
remaining from an original installment obligation of $5,500,000 to
CTT under previous agreements made in connection with the Company's
January 1989 sale of substantially all the assets of University
Optical Products Co. (UOP) to Unilens Corp. USA. Due to Unilens'
financial condition and the uncertainty of its payments on this
obligation, the Company will record revenue from continuing
operations when payments (all of which are in excess of the fair
value assigned to the original obligations) are received. The
Company will also record certain related contingent expenses when
incurred.

On August 13, 2002, the District Court judge in the Materna
lawsuit awarded the plaintiffs approximately $54 million plus
certain interest from January 1, 2002. The defendant has posted a
$59 million bond. On September 3, 2003, a three-judge panel of the
U.S. Court of Appeals for the Federal Circuit (CAFC) unanimously
affirmed the August 13, 2002 judgment. The defendant has filed an
appeal requesting a rehearing or a rehearing en banc (before the
full bench). Based on the language of the September 3, 2003
judgment, management believes there is a reasonable possibility CTT
will receive its share of damages finally awarded, approximately
$4.7 million at July 31, 2003, plus its proportionate share of
interest. However, we cannot predict when these will occur. We
have recorded no potential judgment proceeds in CTT's financial
statements to date. CTT will record revenue for judgment proceeds
when it receives them. We have included details of progress and
status in this case in Note 16 to Consolidated Financial
Statements.

At July 31, 2003, cash, cash equivalents and short-term
investments of $1,504,000 were $1,383,000 lower than cash, cash
equivalents and short-term investments of $2,887,000 at July 31,
2002. During 2003, the Company sold $2,037,000 of short-term
investments, while cash and cash equivalents increased $654,000 to
$1,405,000. Operating activities used $1,605,000 of cash during
2003, primarily as a result of the net loss, partially offset by
collection of $242,000 of accounts receivable. Investing
activities provided $2,259,000 of cash primarily from sales of
short-term investments described above, sales of the Company's
interests in E. L. Specialists, Inc. and NTRU Cryptosystems, Inc.
preferred stock, partially offset by purchases of intangible assets
and equipment. At July 31, 2003, cash, cash equivalents and short-
term investments of $1,504,000 were available to support our
current operating needs.

The Company's net loss for 2003 included noncash charges of
$1,737,000 comprising $944,000 for the impairment loss on our
investment in NTRU Cryptosystems, Inc., $188,000 for depreciation
and amortization, $123,000 for stock compensation and $482,000 for
impairment of intangible assets. In addition, the reversal of
accounts payable of $1,583,000 exchanged for a contingent note
payable was a noncash credit.

At July 31, 2003, the Company's commitments were:

Payments Due by Period
Less More
At July 31, 2003 than 1-3 3-5 than 5
Contractual Obligations Total 1 year years years years

Operating lease
obligations $809,000 $245,000 $470,000 $ 94,000 $ --
Other
obligations 10,000 10,000 -- -- --
$819,000 $245,000 $470,000 $ 94,000 $ --

The Company's other commitments are either contingent upon a
future event or terminable on less than thirty days' notice (see
Note 16 to Consolidated Financial Statements).

Our directors, officers, employees and agents may claim
indemnification in certain circumstances. We are currently exposed
to potential indemnification claims in connection with the SEC
investigation and with complaints filed by certain former employees
alleging discriminatory employment practices in violation of
Section 806 of the Corporate and Criminal Fraud Accountability Act
of 2002 (see Note 16 to Consolidated Financial Statements). We
seek to limit and reduce our potential financial obligations for
indemnification by carrying directors' and officers' liability
insurance (subject to deductibles).

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

Under the terms of one of the Company's agreements (which the
Company may terminate on ninety days' written notice), it has
committed to pay minimum annual license fees of $10,000 on each
January 1, beginning January 1, 2004. In addition, the Company has
agreed to reimburse patent expenses of $26,000 as of July 31, 2003
from future royalty receipts before retaining any revenue.

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

CTT and Vector Vision, Inc. (VVI), a CTT consolidated
subsidiary, have contingent obligations to repay up to $209,067 and
$224,127, respectively, (three times total grant funds received) in
consideration of grant funding received in 1994 and 1995. CTT is
obligated to pay at the rate of 7.5% of its revenues, if any, from
transferring rights to inventions supported by the grant funds.
VVI is obligated to pay at rates of 1.5% of its net sales of
supported products or 15% of its revenues from licensing supported
products, if any. These obligations are recognized when any such
revenues are recognized. During fiscal 2003 and 2002,
respectively, CTT charged $563 and $3,018 in related royalty
expenses to operations. CTT's and VVI's remaining contingent
obligations were $199,569 and $224,127, respectively, at July 31,
2003 and $200,128 and $224,127, respectively, at July 31, 2002.

In October 2002, we retained an investment banker to advise
and assist the Company in obtaining additional debt and/or equity
funding. Under this retainer as extended July 10, 2003, (which
either party currently may terminate at any time), the Company
committed to pay $10,000 per month plus out-of-pocket expenses
through January 10, 2004 plus certain fees payable only if CTT
completes a financing transaction. We expensed $196,000 of
financing costs incurred since October 2002 in the fourth quarter
of 2003 and will expense such costs in the future. The Company
will use the net proceeds of any completed financing transaction
for working capital and other general corporate purposes including
funding CTT's technology commercialization strategy. We cannot
assure you that a financing transaction will be completed.

At July 31, 2003, we had net working capital of $954,000,
which was $187,000 less than at July 31, 2002. Our accounts
payable at July 31, 2002, included $1,583,000 of invoices we
reversed in October 2002, as discussed above under "Reversal of
accounts payable exchanged for contingent note payable."

The Company has incurred substantial operating and net losses
in the three years ending July 31, 2003. Net patent enforcement
expenses related to the Fujitsu and LabCorp litigations have been
substantial. During fiscal 2003, the Company has focused its
efforts and resources on increasing revenues to replace revenues
from expiring licenses; however, these efforts and resources have
not yet increased revenues sufficiently. In addition, the Company
has incurred $494,000 cumulatively through July 31, 2003 for
professional advice related to the ongoing SEC investigation (see
Note 16 to Consolidated Financial Statements).

The amounts and timing of the Company's future capital
requirements will depend on many factors, including the results of
the Materna, Fujitsu and LabCorp lawsuits, the Company's marketing
efforts, the pending SEC investigation and the Company's fund
raising efforts. To achieve profitability, the Company must
successfully license technologies with current and long-term
revenue streams substantially greater than its operating expenses.
To sustain profitability, the Company must continually add such
licenses. The time required to reach profitability is highly
uncertain and we cannot assure you that the Company will be able to
achieve profitability on a sustained basis, if at all.

Management has taken certain steps to reduce future cash
operating expenses (including fourth quarter fiscal 2003 staff
reductions), to defer payment of certain liabilities, to make
payment of certain obligations contingent upon receipt of revenues,
and to sell additional portions of its share of the potential
Materna award. In addition to seeking debt and/or equity funding,
we also seek to increase our cash resources by obtaining
substantial up-front license fees in potential new licenses, by
collecting additional amounts we believe are due to us and by
selling future royalty streams from our portfolio. We cannot
predict when we might receive our anticipated approximately
$4,710,000 potential award (which is net of the $1,290,000 sold to
LawFinance). While receipt of that award would satisfy our cash
requirements and fund our current level of operations until we
believe we could generate revenues to sustain our operations, we
cannot rely on it for our current cash requirements.

If we do not obtain sufficient additional cash resources in
the next several months, management plans additional cash expense
reductions sufficient to sustain the Company until it obtains
additional cash from revenues, potential litigation awards or other
funding sources. Under this plan, the Company will implement
further cost reductions and cost containment actions to reduce
operating costs. However, royalty revenues, obtaining rights to
new technologies, granting licenses, and enforcing intellectual
property rights are subject to many factors outside our control or
that we cannot currently anticipate. If these reductions are
insufficient or if our efforts do not generate sufficient cash,
management would make further necessary reductions that could
affect our ability to achieve our growth strategy. Although we
cannot assure you that we will be successful in these efforts,
management believes that its plan will sustain the Company at least
into fiscal 2005. If the Company is unsuccessful at its plans to
raise funding as described above, it is unlikely we will continue
as a going concern. Accordingly, our auditor's opinion with
respect to our financial statements as of and for the year ended
July 31, 2003 includes an explanatory paragraph with respect to our
ability to continue as a going concern.

At July 31, 2003, CTT's shareholders' interest was $1,169,000.
Under American Stock Exchange (AMEX) listing standards, if CTT has
less than $4,000,000 shareholders' interest at July 31, 2003, the
AMEX may consider suspending dealings in or de-listing CTT's common
stock. We cannot assure you if or when we will again meet AMEX
listing requirements.

The most substantial changes in operating accounts were the
$1,225,000 (71%) decrease in accounts payable, the $454,000 (35%)
decrease in royalties payable and the $253,000 (22%) decrease in
royalties receivable. At July 31, 2003, amounts related to
LabCorp's $250,000 (under the stipulated order discussed in the
2003 results above) included $83,000 royalties receivable and
$62,000 royalties payable. In addition to fluctuations in the
amounts of royalties reported, the changes in royalties receivable
and payable reflect the Company's normal cycle of royalty
collections and payments.

Other Matters

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

The Company is involved in three pending patent enforcement
litigation matters. In addition, the SEC is investigating "In the
Matter of Trading in the Securities of Competitive Technologies,
Inc." and the Company has been notified of complaints filed by
certain former employees alleging discriminatory employment
practices in violation of Section 806 of the Corporate and Criminal
Fraud Accountability Act of 2002. All are detailed in Note 16 to
Consolidated Financial Statements.

The lawsuit described under "Optical Associates, Limited
Partnership (OALP)" in Note 16 to Consolidated Financial Statements
in our Annual Report on Form 10-K for the year ended July 31, 2002,
was dismissed on May 16, 2003.

Critical Accounting Policies

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

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

Revenue Recognition

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

Single element arrangements

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

License fees under single element arrangements

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

Royalty fees under single element arrangements

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

Other arrangements

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

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

Impairment of Intangible Assets and Long-Term Investments

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

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

We also apply this policy to all acquired intangible assets.

Impairment of Loans

We review loans for impairment when events or changes in
circumstances indicate that the carrying amount of the loan may not
be recoverable. We determine the present value of expected future
cash flows under the loan (discounted at the loan's effective
interest rate) or the fair value of the collateral if the loan is
collateral dependent. If the fair value of the loan is less than
its carrying amount, we recognize an impairment loss based on the
fair value of the loan. This policy is consistent with Statement
of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan - an amendment of Statements No. 5 and
15."

Recently Issued Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB)
issued Statement No. 142, "Goodwill and Other Intangible Assets."
This statement establishes financial accounting and reporting for
acquired goodwill and other intangible assets acquired individually
or with a group of other assets but not acquired in a business
combination. The Company's adoption of this statement on August 1,
2002 did not have a material effect on its financial condition or
results of operations.

In August 2001, the FASB issued Statement No. 144, "Accounting
for the Impairment or Disposal of Long-lived Assets." This
statement establishes a single accounting model for the impairment
of long-lived assets. The Company has recognized impairment
charges on investments in fiscal 2003 and 2002. However, the
Company's adoption of this statement on August 1, 2002 did not
affect the amount or timing of those impairment charges.

In June 2002, the FASB issued Statement No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities." This
statement addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging
Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)."
The provisions of this statement are effective for exit or disposal
activities initiated after December 31, 2002. The Company's
adoption of this statement did not have a material effect on its
financial condition or results of operations.

In December 2002, the FASB issued Statement No. 148,
"Accounting for Stock-Based Compensation - Transition and
Disclosure." This statement amends Statement No. 123, "Accounting
for Stock-Based Compensation," to provide alternative transition
methods for a voluntary change to the fair value method of
accounting for stock-based employee compensation. This statement
also requires prominent disclosures in annual and interim financial
statements about the method of accounting for stock-based employee
compensation and its effect on reported results. The disclosure
provisions of this statement were effective for the Company's third
quarter ended April 30, 2003; the Company made these disclosures in
Note 2 to Consolidated Financial Statements.

Related Party Transactions

CTT incurred charges for consulting services (including
expenses and use taxes) provided by one director in fiscal 2003 and
two directors in fiscal 2002 and 2001.

In the past, the Company's board of directors determined that
when a director's services were outside the normal duties of a
director, the Company should compensate the director at the rate of
$1,000 per day plus expenses (which is the same amount it pays a
director for attending a one-day Board meeting). The Company has
discontinued this practice. CTT classified these amounts as
consulting expenses.

Related party consulting services were as follows:

For the years ended July 31,
2003 2002 2001

George C. J. Bigar $ -- $117,000 $118,000
All directors $ 6,000 $124,000 $146,000

George C. J. Bigar's consulting services (which were
discontinued in June 2002) related to the Company's investments and
potential investments in development-stage companies. The Company
compensated Mr. Bigar at the rate of $8,000 per month except for
three months, which were at $12,000.

See also Note 17 to Consolidated Financial Statements.

Forward-Looking Statements

Statements about our future expectations, including
development and regulatory plans, and all other statements in this
Annual Report on Form 10-K other than historical facts, are
"forward-looking statements" within the meaning of applicable
Federal Securities Laws and are not guarantees of future
performance. When used in this Form 10-K, the words "anticipate,"
"believe," "intend," "plan," "expect" and similar expressions as
they relate to us or our business or management are intended to
identify such forward-looking statements. These statements involve
risks and uncertainties related to market acceptance of and
competition for our licensed technologies and other risks and
uncertainties inherent in our business, including those set forth
in Item 1 of this Annual Report on Form 10-K for the year ended
July 31, 2003 under the caption "Risk Factors," and other factors
that may be described in our other filings with the Securities and
Exchange Commission, and are subject to change at any time. Our
actual results could differ materially from these forward-looking
statements. We undertake no obligation to update publicly any
forward-looking statement.

Item 7A. Quantitative and Qualitative Disclosures About Market
Risk

Not applicable.

Item 8. Financial Statements and Supplementary Data
Page

Reports of Independent Accountants and Auditors 36-37

Consolidated Balance Sheets 38

Consolidated Statements of Operations 39

Consolidated Statements of Changes
in Shareholders' Interest 40

Consolidated Statements of Cash Flows 41-42

Notes to Consolidated Financial Statements 43-66

Report of Independent Certified Public Accountants

To the Board of Directors and Stockholders of
Competitive Technologies, Inc.
Fairfield, Connecticut

We have audited the accompanying consolidated balance sheet of
Competitive Technologies, Inc. and Subsidiaries as of July 31, 2003
and the related consolidated statements of operations, changes in
shareholders' interest and cash flows for the year then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Competitive Technologies, Inc. and Subsidiaries as of
July 31, 2003, and the results of their operations and their cash
flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the financial statements, the
Company has suffered recurring losses and negative cash flow from
operations that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.

/s/ BDO Seidman, LLP

BDO Seidman, LLP

Valhalla, New York
October 10, 2003, except for
Note 18, for which the date is
October 27, 2003

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders
of Competitive Technologies, Inc.:

In our opinion, the accompanying consolidated financial statements
present fairly, in all material respects, the financial position of
Competitive Technologies, Inc. and its Subsidiaries (the "Company")
at July 31, 2002 and the results of their operations and their cash
flows for each of the two years in the period ended July 31, 2002
in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
Stamford, Connecticut
October 28, 2002

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 2003 and 2002

2003 2002
ASSETS

Current assets:
Cash and cash equivalents $ 1,404,615 $ 750,421
Short-term investments 99,680 2,136,874
Accounts receivable 957,275 1,199,483
Notes receivable - E. L. Specialists, Inc. -- 200,000
Prepaid expenses and other current assets 275,019 261,198
Total current assets 2,736,589 4,547,976

Property and equipment, at cost, net 29,834 42,877
Investments, at cost 43,356 1,075,684
Intangible assets acquired, net 142,722 733,246
TOTAL ASSETS $ 2,952,501 $ 6,399,783

LIABILITIES AND SHAREHOLDERS' INTEREST

Current liabilities:
Accounts payable $ 501,655 $ 1,726,237
Accrued liabilities 1,281,419 1,680,903
Total current liabilities 1,783,074 3,407,140

Commitments and contingencies --

Shareholders' interest:
5% preferred stock, $25 par value;
35,920 shares authorized; 2,427 shares
issued and outstanding 60,675 60,675
Common stock, $.01 par value; 20,000,000
shares authorized; 6,201,345 and
6,190,785 shares issued in 2003
and 2002, respectively, and 6,201,345
and 6,154,351 shares outstanding in
2003 and 2002, respectively 62,013 61,907
Capital in excess of par value 26,747,229 26,893,287
Treasury stock, at cost; 36,434 shares
in 2002 -- (258,037)
Accumulated deficit (25,700,490) (23,765,189)

Total shareholders' interest 1,169,427 2,992,643

TOTAL LIABILITIES AND SHAREHOLDERS'
INTEREST $ 2,952,501 $ 6,399,783

See accompanying notes

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended July 31, 2003, 2002 and 2001

2003 2002 2001
Revenues:
Retained royalties $ 2,692,933 $ 2,570,931 $ 3,637,764
Retained royalty settlement 600,000 -- --
Other revenues -- 25,000 3,520
3,292,933 2,595,931 3,641,284

Patent enforcement expenses, net of
reimbursements 425,790 2,132,090 2,474,017

Personnel and other direct expenses
relating to revenue, of which
$6,122, $124,073 and $145,673
were to related parties in 2003,
2002 and 2001, respectively 3,417,909 2,241,439 1,842,998

General and administrative expenses 2,050,652 1,501,287 1,556,630

Reversal of accounts payable
exchanged for contingent note
payable (1,583,445) -- --
4,310,906 5,874,816 5,873,645

Operating loss (1,017,973) (3,278,885) (2,232,361)

Other expense, net (917,328) (737,543) (268,388)

Net loss $(1,935,301) $(4,016,428) $(2,500,749)

Net loss per share:
Basic and diluted $ (0.31) $ (0.65) $ (0.41)

Weighted average number of common
shares outstanding:
Basic and diluted 6,182,657 6,148,022 6,135,486

See accompanying notes

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Interest
For the years ended July 31, 2003, 2002 and 2001

See accompanying notes

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended July 31, 2003, 2002 and 2001

2003 2002 2001
Cash flows from operating
activities:
Net loss $(1,935,301) $(4,016,428) $(2,500,749)
Noncash items included in
net loss:
Reversal of accounts payable
exchanged for contingent
note payable (1,583,445) -- --
Depreciation and
amortization 187,787 193,775 214,768
Impairment of intangible
assets 482,247 156,080 --
Minority interest -- 26,936 15,982
Stock compensation 123,350 121,325 207,298
Other, net 311 (25,624) --
Impairment losses on
investments and advances 943,640 810,326 600,000

Net changes in operating accounts:
Accounts receivable 242,208 1,604,391 (362,096)
Prepaid expenses and other
current assets (13,821) (191,154) 79,439
Accounts payable and
accrued liabilities (51,886) (345,987) 1,498,524
Net cash flows from
operating activities (1,604,910) (1,666,360) (246,834)

(continued)

See accompanying notes

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended July 31, 2003, 2002 and 2001
(Continued)

2003 2002 2001
Cash flows from investing
activities:
Purchases of property and
equipment, net (16,467) (30,986) (27,572)
Purchase of intangible assets (50,000) -- --
Proceeds from NTRU Cryptosystems,
Inc. preferred stock 88,377 -- --
Investments in cost-method
affiliates -- (100,000) (100,000)
Proceeds from (advances to)
E. L. Specialists, Inc. 200,000 (306,300) (650,000)
Sales of short-term
investments 2,037,194 2,656,567 206,613
Other -- (26,936) (15,982)
Net cash flows from
investing activities 2,259,104 2,192,345 (586,941)

Cash flows from financing
activities:
Proceeds from exercise of
stock options and warrants -- -- 21,125
Purchases of treasury stock -- -- (679,289)
Net cash flows from financing
activities -- -- (658,164)
Net increase (decrease) in cash
and cash equivalents 654,194 525,985 (1,491,939)
Cash and cash equivalents,
beginning of year 750,421 224,436 1,716,375
Cash and cash equivalents, end
of year $ 1,404,615 $ 750,421 $ 224,436

See accompanying notes

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

1. BUSINESS

Competitive Technologies, Inc. (CTT) and its majority owned
subsidiaries (the Company) provide patent and technology licensing and
commercialization services throughout the world (with concentrations in
U.S.A., Europe and Asia) with respect to a broad range of life, digital,
physical, and nano science technologies originally invented by various
individuals, corporations and universities. The Company is compensated
for its services primarily by sharing in the license and royalty fees
generated from its successful licensing of technologies.

Capital Requirements, Management's Plans and Basis of Presentation

The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity of
operations, realization of assets and liquidation of liabilities in the
ordinary course of business. The Company incurred a net loss of
$1,935,301 and negative cash flows from operations of $1,604,910 for the
fiscal year ended July 31, 2003 and has an accumulated deficit of
$25,700,490 at July 31, 2003. The Company's net working capital
declined $187,321 in fiscal 2003. At July 31, 2003, the Company's cash,
cash equivalents and short-term investments of $1,504,295 were
$1,383,000 lower than at July 31, 2002.

The Company has incurred substantial operating and net losses in
the three years ending July 31, 2003. Net patent enforcement expenses
related to the Fujitsu and LabCorp litigations have been substantial.
During fiscal 2003, the Company has focused its efforts and resources on
increasing revenues to replace revenues from expiring licenses; however,
these efforts and resources have not yet increased revenues
sufficiently. In addition, the Company has incurred $494,000
cumulatively through July 31, 2003 for professional advice related to
the ongoing SEC investigation (see Note 16 to Consolidated Financial
Statements).

The amounts and timing of the Company's future capital requirements
will depend on many factors, including the results of the MaternaTM,
Fujitsu and LabCorp lawsuits (see Note 16 to Consolidated Financial
Statements), the Company's marketing efforts, the SEC investigation and
the Company's fund raising efforts. To achieve profitability, the
Company must successfully license technologies with current and long-
term revenue streams substantially greater than its operating expenses.
To sustain profitability, the Company must continually add such
licenses. The time required to reach profitability is highly uncertain
and we cannot assure you that the Company will be able to achieve
profitability on a sustained basis, if at all.

Management has taken certain steps to reduce ongoing cash operating
expenses (including fourth quarter fiscal 2003 staff reductions), to
defer payment of certain liabilities, to make payment of certain
obligations contingent upon receipt of revenues, and to sell additional
portions of its share of the potential Materna award. In addition to
seeking debt and/or equity funding, we also seek to increase our cash
resources by obtaining substantial up-front license fees in potential
new licenses, by collecting additional amounts we believe are due to us
and by selling future royalty streams from our portfolio. We cannot
predict when we might receive our anticipated approximately $4,710,000
potential award (which is net of the $1,290,000 sold to LawFinance).
While receipt of that award would satisfy our cash requirements and fund
our current level of operations until we believe we could generate
revenues to sustain our operations, we cannot rely on it for our current
cash requirements.

If we do not obtain sufficient additional cash resources in the
next several months, management plans additional cash expense reductions
sufficient to sustain the Company until it obtains additional cash from
revenues, potential litigation awards or other funding sources. Under
this plan, the Company will implement further cost reductions and cost
containment actions to reduce operating costs. However, royalty
revenues, obtaining rights to new technologies, granting licenses, and
enforcing intellectual property rights are subject to many factors
outside our control or that we cannot currently anticipate. If these
reductions are insufficient or if our efforts do not generate sufficient
cash, management would make further necessary reductions that could
affect our ability to achieve our growth strategy. Although we cannot
assure you that we will be successful in these efforts, management
believes that its plan will sustain the Company at least into fiscal
2005. If the Company is unsuccessful at its plans to raise funding as
described above, it is unlikely we will continue as a going concern.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the
Company. CTT's majority-owned subsidiaries are Digital Acorns, Inc.,
University Optical Products Co. (UOP), Genetic Technology Management,
Inc. (GTM) and Vector Vision, Inc. (VVI). Intercompany accounts and
transactions have been eliminated in consolidation.

Management Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. The Company's more significant estimates
include the future cash flows used in evaluating intangible assets for
potential impairment and the remaining useful lives of long-lived and
intangible assets. Actual results could differ from those estimates.

Reclassifications

Certain amounts, including operating expenses, have been
reclassified to conform with the presentation in financial statements
for fiscal 2003.

Revenue Recognition

The Company derives revenues primarily from patent and technology
license and royalty fees. Since these revenues result from the
Company's representation agreements with owners and assignees of
intellectual property rights, the Company records revenues net of the
owners' and assignees' shares of license and royalty fees. The Company
stipulates the terms of its licensing arrangements in its written
agreements with the owners, assignees and licensees. Generally these
arrangements are single element arrangements since the Company has no
significant obligations after executing the license agreements.

Under the terms of the Company's license arrangements, the Company
generally receives an upfront license fee and a royalty stream based on
the licensee's sales of the licensed technology.

License Fees

The Company recognizes upfront, nonrefundable license fees
upon execution of the license arrangement and collection of the
license fee. Upon the occurrence of these two events, the Company
has persuasive evidence of an arrangement, delivery is complete,
collectibility is assured and there are no continuing obligations.

Royalty Fees

Although the royalty rate is fixed in the license agreement,
the amount of earned royalties is contingent upon the amount of
product the licensee sells. Royalties earned in each reporting
period are contingent on the outcome of events occurring within
that period and such events are not within the control of the
Company and are not directly tied to the Company's providing
service. Therefore, the Company recognizes royalty fee revenue
when the contingency is resolved and it can estimate the amount of
royalty fees, which is upon receipt of licensees' royalty reports.

In limited instances, the Company enters into multiple element
ar