10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2014

or

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

For the transition period from                                                          to                                                    

Commission file number 001-08696

COMPETITIVE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter) www.competitivetech.net
Delaware	36-2664428
(State or other jurisdiction of incorporation or organization)	(I. R. S. Employer Identification No.)
1375 Kings Highway East, Suite 400 Fairfield, Connecticut	06824
(Address of principal executive offices)	(Zip Code)

(203) 368-6044

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "accelerated filer, large accelerated filer and smaller reporting company" as defined in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨	Accelerated filer  ¨
Non-accelerated filer    ¨ (Do not check if a smaller reporting company)	Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). 

Yes ¨ No x

The number of shares of the registrant’s common stock outstanding as of August 13, 2014 was 24,651,477 shares. 

COMPETITIVE TECHNOLOGIES, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

		Page No.
PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Interim Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets at June 30, 2014 (unaudited) and December 31, 2013	3
	Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2014 and June 30, 2013	4-5
	Condensed Consolidated Statement of Changes in Shareholders’ Deficit for the six months ended June 30, 2014 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2014 and June 30, 2013	7
	Notes to Condensed Consolidated Interim Financial Statements (unaudited)	8-20
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21-30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4.	Controls and Procedures	30
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	32
Item 6.	Exhibits	32
Signatures		33

2

PART I.  FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Interim Financial Statements

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets

	June 30, 2014			December 31, 2013
	(Unaudited)
Assets
Current Assets:
Cash	$	16,400		$	57,009
Receivables, net of allowance of $101,154 at June 30, 2014 and December 31, 2013		143,119			143,330
Inventory		4,208,220			4,278,220
Prepaid expenses and other current assets		57,308			65,167
Total current assets		4,425,047			4,543,726
Property and equipment, net		47,684			7,606
Security deposits		15,000			15,000
TOTAL ASSETS	$	4,487,731		$	4,566,332
Liabilities and Shareholders' Deficit
Current Liabilities:
Accounts payable	$	877,542		$	692,251
Liabilities under claims purchase agreement		2,013,320			2,093,303
Accounts payable, GEOMC		4,182,380			4,183,535
Accrued expenses and other liabilities		855,778			582,987
Notes payable		2,445,420			2,488,691
Deferred revenue		19,687			6,400
Warrant liability		-			8,227
Series C convertible preferred stock derivative liability		92,128			80,408
Series C convertible preferred stock liability		375,000			375,000
Total current liabilities		10,861,255			10,510,802
Note payable – long-term		38,082			-
Commitments and Contingencies
Shareholders’ deficit:
5% preferred stock, $25 par value, 35,920 shares authorized, 2,427 shares issued and outstanding		60,675			60,675
Series B preferred stock, $0.001 par value, 20,000 shares authorized, no shares issued and outstanding		-			-
Series C convertible preferred stock, $1,000 par value, 750 shares authorized, 375 shares issued and outstanding		-			-
Common stock, $.01 par value, 40,000,000 shares authorized, 24,112,357 shares issued and outstanding at June 30, 2014 and 19,952,907 shares issued and outstanding at December 31, 2013		241,123			199,529
Capital in excess of par value		47,085,819			46,077,394
Accumulated deficit		(53,799,223	)		(52,282,068	)
Total shareholders’ deficit		(6,411,606	)		(5,944,470	)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	4,487,731		$	4,566,332

See accompanying notes

3

PART I.  FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Operations

(Unaudited)

	Three months ended			Three months ended
	June 30, 2014			June 30, 2013
Revenue
Product sales	$	316,000		$	136,100
Cost of product sales		98,148			45,845
Gross profit from product sales		217,852			90,255
Other Revenue
Retained royalties		2,348			4,384
Other income		13,653			9,643
Total other revenue		16,001			14,027
Expenses
Selling expenses		66,032			35,758
Personnel and consulting expenses		424,121			278,732
General and administrative expenses		317,305			413,417
Interest expense		112,895			43,971
Interest expense – accelerated upon conversion of OID notes		35,109			-
Loss on conversion of OID notes		43,288			-
Unrealized loss on derivative instruments		25,952			9,439
Total Expenses		1,024,702			781,317
Loss before income taxes		(790,849	)		(677,035	)
Provision (benefit) for income taxes		-			-
Net loss	$	(790,849	)	$	(677,035	)
Basic and diluted loss per share	$	(0.03	)	$	(0.04	)
Basic and diluted weighted average number of common shares outstanding:		23,082,699			16,146,013

See accompanying notes

4

PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Operations

(Unaudited)

	Six months ended			Six  months ended
	June 30, 2014			June 30, 2013
Revenue
Product sales	$	537,080		$	136,100
Cost of product sales		168,366			65,193
Gross profit from product sales		368,714			70,907
Other Revenue
Retained royalties		4,952			17,760
Other income		17,473			58,322
Total other revenue		22,425			76,082
Expenses
Selling expenses		138,026			103,933
Personnel and consulting expenses		819,144			619,739
General and administrative expenses		511,026			814,176
Interest expense		217,680			76,738
Interest expense – accelerated upon conversion of OID notes		35,109			-
Loss on conversion of OID notes		43,288			-
Loss on settlement of note and warrant		132,301			-
Unrealized loss (gain) on derivative instruments		11,720			(8,728	)
Total Expenses		1,908,294			1,605,858
Loss before income taxes		(1,517,155	)		(1,458,869	)
Provision (benefit) for income taxes		-			-
Net loss	$	(1,517,155	)	$	(1,458,869	)
Basic and diluted loss per share	$	(0.07	)	$	(0.09	)
Basic and diluted weighted average number of common shares outstanding:		21,567,885			15,868,892

See accompanying notes

5

PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

Condensed Consolidated Statement of Changes in Shareholders' Deficit

For the Six Months Ended June 30, 2014

(Unaudited)

	Preferred Stock				Common Stock				Capital					Total
	Shares outstanding		Amount		Shares outstanding		Amount		in excess of par value		Accumulated deficit			shareholders’ deficit
Balance January 1, 2014		2,427	$	60,675		19,952,907	$	199,529	$	46,077,394	$	(52,282,068	)	$	(5,944,470	)
Net loss		-		-		-		-		-		(1,517,155	)		(1,517,155	)
Common stock issued to directors		-		-		10,625		106		3,932		-			4,038
Stock option compensation expense		-		-		-		-		41,123		-			41,123
Common stock issued upon conversion of OID notes		-		-		798,825		7,988		166,888					174,876
Private offering of common stock and warrants		-		-		3,350,000		33,500		636,500		-			670,000
Warrant and beneficial conversion feature on notes payable		-		-		-		-		53,338		-			53,338
Liabilities settled under Liability Purchase Agreement		-		-		-		-		106,644					106,644
Balance June 30, 2014		2,427	$	60,675		24,112,357	$	241,123	$	47,085,819	$	(53,799,223	)	$	(6,411,606	)

See accompanying notes

6

PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six months ended			Six months ended
	June 30, 2014			June 30, 2013
Cash flows from operating activities:
Net loss	$	(1,517,155	)	$	(1,458,869	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		6,346			4,859
Stock option compensation expense		41,123			128,637
Share-based compensation – common stock		4,038			7,000
Bad debt expense		-			5,000
Debt discount amortization		169,436			-
Noncash finance charges		18,434			-
Unrealized loss (gain) on derivative instruments		11,720			(8,728	)
Loss on conversion of OID notes		43,288
Loss on settlement of note and warrant		132,301			-
Changes in assets and liabilities:
Receivables		211			194,315
Prepaid expenses and other current assets		7,859			60,763
Inventory		70,000			20,000
Accounts payable, accrued expenses and other liabilities		456,927			(96,953	)
Deferred revenue		13,287			(1,600	)
Net cash used in operating activities		(542,185	)		(1,145,576	)
Cash flows from investing activities:
Purchase of property and equipment		(46,424	)		-
Cash used in investing activities		(46,424	)		-
Cash flows from financing activities:
Proceeds from note payable		120,000			1,095,000
Repayment of note and warrant settlement		(242,000	)		-
Proceeds from common stock and warrants		670,000			-
Net cash provided by financing activities		548,000			1,095,000
Net decrease in cash		(40,609	)		(50,576	)
Cash at beginning of period		57,009			74,322
Cash at end of period	$	16,400		$	23,746

Supplemental disclosure of non-cash transactions:

In June 2014, the Company issued 798,825 shares of common stock upon conversion of OID notes (see Note 11).

In September 2013, the Company issued 1,618,235 shares of the Company’s common stock to ASC Recap. During September and October 2013, ASC Recap sold the Company’s common stock and during the three months ended March 31, 2014, paid creditors approximately $80,000 from the proceeds and retained a service fee of approximately $27,000 (see Note 10).

During the six months ended June 30, 2013, the Company transferred a rental asset with a Net Book Value (NBV) of approximately $8,000 to inventory.

During the six months ended June 30, 2013, the Company issued 1,000,000 shares of its common stock into escrow, pending the completion of potential financing with a European investment group.  

During March 2013, the Company issued 100,000 shares of its common stock at $0.43 per share for legal services.

See accompanying notes

7

PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited)

1.    BASIS OF PRESENTATION

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

Competitive Technologies, Inc. (“CTI”) and its majority-owned (56.1%) subsidiary, Vector Vision, Inc. (“VVI”), (collectively, the “Company”, “we” or “us”) is a biotechnology company developing and commercializing innovative products and technologies. CTI is the licensed distributor of the non-invasive Calmare^® pain therapy device (the “Calmare Device”), which was developed to treat neuropathic and cancer-derived pain.

These consolidated financial statements include the accounts of CTI and VVI.  Inter-company accounts and transactions have been eliminated in consolidation.

We believe we have made all adjustments necessary, consisting only of normal recurring adjustments, to present the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S.  The results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that can be expected for the full year ending December 31, 2014.

The interim unaudited condensed consolidated financial statements and notes thereto, should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission (“SEC”) on April 16, 2014.

During the three and six months ended June 30, 2014, we had a significant concentration of revenues from the Calmare^® Device.  The percentages of gross revenue attributed to sales and rentals of Calmare Devices, in both the three and six months ended June 30, 2014, was 98%; and 96% and 72%, respectively, in the three and six months ended June 30, 2013.  Additionally, the percentage of gross revenue attributed to other Calmare Device related sales of equipment and training, in both the three and six months ended June 30, 2014, was 1%; and 1% and 2%, respectively, in the three and six months ended June 30, 2013.  We continue to attempt to expand our sales activities for the Calmare Device and expect the majority of our revenues to come from this technology.

The Company has incurred operating losses since fiscal 2006 and has a working capital deficiency at June 30, 2014.  The Company has taken steps to reduce its operating expenses as well as increase revenue from sales of Calmare Devices.  However, even at the reduced spending levels, should the anticipated increase in revenue from sales of Calmare Devices not occur the Company may not have sufficient cash flow to fund operations through 2014.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern.  The financial statements do not include adjustments to reflect the possible future effect of the recoverability and classification of assets or amounts and classifications of liabilities that may result from the outcome of this uncertainty.

The Company's continuation as a going concern is dependent upon its developing recurring revenue streams sufficient to cover operating costs.  The Company does not have any significant individual cash or capital requirements in the budget going forward.  If necessary, CTI will meet anticipated operating cash requirements by further reducing costs, issuing debt and/or equity, and/or pursuing sales of certain assets and technologies while we pursue licensing and distribution opportunities for our remaining legacy portfolio of technologies.  There can be no assurance that the Company will be successful in such efforts.  Failure to develop a recurring revenue stream sufficient to cover operating expenses could negatively affect the Company’s financial position.

8

PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

Our liquidity requirements arise principally from our working capital needs, including funds needed to sell our current technologies and obtain new technologies or products, and protect and enforce our intellectual property rights, if necessary. We fund our liquidity requirements with a combination of cash on hand, debt and equity financing, sales of common stock and cash flows from operations, if any, including royalty legal awards. At June 30, 2014, the Company had outstanding debt in the form of promissory notes with a total principal amount of $3,005,000 and a carrying value of $2,970,000.

The Company acquired the exclusive, worldwide rights to the Scrambler Therapy® technology in 2007. The Company’s original 2007 agreement with Giuseppe Marineo (the "Scrambler Therapy Agreement"), an inventor of Scrambler Therapy technology, and Delta Research and Development (“Delta”), authorized CTI to manufacture and sell worldwide the device developed from the patented Scrambler Therapy technology. The original agreement was amended in 2011 to provide the Company with exclusive rights to the Scrambler Therapy technology through March 31, 2016. In July 2012, the Company attempted to negotiate a five-year extension to the agreement with Marineo and Delta (the “2012 Amendment”). However, the Company believes that the 2012 Amendment is neither valid nor enforceable as it was never duly signed or authorized and subsequently deemed null and void (see Footnote 13. CONTRACTUAL OBLIGATIONS AND CONTINGENCIES, CTI’s Distribution Rights, Marineo and Delta). The Scrambler Therapy technology is patented in Italy and in the U.S. Applications for patents have been filed internationally as well and are pending approval. The Calmare Device has CE Mark certification from the European Union as well as U.S. FDA 510(k) clearance. CTI’s partner, GEOMC Co., Ltd. of Korea, is manufacturing the product commercially under a ten (10) year agreement through 2017. Sales of these devices are expected to provide a significant proportion of the Company’s revenue for the next several years.

2.    NET LOSS PER COMMON SHARE

The following sets forth the denominator used in the calculations of basic net loss per share and net loss per share assuming dilution:

	Three months ended		Six months ended		Three months ended		Six months ended
	June 30, 2014		June 30, 2014		June 30, 2013		June 30, 2013
Denominator for basic net loss per share, weighted average shares outstanding		23,082,699		21,567,885		16,146,013		15,868,892
Dilutive effect of common stock options		N/A		N/A		N/A		N/A
Dilutive effect of Series C convertible preferred stock, convertible debt and warrants		N/A		N/A		N/A		N/A
Denominator for diluted net loss per share, weighted average shares outstanding		23,082,699		21,567,885		16,146,013		15,868,892

Due to the net loss incurred for the three and six months ended June 30, 2014, and 2013, the denominator used in the calculation of basic net loss per share was the same as that used for net loss per share, assuming dilution, since the effect of any options, convertible preferred shares, convertible debt or warrants would have been anti-dilutive. Options to purchase 1,708,500 and 1,367,000 shares of our common stock were outstanding at June 30, 2014 and 2013, respectively, 375 shares outstanding of Series C Convertible Preferred Stock, at June 30, 2014 and 2013, outstanding convertible debt of $2,970,000 and $2,630,000 at June 30, 2014 and 2013, respectively, and the warrants outstanding at June 30, 2014 were not included in the computation of diluted net loss per share because they were also anti-dilutive.

9

PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

3.    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS 

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue From Contracts With Customers, that outlines a single comprehensive model for entities to use in accounting for revenue recognition and supersedes most current revenue recognition guidance, including industry-specific guidance. The amendments in this accounting standard update are intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices, and improve disclosure requirements. The amendments in this accounting standard update are effective for interim and annual reporting periods beginning after December 15, 2016; early adoption is not permitted. The Company is currently assessing the impact that this standard will have on its consolidated financial statements. 

4.    RECEIVABLES

Receivables consist of the following:

	June 30, 2014		December 31, 2013
Calmare® sales receivable	$	142,725	$	132,850
Royalties, net of allowance of $101,154 at June 30, 2014 and December 31, 2013		-		10,086
Other		394		394
Total receivables	$	143,119	$	143,330

5.    AVAILABLE-FOR-SALE AND EQUITY SECURITIES

The fair value of the equity securities we held were categorized as available-for-sale securities, which were carried at a fair value of zero, consisted of shares in Security Innovation and Xion Pharmaceutical Corporation (“Xion”).  We own 223,317 shares of stock in the privately held Security Innovation, an independent provider of secure software located in Wilmington, MA.

In September 2009 we announced the formation of a joint venture with Xion for the commercialization of our patented melanocortin analogues for treating sexual dysfunction and obesity.  CTI currently owns 60 shares of common stock or 30% of the outstanding stock of privately held Xion.

6.    FAIR VALUE MEASUREMEMENTS

The Company measures fair value in accordance with Topic 820 of the FASB Accounting Standards Codification (“ASC”), Fair Value Measurement (“ASC 820”), which provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described as follows:

Level 1 -	Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2 -	Inputs to the valuation methodology include:
	●	Quoted prices for similar assets or liabilities in active markets;
	●	Quoted prices for identical or similar assets or liabilities in inactive markets;
	●	Inputs other than quoted prices that are observable for the asset or liability;
	●	Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
	If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 -	Inputs to the valuation methodology are unobservable and significant to the fair value measurement

10

PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

The asset's or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company values its derivative liability associated with the variable conversion feature on its Series C Convertible Preferred Stock (Note 12) based on the market price of its common stock.  For each reporting period the Company calculates the amount of potential common stock that the Series C Preferred Stock could convert into based on the conversion formula (incorporating market value of our common stock) and multiplies those converted shares by the market price of its common stock on that reporting date.  The total converted value is subtracted by the consideration paid to determine the fair value of the derivative liability. The Company classified the derivative liability of $92,000 and $80,000 at June 30, 2014 and December 31, 2013, respectively, in Level 2 of the fair value hierarchy.

The warrants issued in connection with the Tonaquint Note (the “Tonaquint Warrants,” see Note 11) were measured at fair value and liability-classified because the Tonaquint Warrants contain “down-round” protection and therefore do not meet the scope exception under FASB ASC 815, Derivatives and Hedging (“ASC 815”). Since “down-round” protection is not an input to the fair value of the warrants, the warrants cannot be considered indexed to the Company’s own stock which is a requirement for the scope exception as outlined under ASC 815.  The Company valued the warrants at $8,000 at December 31, 2013, and $26,076 upon issuance July 16, 2013, in Level 3 of the fair value hierarchy. During the first quarter of 2014 the Company executed a debt settlement agreement with Tonaquint related to the note and warrant (see Note 11).

Similarly, the conversion feature of the Tonaquint Note (Note 11) also contained “down-round” protection and therefore did not meet the scope exception under FASB ASC 815.  The Company classified the derivative liability of $0 at December 31, 2013, and $19,024 upon issuance at July 16, 2013, in Level 3 of the fair value hierarchy. During the first quarter of 2014 the Company executed a debt settlement agreement with Tonaquint related to the note and warrant (see Note 11).

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value could result in a different fair value measurement at the reporting date.

The carrying amounts reported in our Condensed Consolidated Balance Sheet for cash, accounts receivable, notes payable, deferred revenue, and preferred stock liability approximate fair value due to the short-term maturity of those financial instruments.

7.           PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

	June 30,  2014		December 31,  2013
Prepaid insurance	$	33,114	$	16,802
Other		24,194		48,365
Prepaid expenses and other current assets	$	57,308	$	65,167

11

PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

8.           PROPERTY AND EQUIPMENT

Property and equipment, net, consist of the following:

	June 30, 2014			December 31, 2013
Property and equipment, gross	$	215,491		$	177,537
Accumulated depreciation and amortization		(167,807	)		(169,931	)
Property and equipment, net	$	47,684		$	7,606

Depreciation and amortization expense was $4,522 and $6,346 during the three and six months ended June 30, 2014, and $2,523 and $4,859 for the three and six months ended June 30, 2013.

9.           ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following:

	June 30,  2014		December 31,  2013
Royalties payable	$	205,451	$	127,708
Accrued compensation		135,000		-
Accrued accounting fees		-		82,141
Commissions payable		51,026		21,975
Accrued interest payable		296,390		216,518
Other payables		167,911		134,645
Accrued expenses and other liabilities, net	$	855,778	$	582,987

Excluded above is approximately $235,000 and $244,000 of accrued expenses and other liabilities at June 30, 2014 and December 31, 2013, respectively, that fall under the Liability Purchase Agreement (“LPA”) with ASC Recap, LLC (“ASC Recap”), and are expected to be repaid using the process as described in Note 10.  Because there can be no assurance that the Company will be successful in completing this process, the Company retains ultimate responsibility for these liabilities, until fully paid down.

10.          LIABILITIES ASSIGNED TO LIABILITY PURCHASE AGREEMENT

During the third quarter of 2013, the Company negotiated a LPA with Southridge, Partners II, L.P. (“Southridge”). The LPA takes advantage of a provision in the Securities Act of 1933, Section 3(a)(10), that allows the exchange of claims, securities, or property for stock when the arrangement is approved for fairness by a court proceeding. The process, approved by the court in August 2013, has the potential to eliminate nearly $2.1 million of our financial obligations to existing creditors who agreed to participate and executed claims purchase agreements with Southridge’s affiliate ASC Recap” accounting for $2,093,303 of existing payables, accrued expenses and other current liabilities, and notes payable. The process began with the issuance in September 2013 of 1,618,235 shares of the Company’s common stock to ASC Recap. During September and October 2013, ASC Recap sold the Company’s common stock and during the three months ended March 31, 2014 paid creditors approximately $80,000 from the proceeds and retained a service fee of approximately $27,000. As of August 8, 2014, no further shares of the Company’s common stock had been issued to ASC Recap to settle creditors’ balances.

There can be no assurance that the Company will be successful in completing this process with Southridge, and the Company retains ultimate responsibility for this debt, until fully paid.

12

PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

11.           NOTES PAYABLE

Notes payable consist of the following:

	June 30, 2014			December 31, 2013
90 day Convertible Notes (Chairman of the Board)	$	2,498,980		$	2,518,000
24 month Convertible Notes ($100,000 to Board member)		225,000			225,000
Tonaquint 9% OID Convertible Notes and Warrants		-			87,705
Southridge Convertible Note		12,000			12,000
Series A1 15% OID Convertible Notes and Warrants		29,440			81,415
Series A2 15% OID Convertible Notes and Warrants		119,758			69,571
Series A3 15% OID Convertible Notes and Warrants		46,222			-
Series B OID Convertible Notes and Warrants		38,082			-
Notes Payable, gross		2,969,482			2,933,691
Less LPA amount		(485,980	)		(505,000	)
Notes Payable, net	$	2,483,502		$	2,488,691

Details of notes payable as of June 30, 2014 are as follows:

	Original Principal Amount		Carrying Value (1)			Cash Interest Rate			Common Stock Conversion Price		Maturity Date
90 day Convertible Notes (Chairman of the Board)	$	2,498,980	$	2,498,980			6	%	$	1.05	Various 2014
24 month Convertible Notes ($100,000 to Board member)		225,000		225,000			6	%		1.05	March 2014 – June 2014
Southridge Convertible Note		12,000		12,000			None			75% of closing bid	June 2014
Series A1 15% OID Convertible Notes and Warrants		29,412		29,412			None			0.20	August 2014
Series A2 15% OID Convertible Notes and Warrants		94,471		119,758			None			0.20-0.25	September 2014
Series A3 15% OID Convertible Notes and Warrants		64,706		46,250			None			0.25	January 2015
Series B OID Convertible Notes and Warrants		80,000		38,082			None			0.35	March 2017
Notes Payable, gross	$	3,004,569		2,969,482
Less LPA amount				(485,980	)
Notes Payable, net			$	2,483,502

(1) Includes $28,177 of accrued loss on conversion of OID Notes.

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PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

90 day Convertible Notes

The Company has issued 90-day notes payable to borrow funds from a director, now the chairman of our Board, as follows:

2013	$	1,188,980
2012		1,210,000
2011		100,000
Total	$	2,498,980

These notes have been extended several times and all bear 6.00% simple interest.  A conversion feature was added to the Notes when they were extended, which allows for conversion of the eligible principal amounts to common stock at any time after the six month anniversary of the effective date –the date the funds are received – at a rate of $1.05 per share.  Additional terms have been added to all Notes to include additional interest payments to all Notes if extended beyond their original maturity dates and to provide the lender with a security interest in unencumbered inventory and intangible assets of the Company other than proceeds relating to the Calmare Device and accounts receivable.

A total of $485,980 of the aforementioned notes issued between December 1, 2012 and March 31, 2013 fall under the LPA with ASC Recap, and are expected to be repaid using the process as described in Note 10.  Because there can be no assurance that the Company will be successful in completing this process, the Company retains ultimate responsibility for this debt, until fully paid down.  As a result, the Company continues to accrue interest on these notes and they remain convertible as described above.

24 month Convertible Notes

In March 2012, the Company issued a 24-month convertible promissory note to borrow $100,000. Additional 24-month convertible promissory notes were issued in April 2012 ($25,000) and in June 2012 ($100,000). All of the notes bear 6.00% simple interest. Conversion of the eligible principal amounts to common stock is allowed at any time after the six month anniversary of the effective date of each note at a rate of $1.05 per share.

As of August 8, 2014 the Company has not repaid the principal due on the March 2012 $100,000 note or the April 2012 $25,000 note and as such is in default under the terms of the notes. There is also unpaid interest related to these notes.

Tonaquint 9% Original Issue Discount Convertible Notes and Warrants

During the quarter ended September 30, 2013, the Company entered into a securities purchase agreement with Tonaquint, Inc., under which it was issued a $112,500 convertible promissory note in consideration for $100,000, the difference between the proceeds from the Note and the principal amount consisted of a $10,000 original issue discount and a carried transaction expense of $2,500. The original issue discount was being amortized over the life of the note. The note was convertible at an initial conversion price of $0.30 per share at any time, and contained a “down-round protection” feature that requires the valuation of a derivative liability associated with the note. The note bore interest at 7% and was due in May 2014. Tonaquint was also issued a market-related warrant for $112,500 in shares of common stock with a “cashless” exercise feature. The warrant had a $0.35 exercise price, a 5-year term and included a “down-round protection” feature that required it to be classified as a liability rather than as equity (see Note 6).

During the first quarter of 2014 the Company executed a debt settlement agreement with Tonaquint related to the note and warrant. The warrant was settled during the first quarter of 2014 for a cash payment of $98,000, resulting in a loss of $98,000. The note was settled during the second quarter of 2014 for cash payments totaling $144,000 ($20,000 paid in the first quarter of 2014 and $124,000 paid in the second quarter of 2014). Because the execution of the debt settlement agreement in the first quarter of 2014 resulted in a significant modification of the original terms of the note agreement, the Company adjusted the carrying value of the note in the first quarter of 2014 and recorded a related loss of approximately $34,000.

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PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

Southridge

During 2013, the Company issued a six-month $12,000 convertible note payable to Southridge to cover legal expenses as part of the LPA (see Note 10). The convertible note is convertible into the Company’s common stock at 75% of the lowest closing bid price during the twenty (20) trading days prior to conversion and was due in June 2014.

Southridge delivered to the Company a notice of conversion related to the above noted convertible note payable and subsequent to June 30, 2014, the Company issued to Southridge 50,000 shares in exchange for and in full satisfaction for the note.

Series A 15% Original Issue Discount (“OID”) Convertible Notes and Warrants

During the quarter ended December 31, 2013, the Company did a private offering of two tranches of convertible notes and warrants, under which it issued $283,648 of convertible promissory notes for consideration of $241,100, the difference between the proceeds from the notes and the principal amount consists of $42,548 of original issue discount. During the quarter ended March 31, 2014, the Company did a private offering of a third tranche of convertible notes and warrants, under which it issued $64,706 of convertible promissory notes for consideration of $55,000, the difference between the proceeds from the notes and principal amount consists of $9,706 of original issue discount. The notes are convertible at initial conversion prices ranging from $0.20 to $0.25 per share any time after issuance thereby having an embedded beneficial conversion feature. The note holders were also issued market-related warrants for 958,179 in shares of common stock. The warrants have exercise prices that range from $0.40 to $0.60 and a 2-year term. The beneficial conversion feature and the warrants were recorded to additional paid-in-capital. The Company allocated the proceeds received to the notes, the beneficial conversion feature and the warrants on a relative fair value basis at the time of issuance. The total debt discount is amortized over the life of the notes to interest expense.

The beneficial conversion feature was valued at the intrinsic value on the issuance date. The intrinsic value represents the difference between the conversion price and the fair value of the common stock multiplied by the number of share into which the note is convertible. We estimated the fair value of the warrants on the issue date using a Black-Scholes pricing model with the following assumptions:

	Warrants (Tranche 1) November 15, 2013			Warrants (Tranche 2) December 30, 2013			Warrants (Tranche 3) February 14, 2014
Expected term		2 years			2 years			2 years
Volatility		180.02	%		184.38	%		184.88	%
Risk Free Rate		0.31	%		0.39	%		0.32	%

The proceeds of the Notes issued during the three months ended March 31, 2014 were allocated to the components as follows:

	Proceeds allocated at issue date
Private Offering Notes	$	32,390
Private Offering Warrants		14,845
Beneficial Conversion feature		7,765
Total	$	55,000

During the quarter ended June 30, 2014, certain holders of OID convertible notes and warrants delivered to the Company a notice of conversion related to the OID convertible notes. Due to the timing of receipt of the notices by the Company, certain Note holders (“Noteholders”) received their shares during the quarter ended June 30, 2014, while other Noteholders received or are due to receive their shares after June 30, 2014. Additionally, the Company offered certain Noteholders an inducement to convert their notes to shares. The inducement, when offered, provided Noteholders a conversion price of $0.20. All other original terms, including the warrant terms, remained the same. Upon notice of conversion and irrespective of whether the shares were delivered in the quarter ended June 30, 2014 or subsequent to June 30, 2014 to the Company: (i) accelerated and recognized as interest expense in the current period any remaining discount, and (ii) recognized a loss for the fair value of the additional shares offered as the conversion inducement.

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PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

Presented below is summary information related to the conversion:

Statement of Operations
Loss on conversion of notes	$	43,288
Accelerated interest expense	$	35,109
Balance Sheet
Shares issued as of June 30, 2014		798,825
Shares to be issued subsequent to June 30, 2014		529,415
Principal amount of notes converted	$	265,648

Series B Original Issue Discount Convertible Notes and Warrants

During the quarter ended March 31, 2014, the Company did a private offering of convertible notes and warrants, under which it issued $80,000 of convertible promissory notes for consideration of $65,000, the difference between the proceeds from the notes and principal amount consists of $15,000 of original issue discount. The notes are convertible at an initial conversion price of $0.35 per share any time after issuance thereby having an embedded beneficial conversion feature. The note holders were also issued market-related warrants for 185,714 in shares of common stock. The warrants have an exercise price of $0.45 and a 4-year term. The beneficial conversion feature and the warrants were recorded to additional paid-in-capital. The Company allocated the proceeds received to the notes, the beneficial conversion feature and the warrants on a relative fair value basis at the time of issuance. The total debt discount is amortized over the life of the notes to interest expense.

The beneficial conversion feature was valued at the intrinsic value on the issuance date. The intrinsic value represents the difference between the conversion price and the fair value of the common stock multiplied by the number of share into which the note is convertible. We estimated the fair value of the warrants on the issue date using a Black-Scholes pricing model with the following assumptions:

	Warrants March 20, 2014
Expected term		4 years
Volatility		151.52	%
Risk Free Rate		1.32	%

The proceeds of the Notes were allocated to the components as follows:

	Proceeds allocated at issue date
Private Offering Notes	$	34,272
Private Offering Warrants		26,811
Beneficial Conversion feature		3,917
Total	$	65,000

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PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

12. SHAREHOLDERS’ DEFICIENCY

Stock Option Plan

On May 2, 2011 the Company adopted and executed the Employees’ Directors’ and Consultants Stock Option Plan (the “Plan”). During the six months ended June 30, 2014, the Company granted 42,500 options to non-employee directors which were fully vested upon issuance. During the six months ended June 30, 2013, the Company granted 50,000 options to non-employee directors which were fully vested upon issuance.

During the six months ended June 30, 2014, the Company granted 320,000 options to employees. 20% of the options vested upon issuance and the remaining options vest ratably over a four (4) year period.

During the six months ended June 30, 2013, the Company granted 1,000,000 stock options to its then CEO of which 200,000 vested immediately. Due to his subsequent resignation in September 2013, all options have since been cancelled. 

During the three months ended March 31, 2013 the Board of Directors extended the expiration dates for all options previously granted to one departing Board member in recognition for service.  The Company considered the extension as a modification to the option agreements recording incremental compensation expense of $16,920 for the three months ended March 31, 2013.

We estimated the fair value of each option on the grant date using a Black-Scholes option-pricing model with the following weighted average assumptions:

	Six-months  Ended			Six -months  Ended
	June 30,  2014			June 30,  2013
Dividend yield (1)		0.00	%		0.00	%
Expected volatility (2)		118.5-122.4	%		99.2 - 100.3	%
Risk-free interest rates (3)		1.19-1.72	%		0.63	%
Expected lives (2)		4.0-5.0 YEARS			2.0-4.0 YEARS

(1)	We have not paid cash dividends on our common stock since 1981, and currently do not have plans to pay or declare cash dividends. Consequently, we used an expected dividend rate of zero for the valuations.
(2)	Estimated based on our historical experience. Volatility was based on historical experience over a period equivalent to the expected life in years.
(3)	Based on the U.S. Treasury constant maturity interest rate with a term consistent with the expected life of the options granted.

During both the three and six months ended June 30, 2014, the Company recognized expense of $11,178 for stock options issued to directors and expense of $26,795 and $29,945, respectively, for stock options issued to employees.

During the three and six months ended June 30, 2013, the Company recognized expense of $0 and $14,250, respectively, for stock options issued to directors and expense of $17,200 and $97,467, respectively, for stock options issued to employees.

Preferred Stock

Holders of 5% preferred stock are entitled to receive, if, as, and when declared by the Board of Directors, out of funds legally available therefore, preferential non-cumulative dividends at the rate of $1.25 per share per annum, payable quarterly, before any dividends may be declared or paid upon or other distribution made in respect of any share of common stock. The 5% preferred stock is redeemable, in whole at any time or in part from time to time, on 30 days' notice, at the option of the Company, at a redemption price of $25. In the event of voluntary or involuntary liquidation, the holders of preferred stock are entitled to $25 per share in cash before any distribution of assets can be made to holders of common stock.

Each share of 5% preferred stock is entitled to one vote. Holders of 5% preferred stock have no preemptive or conversion rights. The preferred stock is not registered to be publicly traded.

At its December 2, 2010 meeting, the CTI Board of Directors declared a dividend distribution of one right (each, a “Right”) for each outstanding share of common stock, par value $0.01, of the Company (the “Common Shares”). The dividend was payable to holders of record as of the close of business on December 2, 2010 (the “Record Date”). Issuance of the dividend may be triggered by an investor purchasing more than 20% of the outstanding shares of common stock.

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PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

On December 15, 2010 the Company issued a $400,000 promissory note. The promissory note was scheduled to mature on December 31, 2012 with an annual interest rate of 5%.

On December 15, 2010, the Company's Board of Directors authorized the issuance of 750 shares of Series C Convertible Preferred Stock ($1,000 par value) with a 5% cumulative dividend to William R. Waters, Ltd. of Canada. On December 30, 2010, 750 shares were issued. The Company converted the above $400,000 promissory note into 400 shares and received cash of $350,000 for the remaining 350 shares.

Effective June 16, 2011, William R. Waters, Ltd. of Canada converted one-half (½) of its Series C Convertible Preferred Stock, or 375 shares, to 315,126 shares of common stock.

The rights of the Series C Convertible Preferred Stock are as follows:

a) Dividend rights – The shares of Series C Convertible Preferred Stock accrue a 5% cumulative dividend on a quarterly basis and is payable on the last day of each fiscal quarter when declared by the Company’s Board. As of June 30, 2014, dividends declared were $74,998, of which $4,675 and $9,298, respectively, were declared during the three and six months ended June 30, 2014 and $56,250 have not been paid and are shown in accrued and other liabilities at June 30, 2014.

b) Voting rights – Holders of these shares of Series C Convertible Preferred Stock shall have voting rights equivalent to 1,000 votes per $1,000 par value Series C Convertible Preferred share voted together with the shares of Common Stock

c) Liquidation rights – Upon any liquidation these Series C Convertible Preferred Stock shares shall be treated as equivalent to shares of Common stock to which they are convertible.

d) Redemption rights – The redemption rights were associated with the $750,000 that had been held in escrow by the Company in the event that the funds were released and returned to CTI.  However, the funds were withdrawn from escrow and paid out in accordance with the settlement agreement.  Therefore the redemption rights no longer apply to the remaining Series C Convertible Preferred Stock.

e) Conversion rights – Holder has right to convert each share of Series C Convertible Preferred Stock at any time into shares of the Company's common stock at a conversion price for each share of common stock equal to 85% of the lower of (a) the closing market price at the date of notice of conversion or (b) the mid-point of the last bid price and the last ask price on the date of the notice of conversion. The variable conversion feature creates an embedded derivative that was bifurcated from the Series C Convertible Preferred Stock on the date of issuance and was recorded at fair value. The derivative liability will be recorded at fair value on each reporting date with any change recorded in the Statement of Operations as an unrealized gain (loss) on derivative instrument.

On the date of conversion of the 375 shares of Series C Convertible Preferred Stock the Company calculated the value of the derivative liability to be $81,933. Upon conversion, the $81,933 derivative liability was reclassified to equity.

The Company recorded a convertible preferred stock derivative liability of $92,128 and $80,408, associated with the 375 shares of Series C Convertible Preferred Stock outstanding at June 30, 2014 and December 31, 2013, respectively.

The Company has classified the Series C Convertible Preferred Stock as a liability at June 30, 2014 and December 31, 2013 because the variable conversion feature may require the Company to settle the conversion in a variable number of its common shares.

Common Stock

During the quarter ended March 31, 2014, the Company did a private offering of its common stock and warrants, for consideration of $500,000. 2,500,000 shares of common stock were issued at a per share price of $0.20. The common stock holders were also issued warrants to purchase 1,250,000 shares of common stock. The warrants have an exercise price of $0.60 and a 3-year term. The warrants were recorded to additional paid-in-capital. 

During the quarter ended June 30, 2014, the Company did an additional private offering of its common stock and warrants, for consideration of $170,000. 850,000 shares of common stock were issued at a per share price of $0.20. The common stock holders were also issued warrants to purchase 425,000 shares of common stock. The warrants have an exercise price of $0.60 and a 3-year term. The warrants were recorded to additional paid-in-capital.

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PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

During the three months ended March 31, 2014 and 2013, the Company issued 10,625 and 17,500 shares of its common stock to non-employee directors under its Director Compensation Plan. The Company recorded expense of $4,038 and $7,000 for director stock compensation expense in the three months ended March 31, 2014 and 2013. No shares were issued to non-employee directors during the three months ended June 30, 2014 and 2013.

13.           CONTRACTUAL OBLIGATIONS AND CONTINGENCIES

As of June 30, 2014, CTI and its majority owned subsidiary, VVI, have remaining obligations, contingent upon receipt of certain revenues, to repay up to $165,701 and $198,365, respectively, in consideration of grant funding received in 1994 and 1995.  CTI also is obligated to pay at the rate of 7.5% of its revenues, if any, from transferring rights to certain 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.  

We had previously engaged R.F. Lafferty & Co. to seek an acquisition partner from a limited number of companies for our nanoparticle bone biomaterial patents, among other assets and/or securities.  The Company would have paid Lafferty a 10% finder's fee in the event an acquisition partner was found. This engagement expired during the quarter ended June 30, 2014 without Lafferty identifying an acquisition partner and as such, no fee was paid to Lafferty.

Contingencies – Litigation

Carolina Liquid Chemistries Corporation, et al. (case completed) – On August 29, 2005, we filed a complaint against Carolina Liquid Chemistries Corporation ("Carolina Liquid") in the United States District Court for the District of Colorado, alleging patent infringement of our patent covering homocysteine assays, and seeking monetary damages, punitive damages, attorneys’ fees, court costs and other remuneration at the option of the court. As we became aware of other infringers, we amended our complaint to add as defendants Catch, Inc. ("Catch") and the Diazyme Laboratories Division of General Atomics ("Diazyme"). On September 6, 2006, Diazyme filed for declaratory judgment in the Southern District of California for a change in venue and a declaration of non-infringement and invalidity. On September 12, 2006, the District Court in Colorado ruled that both Catch and Diazyme be added as defendants to the Carolina Liquid case.

On October 23, 2006, Diazyme requested the United States Patent and Trademark Office (the "USPTO") to re-evaluate the validity of our patent and this request was granted by the USPTO on December 14, 2006. On July 30, 2009, the U.S. Patent and Trademark Office’s Board of Patent Appeals and Interferences (“BPAI”) upheld the homocysteine patent. In September 2008, the examiner had denied the patent, but that denial was overruled by the BPAI. While the examiner had appealed that BPAI decision, delaying further action, that appeal was also denied by the BPAI on December 13, 2010. In June 2011, the examiner once again appealed the BPAI decision. In addition to responding to this new appeal, the Company petitioned the Director of the USPTO to help expedite further action on the case within the USPTO, which was to have been handled with special dispatch according to USPTO requirements for handling reexamination proceedings of patents involved in litigation.

On March 13, 2012, the USPTO issued the Ex Parte Reexamination Certificate confirming the patentability of claims examined.

The Company has undertaking efforts to collect amounts from various obligated companies.

Employment matters – former employee (case completed) – In September 2003, a former employee filed a whistleblower complaint with the Occupational Safety and Health Administration of the Department of Labor (“OSHA”) alleging that the employee had been terminated for engaging in conduct protected under the Sarbanes Oxley Act of 2002 (“SOX”). In February 2005, OSHA found probable cause to support the employee’s complaint and the Secretary of Labor ordered reinstatement and back wages since the date of termination and CTI requested de novo review and a hearing before an administrative law judge (“ALJ”). In July 2005, after the close of the hearing on CTI’s appeal, the U.S. district court for Connecticut enforced the Secretary’s preliminary order of reinstatement and back pay under threat of contempt and the Company rehired the employee with back pay.

On October 5, 2005, the ALJ who conducted the hearing on CTI’s appeal of the OSHA findings ruled in CTI’s favor and recommended dismissal of the employee’s complaint. Although the employee abandoned his position upon notice of the ALJ’s decision, he nevertheless filed a request for review by the DOL Administrative Review Board (“ARB”).

In May 2006, the U.S. Court of Appeals for the Second Circuit vacated the order of the district court enforcing the Secretary’s preliminary order of reinstatement and back pay. The employee also filed a new SOX retaliation complaint with OSHA based on alleged black listing action by CTI following his termination. OSHA dismissed the complaint and the employee filed a request for a hearing by an administrative law judge. Ultimately, the employee voluntarily dismissed the appeal.

In March 2008, the ARB issued an order of remand in the employee’s appeal of the October 2005 dismissal of his termination complaint, directing the ALJ to clarify her analysis utilizing the burden-shifting standard articulated by the ARB. In January 2009, the ALJ issued a revised decision again recommending dismissal and once again the employee appealed the ruling to the ARB. On September 30, 2011, the ARB issued a final decision and order affirming the ALJ’s decision on remand and dismissing the employee’s complaint. The employee has appealed the ARB's decision before the U.S. Court of Appeals for the Second Circuit which has ordered the employee to file his opening brief by May 31, 2012. Response briefs by the Solicitor's Office of the U.S. Department of Labor and CTI were submitted in August 2012. In March 2013, the U.S Court of Appeals for the Second Circuit upheld the ARB’s decision dismissing the former employee’s complaint and denied the employee’s appeal from that order. In April 2013, the Second Circuit terminated proceedings in that court.

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PART I. FINANCIAL INFORMATION (Continued)

COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARY

CTI’s Distribution Rights, Marineo and Delta

On April 8, 2014, Mr. Giuseppe Marineo, an inventor of the Calmare® pain therapy device, and Delta Research and Development (“Delta”), Mr. Marineo’s research company, and Delta International Services and Logistics (“DIS&L”), Delta’s commercial arm in which Mr. Marineo is the sole beneficiary of all proceeds as its founder and sole owner (collectively the “Group”), issued a press release (the “Group’s Press Release”) regarding CTI stating that the Company did not have authority to sell, distribute and manufacture the Calmare Device as an exclusive agent of the Group. CTI issued a corporate response in a press release dated April 11, 2014 stating that the Group’s Press Release was inaccurate and has since been purged by the overseeing body of wire services.

As disclosed in the Company’s Annual Report on Form 10-K on April 16, 2014, this issue between the Company and the Group is over the validity of a 2012 Amendment to a Sales and Representation Agreement (the “Amendment”) which, if valid and enforceable, may have compromised its rights to sell, distribute and manufacture the Calmare Device as an exclusive agent of the Group in the global marketplace, especially in the European, Middle Eastern and North African (“EMENA”) territory which was responsible for approximately 70% of gross Calmare Device sales in 2011. However, the Company believes that the Amendment is neither valid nor enforceable as it was never duly signed or authorized and subsequently deemed null and void as disclosed on April 16, 2014 in the Form 10-K filing. Therefore, the parties’ rights are determined by an earlier agreement whereby the Company possesses the authority to sell, distribute and manufacture the Calmare Device as a world-wide exclusive agent of the Group.

On April 16, 2014, counsel for the Group (“Group Counsel”) sent a cease and desist letter (“Cease and Desist Letter”) to the Company, requesting a confirmation that the Company would no longer hold itself out as an agent of the Group permitted to sell, distribute and manufacture the Calmare Device world-wide including the EMENA territory.

The Company responded on April 25, 2014 to the Cease and Desist Letter, disputing Group Counsel’s interpretation of the events surrounding the execution of the Amendment. At this time, the Company continues to find a reasonable and amicable resolution to the situation.

Summary – We may be a party to other legal actions and proceedings from time to time. We are unable to estimate legal expenses or losses we may incur, if any, or possible damages we may recover, and we have not recorded any potential judgment losses or proceeds in our financial statements to date. We record expenses in connection with these suits as incurred.

We believe that we carry adequate liability insurance, directors and officers insurance, casualty insurance, for owned or leased tangible assets, and other insurance as needed to cover us against potential and actual claims and lawsuits that occur in the ordinary course of our business. However, an unfavorable resolution of any or all matters, and/or our incurrence of significant legal fees and other costs to defend or prosecute any of these actions and proceedings may, depending on the amount and timing, have a material adverse effect on our consolidated financial position, results of operations or cash flows in a particular period.

14.           RELATED PARTY TRANSACTIONS

Our board of directors determined that when a director's services are outside the normal duties of a director, we compensate the director at the rate of $1,000 per day, plus expenses, which is the same amount we pay a director for attending a one-day Board meeting.  We classify these amounts as consulting expenses, included in personnel and consulting expenses.

At June 30, 2014, $2,598,980 of the outstanding were Notes payable to related parties; $2,498,980 to the chairman of our Board and $100,000 to another director.

15.           SUBSEQUENT EVENT

Additional financing

Subsequent to June 30, 2014, the Company raised additional working capital of approximately $90,000 through the issuance of equity instruments.

20

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

Forward-Looking Statements

Statements about our future expectations are “forward-looking statements” within the meaning of applicable Federal Securities Laws, and are not guarantees of future performance. When used in herein, the words “may,” “will,” “should,” “anticipate,” “believe,” “intend,” “plan,” “expect,” “estimate,” “approximate,” and similar expressions are intended to identify such forward-looking statements. These statements involve risks and uncertainties inherent in our business, including those set forth in Item 1A under the caption "Risk Factors," in our most recent Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission (“SEC”) on April 16, 2014, (subsequently amended in a Form 10-K/A, filed with the SEC on April 30, 2014) and other filings with the SEC, and are subject to change at any time. Our actual results could differ materially from these forward-looking statements. We undertake no obligation to update publicly any forward-looking statement.

Overview

Competitive Technologies, Inc. (“CTI”) was incorporated in Delaware in 1971, succeeding an Illinois corporation incorporated in 1968. CTI and its majority-owned subsidiary (collectively, "we,” “our,” or “us”), is a biotechnology company developing and commercializing innovative products and technologies. CTI is the licensed distributor of the non-invasive, Calmare pain therapy medical device, which was designed and developed to treat neuropathic and cancer-derived pain.

Since 2011, the Company has controlled the sales process for the Calmare Device. We are the primary obligor, responsible for delivering devices as well as training our customers in the proper use of the device. We deal directly with customers, setting pricing and providing training; contribute to the development, new specifications and changes thereto, and to select and contract with manufacturing partners; and retain significant credit risk for amounts billed to customers. Therefore, all product sales are recorded following a gross revenue methodology. We record in product sales, the total funds earned from customers and record the costs of the device as cost of product sales, with gross profit from product sales being the result.

Sales of the Calmare Device continue to be the major source of revenue for the Company. The Company initially acquired the exclusive, worldwide rights to the Scrambler Therapy^® technology in 2007. The Company's 2007 agreement with Giuseppe Marineo ("Marineo"), an inventor of Scrambler Therapy technology, and Delta Research and Development ("Delta"), authorizes CTI to manufacture and sell worldwide the device developed from the patented Scrambler Therapy technology. The Scrambler Therapy technology is patented in Italy and in the U.S., effective in February 2013. Applications for patents have been filed internationally as well and are pending approval. The Calmare Device has CE Mark certification from the European Union as well as U.S. FDA 510(k) clearance.

In 2011, the Company negotiated an extension to the agreement Marineo and Delta. This agreement extended the Company’s exclusive, worldwide rights to the Scrambler Therapy^® technology until March 31, 2016.

CTI’s Distribution Rights, Marineo and Delta

On April 8, 2014, Mr. Giuseppe Marineo, an inventor of the Calmare Device, and Delta Research and Development (“Delta”), Mr. Marineo’s research company, and Delta International Services and Logistics (“DIS&L”), Delta’s commercial arm in which Mr. Marineo is the sole beneficiary of all proceeds as its founder and sole owner (collectively the “Group”), issued a press release (the “Group’s Press Release”) regarding CTI, stating that the Company did not have authority to sell, distribute and manufacture the Calmare Device as an exclusive agent of the Group. CTI issued a corporate response in a press release dated April 11, 2014 stating that the Group’s Press Release was inaccurate and has since been purged by the overseeing body of wire services. 

As disclosed in the Company’s Annual Report on Form 10-K on April 16, 2014, and in a Current Report on Form 8-K on April 29, 2014, this issue between the Company and the Group is over the validity of a 2012 Amendment to a Sales and Representation Agreement (the “Amendment”) which, if valid and enforceable, may have compromised its rights to sell, distribute and manufacture the Calmare Device as an exclusive agent of the Group in the global marketplace, especially in the European, Middle Eastern and North African (“EMENA”) territory which was responsible for approximately 70% of gross Calmare Device sales in 2011. However, the Company believes that the Amendment is neither valid nor enforceable as it was never duly signed or authorized and subsequently deemed null and void. Therefore, the parties’ rights are determined by an earlier agreement whereby the Company still possesses the authority to sell, distribute and manufacture Calmare Devices as a world-wide exclusive agent of the Group.

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On April 16, 2014, counsel for the Group (“Group Counsel”) sent a cease and desist letter (“Cease and Desist Letter”) to the Company, requesting a confirmation that the Company would no longer hold itself out as an agent of the Group permitted to sell, distribute and manufacture Calmare Devices world-wide including the EMENA territory.

The Company responded on April 25, 2014 to the Cease and Desist Letter, disputing Group Counsel’s interpretation of the events surrounding the execution of the Amendment. At this time, the Company continues to find a reasonable and amicable resolution to the situation. 

Presentation

All amounts in this Item 2 are rounded to the nearest thousand dollars.

The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our financial condition and results of operations.  This discussion and analysis should be read in conjunction with our Consolidated Financial Statements and Notes thereto.

Results of Operations – Three months ended June 30, 2014 vs. three months ended June 30, 2013

Summary of Results

Our net loss, for the quarter ended June 30, 2014, increased to $791,000 or $0.03 per basic and diluted share as compared with a net loss of $677,000 or $0.04 per basic and diluted share for the comparable quarter of 2013.  This net loss increase is largely attributable to a $145,000 increase in personnel and consulting expenses, a non-recurring $43,000 loss on conversion of OID notes and a related $35,000 of accelerated interest expense, and a $69,000 increase in interest expense; partially offset by a $96,000 decrease in general and administrative expenses, and a $128,000 increase in gross profit from product sales, which is directly attributable to increased sales.

Revenue and Gross Profit from Sales

Revenue from the sale and shipment of Calmare® pain therapy medical devices (the “Devices”), in the three months ended June 30, 2014, increased $180,000 to $316,000 as compared with $136,000 for the comparable quarter of 2013.

Cost of product sales, in the three months ended June 30, 2014, increased $52,000 to $98,000 as compared with $46,000 for the comparable quarter of 2013. This increase in cost of product sold is attributable to the increase in sales.

Device sales, in the three months ended June 30, 2014, increased with the sale of four (4) Devices as compared with two (2) Device sales for the comparable quarter of 2013. Device sales for the three months ended June 30, 2014 were comprised of three (3) U.S. private sector and one (1) U.S. military sales as compared to one (1) U.S. private sector and one (1) U.S. military sales for the comparable quarter of 2013.

Due to the relatively long sales cycle for a Device, Device sales and related revenues and expenses can vary significantly from quarter to quarter.

Other Revenue

Retained royalties, in the three months ended June 30, 2014, decreased $2,000 to $2,000 as compared with $4,000 in the three months ended June 30, 2013.  

Other income, for the three months ended June 30, 2014, increased $4,000 to $14,000 as compared with $10,000 in the three months ended June 30, 2013.  Other income includes:

	Three Months Ended June 30, 2014		Three Months Ended June 30, 2013
Training payments and the sale of supplies i.e., electrodes and cables for use with our Calmare Devices	$	3,000	$	2,000
Rental income from customers who were renting Calmare Devices from CTI	$	11,000	$	8,000

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Expenses

Total expenses increased $243,000 or 31% to $1,024,000 in the three months ended June 30, 2014 as compared with $781,000 in the three months ended June 30, 2013.

Selling expenses increased 83% or $30,000 to $66,000 in the three months ended June 30, 2014 as compared with $36,000 in the three months ended June 30, 2013 and reflects increased commissions as a result of increased Devices sales offset by reduced patent and other direct costs related to the Calmare Device.

Personnel and consulting expenses, in the three months ended June 30, 2014, increased 52% or $145,000 to $424,000 as compared with $279,000 in the three months ended June 30, 2013. This increase is primarily related to increased consulting costs in the areas of marketing and sales.

General and administrative expenses, in the three months ended June 30, 2014, decreased 23% or $96,000 to $317,000 as compared with $413,000 in the three months ended June 30, 2013.  The decrease reflects:

a) $28,000 increase in travel expenses, as the Company has increased its marketing and sales efforts;

b) $35,000 increase in marketing expenses, includes exhibits, events, materials, etc. to support the Company’s increased marketing and sales efforts;

c) $43,000 decrease in investor and public relations expenses, primarily as a result of terminating certain management consulting arrangements;

d) $72,000 decrease in legal expenses, primarily related to corporate counsel matters; and

e) $39,000 decrease in accounting and tax expenses due to timing of services

Interest expense, in the three months ended June 30, 2014, increased $69,000 to $113,000 as compared with $44,000 in the three months ended June 30, 2013. This large increase is due to an increase in the use of debt financing.

Interest expense – accelerated upon conversion of OID notes, during the three months ended June 30, 2014, certain holders of OID convertible notes and warrants delivered to the Company a notice of conversion related to the OID convertible notes. In connection with the conversion, the Company accelerated and recognized as interest expense in the current period any remaining discount. The total accelerated interest expense was $35,000 (see Note 11 of the Notes to Condensed Consolidated Interim Financial Statements).

Loss on conversion of OID notes, during the three months ended June 30, 2014, certain holders of OID convertible notes and warrants delivered to the Company a notice of conversion related to the OID convertible notes. In connection with the conversion, the Company offered certain Noteholders an inducement to convert their notes to shares. The Company recognized a loss of $43,000 in the current period for the fair value of the additional shares offered as the conversion inducement (see Note 11 of the Notes to Condensed Consolidated Interim Financial Statements).

Unrealized loss on derivative instruments, in the three months ended June 30, 2014, was $26,000, as compared with the $9,000 loss recorded in the three months ended June 30, 2013.  This reflects the impact of the movement in CTI’s share price on the Class C Preferred Stock at the end of each period.

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Results of Operations – Six months ended June 30, 2014 vs. six months ended June 30, 2013

Summary of Results

Our net loss, for the six months ended June 30, 2014, increased to $1,517,000 or $0.07 per basic and diluted share as compared with a net loss of $1,459,000 or $0.09 per basic and diluted share for the comparable six months of 2013.  This net loss increase is largely attributable to a $199,000 increase in personnel and consulting expenses, a non-recurring $132,000 loss on settlement of note and warrant, a non-recurring $43,000 loss on conversion of OID notes and a related $35,000 accelerated interest expense, and a $141,000 increase in interest expense; partially offset by a $303,000 decrease in general and administrative expenses, and a $298,000 increase in gross profit from product sales, which is directly attributable to increased sales. 

Revenue and Gross Profit from Sales

Revenue from the sale and shipment of Calmare® pain therapy medical devices (the “Calmare Devices”), in the six months ended June 30, 2014, increased $401,000 to $537,000 as compared with $136,000 for the comparable six months of 2013.

Cost of product sales, in the six months ended June 30, 2014, increased $103,000 to $168,000 as compared with $65,000 in the six months ended June 30, 2013. This increase in cost of product sold is attributable to the increase in sales.

Device sales, in the six months ended June 30, 2014, increased with the sale of seven (7) Calmare Devices as compared with two (2) Device sales for the comparable six months of 2013. Device sales for the six months ended June 30, 2014 were comprised of six (6) U.S. private sector and one (1) U.S. military sales as compared to one (1) U.S. private sector and one (1) U.S. military sales for the comparable six months of 2013.

Due to the relatively long sales cycle for a Calmare Device, its sales and related revenues and expenses can vary significantly from quarter to quarter.

Other Revenue

Retained royalties, in the six months ended June 30, 2014, decreased $13,000 to $5,000 as compared with $18,000 in the six months ended June 30, 2013.  

Other income, for the six months ended June 30, 2014, decreased $41,000 to $17,000 as compared with $58,000 in the six months ended June 30, 2013.  Other income includes:

	Six Months Ended June 30, 2014		Six Months Ended June 30, 2013
Training payments and the sale of supplies such as electrodes and cables for use with our Calmare Devices	$	4,000	$	4,000
Rental income from customers who were renting Calmare Devices from CTI	$	13,000	$	16,000

 In addition to the above mentioned items, the Company received a one-time payment of $38,000 in the first quarter of 2013 from one of our insurance companies related to its conversion to a stock insurance company. 

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Expenses

Total expenses increased $302,000 or 19% to $1,908,000 in the six months ended June 30, 2014 as compared with $1,606,000 in the six months ended June 30, 2013.

Selling expenses increased 33% or $34,000 to $138,000 in the six months ended June 30, 2014 as compared with $104,000 in the six months ended June 30, 2013 and reflects increased commissions as a result of increased Devices sales offset by reduced patent and other direct costs related to the Calmare Device.

Personnel and consulting expenses, in the six months ended June 30, 2014, increased 32% or $199,000 to $819,000 as compared with $620,000 in the six months ended June 30, 2013. This increase is related to differences between periods in executive compensation as well as increased consulting costs in the areas of marketing and sales. The six months ended June 31, 2014 includes an accrual for estimated bonus compensation whereas no such accrual was recorded in the six months ended June 30, 2013. However partially offsetting this difference was stock option expense for employees of $30,000 for the six months ended June 30, 2014 as compared to $97,000 for the six months ended June 30, 2013. The higher stock option expense in the six months ended June 30, 2013 was associated with stock options issued to the Company’s then CEO. As part of his compensation package, 1,000,000 options were granted in March 2013, 200,000 of which vested immediately and as such resulted in higher expense during the six months ended June 30, 2013.

General and administrative expenses, in the six months ended June 30, 2014, decreased 37% or $303,000 to $511,000 as compared with $814,000 in the six months ended June 30, 2013.  The decrease reflects: 

a) $34,000 increase in travel expenses, as the Company has increased its marketing and sales efforts;

b) $104,000 decrease in investor and public relations expenses, primarily as a result of terminating certain management consulting arrangements;

c) $145,000 decrease in legal expenses, primarily related to corporate counsel matters; and

d) $72,000 decrease in accounting and tax expenses due to timing of services.

Interest expense, in the six months ended June 30, 2014, increased $141,000 to $218,000 as compared with $77,000 in the six months ended June 30, 2013. This large increase is due to an increase in the use of debt financing.

Interest expense – accelerated upon conversion of OID notes, during the six months ended June 30, 2014, certain holders of OID convertible notes and warrants delivered to the Company a notice of conversion related to the OID convertible notes. In connection with the conversion, the Company accelerated and recognized as interest expense in the current period any remaining discount. The total accelerated interest expense was $35,000 (see Note 11 of the Notes to Condensed Consolidated Interim Financial Statements).

Loss on conversion of OID notes, during the six months ended June 30, 2014, certain holders of OID convertible notes and warrants delivered to the Company a notice of conversion related to the OID convertible notes. In connection with the conversion, the Company offered certain Noteholders an inducement to convert their notes to shares. The Company recognized a loss of $43,000 in the current period for the fair value of the additional shares offered as the conversion inducement (see Note 11 of the Notes to Condensed Consolidated Interim Financial Statements).

Loss on settlement of note and warrant, during the six months ended June 30, 2014, the Company cash settled the warrant previously issued to Tonaquint for a loss of $98,000 and also recorded a $34,000 loss related to modification in terms to the original note agreement, which was cash settled in the second quarter of 2014 (see Note 11 of the Notes to Condensed Consolidated Interim Financial Statements).

Unrealized (loss) gain on derivative instruments, in the six months ended June 30, 2014, was a $11,000 loss, as compared with the $9,000 gain recorded in the six months ended June 30, 2013.  This reflects the impact of the movement in CTI’s share price on the Class C Preferred Stock at the end of each period.

Financial Condition and Liquidity

Our liquidity requirements arise principally from our working capital needs, including funds needed to sell our current technologies and obtain new technologies or products, and protect and enforce our intellectual property rights, if necessary. We fund our liquidity requirements with a combination of cash on hand, debt and equity financing, sales of common stock and cash flows from operations, if any, including royalty legal awards. At June 30, 2014, the Company had outstanding debt in the form of promissory notes with a total principal amount of $3,005,000 and a carrying value of $2,970,000.

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Our future cash requirements depend on many factors, including results of our operations and marketing efforts, results and costs of our legal proceedings, and our equity financing.  To achieve and sustain profitability, we are implementing a corporate reengineering effort, which commenced on September 26, 2013 under the direction of CTI’s new president & CEO, Mr. Conrad Mir. This plan design will change the inherent design of the current distributor network and focus on opportunities within the US Departments of Defense (the “DOD”) and Veterans Affairs (“VA”), and set out to upgrade CTI’s current U.S. Food and Drug Administration (“FDA”) clearance designation for the Calmare Device to approval. Although we cannot be certain that we will be successful in these efforts, we believe the combination of our cash on hand and revenue from executing our strategic plan will be sufficient to meet our obligations of current and anticipated operating cash requirements.

In fiscal 2010, the Company incorporated revenue from the sale of inventory into its revenue stream.  That source of revenue is expected to continue as sales of its Calmare Device continue to expand and other products are added to the Company's portfolio of technologies.

At June 30, 2014, cash was $16,000, as compared with $57,000 at December 31, 2013. Net cash used in operating activities was $(542,000) for the six months ended June 30, 2014 as compared to $(1,146,000) for the six months ended June 30, 2013, primarily reflecting the non-cash interest expense, loss on settlement of the note and warrant, loss on conversion of OID notes in the current period and favorable changes in current liabilities. There was minimal investing activity year to date in 2014 and 2013. Net cash provided by financing activities was $548,000 for the six months ended June 30, 2014 as compared to $1,095,000 for the six months ended June 2013, primarily as a result of the Company’s debt and equity financing activities in both periods.

We currently have the benefit of using a portion of our accumulated net operating losses (“NOLs”) to eliminate any future regular federal and state income tax liabilities.  We will continue to receive this benefit until we have utilized all of our NOLs, federal and state.  However, we cannot determine when and if we will be profitable enough to utilize the benefit of the remaining NOLs before they expire.

Going Concern

The Company has incurred operating losses since fiscal 2006 and has a working capital deficiency at June 30, 2014.  During the three and six months ended June 30, 2014 and 2013, we had a significant concentration of revenues from our Calmare Device technology.  We continue to seek revenue from new and existing technologies or products to mitigate the concentration of revenues, and replace revenues from expiring licenses on other technologies.

Although we have taken steps to significantly reduce operating expenses going forward, even at these reduced spending levels, should the anticipated increase in revenue from sales of Calmare® medical devices and other technologies not occur, the Company may not have sufficient cash flow to fund operations through 2014. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company's continuation as a going concern is dependent upon its developing recurring revenue streams sufficient to cover operating costs.  The Company does not have any significant individual cash or capital requirements in the budget going forward.  If necessary, CTI will meet anticipated operating cash requirements by further reducing costs, issuing debt and/or equity, and/or pursuing sales of certain assets and technologies while we pursue licensing and distribution opportunities for our remaining legacy portfolio of technologies.  There can be no assurance that the Company will be successful in such efforts.  Failure to develop a recurring revenue stream sufficient to cover operating expenses could negatively affect the Company’s financial position.

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Debt Financing

Details of notes payable as of June 30, 2014 are as follows:

	Original Principal Amount		Carrying Value (1)			Cash Interest Rate			Common Stock Conversion Price		Maturity Date
90 day Convertible Notes (Chairman of the Board)	$	2,498,980	$	2,498,980			6	%	$	1.05	Various 2014
24 month Convertible Notes ($100,000 to Board member)		225,000		225,000			6	%		1.05	March 2014 – June 2014
Southridge Convertible Note		12,000		12,000			None			75% of closing bid	June 2014
Series A1 15% OID Convertible Notes and Warrants		29,412		29,412			None			0.20	August 2014
Series A2 15% OID Convertible Notes and Warrants		94,471		119,758			None			0.25	September 2014
Series A3 15% OID Convertible Notes and Warrants		64,706		46,250			None			0.25	January 2015
Series B OID Convertible Notes and Warrants		80,000		38,082			None			0.35	March 2017
Notes Payable, gross	$	3,004,569		2,969,482
Less LPA amount				(485,980	)
Notes Payable, net			$	2,483,4502

(1) Includes $28,177 of accrued loss on conversion of OID Notes. 

90 day Convertible Notes

The Company has issued 90-day notes payable to borrow funds from a director, now the chairman of our Board, as follows:

2013	$	1,188,980
2012		1,210,000
2011		100,000
Total	$	2,498,980

These notes have been extended several times and all bear 6.00% simple interest.  A conversion feature was added to the Notes when they were extended, which allows for conversion of the eligible principal amounts to common stock at any time after the six month anniversary of the effective date –the date the funds are received – at a rate of $1.05 per share.  Additional terms have been added to all Notes to include additional interest payments to all Notes if extended beyond their original maturity dates and to provide the lender with a security interest in unencumbered inventory and intangible assets of the Company other than proceeds relating to the Calmare Device and accounts receivable.

A total of $485,980 of the aforementioned notes issued between December 1, 2012 and March 31, 2013 fall under the liabilities purchase agreement with ASC Recap, and are expected to be repaid using the process as described in Note 10.  Because there can be no assurance that the Company will be successful in completing this process, the Company retains ultimate responsibility for this debt, until fully paid down.  As a result, the Company continues to accrue interest on these notes and they remain convertible as described above.

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24 month Convertible Notes

In March 2012, the Company issued a 24-month convertible promissory note to borrow $100,000. Additional 24-month convertible promissory notes were issued in April 2012 ($25,000) and in June 2012 ($100,000). All of the notes bear 6.00% simple interest. Conversion of the eligible principal amounts to common stock is allowed at any time after the six month anniversary of the effective date of each note at a rate of $1.05 per share.

As of August 8, 2014 the Company has not repaid the principal due on the March 2012 $100,000 note or the April 2012 $25,000 note and as such is in default under the terms of the notes. There is also unpaid interest related to these notes.

Tonaquint 9% Original Issue Discount Convertible Notes and Warrants

During the quarter ended September 30, 2013, the Company entered into a securities purchase agreement with Tonaquint, Inc., under which it was issued a $112,500 convertible promissory note in consideration for $100,000, the difference between the proceeds from the Note and the principal amount consisted of a $10,000 original issue discount and a carried transaction expense of $2,500. The original issue discounted was being amortized over the life of the note. The note was convertible at an initial conversion price of $0.30 per share at any time, and contained a “down-round protection” feature that requires the valuation of a derivative liability associated with the note. The note bore interest at 7% and was due in May 2014. Tonaquint was also issued a market-related warrant for $112,500 in shares of common stock with a “cashless” exercise feature. The warrant had a $0.35 exercise price, a 5-year term and included a “down-round protection” feature that required it to be classified as a liability rather than as equity (see Note 6 of the Notes to Condensed Consolidated Interim Financial Statements).

During the first quarter of 2014 the Company executed a debt settlement agreement with Tonaquint related to the note and warrant. The warrant was settled during the first quarter of 2014 for a cash payment of $98,000, resulting in a loss of $98,000. The note was settled during the second quarter of 2014 for cash payments totaling $144,000 ($20,000 in the first quarter of 2014 and $124,000 in the second quarter of 2014). Because the execution of the debt settlement agreement in the first quarter of 2014 resulted in a significant modification of the original terms of the note agreement, the Company adjusted the carrying value of the note in the first quarter of 2014 and recorded a related loss of approximately $34,000.

Southridge

During 2013, the Company issued a six-month $12,000 convertible note payable to Southridge to cover legal expenses as part of the LPA (see Note 11 of the Notes to Condensed Consolidated Interim Financial Statements). The convertible note is convertible into the Company’s common stock at 75% of the lowest closing bid price during the twenty (20) trading days prior to conversion and was due June 2014.

Southridge delivered to the Company a notice of conversion related to the above noted convertible note payable and subsequent to June 30, 2014, the Company issued to Southridge 50,000 shares in exchange for and in full satisfaction for the note.

Series A 15% Original Issue Discount Convertible Notes and Warrants

During the quarter ended December 31, 2013, the Company did a private offering of two tranches of convertible notes and warrants, under which it issued $283,648 of convertible promissory notes for consideration of $241,100, the difference between the proceeds from the notes and the principal amount consists of $42,548 of original issue discount. During the quarter ended March 31, 2014, the Company did a private offering of a third tranche of convertible notes and warrants, under which it issued $64,706 of convertible promissory notes for consideration of $55,000, the difference between the proceeds from the notes and principal amount consists of $9,706 of original issue discount. The notes are convertible at initial conversion prices ranging from $0.20 to $0.25 per share any time after issuance thereby having an embedded beneficial conversion feature. The note holders were also issued market-related warrants for 958,179 in shares of common stock. The warrants have exercise prices that range from $0.40 to $0.60 and a 2-year term. The beneficial conversion feature and the warrants were recorded to additional paid-in-capital. The total debt discount is amortized over the life of the notes to interest expense.

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During the quarter ended June 30, 2014, certain holders of OID convertible notes and warrants delivered to the Company a notice of conversion related to the OID convertible notes. Due to the timing of receipt of the notices by the Company, certain Noteholders received their shares during the quarter ended June 30, 2014, while other Noteholders received or are due to receive their shares after June 30, 2014. Additionally, the Company offered certain Noteholders an inducement to convert their notes to shares. The inducement, when offered, provided Noteholders a conversion price of $0.20. All other original terms, including the warrant terms, remained the same. Upon notice of conversion and irrespective of whether the shares were delivered in the quarter ended June 30, 2014 or subsequent to June 30, 2014 to the Company: (i) accelerated and recognized as interest expense in the current period any remaining discount and (ii) recognized a loss for the fair value of the additional shares offered as the conversion inducement.

Series B Original Issue Discount Convertible Notes and Warrants

During the quarter ended March 31, 2014, the Company did a private offering of convertible notes and warrants, under which it issued $80,000 of convertible promissory notes for consideration of $65,000, the difference between the proceeds from the notes and principal amount consists of $15,000 of original issue discount. The notes are convertible at an initial conversion price of $0.35 per share any time after issuance thereby having an embedded beneficial conversion feature. The note holders were also issued market-related warrants for 185,714 in shares of common stock. The warrants have an exercise price of $0.45 and a 4-year term. The beneficial conversion feature and the warrants were recorded to additional paid-in-capital. The Company allocated the proceeds received to the notes, the beneficial conversion feature and the warrants on a relative fair value basis at the time of issuance. The total debt discount is amortized over the life of the notes to interest expense.

Capital requirements

We continue to seek revenue from new technology licenses to mitigate the concentration of revenue, and replace revenue from expiring licenses.  We have created a new business model for appropriate technologies that allows us to move beyond our usual royalty arrangement and share in the profits of distribution.

For 2014, we expect our capital expenditures to be less than $100,000.

Contractual Obligations and Contingencies

Contingencies.  Our directors, officers, employees and agents may claim indemnification in certain circumstances.  We seek to limit and reduce our potential financial obligations for indemnification by carrying directors’ and officers’ liability insurance, subject to deductibles.

We also carry liability insurance, casualty insurance, for owned or leased tangible assets, and other insurance as needed to cover us against claims and lawsuits that occur in the ordinary course of business.

Many of our license and service agreements provide that upfront license fees, license fees and/or royalties we receive are applied against amounts that our clients or we have incurred for patent application, prosecution, issuance and maintenance costs.  If we incur such costs, we expense them as incurred, and reduce our expense if we are reimbursed from future fees and/or royalties we receive.  If the reimbursement belongs to our client, we record no revenue or expense.

We had previously engaged R.F. Lafferty & Co. to seek an acquisition partner from a limited number of companies for our nanoparticle bone biomaterial patents, among other assets and/or securities.  The Company would have paid Lafferty a 10% finder's fee in the event an acquisition partner was found. This engagement expired during the quarter ended June 30, 2014 without Lafferty identifying an acquisition partner and as such, no fee was paid to Lafferty.

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As of June 30, 2014, CTI and its majority-owned subsidiary, VVI, have remaining obligations, contingent upon receipt of certain revenue, to repay up to $165,701 and $198,365, respectively, in consideration of grant funding received in 1994 and 1995.    CTI also is obligated to pay at the rate of 7.5% of its revenues, if any, from transferring rights to certain 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.  

Critical Accounting Estimates

There have been no significant changes in our accounting estimates described under the caption “Critical Accounting Estimates” included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual report on Form 10-K for the year ended December 31, 2013.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4.  Controls and Procedures

(a)           Evaluation of disclosure controls and procedures

Management evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2014.  Our disclosure controls and procedures are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized, and reported, within the time periods specified in the Commission’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  Based on this evaluation, management concluded that our disclosure controls and procedures were effective as of June 30, 2014.

(b)           Change in Internal Controls

During the period ending June 30, 2014, there were no changes in our internal control over financial reporting during that period that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

We are a smaller reporting company and are not required to provide the information under this item.

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

During the quarter ended December 31, 2013, the Company did a private offering of two tranches of convertible notes and warrants, under which it issued $283,648 of convertible promissory notes for consideration of $241,100, the difference between the proceeds from the notes and the principal amount consists of $42,548 of original issue discount. During the quarter ended March 31, 2014, the Company did a private offering of a third tranche of convertible notes and warrants with 3 investors, under which it issued $64,706 of convertible promissory notes for consideration of $55,000, the difference between the proceeds from the notes and principal amount consists of $9,706 of original issue discount. The notes are convertible at initial conversion prices ranging from $0.20 to $0.25 per share any time after issuance thereby having an embedded beneficial conversion feature. The note holders were also issued market-related warrants for 958,179 in shares of common stock. The warrants have exercise prices that range from $0.40 to $0.60 and a 2-year term. The beneficial conversion feature and the warrants were recorded to additional paid-in-capital. The total debt discount is amortized over the life of the notes to interest expense.

30

During the quarter ended June 30, 2014, certain holders of the above mentioned OID convertible notes and warrants delivered to the Company a notice of conversion related to the OID convertible notes. Due to the timing of receipt of the notices by the Company, certain Noteholders received their shares during the quarter ended June 30, 2014, while other Noteholders received or are due to receive their shares after June 30, 2014. Additionally, the Company offered certain Noteholders an inducement to convert their notes to shares. The inducement, when offered, provided Noteholders a conversion price of $0.20. All other original terms, including the warrant terms, remained the same.

During the quarter ended March 31, 2014, the Company did a private offering of convertible notes and warrants with one investor, under which it issued $80,000 of convertible promissory notes for consideration of $65,000, the difference between the proceeds from the notes and principal amount consists of $15,000 of original issue discount. The notes are convertible at an initial conversion price of $0.35 per share any time after issuance thereby having an embedded beneficial conversion feature. The note holders were also issued market-related warrants for 185,714 in shares of common stock. The warrants have an exercise price of $0.45 and a 4-year term. The beneficial conversion feature and the warrants were recorded to additional paid-in-capital. The Company allocated the proceeds received to the notes, the beneficial conversion feature and the warrants on a relative fair value basis at the time of issuance. The total debt discount is amortized over the life of the notes to interest expense.

During the quarter ended September 30, 2013, the Company entered into a securities purchase agreement with Tonaquint, Inc., under which it was issued a $112,500 convertible promissory note in consideration for $100,000, the difference between the proceeds from the Note and the principal amount consisted of a $10,000 original issue discount and a carried transaction expense of $2,500. The original issue discounted was being amortized over the life of the note. The note was convertible at an initial conversion price of $0.30 per share at any time, and contained a “down-round protection” feature that requires the valuation of a derivative liability associated with the note. The note bore interest at 7% and was due in May 2014. Tonaquint was also issued a market-related warrant for $112,500 in shares of common stock with a “cashless” exercise feature. The warrant had a $0.35 exercise price, a 5-year term and included a “down-round protection” feature that required it to be classified as a liability rather than as equity (see Note 6 of the Notes to Condensed Consolidated Interim Financial Statements).

During the first quarter of 2014 the Company executed a debt settlement agreement with Tonaquint related to the note and warrant. The warrant was settled during the first quarter of 2014 for a cash payment of $98,000, resulting in a loss of $98,000. The note was settled during the second quarter of 2014 for cash payments totaling $144,000 ($20,000 in the first quarter of 2014 and $124,000 in the second quarter of 2014).

During the quarter ended March 31, 2014, the Company did a private offering of its common stock and warrants to 8 investors, for consideration of $500,000. 2,500,000 shares of common stock were issued at a per share price of $0.20. The common stock holders were also issued warrants to purchase 1,250,000 shares of common stock. The warrants have an exercise price of $0.60 and a 3-year term. The warrants were recorded to additional paid-in-capital.

During the quarter ended June 30, 2014, the Company did an additional private offering of its common stock and warrants to 8 investors, for consideration of $170,000. 850,000 shares of common stock were issued at a per share price of $0.20. The common stock holders were also issued warrants to purchase 425,000 shares of common stock. The warrants have an exercise price of $0.60 and a 3-year term. The warrants were recorded to additional paid-in-capital.

The above securities were issued to the individuals identified in connection with a transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended (the “Securities Act”) and/or Rule 506 promulgated under the Securities Act. The investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

31

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No	Description	Filing Method
3.1	Unofficial restated certificate of incorporation of the registrant as amended to date filed.(1)	Incorporated by reference
3.2	Bylaws of the registrant as amended effective October 14, 2005.(2)	Incorporated by reference
10.1	Securities Purchase Agreement with Tonaquint, Inc. dated July 16, 2013.(3)	Incorporated by reference
10.2	Equity Purchase Agreement with Southridge Partners II, L.P. dated September 10, 2013.(4)	Incorporated by reference
31.1	Certification by the Chief Executive Officer of Competitive Technologies, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).	Filed herewith
31.2	Certification by the Chief Financial Officer of Competitive Technologies, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).	Filed herewith
32.1	Certification by the Chief Executive Officer of Competitive Technologies, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).	Furnished herewith
32.2	Certification by the Chief Financial Officer of Competitive Technologies, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).	Furnished herewith
101.INS	XBRL Instance Document	Filed herewith
101.SCH	XBRL Taxonomy Schema	Filed herewith
101.CAL	XBRL Taxonomy Calculation Linkbase	Filed herewith
101.DEF	XBRL Taxonomy Definition Linkbase	Filed herewith
101.LAB	XBRL Taxonomy Label Linkbase	Filed herewith
101.PRE	XBRL Taxonomy Presentation Linkbase	Filed herewith

(1)	Filed as Exhibit 4.1 to the registrant’s registration statement on Form S-8 with the SEC on April 1, 1998.
(2)	Filed as Exhibit 3.2 to the registrant’s Quarterly Report on Form 10-Q filed with the SEC on December 12, 2005.
(3)	Filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on September 5, 2013.
(4)	Filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on September 11, 2013.

32

SIGNATURES

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

	COMPETITIVE TECHNOLOGIES, INC.
	(the registrant)
	By	/s/ Conrad Mir
		Conrad Mir
		President and Chief Executive Officer
August 13, 2014		Authorized Signer (Duly Authorized Officer and Principal Executive Officer)

33

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER,

PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

AS ADOPTED PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Conrad Mir, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Competitive Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Dated: August 13, 2014	By:	/s/ Conrad Mir
		Conrad Mir President and Chief Executive Officer (Duly Authorized Officer and Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER,

PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

AS ADOPTED PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Ian Rhodes, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Competitive Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Dated: August 13, 2014	By:	/s/ Ian Rhodes
		Ian Rhodes Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.SC. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Competitive Technologies, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Conrad Mir, chief executive officer of the Company, certifies, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 13, 2014	By:	/s/ Conrad Mir
		Conrad Mir President Chief Executive Officer (Duly Authorized Officer and Principal Executive Officer)

This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.SC. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Competitive Technologies, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Ian Rhodes, chief financial officer of the Company, certifies, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 13, 2014	By:	/s/ Ian Rhodes
		Ian Rhodes Executive Vice President Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

XML

LIABILITIES ASSIGNED TO LIABILITY PURCHASE AGREEMENT (Details) (USD $)			3 Months Ended		1 Months Ended
	Jun. 30, 2014	Dec. 31, 2013	Mar. 31, 2014 Liabilities Purchase Agreement [Member]	Sep. 30, 2013 Liabilities Purchase Agreement [Member]	Sep. 30, 2013 Liabilities Purchase Agreement [Member] Common stock [Member]
Liabilities Assigned To Liability Purchase Agreement [Line Items]
Financial obligations to existing creditors				$ 2,100,000
Liabilities under claims purchase agreement	2,013,320	2,093,303		2,093,303
Common stock issued in accordance with liability purchase agreement, shares					1,618,235
Payment to creditors			80,000
Service fee retained			$ 27,000

XML

CONTRACTUAL OBLIGATIONS AND CONTINGENCIES (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Loss Contingencies [Line Items]
Percentage of revenues obligation	7.50%
Finders' fee	10.00%
VVI [Member] | Supported Products [Member]
Loss Contingencies [Line Items]
Percentage of revenues obligation	1.50%
VVI [Member] | Licensing Supported Products [Member]
Loss Contingencies [Line Items]
Percentage of revenues obligation	15.00%
Grant funding received in 1994 [Member]
Loss Contingencies [Line Items]
Funding repayment obligation	$ 165,701
Grant funding received in 1995 [Member]
Loss Contingencies [Line Items]
Funding repayment obligation	$ 198,365

XML

SHAREHOLDERS' DEFICIENCY (Narrative) (Details) (USD $)	6 Months Ended			3 Months Ended		6 Months Ended		0 Months Ended	3 Months Ended	6 Months Ended			0 Months Ended					3 Months Ended			6 Months Ended		3 Months Ended		6 Months Ended			3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013	Mar. 31, 2014 Non-employee directors [Member]	Mar. 31, 2013 Non-employee directors [Member]	Jun. 30, 2014 5% Preferred stock [Member]	Dec. 31, 2013 5% Preferred stock [Member]	Dec. 30, 2010 Series C convertible preferred stock [Member]	Jun. 30, 2014 Series C convertible preferred stock [Member]	Jun. 30, 2014 Series C convertible preferred stock [Member]	Dec. 31, 2013 Series C convertible preferred stock [Member]	Jun. 16, 2011 Series C convertible preferred stock [Member]	Dec. 15, 2010 Promissory note [Member]	Dec. 30, 2010 Promissory note [Member] Series C convertible preferred stock [Member]	Dec. 15, 2010 Southridge [Member] Series C convertible preferred stock [Member]	Jun. 16, 2011 William R. Waters, Ltd. of Canada [Member] Series C convertible preferred stock [Member]	Dec. 30, 2010 William R. Waters, Ltd. of Canada [Member] Series C convertible preferred stock [Member]	Mar. 31, 2013 Stock Options [Member]	Jun. 30, 2014 Stock Options [Member] Non-employee directors [Member]	Jun. 30, 2013 Stock Options [Member] Non-employee directors [Member]	Jun. 30, 2014 Stock Options [Member] Non-employee directors [Member]	Jun. 30, 2013 Stock Options [Member] Non-employee directors [Member]	Jun. 30, 2014 Stock Options [Member] Employees [Member]	Jun. 30, 2013 Stock Options [Member] Employees [Member]	Jun. 30, 2014 Stock Options [Member] Employees [Member]	Jun. 30, 2013 Stock Options [Member] Employees [Member]	Jun. 30, 2013 Stock Options [Member] CEO [Member]	Jun. 30, 2014 Private Offering [Member]	Mar. 31, 2014 Private Offering [Member]
Stockholders Equity [Line Items]
Options granted																					42,500	50,000			320,000		1,000,000
Options vested																											200,000
Options vested on issuance, percent																									20.00%
Vesting period																									4 years
Incremental non-cash compensation																		$ 16,920
Stock option compensation expense	41,123	128,637																	11,178	0	11,178	14,250	26,795	17,200	29,945	97,467
Principal Amount	3,004,569												400,000
Debt conversion, shares issued														400
Percentage of cumulative dividend rate						5.00%				5.00%					5.00%
Preferential non-cumulative dividends (in dollars per share)						$ 1.25
Preferred stock redemption price (in dollars per share)						$ 25
Preferred stock liquidation preference price (in dollars per share)						$ 25
Common stock, par value (in dollars per share)	$ 0.01		$ 0.01
Dividend declared, date of record						Dec. 02, 2010
Trigger for issuance of dividends, percentage of outstanding common shares purchased						20.00%
Maturity date													Dec. 31, 2012
Interest rate													5.00%
Preferred stock, shares authorized						35,920	35,920		750	750	750
Preferred stock, par value (in dollars per shares)						$ 25	$ 25		$ 1,000	$ 1,000	$ 1,000				$ 750
Preferred stock, shares issued						2,427	2,427	350	375	375	375				1,000		750
Proceeds from preferred stock issued								350,000
Preferred stock converted																375
Common stock issued upon preferred stock conversion																315,126
Dividends declared										74,998
Dividends declared during period									4,675	9,298
Dividends declared and unpaid									56,250	56,250
Preferred stock, voting rights										Holders of these shares of Series C Convertible Preferred Stock shall have voting rights equivalent to 1,000 votes per $1,000 par value Series C Convertible Preferred share voted together with the shares of Common Stock
Amount held in escrow									750,000	750,000
Preferred stock, threshold percentage of stock price trigger										85.00%
Derivative liability									92,128	92,128	80,408	81,933
Preferred stock, shares outstanding (in shares)						2,427	2,427		375	375	375
Common stock issued to directors, shares				10,625	17,500
Share-based compensation - common stock	4,038	7,000		4,038	7,000
Proceeds from common stock and warrants	$ 670,000																											$ 170,000	$ 500,000
Private offering of common stock and warrants, shares																												850,000	2,500,000
Price per share																												$ 0.20	$ 0.20
Warrants issued to purchase shares of common stock																												1,250,000	1,250,000
Exercise price of warrants																												$ 0.60	$ 0.60
Term of warrant																												3 years	3 years

XML

RECEIVABLES (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
RECEIVABLES [Abstract]
Calmare sales receivable	$ 142,725	$ 132,850
Royalties, net of allowance of $101,154 at June 30, 2014 and December 31, 2013		10,086
Other	394	394
Total receivables	143,119	143,330
Allowance for doubtful accounts	$ 101,154	$ 101,154

XML

PROPERTY AND EQUIPMENT (Tables)

6 Months Ended

Jun. 30, 2014

PROPERTY AND EQUIPMENT [Abstract]

Schedule of Property and Equipment

Property and equipment, net, consist of the following:

	June 30, 2014			December 31, 2013
Property and equipment, gross	$	215,491		$	177,537
Accumulated depreciation and amortization		(167,807	)		(169,931	)
Property and equipment, net	$	47,684		$	7,606

XML

SUBSEQUENT EVENT (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Subsequent Event [Line Items]
Additional capital raised through issuance of equity instruments	$ 670,000
Subsequent Event [Member]
Subsequent Event [Line Items]
Additional capital raised through issuance of equity instruments	$ 90,000

XML

NOTES PAYABLE (Summary of Fair Value Assumptions) (Details)	0 Months Ended	1 Months Ended	0 Months Ended	1 Months Ended
	Nov. 15, 2013 Series A1 15% Original Issue Discount Convertible Notes and Warrants [Member]	Dec. 31, 2013 Series A2 15% Original Issue Discount Convertible Notes and Warrants [Member]	Feb. 14, 2014 Series A3 15% Original Issue Discount Convertible Notes and Warrants [Member]	Mar. 20, 2014 Series B Original Issue Discount Convertible Notes and Warrants [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Expected term	2 years	2 years	2 years	4 years
Volatility	180.02%	184.38%	184.88%	151.52%
Risk Free Rate	0.31%	0.39%	0.32%	1.32%

XML

PROPERTY AND EQUIPMENT (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
PROPERTY AND EQUIPMENT [Abstract]
Property and equipment, gross	$ 215,491		$ 215,491		$ 177,537
Accumulated depreciation and amortization	(167,807)		(167,807)		(169,931)
Property and equipment, net	47,684		47,684		7,606
Depreciation and amortization expense	$ 4,522	$ 2,523	$ 6,346	$ 4,859

XML

SHAREHOLDERS' DEFICIENCY (Schedule of Weighted Average Assumptions) (Details) (Common Stock Options [Member])	6 Months Ended
	Jun. 30, 2014		Jun. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Dividend yield	0.00%	[1]	0.00%	[1]
Expected volatility, minimum	118.50%	[2]	99.20%	[2]
Expected volatility, maximum	122.40%	[2]	100.30%	[2]
Risk-free interest rate			0.63%	[3]
Risk-free interest rate, minimum	1.19%	[3]
Risk-free interest rate, maximum	1.72%
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected lives	4 years	[2]	2 years	[2]
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected lives	5 years	[2]	4 years	[2]

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

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

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

XML

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

6 Months Ended

Jun. 30, 2014

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS [Abstract]

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

3.    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS 

Revenue Recognition

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue From Contracts With Customers, that outlines a single comprehensive model for entities to use in accounting for revenue recognition and supersedes most current revenue recognition guidance, including industry-specific guidance. The amendments in this accounting standard update are intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices, and improve disclosure requirements. The amendments in this accounting standard update are effective for interim and annual reporting periods beginning after December 15, 2016; early adoption is not permitted. The Company is currently assessing the impact that this standard will have on its consolidated financial statements. 

XML

NOTES PAYABLE (Schedule of Note Allocation) (Details) (USD $)	Jun. 30, 2014
Series A 15% Original Issue Discount Convertible Notes and Warrants [Member]
Proceeds allocated
Proceeds allocated, Note	$ 32,390
Proceeds allocated, Warrants	14,845
Proceeds allocated, Benevicial Conversion Feature	7,765
Total	55,000
Series B Original Issue Discount Convertible Notes and Warrants [Member]
Proceeds allocated
Proceeds allocated, Note	34,272
Proceeds allocated, Warrants	26,811
Proceeds allocated, Benevicial Conversion Feature	3,917
Total	$ 65,000

XML

Supplemental Disclosure of Non-cash Transactions (USD $)	6 Months Ended	3 Months Ended	1 Months Ended		6 Months Ended	1 Months Ended
	Jun. 30, 2013	Mar. 31, 2014 Liabilities Purchase Agreement [Member]	Jun. 30, 2014 Common stock [Member]	Mar. 31, 2013 Common stock [Member]	Jun. 30, 2013 Common stock [Member]	Sep. 30, 2013 Common stock [Member] Liabilities Purchase Agreement [Member]
Common stock issued upon conversion of OID notes, shares			798,825
Common stock issued in accordance with liability purchase agreement, shares						1,618,235
Payment to creditors		$ 80,000
Service fee retained		27,000
Transfer of rental asset to inventory	$ 8,000
Common stock issued in accordance with escrow agreement, shares					1,000,000
Common shares issued for legal services, shares				100,000
Shares issued, price per share				$ 0.43

XML

SHAREHOLDERS' DEFICIENCY (Tables)

6 Months Ended

Jun. 30, 2014

SHAREHOLDERS' DEFICIENCY [Abstract]

Schedule of Assumptions used to Estimate Fair Value of Share Options

We estimated the fair value of each option on the grant date using a Black-Scholes option-pricing model with the following weighted average assumptions:

	Six-months  Ended			Six -months  Ended
	June 30,  2014			June 30,  2013
Dividend yield (1)		0.00	%		0.00	%
Expected volatility (2)		118.5-122.4	%		99.2 - 100.3	%
Risk-free interest rates (3)		1.19-1.72	%		0.63	%
Expected lives (2)		4.0-5.0 YEARS			2.0-4.0 YEARS

(1)	We have not paid cash dividends on our common stock since 1981, and currently do not have plans to pay or declare cash dividends. Consequently, we used an expected dividend rate of zero for the valuations.
(2)	Estimated based on our historical experience. Volatility was based on historical experience over a period equivalent to the expected life in years.
(3)	Based on the U.S. Treasury constant maturity interest rate with a term consistent with the expected life of the options granted.

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NOTES PAYABLE (Schedule of Debt Conversion) (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Debt Instrument [Line Items]
Loss on conversion of notes	$ 43,288		$ 43,288
Accelerated interest expense	35,109		35,109
Shares issued as of June 30, 2014	24,112,357		24,112,357		19,952,907
Series A 15% Original Issue Discount Convertible Notes and Warrants [Member]
Debt Instrument [Line Items]
Loss on conversion of notes			43,288
Accelerated interest expense			35,109
Shares issued as of June 30, 2014	798,825		798,825
Shares to be issued subsequent to June 30, 2014	529,415		529,415
Principal amount of notes converted			$ 265,648

XML

BASIS OF PRESENTATION (Details) (USD $)					3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended
	Jun. 30, 2014		Dec. 31, 2013		Jun. 30, 2014 Calmare pain therapy medical device technology [Member] Revenues [Member]	Jun. 30, 2013 Calmare pain therapy medical device technology [Member] Revenues [Member]	Jun. 30, 2014 Calmare pain therapy medical device technology [Member] Revenues [Member]	Jun. 30, 2013 Calmare pain therapy medical device technology [Member] Revenues [Member]	Jun. 30, 2014 Calmare pain therapy medical device technology [Member] Sales of supplies and training, rental payments and the sale of rental assets [Member]	Jun. 30, 2013 Calmare pain therapy medical device technology [Member] Sales of supplies and training, rental payments and the sale of rental assets [Member]	Jun. 30, 2014 Calmare pain therapy medical device technology [Member] Sales of supplies and training, rental payments and the sale of rental assets [Member]	Jun. 30, 2013 Calmare pain therapy medical device technology [Member] Sales of supplies and training, rental payments and the sale of rental assets [Member]	Jun. 30, 2014 Vector Vision, Inc. [Member]	Jun. 30, 2014 Promissory Notes [Member]
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Ownership percentage													56.10%
Percentage of revenue					98.00%	96.00%	98.00%	72.00%	1.00%	1.00%	1.00%	2.00%
Principal amount	$ 3,004,569													$ 3,005,000
Carrying amount	$ 2,969,482	[1]	$ 2,933,691	[1]										$ 2,970,000	[1]

[1] Includes $28,177 of accrued loss on conversion of OID Notes.

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NET LOSS PER COMMON SHARE (Calculation of Net Income (Loss) Per Common Share) (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
NET LOSS PER COMMON SHARE [Abstract]
Denominator for basic net loss per share, weighted average shares outstanding	23,082,699	16,146,013	21,567,885	15,868,892
Dilutive effect of common stock options
Dilutive effect of Series C convertible preferred stock, convertible debt and warrants
Denominator for diluted net loss per share, weighted average shares outstanding	23,082,699	16,143,013	21,567,885	15,868,892

XML

NET LOSS PER COMMON SHARE

6 Months Ended

Jun. 30, 2014

NET LOSS PER COMMON SHARE [Abstract]

NET LOSS PER COMMON SHARE

2.    NET LOSS PER COMMON SHARE

The following sets forth the denominator used in the calculations of basic net loss per share and net loss per share assuming dilution:

	Three months ended		Six months ended		Three months ended		Six months ended
	June 30, 2014		June 30, 2014		June 30, 2013		June 30, 2013
Denominator for basic net loss per share, weighted average shares outstanding		23,082,699		21,567,885		16,146,013		15,868,892
Dilutive effect of common stock options		N/A		N/A		N/A		N/A
Dilutive effect of Series C convertible preferred stock, convertible debt and warrants		N/A		N/A		N/A		N/A
Denominator for diluted net loss per share, weighted average shares outstanding		23,082,699		21,567,885		16,146,013		15,868,892

Due to the net loss incurred for the three and six months ended June 30, 2014, and 2013, the denominator used in the calculation of basic net loss per share was the same as that used for net loss per share, assuming dilution, since the effect of any options, convertible preferred shares, convertible debt or warrants would have been anti-dilutive. Options to purchase 1,708,500 and 1,367,000 shares of our common stock were outstanding at June 30, 2014 and 2013, respectively, 375 shares outstanding of Series C Convertible Preferred Stock, at June 30, 2014 and 2013, outstanding convertible debt of $2,970,000 and $2,630,000 at June 30, 2014 and 2013, respectively, and the warrants outstanding at June 30, 2014 were not included in the computation of diluted net loss per share because they were also anti-dilutive.

XML

NET LOSS PER COMMON SHARE (Narrative) (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Outstanding convertible debt	$ 2,970,000	$ 2,630,000
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earnings per share	1,708,500	1,367,000
Series C convertible preferred stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earnings per share	375	375

XML

NOTES PAYABLE (Schedule of Notes Payable) (Details) (USD $)	6 Months Ended
	Jun. 30, 2014		Dec. 31, 2013
Composition of Notes Payable:
Principal Amount	$ 3,004,569
Notes Payable, gross	2,969,482	[1]	2,933,691	[1]
Less LPA amount	(485,980)		(505,000)
Notes Payable, net	2,483,502		2,488,691
90 day Convertible Notes (Chairman of the Board) [Member]
Composition of Notes Payable:
Principal Amount	2,498,980
Notes Payable, gross	2,498,980	[1]	2,518,000	[1]
Cash Interest Rate	6.00%
Common Stock Conversion Price	$ 1.05
Maturity Date, narrative	Various 2014
24 month Convertible Notes ($100,000 to Board member) [Member]
Composition of Notes Payable:
Principal Amount	225,000
Notes Payable, gross	225,000	[1]	225,000	[1]
Cash Interest Rate	6.00%
Common Stock Conversion Price	$ 1.05
Maturity Date, starting date	Mar. 31, 2014
Maturity Date, ending date	Jun. 30, 2014
Notes Payable (Parenthetical):
Due to Board Member	100,000
Tonaquint 9% OID Convertible Notes and Warrants [Member]
Composition of Notes Payable:
Principal Amount	112,500
Notes Payable, gross		[1]	87,705	[1]
Cash Interest Rate	7.00%
Common Stock Conversion Price	$ 0.30
Maturity Date	May 31, 2014
Notes Payable (Parenthetical):
OID, yield percentage	9.00%
Southridge Convertible Note [Member]
Composition of Notes Payable:
Principal Amount	12,000
Notes Payable, gross	12,000	[1]	12,000	[1]
Cash Interest Rate
Common Stock Conversion Price, narrative	75% of closing bid
Maturity Date	Jun. 30, 2014
Notes Payable (Parenthetical):
Debt conversion, Common Stock Conversion Price, percent of closing bid	75.00%
Series A1 15% OID Convertible Notes and Warrants [Member]
Composition of Notes Payable:
Principal Amount	29,412
Notes Payable, gross	29,412	[1]	81,415	[1]
Cash Interest Rate
Common Stock Conversion Price	$ 0.20
Maturity Date	Aug. 31, 2014
Notes Payable (Parenthetical):
OID, yield percentage	15.00%
Series A2 15% OID Convertible Notes and Warrants [Member]
Composition of Notes Payable:
Principal Amount	94,471
Notes Payable, gross	119,758	[1]	69,571	[1]
Cash Interest Rate
Maturity Date	Sep. 30, 2014
Notes Payable (Parenthetical):
OID, yield percentage	15.00%
Series A2 15% OID Convertible Notes and Warrants [Member] | Minimum [Member]
Composition of Notes Payable:
Common Stock Conversion Price	$ 0.20
Series A2 15% OID Convertible Notes and Warrants [Member] | Maximum [Member]
Composition of Notes Payable:
Common Stock Conversion Price	$ 0.25
Series A3 15% OID Convertible Notes and Warrants [Member]
Composition of Notes Payable:
Principal Amount	64,706
Notes Payable, gross	46,250	[1]		[1]
Cash Interest Rate
Common Stock Conversion Price	$ 0.25
Maturity Date	Jan. 31, 2015
Notes Payable (Parenthetical):
OID, yield percentage	15.00%
Series B OID Convertible Notes and Warrants [Member]
Composition of Notes Payable:
Principal Amount	80,000
Notes Payable, gross	$ 38,082	[1]		[1]
Cash Interest Rate
Common Stock Conversion Price	$ 0.35
Maturity Date	Mar. 31, 2017

[1] Includes $28,177 of accrued loss on conversion of OID Notes.

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Condensed Consolidated Balance Sheets (USD $)	Jun. 30, 2014	Dec. 31, 2013
Current Assets:
Cash	$ 16,400	$ 57,009
Receivables, net of allowance of $101,154 at June 30, 2014 and December 31, 2013	143,119	143,330
Inventory	4,208,220	4,278,220
Prepaid expenses and other current assets	57,308	65,167
Total current assets	4,425,047	4,543,726
Property and equipment, net	47,684	7,606
Security deposits	15,000	15,000
TOTAL ASSETS	4,487,731	4,566,332
Current Liabilities:
Accounts payable	877,542	692,251
Liabilities under claims purchase agreement	2,013,320	2,093,303
Accounts payable, GEOMC	4,182,380	4,183,535
Accrued expenses and other liabilities	855,778	582,987
Notes payable	2,445,420	2,488,691
Deferred revenue	19,687	6,400
Warrant liability		8,227
Series C convertible preferred stock derivative liability	92,128	80,408
Series C convertible preferred stock liability	375,000	375,000
Total current liabilities	10,861,255	10,510,802
Note payable -- long-term	38,082
Commitments and contingencies
Shareholders' deficit:
Preferred stock	60,675	60,675
Common stock, $.01 par value, 40,000,000 shares authorized, 24,112,357 shares issued and outstanding at June 30, 2014 and 19,952,907 shares issued and outstanding at December 31, 2013	241,123	199,529
Capital in excess of par value	47,085,819	46,077,394
Accumulated deficit	(53,799,223)	(52,282,068)
Total shareholders' deficit	(6,411,606)	(5,944,470)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	4,487,731	4,566,332
5% Preferred stock [Member]
Shareholders' deficit:
Preferred stock	60,675	60,675
Series B Preferred Stock [Member]
Shareholders' deficit:
Preferred stock
Series C convertible preferred stock [Member]
Shareholders' deficit:
Preferred stock

XML

NOTES PAYABLE (Narrative) (Details) (USD $)	3 Months Ended		6 Months Ended			4 Months Ended	6 Months Ended					3 Months Ended		6 Months Ended		3 Months Ended	6 Months Ended			6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013	Mar. 31, 2013 90 day Convertible Notes [Member]	Jun. 30, 2014 90 day Convertible Notes [Member]	Jun. 30, 2014 24 month Convertible Notes [Member]	Jun. 30, 2014 24 month Convertible Notes [Member] Debt issuance, March 2012 [Member]	Jun. 30, 2014 24 month Convertible Notes [Member] Debt issuance, April 2012 [Member]	Jun. 30, 2014 24 month Convertible Notes [Member] Debt issuance, June 2012 [Member]	Jun. 30, 2014 Tonaquint 9% Original Issue Discount Convertible Notes and Warrants [Member]	Mar. 31, 2014 Tonaquint 9% Original Issue Discount Convertible Notes and Warrants [Member]	Jun. 30, 2014 Tonaquint 9% Original Issue Discount Convertible Notes and Warrants [Member]	Jun. 30, 2014 Southridge [Member]	Dec. 31, 2013 Series A 15% Original Issue Discount Convertible Notes and Warrants [Member]	Jun. 30, 2014 Series A 15% Original Issue Discount Convertible Notes and Warrants [Member]	Jun. 30, 2014 Series A 15% Original Issue Discount Convertible Notes and Warrants [Member] Minimum [Member]	Jun. 30, 2014 Series A 15% Original Issue Discount Convertible Notes and Warrants [Member] Maximum [Member]	Jun. 30, 2014 Series A3 15% Original Issue Discount Convertible Notes and Warrants [Member]	Jun. 30, 2014 Series B Original Issue Discount Convertible Notes and Warrants [Member]
Short-term Debt [Line Items]
Accrued loss on conversion of OID Notes	$ 28,177		$ 28,177
Note issuance date								Mar. 31, 2012	Mar. 31, 2012	Apr. 30, 2012	Jun. 30, 2012			Sep. 30, 2013			Dec. 31, 2013			Mar. 31, 2014	Mar. 31, 2014
Notes payable, term							90 days	24 months	24 months	24 months	24 months				6 months
Interest rate							6.00%	6.00%	6.00%	6.00%	6.00%	7.00%		7.00%
Principal amount	3,004,569		3,004,569				2,498,980	225,000	100,000	25,000	100,000	112,500		112,500	12,000	283,648				64,706	80,000
Conversion price							$ 1.05	$ 1.05	$ 1.05	$ 1.05	$ 1.05	$ 0.30		$ 0.30				$ 0.20	$ 0.25	$ 0.25	$ 0.35
Notes payable, portion attributable to LPA	485,980		485,980		505,000
Proceeds from notes payable			120,000	1,095,000		485,980								100,000		241,100				55,000	65,000
Debt discount												10,000		10,000		42,548				9,706	15,000
Transaction expenses														2,500
Note maturity date														May 31, 2014	Jun. 30, 2014					Jan. 31, 2015	Mar. 31, 2017
Frequency of periodic payment														monthly
Debt payments, start date														Jan. 31, 2014
Value of common stock called by warrant												112,500		112,500
Number of shares called by warrants																	958,179				185,714
Exercise price of warrants												$ 0.35		$ 0.35				$ 0.40	$ 0.60		$ 0.45
Term of warrant														5 years			2 years				4 years
Cash payment for settlement of warrant													98,000
Loss on settlement of warrant													(98,000)
Cash payment for settlement of note												124,000	20,000	144,000
Loss on settlement of debt			$ (132,301)										$ (34,000)
Debt conversion, shares issued															50,000
Debt conversion, Common Stock Conversion Price, percent of closing bid															75.00%

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Condensed Consolidated Statements of Cash Flows (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash flows from operating activities:
Net loss	$ (1,517,155)	$ (1,458,869)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	6,346	4,859
Stock option compensation expense	41,123	128,637
Share-based compensation - common stock	4,038	7,000
Bad debt expense		5,000
Debt discount amortization	169,436
Noncash finance charges	18,434
Unrealized loss (gain) on derivative instruments	11,720	(8,728)
Loss on conversion of OID notes	43,288
Loss on settlement of note and warrant	132,301
Changes in assets and liabilities:
Receivables	211	194,315
Prepaid expenses and other current assets	7,859	60,763
Inventory	70,000	20,000
Accounts payable, accrued expenses and other liabilities	456,927	(96,953)
Deferred revenue	13,287	(1,600)
Net cash used in operating activities	(542,185)	(1,145,576)
Cash flows from investing activities:
Purchases of property and equipment	(46,424)
Net cash used in investing activities	(46,424)
Cash flows from financing activities:
Proceeds from note payable	120,000	1,095,000
Repayment of note and warrant settlement	(242,000)
Proceeds from common stock and warrants	670,000
Net cash provided by financing activities	548,000	1,095,000
Net decrease in cash	(40,609)	(50,576)
Cash at beginning of period	57,009	74,322
Cash at end of period	$ 16,400	$ 23,746

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FAIR VALUE MEASUREMEMENTS (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2014 Level 2 [Member]	Dec. 31, 2013 Level 2 [Member]	Dec. 31, 2013 Level 3 [Member]	Jul. 16, 2013 Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative liability			$ 92,000	$ 80,000	$ 0	$ 19,024
Warrant liability		$ 8,227			$ 8,000	$ 26,076

XML

NET LOSS PER COMMON SHARE (Tables)

6 Months Ended

Jun. 30, 2014

NET LOSS PER COMMON SHARE [Abstract]

Calculation of Net Earnings Per Share

The following sets forth the denominator used in the calculations of basic net loss per share and net loss per share assuming dilution:

	Three months ended		Six months ended		Three months ended		Six months ended
	June 30, 2014		June 30, 2014		June 30, 2013		June 30, 2013
Denominator for basic net loss per share, weighted average shares outstanding		23,082,699		21,567,885		16,146,013		15,868,892
Dilutive effect of common stock options		N/A		N/A		N/A		N/A
Dilutive effect of Series C convertible preferred stock, convertible debt and warrants		N/A		N/A		N/A		N/A
Denominator for diluted net loss per share, weighted average shares outstanding		23,082,699		21,567,885		16,146,013		15,868,892

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PREPAID EXPENSES AND OTHER CURRENT ASSETS (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
PREPAID EXPENSES AND OTHER CURRENT ASSETS [Abstract]
Prepaid insurance	$ 33,114	$ 16,802
Other	24,194	48,365
Prepaid expenses and other current assets	$ 57,308	$ 65,167

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PREPAID EXPENSES AND OTHER CURRENT ASSETS (Tables)

6 Months Ended

Jun. 30, 2014

PREPAID EXPENSES AND OTHER CURRENT ASSETS [Abstract]

Schedule of Prepaid Expenses and Other Assets

Prepaid expenses and other current assets consist of the following:

	June 30,  2014		December 31,  2013
Prepaid insurance	$	33,114	$	16,802
Other		24,194		48,365
Prepaid expenses and other current assets	$	57,308	$	65,167

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BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2014

BASIS OF PRESENTATION [Abstract]

BASIS OF PRESENTATION

1.    BASIS OF PRESENTATION

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

Competitive Technologies, Inc. ("CTI") and its majority-owned (56.1%) subsidiary, Vector Vision, Inc. ("VVI"), (collectively, the "Company", "we" or "us") is a biotechnology company developing and commercializing innovative products and technologies. CTI is the licensed distributor of the non-invasive Calmare^® pain therapy device (the "Calmare Device"), which was developed to treat neuropathic and cancer-derived pain.

These consolidated financial statements include the accounts of CTI and VVI.  Inter-company accounts and transactions have been eliminated in consolidation.

We believe we have made all adjustments necessary, consisting only of normal recurring adjustments, to present the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S.  The results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that can be expected for the full year ending December 31, 2014.

The interim unaudited condensed consolidated financial statements and notes thereto, should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission ("SEC") on April 16, 2014.

During the three and six months ended June 30, 2014, we had a significant concentration of revenues from the Calmare^® Device.  The percentages of gross revenue attributed to sales and rentals of Calmare Devices, in both the three and six months ended June 30, 2014, was 98%; and 96% and 72%, respectively, in the three and six months ended June 30, 2013.  Additionally, the percentage of gross revenue attributed to other Calmare Device related sales of equipment and training, in both the three and six months ended June 30, 2014, was 1%; and 1% and 2%, respectively, in the three and six months ended June 30, 2013.  We continue to attempt to expand our sales activities for the Calmare Device and expect the majority of our revenues to come from this technology.

The Company has incurred operating losses since fiscal 2006 and has a working capital deficiency at June 30, 2014.  The Company has taken steps to reduce its operating expenses as well as increase revenue from sales of Calmare Devices.  However, even at the reduced spending levels, should the anticipated increase in revenue from sales of Calmare Devices not occur the Company may not have sufficient cash flow to fund operations through 2014.  These conditions raise substantial doubt about the Company's ability to continue as a going concern.  The financial statements do not include adjustments to reflect the possible future effect of the recoverability and classification of assets or amounts and classifications of liabilities that may result from the outcome of this uncertainty.

The Company's continuation as a going concern is dependent upon its developing recurring revenue streams sufficient to cover operating costs.  The Company does not have any significant individual cash or capital requirements in the budget going forward.  If necessary, CTI will meet anticipated operating cash requirements by further reducing costs, issuing debt and/or equity, and/or pursuing sales of certain assets and technologies while we pursue licensing and distribution opportunities for our remaining legacy portfolio of technologies.  There can be no assurance that the Company will be successful in such efforts.  Failure to develop a recurring revenue stream sufficient to cover operating expenses could negatively affect the Company's financial position.

Our liquidity requirements arise principally from our working capital needs, including funds needed to sell our current technologies and obtain new technologies or products, and protect and enforce our intellectual property rights, if necessary. We fund our liquidity requirements with a combination of cash on hand, debt and equity financing, sales of common stock and cash flows from operations, if any, including royalty legal awards. At June 30, 2014, the Company had outstanding debt in the form of promissory notes with a total principal amount of $3,005,000 and a carrying value of $2,970,000.

The Company acquired the exclusive, worldwide rights to the Scrambler Therapy® technology in 2007. The Company's original 2007 agreement with Giuseppe Marineo (the "Scrambler Therapy Agreement"), an inventor of Scrambler Therapy technology, and Delta Research and Development ("Delta"), authorized CTI to manufacture and sell worldwide the device developed from the patented Scrambler Therapy technology. The original agreement was amended in 2011 to provide the Company with exclusive rights to the Scrambler Therapy technology through March 31, 2016. In July 2012, the Company attempted to negotiate a five-year extension to the agreement with Marineo and Delta (the "2012 Amendment"). However, the Company believes that the 2012 Amendment is neither valid nor enforceable as it was never duly signed or authorized and subsequently deemed null and void (see Footnote 13. CONTRACTUAL OBLIGATIONS AND CONTINGENCIES, CTI's Distribution Rights, Marineo and Delta). The Scrambler Therapy technology is patented in Italy and in the U.S. Applications for patents have been filed internationally as well and are pending approval. The Calmare Device has CE Mark certification from the European Union as well as U.S. FDA 510(k) clearance. CTI's partner, GEOMC Co., Ltd. of Korea, is manufacturing the product commercially under a ten (10) year agreement through 2017. Sales of these devices are expected to provide a significant proportion of the Company's revenue for the next several years.

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Condensed Consolidated Balance Sheets (Parentheticals) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Allowance for doubtful accounts	$ 101,154	$ 101,154
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	40,000,000	40,000,000
Common stock, shares issued (in shares)	24,112,357	19,952,907
Common stock, shares outstanding (in shares)	24,112,357	19,952,907
5% Preferred stock [Member]
Preferred stock, par value (in dollars per share)	$ 25	$ 25
Preferred stock, shares authorized (in shares)	35,920	35,920
Preferred stock, shares issued (in shares)	2,427	2,427
Preferred stock, shares outstanding (in shares)	2,427	2,427
Series B Preferred Stock [Member]
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in shares)	20,000	20,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Series C convertible preferred stock [Member]
Preferred stock, par value (in dollars per share)	$ 1,000	$ 1,000
Preferred stock, shares authorized (in shares)	750	750
Preferred stock, shares issued (in shares)	375	375
Preferred stock, shares outstanding (in shares)	375	375

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NOTES PAYABLE

6 Months Ended

Jun. 30, 2014

NOTES PAYABLE [Abstract]

NOTES PAYABLE

11.           NOTES PAYABLE

Notes payable consist of the following:

	June 30, 2014			December 31, 2013
90 day Convertible Notes (Chairman of the Board)	$	2,498,980		$	2,518,000
24 month Convertible Notes ($100,000 to Board member)		225,000			225,000
Tonaquint 9% OID Convertible Notes and Warrants		-			87,705
Southridge Convertible Note		12,000			12,000
Series A1 15% OID Convertible Notes and Warrants		29,440			81,415
Series A2 15% OID Convertible Notes and Warrants		119,758			69,571
Series A3 15% OID Convertible Notes and Warrants		46,222			-
Series B OID Convertible Notes and Warrants		38,082			-
Notes Payable, gross		2,969,482			2,933,691
Less LPA amount		(485,980	)		(505,000	)
Notes Payable, net	$	2,483,502		$	2,488,691

Details of notes payable as of June 30, 2014 are as follows:

	Original Principal Amount		Carrying Value (1)			Cash Interest Rate			Common Stock Conversion Price		Maturity Date
90 day Convertible Notes (Chairman of the Board)	$	2,498,980	$	2,498,980			6	%	$	1.05	Various 2014
24 month Convertible Notes ($100,000 to Board member)		225,000		225,000			6	%		1.05	March 2014 - June 2014
Southridge Convertible Note		12,000		12,000			None			75% of closing bid	June 2014
Series A1 15% OID Convertible Notes and Warrants		29,412		29,412			None			0.20	August 2014
Series A2 15% OID Convertible Notes and Warrants		94,471		119,758			None			0.20-0.25	September 2014
Series A3 15% OID Convertible Notes and Warrants		64,706		46,250			None			0.25	January 2015
Series B OID Convertible Notes and Warrants		80,000		38,082			None			0.35	March 2017
Notes Payable, gross	$	3,004,569		2,969,482
Less LPA amount				(485,980	)
Notes Payable, net			$	2,483,502

(1) Includes $28,177 of accrued loss on conversion of OID Notes.

90 day Convertible Notes

The Company has issued 90-day notes payable to borrow funds from a director, now the chairman of our Board, as follows:

2013	$	1,188,980
2012		1,210,000
2011		100,000
Total	$	2,498,980

These notes have been extended several times and all bear 6.00% simple interest.  A conversion feature was added to the Notes when they were extended, which allows for conversion of the eligible principal amounts to common stock at any time after the six month anniversary of the effective date -the date the funds are received - at a rate of $1.05 per share.  Additional terms have been added to all Notes to include additional interest payments to all Notes if extended beyond their original maturity dates and to provide the lender with a security interest in unencumbered inventory and intangible assets of the Company other than proceeds relating to the Calmare Device and accounts receivable.

A total of $485,980 of the aforementioned notes issued between December 1, 2012 and March 31, 2013 fall under the LPA with ASC Recap, and are expected to be repaid using the process as described in Note 10.  Because there can be no assurance that the Company will be successful in completing this process, the Company retains ultimate responsibility for this debt, until fully paid down.  As a result, the Company continues to accrue interest on these notes and they remain convertible as described above.

24 month Convertible Notes

In March 2012, the Company issued a 24-month convertible promissory note to borrow $100,000. Additional 24-month convertible promissory notes were issued in April 2012 ($25,000) and in June 2012 ($100,000). All of the notes bear 6.00% simple interest. Conversion of the eligible principal amounts to common stock is allowed at any time after the six month anniversary of the effective date of each note at a rate of $1.05 per share.

As of August 8, 2014 the Company has not repaid the principal due on the March 2012 $100,000 note or the April 2012 $25,000 note and as such is in default under the terms of the notes. There is also unpaid interest related to these notes.

Tonaquint 9% Original Issue Discount Convertible Notes and Warrants

During the quarter ended September 30, 2013, the Company entered into a securities purchase agreement with Tonaquint, Inc., under which it was issued a $112,500 convertible promissory note in consideration for $100,000, the difference between the proceeds from the Note and the principal amount consisted of a $10,000 original issue discount and a carried transaction expense of $2,500. The original issue discount was being amortized over the life of the note. The note was convertible at an initial conversion price of $0.30 per share at any time, and contained a "down-round protection" feature that requires the valuation of a derivative liability associated with the note. The note bore interest at 7% and was due in May 2014. Tonaquint was also issued a market-related warrant for $112,500 in shares of common stock with a "cashless" exercise feature. The warrant had a $0.35 exercise price, a 5-year term and included a "down-round protection" feature that required it to be classified as a liability rather than as equity (see Note 6).

During the first quarter of 2014 the Company executed a debt settlement agreement with Tonaquint related to the note and warrant. The warrant was settled during the first quarter of 2014 for a cash payment of $98,000, resulting in a loss of $98,000. The note was settled during the second quarter of 2014 for cash payments totaling $144,000 ($20,000 paid in the first quarter of 2014 and $124,000 paid in the second quarter of 2014). Because the execution of the debt settlement agreement in the first quarter of 2014 resulted in a significant modification of the original terms of the note agreement, the Company adjusted the carrying value of the note in the first quarter of 2014 and recorded a related loss of approximately $34,000.

Southridge

During 2013, the Company issued a six-month $12,000 convertible note payable to Southridge to cover legal expenses as part of the LPA (see Note 10). The convertible note is convertible into the Company's common stock at 75% of the lowest closing bid price during the twenty (20) trading days prior to conversion and was due in June 2014.

Southridge delivered to the Company a notice of conversion related to the above noted convertible note payable and subsequent to June 30, 2014, the Company issued to Southridge 50,000 shares in exchange for and in full satisfaction for the note.

Series A 15% Original Issue Discount ("OID") Convertible Notes and Warrants

During the quarter ended December 31, 2013, the Company did a private offering of two tranches of convertible notes and warrants, under which it issued $283,648 of convertible promissory notes for consideration of $241,100, the difference between the proceeds from the notes and the principal amount consists of $42,548 of original issue discount. During the quarter ended March 31, 2014, the Company did a private offering of a third tranche of convertible notes and warrants, under which it issued $64,706 of convertible promissory notes for consideration of $55,000, the difference between the proceeds from the notes and principal amount consists of $9,706 of original issue discount. The notes are convertible at initial conversion prices ranging from $0.20 to $0.25 per share any time after issuance thereby having an embedded beneficial conversion feature. The note holders were also issued market-related warrants for 958,179 in shares of common stock. The warrants have exercise prices that range from $0.40 to $0.60 and a 2-year term. The beneficial conversion feature and the warrants were recorded to additional paid-in-capital. The Company allocated the proceeds received to the notes, the beneficial conversion feature and the warrants on a relative fair value basis at the time of issuance. The total debt discount is amortized over the life of the notes to interest expense.

The beneficial conversion feature was valued at the intrinsic value on the issuance date. The intrinsic value represents the difference between the conversion price and the fair value of the common stock multiplied by the number of share into which the note is convertible. We estimated the fair value of the warrants on the issue date using a Black-Scholes pricing model with the following assumptions:

	Warrants (Tranche 1) November 15, 2013			Warrants (Tranche 2) December 30, 2013			Warrants (Tranche 3) February 14, 2014
Expected term		2 years			2 years			2 years
Volatility		180.02	%		184.38	%		184.88	%
Risk Free Rate		0.31	%		0.39	%		0.32	%

The proceeds of the Notes issued during the three months ended March 31, 2014 were allocated to the components as follows:

	Proceeds allocated at issue date
Private Offering Notes	$	32,390
Private Offering Warrants		14,845
Beneficial Conversion feature		7,765
Total	$	55,000

During the quarter ended June 30, 2014, certain holders of OID convertible notes and warrants delivered to the Company a notice of conversion related to the OID convertible notes. Due to the timing of receipt of the notices by the Company, certain Note holders ("Noteholders") received their shares during the quarter ended June 30, 2014, while other Noteholders received or are due to receive their shares after June 30, 2014. Additionally, the Company offered certain Noteholders an inducement to convert their notes to shares. The inducement, when offered, provided Noteholders a conversion price of $0.20. All other original terms, including the warrant terms, remained the same. Upon notice of conversion and irrespective of whether the shares were delivered in the quarter ended June 30, 2014 or subsequent to June 30, 2014 to the Company: (i) accelerated and recognized as interest expense in the current period any remaining discount, and (ii) recognized a loss for the fair value of the additional shares offered as the conversion inducement.

Presented below is summary information related to the conversion:

Statement of Operations
Loss on conversion of notes	$	43,288
Accelerated interest expense	$	35,109
Balance Sheet
Shares issued as of June 30, 2014		798,825
Shares to be issued subsequent to June 30, 2014		529,415
Principal amount of notes converted	$	265,648

Series B Original Issue Discount Convertible Notes and Warrants

During the quarter ended March 31, 2014, the Company did a private offering of convertible notes and warrants, under which it issued $80,000 of convertible promissory notes for consideration of $65,000, the difference between the proceeds from the notes and principal amount consists of $15,000 of original issue discount. The notes are convertible at an initial conversion price of $0.35 per share any time after issuance thereby having an embedded beneficial conversion feature. The note holders were also issued market-related warrants for 185,714 in shares of common stock. The warrants have an exercise price of $0.45 and a 4-year term. The beneficial conversion feature and the warrants were recorded to additional paid-in-capital. The Company allocated the proceeds received to the notes, the beneficial conversion feature and the warrants on a relative fair value basis at the time of issuance. The total debt discount is amortized over the life of the notes to interest expense.

The beneficial conversion feature was valued at the intrinsic value on the issuance date. The intrinsic value represents the difference between the conversion price and the fair value of the common stock multiplied by the number of share into which the note is convertible. We estimated the fair value of the warrants on the issue date using a Black-Scholes pricing model with the following assumptions:

	Warrants March 20, 2014
Expected term		4 years
Volatility		151.52	%
Risk Free Rate		1.32	%

The proceeds of the Notes were allocated to the components as follows:

	Proceeds allocated at issue date
Private Offering Notes	$	34,272
Private Offering Warrants		26,811
Beneficial Conversion feature		3,917
Total	$	65,000

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 13, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	COMPETITIVE TECHNOLOGIES INC
Entity Central Index Key	0000102198
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		24,651,477
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2014

XML

SHAREHOLDERS' DEFICIENCY

6 Months Ended

Jun. 30, 2014

SHAREHOLDERS' DEFICIENCY [Abstract]

SHAREHOLDERS' DEFICIENCY

12. SHAREHOLDERS' DEFICIENCY

Stock Option Plan

On May 2, 2011 the Company adopted and executed the Employees' Directors' and Consultants Stock Option Plan (the "Plan"). During the six months ended June 30, 2014, the Company granted 42,500 options to non-employee directors which were fully vested upon issuance. During the six months ended June 30, 2013, the Company granted 50,000 options to non-employee directors which were fully vested upon issuance.

During the six months ended June 30, 2014, the Company granted 320,000 options to employees. 20% of the options vested upon issuance and the remaining options vest ratably over a four (4) year period.

During the six months ended June 30, 2013, the Company granted 1,000,000 stock options to its then CEO of which 200,000 vested immediately. Due to his subsequent resignation in September 2013, all options have since been cancelled. 

During the three months ended March 31, 2013 the Board of Directors extended the expiration dates for all options previously granted to one departing Board member in recognition for service.  The Company considered the extension as a modification to the option agreements recording incremental compensation expense of $16,920 for the three months ended March 31, 2013.

We estimated the fair value of each option on the grant date using a Black-Scholes option-pricing model with the following weighted average assumptions:

	Six-months  Ended			Six -months  Ended
	June 30,  2014			June 30,  2013
Dividend yield (1)		0.00	%		0.00	%
Expected volatility (2)		118.5-122.4	%		99.2 - 100.3	%
Risk-free interest rates (3)		1.19-1.72	%		0.63	%
Expected lives (2)		4.0-5.0 YEARS			2.0-4.0 YEARS

(1)	We have not paid cash dividends on our common stock since 1981, and currently do not have plans to pay or declare cash dividends. Consequently, we used an expected dividend rate of zero for the valuations.
(2)	Estimated based on our historical experience. Volatility was based on historical experience over a period equivalent to the expected life in years.
(3)	Based on the U.S. Treasury constant maturity interest rate with a term consistent with the expected life of the options granted.

During both the three and six months ended June 30, 2014, the Company recognized expense of $11,178 for stock options issued to directors and expense of $26,795 and $29,945, respectively, for stock options issued to employees.

During the three and six months ended June 30, 2013, the Company recognized expense of $0 and $14,250, respectively, for stock options issued to directors and expense of $17,200 and $97,467, respectively, for stock options issued to employees.

Preferred Stock

Holders of 5% preferred stock are entitled to receive, if, as, and when declared by the Board of Directors, out of funds legally available therefore, preferential non-cumulative dividends at the rate of $1.25 per share per annum, payable quarterly, before any dividends may be declared or paid upon or other distribution made in respect of any share of common stock. The 5% preferred stock is redeemable, in whole at any time or in part from time to time, on 30 days' notice, at the option of the Company, at a redemption price of $25. In the event of voluntary or involuntary liquidation, the holders of preferred stock are entitled to $25 per share in cash before any distribution of assets can be made to holders of common stock.

Each share of 5% preferred stock is entitled to one vote. Holders of 5% preferred stock have no preemptive or conversion rights. The preferred stock is not registered to be publicly traded.

At its December 2, 2010 meeting, the CTI Board of Directors declared a dividend distribution of one right (each, a "Right") for each outstanding share of common stock, par value $0.01, of the Company (the "Common Shares"). The dividend was payable to holders of record as of the close of business on December 2, 2010 (the "Record Date"). Issuance of the dividend may be triggered by an investor purchasing more than 20% of the outstanding shares of common stock.

On December 15, 2010 the Company issued a $400,000 promissory note. The promissory note was scheduled to mature on December 31, 2012 with an annual interest rate of 5%.

On December 15, 2010, the Company's Board of Directors authorized the issuance of 750 shares of Series C Convertible Preferred Stock ($1,000 par value) with a 5% cumulative dividend to William R. Waters, Ltd. of Canada. On December 30, 2010, 750 shares were issued. The Company converted the above $400,000 promissory note into 400 shares and received cash of $350,000 for the remaining 350 shares.

Effective June 16, 2011, William R. Waters, Ltd. of Canada converted one-half (½) of its Series C Convertible Preferred Stock, or 375 shares, to 315,126 shares of common stock.

The rights of the Series C Convertible Preferred Stock are as follows:

a) Dividend rights - The shares of Series C Convertible Preferred Stock accrue a 5% cumulative dividend on a quarterly basis and is payable on the last day of each fiscal quarter when declared by the Company's Board. As of June 30, 2014, dividends declared were $74,998, of which $4,675 and $9,298, respectively, were declared during the three and six months ended June 30, 2014 and $56,250 have not been paid and are shown in accrued and other liabilities at June 30, 2014.

b) Voting rights - Holders of these shares of Series C Convertible Preferred Stock shall have voting rights equivalent to 1,000 votes per $1,000 par value Series C Convertible Preferred share voted together with the shares of Common Stock

c) Liquidation rights - Upon any liquidation these Series C Convertible Preferred Stock shares shall be treated as equivalent to shares of Common stock to which they are convertible.

d) Redemption rights - The redemption rights were associated with the $750,000 that had been held in escrow by the Company in the event that the funds were released and returned to CTI.  However, the funds were withdrawn from escrow and paid out in accordance with the settlement agreement.  Therefore the redemption rights no longer apply to the remaining Series C Convertible Preferred Stock.

e) Conversion rights - Holder has right to convert each share of Series C Convertible Preferred Stock at any time into shares of the Company's common stock at a conversion price for each share of common stock equal to 85% of the lower of (a) the closing market price at the date of notice of conversion or (b) the mid-point of the last bid price and the last ask price on the date of the notice of conversion. The variable conversion feature creates an embedded derivative that was bifurcated from the Series C Convertible Preferred Stock on the date of issuance and was recorded at fair value. The derivative liability will be recorded at fair value on each reporting date with any change recorded in the Statement of Operations as an unrealized gain (loss) on derivative instrument.

On the date of conversion of the 375 shares of Series C Convertible Preferred Stock the Company calculated the value of the derivative liability to be $81,933. Upon conversion, the $81,933 derivative liability was reclassified to equity.

The Company recorded a convertible preferred stock derivative liability of $92,128 and $80,408, associated with the 375 shares of Series C Convertible Preferred Stock outstanding at June 30, 2014 and December 31, 2013, respectively.

The Company has classified the Series C Convertible Preferred Stock as a liability at June 30, 2014 and December 31, 2013 because the variable conversion feature may require the Company to settle the conversion in a variable number of its common shares.

Common Stock

During the quarter ended March 31, 2014, the Company did a private offering of its common stock and warrants, for consideration of $500,000. 2,500,000 shares of common stock were issued at a per share price of $0.20. The common stock holders were also issued warrants to purchase 1,250,000 shares of common stock. The warrants have an exercise price of $0.60 and a 3-year term. The warrants were recorded to additional paid-in-capital. 

During the quarter ended June 30, 2014, the Company did an additional private offering of its common stock and warrants, for consideration of $170,000. 850,000 shares of common stock were issued at a per share price of $0.20. The common stock holders were also issued warrants to purchase 425,000 shares of common stock. The warrants have an exercise price of $0.60 and a 3-year term. The warrants were recorded to additional paid-in-capital.

During the three months ended March 31, 2014 and 2013, the Company issued 10,625 and 17,500 shares of its common stock to non-employee directors under its Director Compensation Plan. The Company recorded expense of $4,038 and $7,000 for director stock compensation expense in the three months ended March 31, 2014 and 2013. No shares were issued to non-employee directors during the three months ended June 30, 2014 and 2013.

XML

Condensed Consolidated Statements of Operations (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Revenue
Product sales	$ 316,000	$ 136,100	$ 537,080	$ 136,100
Cost of product sales	98,148	45,845	168,366	65,193
Gross profit from product sales	217,852	90,255	368,714	70,907
Other Revenue
Retained royalties	2,348	4,384	4,952	17,760
Other income	13,653	9,643	17,473	58,322
Total other revenue	16,001	14,027	22,425	76,082
Expenses
Selling expenses	66,032	35,758	138,026	103,933
Personnel and consulting expenses	424,121	278,732	819,144	619,739
General and administrative expenses	317,305	413,417	511,026	814,176
Interest expense	112,895	43,971	217,680	76,738
Interest expense - accelerated upon conversion of OID notes	35,109		35,109
Loss on conversion of OID notes	43,288		43,288
Loss on settlement of note and warrant			132,301
Unrealized loss (gain) on derivative instruments	25,952	9,439	11,720	(8,728)
Total Expenses	1,024,702	781,317	1,908,294	1,605,858
Loss before income taxes	(790,849)	(677,035)	(1,517,155)	(1,458,869)
Provision (benefit) for income taxes
Net loss	$ (790,849)	$ (677,035)	$ (1,517,155)	$ (1,458,869)
Basic and diluted loss per share	$ (0.03)	$ (0.04)	$ (0.07)	$ (0.09)
Basic and diluted weighted average number of common shares outstanding:	23,082,699	16,146,013	21,567,885	15,868,892

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FAIR VALUE MEASUREMEMENTS

6 Months Ended

Jun. 30, 2014

FAIR VALUE MEASUREMENTS [Abstract]

FAIR VALUE MEASUREMENTS

6.    FAIR VALUE MEASUREMEMENTS

The Company measures fair value in accordance with Topic 820 of the FASB Accounting Standards Codification ("ASC"), Fair Value Measurement ("ASC 820"), which provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described as follows:

Level 1 -	Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2 -	Inputs to the valuation methodology include:
	●	Quoted prices for similar assets or liabilities in active markets;
	●	Quoted prices for identical or similar assets or liabilities in inactive markets;
	●	Inputs other than quoted prices that are observable for the asset or liability;
	●	Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
	If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 -	Inputs to the valuation methodology are unobservable and significant to the fair value measurement

The asset's or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company values its derivative liability associated with the variable conversion feature on its Series C Convertible Preferred Stock (Note 12) based on the market price of its common stock.  For each reporting period the Company calculates the amount of potential common stock that the Series C Preferred Stock could convert into based on the conversion formula (incorporating market value of our common stock) and multiplies those converted shares by the market price of its common stock on that reporting date.  The total converted value is subtracted by the consideration paid to determine the fair value of the derivative liability. The Company classified the derivative liability of $92,000 and $80,000 at June 30, 2014 and December 31, 2013, respectively, in Level 2 of the fair value hierarchy.

The warrants issued in connection with the Tonaquint Note (the "Tonaquint Warrants," see Note 11) were measured at fair value and liability-classified because the Tonaquint Warrants contain "down-round" protection and therefore do not meet the scope exception under FASB ASC 815, Derivatives and Hedging ("ASC 815"). Since "down-round" protection is not an input to the fair value of the warrants, the warrants cannot be considered indexed to the Company's own stock which is a requirement for the scope exception as outlined under ASC 815.  The Company valued the warrants at $8,000 at December 31, 2013, and $26,076 upon issuance July 16, 2013, in Level 3 of the fair value hierarchy. During the first quarter of 2014 the Company executed a debt settlement agreement with Tonaquint related to the note and warrant (see Note 11).

Similarly, the conversion feature of the Tonaquint Note (Note 11) also contained "down-round" protection and therefore did not meet the scope exception under FASB ASC 815.  The Company classified the derivative liability of $0 at December 31, 2013, and $19,024 upon issuance at July 16, 2013, in Level 3 of the fair value hierarchy. During the first quarter of 2014 the Company executed a debt settlement agreement with Tonaquint related to the note and warrant (see Note 11).

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value could result in a different fair value measurement at the reporting date.

The carrying amounts reported in our Condensed Consolidated Balance Sheet for cash, accounts receivable, notes payable, deferred revenue, and preferred stock liability approximate fair value due to the short-term maturity of those financial instruments.

XML

AVAILABLE-FOR-SALE AND EQUITY SECURITIES

6 Months Ended

Jun. 30, 2014

AVAILABLE-FOR-SALE AND EQUITY SECURITIES [Abstract]

AVAILABLE-FOR-SALE AND EQUITY SECURITIES

5.    AVAILABLE-FOR-SALE AND EQUITY SECURITIES

The fair value of the equity securities we held were categorized as available-for-sale securities, which were carried at a fair value of zero, consisted of shares in Security Innovation and Xion Pharmaceutical Corporation ("Xion").  We own 223,317 shares of stock in the privately held Security Innovation, an independent provider of secure software located in Wilmington, MA.

In September 2009 we announced the formation of a joint venture with Xion for the commercialization of our patented melanocortin analogues for treating sexual dysfunction and obesity.  CTI currently owns 60 shares of common stock or 30% of the outstanding stock of privately held Xion.

XML

RECEIVABLES (Tables)

6 Months Ended

Jun. 30, 2014

RECEIVABLES [Abstract]

Schedule of Receivables

Receivables consist of the following:

	June 30, 2014		December 31, 2013
Calmare® sales receivable	$	142,725	$	132,850
Royalties, net of allowance of $101,154 at June 30, 2014 and December 31, 2013		-		10,086
Other		394		394
Total receivables	$	143,119	$	143,330

XML

CONTRACTUAL OBLIGATIONS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2014

CONTRACTUAL OBLIGATIONS AND CONTINGENCIES [Abstract]

CONTRACTUAL OBLIGATIONS AND CONTINGENCIES

13.            CONTRACTUAL OBLIGATIONS AND CONTINGENCIES

As of June 30, 2014, CTI and its majority owned subsidiary, VVI, have remaining obligations, contingent upon receipt of certain revenues, to repay up to $165,701 and $198,365, respectively, in consideration of grant funding received in 1994 and 1995.  CTI also is obligated to pay at the rate of 7.5% of its revenues, if any, from transferring rights to certain 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.  

We had previously engaged R.F. Lafferty & Co. to seek an acquisition partner from a limited number of companies for our nanoparticle bone biomaterial patents, among other assets and/or securities.  The Company would have paid Lafferty a 10% finder's fee in the event an acquisition partner was found. This engagement expired during the quarter ended June 30, 2014 without Lafferty identifying an acquisition partner and as such, no fee was paid to Lafferty.

Contingencies - Litigation

Carolina Liquid Chemistries Corporation, et al. (case completed) - On August 29, 2005, we filed a complaint against Carolina Liquid Chemistries Corporation ("Carolina Liquid") in the United States District Court for the District of Colorado, alleging patent infringement of our patent covering homocysteine assays, and seeking monetary damages, punitive damages, attorneys' fees, court costs and other remuneration at the option of the court. As we became aware of other infringers, we amended our complaint to add as defendants Catch, Inc. ("Catch") and the Diazyme Laboratories Division of General Atomics ("Diazyme"). On September 6, 2006, Diazyme filed for declaratory judgment in the Southern District of California for a change in venue and a declaration of non-infringement and invalidity. On September 12, 2006, the District Court in Colorado ruled that both Catch and Diazyme be added as defendants to the Carolina Liquid case.

On October 23, 2006, Diazyme requested the United States Patent and Trademark Office (the "USPTO") to re-evaluate the validity of our patent and this request was granted by the USPTO on December 14, 2006. On July 30, 2009, the U.S. Patent and Trademark Office's Board of Patent Appeals and Interferences ("BPAI") upheld the homocysteine patent. In September 2008, the examiner had denied the patent, but that denial was overruled by the BPAI. While the examiner had appealed that BPAI decision, delaying further action, that appeal was also denied by the BPAI on December 13, 2010. In June 2011, the examiner once again appealed the BPAI decision. In addition to responding to this new appeal, the Company petitioned the Director of the USPTO to help expedite further action on the case within the USPTO, which was to have been handled with special dispatch according to USPTO requirements for handling reexamination proceedings of patents involved in litigation.

On March 13, 2012, the USPTO issued the Ex Parte Reexamination Certificate confirming the patentability of claims examined.

The Company has undertaking efforts to collect amounts from various obligated companies.

Employment matters - former employee (case completed) - In September 2003, a former employee filed a whistleblower complaint with the Occupational Safety and Health Administration of the Department of Labor ("OSHA") alleging that the employee had been terminated for engaging in conduct protected under the Sarbanes Oxley Act of 2002 ("SOX"). In February 2005, OSHA found probable cause to support the employee's complaint and the Secretary of Labor ordered reinstatement and back wages since the date of termination and CTI requested de novo review and a hearing before an administrative law judge ("ALJ"). In July 2005, after the close of the hearing on CTI's appeal, the U.S. district court for Connecticut enforced the Secretary's preliminary order of reinstatement and back pay under threat of contempt and the Company rehired the employee with back pay.

On October 5, 2005, the ALJ who conducted the hearing on CTI's appeal of the OSHA findings ruled in CTI's favor and recommended dismissal of the employee's complaint. Although the employee abandoned his position upon notice of the ALJ's decision, he nevertheless filed a request for review by the DOL Administrative Review Board ("ARB").

In May 2006, the U.S. Court of Appeals for the Second Circuit vacated the order of the district court enforcing the Secretary's preliminary order of reinstatement and back pay. The employee also filed a new SOX retaliation complaint with OSHA based on alleged black listing action by CTI following his termination. OSHA dismissed the complaint and the employee filed a request for a hearing by an administrative law judge. Ultimately, the employee voluntarily dismissed the appeal.

In March 2008, the ARB issued an order of remand in the employee's appeal of the October 2005 dismissal of his termination complaint, directing the ALJ to clarify her analysis utilizing the burden-shifting standard articulated by the ARB. In January 2009, the ALJ issued a revised decision again recommending dismissal and once again the employee appealed the ruling to the ARB. On September 30, 2011, the ARB issued a final decision and order affirming the ALJ's decision on remand and dismissing the employee's complaint. The employee has appealed the ARB's decision before the U.S. Court of Appeals for the Second Circuit which has ordered the employee to file his opening brief by May 31, 2012. Response briefs by the Solicitor's Office of the U.S. Department of Labor and CTI were submitted in August 2012. In March 2013, the U.S Court of Appeals for the Second Circuit upheld the ARB's decision dismissing the former employee's complaint and denied the employee's appeal from that order. In April 2013, the Second Circuit terminated proceedings in that court.

CTI's Distribution Rights, Marineo and Delta

On April 8, 2014, Mr. Giuseppe Marineo, an inventor of the Calmare® pain therapy device, and Delta Research and Development ("Delta"), Mr. Marineo's research company, and Delta International Services and Logistics ("DIS&L"), Delta's commercial arm in which Mr. Marineo is the sole beneficiary of all proceeds as its founder and sole owner (collectively the "Group"), issued a press release (the "Group's Press Release") regarding CTI stating that the Company did not have authority to sell, distribute and manufacture the Calmare Device as an exclusive agent of the Group. CTI issued a corporate response in a press release dated April 11, 2014 stating that the Group's Press Release was inaccurate and has since been purged by the overseeing body of wire services.

As disclosed in the Company's Annual Report on Form 10-K on April 16, 2014, this issue between the Company and the Group is over the validity of a 2012 Amendment to a Sales and Representation Agreement (the "Amendment") which, if valid and enforceable, may have compromised its rights to sell, distribute and manufacture the Calmare Device as an exclusive agent of the Group in the global marketplace, especially in the European, Middle Eastern and North African ("EMENA") territory which was responsible for approximately 70% of gross Calmare Device sales in 2011. However, the Company believes that the Amendment is neither valid nor enforceable as it was never duly signed or authorized and subsequently deemed null and void as disclosed on April 16, 2014 in the Form 10-K filing. Therefore, the parties' rights are determined by an earlier agreement whereby the Company possesses the authority to sell, distribute and manufacture the Calmare Device as a world-wide exclusive agent of the Group.

On April 16, 2014, counsel for the Group ("Group Counsel") sent a cease and desist letter ("Cease and Desist Letter") to the Company, requesting a confirmation that the Company would no longer hold itself out as an agent of the Group permitted to sell, distribute and manufacture the Calmare Device world-wide including the EMENA territory.

The Company responded on April 25, 2014 to the Cease and Desist Letter, disputing Group Counsel's interpretation of the events surrounding the execution of the Amendment. At this time, the Company continues to find a reasonable and amicable resolution to the situation.

Summary - We may be a party to other legal actions and proceedings from time to time. We are unable to estimate legal expenses or losses we may incur, if any, or possible damages we may recover, and we have not recorded any potential judgment losses or proceeds in our financial statements to date. We record expenses in connection with these suits as incurred.

We believe that we carry adequate liability insurance, directors and officers insurance, casualty insurance, for owned or leased tangible assets, and other insurance as needed to cover us against potential and actual claims and lawsuits that occur in the ordinary course of our business. However, an unfavorable resolution of any or all matters, and/or our incurrence of significant legal fees and other costs to defend or prosecute any of these actions and proceedings may, depending on the amount and timing, have a material adverse effect on our consolidated financial position, results of operations or cash flows in a particular period.

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ACCRUED EXPENSES AND OTHER LIABILITIES

6 Months Ended

Jun. 30, 2014

ACCRUED EXPENSES AND OTHER LIABILITIES [Abstract]

ACCRUED EXPENSES AND OTHER LIABILITIES

9.           ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following:

	June 30,  2014		December 31,  2013
Royalties payable	$	205,451	$	127,708
Accrued compensation		135,000		-
Accrued accounting fees		-		82,141
Commissions payable		51,026		21,975
Accrued interest payable		296,390		216,518
Other payables		167,911		134,645
Accrued expenses and other liabilities, net	$	855,778	$	582,987

Excluded above is approximately $235,000 and $244,000 of accrued expenses and other liabilities at June 30, 2014 and December 31, 2013, respectively, that fall under the Liability Purchase Agreement ("LPA") with ASC Recap, LLC ("ASC Recap"), and are expected to be repaid using the process as described in Note 10.  Because there can be no assurance that the Company will be successful in completing this process, the Company retains ultimate responsibility for these liabilities, until fully paid down.

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PREPAID EXPENSES AND OTHER CURRENT ASSETS

6 Months Ended

Jun. 30, 2014

PREPAID EXPENSES AND OTHER CURRENT ASSETS [Abstract]

PREPAID EXPENSES AND OTHER CURRENT ASSETS

7.           PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

	June 30,  2014		December 31,  2013
Prepaid insurance	$	33,114	$	16,802
Other		24,194		48,365
Prepaid expenses and other current assets	$	57,308	$	65,167

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PROPERTY AND EQUIPMENT

6 Months Ended

Jun. 30, 2014

PROPERTY AND EQUIPMENT [Abstract]

PROPERTY AND EQUIPMENT

8.           PROPERTY AND EQUIPMENT

Property and equipment, net, consist of the following:

	June 30, 2014			December 31, 2013
Property and equipment, gross	$	215,491		$	177,537
Accumulated depreciation and amortization		(167,807	)		(169,931	)
Property and equipment, net	$	47,684		$	7,606

Depreciation and amortization expense was $4,522 and $6,346 during the three and six months ended June 30, 2014, and $2,523 and $4,859 for the three and six months ended June 30, 2013.

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LIABILITIES ASSIGNED TO LIABILITY PURCHASE AGREEMENT

6 Months Ended

Jun. 30, 2014

Liabilities Assigned To Liability Purchase Agreement [Abstract]

LIABILITIES ASSIGNED TO LIABILITY PURCHASE AGREEMENT

10.          LIABILITIES ASSIGNED TO LIABILITY PURCHASE AGREEMENT

During the third quarter of 2013, the Company negotiated a LPA with Southridge, Partners II, L.P. ("Southridge"). The LPA takes advantage of a provision in the Securities Act of 1933, Section 3(a)(10), that allows the exchange of claims, securities, or property for stock when the arrangement is approved for fairness by a court proceeding. The process, approved by the court in August 2013, has the potential to eliminate nearly $2.1 million of our financial obligations to existing creditors who agreed to participate and executed claims purchase agreements with Southridge's affiliate ASC Recap" accounting for $2,093,303 of existing payables, accrued expenses and other current liabilities, and notes payable. The process began with the issuance in September 2013 of 1,618,235 shares of the Company's common stock to ASC Recap. During September and October 2013, ASC Recap sold the Company's common stock and during the three months ended March 31, 2014 paid creditors approximately $80,000 from the proceeds and retained a service fee of approximately $27,000. As of August 8, 2014, no further shares of the Company's common stock had been issued to ASC Recap to settle creditors' balances.

There can be no assurance that the Company will be successful in completing this process with Southridge, and the Company retains ultimate responsibility for this debt, until fully paid.

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AVAILABLE-FOR-SALE AND EQUITY SECURITIES (Details)	Jun. 30, 2014
Security Innovation, Inc. [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of shares held	223,317
Xion Pharmaceutical Corporation [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of shares held	60
Percentage of shares outstanding owned	30.00%

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SUBSEQUENT EVENT

6 Months Ended

Jun. 30, 2014

SUBSEQUENT EVENT [Abstract]

SUBSEQUENT EVENT

15.           SUBSEQUENT EVENT

Additional financing

Subsequent to June 30, 2014, the Company raised additional working capital of approximately $90,000 through the issuance of equity instruments.

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ACCRUED EXPENSES AND OTHER LIABILITIES (Tables)

6 Months Ended

Jun. 30, 2014

ACCRUED EXPENSES AND OTHER LIABILITIES [Abstract]

Schedule of Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following:

	June 30,  2014		December 31,  2013
Royalties payable	$	205,451	$	127,708
Accrued compensation		135,000		-
Accrued accounting fees		-		82,141
Commissions payable		51,026		21,975
Accrued interest payable		296,390		216,518
Other payables		167,911		134,645
Accrued expenses and other liabilities, net	$	855,778	$	582,987

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RELATED PARTY TRANSACTIONS (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Related Party Transaction [Line Items]
Director's service charges per day	$ 1,000
Notes payable to related parties	2,598,980
Chairman [Member]
Related Party Transaction [Line Items]
Notes payable to related parties	2,498,980
Board of Directors [Member]
Related Party Transaction [Line Items]
Notes payable to related parties	$ 100,000

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NOTES PAYABLE (Summary of Issuances of Notes Payable) (Details) (90 day Convertible Notes (Chairman of the Board) [Member], USD $)	12 Months Ended			36 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2013
90 day Convertible Notes (Chairman of the Board) [Member]
Short-term Debt [Line Items]
Notes Payable, amount borrowed during period	$ 1,188,980	$ 1,210,000	$ 100,000	$ 2,498,980

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Condensed Consolidated Statements of Changes in Shareholders' Deficit (USD $)	Total	Preferred Stock [Member]	Common Stock [Member]	Capital in excess of par value [Member]	Accumulated deficit [Member]
Balance at Dec. 31, 2013	$ (5,944,470)	$ 60,675	$ 199,529	$ 46,077,394	$ (52,282,068)
Balance, shares at Dec. 31, 2013		2,427	19,952,907
Net loss	(1,517,155)				(1,517,155)
Common stock issued to directors	4,038		106	3,932
Common stock issued to directors, shares			10,625
Stock option compensation expense	41,123			41,123
Common stock issued upon conversion of OID notes	174,876		7,988	166,888
Common stock issued upon conversion of OID notes, shares			798,825
Private offering of common stock and warrants	670,000		33,500	636,500
Private offering of common stock and warrants, shares			3,350,000
Warrants and beneficial conversion feature on notes payable	53,338			53,338
Liabilities settled under Liability Purchase Agreement	106,644			106,644
Balance at Jun. 30, 2014	$ (6,411,606)	$ 60,675	$ 241,123	$ 47,085,819	$ (53,799,223)
Balance, shares at Jun. 30, 2014		2,427	24,112,357

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RECEIVABLES

6 Months Ended

Jun. 30, 2014

RECEIVABLES [Abstract]

RECEIVABLES

4.    RECEIVABLES

Receivables consist of the following:

	June 30, 2014		December 31, 2013
Calmare® sales receivable	$	142,725	$	132,850
Royalties, net of allowance of $101,154 at June 30, 2014 and December 31, 2013		-		10,086
Other		394		394
Total receivables	$	143,119	$	143,330

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NOTES PAYABLE (Tables)

6 Months Ended

Jun. 30, 2014

Accounts, Notes, Loans and Financing Receivable [Line Items]

Schedule of Notes Payable

Notes payable consist of the following:

	June 30, 2014			December 31, 2013
90 day Convertible Notes (Chairman of the Board)	$	2,498,980		$	2,518,000
24 month Convertible Notes ($100,000 to Board member)		225,000			225,000
Tonaquint 9% OID Convertible Notes and Warrants		-			87,705
Southridge Convertible Note		12,000			12,000
Series A1 15% OID Convertible Notes and Warrants		29,440			81,415
Series A2 15% OID Convertible Notes and Warrants		119,758			69,571
Series A3 15% OID Convertible Notes and Warrants		46,222			-
Series B OID Convertible Notes and Warrants		38,082			-
Notes Payable, gross		2,969,482			2,933,691
Less LPA amount		(485,980	)		(505,000	)
Notes Payable, net	$	2,483,502		$	2,488,691

Details of notes payable as of June 30, 2014 are as follows:

	Original Principal Amount		Carrying Value (1)			Cash Interest Rate			Common Stock Conversion Price		Maturity Date
90 day Convertible Notes (Chairman of the Board)	$	2,498,980	$	2,498,980			6	%	$	1.05	Various 2014
24 month Convertible Notes ($100,000 to Board member)		225,000		225,000			6	%		1.05	March 2014 - June 2014
Southridge Convertible Note		12,000		12,000			None			75% of closing bid	June 2014
Series A1 15% OID Convertible Notes and Warrants		29,412		29,412			None			0.20	August 2014
Series A2 15% OID Convertible Notes and Warrants		94,471		119,758			None			0.20-0.25	September 2014
Series A3 15% OID Convertible Notes and Warrants		64,706		46,250			None			0.25	January 2015
Series B OID Convertible Notes and Warrants		80,000		38,082			None			0.35	March 2017
Notes Payable, gross	$	3,004,569		2,969,482
Less LPA amount				(485,980	)
Notes Payable, net			$	2,483,502

(1) Includes $28,177 of accrued loss on conversion of OID Notes.

Schedule of 90 day Convertible Notes

The Company has issued 90-day notes payable to borrow funds from a director, now the chairman of our Board, as follows:

2013	$	1,188,980
2012		1,210,000
2011		100,000
Total	$	2,498,980

Series A 15% Original Issue Discount Convertible Notes and Warrants [Member]

Accounts, Notes, Loans and Financing Receivable [Line Items]

Schedule of Estimated Fair Value of Notes Assumptions

We estimated the fair value of the warrants on the issue date using a Black-Scholes pricing model with the following assumptions:

	Warrants (Tranche 1) November 15, 2013			Warrants (Tranche 2) December 30, 2013			Warrants (Tranche 3) February 14, 2014
Expected term		2 years			2 years			2 years
Volatility		180.02	%		184.38	%		184.88	%
Risk Free Rate		0.31	%		0.39	%		0.32	%

Schedule of Proceeds of Notes Allocation

The proceeds of the Notes issued during the three months ended March 31, 2014 were allocated to the components as follows:

	Proceeds allocated at issue date
Private Offering Notes	$	32,390
Private Offering Warrants		14,845
Beneficial Conversion feature		7,765
Total	$	55,000

Schedule of Debt Conversion

Presented below is summary information related to the conversion:

Statement of Operations
Loss on conversion of notes	$	43,288
Accelerated interest expense	$	35,109
Balance Sheet
Shares issued as of June 30, 2014		798,825
Shares to be issued subsequent to June 30, 2014		529,415
Principal amount of notes converted	$	265,648

Series B Original Issue Discount Convertible Notes and Warrants [Member]

Accounts, Notes, Loans and Financing Receivable [Line Items]

Schedule of Estimated Fair Value of Notes Assumptions

We estimated the fair value of the warrants on the issue date using a Black-Scholes pricing model with the following assumptions:

	Warrants March 20, 2014
Expected term		4 years
Volatility		151.52	%
Risk Free Rate		1.32	%

Schedule of Proceeds of Notes Allocation

The proceeds of the Notes were allocated to the components as follows:

	Proceeds allocated at issue date
Private Offering Notes	$	34,272
Private Offering Warrants		26,811
Beneficial Conversion feature		3,917
Total	$	65,000

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ACCRUED EXPENSES AND OTHER LIABILITIES (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
ACCRUED EXPENSES AND OTHER LIABILITIES [Abstract]
Royalties payable	$ 205,451	$ 127,708
Accrued compensation	135,000
Accrued accounting fees		82,141
Commissions payable	51,026	21,975
Accrued interest payable	296,390	216,518
Other	167,911	134,645
Accrued expenses and other liabilities, net	855,778	582,987
Accrued expenses and other liabilities - LPA	$ 235,000	$ 244,000

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RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2014

RELATED PARTY TRANSACTIONS [Abstract]

RELATED PARTY TRANSACTIONS

14.           RELATED PARTY TRANSACTIONS

Our board of directors determined that when a director's services are outside the normal duties of a director, we compensate the director at the rate of $1,000 per day, plus expenses, which is the same amount we pay a director for attending a one-day Board meeting.  We classify these amounts as consulting expenses, included in personnel and consulting expenses.

At June 30, 2014, $2,598,980 of the outstanding were Notes payable to related parties; $2,498,980 to the chairman of our Board and $100,000 to another director.