Competitive Technologies Inc. (OTCQX: CTTC, Target Price ...calmaretherapeutics.com/media/pdf/Reports/SeeThruEquity Report - … · pain market. Patients typically undergo 12 treatments

INITIATING COVERAGE (June 26, 2014)

Equity | Healthcare / M edi c a l Equ ip m e nt

© 2011-2014 SeeThruEquity, LLC. Important disclosures appear at the back of this report. 1 | P a g e

Competitive Technologies Inc. (OTCQX: CTTC, Target Price: $0.79) We initiate coverage on Competitive Technologies Inc. (“CTI”) with a price target of $0.79 per share. CTI is a pain mitigation company that develops and commercializes innovative wound and pain management products and technologies. CTI is the exclusive licensed global distributor of the non-invasive Calmare® Pain Therapy Device, its flagship product. The Calmare® device is a U.S. FDA 510(k)-cleared and European CE mark-certified pain therapy medical device for the non-invasive treatment of chronic neuropathic and oncologic pain.

INVESTMENT HIGHLIGHTS Calmare® is a highly differentiated pain therapy device CTI’s Calmare® device has demonstrated high levels of pain treatment efficacy through a non-invasive procedure, successfully treating pain without harmful side effects or the use of powerful and potentially addictive drugs. The Calmare® device has been used to successfully treat over 4,000 patients worldwide, where it has been shown to be effective in treating neuropathic and oncologic pain, including chemotherapy-induced peripheral neuropathy, phantom limb syndrome, sciatica, post-surgical neuropathic pain and back and neck pain, among other indications. Developed in Italy, the Calmare® device employs a biophysical, rather than a biochemical approach, to pain therapy. Using a multi-processor and applying surface electrodes to the skin, the device creates and sends a no-pain signal to the brain, thus overriding the pain signal and providing relief for the patient. Unmet medical need, negative side effects of pain medication Approximately 100 million Americans suffer from chronic pain, defined as pain that lasts longer than six months. Chronic pain can be mild or excruciating, episodic or continuous, merely inconvenient or totally incapacitating. Over the last decade, a handful of dedicated researchers have learned that chronic pain is not simply a symptom of something else -- such as anxiety, depression, or a need for attention -- but a disease in its own right, one that can alter a person's emotional, professional, and family life in profound and debilitating ways. Because of the mind-body links associated with chronic pain, effective treatment requires addressing psychological as well as physical aspects of the condition. Too often, the needs of pain patients go unmet, and the common standard of care is pain medication. This has led to a large increase in prescription painkiller addiction and overdoses. Research from the Center for Disease Control estimated that 10,000 people died in the US in 2010 from prescription painkiller overdoses. For every death, another 30 people end up in the emergency room from painkiller misuse or abuse. Compelling value proposition for practitioners CTI is initially targeting a chronic pain patient population of approximately 5.8 million in the US alone, representing just 5% of the estimated chronic pain market. Patients typically undergo 12 treatments over a two week period, at a national average cost of $250 per treatment. Physicians can lease the Calmare® device for around $2,000 per month, resulting in a very attractive economic value to their practices. CTI has reported a wide range of reimbursement levels for Calmare® treatments, even within the same geographic locations. Regardless of the reimbursement level, there is still ample room for physicians to make healthy returns using the device.

Initiate coverage with a price target of $0.79 Our analysis indicates a fair value estimate of $0.79 per share (detailed on pages 8 and 9), implying an upside of 147% from the recent price of $0.32. We view CTI as a speculative investment in the pain management space. The Calmare® device looks to be a highly differentiated technology.

Stock Details (06/24/2014)

OTCQX: CTTC

Sector / Industry Healthcare / Medical Equipment

Price target $0.79

Recent share price $0.32

Shares o/s (mn) 22.4

Market cap (in $mn) $7.2

52-week high/low $0.55 / 0.05

Source: Bloomberg, SeeThruEquity Research

Key Financials ($mn unless specified)

FY12 FY13 FY14E

Revenues 1.1 0.7 0.9

EBITDA (2.9) (2.5) (2.1)

EBIT (2.9) (2.5) (2.1)

Net income (3.0) (2.7) (2.6)

EPS ($) (0.20) (0.16) (0.11)

Source: SeeThruEquity Research

Key Ratios

FY12 FY13 FY14E

Gross margin (%) 59.8 58.2 62.0

Operating margin (%) (331.5) (404.4) (232.9)

EBITDA margin (%) (329.9) (402.7) (232.1)

Net margin (%) (329.2) (409.3) (289.0)

P/Revenue (x) 9.4 13.1 9.5

EV/EBITDA (x) (3.6) (4.1) (5.2)

EV/Revenue (x) 11.9 16.6 12.1


Share Price Performance ($, LTM)

Source: Thomson Reuters

0.00

0.50

Jun-13 Sep-13 Dec-13 Mar-14 Jun-14


Competitive Technologies Inc.

Equity | Healthcare / Medical Equipment

June 26, 2014

SUMMARY TABLE

* three month average volume (number of shares)

Estimates Valuation FY December Rev ($mn) EBITDA ($mn) EPS ($) P/Rev (x) EV/Rev (x) P/E (x) 2011A 3.4 (3.6) (0.25) 2.6x 3.3x NM

2012A 0.9 (2.9) (0.20) 9.4x 11.9x NM

2013A 0.7 (2.5) (0.16) 3.3x 4.1x NM

1Q14E 0.2 (0.5) (0.04) 9.7x 12.2x NM

2Q14E 0.2 (0.5) (0.03) 9.5x 12.0x NM

3Q14E 0.2 (0.5) (0.02) 9.5x 12.0x NM

4Q14E 0.2 (0.5) (0.02) 37.9x 12.0x NM

2014E 0.9 (2.1) (0.11) 9.5x 12.1x NM

2015E 2.8 (1.3) (0.07) 3.1x 3.9x NM


INVESTMENT THESIS

Competitive Technologies Inc. (“CTI”) was established in 1968 and it is headquartered in Fairfield, Connecticut. CTI is a medical equipment company that develops and commercializes innovative medical products and technologies with a concentration in pain management. CTI originally acquired the exclusive, worldwide rights to the Scrambler Therapy® technology in 2007. The Calmare® pain therapy device, CTI’s flagship product, was developed from the Scrambler technology and CTI has controlled the sales process for the Calmare® device since 2011. The Calmare® device is a technologically advanced solution for chronic pain management. This proprietary, patented, non-invasive medical device has been developed to treat high intensity oncologic and neuropathic pain without the harmful side effects of narcotic painkillers. The device is 510(k) cleared for sales in the US and is CE marked for sales in Europe, and has been used to successfully treat over 4,000 patients worldwide with no known side effects. Chronic pain is a severe problem for millions of people worldwide, and the global market for pain management therapeutics is estimated to be in the $28-30bn range annually. The Calmare® device employs a highly differentiated approach from traditional pain medications and existing therapies and is a valuable asset to CTI. We feel that CTI offers investors a very attractive investment, even if the company attains only a 5% share of the US chronic pain market with the Calmare® device.

Figure 1. Summary Table (As of June 24, 2014)

Share data B/S data (As of 1Q14) Key personnel: Recent price: $0.32 Total assets: 4.8mn President, CEO & Dir: Conrad Mir

Price target: $0.79 Total debt: 2.6mn Chief Financial Officer: Ian Rhodes

52-week range: 0.55 / 0.05 Equity: (6.0mn)

Average volume:* 22,212 W/C: (6.0mn)

Market cap: $7.2mn ROE '13: -45%

Book value/share: ($0.30) ROA '13: -59%

Cash/share $0.02 Current ratio: 0.4

Dividend yield: 0.00% Asset turnover: 0.2

Risk profile: High / Speculative Debt/Cap: (0.8)




June 26, 2014

Chronic pain market

Chronic pain, defined as pain that lasts longer than six months, can be mild or excruciating, episodic or continuous, merely inconvenient or totally incapacitating. With chronic pain, pain signals keep firing in the nervous system for weeks, months, even years. There may have been an initial mishap or there may be an ongoing cause of pain (arthritis, cancer, infection, etc.), but some people suffer chronic pain in the absence of any past injury or evidence of body damage. Common chronic pain complaints include headache, low back pain, cancer pain, arthritis pain, neurogenic pain (pain resulting from damage to the peripheral nerves or to the central nervous system itself). A report by Global Industry Analysts, Inc. (“GIA”) estimated that as of 2011, more than 1.5 billion people worldwide suffered from chronic pain and that approximately 3-4.5% of the global population suffers from neuropathic pain, with incidence rate increasing with age. According to the Institute of Medicine of The National Academies, approximately 100 million Americans suffer from chronic pain, more than diabetes, heart disease and cancer combined. The GIA report estimated that the global pain management market would reach $60bn by 2015. This is dwarfed by the estimated $600bn in annual incremental cost of health care due to pain in the US, which combines the medical costs of pain care and the economic costs related to disability days and lost wages and productivity. Chronic pain takes a physical and emotional toll on patients, creating anxiety, stress, depression, anger and fatigue. Because of the mind-body links associated with chronic pain, effective treatment requires addressing psychological as well as physical aspects of the condition. Patients look to numerous therapies and treatments to relieve this chronic pain. A 2003 survey conducted by Peter D. Hart Research Associates reported that most pain sufferers (63%) have seen their family doctor for help. 40% made an appointment with a specialist, such as an orthopedist. 25% have visited a chiropractor or a doctor that specializes in pain management (15%). While 43% of pain sufferers have been to only one type of doctor for their pain, a large proportion (38%) have consulted more than one practitioner in the medical community. Treatments for pain have yielded mixed results. Although 58% of those who took prescription medication say that doing so was very fairly effective for their pain, only 41% of those who took over-the-counter reported the same efficacy.

Source: Company filings and investor materials, www.cdc.gov, www.painmed.org, www.theacpa.org, SeeThruEquity Research

Prescription painkillers The use of analgesics and other medications is the most common method of chronic pain treatment and the growth has been significant. Sales of opioid pain relievers (prescription level painkillers) quadrupled between 1999 and 2010. Enough opioids were prescribed in 2013 to medicate every American adult with a standard pain treatment dose of 5 mg of hydrocodone (Vicodin and others) taken every 4 hours for a month. Pain medications can be helpful for some patients in chronic pain, but they are not universally effective. On average, opioids generally reduce pain by about 30%. A 2006 survey conducted by the American Pain Foundation on 303 chronic pain sufferers who sought care from their physician and were currently using an opioid to treat their pain reported that more than half of respondents (51%) felt they had little or no control over their pain and six out of ten patients said they experience breakthrough pain one or more times daily, severely impacting their quality of life and overall well-being. Unfortunately for some individuals, pain medications may actually worsen their symptoms over time or cause unwanted or dangerous side effects. Medication-related problems would rank fifth among the leading causes of death in the US if they were considered a disease. In particular, the overuse, misuse and abuse of opioid (narcotic) pain medications has now become a national issue. Deaths due to overdoses of opioid prescription drugs have risen sharply, and now outnumber all other causes of accidental death. The abuse of prescription opioid pain medications now ranks second - only behind marijuana - as the nation’s most prevalent drug problem. The Center for Disease Control (“CDC”) estimated that 10,000 people died in the US in 2010 from prescription painkiller overdoses. For every death, another 30 people end up in the emergency room from painkiller misuse or abuse. Substance abuse treatment admissions for individuals age 50 or older nearly doubled from 1992 to 2008, climbing from 6.6% of all admissions to 12.2%. The percentage of primary admissions for prescription drug abuse among older individuals increased from 0.7% to 3.5% over the same time period. This has become a very serious problem around the world, and in many ways painkillers are as destructive as the chronic pain symptoms they were intended to alleviate. It is estimated that non-medical use of prescription painkillers costs health insurers up to $72.5bn annually in direct health care costs.

Source: Company filings and investor materials, www.cdc.gov, www.painmed.org, www.theacpa.org, SeeThruEquity Research

Calmare® device is a highly differentiated form of therapy

The Calmare® device uses a biophysical rather than a biochemical approach. A 'no-pain' message is transmitted to the nerve via disposable surface electrodes applied to the skin in the region of the patient's




June 26, 2014

pain. The electrodes are placed near the patient’s painful region to access their C-fibers, which convey input signals from the periphery to the central nervous system. The perception of pain is cancelled when the Calmare® multi-processor sends an algorithmically “scrambled” no-pain message along the C-fibers to the patient’s brain. This no-pain signal replaces the pain signal by using the same pathway through the surface electrodes in a non-invasive way. A typical course of therapy involves a patient using the Calmare® device for 45 minutes for approximately 12 sessions over a two week period. With each session, a patient should see a marked improvement in their Visual Analog Scale (“VAS”) pain score and an increase in the duration of that improvement. For example, a patient suffering with a VAS score of 8 (severe pain) may see a reduction to a 2 (mild pain) after one session. Hours later, they may return to a score of 8. After their next session, they may return to a 2, but the duration of that improvement should improve and they might not even return to the initial score of 8. By the end of the therapy, the patient may remain in the 1 to 2 range consistently, if not permanently. The Calmare® device has been shown to be highly effective in the treatment of chemotherapy induced peripheral neuropathy (“CIPN”), drug-resistant cancer pain and chronic neuropathic pain including failed back surgery syndrome (“FBSS”), sciatic and lumbar pain, phantom limb syndrome, postherpetic neuralgia (“PHN”), brachial plexus neuropathy, and low back pain (“LBP”). A study of 33 terminal cancer patients suffering from severe drug resistance and were treated with Calmare®. Within six treatments, their initial pain score (pre-treatment) had been reduced from approximately 9 to 1, and their ultimate post-therapy score after ten sessions was essentially zero. A second study of the Calmare® device compared a control group of 26 patients receiving oxycodone and amitriptyline 26 patients receiving Scrambler Therapy. Patients in both groups reported initial VAS pain scores of approximately 8. After one month of treatment, the control group reported an average score of 5.8, roughly in line with the expected effectiveness of opiates. The Calmare® treated patients reported a VAS score of 0.07. 72% of the 26 patients treated with the Calmare® device reported being completely drug and pain free after treatment. Of the remaining patients, 20% reported requiring reduced drug dosages after receiving Calmare® treatment.

Source: Company filings and investor materials, SeeThruEquity Research

Compelling economics for practitioners

CTI is initially targeting a chronic pain patient population of approximately 5.8 million in the US alone, representing just 5% of the estimated chronic pain market. Patients typically undergo 12 treatments over a two week period, at a national average cost of $250 per treatment ($3000 per full course of treatment). Physicians can lease the Calmare® device for around $2,000 per month. CTI has reported a wide range of reimbursement levels for Calmare® treatments, even within the same geographic locations. They have physicians who accept no insurance and some clinics where patients receive up to 90% reimbursement. Regardless of the reimbursement level, there is still ample room for physicians to make healthy returns using the device. If a physician or clinic sees ten patients per month, they would generate $30,000 per month based on national average treatment fees. Compared to the $2,000 leasing price, this is quite an attractive value proposition. Source: Company filings and investor materials, SeeThruEquity Research




June 26, 2014

Multiple avenues for growth CTI has outlined numerous avenues for expanding the usage of the Calmare® device, both in the US and internationally. These growth strategies include:

• Working with the US Military to study the effectiveness of the Calmare® device in treating patients experiencing phantom limb syndrome. Over the past 30 months, CTI has entered into sales agreements with US government entities within the US Department of Defense and the US Department of Veterans Affairs. There is a large patient pool within the US Military and there remains no truly effective treatment for phantom limb syndrome.

• Resuming distributor sales in the European, Middle East and North African territories (“EMENA”). • Establishing a Calmare® certification program, ensuring all practitioners using the Calmare®

device are knowledgeable on the best methods of practice using the device and conducting continuing physician education programs.

• Conducting a multi-center pivotal trial to obtain US FDA approval for the Calmare® device.

CTI has outlined the need to raise approximately $5mn in funding to pursue these opportunities. The company has already raised $1.2mn of the first tranche ($1.5mn), and will look to raise the additional funds including a second tranche ($3.5mn) in 2H14.

Source: Company filings and investor materials, SeeThruEquity Research New management team to reinvigorate growth and reengineer CTI On September 27, 2013, the Board of Directors of CTI appointed Conrad Mir as the Company’s new Chief Executive Officer, and President and elected him as a member of the Board of Directors. Mr. Mir has over 20 years of experience in the financial industry. Over that time, he was responsible for having restructured half a dozen companies. Prior to joining Competitive Technologies, Conrad was the CFO of Pressure BioSciences, Incorporated (OTC: PBIO), an instrumentation company that services the healthcare, military and homeland security industry. In his short time at CTI, Mr. Mir has already begun a significant operational reengineering of CTI, paying down unfavorable debt, re-establishing EMENA territory distribution, reducing expenses and streamlining product sales. He has also been very active on the investor relations front, greatly increasing CTI’s exposure to institutional investors. Finally, Mr. Mir has bolstered CTI’s management team with the hiring of a new CFO (Ian Rhodes), as well appointing new heads of both US Sales and Product Marketing.

Source: Company filings and investor materials, SeeThruEquity Research




June 26, 2014

COMPETITIVE LANDSCAPE CTI competes with numerous technologies, treatments and medications in the pain management space. Pain medications, including prescription painkillers, are the most widely used therapy for pain management. There are many other companies with pain management medical technologies, including Neurotech, Medtronic, Inc. (NYSE: MDT), Renewal Technologies and Pain Management Technologies. Patients suffering from chronic pain will often try numerous therapies and medications, including massage and acupuncture. For those suffering from oncologic pain, medicinal marijuana is a growing option. CTI has a very unique technology with its Calmare® device, and it is not necessarily competing with any one comparable technology in particular. Instead, it is trying to gain recognition in a very crowded and un-fulfilled space. CTI is competing by showing efficacy but also by showing physicians how they can effectively incorporate the Calmare® device into their practices. CTI 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"), authorized CTI to manufacture and sell worldwide the device developed from the patented Scrambler Therapy technology. In 2011, CTI negotiated an extension to the agreement with Marineo and Delta. This agreement extended the CTI’s exclusive, worldwide rights to the Scrambler Therapy technology until March 31, 2016. Compared to the majority of the peer group, CTI is much smaller in market capitalization range and it has yet to demonstrate profitability. We feel that CTI has the potential to achieve EBIT in the 25-30% range and ROA in the 15-20% range, putting it in firmly in top end of the peer group. Figure 2. ROA vs. EBIT– CTI Peers

Source: Company filings, SeeThruEquity Research

Syneron Medical Ltd.

InfuSystems Holdings, Inc.

K2M Group Holdings, Inc.

Liberator Medical Holdings, Inc.

PhotoMedex, Inc.

Repro-Med Systems, Inc.

-40%

-30%

-20%

-10%

0%

10%

20%

30%

-30% -20% -10% 0% 10% 20%

EBIT

ROA

Size of bubble indicates market cap




June 26, 2014

FINANCIALS AND FUTURE OUTLOOK Revenue/Drivers

CTI reported device revenues of $652,792 in 2013 and $221,080 in 1Q14. With new management in place, we would look for material growth on the top line as CTI expands its distribution efforts both domestically and internationally. CTI is targeting an initial patient population of 5.8mn, using an average of 12 patients per month per device, this comes to approximately 37,000 Calmare® devices in the market at full penetration. CTI sells the devices for $105,000 and leases them for approximately $2,000 per month. CTI has significant room to grow revenues through both leasing and sales channels, and we are modeling $896,080 in device revenue for 2014E. We feel that more meaningful growth will commence in 2015E, and have modeled in $2.8mn in device revenues for that year, growing to $12.7mn in 2019E. This assumes an average of 55 Calmare® devices sold annually in the 2015-2019E timeframe and approximately 20-30 new lease agreements per year.

Margins/Expenses

CTI reported gross margins of 58.2% in 2013 and 68.2% in 1Q14. 2013 numbers were suppressed due to no sales being recorded in 1Q13. We are modeling in 62% gross margins in 2014E, increasing to 67% in 2019E. CTI has seen increases in selling and personnel expense and the company looks to increase product visibility, geographic distribution and had made some key new hires. At the same time, G&A decreased substantially in 1Q14. We have modeled in $2.6mn in operating expenses in 2014E, compared with $3mn in 2013. Going forward, we would assume that the largest expenditures would be a clinical trial for FDA approval of the Calmare® device. In time, we feel that CTI can achieve operating margins in the 25-30% range.

Balance Sheet & Financial Liquidity

CTI had $343k in cash and $4.2mn in inventories among its $4.8mn in assets as of March 31, 2014. CTI had $4.8mn in payables and $2.6mn of debt as of March 31, 2014 among its $10.7mn in liabilities. $2.4mn of the debt is in the form of a 90 day convertible note held by the Chairman of the Board and bear interest at 6%. CTI had 22.5mn shares outstanding as of May 14, 2014. CTI also had 2,427 shares of Series C Preferred Stock and total warrants outstanding of 65,000 as of March 31, 2014. CTI has stated its intention to raise an additional $5mn in capital ($1.2mn of which has been completed). We are modeling in CTI issuing an additional $3.8mn in common stock over the balance of 2014E, which would raise the share count to approximately 35mn.

Figure 3. Key Performance Indicators of CTI, FY14E–18E

Source: Company filings, SeeThruEquity Research

-500%

-400%

-300%

-200%

-100%

0%

100%

2013A 2014E 2015E 2016E 2017E 2018E

Gross Margin Operating Margin Net Margin

-5

0

5

10

15

2013A 2014E 2015E 2016E 2017E 2018E

In U

SD

mn

Revenue Gross Profit Operating Inc. Net Income FCF




June 26, 2014

VALUATION We have valued CTI using two different valuation methods; discounted cash flow (“DCF”) and Peer Group Valuation. Our blended valuation, combining the two methodologies mentioned above, yields a fair value of $0.79 per share, representing an upside of 147% from the recent price of $0.32 as of June 24, 2014.

DCF We expect significant revenue growth for CTI over the next few years as both the leasing and sales of Calmare® devices expand. We project free cash flow to move from ($2.0)mn in 2014E to $3.9mn in 2019E. We discounted cash flows at a weighted average cost of capital of 15.2% and assumed a terminal growth rate of 4% at the end of 2019E to arrive at an enterprise value of $16.6mn. Adjusting for the cash balance of $344k and debt of $2.6mn as of March 31, 2014, we arrived at a fair value of $0.96 per share. Figure 4. Discounted Cash Flow Analysis

$’ 000 FY14E FY15E FY16E FY17E FY18E FY19E EBIT (2,087) (1,261) 49 1,254 2,558 3,877 Less: Tax 0 0 0 0 0 0 NOPLAT (2,087) (1,261) 49 1,254 2,558 3,877 Changes in working capital 62 (25) (20) (15) (9) (2) Depreciation & Amortization 8 2 2 2 2 0 Capex (3) 0 0 0 0 0 FCFF (2,021) (1,284) 30 1,241 2,551 3,875 Discount factor 0.93 0.81 0.71 0.62 0.54 0.47 PV of FCFE (1,882) (1,042) 21 766 1,371 1,816 Sum of PV of FCFE 1,050 Terminal cash flow 37,570 PV of terminal cash flow 17,604 Enterprise value 18,654 Less: Debt 2,631 Add: Cash 344 Equity value 21,629 Outstanding shares (mn) 22.5 Fair value per share ($) 0.96

Summary conclusions Key assumptions DCF FV ($ per share) 0.96 Beta 1.8 Recent price ($ per share) 0.32 Cost of equity 18.8%

Upside (downside) 200.9% Cost of debt (post tax) 3.6%

WACC 14.7% Terminal Growth Rate 4.0%


Figure 5. Sensitivity of Valuation – WACC vs. Terminal Growth Rate

WACC (%)

Term

inal

gro

wth

rate

(%

)

15.82 13.7% 14.2% 14.7% 15.2% 15.7%

3.00% 1.00 0.94 0.89 0.84 0.80

3.50% 1.04 0.98 0.92 0.87 0.83

4.00% 1.09 1.02 0.96 0.91 0.86

4.50% 1.15 1.07 1.01 0.94 0.89

5.00% 1.21 1.12 1.05 0.99 0.93

5.50% 1.27 1.18 1.10 1.03 0.97





June 26, 2014

Peer Group Valuation We compared CTI with medical equipment peers Syneron Medical Ltd., K2M Group Holdings, Inc., PhotoMedex, Inc. and Utah Medical Products, Inc., among others, using a market multiple approach. We arrived at a fair value range of $0.41 to $0.50 per share based on EV/Revenue and P/Revenue multiples of selected peers. We considered a target multiple of 4.1x for the EV/Revenue multiple and 2015E revenue of $2.8mn to arrive at a fair value of $0.41 per share. Similarly, we used a P/Revenue multiple of 4.0x our 2015E revenue forecast to arrive at a fair value of $0.50 per share. CTI currently trades in line with the peer group on an EV/Revenue basis and a steep discount on a P/Revenue basis. Figure 6. Comparable Valuation (Data as of 06/24/14)

Company Mkt cap ($ mn)

EV/Revenue(x) Price/Revenue(x) FY14E FY15E FY14E FY15E

AxoGen, Inc. 49 4.0x 2.7x 3.3x 2.2x

Syneron Medical Ltd. 395 1.3x 1.2x 1.6x 1.4x

InfuSystems Holdings, Inc. 58 N/A N/A N/A N/A

K2M Group Holdings, Inc. 560 3.4x 3.0x 3.1x 2.7x

Liberator Medical Holdings, Inc. 214 2.7x 2.5x 2.8x 2.6x

Milestone Scientific 34 2.6x 2.1x 2.6x 2.1x

MRI Interventions, Inc. 54 13.4x 10.7x 13.5x 10.8x

PhotoMedex, Inc. 230 0.8x 0.7x 0.9x 0.8x

Repro-Med Systems, Inc. 13 N/A N/A N/A N/A

Utah Medical Products, Inc. 196 4.6x 4.5x 4.8x 4.7x

Average 4.1x 3.4x 4.1x 3.4x

Competitive Technologies Inc. 7 10.6x 3.4x 8.0x 2.6x

Premium (discount) 158.3% (0.4%) 96.9% (24.5%)

Source: Bloomberg, SeeThruEquity Research




June 26, 2014

RISK CONSIDERATIONS Competition

The chronic pain management space is highly competitive with numerous companies offering a broad range of medicines, therapies and technologies to relieve the symptoms. CTI competes with other marketing voices to get both the patients’ and physicians’ awareness about the effectiveness of its Calmare® device. Many of its competitors have far greater resources and operating histories than CTI currently possesses.

Financing and dilution

CTI plans on raising an additional $3.8mn in capital over the balance of 2014. With a market capitalization of $7.2mn as of June 24, 2014, current shareholders face material dilution of their holdings in CTI. If the company raises this capital at unattractive terms, current shareholders of CTI stock may face further dilution of their holdings.

Dispute

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 Calmare as an exclusive agent of the Group. This dispute between CTI and the Group is over the validity of a 2012 Amendment to a Sales and Representation Agreement (the “Amendment”) which, if valid and enforceable, would have compromised its rights to sell, distribute and manufacture Calmare 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 sales in 2011. However, CTI 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. CTI is pursuing a reasonable and amicable resolution to the situation.

Share liquidity

CTI currently trades on the OTCQX. The stock has averaged approximately 22,212 shares traded a day over the past three months. At the recent price of $0.38, this comes out to roughly $8,500 in daily traded volume. Getting into or out of a position in CTI may be difficult depending on the market environment. CTI stock is also subject to penny stock trading rules, which may further lessen liquidity in the shares.




June 26, 2014

Management Team

Conrad Mir – President, Chief Executive Officer and Director

Mr. Mir has over 20 years of experience in the financial industry. Over that time, he was responsible for having restructured half a dozen companies. He is an investment banker by trade and has served as a C-level member of executive management for the past ten years. Conrad has been a board of directors member of such companies as Aran Laboratories, O6 Technologies and Genetic Immunity Incorporated. He has expertise in the immunotherapeutic, cancer, infectious disease and medical device space. Prior to joining Competitive Technologies, Conrad was the CFO of Pressure BioSciences, Incorporated (OTC: PBIO), an instrumentation company that services the healthcare, military and homeland security industry. In this capacity, his mandate called for structuring financial instruments that afforded the company operational and expansion funds, and reengineered current operations and broadened institutional contacts that resulted in sell-side research coverage. Mr. Mir co-engineered a company-led, $2.0 million convertible preferred financial instrument and orchestrated a $500,000 convertible debt, bridge financing. Prior to that, Conrad was the chairman and CEO of Genetic Immunity Incorporated – a privately-held biotechnology company focused on the discovery, development and commercialization of a new class of immunotherapeutic biologics for the treatment of chronic viral infections and cancer. At Genetic Immunity, Mr. Mir re-engineered the Company into a US-headquartered biotechnology company, incorporated in Delaware from a Hungarian-based R&D laboratory. He raised over US$3.0 million from a foreign institution and orchestrated the warrant exercise of the company’s largest paid-in capital institutional investor. As of the fourth quarter of 2012, the company was successfully sold to a publicly-traded Hungarian holding company. Prior to that, he was the executive director at Advaxis Incorporated (OTC:ADXS.ob) – a biotechnology company focused on developing immunotherapies for cancer and infectious diseases. Under his watch, he was responsible for structuring and raising $36.1 million via a company-managed, multi-tranche debt and equity financing. These monies were used to fund operations and two phase II clinical trials. The success of this raise helped increase Advaxis’ share price from an historical low of $0.01 to a historical high of $0.25. Contemporaneous with the company’s stock price appreciation, the average daily trading volume increased from 10,000 shares to a historical high of 9.3 million with resistance at the 1.4 million share level for over one year. As part of such a comprehensive reengineering effort, the shareholder register similarly increased from 400 shareholders with no institutions to over 5,200 shareholders and over 4 institutions and two equity analyst reports. Before his time as a senior professional, Mr. Mir had worked for several investment banks including Sanford C Bernstein, First Liberty Investment Group and Nomura Securities International. He holds a BA/BS in Economics and English with special concentrations in Mathematics and Physics from New York University. He is a classically trained pianist and teacher, and student of the martial arts. He is married with two children, chairman of the alumni council of Tau Kappa Epsilon fraternity and a member of NIRI.

Ian Rhodes - Chief Financial Officer

Prior to joining CTI, Mr. Rhodes served as vice president, chief accounting officer and treasurer with Arch Capital in White Plains, NY, where he spearheaded Arch's International Financial Reporting Standards (IFRS) implementation efforts and subsequently provided oversight of SEC and GAAP technical accounting matters. Earlier, Mr. Rhodes served as senior audit manager for PricewaterhouseCoopers LLP in NYC and Los Angeles. In that capacity, he was lead manager for one of the three New York Insurance Practice teams, assisting practice leaders to set practice direction, deploy resources and address other practice matters. He managed teams of more than 20 professionals across multiple locations. Mr. Rhodes has a Bachelor of Science degree in Business Administration from Seton Hall University.




June 26, 2014

FINANCIAL SUMMARY Figure 7. Income Statement

Figures in $mn unless specified FY11A FY12A FY13A FY14E FY15E FY16E

Revenue 3.3 1.1 0.7 0.9 2.8 5.5 YoY growth (72.6%) (28.5%) 37.3% 210.7% 95.9%

Cost of sales 1.5 0.4 0.3 0.3 1.0 2.0

Gross Profit 1.9 0.5 0.4 0.6 1.8 3.5 Margin 56.0% 59.8% 58.2% 62.0% 63.0% 64.0%

Operating expenses 5.5 3.6 3.0 2.6 3.0 3.4

EBIT (3.7) (2.9) (2.5) (2.1) (1.3) 0.0

Margin (109.9%) (331.5%) (404.4%) (232.9%) (45.3%) 0.9%

EBITDA (3.6) (2.9) (2.5) (2.1) (1.3) 0.1 Margin (109.3%) (329.9%) (402.7%) (232.1%) (45.2%) 0.9%

Other income/ (expense) 0.1 0.0 (0.0) (0.5) (0.4) (0.4)

Profit before tax (3.6) (3.0) (2.7) (2.6) (1.6) (0.3)

Tax 0.0 0.0 0.0 0.0 0.0 0.0

Net income (3.6) (3.0) (2.7) (2.6) (1.6) (0.3) Margin (108.0%) (329.2%) NM (289.0%) (59.1%) (6.1%)

EPS (per share) (0.25) (0.20) (0.16) (0.07) (0.05) (0.01)


Figure 8. Balance Sheet

Figures in $mn, unless specified FY11A FY12A FY13A FY14E FY15E FY16E

Current assets 5.1 4.7 4.5 7.4 6.0 5.9

Intangibles 0.0 0.0 0.0 0.0 0.0 0.0

Other assets 0.0 0.0 0.0 0.0 0.0 0.0

Total assets 5.1 4.8 4.6 7.4 6.0 5.9 Current liabilities 6.8 8.6 10.5 10.7 10.8 10.9

Other liabilities 0.0 0.2 0.0 0.0 0.0 0.0

Shareholders’ equity (1.6) (4.0) (5.9) (3.4) (4.9) (5.1)

Total liab and shareholder equity 5.1 4.8 4.6 7.4 6.0 5.9


Figure 9. Cash Flow Statement

Figures in $mn, unless specified FY11A FY12A FY13A FY14E FY15E FY16E

Cash from operating activities (1.2) (1.4) (1.6) (2.1) (1.5) (0.2)

Cash from investing activities 0.0 (0.0) 0.0 (0.0) 0.0 0.0

Cash from financing activities 0.6 1.4 1.5 5.0 0.0 0.0

Net inc/(dec) in cash (0.5) 0.0 (0.0) 2.9 (1.5) (0.2) Cash at beginning of the year 0.6 0.0 0.1 0.1 3.0 1.4

Cash at the end of the year 0.0 0.1 0.1 3.0 1.4 1.2





June 26, 2014

About Competitive Technologies Inc.

Competitive Technologies Inc., the pain mitigation company, develops and commercializes innovative wound and pain management products and technologies. CTI holds the 510(k) clearance on its flagship product, the non-invasive Calmare® Pain Therapy Device, which grants it an exclusive right to sell, market, research and develop the medical device. The Company is the exclusive licensed global distributor of Calmare.

For more information, visit www.competitivetech.net




June 26, 2014

CONTACT:

Ajay Tandon Director of Research SeeThruEquity, LLC www.seethruequity.com (646) 495-0939 [email protected] Brandon Primack, CFA Senior Equity Research Analyst SeeThruEquity, LLC www.seethruequity.com (646) 495-0939 [email protected] DISCLOSURE: This report has been prepared and distributed by SeeThruEquity, LLC. This report is based on sources that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. All information contained herein is subject to change without notice. This report is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any information in this report is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. Statements included in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve a number of risks and uncertainties such as competitive factors, technological development, market demand and the company's ability to obtain new contracts and accurately estimate net revenues due to variability in size, scope and duration of projects, and internal issues.

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